Geneva, 26 March 2001
The Board of Directors of SGS Société Générale de Surveillance Holding SA has approved the audited consolidated results of the SGS Group for the year ended 31 December 2000.
Group revenues for the year to 31 December 2000 were CHF 2,368.9 mio, a growth of +3.8% compared to revenues of CHF 2,282.3 mio for the prior year (excluding divestments). The revenues for these continuing businesses include a favourable currency translation impact of +4.2%. The organic growth was +0.5%. The Core Business sectors of SGS Redwood Services, SGS Consumer Products Services and SGS International Certification Services all reported a strong organic revenue growth. The expiry of the contract with the government of the Philippines and Ivory Coast contracts resulted in a –12.2% decline in the organic revenues in SGS Global Trade Solutions. Excluding SGS Global Trade Solutions, Core Businesses revenue grew organically by +5.2%.
Operating profit before exceptional income/(expense) (EBIT) for continuing businesses remained flat for the year at CHF 153.6 mio. Acquisitions generated a positive impact of +0.7% on operating profit and currency translation produced a favourable effect of +4.3%. The Core Businesses reported an organic operating profit growth of +12.9% or CHF 20.6 mio. Improvement in the operating profits in most of the Core Business sectors offsets the current year operating profit decline in both SGS Agriculture Services and SGS Consumer Products Service.
Operating profit of CHF 153.6 mio includes CHF 21.7 mio development spend on SGSonSITE.
Operating profit in SGS Industrial Services grew organically by +14.1% mainly due to new contracts in Mexico and Taiwan. Other Services organic operating profit fell by –24.5% as the revenues in the NDT and Logistics businesses declined due to reduced activity in some of the key markets.
Group EBIT margin for continuing businesses declined slightly from 6.8% in 1999 to 6.5% in 2000. This margin reduction is mainly due to the development costs of SGSonSITE which represented 0.9% of Group revenues. The EBIT margin for the Core Businesses increased to 11.6% for the year compared to 10.4% for the prior year.
Exceptional operating income/(expense) of CHF 8.7 mio includes the collection of CHF 16.8 mio of SGS Global Trade Solution receivables which were provided for in 1998. This exceptional gain has been partly offset by foreign exchange losses of CHF 6.6 mio due mainly to the weakening of the Euro against the CHF.
Group operating profit after exceptional income for the year was CHF 162.3 mio, a growth of 1.4% on the prior year operating profit of CHF 160.1 mio for the continuing businesses of the Group. Excluding the investment in SGSonSITE, Group operating profit increased by +14.9%.
Net financial income of CHF 24.6 mio for 2000 compared to a net financial expense of CHF 0.5 mio in the prior year reflects the return on the higher average net cash position within the Group in the current year. The divestment proceeds of CHF 494.0 mio were received only towards the end of 1999 and the prior year included the full write-off of the CHF 4.3 mio set-up costs for the CHF 500 mio three year syndicated loan facility.
Net profit before the gain on disposals increased by +13.3% from CHF 113.6 mio in 1999 to CHF 128.7 mio for the current year.
Group net cash decreased from CHF 616.1 mio at the end of December 1999 to CHF 488.2 mio at the end of December 2000. The cash outflow of CHF 127.9 mio reflects an increase in the working capital of SGS Global Trade Solutions (mainly the Philippines), the payment of the 1999 dividend, cash outlays under the ongoing restructuring programme, the refurbishment of the Geneva Headquarters, the investment in SGSonSITE and CHF 14.9 mio (including employer social costs) for the cash settlement (corresponding to the exercise price of 20'000 registered shares) of the outstanding vested share options in favour of the previous Chairman of the Board and President of the Group Executive Board granted in 1994.
Corporate costs
Corporate overhead costs increased by CHF 2.8 mio to CHF 56.8 mio in 2000. This includes CHF 3.3 mio of additional costs associated with the fulfillment of obligations under a share option agreement with the previous Chairman of the Board and President of the Group Executive Board, and increased investment in Information Systems. These additional costs have been partly offset by lower Group Management costs.
Human resources
The total number of employees has decreased by 59 to 30,555 at the year end compared to 30,614 for the prior year. 1,592 have left the Group as part of the restructuring programme and head count has increased by 1,498 to support organic business growth.
Status of restructuring programme
The restructuring programme announced in 1998 is nearing completion. 3,767 employees have left the Group, slightly exceeding the target of 3,000 to 3,500 announced in the fourth quarter of 1998. The total cost of the restructuring programme is not expected to exceed the provision of CHF 200.4 mio taken in 1998.
Significant shareholders
At the end of December 2000, Worms & Cie controls, either directly or together with other shareholders parties to certain voting agreements, 34.3% of the voting rights of the Company. Other members to these voting agreements are respectively members of the Founding Families, Deutsche Bank and Alp Design SA, Luxembourg. One of the members of the Founding Families, Mrs. Elisabeth Salina-Amorini holds 6.05% of the voting rights of the Company.
