half year results sgs growth and operating performance for the full year on a constant currency basis.

Transcription

1 Half year results JUNE 2011

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3 sgs half year results The SGS Group delivered first semester revenues of CHF 2.3 billion, an increase of 12.8% over the prior year on a constant currency basis, with all regions and businesses contributing to this growth. Adjusted operating income of CHF 374 million was up 12.0% on a constant currency basis with an Operating margin of 16.0% in line with the prior year. Net Profit for the period reached CHF 246 million (2010: CHF 232 million on a constant currency basis). During the semester, capital investments amounted to CHF 134 million (up 17.5%) and the Group completed nine small to medium-sized acquisitions for a total cash consideration of CHF 19 million. The Group confirms solid top line growth and operating performance for the full year on a constant currency basis. 3

4 Financial Highlights pro-forma 2 june 2010 Revenue Change in % adjusted EBITDA 1 Change in % adjusted Operating income 1 Change in % (0.3) 499 (4.0) 388 (3.6) adjusted Operating margin in % Operating income (EBIT) Change in % Profit Attributable to equity holders of SGS SA Change in % (5.2) 270 (8.9) Basic EPS (CHF) Diluted EPS (CHF) Cash flow from operating activities (Net debt)/net cash (233) 204 weighted Average number of shares ( 000) average number of employees

5 Overview During the first semester, the Group generated CHF 2.3 billion in revenues, representing an increase of 12.8% (constant currency basis) over prior year. This was achieved through a solid organic revenue growth rate of 9.7% and through acquired revenues of 3.1%. Due to the significant appreciation of the Swiss Franc against all currencies that SGS operates in around the world, Group revenues for the period declined slightly by 0.3% in comparison with the figures for June 2010 (historical basis). Revenue growth for the period was achieved in all regions and businesses, with particularly strong momentum in Minerals Services which delivered comparable top line growth of 24.6% sustained by high levels of activity across the mining sector and a successful business development strategy. Industrial Services and Environmental Services also achieved double digit organic revenue growth during the period, whilst Automotive Services and Life Science Services delivered double digit revenue growth mainly through the contribution of acquired companies. The Group reported an adjusted EBITDA of CHF 479 million, up 10.6% (constant currency basis) over prior year and an adjusted Operating Income of CHF 374 million, with the operating income margin remaining stable at 16.0% compared with 16.1% (constant currency basis) in prior year. Underlying business profitability remained strong, supported by a gradual strategic shift in service mix and good volumes. This successfully offset the impact of increased business development spend on Group margins. Net financial expenses for the period increased to CHF 11 million following the issuance of corporate bonds in 2010 and 2011 for a total of CHF 1,275 million. The overall effective tax rate for the period was 26.5% consistent with the Group s full year expectations. Profit attributable to equity holders reached CHF 246 million for the period, down from CHF 270 million in 2010 due to the strength of the Swiss Franc, but up 6.0% over prior year on a constant currency basis. Operating cash flows amounted to CHF 228 million for the semester, in line with expectations and corresponding to 9.7% of Group revenues versus 11.1% in prior year. This inflow of cash was used to fund acquisitions of CHF 19 million and net investments in fixed assets of CHF 134 million, reflecting an increase in capital investments of 17.5%. The dividend outflow during the period amounted to CHF 494 million. Overall, the Group net debt position amounted to CHF 233 million at 30 June (2010: net cash of CHF 204 million) from a net cash position of CHF 259 million at 31 December Acquisitions The Group completed nine acquisitions during the semester, further expanding our global network and service offering, in particular, for Agricultural Services with acquisitions in South Africa, Canada and the USA, and for Industrial Services with acquisitions in China and Italy. Combined, these nine companies generate revenues of approximately CHF 23 million on an annualised basis. Management Francois Marti joined the Group as SVP Strategic Transformation and becomes a member of the Operations Council. Francis Lacroze left the Group during the semester. Significant shareholders As at 30 June 2011, Exor held 15.00%, Mr. August von Finck and members of his family acting in concert held 14.96%, the Bank of New York Mellon Corporation held 4.98% of the share capital and voting rights of the Company. At the same date, SGS Group held 3.14% of the share capital of the Company. Outlook The pace of investments in development projects will pick up in the second half of the year. Therefore margins, while better than the first half, will be negatively impacted compared to the prior year. For the full year, SGS expects to achieve on a constant currency basis solid top line growth (10%+) and operating margins slightly lower than July 2011 Sergio Marchionne Chairman of the Board Christopher Kirk Chief Executive Officer 5

6 Agricultural services Agricultural Services comparable revenues increased 4.0% (of which 2.6% organic) to CHF 156 million for the period, supported by trade volume improvements during the second quarter and solid growth in inland services. Revenue from trade inspections increased during the semester, with good volumes in many countries including China, Canada, India and France. This was sufficient to offset the impact of the grain export ban and quota impositions in Russia and Ukraine, as well as continued low volumes in South Eastern Europe. For the balance of the year it is expected that trade inspection volumes will increase with Russia and Ukraine returning to the market and generally good crop forecasts. Non-trade related services also performed well, especially inland activities such as soil testing and field trials that continued to grow across geographies boosted by investments made in 2010 and the geographical expansion of our service offerings. Demand for collateral management services and trade guarantee services also recovered progressively post financial crisis. The adjusted operating income margin for the period increased to 13.7% from 12.6% (constant currency basis), bolstered by the above mentioned positive trends and efficiency improvement initiatives in several underperforming affiliates. During the period the Group acquired three businesses active in the inland segment: NviroCrop, Agri- Food Laboratories and AG Research Associates. These acquisitions extended our geographical presence to Canada and South Africa, as well as within the USA, consolidating our leadership position in crop research and precision agriculture services. pro-forma 2 June 2010 Revenue Change in % 4.0 (8.5) adjusted Operating income Change in % 13.2 (5.3) Margin % Minerals services Minerals Services delivered an excellent comparable revenue growth of 24.6% (nearly all organic) to CHF 323 million for the period, sustained by high levels of activity across the mining sector and a successful business development strategy. Market sentiment and spending remained strong throughout the semester, maintaining the momentum for growth that started in Revenue growth over the period was delivered for the most part by the metallurgical and geochemical segments with all SGS sites working at or near full capacity. Laboratory expansions in these locations are already underway to ensure the teams can deliver on projects in the pipeline and meet additional client demand. During the first semester, mine site laboratories also processed high volumes of samples. Three new on-site laboratories were opened during the period and another eight are expected to be confirmed before year-end as mining companies invest in new geographies with significant potential. The trade inspection business also performed well despite the flooding in Queensland, Australia early in the year that impacted regional commodity flows. The adjusted operating income margin for the period increased to 18.4% from 16.9% (constant currency basis), resulting primarily from increased capacity utilisation across the network and a favourable product mix effect. These trends are expected to continue into the second semester. During the period, the Group initiated a number of efficiency projects in order to maintain high quality and turn-around time standards despite the high demand. This will be combined in some countries with centralisation of laboratory facilities. pro-forma 2 June 2010 Revenue Change in % adjusted Operating income Change in % Margin %

7 Oil, Gas & Chemicals services Oil, Gas and Chemicals Services delivered comparable revenue growth of 6.9% (nearly all organic) to CHF 451 million for the period, supported by positive developments in all major service segments. Trade inspection revenue growth remained robust across all geographies underpinned by strong global demand for oil and chemicals, leading to particularly good inspection volumes in Russia, China, the Caspian region and the USA. These favourable market conditions also boosted revenues from Plant and Terminal Operations and laboratory outsourcing contracts, which in turn compensated for the drop in Cargo Treatment volumes caused by changes in commodity trading flows. Strategic growth areas for the division also performed well during the period. Investments made in Upstream activities such as Well Testing and Drilling Fluid analysis have enabled the Group to secure contracts in Australia, Mexico, Papua New Guinea and the Middle East. These projects have started contributing to top line growth during the period and are expected to accelerate over the balance of the year. Other services such as Oil Condition Monitoring, aimed at the end users of lubricants and Global Fuel Quality Surveys, also performed well. The adjusted operating income margin for the period declined slightly to 13.0% from 13.2% (constant currency basis), primarily as a result of continued investments for new contracts in Upstream services, as well as reduced activities in traditionally higher margin Cargo Treatment services. During the period, investments continued to support the Group s rollout of the Multiphase Flowmeter units, FluidPro Portable Laboratories and Wireline/Slickline units. pro-forma 2 June 2010 Revenue Change in % 6.9 (6.1) adjusted Operating income Change in % 5.6 (9.7) Margin % Life Science Services Life Science Services delivered comparable revenue growth of 15.4% (of which 7.2% organic) to CHF 100 million for the period, enhanced by the acquisition in 2010 of the M-Scan group of laboratories in the Biologics testing arena. This acquisition is now fully integrated and delivering results ahead of expectations. The quality control and R&D segment performed well during the semester, supported by investments made in prior periods to develop an excellent laboratory network across Canada, the USA, Europe and Asia. This network is now allowing the Group to meet the needs of global pharmaceutical clients in relation to both small and large molecules. Investments in the Biologics arena following the acquisition of M-Scan, including immuno-analysis and biomarkers, contributed to the top line growth with solid client demand, as well as in biometric services for late phase trials which continue to deliver profitable growth. The adjusted operating income margin for the period declined to 10.4% from 12.8% (constant currency basis), reflecting the difficult market conditions in early phase clinical research. The industry is currently facing a reduced pipeline of new molecules leading to postponements of clinical trials. This reduces the visibility of our clinics in managing capacity utilisation. Challenging market conditions are expected to persist during the second semester but industry fundamentals remain good. During the period, several investment projects have been initiated to increase laboratory capacity in North America and France, as well as to expand the service offering to meet new client requirements in such areas as cell based assay. pro-forma 2 June 2010 Revenue Change in % adjusted Operating income Change in % (6.4) (18.9) Margin %

