SGS S.A.

Thank you, and good afternoon or morning, depending on where you are located. For those of you who don't know me, I am Toby Reeks, Head of IR, at SGS, and it's my pleasure to welcome you to this call, where we will be presenting our strong 2020 performance, and then while its fair visibility has been returned to pre-COVID levels, Frankie will give you a flavor of what's expected in 2021.

This will follow the same format that we usually follow. So Frankie and Dominik, will run through the presentation, and then we will have time for Q&A at the end.

At that stage, the operator will come back and let you know, that you can each ask two questions each or I'll let you know you can ask two questions each. So please stick to that, and then if we have more time at the end of the call, we can take additional questions then.

With that, I'd like to handover to Frankie and Dominik. Please go ahead, guys.

Thank you, Toby. Good afternoon, everyone, and thank you for joining the call for our full year results.

As usual, I will give a highlight of our performances and Dominik will go through the financial in more details, I will come back to you all with an outlook for 2021. Now move to Slide to 4.

Just a few words about the COVID-related actions which dominated many of our thoughts during the year 2020. Ensuring the haven safety of our colleagues is always the highest priority for the management team.

I would have to state that in 2020 was more than any other years that I've faced in SGS. Many of the actions that we have taken, the network has helped to limit the impact of COVID on our colleagues and our operations.

During the second half, we have maintained most of actions that have been done in the first half. Some of those actions include a global travel ban for non-essential visit, a group of work from home policy wherever is possible, enhance PP requirement, additional shift planning, a new process flow to adapt to COVID safety requirements, both in the field and in our laboratories, and use our remote technology where possible to avoid sending teams on-site, like remote inspections and IOT sensors for example.

Toby, mentioned a set of strong results, just to go for few quick highlights. Total revenue declined by 8.8% at constant currency, while the organic decline was 6.5% with two business line achieving organic growth.

Our adjusted operating income stands at CHF900 million, an 8% decline at constant currency compared to 2019. Our profit for the period stands at CHF505 million, a decline of 28.5% compared to prior year.

Free cash flow improved to CHF758 million, an increase of 12.6% compared to prior year. Our ROIC for the year stands at 16.5%.

But if you adjust these from the recent acquisition of SYNLAB A&S completed on December 31, the ROIC stands at 20.9%. The board of directors is proposing a dividend of CHF0.80 per share, same amount as last year.

During the year, we managed to minimize the disturbance of our operations and we of course are customer service focused to help our clients and deal with the challenges they are facing in their supply chain. I'm very proud to say that our ability and agility in mobilizing our network to support them has been recognized and praised by many of our customers.

In terms of service development related to COVID, we have continued to deploy our next normal solutions. We position ourselves successfully for growth, strong growth in PPE testing and inspection in China, and we benefited from our increased capacity in our bioanalytical and clinical trial solutions for new vaccine.

The use of remote inspections, as I mentioned earlier and auditing as well, we're not auditing, also increased significantly through the year as access to customer site have been restricted. The adoptions of our remote solutions by our client has increased dramatically as well.

Aside from remote inspection or remote auditing, we have also seen an increase of remote consulting services within our technical consulting portfolio. Financial discipline is an important aspect during such a volatile period, and Dominik will provide you with more details on the actions we've taken during 2020.

But it is important to highlight that we have continued to invest into strategic priorities market, through both CapEx and acquisitions. I believe the long-term structural drivers of the TIC industry have not changed.

Some sectors like life sciences, environment, food security and connectivity may have become even more relevant for society, and it is important that we continue to invest in order to maintain our leadership position. Here also to add, that our investment include actions taken in our operations to continue our sustainability journey that we have started around 10 years ago.

We continue to evolve the culture of organization and set higher standard for ourselves, which is also reflected in our leading sustainability and ESG credential in the TIC sector. During 2020, we made six acquisitions with the largest one being SYNLAB A&S that was completed in December last year.

This acquisition will reinforce SGS position as a key player in the environmental, food and life sciences sectors in Europe and globally. It will give us just better access to the more routine but high-volume regulatory environment, our remote testing market, and give us a stronger position in the Nordic country where SGS traditionally has not been that present.

The other five acquisitions are in consumer goods with Thomas Stevens in the U.S., which further expands our footprint in our area of cosmetic testing. In statutory vehicle inspection with CTA Gallet and Groupe Moreau in France would have to consolidate their inspection network.

In industrial services, we acquired Engineering Control in New Zealand and Ryobi Geotechnique in Singapore. These acquisitions will help to enhance our technical competence in the manufacturing and construction sectors, and also help us to diversify our portfolio in those countries.

During the year, we also completed one disposal with the pest control activity in Belgium and in the Netherlands. Subsequent to our closing, we have also announced two additional acquisitions both in light of our strategic focus in becoming a key player in the AFL area.

Analytical and Deployment Services in the UK will expand our food service portfolio by adding pesticide and chemical testing competence to our existing food activity in the UK. The other ones are laboratory facilities of International Service Laboratory from Novartis in Ireland, which will provide SGS a new competence center and increase our capacity to serve our customers in the fast-growing Life Sciences industry, as they continue to outsource to chosen partners.

This is a slide about the last three items of that. I'm handing over to Dominik for more in-depth review of the financials.

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

I will start with the overview of the financial highlights for fiscal year 2020. Frankie already mentioned the operating highlights in his introduction with revenues of CHF5.6 billion, and adjusted operating income of CHF900 million and the free cash flow of CHF758 million.

Revenues for the group in constant currency decreased by 8.8%, driven by an organic decline of 6.5% across the majority of the segments, mainly reflecting the impact of the COVID-19 pandemic. The adjusted operating income decreased by 8% in constant currency to CHF900 million.

