Bureau Veritas: Improving performance in the third quarter of 2020 - 349.06 KB - PDF

PRESS RELEASE

N e uil ly - su r- Se ine, France - October 22, 2020

Improving performance in the third quarter of 2020

Q3 2020 Key Figures1

• Revenue of EUR 1,148 million in the third quarter of 2020, down 4.4% organically, and down 9.6% year on year (of which an external growth net of divestment of -0.3% and a currency impact of -4.9%)
• Organically, 3 out of 6 businesses grew at 1.9% on average: Certification +7.0%, Marine & Offshore +1.9% and Buildings & Infrastructure +0.6%
• The 3 other businesses were down: Agri-Food & Commodities -7.5%, Industry -8.2% and Consumer Products -11.0%

Q3 2020 Highlights

• Evidence of enhanced resilience through diversification. Nearly half of the Group's portfolio grew organically in the quarter
• Strong rebound in the Certification business, benefiting from both "Restart Your Business with BV" and Safeguard missions as well as catch-up of audits
• Continued outperformance in New Construction and In-Service activities in Marine & Offshore
• Return to growth of the Buildings & Infrastructure portfolio mainly driven by Opex
• Mixed environment for Agri-Food & Commodities (solid trends in Agri-food and Metals & Minerals were largely offset by weak Oil markets) and Industry (where the resilient Opex contracts were offset by the freeze in Oil & Gas Capex projects)
• Consumer Products' diversification further strengthened against a backdrop of weak sector trends
• Divestment of non-core business unit in the US (USD 12 million of annual revenue) that provided fugitive emissions detection and measurement services on industrial assets

2020 Outlook

• Amongst the different scenarios considered by Bureau Veritas, for the full year 2020, the "Slow & gradual recovery" scenario is the scenario retained to date considering the latest available information and assuming the absence of lockdown measures in the Group's main countries - see page 3

Didier Michaud-Daniel, Chief Executive Officer, commented:

"During the third quarter, the Group continued to face some very exceptional circumstances. In this historically challenging context, Bureau Veritas demonstrated remarkable resilience with an organic revenue decline limited to -4.4%. These results were driven by an excellent performance in Certification, Buildings & Infrastructure, Marine & Offshore and in Food businesses.

This reflects both the relevance of our strategy and the effectiveness of its implementation. The very good health of all the financial markers is the result of several years of transformation that have led Bureau Veritas to become a resilient company, perfectly positioned to take a new step forward in its development.

Our expertise in quality, health and safety, and sustainability is at the very heart of the challenges faced today by businesses and by society as a whole.

We offer today a green line of services and solutions to all clients and stakeholders. We partner with them in their efforts to improve their performance in both the transparency and trustworthiness of all their actions and across all areas notably sustainability.

I believe that our role as an independent third party is already essential to build trust between economic players. This has now become a vital link in the chain of actions towards making our economy more transparent and more responsible for our planet and its inhabitants."

1 Alternative performance indicators are presented, defined and reconciled with IFRS in appendix 3 of this press release.

Q3 2020 KEY REVENUE FIGURES

				GROWTH
IN EUR MILLIONS	Q3 2020	Q3 2019	TOTAL	ORGANIC	SCOPE	CURRENCY
Marine & Offshore	89.3	91.4	(2.3)%	+1.9%	-	(4.2)%
Agri-Food & Commodities	252.5	293.3	(13.9)%	(7.5)%	-	(6.4)%
Industry	235.1	281.4	(16.5)%	(8.2)%	(0.5)%	(7.8)%
Buildings & Infrastructure	327.6	337.5	(2.9)%	+0.6%	(0.8)%	(2.7)%
Certification	88.5	85.5	+3.5%	+7.0%	+0.3%	(3.8)%
Consumer Products	155.3	181.6	(14.5)%	(11.0)%	+0.1%	(3.6)%
Total Group revenue	1,148.3	1,270.7	(9.6)%	(4.4)%	(0.3)%	(4.9)%

Revenue in the third quarter of 2020 amounted to EUR 1,148.3 million, a 9.6% decrease compared with Q3 2019. Organic decline was 4.4%, compared to a 15.6% decrease in the second quarter.

By geography, activities in Europe strongly outperformed the rest of the Group (37% of revenue; up 1.3% organically), with notably robust performances in France (up 4.6%) and in South Europe (up 5.3%). Asia Pacific (32% of revenue; down 4.8% organically) was primarily affected by weak activity levels in Greater China for consumer products, strong decline in South Korea (due to a major contract completion in Industry) and India (impact from lockdown measures), while solid trends were achieved in Australia led by the agri-food and commodities markets.

Activity in the Americas (23% of revenue) decreased by 10.2% organically, mostly dragged down by North America (the US and Canada); while Latin America (Brazil, Argentina and Colombia) showed a good level of resistance (down 1.0% organically), where it continued to benefit from the successful diversification strategy towards Opex, in Power & Utilities notably, and solid Agricultural activities. Finally, in Africa and the Middle East (8% of revenue), the business declined by 6.3%, driven down by the energy sector.

External growth was a negative 0.3%, reflecting the impact from the disposal of the Emissions Monitoring business unit in the US.

Currency fluctuations had a negative impact of 4.9%, mainly due to the depreciation of some emerging countries' currencies against the euro.