8 Consumer Testing Services Consumer Testing Services delivered solid comparable revenue growth of 8.5% (nearly all organic) to CHF 387 million for the period, sustained by a historically well balanced portfolio of services. Revenue growth was achieved across all regions with particularly strong momentum in France, Spain, Germany, Turkey, the USA and most of the Asian countries. The gradual global economic recovery led to an increase in sample volumes, with local demand driving growth in food testing and high-end engineering services (microelectronics, reliability). Demand from global key accounts drove growth in Softlines and Hardlines testing as did market share gains. This enabled the Group to offset lower demand from the USA following the CPSIA implementation and the slow recovery of the wireless testing market. During the period, new generation revenue streams contributed to the overall top line more significantly, especially automotive parts testing. For this segment, the Group has now established an operational network of laboratories in Europe and Asia and is on track to open another three laboratories during the second semester. Other similar growth areas include product reliability testing, photovoltaic testing and a new range of services related to battery technologies. The adjusted operating income margin for the period declined to 23.6% from 24.7% (constant currency basis), primarily as a result of increased investments in new service offerings and a product mix transition between maturing and new services. In the first semester, capital investments amounting to CHF 31 million were made to support new service developments, as well as to replicate existing capabilities across regions and enhance capacity in several locations. pro-forma 2 June 2010 Revenue Change in % 8.5 (4.9) adjusted Operating income Change in % 3.4 (10.7) Margin % Systems & Services Certification Systems and Services Certification delivered organic revenue growth for the period of 5.8% to CHF 177 million, despite the earthquake and tsunami in Japan causing significant delays in audit commitments. Revenues increased in most regions during the first semester, with double digit growth being achieved in Russia, Turkey, South Africa, China, India, Indonesia and Australia. Systems Certification remains the key business driver, coupled with a strong recovery in training activities. This growth successfully offset weaker results in Japan, Europe and in North America where market conditions remained subdued. Investments made since 2010 to strengthen the international sales and key account management structures have enabled the Group to address the needs of global clients efficiently. As a result, several new global certification contracts have been awarded that will contribute to improving results over the balance of the year. The adjusted operating income margin for the period declined to 17.4% from 18.9% (constant currency basis), impacted primarily by the postponements of audits in Japan, difficult market conditions in Spain and Portugal, as well as costs incurred to develop new services. During the period, several business development initiatives have been rolled-out in order to meet the increasing demand for renewable energy and sustainability-related schemes such as bio-fuels, energy management and social responsibility. Other new segments are also being developed including IT, transportation security and business continuity, with a focus on building technical expertise to support more complex industry-specific schemes. pro-forma 2 June 2010 Revenue Change in % 5.8 (5.9) adjusted Operating income Change in % (2.8) (15.2) Margin %