However, the AOI margin increased by 20 basis points to 16.1% at constant currency. Net profit of the minority interest decreased by 27.3% to CHF480 million in the period under review, which is besides operational performance, also related to a higher gain from disposals realized in the prior year.

I will later talk more about those one-off items. Cash flow performance was strong with cash flow from operating activities up 3.2%, and free cash flow up 12.6%.

The decline in net profit was more than offset by strong net working capital management, lower taxes, lease payments and CapEx. Organic revenues declined by 6.5% in 2020.

During the second half, we experienced a gradual improvement leading to a situation that we are back to organic growth in December 2020. The contribution from acquisitions is 4.7%, very limited, as the most sizable acquisitions like the acquisitions of SYNLAB and Ryobi were only consolidated as of December 31.

Disposals had a negative effect of 3%, leading to an overall decline in constant currency of 8.8%. The negative currency impact of 6.3% was due to the strengthening of the Swiss franc against all major currencies.

Moving on to the revenue growth by business. Agri, food and life posted organic growth of 0.3% in 2020.

A decline in food, which was more impacted from lockdown measures in the first half was more than offset by growth in agri and life. Growth in the second half was strong across all segments.

Minerals posted the revenue decline of 6.9% in constant currency. The impact of extended lockdowns measures, mainly in Europe and the Americas was partly offset by growth in Asia and Eastern Europe during the second half, leading to material easening of the decline rate in the recent month.

Organic decline in oil gas and chemicals was 7.7% for 2020, which is very similar to the decline rate of H1 of 7%. The business was affected by lower demand and the material oil price drop in the first half.

With an organic growth of 1%, consumer and retail showed this resilience during the COVID-19 pandemic. The revenue decline experienced in the first half was more than compensated by good to strong growth experienced in all segments in the second half of 2020.

CBE declined organically by 12%, as the division was impacted by travel restrictions and lockdowns, preventing auditors from visiting customer premises, especially in the first half of 2020. The organic decline rate of 17.8% in the first half eased to 7.3% in the second half, as management system certification showed a strong and accelerating recovery throughout the second half, also helped by remote audit solutions.

But business enhancement activities are still declining in the second half. Revenue and industrial declined organically by 13.4%.

Transportation and oil and gas were the most heavily impacted. While manufacturing returned to growth in the second half.

Environment, health and safety declined organically by 9%. A strong start of the year was interrupted by the pandemic, which was especially evident in health and safety given the inability to access construction sites and provide services to hospitality and industrial hygiene clients.

The weakness in the first half was partly recuperated later in the year by a pickup in demand in Europe and Asia for lab testing services. Revenues in GIS declined organically by 12.4%.

Economic Affairs were affected by export weakness. Mobility was severely impacted by the global lockdown measures and the end of certain contracts.

The recovery in H2 in Europe and Latin America has been slowed by the second wave of restrictions. Border solutions delivered strong growth by continued market penetration for TransitNet.

From a regional point of view, organic decline in Europe, Africa and Middle East was 7.9%. The Eastern Europe and Middle East countries achieved low single digit growth as key markets, such as Russia and UAE experienced good growth throughout the year and Turkey recovered strongly in the second half.

The double-digit decline experienced in the majority of the key markets in Europe and Africa in the first half, greatly improved for the second half, with several key markets achieving growth towards the end of the reporting period. And Americas organic revenues declined by 12%.

While trading conditions, especially in the U.S. remain challenging, given the end market exposure, we experienced a good recovery in the second half in several Latin American countries.

Asia-Pacific was very resilient, with a limited organic decline of 0.7%. North East Asian countries experienced growth throughout the year.

Thanks to key markets such as China, Taiwan and Korea, almost offsetting the decline of the South East Asian Pacific countries. Our AOI margin increase of 20 basis points in constant currency was amongst others, driven by a very efficient approach when it comes to the workforce management.

Salary and wages which account for approximately 50% of revenues decreased in extra currency by 16.7%. Stripping out the currency impact, as well as the restructuring costs in both years, the underlying reduction was 10.2%, declining stronger than the comparable revenue decline in constant currency of 8.8%.

The underlying reduction was driven by the active portfolio management, the benefit of the structure customization program implemented in the second half of 2019, as well as various measures taken to mitigate the COVID-19 impact. FTEs at the end of 2020, declined by 1% versus prior year.

Recession related increase of 2.7% which is to a large extent related to the acquisition of the A&S division of SYNLAB as well as Ryobi both consolidated as of December 31st, is more than offset by the structure customization program, as well as other measures to adapt to trading conditions in 2020. Average FTEs in 2020 decreased by 5.7%.

The magnitude of the change by region needs to be set in perspective with the revenue decline. Overall, we adjusted the headcount to trading conditions and benefited from our structural optimization program.

However, we have sufficient capacity in place in all regions to convert incremental demand with good incremental margin. Adjusted operating income decreased at constant currency by 8%, which reflects the organic decline of 6.7% as well as the net effect of acquisitions and disposals of 1.3%.

Currency had an adverse impact of 7.3%, leading to a reported decline of 15.3% in the period under review. AOI margin remains stable at extra currency but improved by 20 basis points in constant currency.

In addition to the operational performance, the operating income of $795 million have primarily impacted by the following one-off items, and goodwill impairment of $37 million. Restructuring cost accounted for $84 million in 2020.

Approximately half of this amount is related to the early termination of the single window contract with the Government of Ghana, and the vehicle inspection contract with the Government of Uganda. A claim against the Government of Ghana has been raised for the breach of the contract.

Gain on business disposals is related to sell-off pest control in 2020, compared to the disposal of PC in the prior year. 2020 transaction costs mainly related to acquisition of SYNLAB Analytics & Services while 2019 was mainly linked to the disposal of PSE.

