SGS Full-Year Profit Declines 13% as Commodity Crash Bites

  • Geneva inspection company beats analysts' EPS estimate
  • CEO says outlook may change if oil price stays low beyond 2016

SGS SA said full-year profit dropped 13 percent as the world’s largest inspection firm grappled with the crash in commodity prices and a strong Swiss franc.

Net income fell to 549 million francs ($549 million) from 629 million francs in 2014, the Geneva-based company said in a statement on Wednesday. Adjusted earnings per share declined to 81.95 francs from 82.69 in 2014, beating the 80.89-franc average estimate of 19 analysts surveyed by Bloomberg.

SGS, which certifies products ranging from medical devices and industrial metals to children’s toys, said it still expects to achieve organic sales growth of 2.5 percent to 3.5 percent this year while maintaining an operating margin similar to 2015’s 16.1 percent. The company is now less exposed to oil price fluctuations but expects crude to remain depressed for much of 2016, Chief Executive Officer Frankie Ng told reporters in Geneva Wednesday.

If oil “stays low for another 12 to 18 months the situation will be more complicated for us,” Ng said.

SGS, told investors in October that it plans to add $1 billion in revenue by 2020 through acquisitions. The company cut 1,500 jobs during the first half of 2015 in response to the downturn in commodity prices and booked a one-time charge of 64 million francs for the restructuring.

Difficult Conditions

“Trading conditions remained difficult during the year with the fall in commodity prices, primarily impacting Oil, Gas & Chemicals, Minerals and Industrial Services,” the company said in a statement.

Sales at SGS, which can be a gauge of the broader global economy, were 5.71 billion francs, down 2.9 percent from 2014. Adjusting for currency changes, SGS said revenue growth was 3.6 percent, with 2 percentage points attributed to organic gains and 1.6 points to acquisitions.

Operating cash flow rose by 150 million francs to a record 1.1 billion francs in 2015. While the overall results were in line with expectations, SGS’s cash flow was “spectacular,” Vontobel Holding AG analysts wrote in a note.

Chinese Shopping

The company completed 10 acquisitions during the year, spending 128 million francs. Those deals added 45 million francs in revenue and 9 million francs to operating income, SGS said. While it restructures amid the commodities downturn, SGS and long-time Chairman Sergio Marchionne are expanding into e-commerce and data analytic services, SGS said.

SGS will expand its e-commerce vendor verification services in China, Ng said. While the adoption of online shopping is high among Chinese consumers, the percentage of goods sold on some internet portals that prove to be counterfeit is believed to be higher than 30 percent, he said.

SGS shares fell 0.8 percent to 1,834 francs as of 1:04 p.m. in Zurich trading, paring their gain over the past year to 4.6 percent.

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