SGS S.A.

Dominik, if you would like [indiscernible].

Sorry, Toby. Thank you very much ladies and gentlemen.

Good afternoon, and welcome again to the presentation of our full-year 2019 results. As usual, I will start with the highlight of our full-year performances, then I will hand it over to Dominik to give you a more detailed walk through of the financial results.

And then I will come back to give an outlook and guidance for 2020. Let me start on that slide.

Total revenue grew by 1.2% at constant currency, while the organic growth was 2.6%. Our adjusted operating income stands at CHF1063 million, and a 4.6% increase compared to 2018.

Profit for the group stands at CHF702 million, an increase of 1.7% compared to last year and free cash flow from operation amounts to CHF870 million compared to CHF786 million in 2018. Our ROIC has improved to 25.5% for the last 12 months and the Board of Directors is proposing a dividend of CHF80 per share, an increase of -- from CHF78 in 2018.

This slide shows little bit the KPIs that we have established in terms of growth stability for further the long-term value creation of our portfolio for our shareholders. We expect to be able to maintain or improve this performance going forward, but just to give you an indication on what we’ve done over last few years.

During 2019, we remain disciplined or focused on our capital allocation [indiscernible] in line with our long-term objective. But during the year, we made 11 acquisitions in six business lines in order to strengthen our portfolio.

The largest of those acquisitions is Maine Pointe, in the U.S., and together with the LeanSis, which was the first acquisition we made in 2016 enhance our capability and our strength in the operational consulting area and add additional value to our customers, not just to CBE customers, but across the board of our customer base. Two acquisition were made in EHS, Floriaan's increased our expertise in the fire consulting.

Our global laboratory network has been strengthened with addition of PT WLN in Indonesia and Forensic Analytical Laboratories in the U.S. And DMW Environmental Safety to support our growth in the health and safety sector, which is based in the U.K and I will talk about that.

And after the full-year closure, we also announced an additional acquisition in the area of consumer and retail services in the U.S is Thomas J. Stephenson -- Stephens, sorry, is a company which is specialized in clinical research in the safety and the efficacy of cosmetic and personal healthcare products.

So combined with HRL, that is an acquisition we made a couple of years ago. These would enhance our capabilities on the competence on the service offering in the U.S markets.

So it is quite good additions to our expansion to the U.S market. During the 2019 exercise, we made four disposals.

So we mentioned earlier to DCI Petroleum Services Corporation which is a larger one. We’ve also made the disposal towards end of last year with the Vehicle Inspection in the U.S as well.

And we also disposed of our PTO activities in Netherlands and the one that we have not highlighted too much, it was the small legacy Life Services activities that we have in the -- in Italy that we dispose off during the first half of the year, but there's also rather small unit and we have not flagged this one. If you take the four disposals together, we are more or less around the CHF250 million of revenue and this is inline from the numbers I’ve highlighted during the 2018 Investor Day in terms of disposal strategy.

But beside the acquisition and disposal, the SGS Group is continuing to invest in new sectors to position our self with the long-term evolutions. A couple of example just to highlight our southern laboratories strategy, we’ve mentioned that already in the half year, this is a strong development on the progress in term of expansion in Europe and in the U.S.

is according to our plan. Our second development in terms of new business is our semiconductor industry.

We have the new strategy in terms of semiconductor product industry especially in China. Some of you that has been with us during the Investor Day of 2018 last year in fact they’re so fond of the activities that we are performing there.

And we are trying to expand this kind of similar activities in the Chinese market which is quite fast growing segment. Those two [technical difficulty] in terms of development for the long-term strategy of the SGS Group.

On that, I’m going to hand over to Dominik to go through the financial reviews and I will come back with an outlook for each of the business line.

Thank you, Frankie. Good afternoon, ladies and gentlemen.

I will start with the overview of the financial highlights for 2019. Frankie already mentioned operating highlights in his introduction with revenues of CHK6.6 billion and adjusted operating income of CHK1063 million.

Revenues for the group in constant currency increased by 1.2%, driven by the organic growth and the maturity of our segments of 2.6%, partly offset by the net effect of acquisitions and disposals. Adjusted operating income increased by 4.6% in constant currency to CHK1063 million, leading to a margin increase of 50 basis points to 16.1% in 2019.

The strong increase in the operating income of 80% in constant currency is a result of the CHK259 million gains of the disposal of PSC net of transaction costs in the U.S., partly compensated by provisions of indirect taxes considered in the first half of 2019, a good impairment of CHK21 million considered in the first half of 2019. Restructuring costs of CHK89 million, while the vast majority is related to structural cost optimization growth on executed in the second half of 2019 and impairment of fixed and intangible assets of CHK24 million considered in the second half of 2019.

While the operating profit in 2018 and the year before have negatively impacted by CHK47 million in relation to the overstatement of revenues in Brazil. The effective tax rate increased from 24% in the prior year to 31% in 2019.

