Overview
Revenue for the group grew to CHF 3.3 billion, up 14.7% (13.2% constant currency basis). This growth was achieved in generally good trading conditions with commodity flows and outsourcing trends driving demand. Organic growth for the year was 11.4%.
Consumer Testing Services, Minerals Services, Systems and Services Certification Services and Life Sciences Services continued their solid first semester performance by delivering comparable revenue growth above 15% versus prior year. The Group's businesses in Asia and Eastern Europe were significant contributors from a geographical perspective, as returns from prior period investments in network expansion were realised.
Operating income improved by CHF 109 million or 27.7% (25.8% constant currency basis) to CHF 502 million. Operating margins in all business (except Trade Assurance Services) expanded with significant upward shifts being achieved by Consumer Testing Services, Environmental Services, Life Science Services and Minerals Services.
Net financial income of CHF 5.4 million was level with last year as liquid investment yields remained low. The tax rate of 23.5% is at the low end of the range the Group expects for the medium term.
Profit attributable to Equity holders of SGS SA increased to CHF 371 million from CHF 278 million, an increase of 33.5% (31.6% constant currency basis).
Cash flow from operations was CHF 411 million. This inflow of cash was used to fund net investment in fixed assets of CHF 190 million, the payment of the dividend of CHF 90 million, and acquisitions of CHF 95 million. Group net cash decreased from CHF 439 million at the end of 2004 to CHF 430 million.
Acquisitions and Disposals
The Group continued its growth strategy by making a number of small to medium sized acquisitions this year. In the first six months, the acquisitions of Aquatic Health Chile SA, X-Per-X Inc, and Auto Marine Services Ltd. were finalised. These three companies, which operate in Consumer Testing, Industrial and Automotive Services, respectively all contributed positively to the Group's 2005 results.
In the second six months, the group acquired MinnovEX Technologies Inc, Casco Australia Pty Ltd, Auto Sécurité Group, and Paradigm Analytical Laboratories Inc. MinnovEx Technologies Inc. is the recognised world market leader in the application of unique metallurgical technologies to optimise plant and asset performance in the mining sector while the addition of Casco has created a complete laboratory and inspection network for the Group's coal sector clients in Australia. The acquisition of the Auto Sécurité Group in late July on top of the Securitest acquisition in 2004 clearly established SGS as the leader in statutory vehicle inspection business in France and a leading market player throughout Europe. Paradigm Analytical Laboratories Inc. has an excellent reputation for innovation in the competitive North American environmental testing market and will act as a base for environmental testing skills transfer across the Group.
Two disposals were also concluded during the year as the Group sold SGS Cortex NV, its small Life Science software business in Belgium, and its oenology business in Beaune, France. The combined turnover of these two disposals was less than CHF 11 million.
In the first week of January 2006, SGS became the European leader in early stage clinical pharmacology trials with the acquisition of Paris based aster.cephac. aster.cephac provides both early stage clinical development services and bioanalytical testing services to the global pharmaceutical and biotechnology industries. This acquisition is a key element in the growth of the Group's Life Science Services business and an important step towards its recently announced strategic growth plan.
Distribution to shareholders
In recognition of and on the basis of the sound results of the Group over the last 3 years, and in view of the three- year growth plans which have targeted CHF 5 billion in revenue and CHF 80 EPS by 2008, the Board of Directors has examined SGS' capital structure at December 31, 2005.
The Board feels comfortable that the cash generation capabilities of the Group can support the Group's growth strategy, aided if necessary by access to the debt markets.
As a result, the Board will recommend a return of capital through a CHF 19 reduction of the current nominal value of CHF 20 per share, and a dividend of CHF 31 per share. The dividend is outside the normal distribution range of 25-35% of consolidated net income, and is expected to be restored for the year 2006.
Management
The Operations Council was joined by Robert Markus, COO, Africa Region, Duilio Giacomelli, COO, South East Europe Region and Todd Vanderven, SVP, Strategy & Continuous Improvement.
Significant shareholders
At 31 December 2005, Sequana Capital held 23.8% of the capital and voting rights of the company; Mr. August von Finck and his family held 23.7%.
Outlook
Having successfully achieved its goals for 2005, SGS has embarked on a new strategic growth plan announced in the 4th quarter of last year. The company will leverage its portfolio for accelerated growth and focus on continuous improvement for competitive advantage, targeting CHF 5 billion revenue and CHF 80 earnings per share in 2008.
The 2006 Group outlook continues to be strong and in line with our three-year growth plan as commodity demand, trade flows, the regulatory environment and outsourcing trends should sustain favorably. Top line organic growth should parallel last year's and operating margins are expected to continue to improve.
2006 HALF YEAR RESULTS
Tuesday, 18 July 2006
ANNUAL GENERAL MEETING OF SHAREHOLDERS
Monday, 20 March 2006
CORPORATE COMMUNICATIONS & INVESTOR RELATIONS
Jean-Luc de Buman
SGS SA
1 place des Alpes
P.O. Box 2152
CH - 1211 Geneva 1
t +41 (0)22 739 93 31
f +41 (0)22 739 98 61
The full report including tables can be downloaded from the following link:
