SGS 2023 Full Year Results and Strategic Update

Strong organic growth of 8.1% in 2023

Strategy 27 to drive growth and profitability

2023 full year results

• Sales of CHF 6 622 million, supported by a strong organic¹ growth of 8.1% driven by all business lines. This included a double-digit increase in Business Assurance (prev. Knowledge) and high single-digit growth in Natural Resources and Industries & Environment.
• Adjusted operating income¹ of CHF 971 million, representing an organic¹ growth of 6.3%. The adjusted operating income margin¹ on sales was 14.7%, representing a decline of 0.7 percentage points compared to prior year, of which 0.5 percentage points was attributable to adverse currency impact.
• Cash flow from operating activities of CHF 1 123 million, leading to free cash flow¹ of CHF 604 million, up 25.6%. This was driven by lower net working capital requirements and capital expenditures.

“In 2023, SGS delivered superior organic growth and a significant increase in free cash flow, thanks to the breadth of its portfolio. All our business lines and regions contributed to this performance, with particularly strong growth in sustainability services, cybersecurity, ESG assurance and consulting. This represents a powerful platform to build on.

“As we transition into an exciting new chapter for SGS, I want to assure Géraldine Picaud, our CEO Designate, of my full and unwavering support,” said Frankie Ng, Chief Executive Officer.

Launch of Strategy 27: Accelerating growth, building trust

Today, SGS launches its Strategy 27 – ‘Accelerating growth, building trust’, to drive profitable growth, streamline the organization and deliver attractive returns for stakeholders. It is based on three powerful value drivers: Growth, Performance & Agility and Strong Financial Profile.

• Growth: The Group will capitalize on the strong 4% to 5% underlying annual momentum of the CHF 190 billion Testing, Inspection & Certification industry and invest in segments and regions where greater opportunities exist, such as sustainability and digital services as well as in North America.
• Performance & Agility: SGS will implement a cost-disciplined operating model and a corporate-light structure. The simplification is expected to create cost savings of CHF 100 million resulting in a new run rate reached at the end of 2025. A new Executive Committee of 12 members will be appointed to foster accountability.
• Strong Financial Profile: SGS will ensure disciplined value creation maintaining a solid investment grade credit rating, which allows some significant headroom for potential additional debt drawings. Together with strong multi-year free cash flow and the proposal put forward by the Board for shareholders to receive the 2023 dividend in shares or cash, this will allow the company to fund growth through accretive and synergistic acquisitions and ensure that SGS continues to offer attractive shareholder remuneration.

Mid-term 2027 objectives

Strategy 27 will shift gears towards growth of the top and bottom line. The Group targets the following objectives over the next four years.

• Organic¹ sales growth of 5% to 7% annually.
• Significant improvement of at least 1.5 percentage points in adjusted operating income margin¹ on sales by 2027.
• Cash conversion¹ to exceed 50% by 2027.

“I am convinced that the new strategy will capture the best opportunities for SGS in a structurally growing Testing, Inspection and Certification industry. It lays out powerful targets to foster solid and resilient growth, profitability and cash generation. Today, we are kicking off this new phase and I am excited to work together with our highly skilled teams to drive the future of SGS,” said Géraldine Picaud, Chief Executive Officer Designate.