The increase in tax rate is due to valuation allowance on DTAs as disclosed in the first half of 2019. Subsequently, net profit after minority interest increased by 2.6% to CHF660 million in fiscal year 2019.

We posted a moderate organic growth of 2.6% while acquisitions added 1.1% and disposals had a negative impact of 2.5%, leading to constant currency growth rate of 1.2%. The negative currency impact of 2.8% was due to the strengthening of the Swiss franc against all major currencies with the exception of the U.S.

dollar. Moving on to the revenue growth by business.

Agri, Food and Life achieved solid organic growth of 3.8%. Growth in Trade and Logistics was good and Food, Solid and Life delivered moderate growth.

Our growth in Minerals decelerated as expected throughout the year, leading to a solid organic revenue growth rate of 3.7%. The growth was primarily driven by the trade in geochem business, while mentality and blend operations declined as a result of delayed projects in a softer market.

Organic growth in Oil and Gas and Chemicals was 2.9%. Rate was broadly stable despite a more competitive environment and pricing pressure in several jurisdictions.

Upstream achieved strong double-digit growth and strong growth was also achieved in Oil Conditioning Monitoring by the non-inspection related testing services was stable. Consumer and Retail continues to grow strongly, delivering an organic growth of 5.4%.

The strongest growth driver was the electrical and electronics business, growth in soft lines was solid, benefiting from new customer and strong performance of new sourcing countries, including Vietnam, Turkey, Indonesia and Cambodia, while China remained stable. Pipeline achieved strong growth, benefiting from increased volume of activities with e-retailers and other e-platform.

CBE delivered double-digit growth of 13.2%, driven by acquisitions. The organic growth of 1.5% in fiscal year 2019 reflects the fact that we return to good growth in the later part of the year after the transition period.

After a strong first half in Industrial, organic revenues in the second half of 2019 declined by 2% leading to moderate organic growth of 2.3% in our Industry business. The slowdown in the second half reflects of the reduction of exposure to value driving businesses, leading subsequently to a very strong margin and profit increase.

Good organic growth of 4.6% was achieved in Environment, Health and Safety, driven by strong growth in Feed and Monitoring services as well as Health and Safety services by growth in the Laboratory services was solid. Organic revenue in transportation declined by 3.7%, driven by weaker demand in food services, mainly related to the supply chain certification as suppliers completed their certification to the new standard.

Regulated service were impacted by reduced volumes on some programs, the completion of a contract and increased competition in Spain. Revenues in TIS declined organically by 4.8%, reflecting unexpected change in government policies on import duties in Ghana as well as lengthy implementation and enforcement of recently signed government contracts, particularly in the eWaste monitoring solution, Renovo.

From a regional point of view, organic growth in Europe, Africa, and Middle East was a modest with 1.6%. Eastern Europe and Middle East delivered strong high single-digit growth.

Growth in North Central Europe was solid, but growth in Africa was held back by the weakness in our TIS and transportation business. Americas posted organic revenue growth of 2.3% driven by strong growth in South/Central America and here, in particular, in Peru, Colombia and Brazil, while growth in North America was broadly stable.

A good organic growth in Asia Pacific of 4.4% continued to be driven by strong growth in China, Korea and Vietnam, while growth in Australia were solid and it was moderate in Taiwan and Japan. Hong Kong and Thailand declined slightly.

The development of the headcount is well controlled and contributed strongly to a higher productivity level. At the end of December 2019 versus December 2018, FTEs decreased 4.8%, driven by organic additions of 1.4% and the impact from acquisitions of 0.5%, more than offset by the reduction related to the cost optimization program of 2.3%.

The disposals had an impact of minus 4.4%. From a regional point of view, all regions improved their productivity, the highest productivity increase was achieved in the Americas segment, which is a function of the structural cost optimization program achieved, but also the impact of the disposal of the PSC.

Adjusted operating income increased at constant currency by 4.6%, which reflects the organic increase of 4.8%, as the impact of acquisitions and disposals almost offset each other. Currency had an adverse impact of 3.4% leading to an increase of 1.2% in actual rate in the period under review.

Adjusted operating margin Agri, Food and Life declined by 20 basis points to 16% on a constant currency basis impacted while less favorable geographic mix for Agri, Food and continued investments to increase capacity and capabilities in the laboratory network. Margins in Minerals increased strongly by 19 basis points to 17% on a constant currency basis, driven for efficiency benefits and the disciplined pricing structure.

Oil, Gas and Chemicals improved margins also very strongly by 180 basis points in constant currency. The increase is a function of the implemented cost controlling measure, strong improvement in the Upstream business and a significant shift in business mix following the disposal of PTO business in the U.S.

and the Netherlands. Our most profitable segment, CIS showed a margin decline of 10 basis points to 25.7% on a constant currency basis.

Good margin increases in Electronics were offset by strategic investments in new technology and in cybersecurity. Despite a difficult post ISO transition market conditions, the adjusted operating income margins in CBE increased by 40 basis points to 20.4% on a constant currency basis, driven by efficiency gains and the diversification into technical consultancy.

