Ladies and gentlemen, welcome to the SGS 2019 Full Year Results Conference Call and live webcast. I'm Alice, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by Q And A session. In the interest The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Toby Riggs, Senior Vice President of Investor Relations at SGS Auditor in Geneva.
Dominic if you'd like to start the presentation.
I'm sorry, Italy. Thank you very much. Ladies and gentlemen, good afternoon, and welcome again to the presentation of our full year 2019 results. As usual, I will start with the highlight of our full year performances and I will hand it over to Dominique to give you a more detailed walkthrough of financial results. And then I'll come back to give an outlook and guidance for 2020.
Let me start on that slide. Total revenue grew by 1.2% at constant currency, while the organic growth was 2.6%. Our adjusted operating income stands at $1,063,000,000,000. Frank's a 4.6% increase compared to 2018. Profit for the period stands at CHF 702,000,000, an increase of 1.7% compared to last year, and the free cash flow from operation amounts to CHF 870 compared to CHF 796 in 2018.
Our ROIC has improved to 25.5 percent for the last 12 months. On the board of directors proposing a dividend of CHF80 per share, an increase of from CHF78 in 2018. This slide shows a little bit the the KPIs that we have, established in terms of, growth stability profile and long term value creation of our 4 of our shareholders. We expect to be able to maintain or improve this performance going forward, but just to give you an indication on what we've done over the last During 2019, we remain discipline of focus on our capital allocation, deploying it in line with our long term objectives. So during the year, we made the level of acquisition in 6 business lines in order to strengthen our portfolio.
The largest of those acquisitions main points, in the U. S, together with delinquencies, which was the 1st acquisition we made in 2016 and enhance our capability and our strength in the operational consulting area and add additional value to our customers, not just the CV customers, but across the board of our customer base. Qualitization were made in HS, following increased expertise in the fire consulting, our global laboratory network has been pointed with the addition of PT, Tokyo, LN in Indonesia and transatlantic laboratories in the U. S. And DMW environmental safety support our growth in the health and safety sectors.
And this is why it's based in the U. K. I'll talk about that. And after the full year closure, we also announced an additional acquisition in the area of, consumer retail services in the U S. It's Thomas J.
Stevenson, Stephens, sorry, is a company which is specialized in clinical research in the safety and efficacy of cosmetic and the customer health care product. So combined with HRL that is an acquisition made a couple of years ago, this would enhance our capabilities and the competence on the service offering in the U. S. Market. So these are quite good additions to our expansion to the U.
S. Market. During the 2019 exercise, we also made 4 disposals. So we mentioned earlier to the DC Apopetrol Services Corporation, which is a larger one, but we also made the disposal toward end of last year with the vehicle inspection in the U. S.
As well. And also dispose of our PTO activities and evidence, that the ones that we have not highlighted too much, it was a small legacy licensing activities that we had in the in Italy that we've disposed off during the first half of this year, I believe, but there's also rather small unit and we have not like this one. You will make you take the full disposal to date there. We are more or less around the CHF250 1,000,000,000 revenue. And this is in line from the numbers I have highlighted during the 2018 industry stage income of disposal strategy.
But besides the acquisition and disposal, Tesco's group is continuing to invest in new sectors to position ourselves for long term evolutions. A couple of examples just to highlight, our Sabre Laboratory strategy, while I mentioned that already in the half years, This is a strong development on the progress in terms of expansion in Europe and in the in the U. S. Is according to our plan. Second development in terms of new business is our other semiconductor industry.
We have the new strategy in terms of semiconductor conductor industry, especially in China. Some of Utah has been with us during the interstates there of 2019 last year Taipei has shown some of the activities that we are performing there and we're trying to expand these kind of similar activities in the Chinese market, which is a quite fast growing segment. Privacy capabilities. So all that is great in terms of development for the long term strategy of SS Group. On that, I'm going to hand over to Dominique to go through the financial reviews, and I'll come back with an update for each of the business lines.