While the margin decline in the first half of 200 basis points was pretty resilient, given the magnitude of revenue decline, the very strong performance in H2 of plus 200 basis points is a function of tight cost control, restructuring benefits and lower bad debt expenses, while the revenue decline rate eased. Also, throughout the COVID-19 pandemic we continued to focus on financial discipline, leading to the following achievements during the period under review.

Two Swiss Bank Bonds if we combine nominal value of 500 million that issued at attractive conditions. We continue to focus on price discipline.

The structural cost optimization program launched in the second half of 2019 delivered another savings in excess of $90 million. This coupled with strong cost control and the other restructuring benefits led to a dropdown ratio of 40.3% in 2020, or an AOI margin increase of 20 basis points in constant currency.

Free cash flow increased by 12.6% driven by tight net working capital management. Moving on the margins by segment.

The strong adjusted operating margin increased in Agri, Food and Life of 160 basis points, was primarily driven by strong margin performance in the Agri and Life activities. Margins in Minerals increased strongly by 80 basis points, despite the revenue decline.

This increase is due to structural cost optimization program, strong cost control and other restructuring benefits. Margins in Oil, Gas and Chemicals declined by 100 basis points, driven by lower volume and lower utilization rates partly mitigated by cost control and structural cost optimization measures.

Our most profitable segment CIS saw the margin increase of 40 basis points to 25% on a constant currency basis, driven by the strong pick-up in demand for PPE. Margins in CBE declined by 60 basis points, driven by the revenue decline especially in the technical consultancy, training as well as aviation activities.

While the strong margin recovery in management system certification in the second half and tight cost control, partly mitigated the margin decline. In industrial, structural cost optimization that changed the portfolio towards value creating business and other cost saving activities they are partly able to compensate the revenue decline, leading to a dropdown ratio of 18% for the industrial business.

Margin decline in EHS was more severe than other business lines, reflecting the lower utilization levels, lower volumes in some higher margin services, but also through retention of technical capabilities. The margin increase in CIS of 160 basis points was driven by bad debt collection and cost optimization, more than compensating the margin decline in the mobility segment given lower utilization levels.

In respect of the 150 plus units in scope under the EVA performance management review, significant focus has been achieved despite the impact of COVID-19. 17% of the units we are in the meantime closed, 40% are value creating in 2020.

14% improved their results and expect to become soon EVA positive, while the remaining 29% are on a critical focus list, partly because of the pandemic, but has a plan to improve materially in '21. Moving on to the balance sheet.

The increase in goodwill and intangible assets is primary due to the consolidation of SYNLAB A&S division, as well as a Ryobi as of December 31. The reduction on bid revenues, work in progress and trade AR is driven by lower revenue levels, in general, currency effects but also by a strong focus on collection.

Our cash position is CHF300 million higher than the prior year, despite the outflow for the dividend and share buybacks in the first half, which we have compensated by the issuance of a CHF500 million bond and a strong free cash flow generation. For the purchase price conservation the A&S division of SYNLAB was considered.

Net debt increased from CHF800 million in prior to CHF1.5 billion in the period under review. Cash flow from operating activities increased by 3.2% to CHF1.2 billion, reflecting the strong inflow from net foreign capital and lower tax payments, more than offsetting the reduction in profits.

Furthermore, free cash flow increased by 12.6%, also benefiting from the slightly lower CapEx and lower operational lease outflows. We paid dividends of CHF598 million, bought back shares for consideration of CHF208 million and issued two Swiss franc bonds, which led to an inflow of CHF499 million.

The management of net working capital continues to be a very strong feature of SGS. Operational net working capital stands at minus 2.5% of revenues in 2020, reflecting lower trade ARs, given lower revenues and increase in advanced payments, a reduction of diesel supported by strong cash collection and EVA performance management approach.

CapEx for 2020 declined slightly less than revenues, leading to a moderate increase in percentage of revenues from 4.4% the prior year to 4.6% in the current period. While we have delayed some non-essential and maintenance CapEx, our level of investment into strategic priorities has been maintained.

Almost one-third of our CapEx is allocated to CIS, and especially towards electronic and electronic components in Northeast Asia, which is a high strategic priority. 15% of the CapEx was allocated to AFL primarily to life but also towards the food segment.

The CapEx allocation for OGC and minerals is to a large extent related to client driven projects. To sum it up, our revenue in 2020 declined by 8.8% in constant currency, of which 6.5% is organically.

Multiple actions on the cost management side as well as lower bad debt expenses led to an increase in adjusted operating income margin of 20 basis points to 60.1% in constant currency. This strongly increased our free cash flow and significantly increased our investment into strategic priorities by acquisitions, and we will propose a stable dividend of CHF80 to the shareholders in the upcoming AGM.

With this, I hand back to Frankie.

Thank you, Dominik. Let me go through the business review.

Same as the first half result, I'm going to give you an indication of how we see each of the business line organic performances in 2021 compared to the relative performance of the total Group. So let me start with agricultural food and life.

AFL organic growth should outperform the group average. We expect the trade to continue to grow as demand will remain solid.

Food structural drivers remain with concern of quality, safety and authenticity supported by testing outsourcing trends. Life will continue to benefit from increasing vaccine work, customer outsourcing and our investment in additional capacity.

We know organic growth should be brought in line with the group average. The overall outlook of the mineral industry is positive with commodity price supporting trade.

An expected increase in exploration spend, which will benefit our Geochem laboratories as well. Trade and metallurgy volume should increase, but with an offset being cold as power productions continue to transition away from carbon intensive production.

Our gas chemical online growth should be below the group average due to expected soft volume of activity in first half of this year. This will continue to impact trade and testing folio.

However, we expect a more positive second half with solid volume evolution increasing our upstream portfolio. CBE organic growth should be above to group average.