The significant margin increase of 300 basis points to 12% in constant currency in the Industrial business is a result of active portfolio management and structural cost optimization across regions and various management layout. Adjusted operating income margin, EHS, increased by 150 basis points to 12.4% on a constant currency basis, driven by the operation leverage as well as the benefits residing on the structuring of our U.S operations.

The margin decline in Transportation business is due to the loss of higher margin contract in the regulated and the certification segment. The significant margin decline in the TIS business is primarily related to substantial collection delays mainly in Haiti and Ghana.

Moving on to the balance sheet. The balance sheet for December 2019 compared to the balance sheet at the end of '18 considers the change in relation to IFRS 16 lease accounting standard and IFRIC 23, which addresses the interpretation of uncertainty over income taxes.

Both accounting standards are effective as of January 1, 2019. The increase in PP&E of CHF568 million is explained by the recognition of the right-of-use assets, which amounted to CHF611 million as of December 31, given the introduction of IFRS 16.

Out of the lease liabilities of [technical difficulty] at the end of December 2019, [technical difficulty] are considered as current while the remaining amount is considered as long-term lease liability. As expected, [technical difficulty] was recognized in fixed liabilities and [technical difficulty].

The increase in goodwill is primarily due to the consolidation of the balance sheet of Maine Pointe and billed revenues, work in progress as well as trade receivables were reduced compared to the prior year supporting the strong development of net working capital. The net debt position for fiscal year 2019 stands at CHF1.4 billion considering IFRS 16 was CHF764 million, excluding IFRS 16 compared to CHF772 million in the prior year.

Operating cash flow increased from CHF1024 million last year to CHF1149 million this year. However, given the introduction of IFRS 16, the payment of lease liabilities and its interest of CHF195 million is now shown in the financing activities.

The outflow for working capital was CHF3 million, while we had in the prior year an inflow of CHF95 million. Taxes paid increase from CHF265 million in the prior year to CHF306 million.

Net investment in fixed assets, we’ve CHF279 million on a similar level as last year. Cash considerations for acquisitions increased to CHF169 million while we had at the same time a strong inflow from disposals of CHF323 million.

We paid dividends of CHF589 million in the first half 2019 and paid back the Swiss franc bond, which was due in the first half '19, for a consideration of CHF375 million. The management of net working capital continues to be a very strong feature of SGS.

After strongly improving the operational net working capital in the prior year to 0.6% of revenues, we continue to further improve the net working capital as a percentage of revenues to 0.3%, which is primarily related by strong management of unbilled revenues, work in progress, as well as the trade received position. CapEx for 2019, roughly 4.4% on a similar level like last year.

For 2020, we expect an acceleration towards the higher 4% area supporting our growth initiative. While our margin expansion in the first half of 2019 was 20 basis points, head back by bad debt provisions we achieved in the second half 2019, a strong margin uplift of 90 basis points despite a deceleration of organic revenue growth.

Improvement in the second half of 2019 is primarily related to the structural cost optimization program and the disposal of the PSC business. By the positive impact of IFRS 16 was offset by bad debt provision for which we expect collection to improve in the year 2020.

We're pleased to confirm that the cost optimization program aiming at simplifying the business by eliminating duplications and reducing layoffs within our organization, but fully executed at the end. The incurred cost for the program stand at CHF73 million, pretty in line with the estimate provided of CHF75 million.

We expect annualized recurring savings of about CHF90 million, out of which CHF15 million are already achieved in the second half of 2019. The full benefit of the program will be realized in the cost of the first quarter.

The implemented EVA recovery plans started to contribute positively to our recent performance, benefiting from considered closure, but also underlying improvement leaving the businesses in scope. In respect of active portfolio management, we recently strengthen our portfolio with [indiscernible] acquisition of Stephens in the U.S in the -- especially in the Cosmetics segment.

The disposal of the pre-owned vehicle inspection operations in the U.S will strengthen our return profile especially in the U.S and finally we expect a solid cash inflow from the disposal of the non-core activity related to pet control in the first quarter 2020. In summary, our financial performance for 2019 looks as follows: we achieved an organic growth of 2.6%.

Our adjusted operating income increased by 4.6% in constant currency, resulting in a margin increase of 50 basis points to 16.1%; the profit for the period increased by 1.7% to CHF702 million and the Board is proposing a dividend of CHF80 per share. Before I hand back to Frankie, I would like to take the opportunity to thank all our colleagues around the world for their commitment, the dedication and their hard work to achieve the set of results which we present today.

Thank you.

Thank you, Dominik. Let me walk through -- you through from a business line in terms of outlook for 2020.

So let me start with Agriculture, Food and Life. It's always difficult to predict crop and trading condition for the agricultural sectors for the moment.

But what we have seen, we are looking at a similar market condition as in 2019. Testing and auditing activities for food are expected to remain good moving to 2020.