Thank you, Frankie. Good afternoon, ladies and gentlemen. I will start with the overview of the financial highlights for 2019. Frank already mentioned, operating highlights and his introduction with revenues of CHF 6,600,000,000 and adjusted operating income of CHF 1,000,000,000. Revenue for the group in constant currency increased by 1.2%, driven by the organic growth and the majority of our segments of 2.6%, partly offset by the net effect of acquisitions and disposals.
The adjusted operating income increased by 4.6 percent in constant currency to 1,000,006,3,000,000, leading to a margin increase of 50 basis points to 16.1% in 2019. The strong increase in operating income of 18% in constant currency is a result of the 259,000,000 Swiss franc gain of the disposal of PEC, net of transaction costs in the U. S. Partly compensated by provisions for indirect taxes considered in the first half twenty nineteen, the goodwill impairment of twenty 1,000,000 considered in the first half of twenty nineteen, restructuring costs of 1,000,000, while the vast majority is related the structural cost optimization programs executed in the second half of twenty nineteen and impairment of fixed in intangible assets of 1,000,000 considered in the second half of twenty nineteen. By the operating profit in 2018, on the year before was negatively impacted by 1,000,000 in relation to the overstatement of revenues in Brazil.
The effective tax rate increased from 24% in the prior year to 31% in 2019. Increase in the tax rate is due to valuation allowance on DTAs as disclosed in the first half of twenty nineteen. Consequently, net profit after minority interest increased by 2.6% to 6 60,000,000 in fiscal year 2019 We posted a moderated organic growth of 2.6%, while acquisitions added 1.1% and the disposals had a negative impact of 2.5%, leading to constant currency growth rate of 1.2%. The negative currency impact of 2.8% due to the strengthening of the Swiss franc against all major currencies with the exception of the U. S.
Dollar. Moving on to the revenue growth by business, agri Food And Life achieved solid organic growth of 3.8%, growth in trade and logistics was good, and food, solid, and life delivered moderate growth. Our growth in minerals decelerated as expected throughout the year, leading to a solid organic revenue growth rate of 3.7%. The growth was primarily driven by the trade and geochem business, while mentality and blend operations declined as a result of delayed projects in a softer market. Organic growth in Oil Gas And Chemicals was 2.9%.
Rate was broadly stable despite a more competitive environment and pricing pressure in several jurisdictions. Upstream achieved strong double digit growth and strong growth was also achieved in oil conditioning monitoring while the non inspection related testing services was stable. Consumer and retail continues to grow strongly delivering an organic growth of 5.4 percent. The strongest growth driver was the electrical and electronics business Growth in Softlines was solid benefiting from new customers and strong performance of new sourcing countries, including Vietnam, Turkey, Indonesia and Cambodia, while China remained stable. Artline achieved strong growth benefiting from increased volume of activities with e retailers and other e platforms.
CBE delivered double digit growth of 13.2% driven by acquisitions. The organic growth of 1.5% in fiscal year 2019 reflects the fact that we returned to good growth in the later part of the year after the transition period. After a strong first half in industrial, organic revenues in the second half 2019 declined by 2% leading to moderate organic growth of 2.3% in our industrial business. The slowdown in the second half reflects the reduction of exposure to value strong businesses, leading subsequently to a very strong margin and profit increase. Good organic growth of 4.6 percent was achieved in Environment Health And Safety driven by strong growth in field and monitoring services as well as health and safety services, while growth in the laboratory services was solid.
Organic revenue and transportation declined by 3.7%, driven by weaker demand in fee services, mainly related the supply chain certification as suppliers completed their certification to the new standard. Regulated service were impacted by reduced volumes on some programs, the completion of a contract and increased competition in Spain. Revenues in GIS declined organically by 4.8%, reflecting an unexpected change in government policies on import duties in Ghana as well as lengthy implementation and enforcement of recently signed government contracts, particularly in the e waste monitoring solution, Renobo. From a regional point of view, organic growth in Europe, Africa and Middle East was modest with 1.6%. Eastern Europe And Middle East delivered strong high single digit growth.