9 INDustrial services Industrial Services delivered solid comparable revenue growth of 13.2% (of which 10.6% organic) to CHF 369 million for the period, supported by seven acquisitions within the past twelve months. Revenue growth for the semester was achieved primarily in Asia, South America and Africa. In Asia, increasing infrastructure spend boosted demand for testing and project supervision services, while in South America revenue growth was driven by increased demand for testing, inspection and commissioning services from large oil and gas as well as mining companies. In Africa, significant foreign investment also increased the number of off-shore oil and gas projects requiring supply chain, technical staffing and inspection services. The adjusted operating income margin for the period declined to 10.8% from 12.3% (constant currency basis) as a result of ongoing difficult market conditions in Spain for both commercial services and statutory inspections. Restructuring plans carried out in 2010 have been extended into the first semester to adjust to declining volumes. In the Middle East, activity levels gradually recovered as projects for the oil and gas industry resumed, however, the semester remained comparatively quiet. During the period, two acquisitions were completed in this sector, one of them, Sertec, to enhance the Group s presence in the highly regulated Health & Safety market for the oil, gas and chemical sector in Italy. The second, Correl Rail, is a Notified Body in the UK that provides certification for new, upgraded and modified rolling stock, as well as technical assistance and process consulting. This acquisition will be effective 1 July pro-forma 2 June 2010 Revenue Change in % adjusted Operating income Change in % (0.7) (14.0) Margin % ENVIronmental services Environmental Services delivered comparable revenue growth of 15.5% (of which 14.6% organic) to CHF 140 million for the period, bolstered by a healthier start to the year in Europe and excellent results in Africa, South America, China and the Asia Pacific region. In Europe, the market recovery remains patchy, with France, Italy and Spain still experiencing low volumes. Germany and Belgium were able to respond rapidly to demands in relation to the dioxin crisis and the testing for radioactivity of goods arriving from Japan, thereby improving top line and margins. In other regions, resource-related countries continued to show increasing demand for better environmental monitoring, such as in Peru and Colombia with miningdriven requirements, and with new developments in Angola, Qatar, Ghana and Madagascar. In the Asia Pacific region, restructuring performed in prior periods and the appointment of new leadership have returned the region to profitable growth. The adjusted operating income margin for the period declined slightly to 8.6% from 9.1% (constant currency basis), reflecting in part weak results in the USA and increased investments across the network. These initiatives include the final roll-out of biogenic carbon and fugitive emissions services, as well as the development of new services in the areas of shipping monitoring, data interpretation and high-end laboratory analytics. During the period, the Group acquired Lippens Geotechniek in Belgium, a leading geotechnical engineering company specialised in assessing the chemical and physical properties of soil and rock. This business complements the existing SGS geotechnical businesses in Belgium, Australia and the Far East and will diversify our current range of services in Europe. pro-forma 2 June 2010 Revenue Change in % adjusted Operating income Change in % 8.1 (4.0) Margin %

10 AUTOmotive services Automotive Services delivered comparable revenue growth of 57.6% (of which 6.9% organic) to CHF 137 million for the period, supported by the acquisition of the ITV statutory inspection business in Spain and Argentina on 31 December This acquisition is now fully integrated into the Group and has been performing comfortably in line with expectations. The adjusted operating income margin for the period increased to 21.1% from 19.0% (constant currency basis), benefiting from a positive mix effect as a result of the ITV acquisition and from management efforts to improve the profitability of non-statutory activities. These efficiency improvements have delivered higher margins in Europe but are yet to be completed in North America where the semester was disrupted by severe winter conditions in the USA and by the Japan earthquake which led to unforeseen extensions to lease terms and therefore, reduced off-lease inspection volumes. Organic revenue growth for the period was achieved despite the negative impact of various degrees of political unrest in Ivory Coast, Morocco and Algeria. While operational interruptions led to lost revenues, all employees were safe and the centres suffered comparatively little physical damage. All established statutory inspection operations in Europe and South America delivered solid results in the first semester while new operations in Peru and South Africa, as well as additional centres in France, will be coming on-line during the balance of the year. pro-forma 2 June 2010 Revenue Change in % adjusted Operating income Change in % Margin % GOVErnments & Institutions Services Governments & Institutions Services delivered organic revenue growth for the period of 3.1% to CHF 105 million, driven by an expansion of both Local Solution services and Global Solution programmes. Local Solution services, now representing 65% of total revenues for the division, maintained good momentum during the period. Existing Product Conformity Assessment (PCA) programmes in Kenya, Saudi Arabia and Nigeria, as well as TradeNet contracts in Ghana and Madagascar were the main contributors to top line growth. This was sufficient to fully offset the impact of lost revenues in Mexico following the termination of a second party inspection programme and a drop in revenues from the TradeNet contract in Ivory Coast during the civil conflict. PCA mandates were also introduced during the period in new areas including Iraq and Zambia, albeit with modest volumes to date. Global Solution activities also generated revenue growth during the period driven by existing Pre-shipment Inspection programmes, particularly in Haiti where operations returned to normalised conditions as the reconstruction efforts progress. The adjusted operating income margin for the period increased to 20.7% from 16.3% (constant currency basis), aided by volume gains on the Global Solution programmes and the dynamic up-take of PCA inspection work, enabling the Group to leverage its existing network with limited incremental costs. During the period, the Group continued to invest in the development of new services and in the implementation of new mandates for Forestry monitoring in Cameroon and the Democratic Republic of Congo, as well as for the Inland Revenue Service (IRS) in Ghana. pro-forma 2 June 2010 Revenue Change in % 3.1 (6.4) adjusted Operating income Change in % Margin %