Licenses should recover from some short-term contract delayed and accelerate back to normal growth level in 2020. So on the overall, for AFL, I'm looking at the maturation of growth in 2020.

Minerals. The Minerals sector was under pressure moving to second half of 2019 and I’m expecting the situation to be similar moving into 2020.

Exploration is expected to be relatively subdued in 2020, but our geochem on-site laboratories strategy should provide good stability and predictable volume and the same is expected from our trade service portfolio. So overall, for Minerals, I am looking at a slightly lower growth in 2020 than 2019, considering the overall market situation.

For Oil, Gas and Chemicals, OGC overall market condition remained flat. However, the trade activities remain stable in H2.

Condition should be similar looking into 2020. Upstream activity should provide some good upside momentum with new contract expected in Africa and Middle East.

Overall for OGC, I'm expecting an underlying growth level similar to 2019, but excluding PSC. So a good core indicator is second half of 2019 for you to consider.

Consumer and Retail. Well, again, assuming that the tension between the U.S and China stays at the current level, I'm expecting the performance of CLS in 2020 to be similar to 2019.

The potential mix may change slightly with faster growth in cosmetic and personal care and 5G testing and mixed growth in the more traditional softline and hardline sectors. CBE, Certification and Business Enhancement.

For CBE, the effect of the ISO 2015 transition should be fully behind us moving into 2020. The pipeline for operational consulting activity is very strong.

So overall I'm expecting a strong growth for CBE in 2020. Industrial.

As Dominik just mentioned now, the focus of Industrial in 2019 was to rebuild its portfolio and focus on improving profitability. Looking at the strong margin performances in H2, I think we have achieved this goal.

So the level of margin is sustainable and will increase further. Considering our strategic decision to discontinue several maintenance contracts in South America, the closure of pipeline on non-destructive activities in the U.S and also the traditional discontinuation of several low profit contracts in Europe during the second half of 2019, I'm expecting the growth of Industrial to be negatively impacted until Q3 2020.

Environmental Health and Safety. EHS has an overall strong year in 2019 and market condition are not expected to change significantly in 2020.

Together with the additional competence acquired through the full acquisition of 2019, I’m expecting a strong 2020 for EHS, similar to the level that we’ve seen in 2019. GIS, Governments and Institutions Services.

As Dominik mentioned as well in these sections, we’ve faced some long delay in implementation of several projects, especially related to renewable, the eWaste programs in Africa. The result of H2 was certainly disappointing.

Moving to 2020, we have better visibility on start-up of several smaller new contracts, but remain cautious with the implementation of some of the larger ones that did not happen in 2019. But I'm rather cautious for the first half of the year, improving the second half, but overall I'm looking at a soft full-year growth for GIS.

For provisions. The regulator of fuel services is still under pressure -- sorry, on the transition period and ending of contract in the U.S on more competitive landscape in Europe with changes on market conditions.

This should be a drive for the growth in 2020, which should be improved throughout the year. The testing activity should see some good growth with additional testing capacity in Germany and India coming on stream.

Overall, I'm looking at the growth -- to flat growth and improvement compared to last year. Just some additional remarks about Transportation.

As part of our strategic business review, I have decided to break down our Transportation business unit into four strategic segments and integrate them with all the business lines. The larger vehicle at the business will grow on the GIS, while the testing on field activities will be integrated with Industrial.

Consumer will absorb some of the testing activities related to chemistry and onboard electronics. While CBE will absorb the strategical activities.

The purpose of these changes will optimize our market approach. For instance, for our regulatory services, our customers being the government, it is natural that we focus one of our business unit GIS to deal with this ground-base and try to optimize our synergy across the different government department.

There's also a geographic cost synergy between those two businesses. For the remaining of the Transportation activities, such as aerospace, automotive testing and rail, this will be driven by our Industrial services.

As they evolve in our strategy, it is clear to me that the conversions between the broader material test in Industrial are [technical difficulty] for optimizing the operational [indiscernible] activities. For the labs at the operation level have been merged and we will develop the Transportation unit on the Industrial to do the sales process.

I will [technical difficulty] first half 2019. Before going to the outlook data for 2019, just in terms of margins.

So in terms of margin for all the business lines, considering the acquisition plan, the efficiency schemes that were put in place like the world-class services, our custom dashboard review and the optimization of [indiscernible], I’m expecting all the business lines to improve their margin in 2020, and I will remain very confident regarding our 17% adjusted operating margin for the end of 2020 exercise. So in terms of guidance, based on what I just mentioned for business line, I am looking at a solid organic growth, a higher adjusted operating income and a focused cash flow for 2020.

To conclude, I would like also to thank my colleagues at the Operations Council, the most of them are here, and the [indiscernible] SGS Group for achieving this set of solid result. Also I would like to thank all of them for their commitment to upheld our group feasibility culture.