Growth in North Central Europe was solid, by growth in Africa was held back by the weakness in our GIS And Transportation business. Americas posted organic revenue growth of 2.3 percent, driven by strong growth in South Central America, and here in particular in Peru, Colombia and Brazil, while growth in North America was broadly stable. The good organic growth in Asia Pacific for 4.4 percent continued to be driven by strong growth in China, Korea and Vietnam while growth in Australia was solid and it was moderate in Taiwan and Japan. Hong Kong and Thailand declined slightly. The development of the headcount is well controlled and contributes strongly to a higher productivity level.
At the end of December 2019 versus December 2018, FTEs decreased 4.8% driven by organic additions of 1.4% and the impact from acquisitions of 0.5% more than offset by the reduction related to the cost optimization program of 2.3%. The disposals had an impact of minus 4.4%. From a regional point of view, all regions improved their productivity. The highest productivity increase was achieved in the Americas segment, which is a function of the structural cost optimization program achieved, but also the impact of the disposal of PSC. The adjusted operating income increased at constant currency by 4.6 percent, which reflects the organic increase of 4.8% as the impact of acquisitions and disposals almost offset each other.
Currency had an adverse impact of 3.4%, leading to an increase of 1.2% in actual rate in the period under review. The adjusted operating margin, agri Food And Life, deep by 20 basis points to 16% on a constant currency basis impacted by less favorable geographic mix for agri Food and continued investments to increase capacity and capabilities in the laboratory network Margins and minerals increased strongly by 19 basis points to 17% on a constant currency basis, driven for efficiency benefits and the disciplined pricing structure. Oil Gas And Chemicals And Plouf Margins also very strongly by 180 basis points in constant currency. The increase is a function of the implemented cost control measure strong improvement in the upstream business and a significant shift in business mix following the disposal of PTO business in the US and the Netherlands Our most profitable segment CIS grew the margin decline of 10 basis points to 25.7 percent on a constant currency basis. Good margin increases in electronic and electronics where all set by strategic investments in new technology and in cyber security.
Despite the difficult post ISO transition market conditions that trusted operating income margins in CBE, increased by 40 basis points to 20.4 percent on a constant currency basis driven by efficiency gains and the diversification into technical concizency. The significant margin increase of 300 basis points to 12% in constant currency in the industrial business is a result of active portfolio management and structural and structural cost optimization across regions and various management layers. Adjusted operating income margin EHS increased by 150 basis points to 12.4% on a constant currency basis, driven by the operation leverage as well as the benefits resulting on the restructuring of our U. S. Operations.
The margin decline in transportation business is due to the loss of higher margin contract in the regulated and the certification segment. The significant margin decline in the GRS business is primarily related to substantial collection delays, namely in Haritje and Ghana. Moving on to the balance sheet. The balance sheet fell December 2019 compared to the balance sheet per end 18, consider the change in relation to IFRS 16, these accounting standards and IFRIC 23, which addresses the interpretation of uncertainty over income taxes. Both accounting standards are effective as of January 1, 2019.
The increase in PP and E of 1,000,000 is explained by the recognition of the right of use assets which amounted to 1,000,000 as of December 31, given the introduction of IFRS 16. Out of the lease liabilities of 1,000,000 at the end of December 2019, funds are considered as current while the remaining amount is considered as long term lease liability. Subsequent to 2023, CHF 40,000,000 was recognized in current tax liabilities as an adjustment in 2019. The increase in goodwill is primarily due to the consolidation of the balance sheet of main point unbilled revenues work in progress as well as trade receivables were reduced compared to the prior year supporting the strong development of networking capital. The net debt position for fiscal year 2019 stands at 1,000,000,000 considering IFRS 16 or EUR 764,000,000, excluding IFRS 16 compared to EUR 772,000,000 in the prior year.
The operating cash flow increased from 1,074,000,000 last year to 1,149,000,000 this year However, given the introduction of IFRS 16, the payment of lease liabilities and its interest of 1.95 is now showed in the financing activities. The outlook for Kraken Capital was this 1,000,000 minor, while we had a prior year inflow of 1,000,000. Texas paid increased from SEK 265,000,000 in the prior year to SEK306,000,000. Net investment in fixed assets, we are with SEK 7 1,000,000 on a similar level as last year. Cash consideration for acquisitions increased to CHF 169,000,000, while we had at the same time a strong inflow from disposals of CHF 333,000,000.
