A Strong Recent Trading Performance as SGS Prepares for the Future
“The acquisition of A&S significantly strengthens our global network in key strategic focus areas, including Environment, Food, Life Sciences and Oil Condition Monitoring. This important strategic move, combined with the strong operational progress so far in H2, confirms the next stage of our strategic evolution which will further align SGS to higher value-added services and to the key TIC megatrends,” said Frankie Ng, CEO of SGS.
Acquisition of A&S: SGS is pleased to announce the acquisition of SYNLAB Analytics & Services (A&S), a leading European environmental, food testing and tribology services company. Currently, A&S is a division of SYNLAB, the leading medical diagnostic services provider in Europe.
In 2019, A&S generated revenue of EUR 202 million and adjusted EBITDA of EUR 34 million and had approximately 2,000 employees. Organic revenue growth was 5.8% in 2019 and, despite the impact from COVID-19, was 0.3% in H1 2020.
A&S generated approximately 60% of 2019 revenue in Environmental testing, 20% in Food testing, 10% in Life Sciences testing and 10% in Oil Condition Monitoring. Regionally, the acquisition enhances SGS’s market position in North-Western Europe, by strengthening our presence especially in Germany and Benelux, while enabling us to enter new attractive markets in the Nordics. Acquiring A&S is strongly aligned with our strategic objective of accelerating M&A in attractive, high growth sectors with scope for automation and digitization.
The purchase consideration is expected to be approximately EUR 550 million and will be fully funded from existing financial resources. The transaction is subject to customary regulatory approvals and is expected to close by early Q1 at the latest. The combination of A&S with SGS’s European laboratory network will accelerate the adoption of a hub-and-spoke model, creating a more comprehensive range of services and generating strong operating synergies. Consistent with our stringent EVA criteria for assessing acquisitions set out at our Investor Days last year, the transaction is expected to be EVA positive in year four of ownership as the result of the full integration of the business and capitalizing on the underlying growth opportunity in this market.
Trading: The hard work, commitment and entrepreneurism of our employees in supporting our customers has resulted in strong operational progress so far in H2, reinforcing our leadership position in the TIC industry.
The July-October organic decline was -3.8%, supported by the anticipated volume catch-up following the H1 lockdown measures, and momentum gradually improved to a decline of less than 2% for the months of September and October combined. Our largest affiliate, China, has continued to deliver improving positive organic growth in H2, driven by strong momentum in the domestic business, PPE testing and connectivity services such as 5G and IoT testing. Apart from Oil, Gas & Chemicals (OGC), all businesses showed an improvement in trend. Consumer & Retail (CRS) growth has been very strong and Agriculture Food & Life (AFL) has returned to growth, while Governments & Institutions (GIS), Industrial (IND) and Certification & Business Enhancement (CBE), driven by a strong pick up in Certification in H2, have all shown a strong improvement in H2 year to date.
Our long-term strategy of continuous improvement and optimizing our operations has resulted in an increase in Adjusted Operating Income (AOI)* for the period of July-October 2020 implying a strong increase in the AOI margin compared to prior year period. Our strong focus on working capital management has also supported free cash flow* in H2, also above prior year levels.
While operational progress in H2 is encouraging, a few regions are now entering a new phase of lockdown measures and, given the importance of the final two months of trading, our FY 2020 guidance remains withdrawn.
Strategic evolution: Our employees remain very focused on delivering a strong performance in 2020 and executing on our growth strategy. We have also been working on the next stage of our strategic evolution, which will be formally communicated to our global network over the next few weeks for implementation from January 2021.
The next phase of our strategic evolution will align our global network more closely to the key TIC megatrends and customer demand. Long-term growth opportunities for the TIC industry include Health, Nutrition, Environment, Connectivity, Consumer Products, Natural Resources and Sustainability. By simplifying the organizational structure, reducing the number of divisions from eight to five and regrouping some service lines under the new divisions, we will improve our market approach and increase cooperation and agility in our global network. This will be supported by our focused capital allocation strategy and EVA-driven performance management.
The management team looks forward to providing an update on progress at our FY results on January 28, 2021 and presenting the full strategy to the financial markets at our Investor Days in May 2021.
Conference call for analysts and investors at 10.30am CET today
A webcast and conference call will be held at 10:30 CET today, November 10, 2020.
Pre-register for the conference call >
Dial-in numbers (open 10-15 minutes before conference start time):
| Switzerland/Europe | +41 (0) 58 310 50 00 |
| United Kingdom | +44 (0) 207 107 0613 |
| United States | +1 (1) 631 570 56 13 |
| France | +33 (0) 1 7091 8706 |
| Hong Kong | +852 5808 1769 |
| Germany | +49 (0) 69 505 0 0082 |
For further information, please contact:
Investors
Toby Reeks: +41 79 641 83 02
Kamile Vitke: +41 22 739 95 50
Media
Daniel Rufenacht: +41 78 656 94 59
*Alternative Performance Measures (APM). Please refer to the ‘2020 Half Year APM’ document
About SGS
SGS is the world's leading inspection, verification, testing and certification company. SGS is recognized as the global benchmark for quality and integrity. With more than 89,000 employees, SGS operates a network of over 2,600 offices and laboratories around the world.