SGS has been a pioneer in driving security practices in the TIC sector, and our increase in the food [indiscernible], our cabinet whole status, and our leading position in the Dow Jones Sustainability Index are a reflection of our dedication to make a difference in this area of sustainability. We believe that our strong financial results and our commitment -- our clear commitment to sustainability on -- position as a leader in the testing, inspection service industry and help to create long-term value for [indiscernible], customers, shareholders and society in general.

And to conclude my presentation, just to remind you on the outlook 2020 in term of plan, which is the last year of our 2016-2020 plan. So solid organic growth, mid-single-digit organic growth, in fact accelerate our M&A, AI margin at least 17% from cash flow conversions, returned strong robust return on invested capital, solid dividend distribution and least maintaining in line with improvement in adjusted net earnings.

Again, we are really focused in delivering those 2020 plan, but we are also looking at our next strategic growth in terms of evolutions and we're looking forward to present these plans with you later on this year. On that …

I think now we will move on to Q&A. We will start in the room and then we will go to the conference call.

And then if there are any questions on the webcast, I will just check that, there aren’t at the moment. We will [indiscernible].

Who would like to go first in the room.

Just firstly, can you give us a sense of the exit rate in terms of organic growth, if you can break down the second half between the quarters? And what does that imply for first half performance, organic perspective?

And then secondly, on margin it looks like M&A contributed about 40 bps of margin expansion in the second half of the year. Should we roll that into the first half?

And then with cost savings delivering 110 bps, are there any offsetting investments that we should be taking into account when trying to work out the margins this year?

Yes. So basically we're not commenting on exit rate, it's more for [indiscernible] companies, but in general as you know and during the second half of the year, the growth rates slows -- slowed a bit down, I mean this was the reason why we guided the growth a bit lower towards the Investor Day and then it picked up a little bit again.

Obviously, if you think about, let's say the 1.7% which we have in the second half of the year it's a clear deceleration from the 3.5% and a lot of these things, they’re also done on [indiscernible] in the industrial business. So we -- you definitely have to see this reaccelerating throughout next year because second half will be the easier comp in that respect.

Yes, so growth rate should accelerate, but much more towards the second half of the year. Also if you take Frankie's comment about industrial that we expect definitely [indiscernible] revenue decline and also for GIS coming from the [indiscernible] minus 4.8% back to growth will take some time.

It's definitely in that direction. If you look to the margin increase, if you look to the -- in the second half, we had 90 basis points improvement and if you take 90 basis points you can say the CHF50 million is around the 50 basis points.

Obviously, from a run rate point of view we are not the [indiscernible], but this will happen in Q1, so you have a uplift of CHF75 million, at least which is roughly 110 basis points and this should be pretty equally spread, because the program is implemented, so basically as of generally we should have all benefits and I would say from a margin increase it should be pretty strong in the first half. From the 90 basis points, yes, around these structural, 30 basis points is still, let's say, the benefit coming just on the mix of selling PSC.

So this mix is still happening in the first half from this point of view that it should be a strong margin uplift in the first half.

[Indiscernible].

The cost optimization has really come down to the bottom line. Obviously, we are doing here on the investments that is not something where we now have to say we have to accelerate a lot that we have other costs [technical difficulty] productivity every year and obviously part of the productivity will be also invested and we are also looking for more CapEx this year than last year, but they should not by any means, put at risk 17% plus margin target.

Thank you very much. Its Alex Mees from JP Morgan.

Firstly, in consumer, you called out 5G as being an area of positivity for you. I wonder if you can just give some color as to how that accelerates through 2020, indeed it does accelerate.

Secondly, on GIS, I wonder if you could comment on the materiality of the issues in Haiti and Ghana, and whether the business has to change its business practices at all to respond to issues like this in the future. And thirdly, apologies if I missed it, but I wonder if you provided a reconciliation of the segmental performance in 2019 with transportation pushed into the other sectors?

Thank you.

Let me just answer the first question about 5G. You know what this is -- '19 and '20 are the transition years for the different technology.

You hear a lot about 5G, on a market especially on the mobile phone sectors, and I think this is where the transition is happening. So the 4G technology will still remain technology.

So you can see an increase of -- I will not call them prototype, but I think we can't offer this period. It is more a mainstream product coming in the next 18 months is been tested that will be hitting the market in the next 18 months and we are starting to see emergence of that.

But I think the 5G increase will become for the use into the broader industrial environment versus the consumer [indiscernible] only. And this is going to come in the next, I will say, two years plus, but this is going to be implemented across the broader spectrum.

For the time being, I would say we are at the early stage. When you look at our investment, we invested to a certain extend in 2019 and we will be having an additional investment in the network for 5G capabilities in 2020.

On the GIS performance, if you look to the margin decline last year of -- a bit more than 10%. You can attribute roughly 70% of this margin decline [indiscernible] profit to a change in the debt provision, right?

Increasing the debt provision. The biggest part is for Haiti and Ghana.