We paid dividends of CHF 589,000,000 in the first half twenty nineteen and paid back the Swiss franc bond, which was due in the first half twenty nineteen for a consideration of 1,000,000. The management of net working capital continues to be a very strong feature of GS after strongly improving the operational net working capital in the prior year to 0.6% of revenues, we continue to further improve the net working capital as percentage of revenues to 0.3 percent, which is primarily related by strong management of unbilled revenues, growth in progress as well as the trade we see in position. CapEx for 2019 was the 4.4% on a similar level like last year For 2020, we expect an acceleration towards the higher 4% area supporting our growth initiatives. While our margin expansion in the first half twenty nineteen was the 20 basis points held back by bad debt provisions we achieved in the second half twenty nineteen a strong margin uplift of 90 basis points despite a deceleration of organic revenue growth. The improvement in the second half of twenty nineteen is primarily related to the structural cost optimization program and the disposal of the PSC business.
While the positive impact of IFRS 16 was offset by bad debt provision for which we expect collection to improve in the year 20 20. We are pleased to confirm that the cost of mutation program aiming at simplifying the business by eliminating duplication and reducing layers within our organization, but fully executed At year end, the incurred cost for the program stand at 1,000,000, which is in line with the estimate provided of 1,000,000. We expect annualized recurring savings of above 1,000,000 out of which 1,000,000 are already achieved in the second half twenty nineteen. The full benefit of the program will be realized in the course of the first quarter. The implemented EVA recovery plans started to contribute positively to our recent performance, benefiting from considered closures, but also underlying improvements within the businesses in scope.
In respect of active portfolio management, We recently strengthened our portfolio with and with the acquisition of Stevens in the U. S. In the Specialty Cosmetics segment, the disposal of the pre owned vehicle in action operations in the U. S. Will strengthen our charm profiles, especially in the U.
S. And finally, we expect a solid cash inflow the disposal of the noncore activity related to pest control in the first quarter 2020. In summary, our financial performance for 2019 looks as follows. We achieved an organic growth of 2.6% Our adjusted operating income increased by 4.6 percent in constant currency, resulting in a margin increase of 50 basis points to 16.1%. The profit for the period increased by 1.7% to 1000000 and the board is proposing a dividend of CHF80 per share.
Before I hand back to Frankie, I would like to take the opportunity to thank all our colleagues around the world for their commitment, their dedication and their hard work to achieve the set of results, which we present today. Thank you.
Thank you, Dominique. So let me walk you through, each other business lines in terms of outlook for 2020. So let me start with, agriculture, food and life. Is always difficult to predict crop and trading condition for the agricultural sectors, but for the moment, but what we've seen, we're looking at a similar market condition in 2019. Setting our OTTN activities for food are expected to remain good moving to 2020.
Lifeenses should recover from some short term contract delays and accelerate back to normal growth level in 2020. So on the overall for AFL, I'm looking and acceleration of growth in 2020. Minerals. The mineral sectors was under pressure moving to 2nd half 2019, am I expecting the situation to be similar moving into 2020? Exploration is expected to be relatively subdued in 2020, But our job came on Zalabridge's strategy should provide good stability and predictable volume, and the same is expected from our trade service portfolio.
So overall for Minerals, I'm looking at a slightly lower growth in 2020 through 2019, considering the overall market situations. For all gas and chemicals, OTC overall market condition remains soft. However, the trade activities remain stable in H2. Conditions should be similar moving into 2020. Upstream activity should provide some good upside momentum with new contract expecting in Africa and Middle East.
Overall, for OGC, I'm expecting an underlying growth level similar to 2019 for excluding PSC. So our good growth indicator is, second half of twenty nineteen for you to consider. Consumer retail, well, again, assuming that the tension between the U. S. And China stays at the current level, I'm expecting the performance of CLS in 2020 to be similar to 2019.