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12 Condensed interim financial statements for the period ended 30 june 2011 Condensed consolidated income statement notes Revenue Salaries, wages and subcontractors expenses (1 309) (1 285) Depreciation, amortisation and impairment (113) (115) Other operating expenses (560) (569) Operating income (EBIT) Analysis of Operating income Adjusted operating income Amortisation of acquisition intangibles (8) (4) Transaction and integration-related costs 3 (3) (1) Operating income Net financial expenses (11) (2) Profit before taxes Taxes (93) (99) Profit for the period Profit attributable to: Equity holders of SGS SA Non-controlling interests Basic earnings per share (in chf) Diluted earnings per share (in chf)

13 Condensed consolidated statement of Comprehensive income Actuarial gains/(losses) on defined benefit plans (14) (18) Income tax on actuarial gains/(losses) taken directly to equity 4 4 Exchange differences and other (168) (40) Other comprehensive income for the period (178) (54) Profit for the period Total comprehensive income for the period Attributable to: Equity holders of SGS SA Non-controlling interests 7 10 Condensed consolidated balance sheet June 2011 December 2010 Non-current assets Land, buildings and equipment Goodwill and other intangible assets Other non-current assets Total non-current assets Current assets Trade accounts and notes receivable Other current assets Cash and investments Total current assets Total assets Total equity non-current Liabilities Loans and obligations under financial leases Provisions and other non-current liabilities Total non-current liabilities Current liabilities Trade and other payables Other liabilities Total current liabilities Total equity and liabilities

14 Condensed consolidated cash flow statement Profit for the Period Non-cash items (Increase) in working capital (130) (109) Taxes paid (109) (127) cash flow from Operating activities Net (purchase) of fixed assets (134) (114) Cash (paid) for acquisitions/disposals (27) (31) Other (5) 1 Cash flow from investing activities (166) (144) Dividend paid to equity holders of SGS SA (494) (455) Dividend paid to non-controlling interests (4) (12) Acquisition of non-controlling interests - (4) Net cash (paid)/received on treasury shares (30) 85 Proceeds of corporate bonds Interest paid (14) (7) Increase/(decrease) in borrowings 8 (254) Cash flow from financing activities 180 (647) Currency translation (10) 5 Increase/(decrease) in cash and cash equivalents 232 (526) Condensed statement of Changes in Consolidated Equity attributable to equity holders of sgs sa non-controlling interests total equity Balance as at 1 january Total comprehensive income for the period Dividends paid (455) (3) (458) Share-based payments Movement in non-controlling interests (4) - (4) Movement on treasury shares Balance as at 30 june Balance as at 1 January Total comprehensive income for the period Dividends paid (494) (4) (498) Share-based payments 9-9 Movement in non-controlling interests Movement on treasury shares (30) - (30) Balance as at 30 JUNE

15 Notes to the condensed interim financial statements 1. Basis of Preparation These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December the Group in its consolidated financial statements for the year ended 31 December Significant accounting policies Several new amendments and interpretations were adopted effective 1 January 2011 but have no impact on the Group consolidated financial statements. The condensed financial statements have been prepared in accordance with the accounting policies applied by 3. Segment Information revenue adjusted operating income amortisation of acquisition intangibles operating income by business Agricultural Services Minerals Services (1) 58 Oil, Gas & Chemicals Services (1) 58 June 2011 Life Science Services (1) 9 Consumer Testing Services Systems & Services Certification Industrial Services (1) 39 Environmental Services Automotive Services (4) 25 Governments & Institutions Services Total (8) Unallocated costs (3) group operating income 363