Other significant shareholders at the end of December 2000 include Mr. August von Finck who holds 13.5% of the voting rights of the Company, and together with his family 22.2% of the voting rights. The Company and the SWX Swiss Exchange is advised that none of the other members of the von Finck family own more than 5.0% of the voting rights and that they are not bound by any agreement with respect to voting rights or the transfer of shares. Rentenanstalt-Swiss Life holds 12.4% of the voting rights of the Company.
The Company does not have any further information regarding significant shareholders, particularly in relation to bearer shares.
Annual General Meeting
The Board of Directors will recommend to the Shareholder’s meeting on 10th May 2001 the approval of an increased dividend for 2000 of CHF 5.80 per registered share and CHF 29.00 per bearer share (CHF 4.80 and CHF 24.00 respectively).
Business activities
SGS Agricultural Services revenues of CHF 217.4 mio were comparable to the prior year. Revenues declined in Eastern Europe both due to transportation difficulties on the River Danube and a poor harvest, and in Europe as a result of the bans on the export of some meat products. This lost business was offset by increased activity in Latin America. Operating margins have decreased to 9.4% of revenue as a result of low global commodity prices in 2000. Profitability is expected to increase across the sector in 2001.
SGS Minerals Services revenues increased by +6.0% to CHF 212.4 mio with the majority of the increase arising from positive foreign exchange movements. Revenue growth suffered from labour problems in Canada, structural issues in Europe and closures in Africa. The refocus of the sector on its core products, the rationalisation of the Geochem activities and the strength of the bulk mineral/metal markets worldwide has improved the margins from 7.5% to 11.4%.
SGS Redwood Services achieved a revenue growth of +15.2% (+8.5% organic revenue growth). The increased crude oil prices and product movement created favourable market conditions and the sector secured several new prestigious contracts against stiff competition. Margins have increased from 9.6% to 10.1% through limited price increases, although price pressure remains on larger global contracts.
SGS Consumer Products Services delivered good revenue growth of +16.6% (+7.2% organic revenue growth). Margins have suffered, declining from 9.2% in the prior year to 7.6 % this year with this being most apparent in the US and France. Margins are expected to improve in 2001.
SGS International Certification Services reported strong revenue growth of +17.2% (+9.6% organic revenue growth) with this growth being particularly strong in Asia and parts of Europe. Margins are up from 10.6% to 13.0%.
SGS Global Trade Solutions reported a good profit recovery in 2000 with margins up from 11.5% to 16.7%. This reflects the positive effects of the restructuring programme and a slightly reduced level of provisioning in 2000. Revenues declined by -10.3% primarily due to the expiry of the Philippines and Ivory Coast contracts. Both the public and private sectors have shown much interest in the new range of services to complement the existing Pre-Shipment Inspection service. Revenues from government contracts are expected to decline further in 2001.Total gross receivables have increased from CHF 361.7 mio at the end of 1999 to CHF 415.2 mio at the end of 2000. The main component of this growth is an increase in the level of receivables related to the expired contract with the Republic of the Philippines entered into in 1994. After considering the current status of the collection discussions with various debtors and the related uncertainties, Management, the Board of Directors and the Group's Auditors, after conducting a thorough review, are of the opinion that the total net receivables are appropriately valued in accordance with International Accounting Standards.
SGS Industrial Services reported an organic revenue growth of CHF +23.6 mio or +6.6% mainly due to the increased activity in the vehicle inspection service in the USA and in the new vehicle testing facility in Ireland. Organic revenues in the Other Services have declined by CHF –22.7 mio due to the closure of unprofitable business activities.
SGSonSITE
Development expenditure on SGSonSITE in 2000 amounted to CHF 21.7 mio. Revenue flows from this initiative are expected to commence in the second half of 2001. The first release of SGSonSITE in August 2000 introduced the innovative Vendor Rating Programme for which over 2000 vendor ratings have already been ordered with SGSonSITE being integrated into eight leading B2B marketplaces. Relationships have been established with more than 600 marketplaces and associated service providers. A cautious approach is being taken due to the signs of financial distress in this new industry segment and in the expectation of industry consolidation during 2001.
The second release of SGSonSITE providing the e-enablement of the full range of traditional SGS services is being piloted in the first quarter of 2001 and will be progressively rolled out in 2001.
Outlook
The Group is expected to generate continued earnings growth in the year 2001. Ongoing restructuring benefits and investments in the development of new products in the Core Businesses will position the Group for continued improvement in its operating and financial performance.
With its strong financial position, the Group is now well positioned to explore opportunities to accelerate future growth.
The SGS Group is the clear global leader and innovator in verification, testing and certification services. Founded in 1878, the SGS Group is recognised as the global benchmark for the highest standards of expertise, quality and integrity. The SGS Group operates a network of 850 offices and subsidiaries and 330 laboratories in 140 countries.