The portal flow mix may end slightly with faster growth in cosmetic and personal care and 5G testing and mix growth in the more traditional soft run and high land sectors. Phoebe Certification Development. For Phoebe, the effect the ISO 2015 transition should be fully behind us moving into 2020. The pipeline for our operational consulting activities, really strong, overall, I'm expecting a strong growth for CB in 2020. Industrial, Dominic just mentioned now, the focus of industrial in 2019 was to rebuild it focus on improving profitability.
Looking at the strong margin performances in these 2, I think we have achieved this goal. So the level of margin is sustainable and will increase further. Considering our strategic decision to discontinue several maintenance contracts in South Africa, the closure of our pipeline and non destructive activities in the U. S. And also the additional discontinuation of several low profit contracts in Europe during second half of 2019, I'm expecting the growth of industrial to be negatively impacted until Q3 2020.
How long do I have in safety? EHS has an overall strong year in 2019 and market conditions are not expected to change significantly in 2020. Together with the additional competence across through the full acquisition of 2019, I'm expecting a strong 2020 for EHS similar to the level that GI has Colorado Institutional Services. As Dominik mentioned as well in these sections, we have faced some loan delay in implementation of several projects, especially related to Renovo, the E based programs in Africa. The reason why H2 was certainly disappointing.
Moving to 2020, we have better visibility on startup of several smaller new contracts, but remain cautious the implementation of some of the larger ones that did not happen in 2019. But I'm rather cautious for the first half of the year improving the second half So, overall, I'm looking at the soft full year growth for GIS. Transportations. So the regulator of fuel services is still under pressure, sorry, on the transition period and ending of contracting the U. S.
And more competitive landscape in Europe, we have changed our market conditions. This should be a drive for the growth in 2020, which should improve throughout the The testing activity should see some good growth with additional testing capacity in Germany and India coming on stream. Overall, I'm looking at the broadly flat growth and the improvement compared to last year. Just some additional, remark about Transportation as part of our strategic business review, I have decided to break down our transportation business unit into 4 strategic segments and integrate them with all the business lines. The larger regulatory business we call on the GIS, while the testing and field activities will be integrated with endoscopes.
Consumer will absorb some of the testing activities related to chemistry and onboard electronics, while CV will absorb the strategic mineral activities. The purpose of these changes is to optimize our market approach. For instance, for our regulatory services, our customers being the government It is natural that we focus 1 of our business unit GIS to deal with this current base and try to optimize our synergy across the different government departments. There is also a geographical synergy between those two businesses. For the remainder of the transportation activities such as aerospace, automotive testing and rail.
This will be driven by our industrial services as we evolve in our strategy It is clear to me that the conversions between the broader mature testing of industrial, on the more testing of transportation, we'll we'll converge together on the diesel logic for optimizing the operational delivery of those activities. So the labs at the operational level has been merged and that we will develop the transportation unit on the air industrial to do the sales process.
With these changes, we will not be reporting separately to our politicians, starting in the
1st half of twenty nineteen. Before I go into the outlook guidance for 2019, so just in terms of margins. So into our margin for all the business lines, considering the acquisition plan, efficiency schemes that we're put in place like the broadcast services, our cost of board review on the optimization of our portfolio, I'm expecting all the business lines to improve their margin in 2020 and remain very confident regarding our 17 percent actual sale for income margin for the end of 2020 exercise. So in double guidance, based on what I just mentioned per business line, I'm looking at the solid organic growth, a higher adjusted operating income and a brokerage cash flow for 2020. To conclude, I would like also to thank my colleagues at our question council, the most of them are here and the all part SRS Group for the achieving this set of solid results.
Also, I would like to thank for thank all of them for their commitment to upheld our group Sustainability culture. As Jeff has been a pioneer in driving Sustainability Practices in the tick sector, and our increase in the food seafood indexes, our carbon neutral status and our leading position in the downtown Sisserie index are the reflection of our dedication to make a difference in this area of sustainability. We believe that our strong financial results and our commitment clear commitment to sustainability on ESE position STS as a leader in the testing inspection 3 and help to create long term value for insurance employees, customers, shareholders, and society in general. And to conclude my presentations, just to remind you on the outlook 2020 in terms of plan, which is the last year of our 20 2020 plan. So, solid organic growth, mid single digit organic growth.
