Q2 2010 Earnings Call Transcript

July 15, 2010 8:30 am ET


Chris Kirk – CEO

Geraldine Matchett – CFO

Peter Hart – Managing Director, New Zealand

Frankie Ng – EVP, Consumer Testing Services

Fred Herren – EVP, Automotive & Government & Institutions Services

Analyst s

Toby Reeks – Bank of America/Merrill Lynch

Kellie McAvoy – JPMorgan

Jessica Flounders – Morgan Stanley

Caroline Price – Caprice Management Limited

Laurent Brunelle – Exane BNP Paribas

Ian Lager [ph] – Franklin [ph]

Nils Engel – BZ Bank



Good morning or good afternoon. I am Laura, the conference call operator for this conference. Welcome to the SGS 2010 half year results conference call and live webcast. Please note that for the duration of the presentation all participants will be in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator instructions) This call must not be recorded for publication or broadcast.

At this time, I would like to turn the conference over to Chris Kirk, Chief Executive Officer in Geneva. You will now be joined into the conference room. Thank you.

Chris Kirk

Good afternoon. Nice to see you all here instead of just being in Basel. First things first, we recently conducted a survey, a perception study amongst many of you and the financial press as well. For those of you, who participated, thank very much. It’s been a very revealing set of responses we got. What we are trying to do now is to use some of the suggestions you have made. Many of you suggested that we should produce quarterly results, we are not going to do that just yet, but we are going to use some of the suggestions.

As Jean-Luc de said, we have two of our key businesses that are going to present to you the vision of how the world looks certainly for the second half of this year and into next couple of years.

And one thing that you will have seen on the invitation, you are all invited in the last quarter of September for what we call Investor Days. For those days we will introduce you little bit more to SGS, to what we do and how we do it, that will be in Rome, but at the same time what we will do, we will present a plan that will show you where we think this Company is going to be in 2014.

It’s a fairly extensive plan. It shows you where our revenues are likely to be. In fact, where this team thinks they will be and where our margins are going to be and how we are going to get there. So as many of you as can possibly make it to Rome at that time, I think you should come, because it's going to be a pretty revealing couple days.

First of all, let me introduce Geraldine. Geraldine, she is absolutely fantastic, does a great job already for us. Geraldine has a Masters degree in Sustainable Development from Cambridge. She is a very smart kid. So she is the second sort of life scientist that we have on the management in SGS, of course, its Geraldine and I.

I hope you will enjoy the results. As Jean-Luc said, we have some questions coming also from outside this room, but let’s see if we can inspire you at SGS. So thank you and welcome.

Geraldine Matchett

Okay, my turn. Good afternoon, everyone. I will be walking you through the results for the first semester. The format, you will be very familiar with, that’s the way we’ve presented them for the last few years. There is one change that I will highlight along the way, but to refer back to Chris’ point about the perceptions, we understand that our numbers are very clear, but maybe sometimes we think a bit too much about the numbers and not enough about the business.

So because we listen to the voice of the customer, I will try and go a bit faster. The intension is not to scoot over anything, but I am sure that if you have questions when we have the Q&A afterwards, I am more than happy to elaborate on certain aspects of the results. So that was just to explain little bit the pace at which I am going to go.

This slide, you’ve got the press release this morning. The numbers speak for themselves. It has been an interesting semester. The first quarter was a bit slow to be honest for a number of reason; some of it a very prolonged winter conditions, but also we had Haiti, we had Chile.

Anyway, all in all, Q1 that was a little bit slow, but a very good acceleration in the second quarter, which has brought us to being able to generate some top line growth. As you saw, on a published basis it’s 1%, 1.7% on constant currency.

On the margin, there is margin accretion all the way down. Thanks to this overall trend, this is what allows us to confirm our outlook for the full year, which is of a solid year with some revenue growth and some earnings growth. We can come back on that later on if you so wish.

Now, this slide gives pretty much the same information and I will come back step by step as we go through the slides on the different components, so rather than focus on this slide we will probably keep going. There are just a few things I wanted to highlight here.

Firstly, I would like to introduce you to our new way of showing our segmental performance. You will see that we will now refer to the adjusted operating income as opposed to operating income before exceptional.

Okay. For those of you, who follow the (inaudible) sector, this is actually going look like India, because we are in effect aligning with some other well known companies, so you will find that hopefully helpful.

The footnote here actually explains what it is, which is basically the operating results before, three things, the amortization of acquired intangibles, any non-recurring items such as restructuring costs that we incurred last year for example, so you will see those in the comparators and the new thing which are the transaction related costs, which now go to the income statement effective 1 of January, 2010.

So, that was just to clear. I have one slide in here also to show you exactly the reconciliation for those of you who may not be familiar with this way of presenting results.

The other point I would like to raise here is to get to net income; obviously, we have some taxes in there. I don’t refer to that later on, but we are still at an effective tax rate of 26% and it’s probably fair to say that we foresee that that could be maintained till the year end. There is some pressure from mix, geographical mix which can occur, but overall 26% should be okay as a fair assumption for year end.

These graphs, you know them well, it’s basically the trend over the last five years. We keep rolling them. What I find pleasing in here it shows that SGS was solid through some pretty turbulent times and that is by no means related to the geographical mix and the sector mix put in together. We’ll come back on that.

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