A couple of other contacts as well, but if you could [indiscernible] Ghana and for Haiti we have put allowance on the complete [indiscernible] we put the receiver [indiscernible] both let's say, government discussions, good discussions, we are confident we receive money, but it will take a bit more -- slightly take a bit of time. On the contract, in general, if you look to a lot of our contracts they’re much more -- more and more supplier funded, there are not government funded.

If you look for example, the chemical contract, it's a very clear that we get our fee based on the flow and not rely that we get paid from the government, but Haiti especially it's a legacy contract where this change was so far, we are not able to achieve this change. But in general, the model, I would say, that’s already quite changed in that perspective, and also new contracts that they’re much more funded by, let's call it participant suppliers and by government.

But the two big ones that is reasonably different is it and chasing it. And regarding Transportation, you want to know roughly the split?

When the pro forma numbers will be available effectively for the M&A side. That will be in due course, I think you answered that question.

And if you want to know roughly revenue split, I can give it a bit.

Sure. That will help that models, but I look for the numbers.

Yes, we have. Let's say we -- we will have now to put this in the right structure and you get it well ahead of H1 number.

Thank you very much. Who would like to go next?

Why don’t we start -- why don't we start at the front, the moment comes easier actually. Reminder, two questions and Tom hold it close to your mouth, please.

Thank you. [Indiscernible].

So just you mentioned CapEx may increase and I don’t quite decide for all that you said about the leases and what was going into the PPE, but it does look like organically you were flat slightly down again in terms of the movement in PPE, which is like the third fourth quarter or so in a row part of that is the CapEx optimization, you are only really growing by inflation, it looks like maybe there's a bit of volume, but how can you give us in confidence that you can actually commit capital and grow as you’re committing that capital and not just on M&A, please. And then, on the Minerals business, could you maybe just go through the potential ups and downs in that outlook for minerals, because it does seem like the production outlook is a little bit less certain than it was and maybe your business mix is obviously changed a bit in that division and say how comfortable can we feel that you as you said, expect to see margins go up in each division, but the margin would go up or you get EBIT improvement in Minerals, please?

First to the CapEx. So if I look to it, and we definitely have a lot of focus on several key topics like 5G, like semiconductor business, but also areas of upstream where we have strong growth and where we definitely spent more CapEx and looking to the pipeline and looking what we discussed in the operational counties, it should definitely kick in into this year, maybe 2019 I think it was coming a bit earlier and sometimes this project takes some time until we get all the components.

But it's very clear that the CapEx will accelerate and this is primarily related to large extent investments in E&E within CIS and given the growth opportunities we are seeing. We have the good pipeline of onsite labs for minerals.

They sometimes depends, of course, whether we get the award from the clients, but we are very successful in this area. So there we see some pick up in our Upstream business and Oil, Gas and Chemicals has shown very strong performance throughout last year with double-digit growth and there's a good pipeline of customers, so we do think CapEx in percentage of revenue will pick up this year, higher 4% area.

4.5%.

So last year we had 4.4%. In October it's higher 4% to maybe 50 basis points.

Final question here.

Second question is from Tom. There's a lot of moving parts in the Mineral sectors.

So it's difficult for me to give you all above, a summary. We say, you look at this for example the copper explorations, investment has increased, while the gold investment has decreased because of the price fluctuations.

What is important for us is our strategy for the onsite laboratories is establishing factors with two of the new labs coming on board which has came on board at the end of 2019, which adds additional volumes for 2020 and we’ve two additionals is supposed to come on board, we signed, it's going to come on going to 2020. Why we’re going to able to see probably an impact on our more commercial geochem lab, which is getting volume from all over the place based on all those volume decreases we may have less volumes.

But the bulk of what we do is also linked to our onsite strategy. But these will give a good level of visibility on the, kind of pulling progression, more west of those projects more with after [indiscernible].

Likewise, for the trade activities from what we see so far in term of flow and in term of contracts, we are quite comfortable that we are going to be pretty okay in term of growth. So all in all, with the soft explorations into a more commercial lab, because it is a more stable portfolio in the onsite laboratories as well as the trading unit, we will see that we are probably little bit short of DCS growth but not that far.

Thank you. And should we go to Rory and -- while Rory is getting ready on question, I remind that people on the webcast, if they would like to ask a question, they need to submit it by typing it in.

thank you.

Yes, it's very close. Now you've done one round of EVA recovering meetings so far.

Just interested to hear what you've learnt about the 8% of your business that you said it was EVA negative. What have you stand out?

Will those be assisting more restructuring? Any change in future disposal plans or when will you update us on that?

And then secondly do you think we have the shift in supply chains in Asia will further accelerated growth in the frontier markets like Vietnam you mentioned and this year whether you are thinking about redeploying capacity away from China in your own business to support the growth in those markets.

I will start with the question regarding EVA. So we have to scale recovery plans like I outlined at the Investor Day and basically they are we consider several closures, they’re -- they would be, they’re too small or too hard to sell, so to say right so and we closed several of them to the kind of [indiscernible] units, which are on that EVA recovery plan, they do in the -- on the last 12-month basis, less revenue than they did some months ago, but a negative EVA improved a lot.