In fact, accelerator M and A AOI margin at least 17% from cash flow conversions return on invested capital solid dividend distribution, at least maintaining it in line with input funding adjusted net earning. Again, we're very focused in delivering those 20 plan, but we're also looking at, our next strategy growth in terms of, evolution and we are looking forward to present this plan with you later on this year. On that,
think now, we'll move on to Q And A. We'll start in the room, and then we'll go to the conference call. And then if there are any questions on the webcast, I'll just check their answer. We will read those out to. So who would like to go first in the room?
Barclays. Just firstly, can you give us a sense of the exit rate in terms of organic growth? If you could break down the second half between the quarters, And what does that imply for 1st half performance, organic perspective? And then secondly, on margin, it looks like M and A contributed about 40 bps of margin expansion in the second half of the year. Should we roll that into the first half?
And then when cost savings, delivering 110 bps, are there any offsetting investments that
we should be taking into
account when trying to work out the margins of this year?
Yes. So basically, we're not commenting on exit rates more for companies like staffing companies, but But in general, as you know, during the second half of the year, it slows a bit down. I mean, this the reason why we guided the growth a bit lower towards the investor base and then it picked up a little bit again. Right? Obviously, if you think about, if you think about, let's say, the 1.7% which we in the second half of the year.
It's a clear deceleration from the 3.5 and a lot of these things also done on purpose like in the Industrial business. So we you definitely have to
see this reaccelerating throughout
next year because second half will be easier comp in that respect. So growth rate should accelerate, but much more towards the second half of the year. And also if you take Frank's comment about industrial where we expect definitely the first half the revenue decline and also for GIS, coming from the war, yes, minus 4.8% back to growth, it takes some time. So it's definitely more in that direction. If you look to the margin increase, if you look to the in the second half, We had 90 basis points improvement.
And, if you take this 90 basis points, you can say the 50,000,000 gives you around the 50 basis points, obviously, from a run rate point of view, we are not with 50 mille fully there. But this will happen in Q1. So you have an uplift of 1,000,000 at least, which is roughly 110 basis points. And there should be pretty different spread because the program is implemented. So basically as of January, we should have the whole benefits And I would say for a margin increase, it should be pretty strong in the first half.
From the 90 basis points, yes, around the 50 is structural, 30 basis points is still, let's say, the benefit coming just from the mix of selling PSC. So this mix is still happening in the first half. So from this point of view, there should be a strong margin uplift in the first half. The cost optimization really come down to the bottom line. Obviously be doing here on the investments, but it's not something that we now have to say we have to accelerate a lot.
There we have other cost measured underlining productivity, exchange always improve productivity every year. And obviously, part of this productivity will be also invested. We're also looking for more CapEx. This year than last year, but it should not, by any means, put at least 70% plus margin target.
It's Alex Spies here from JPMorgan. Firstly, in Consumer, you've called out 5G as being an area of positivity for you. I wonder if you can just give some color as to how that accelerates through 2020 if indeed it does accelerate. Secondly, on GIS, if you can comment on the materiality of the issues in Haiti and Ghana and whether the business has to change its business practices at all to respond to issues like this in the future. And thirdly, apologies if I missed it, but I wonder if you provided a reconciliation of the segmental performance in 2019 with transportation pushed into
the other sectors? Thank you.
Let me
just answer the first question about 5g You know what, this is the 1920 are the transition years for the different technology. You hear a lot about 5G on a market, especially on on the mobile phone sectors. I think this is where the transition is happening. So the 4 gs technology will still remain technology. So you can see an increase of I will not call them prototype, but I think we're going over this period.
It's more, mentoring product coming in the next 18 months is being tested today. We'll be hitting the market in the next 18 months and we're starting to see a merchant of that. But I think the 5G increase will become for the use into a the broader industrial environment versus the consumer growth only. And this is going to come in the next, I would say, 2 years plus where this is going to be implemented across the above the spectrum. For timing, I would say is we're at the early stage.
When you look at in double investment, we invested to a certain extent in 2019 and we'll be having an additional investment in the network for 5 tier capabilities in 2020.