Depending on the customer accessibility and availability of travel, growth will be driven by a continuing management system catch up followed, following the ease of restriction on recovery of technical consultancy business. The more discretionary second party audit and training are likely to remain under pressure.

Industrial services, industrial organic growth should be below to group average. Services to the manufacturing sector were resilient in 2020 and should grow in 2021, particularly in the testing activities.

Power and Utility would benefit from increased demand in the nuclear security sectors and also catch-up activities with delayed shutdown. All gas and chemical related activities are expected to remain soft with some limited catch-up project.

Transportation sectors, both RO space and automotive will be under pressure in 2021. EHS organic growth should be brought in line with the group average.

Pressure measures to suppress COVID-19 in the first quarter of this year will continue to impact health and safety services due to site access and also a lack of tourism activities. However, government labs business should grow and should benefit from project delay particularly in the U.S.

Looking to the second half, we expect to have a safety business to recover driven by demand from the real estate, hospitality and tourism sectors. Our marine business has performed well in 2020 and the growth is expected to accelerate in 2021.

GIS organic growth should be brought in line with the group average. Product conformity assessment should continue to recover with increasing volume and new contracts starting this year.

Service related to customs should see a positive development in 2021, with the continuing growth of TransitNet and the additional services related to Brexit. And most of our statutory vehicle inspection centers have reopened and we expect them to function at full or almost full capacity throughout the year.

To finish on consumer goods, CRS organic growth will be outperforming the group average. E&E and our Northeast Asian region will continue to be strong growth drivers, due to demand and due to our long-term investment to build competence and capacity populating the connectivity related products such as 5G, IoT, cyber-security.

Softline is expected to be under pressure as the whole industry is not performing well. And we are not expecting to see the same level of PPE testing and inspection as in 2020.

Both hardline and CPCH, cosmetic personal care household products are expected to grow in 2021 with steady demand. Let me give a few words about our new strategy 2023.

Regarding our new strategy I would like to remind you that the formal communication will take place in May at our Investors Day, and the launch of our sustainability ambition 2030 will also peak in the second quarter. So the purpose today is really to provide an overview of the new structure on the sectors we will be focusing on in the future.

Despite the current short-term volatility, particularly linked to COVID-19 the structural growth of the TIC sector remains intact and we see an increasing relevance of an opportunities as new recruited requirement, customer wellness, health concern, cyber threat, social evolution related to environmental issues are driving demand for many of the TIC services and the scope is growing. The new structures that we have set is to align our business focus with the new TIC megatrends, and build our competence and expertise and network around them to recruit business line that are similarly modeled in order to enhance further operational efficiencies, to enhance our digital innovations, technical consulting, sustainability-oriented services and these via our strategic unit to create a more agile management group with a leaner structure.

The new structure of the group is focused on servicing four key industries. The new divisions are named connectivity and product, health and nutrition, industry environment, natural resources.

Then we also now have two cross industry strategic unit with a focus on specific competencies, they are; knowledge, digital and innovation. This slide gives you a high-level view of how the existing business line and the soft business unit are evolving an indicator into the new divisional structure.

This is certainly not comprehensive or the chart would be way too complex, but it should give you an idea of the evolution. For example, the new knowledge strategic unit is currently composed of the former CD, but new services are being added to these units, such as ESG and supply chain management related services.

Likewise, connectivity and product would include the existing CRS and would also have a clear focus to connectivity related services in the automotive and the semiconductor industry. This slide shows the new operations council of chart in place starting in 2021.

It will be composed of 18 members, and these members will be composed of 14 different nationalities representing the cultural diversity of the group. Again, more details on market drivers, go-to market strategy all the rationale will be presented in our May, Investors Day that will take place in Spain.

So, maybe to conclude on the outlook. It remains difficult to provide a clear outlook for 2021, considering the evolution of the COVID-19 with the new lockdown measures in many countries, the implementation of the vaccine strategy, the evolution of the different new COVID variant.

So based on the current situation, my outlook is a solid organic growth, however normalized for the impact of COVID, an improving adjusted operating income, a strong cash conversion, maintaining best-in-class organic growth, accelerate investment into our strategic focus our way out with M&A as a key enabler, our lease maintaining or growing the dividend. I believe that 2020 has shown the resilience of the SGS Group on our ability and agility to adapt to new situations.

We have continued our investment for the long-term as we are confident the drivers of the TIC sector remain intact, and our services are becoming more relevant to many industries. To conclude the presentation, I would like to thank my colleagues of the entire SGS Group on the Operations Council for their dedication and courage during this rather challenging year.

As we move into 2021 to haven safety our colleagues and their family remains our priority. On that Toby, I'll hand back to you for the Q&A session.

Thank you very much, Frankie and Dominik. And we have a few people stacked up in the Q&A order.

So I would like to remind you, please limit it to two questions. And of course, then you can come back at the end and ask additional questions if you'd like.

And first of all, in the queue, we have Andy Grobler from Credit Suisse. Please go ahead.

Good afternoon, everybody. I've got lots, but I'll stick to two as directed.

Dominik really, given the strength of margins in the second half, I'm assuming solid organic growth. Do you think it's reasonable to expect to get to that 17% margin target this year?

And then secondly, you mentioned that December was back into growth, has that momentum continued into the start of 2021, given the lockdown to become a bit stricter? Thank you very much.

If we start with the margin target, I think it would be come to 17% plus, this year would be I would argue a bit demanding, because we are absolutely convinced and confident that we can show good operational leverage, but we also have to consider a couple of points into this year. First of all, I mentioned that one important driver of the margin increase in 2020 was also lower bad debt expenses, given the very strong collection.

So to give you some insight, roughly lower debt compared to the prior year contributed 40 basis points to the margin development in 2020. I'm not saying it will go back to the level of two years ago, because I think we are structurally in a better position.

