SGS posted mixed H1 results with weaker than expected sales, while FCF was strong. Unsurprisingly, the company scrapped its full-year guidance due to the pandemic.
Companies: SGS SA
SGS’s FY19 results came in broadly in line with consensus at the top line, while it beats expectations on the net profit and FCF. The group’s cost measures seem to bear fruit, and improved profitability, combined with a higher return to shareholders with a 2.5% increase in dividend to CHF80. SGS is a must-have stock as it is a leading TIC company, with a good diversification in its business lines and a healthy balance sheet.
As part of its Capital Markets Day, SGS reaffirmed its 2020 EBITA margin to be above 17%, while for this year organic growth should be lower than expected, due to the challenging macro environment. Management also presented Asia as being a very interresting area for its long-term growth, driven by production shifts with new business in certification.
SGS’s H1 results came in marginally below expectations on organic revenue growth. Despite a +20bp IFRS16 positive effect, postponed payments in GIS impacted the margin development in H1. Thus, the second half should benefit from the collection of these payments. Management remains confident and continues to see robust divisional developments going forward. The downside in our view is related to the M&A strategy which is not aggressive enough to meet the 2020 commitments, especially on the 17% margin target.
At first glance, SGS delivered a solid performance in 2018, but we are not convinced. Since the start of the 2020 Plan, SGS has acquired CHF300m of revenue, which is far from the billion CHF target over 2016-20. Even though the group expects to accelerate its M&A activities, there still remains much to be done.
SGS delivered H1 results broadly in line with expectations, showing a better-than-expected organic growth (+5.6% vs +4.9% cons), but a touch light on margins (14.6% at cc vs 14.8% cons). The bottom line is mainly affected by exceptional items (c. CHF50m restructuring charge in IND and provisions for cumulative overstated revenues reported in prior periods in Brazil).
Revenue growth of +8.5% to CHF3.31bn (+5.6% org, +0.9% acq, +2.0% FX)
Increase in adjusted operating income of +9.2% resulting in 14.6% adjusted operating margin (+40bp gain yoy)
Profit for the period increased by 1.0%, up to CHF296m
Investment of CHF181m in capex and acquisitions
Free cash flow of CHF176m
Both short-term and mid-term guidance are reiterated:
2018 (qualitative) guidance: solid organic revenue growth, higher adjusted operating margin and robust cash flow.
2020 outlook: mid single-digit organic growth, acquired revenue over the 2016-20 period of CHF1bn and adjusted operating margin of at least 18%.
Revenue and earnings growth continued in 2017. Dividend per share increased by 7.1% from CHF70 to CHF75. The operating performance is expected to improve further in the current year. M&A activities will be accelerated.
The company reported half year results (no quarterly reporting available). In the first half year, revenues increased 5% to CHF3.05bn (estimate +3.1%). EBIT improved 4.1% (estimate 5.9%) to CHF394m and the EBIT margin declined marginally from 13.6% to 13.5%. EBITDA also increased by 4.4% to CHF570m and the EBITDA margin declined from 13.6% to 13.5%. Net income improved 7% to CHF276m. Management confirmed guidance for the current year.
SGS reported final 2016 results. Revenues increased 4.8% to CHF5.99bn and 6% on a constant currency basis. Acquisitions contributed around 3.5% to revenue growth and 2.5% was organic growth. The operating performance of the company, however, was not really exciting. EBITDA increased 0.7% to CHF1.15bn and real EBIT declined marginally by 0.7% to CHF816m. The EBITDA margin dropped from 20% to 19.2% and the EBIT margin from 14.4% to 13.6%. The adjusted operating margin also declined from 16.1% to 15.4%.
During the year, the company completed 19 smaller acquisitions and invested around CHF193m. Net debt increased from CHF482m to €736m. The board of directors proposed a dividend of CHF70 per share (increase of CHF2 from €68). Management also initiated a share buy-back programme worth CHF250m.
