A Strong Performance in 2020 Confirms the Group’s Strategic Evolution
“I am proud of the dynamism and responsiveness demonstrated by our employees in a challenging period. Their hard work, commitment and entrepreneurialism in supporting our customers have resulted in a strong operational performance for SGS in 2020, reinforcing our leadership position in the TIC industry.
We have taken significant strategic steps forward in 2020, both through the acquisition of SYNLAB Analytics & Services (A&S) and by launching the next phase of our planning. The strong operational performance combined with this important move confirms our strategic evolution which further aligns SGS to the key TIC ‘megatrends’”, said Frankie Ng, Chief Executive Officer of SGS.
A Strong Financial Performance
Total Revenue reached CHF 5.6 billion, down by 15.1% (a decline of 8.8% at constant currency*), notably driven by the disposal of the Petroleum Service Corporation (PSC) in 2019. Organic Revenue* declined by 6.5% impacted by the pandemic. A gradual improvement throughout H2 2020 was experienced with a return to growth in December.
Operating Income decreased from CHF 1 082 million in prior year to CHF 795 million in 2020, mainly driven by the exceptional gain of CHF 268 million on the disposal of the PSC business in 2019 and the impact of the COVID-19 pandemic in 2020.
Adjusted Operating Income* decreased from CHF 1 063 million in prior year to CHF 900 million in 2020, a decline of 15.3% (a decline of 8% at constant currency*).
Adjusted Operating Income Margin* of 16.1% remained stable in 2020 at historical rate but increased by 20 basis points at constant currency*. This improvement was driven by the structural cost optimization program implemented in H2 2019, strong cash collection (resulting in a lower allowance for expected credit losses) and additional measures taken in 2020 due to the pandemic.
Profit Attributable to Equity Holders decreased from CHF 660 million in 2019 to CHF 480 million in 2020, a decrease of 27.3% over prior year.
Basic Earnings per Share decreased from CHF 87.45 in prior year to CHF 64.05, a decrease of 26.7%.
Free Cash Flow (FCF)* increased significantly by 12.6% from CHF 673 million in prior year to CHF 758 million in 2020 driven by strong working capital management.
The Board of Directors is pleased to propose a Dividend to remain stable at CHF 80 per share.
Significant Strategic Milestones Achieved In 2020
We have implemented the next stage of our strategic evolution with the purpose of enabling a better, safer and more interconnected world for employees, customers, shareholders and society. Our operational structure has been simplified into six new focus areas, composed of four divisions: Connectivity & Products, Health & Nutrition, Industries & Environment and Natural Resources and two cross-divisional strategic units: Knowledge and Digital & Innovation. This will improve our market approach and increase cooperation and agility in our global network.
The acquisition of SYNLAB Analytics & Services (A&S) further aligns SGS to the Health, Nutrition and Environment TIC megatrends and enhances our market position in Europe. It also adds a range of complex services and accelerates the adoption of our hub and spoke model, offering greater scope for automation and digitalization and generating strong operating synergies.
Throughout 2020, SGS has successfully developed our Next Normal solutions and leveraged our remote service delivery solutions to better serve our customers and society with higher value-added services. To provide improved supply chain visibility, we leveraged our market-leading technical capabilities and adapted our delivery models using our digital tools and sensor-based technology. Remote inspection, audit, consulting and other digital delivery solutions all gained customer traction and acceptance in 2020.
Additional innovation of our service portfolio included our global Life Sciences network delivering COVID-19 vaccine testing and new innovative therapeutics for several global clients. We continue to be TIC market leader in PPE testing and inspection. In addition, we have seen strong progress on contract signings across our TIC services on disinfection and business recovery.
We have defined our 2030 sustainability ambition which encompasses a holistic and global approach to sustainability both in terms of how we behave as a company and the value we provide to our customers through our services. We will launch our 2030 sustainability plan in Q2 2021.
Financial Discipline and Continued Investment in Strategic Priority Areas
We have continued to invest in high growth potential markets, reinforced our pricing initiatives, cost control and working capital management and successfully refinanced part of our debt in a challenging year.
- We successfully issued two bonds with a total value of CHF 500 million.
- We achieved over CHF 90 million of structural cost savings, coupled with strong cost management and EVA-driven performance management.
- Supported by our focused capital allocation strategy, we have continued to invest heavily in our strategic priority areas including wireless, 5G, semiconductors, food testing and investment into IT systems to continue to drive productivity increases.
* Alternative Performance Measures (APM) – refer to the 2020 Full Year APM document
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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.