However, I would argue the very low bit expenses we had last year was extremely low, so they most likely will be a little bit higher. Then the acquisition in estimation of SYNLAB, they have lower profitability than the SGS Group, so there is a little bit of a diluting effect.

Obviously, there will be quite some margin pick up in '20 when the full synergies are realized. And also if you look a bit to the growth pattern in the second half, if you look which business we are growing, there was especially in the second half, there was to certain extent let's call it a good margin mix CIS, strongest growth 7.5% by far the highest margin within AFL, especially life trade, very high margin.

CBE declining, but management system certification very strong acceleration. So I would say at a certain moment in other segments which are may be more industrial, more cyclical, coming back with growth, they have lower margin.

But to answer - to come back to the point, we are very committed for operational leverage, I would say 17% for this year would be a bit too demanding.

And the other question was about growth in 2021 on the back of December.

On the back on December. So I mean, we have seen this gradually improving.

And I mean, January is not done yet, we don't have the financial numbers. And January is anyway is a month that you cannot read too much into it, until activities are starting.

As of the first couple of weeks is very hard to read something into it. But I would argue when we did the trading update, beginning of November, meanwhile its beginning of November, when we talked about the SYNLAB acquisition, we had not in mind to have 1% growth in December, because we were also bit concerned with second lockdown measures.

But it seems at least in the industry, that clients reorganized themselves that they have their protocol and as long as supply chains not getting disrupted things moving on, with the exception of one or the other business or country.

Okay, thank you very much. Thank you.

And the next person on the call we have is Paul Sullivan from Barclays. Hi, Paul, could you limit it to two as all, please?

Yes, sure. Toby, thanks.

I mean, it was this hard to generalize, could you just maybe comment on how you think the competitive landscape has evolved? And would you say the pricing is firmer or softer than it was 12 months ago?

And then Dominik, I don't know, if you could provide some sort of housekeeping update in terms of below the line items like interest tax, CapEx? And any thoughts on further restructuring costs and benefits this year?

Thank you.

Hi, Paul. These are bit of difficult questions.

I would say it really depends on segments or industries. So you take oil and gas sectors, the pricing power is more on the customer side.

There's no question. There is a soft demand.

There is excess capacity. So we're more on the pressure than anything else.

But I draw the extremes on everything linked to life sciences as well as some of the consumer goods like PPE, 5G and so on, because they are - whether they are essential services now or they are newer activities with lot of other value, then the pricing power is more on our side. And then you have little bit everything in between, depending on what you're looking at.

So I would say it's not too much different than what we've seen in the past. Certainly, during the lockdown there was more requests from our customers to help them to survive some of the difficult time.

We are more focused on adding value by creating more services to help them reduce the disturbance of the supply chain, more than just giving them a right discount, so let's say, we're mitigating some of the pressure but the market pressure is not different than what we've seen in the past years.

And to your other question Paul, basically if we look to the tax rate, tax rate was 32%, but it was a bit higher than our usual guidance of higher 20s. Higher 20 should be absolutely fine.

The reason that it was a bit higher was the fact that part of the restructuring cost was not tax effective, nor the goodwill impairment so a higher 20% I would use for '21 and the years ahead. CapEx, we always said, we want to focus more in certain priorities.

So, we are actually happy that the CapEx percentage revenue is slightly up last year that we used opportunity to invest, especially as I outlined in connectivity related services in Life and Food. So, it was up from 4.4% to 4.6%.

We're aiming surely more in the higher 4% area going forward for '21 and the years ahead. And restructuring cost last year CHF84 million, half of it is really related to size of the contract, Uganda, Ghana as I mentioned in my speech, where you could not - we had a breach of contract where we expect benefits on the claim in the mid-term.

These things can really take time. But they are not direct let's say, additional benefit so to say.

And the other half so the CHF40 million plus from this half is already kind of a run rate and the other CHF20 million is incremental benefit. And going forward, under normal circumstances I would say, usually, I would use CHF20 million kind of restructuring cost normalized, and for '21 I would consider to make it a bit higher maybe more to CHF30 million because while we already did some work in respect of the new organization.

There's still some work to be done in the first quarter, which will lead to additional restructuring cost, so I would use roughly CHF30 million.

Thank you very much Dominik. And…

Great, thank you.

Thank you. And next on the call we have Sylvia Barker from JP Morgan.

Please go ahead, Sylvia.

Thanks. Hi everyone, and I'll stick to the two as well.

I was just thinking about the vaccine and PPE contribution in 2020, I guess you have previously commented that the vaccine revenue was in the low or was expected to be in the low tens of millions. So, are we right in thinking that the two together or maybe I don't know 1.5% 2% in terms of the contribution to growth last year?

And then secondly, thinking about China could you maybe show us kind of the rough view of the growth rate has been in China kind of exiting 2020. And obviously you already started to be hit by lockdown and stoppage of activities last year, this point so maybe just any thoughts on the ground what you're seeing now in January as well?

Thank you.

So, if you put, if I understand this right, how much vaccines and PPE together contributed, so you estimated a bit more than the percent is very good. We are not disclosing growth rates by country, but of course, China had its lockdown in February, recovered very quickly and back to growth in April.

And then accelerated throughout the summer month - several months double-digit growth kind of head by PPE, and the recent trend is let's say, good mid-single digit growth which we so far experienced.

Maybe I can add that, we have this year Chinese New Year in the month of February, so we can just see how it is evolved. And also, China also has some bucket of infections that do disturb from time-to-time our operations.

So, all that will need to be managed on the week-by-week, month-by-month basis to see where we're heading.

Okay, thanks. And I just a follow up with Toby.

Just around the mid-single digit in China. Any comment from exports versus imports within that?

The domestic is strong.

I mean export versus domestic that's what I guess.