16 june 2010 revenue adjusted operating income amortisation of acquisition intangibles operating income by business Agricultural Services Minerals Services Oil, Gas & Chemicals Services (1) 64 Life Science Services (1) 12 Consumer Testing Services Systems & Services Certification Industrial Services (1) 45 Environmental Services Automotive Services (1) 18 Governments & Institutions Services Total (4) 384 Unallocated costs (1) group operating income 383 All segment revenues reported above are from external customers. The adjusted operating income represents the profit earned by each segment. This is the main measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. There have been no material changes to the total assets by segment as disclosed in the last annual financial statements. Unallocated costs 2011 During the first semester 2011, the Group incurred CHF 3 million of integration-related costs and transaction-related costs that have been expensed in accordance with IFRS 3 (revised). Unallocated costs 2010 During the first semester of 2010, the Group incurred transaction-related costs of less than CHF 1 million that have been expensed in accordance with the IFRS 3 (revised) and integration-related costs. 4. Earnings Per Share Profit attributable to equity holders of SGS SA Weighted average number of shares ( 000) Basic earnings per share (CHF) Profit attributable to equity holders of SGS SA Diluted weighted average number of shares ( 000) Diluted earnings per share (CHF) Adjusted earnings per share: Profit attributable to equity holders of SGS SA Amortisation of acquisition intangibles 8 4 Transaction and integration-related costs net of tax 2 - Adjusted profit attributable to Equity holders of SGS SA Adjusted basic earnings per share (CHF) Adjusted Diluted earnings per share (CHF)

17 5. Business combinations and other significant transactions Acquisitions During the period, the Group completed nine acquisitions. 100% of International Electrical Certification Center, Ltd. (IECC), effective 1 January 2011 an independent laboratory providing third-party testing in Hong Kong, China. 100% of Tianjin Tianbao Construction Material Testing Co, Ltd. (Tianbao) based in Tianjin (China), effective 1 January 2011 a leading construction materials testing laboratory in the Tianjin Binhai Development Zone. A characterisation business formerly run by LGC Group based in Ellesmore Port (UK), effective 1 January % of NviroCrop, effective 1 January 2011 a South African precision agriculture services company based in Potchefstroom (South Africa). 100% of Lippens Geotechniek, effective 1 January 2011 a geotechnical engineering company based in Zulte, Belgium. 100% of Auto Contrôle Evaluation Service (ACE), effective 1 February 2011 a specialist in off-lease and non-statutory vehicle inspections based in Bonneuil-sur-Marne, close to Paris, France. 100% of Agri-Food Laboratories Inc., effective 1 March 2011 an independent agriculture testing lab based in Ontario, Canada. 100% of Sertec S.r.l., effective 1 April 2011 a health & safety (H&S) provider based in Livorno, Italy. 100% of AG Research Associates LLC (ARA), effective 1 May 2011 a contract research organisation in Georgia, USA. Total These companies were acquired for an equivalent of CHF 19 million and the total goodwill generated on these transactions amounted to CHF 14 million All the above acquisitions contributed in total CHF 7 million in revenues and CHF 1 million in operating income. Had all acquisitions been effective 1 January 2011, the revenues for the period would have been increased by CHF 4 million and the Group operating income for the period would have been increased by less than CHF 1 million. None of the goodwill arising on these acquisitions is expected to be tax deductible. Total assets and liabilities arising from the acquisitions for the period BOOK value fair value adjustments FAIR VALUE ON ACQUISITION Tangible and intangible assets Trade accounts and notes receivable 4 4 Cash and cash equivalents 1 1 Other current assets 1 1 Current liabilities (2) (2) Non-current liabilities (1) (1) net assets acquired Goodwill 14 total purchase price 25 Acquired cash and cash equivalents (1) Considerations payable (5) net cash outflow on acquisitions for THE PERIOD 19 Due to their timing, the initial accounting for all nine acquisitions has only been provisionally determined at the balance sheet date. The Group incurred transaction-related costs of CHF 2 million related to external legal fees and due diligence expenses. These expenses are reported within Other Operating Expenses in the condensed consolidated income statement. Considerations payable relate mainly to environmental and commercial warranty clauses. 17