M&A TRANSACTIONS

There have been no acquisitions in 2020 year-to-date. Bureau Veritas placed its M&A activity on hold early in the year to protect its cash position and reassess potential targets in light of the pandemic. This forms one of the measures deployed to maintain a tight rein on costs and cash.

Disposal of the Emissions Monitoring business in the US

On September 2, 2020, Bureau Veritas divested a non-core business unit from the Industry activity based in the US. The Emissions Monitoring business providing fugitive emissions detection and measurement services on industrial assets, was sold to Alliance Source Testing, LLC (AST), one of the largest air emissions testing companies in the US. The business had 130 employees and generated USD 12 million in revenue in 2019 however margins weighed on the overall divisional performance. It has been deconsolidated from Q3 2020 onwards.

This transaction is another step in focusing on core quality assurance for Oil & Gas capital projects and asset integrity businesses in North America and to invest in the expansion of its Energy business including renewables.

FINANCIAL POSITION

At the end of September 2020, the Group's adjusted net financial debt slightly decreased compared with the level at June 30, 2020. The Group has a solid financial structure with no maturities to refinance until 2023. At September 30, 2020, Bureau Veritas had EUR 1.9 billion in available cash and cash equivalents and EUR 500 million in undrawn committed credit lines.

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2020 OUTLOOK

Amongst the different scenarios considered by Bureau Veritas2, for the full year 2020, the "Slow & gradual recovery" scenario is the scenario retained to date considering the latest available information and assuming the absence of lockdown measures in the Group's main countries.

"Slow & gradual recovery" scenario - retained to date

	Organic revenue	Adjusted operating margin		Net cash generated from
		operating activities
•	Mid to high single-digit	• Low double-digit margin	•	Focus on cash generation
	decline in 2020		•	Capex of c. 2% of revenue
•	Improvement from H1		•	Working Capital
	onwards			Requirement (WCR) /
				revenue ratio of c. 9%

"Muted recovery" scenario - ruled out to date

	Organic revenue	Adjusted operating margin		Net cash generated from
		operating activities
•	High single-digit decline in	• Low double-digit margin	•	Focus on cash generation
	2020		•	Capex of c. 2% of revenue
•	H2 in negative territory		•	WCR / revenue ratio
				of c. 9%

"Worsening pandemic throughout H2" scenario - ruled out to date

	Organic revenue	Adjusted operating margin		Net cash generated from
		operating activities
•	Double-digit decline in 2020	• Low double-digit margin	•	Focus on cash generation
•	H2 worse than H1		•	Capex below 2% of revenue
			•	WCR / revenue ratio
				above 9%

2 As presented at the H1 2020 results publication on July 28, 2020.

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Q3 2020 BUSINESS REVIEW

MARINE & OFFSHORE

IN EUR MILLIONS	2020	2019	CHANGE	ORGANIC	SCOPE CURRENCY
Q3 revenue	89.3	91.4	(2.3)%	+1.9%	-	(4.2)%
9M revenue	274.3	272.3	+0.7%	+2.9%	-	(2.2)%

The Marine & Offshore business demonstrated a solid 1.9% organic revenue growth in the third quarter from +3.4% in the first half of 2020. The Group continued to deliver essential services. driving the organic performance as follows:

• Mid-single-digitgrowth in New Construction (42% of divisional revenue), notably driven by South Korea, against challenging comparables;
• Low single-digit growth in the Core In-service activity (43% of divisional revenue), a reflection of the fleet's modest growth and still relatively low level of laid-up ships. After a weak second quarter, the Group benefited from favorable timing of inspections during Q3. At September 30, 2020, the fleet classified by Bureau Veritas comprised of 11,443 ships, representing 129.8 million of Gross Register Tonnage (GRT), up 0.6% year on year (based on the number of ships);
• High single-digit decline for Services (15% of divisional revenue, including Offshore) dragged down by the Offshore business (7% of divisional revenue) which continued to be penalized by the impact of low oil prices, essentially for marine warranty survey services, and the impact of travel restrictions. This was partly offset by the expansion of the portfolio of resilient services (i.e. cybersecurity, water ballast management, inventory of hazardous materials).

New orders totaled 4.1 million gross tons at the end of September 2020, from 4.9 million gross tons in the prior year period, This brings the order book to 14.4 million gross tons at the end of the quarter, up 1.5% compared to December 31, 2019 (14.2 million gross tons), and remains very well diversified with LNG vessels and specialized ships (such as dredging, naval, fishing and expedition cruise) representing a significant share of the orders.

This reflects the Group's continued significant outperformance against a market down high double-digityear-to-date. Bureau Veritas continues to benefit from its strong positioning on the most dynamic market segments, namely LNG-propelled and LNG bunkering vessels segment.

The Group continues to pursue its strategy to develop innovative services for alternative fuels, including fuel cells and hydrogen, as well as digital solutions. As an example of innovative smartship solutions, Bureau Veritas has been closely collaborating with the French Flag Register to enhance and enable the SeaOwl Group to roll out its innovative remote-operated vessel project (Remotely Operated Services at Sea). In concrete terms, it allowed a Paris-based captain to take full remote-control command of a vessel navigating in the Mediterranean off the port of Toulon.

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