Domestic is stronger.

Thank you. The next the next person we have on the line is Simon [Indiscernible] from Stifel.

Please go ahead, Simon.

Yes. Good afternoon, and thanks, Toby.

First of all, just on M&A any comments on how your pipeline looks like right now, that would be very helpful. And certainly on the working capital, how should we think about the dynamic in '21?

So on the M&A I mean, as Frankie mentioned, also in his summary outlook statement, we are very committed to invest in M&A, especially our strategic priorities. And we have I would call it a solid pipeline of opportunities very focusing on.

But as you know, in this business, it's sometimes it takes a bit more time. But in general, we are confident that we can announce more deals.

On working capital, obviously when you have revenue decline, it's for the wrong capital technically also helpful. But to be fair, we also did structural improvements.

For example, DSO on a recurring basis went down. So you should expect some outflow in '21, but relatively to prior years, in such a situation, it will be somewhat lower.

Thank you very much. And then next on the call, we have David Roux from Bank of America.

Please go ahead, David.

Good day, everyone. I've just got one question actually around remotes or digital solutions.

There's an example mentioned in your release that sort of over 50% of GIS services were conducted remotely in 2020. I'd be interested to understand at a group level how much our remote or digital services contributing to revenue currently in 2020?

And what is the sort of comparison in 2019? Thank you.

I was going to add that, David, it was 50% of eligible GIS inspections. And that means that if it didn't require a physical inspection, so it's not all GIS inspections, but Frankie, please go ahead.

No, sorry. I was exactly going to say.

I mean, now what we refer to remote activities for this inspection, or meeting or consulting is really old segment of activities where a physical presence could be substituted by the technology to help to review typically, for the inspection size consignment that is more focused on assortment, on the labeling or packaging, more than anything else, when it comes to technical review is more complex, because you will have to have someone that is looking at the more technicality of the product. So the remote inspection is not yet possible.

So I would say when we mentioned 50% of eligible services is basically to portfolio activities that we are looking at is really pushing into our remote audit and acceptance by our customers is becoming higher and higher. Because no solution existed for couple of years now already.

But before that our customers was not keen on using them. But with the COVID restrictions, that option caught up quite significantly.

I don't have the numbers for the total eligible, as I said, auditing, inspection and consulting. But I would say the growth is quite significant from 2020 to 2019 is quite significant.

But I don't have the numbers. I'm sorry.

Okay, thank you. That's fine.

Thank you.

Thank you for your question, David. And next is Ed Stanley from Morgan Stanley.

Please go ahead, Ed.

Thank you. I've got a couple please.

On Slide 21, when you're talking about the EVA management and you showed 29% critical focus. I appreciative that you can't give much of a guidance on margin, but it sounds like you've got to plan for that 29%.

So I'm just wondering how much upside potential there is on the margin from dealing with those businesses in this coming year? The second question, semiconductors is something you're specifically flagging in your mega trends, and given you're the leader in Taiwan and global supply shortages seem to be leaning on Taiwan to fill the gap.

Is there anything interesting you are seeing in that space in the supply or demand imbalance, or is that not really your issue?

Let me start Ed with the critical focus list. So there's obviously upside, but you need to consider this 29% represent, less than 2% of group revenues, even though, if they do better, the group impact will be very low given the fact that they are rather small businesses.

For the semiconductor industry, the global trade imbalance is something that is not hitting us that significantly, because we're basically working with the semiconductor manufacturer in Taiwan, in China mainly. So we have more links to their production capacities and what is disturbing them.

So I would say it has an incidence that depending on how to our customers is impacted. But the way often we are not also links necessary to the volume itself quite often, so is more for some of the R&D work and other things.

So on that aspect, as well as there are some of the R&D activities and some of the production activity course on, we may not have to one-to-one impact in terms of their volumes and their supply chain issues.

Thank you very much. And then next we have Neil Tyler from Redburn.

Please go ahead, Neil.

Yes, thank you, Toby. Good afternoon, Frankie and Dominik.

My questions on the outlook statement, which the point on return on capital now excludes M&A from your ambition. And the question really is, does this change reflect materially greater M&A ambitions, higher multiples or a bit of both?

And then when you're monitoring that target on an ongoing basis and as these acquisitions are integrated into the business, for how long are you able to actually strip those out and monitor the underlying? Do they come back in after 12 months?

Or how do you go about that? And that's the questions all two-part question, please.

I mean, first of all, we were showing the return on invested capital, basically for the whole portfolio and obviously, especially in a case like, for example, the in estimation of SYNLAB. This business will be completely integrated.

So it's already changing to give for 12 months the organic growth rate, because you start to integrate. It's possible for 12 months, but afterwards it should be net positive because otherwise it would be not integrated.

Now, when we - this time with this statement about the SYNLAB impact, it's more the fact related to the point that if you now look to 2020, the only thing what is part of the year-end is the balance sheet of SYNLAB, because we acquired the company on the 31st of December. You have the balance sheet in, you have no profit in, because no profits are consolidated.

And that's the reason why we show here also [Indiscernible]. But we will show the whole thing in combination.

Now, historically, as we had of course also very high ROIC it was partly also because of not having a lot of M&A, so to say. And obviously, then we had whatever, 25% 26% ROIC.

If you start to make M&A, just technically the number will come somewhat down. We are looking when we assessing assets, how much time they give this asset to become EVA positive and then it's the right investment.

And continue to focus then with the synergies to get the ROICs accordingly up. But the mix effect will definitely change if you make more M&A, the implied ROIC is somewhat lower.

Thank you, that's very helpful.

And then next, we have Rajesh Kumar from HSBC. Please go ahead, Rajesh.

Good afternoon. Thanks for taking the questions.