18 6. GOODWILL cost At 1 January Current period acquisitions Consideration on prior years acquisition - (2) Exchange differences (46) (25) AT 30 June The goodwill arising on acquisitions relates to the value of expected synergies and the value of the qualified workforce that do not meet the criteria for recognition as separable intangible assets. 7. Retirement Benefit Obligations During the period, an interim assessment of employee benefit obligations and actual return on plan assets has been performed for the major defined benefit pension plans. A resulting decrease in net pension liabilities of CHF 9 million has been recorded. 8. corporate bond On 8 March 2011, SGS SA issued an 8 year CHF 375 million straight bond with a coupon of 2.625%. On 27 May 2011, SGS SA issued a 10 year 275 CHF million 275 million straight bond with a coupon of 3.000% and the re-opening for CHF 75 million of the outstanding 1.875%, 6 year bond, the outstanding (issued 1.875%, on 19 August 6 year bond, 2010). SGS entered (issued into an on Interest 19 August Rate 2010). Swap (IRS) SGS entered agreement into linked an Interest with the Rate Swap (IRS) 275 million agreement bond. linked In this with case, the the Group designated CHF 275 million and documented bond. In this the case, IRS the as a Group hedging designated instrument and against documented changes the in IRS fair as value an hedging of recognised instrument liabilities against (fair changes value in hedge). fair value The of effectiveness recognised of liability such (fair hedge value is assessed hedge). The at inception and effectiveness verified at of regular such hedge intervals is at assessed each at inception semester, and using verified prospective at regular and retrospective intervals at least testing. each The semester, changes using fair prospective value of this and hedging retrospective instrument testing. are recognised The changes in in the fair income value of statement. this hedging The hedged instrument item are is recognised also adjusted in the for the income risk being statement. hedged, The with hedged any gain item or is also loss being recognised adjusted for in the the risk income being statement. hedged, with any 9. AppROVal gain or loss of interim being recognised in the income financial statement. statements and subsequent events 9. AppROVal of interim These condensed interim financial statements financial statements were authorised and for issue by the subsequent Board of Directors events on 14 July Effective These condensed 1 July 2011, interim the Group financial acquired: statements were authorised for issue by 100% of Correl Rail Limited, an the Board of Directors on 14 July independent certification body, based Effective in Birmingham, 1 July 2011, UK. the Group acquired: 30% 100% of of Bluesign Correl Rail Technologies Limited, an Group, independent based St. Gallen certification (CH) and body, increased based in its Birmingham, stake to 80%. UK. 30% of Bluesign Technologies Group, based in St. Gallen (CH) and increased its stake to 80%. Balance sheet End of period Rates Income Statement Average Rates June 2011 December 2010 Australia AUD Canada CAD China CNY European Union EUR USA USD

19 Disclaimer This PDF version is an exact copy of the document provided to SGS shareholders. Except where you are a shareholder, this material is provided for information purposes only and is not, in particular, intended to confer any legal rights on you. This document does not constitute an invitation to invest in SGS shares. Any decisions you make in reliance on this information are solely your responsibility. This document is given as of the dates specified, is not updated and any forward looking statements are made subject to the following reservations: This document contains certain forward looking statements that are neither historical facts nor guarantees of future performance. Because these statements involve risks and uncertainties that are beyond SGS control or estimation, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements. These statements speak only as of the date of this document. Except as required by any applicable law or regulation, SGS expressly disclaims any obligation to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in SGS group s expectations with regard thereto or any change in events or conditions on which any such statements are based. English version is binding. Shareholder Information SGS SA CORPORATE OFFICE 1 place des Alpes P.O. Box 2152 CH 1211 Geneva 1 t +41 (0) f +41 (0) e SGS.investor.relations@sgs.com Full Year results Tuesday, 17 January 2012 ANNUAL GENERAL MEETING OF SHAREHOLDERS Monday, 12 March 2012 STOCK EXCHANGE LISTING SIX Swiss Exchange, SGSN STOCK EXCHANGE TRADING SIX Swiss Exchange COMMON STOCK SYMBOLS Bloomberg: Registered Share: SGSN.VX Reuters: Registered Share: SGSN.VX Telekurs: Registered Share: SGSN ISIN: Registered Share: CH Swiss security number: CORPORATE COMMUNICATIONS & INVESTOR RELATIONS Jean-Luc de Buman SGS SA 1 place des Alpes P.O. Box 2152 CH 1211 Geneva 1 t +41 (0) f +41 (0)

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