So we have [indiscernible] the negative EVA of this portfolio is actually since we started, its reduced by one-third, which was so far primarily a function of either cost savings. Obviously, it happens more or less also at the same time like the structural cost appreciation program.

So some of these things they're kind of driven by the cost optimization program and benefiting on the EVA side. And I also think if you look to unbilled revenue, and it's definitely more attitude to get the things built.

You see this in the balance sheet, it's improving and especially in the last couple of months I do think it has some impact also on working capital.

Looking at your second question in term of capital deployment, actually China has been a strong driver for us in 2019, and we expect that to carry on to 2020. Interestingly is that the domestic market is developing very fast, certain indications I mentioned about 55% of what we do in China is already linked to domestic market.

And this is why we would increase further -- some of the international supply chain migrate to other countries. So I don't expect to have to redeploy the capacity what we’ve in China.

We are going to reduce that to give that local domestic market and the China government has committed and we see the changes, they’re opening up additional categories for the product sectors to play, while [technical difficulty] entities. In terms of capital for the rest of Asia, we're just going to spend more in Vietnam, in Indonesia [technical difficulty] see a lot of opportunities, not necessarily all in consumer goods.

China [technical difficulty]. So we see a lot of opportunities.

Vietnam is being one of the large opportunities. The growth is high double-digit and we don't see that to going down.

Thanks very much. Ed [indiscernible].

Ed to come out.

It's Ed Standley from Morgan Stanley. On slide 15, I'm interested on your CHF50 million realized cost savings.

When you talk about 2,260 heads taken out of the business, how much of that CHF50 million is the heads versus how much is coming down from lab closures, for example.

Well the savings 85% is related to headcount for the whole program. You have -- you see in the [indiscernible] 2,200 people because obviously some people who stand who are at the company until the end -- at the end of last year they’re still employed.

So there will be addition in more than 500 leading, so the total headcount reduction will be in some roughly, 2,800 and 85% of the sales are partner cost related. The other 15% are other closure costs, lower rent, no depreciation.

Thank you, Ed. The second question is a follow-up from Rory McKenzie on the domestic [indiscernible] export China.

Can you give us any figures on how fast each of those are growing and APAC is quite a large proportion of the overall group growth last year. And to what extent you may or may not be planning for disruption in China, given what’s going on there?

We don't want to give exact growth numbers for domestic and international. The only thing I can say is that considering the tariff [ph] issues, the headwinds there were for the North American market, the domestic market has been growing faster than the international market and this is why you’re also seeing the fact that the percentage of domestic versus international is actuating.

But again, not necessarily all related to consumer goods. The domestic markets are also about raw materials, Health and Safety, Industrial, food products.

So this is also a diversification of our strategy in China, which is a good addition to the two focused consumer good activity that we have in the past. If you look at the current situation, I guess you talk about Coronavirus, we are monitoring the situation.

It's too early for me to give you an impact assessment. Obviously, the first week of all the moment is happening in China was in the middle of the Chinese New Year holidays, so double impact for that particular week was rather minimal because all the operation was anyways off on vacations.

Certainly, the latest announcement by the governments to extend under the current year -- to extend the holidays from an initial days to the 4th of February on some of those provinces, on the cities, extending that to 9th of February will have an impact on us in the February results. So we are still monitoring.

I guess we will have to wait for more news. If the situation stands as it is today, our setting back would be mainly on our February results because we’ve one less week of activities.

But as the situation develop, I'll come back to you if there is further impact and we are looking at this in a very serious way to make sure that we minimize the impact.

Thank you. And finally, Ed.

Thanks. Ed Steele of Citi.

Two questions, please. First of all, roughly what percentage of divisional revenue did the various contracts that have the bad debt in 2019 comprised of 2019 revenue, please.

Very small, because we’ve -- if you look to it, the bad debt provision in some cases like Haiti, it is 100% providers, right? So it's -- in terms of revenue they’re not that big, we talk.

So it's several years worth of revenue that you've guided for?

No, no. The outstanding, we’ve a clear agreement with them.

So you provide as you go. But let's say if the government is not paying, you provide the full revenue which is outstanding, right.

It's not a massive amount, right.

Okay. Thank you.

And I just want to understand a little bit more about your thinking, if I may putting the vehicle inspection contracts into GIS, is that right? Yes.

Could you talk to your thought process around that? Because that seems like a lot of challenges for one division.

I mean, [indiscernible] is not here, so maybe [indiscernible] some of those out, but just talk a little bit to help me.

I think [indiscernible]. Now Europe, we are more focused on the tendering process because all the process of the cells and tendering is with the government structure.

So this is where we are focusing on because once the delivery -- once the contract is accepted and delivery is done, the delivery is typically handled by the fleet themselves. So the involvement of the business structure is to a much lesser extent with it.

At this point on, once the contract or the concession has been assigned is where the operational activities that kicks in so the business managers do not focus on the total [technical difficulty] government level is important. I will give an example.