SGS is planning to grow the business by digitalising its activities. The company already has minority stakes or partnerships in tech companies such as Savi, Agflow and Sensima Inspection. The first priority will be information, systems and platforms followed by technology integration, analytics (predictive maintenance, asset tracking) and cybersecurity. In addition, the strong regional focus should increase the footprint in the largest market China. In 2016, the company had over 120 locations with more than 125 laboratories and 14,000 employees. The total TIC market is estimated to be around CHF25bn. Growth is mainly driven by e-commerce (contract with Alibaba), food and environmental testing.
The company reported first half year results (no quarterly results available). Revenues increased 5.4% and 7% at constant currency of which 3.6% organic and 3.4% acquisition driven. Management acquired ten companies for a total of CHF99m. These companies contributed CHF99m to revenues and CHF1m to the operating performance. EBIT jumped 18.3% to CHF394m and the EBIT margin increased from 12.1% to 13.6%. The operating performance excluding restructuring charges of CHF64m in 2015 remained unchanged. EBITD declined from CHF577m to CHF563m. The market expected EBITDA to reach CHF587m.
The company reported final 2015 numbers. Revenues declined by 2.9% to CHF5.7bn but increased by 3.6% based on constant currency. Organic growth was 2% and 1.6% driven by acquisitions. The company faced a difficult environment especially due to the strengthening of the Swiss Franc against major currencies and the fall in commodity prices.
Adjusted EBITDA reached CHF1.19bn and increased by 3.4% at constant currency. Real EBITDA however declined by 8.1% to CHF1.14bn. The EBITDA margin declined from 21.2% to 20%. EBIT dropped by 12.7% to CHF822 and the EBIT margin declined from 16% to 14.4%. Net income also dropped by 12.7%, and stood at CHF549m compared to CHF629m in 2014.
The dividend will remain unchanged from the prior year at CHF68 per share.
On its capital markets day in Chile/Peru, management announced some minor changes within the group. The regional structure will be optimised from 10 to 8 to improve efficiency. The business in Northern and Central Europe will be merged with Southern Central Europe. Central America will beintegrated into South America. In addition, management will merge three Asian regions down to two by the end of 2016.
Management is also planning to increase the footprint in North America and China. In North America, acquisitions will be the key element to drive the expansion of the business. In China, management will shift from exports to the local market. Strong growth is expected in Industrial, Food and Transportation. In addition, the company launched a focused programme to reduce costs. One operational business model, three shared service centres across the world and a team of 1,500 employees should help to reduce the cost base by at least CHF20m per year. Another efficiency programme (procurement savings) was launched and is expected to save CHF180m between 2015 and 2017.
Furthermore, the net working capital, which will remain the key driver of the operating cash flow, will be structurally improved.
In January 2014, the company changed its dividend policy. The dividend of CHF65 per share is the floor for 2013 up to 2016. For the current year, we expect a dividend of at least CHF68 per share. Around CHF500m of the share buy-back programme of CHF750m will be used for share cancellations.
The company reported half year results. Revenues declined 1.9% to CHF2.75bn mainly due to the strength of the Swiss franc. At constant currency revenues increased 3.4%, of which 1.8% was derived from organic growth and 1.6% from acquisitions. The lower than expected growth was mainly impacted by reduced and delayed capex from the oil and mining industries.
The Environmental Services, consumer testing services and automotive services were the main contributors to revenue growth. EBIT declined 16.1% to CHF333m and the EBIT margin reached 12.1% compared to 14.2% in H1 14. Adjusted EBIT including restructuring charges and other less pleasant cost items declined 1.9% to CHF412m. The adjusted EBIT margin remained stable at 15%. Net income also dropped 16.1% to CHF214m.
The company issued two bonds with a total volume of CHF550m. The CHF325m bond with a coupon of 0.25% will mature in 2023 and the second bond with a total volume of CHF225m with a coupon of 0.875% will mature in 2030.
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Companies: Ergomed PLC
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- 28.3% adjusted EBITDA margin (same as 2019: 28.3%), which implies £17.4m adjusted EBITDA (i.e. 2% lower than 2019 adj EBITDA of £17.8m);
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- Net debt reduced to £19.5m (31 December 2019: £27.0m) and net debt to adjusted EBITDA ratio of 1.1x (2019: 1.5x).
Companies: SimplyBiz Group plc
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Companies: Anexo Group Plc
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