First, can you talk us through the working capital improvement you have achieved this year in terms of what is driving that? And is it just the payable side or payables adding, if it does both?

The second is related one, when we look at last year, if I recall correctly you have taken a write-down for receivables given the improvement in working capital, can you give us the improvement in such write-downs year-over-year?

So if we look to it and the major on year-on-year comparison is a lot that you asked, because obviously, we had also revenue decline throughout the year. I guess towards December it was closed by the month before was declining.

So it has some impact, let's say positive impact on the working capital. But secondly, and I think that that's the key point that we had very strong cash collection.

And with this reduced the DSO, so it's really the key driver on this part. I think it has a lot to do also with EVA performance management, that people focusing on it.

And what we did in terms of centralizing the collection and implementing IT tools to collect better. We also benefited for certain businesses.

We had client advances where the client paid upfront for certain services. So these are the kind of main drivers in that respect.

When it comes to your second question related to the impact of basically, I would say, adaptive tools, as I mentioned at the first question, when Andy was asking the margin book that of course had also very positive impact. As I said that roughly 40 basis points of the margin for last year was related to lower bad debt expenses.

That's not only related to one or the other of these accounts, that's also underlying improvement.

Understood. So is it improvement in bad debt?

Are there any provision reversals as well, which we need to think about?

No, it was just annual growth, it was just really low bad debt expenses.

Thank you very much.

Thank you very much. And next on the call we have Julien Fouche from Societe Gen.

Please go ahead, Julien.

Thank you, Toby. Good afternoon.

Just one if I may, part of the margin improvement has been driven by additional measures taken in 2020 due to the pandemic. Could you give us more color on this additional measures?

And more importantly, are there any costs that should be back in 2021? Thank you.

I mean, there are of course, a lot of individual measures and what all the units and all the local organization implemented. I mean, if you look for example, overtime expenses are materially down in a year like last year.

If you look to usage of flexible workforce went massively down, because you use flexible workforce like insurance and when it comes tough, you let these people go right. So, obviously, in certain jurisdictions, we had subsidies.

So there are several things then bonus payments, of course are down while we had strong financial performance, we obviously not hitting our internal budget. So these combination had the impact travel costs not surprisingly materially down and obviously, as business recovers and some of them will come back, for sure.

Okay. Thank you.

Thanks very much. And next we have JP from Vontobel.

Please go ahead, JP. Maybe we don't.

Could we move to the next question please? And that's from George Gregory from Exane BNP.

George, please go ahead.

Thanks, Toby. First question relates to the restructuring costs in Ghana and Uganda.

Dominik, I wondered if you could just elaborate on what exactly those costs represented. And if they had any discernible impact on the GIS margin, please?

And secondly, working capital, I appreciate there are lots of moving pieces, which you've already articulated. As I was looking structurally at the way you expect your business mix to evolve, which you expect the working capital position as a percentage of sales to trend in any particular direction over the next few years, please.

Thanks.

So if we look to these two contracts, so first of all, the Ghana contract is a single contract, which we had for several years very successfully, and the contract was supposed still to run. But the government basically has taken the decision to take it away from us, which is a breach of the contract without short notice.

But again it's a breach of a contract, and we did all our obligation to full satisfaction. And therefore, we had to close down the whole operation, which amongst others means severance costs, but also write-down of assets.

And we raised a claim against the government of Ghana. It's a very strong case but these things of course, take a couple of years.

That's one contract. The other one is vehicle inspection testing in Uganda.

It was a contract from some years ago, where we invested significantly in assets based on the agreement with the government. However, the government never enforced the contract.

So basically, we had asset there, we had people there. But we're never able only to very small extent to provide our service, which is a breach of a contract.

In the first years, it was not allowed that we can give a notice even not for breach. Now we can do this and so basically, we informed - we stopped the contract and send a letter to the government that they are in breach of it.

And this is basically complete as it write-down. What's the impact on revenue?

The impact on revenue of those contracts, again Uganda it's not really because it was more the asset. Revenues of this contract in 2020 was still around CHF10 million, but with a loss because of the assets often underlying depreciation in Uganda.

But it was more significant in the prior year. So in the prior year, in 2019, the Ghana contract was still running.

We were more in the mid-20s with good profitability. So you don't have to expect now a negative impact on profits, because this is already kind of in the resize of 2020 right.

Thank you. And then we have a follow up…

I think in general, SGS historically was always very strong about capital and the argument was below 2% is the right number. Often the company was beating this and I think this was the right number.

Now I think bit on the structure side on the AR side with these improving, I feel very committed to be below 1% in the midterm.

That's very clear. Thank you so much.

So next we try JP again from Ventobel. JP, if you can hear us please go ahead.

Can you hear me now? Can you hear me?

Hello?

Yes, yes.

Very good. Thanks a lot.

The first one is on sustainability. I think Frankie you were mentioning that if you don't include it in the CBE or originally in the CBE.

If you can share with us how much or how many sales you are now generating with sustainability projects? And how do you see that evolving in future?

You are like eager to participate to some of the auditing or certification of some larger companies, which wants to be like financial stability on ESG. And the second one would be on this new organization, is it just a reshuffling of the organizational structure?

Or you're expecting some synergies both in terms of sales and costs?

Yes. For the sustainability services for the time being, we are more in the traditional sustainability, auditing kind of activities or social auditing channel for CBEs.

So I would say the roofing is rather small. The objective is to start to enhance the portfolio with a much more audit program that links to the ESG field whether it is financial or it's corporate.

So this is more the newer sectors. But I like to remind that in the SGS Group a lot of our all the services that we are already offering is also linked to a part of the sustainability environment, whether it is recycling, circular economy or those activities.

Recycling is good example. We have contract in the mineral sectors where we help companies to recycle specific minerals out of batteries and so on.