For example, a lot of what some of the activities that we do in the trade could be [technical difficulty] and we see sometimes twice at some ministry for different reasons. But the idea was really to combine all that into one single portfolio management with different industry [technical difficulty] and the execution will be handled by the countries, so it's not going to be major [indiscernible] not be going around, trying to understand how each one of those patient is going to work.

Thank you very much. We have one more in the room.

Karen [ph]?

Thank you. I'm wondering just technically on the other non-recurring items that totaled CHF165 million.

You enumerated the PSC gains. I'm wondering first of all the tax provision on the gain of CHF33 million, is that netted, or is that included in the tax expense?

The gain of the PSC disposal is shown in the tax expense.

Okay. So I'm just -- I'm trying to reconcile it coming from the CHF259 million gain, then you had the less the CHF24 million impairment of fixed and tangible assets versus the CHF10 million defined benefit.

Yes.

Then how do you then get down to CHF165 million because I think you did all your provisioning, excluding like for your bad debt stuff not in these non-recurring items.

I mean, it's the current situation. You have the CHF259 million to start with, then the CHF33 million provisions of taxes is not related to PSC.

These are tax provisions for indirect tax is considered in the first half of this year. So they’re not related to PSC.

The taxes on PSC is shown in the income fixed line. These are basically provisions which are indirect tax which are basically in the EBIT.

And then we have the impairment of CHF24 million for fixed and intangible assets. You have around CHF10 million for the Swiss pension obligation, and then there are other items which we not -- have line-by-line disclose here, that you come to the CHF165 million remaining income.

We can go to more detail, if you could like. Let's move out of the room and on to the webcast, please.

Okay. Well, why don’t we go to the question that was on the webcast as I said, very quickly, that is asking about GIS and Ghana and given the payment issues we’ve had that, does it affect any other cash flow in Ghana, specifically?

Very simply, it doesn't. Okay?

Nice and easy. Are we ready to go to the webcast -- conference call, sorry.

Go ahead.

Good afternoon, everyone. I have three questions, please.

Firstly, just looking at the profit contribution from acquisitions, specifically in the second half it looked a bit lower than I would have expected, given the first-time contribution of Maine Pointe. Was there anything of setting that, perhaps first-time integration cost please.

Secondly in AFL, I think from your comments suggest that both Food and Life decelerated in the second half. Wondering if there was anything in particular behind that?

And finally, Dominik, I think you mentioned that 70% of the margin decline in GIS can be ascribed to the collection delays, the provisions. Could you just clarify that?

Just to check that my calculation of what was a 40 basis point headwind this year is correct, please. Thank you.

Maybe -- should I take the first and last one?

Yes, definitely. Go ahead.

So if we first look to the acquisition impact, Maine Pointe is a bit below our expectation for the second half of the year. We have, let's say very good project book for 2020, but it's fair to say it was slightly lower in the second half of last year, assuming obviously the -- our partner is 40%, but also very busy with the deal instead of focusing completely on this business, so little bit of timing issue, I would say.

So it's a bit lower, but in general, we are convinced to go in the right direction, hit the numbers, which we expect for 2020. So it's definitely some impact on top maybe some -- little bit of cost of integration as well.

But it's true, it's a bit below expectation. What I said regarding GIS, we’ve bad debt provisions in -- you take the results and it basically look okay.

The results of the performance of the business, the revenue decrease, how much of the current decline of 40% is related to bad debt provision and what's the underlying reduction. And if you look to this, basically 70% out of the earnings decline is explained by higher bad debt provisions compared to the prior year.

I hope this clarifies.

Yes. Thank you.

And maybe one word, obviously, you need to consider here that while we have the normal aging for this project, we have taken on top the decision to completely put allowance on the Haiti receivables given the fact that we have not recorded any, let's say collection throughout last year.

Okay.

If I go -- George, if I go through the question on the Food and Life, I would say there is nothing major there. If you look at licenses, we have some -- I would say some short-term issues in terms of manpower retentions in one of the affiliates because they are evolving into a pharmaceutical hub.

So sometimes we do lose some of our customers to -- some of our operators to our customer base. And that [indiscernible] cases, we have lost a little bit more than we were expecting.

But these are not unusual situations and we’ve managed to catch up the situation pretty fast, so we should expect these to be back on track for 2020. And Food, I would say is up and down.

So some of the softer market like in Germany where I think the current market situations little bit tighter market conditions, makes that our customers are looking at typically tight in terms of volumes and so on, but nothing major, I would say. Again, the situation will come back on track, I do not see that as a major issues for the Food and Life activities in 2020.

Thank you very much. I don’t think there's another question on the conference call.

But I can check, there is? No?

Okay. Well, also I would like to say that don't think by staying in at home and dialing in, you get three questions, it's not part of the deal.

Anyway, I would like to invite you all -- we would like to invite you all upstairs to a -- for a cocktail. And thank you very much.

Thank you.

Thank you, all.