So these are also sustainability services that we're already offering, but they are not really part of the CBE portfolio for the time being, because they are quite specialized in the technical aspect. So I would say the group in general has quite a lot of services linked to sustainability.

The more specific to CBE that I mentioned would be a development that will be doing in 2021, together with the new strategic program. So these are vast market.

We have more or less the background work done. It's just a question of go to market and expand our footprint.

The second question was…

New organization whether kind of benefits.

The new, we will talk more about that in the Investor Day, but by and large there will be a reorganization refocused on specific segments. I believe that at industrial level, there are synergy across the customer base.

Natural resource is a good example and likewise the natural resources also good example in the operational aspect, these synergy between some of inspection and fertilizer is a good example, some of the knowhow from one team could be reused for the others. So there would be both ends of the spectrum benefit that would be optimized and work out during the course of 2021.

Thank you very much. And next we have Daniel Burki from ZKB.

Daniel, please go ahead.

Thank you. Good afternoon.

I would have a question regarding your M&A strategy. How much more additional debt would you put to your balance sheet?

With what figure you would be comfortable with?

We don't have official guidance on net debt to EBITDA, but we always want to have a good investment grade rating, so a good investment grade rating, you could easily at the build. And it's a pretty good source.

So on this point of view, there is quite some opportunity there. And it needs to be also put in perspective, it's also not that we debt now every quarter, like the in estimation of SYNLAB comes to the market.

So there will be maybe other deals who are size wise a bit smaller in terms of enterprise value. But again, we are committed to have a good investment grade rating.

And with this we have sufficient capacity to do acquisitions, if we find the right targets for the right price.

Thank you. And we have Rory McKenzie next from UBS.

Rory, please go ahead.

Thanks for taking my questions. Firstly just wanted to ask about the customer behavior around maybe the third inspection services during the restrictions.

Just looking at EHS, CBE, maybe the recovery through H2 was a little bit slower than we expected. So can you comment on, how much revenue or services have still been deferred and we might see a catch up, whether you think the majority of that lost revenue is indeed now lost?

And then secondly, also on the new divisional structure, appreciate it's a big internal decision and obviously for us on the outside. And that does mean we'll lose some external visibility on trends.

Just wondering if you expect to report sub-divisional trends within that or could explain some of the thinking around those groupings? For example, breaking up the areas which has been kind of a standalone division going back to about 2000, yet interested to see why you thought that was better suited to fit into other places?

Thank you.

Maybe, I'll answer the last part of the question. So I mean, we will try to provide as much transparency as possible.

I mean, at the other day if there is a logic for us to integrate part of GIS that you talk as an example into some of the activities with where the larger divisions, because we can create synergy and make sense from both the customers perspective or the operational perspective, then we will integrate because it will make sense for the value creation of the company. If they are more independent than we need, because they're small unit and we needed to put it on the knee for specific business lines to help the management, then we will certainly report them separately.

Because I think it's fair that we should be transparent about a lot of those sectors. So it is not yet defined, we're still in the process of working on some of the details.

But one thing is clear that we try to keep as much as we can comparable for you to be able to look at in the resolutions. But again, with the comment that if we start to integrate, because it makes sense and it's too complex for us to start to split it just for reporting purpose will not do it.

And regarding EHS, obviously EHS has a lot of field activities and these field activities are still in certain jurisdictions changing, given the COVID situation, given the second lockdown. It's about industrial hygiene.

It's still very challenging. What we've seen definitely is that the lab testing is picking up, especially Asia and Europe.

But this is now not the business where you had a bit of feeling your question was related. Is there still work to be done, which was not on the first half, so it's not something like a certification?

There are client wants to make the certification this year. So while if you think about vehicle inspection that people have to inspect their car, so this is not the kind of business.

But what we're seeing is the lab testing is improving. And other areas more field related is still somewhat changing in EHS.

Okay. Thank you very much.

Thank you very much. And our final question is we have one person who's come back to join the queue.

And so Paul Sullivan from Barclays, you can finish this off, and then we're done. Thank you.

Yes, I'm just trying to catch a trend here. So I mean, just a couple of sort of unrelated ESG questions.

Just firstly on China, can you assure us that you don't undertake work, either directly or perhaps more importantly indirectly from companies that operate in the Xinjiang region of China? And how do you avoid conflicts like that more generally?

And then secondly, you've done quite a big OC reshuffle. But there are still no female OC members.

I don't know whether you'd comment on that, please?

Yes, on a second questions, I don't understand fully that diversity, gender diversity on your specific question is an important aspect. But as a group, we also believe that the merits is also something that is critical.

I think one of the - our figures - because we did have female colleagues on the ops council in the past. And our view is that to some extent, setting quota or setting requirement for the ops council so without considering merit may not be doing a favor to our female colleagues to join the ops council, because nobody wants to be there because there was a number set.

So I would say, it is something that I'm looking at, it is something that is important for the group. And at right opportunities with the right person with the right process, we'll have more diverse ops council with certainly more female colleagues on it.

We're looking at the different opportunity, we're more looking at trying to get an equal opportunity for male and female senior management to go into the interview process and the other day that we go through the merit process when we come to the last hurdle. So this is even more the philosophy.

It's not on purpose that we don't have female. But it is just the evolutions, but the evolution could change in the next couple of years.

I would say to the better.

Thanks. I think otherwise Shenxian [ph] whether we - how we can include sub-supplies.

For the last time I checked, we don't do. I would have to double check again, but we gave clear instructions that we should avoid the any configuring on these sanctions and so on.

So I would say, I'm not too concerned about this particular point.

Okay, thank you very much. Thank you, Paul.

And that brings the Q&A session and the call to an end. So thanks very much for participating.

And we all look forward to speaking to you again shortly. Good afternoon.

Thank you so much. Goodbye.