On the CIS performance, if you look to the margin decline last year of a bit more than 10%. You can attribute roughly 70% of this margin decline or can calculate an absolute profit to a change in bad debt provisions, right, for increasing bad debt provision. The biggest part is for AT and Ghana, a couple of other contracts as well, but the biggest part is for AT and T, we have put allowance on the complete receivables. We put the receivable to 0. We have the full firm that the government discussions, good discussions.
We are confident we receive money, but it will take it will most likely take a bit of time. On the contracts in general, if you look to a lot of our contracts, they are much more, more and more supplier funded. They are not government funded. If you look for example, the Cameroon contract, it's very clear that we get our fee based on the flow and not rely that we get paid from the government, but IIT, especially it's a legacy contract where this change was so far we were not able to achieve this change, but in general, the model I would say was already quite changed in that perspective on all the new contracts that they are much funded by, let's call it, participant suppliers and by governments, but the 2 big ones that is reasonably different is our AT and T seeing it. Regarding the expectation you want to know roughly the split or
When the pro form a numbers will be available effectively for the That'll be in due course. I think it's answered
that question.
I mean, if you want to know roughly revenue split, I can give it a bit.
Sure that'll help their models, but I'll take a look at the numbers.
Yes, we we find, let's say we have now to, to, to, put this in the right structure and you get it well ahead of each one number.
Thank you very much. I would like to go next. Why don't we start, why don't we start the front to moment, Tom's easy, actually? Reminder, two questions and, Tom, hold it close to your mouth, please.
Thank you. The advice. How to use the microphone? So just on, you mentioned that CapEx may increase and I didn't quite decipher all that you said about the leases and what was going into the PPE, but it does look like organically you were flat slightly down again in terms of the movement in PPE, which is like the 3rd 4th year or so in a row. Part of that is the CapEx Optimization.
You're only really growing by inflation. It looks like maybe there's a bit of volume, but how can you give us some confidence that you can actually commit capital and grow as you're committing that capital and not just on M and A, please? And then on the Minerals business, could you maybe just go through the potential ups and downs in that outlook for you minerals because it does seem like the production outlook is a little bit less certain than it was. Maybe your business mix has obviously changed a bit in that division and say how comfortable can we feel that you'll, as you said, expect to see margins go up in each division, but then would go up or you get EBIT improvement in Minerals, please?
1st of the CapEx, So if I look to it, we definitely have a lot of focus on several key topics like 5G, like semiconductor business but also areas of upstream where we have strong growth, where we definitely spend more CapEx and looking to the pipeline and looking what we discussed in the operational council, it should definitely kick in into this year. Maybe 2019, I think it was coming a bit earlier and sometimes this project takes some time. Until until we get until we get all the components, but, it's very clear that the CapEx will accelerate, and this is primarily related to to a large extent, investments in E And E within CIS, given the growth opportunities we are seeing, we have a good pipeline of, of on-site laps from minerals, there it sometimes depends of course whether we get we get the award from the client, but we are very successful in this area. So there we see some pickup and our Upstream business in Oil Gas Chemicals has shown very strong performance throughout last year with double digit growth and there's a good pipeline of customer. So we do think CapEx and percentage of revenue will pick up this year.
Higher 4% area. So last year, we had 4.4% on October, higher 4%. So maybe 50 basis points.
The final question, yeah. 2nd question is from Tom. There's a lot of moving parts in the middle sectors. So it's difficult for me to be viewable. Summary.
We'll say, look at this, for example, the copper expirations, investment has increased while the coal investment has decreased because of the price fluctuations. So what is important for us is our strategy for the on-site laboratories is established stabil living factors. We have 2 of the new labs coming on board, which just came on board towards end of 2019, which adds additional volumes for 2020. And we have 2 additional roles. It's supposed to come on board.
We signed this going to come on board in 2020. While we are going to see probably an impact on our more commercial dual camera, which is getting volume from all over the place. Based on overall volume decreases, we may have less volumes, but the bulk of what we do is also linked to our on-site strategy. So this will keep a good level of visibility on that kind of bullying projects, more we have those projects, more we'll have the revenue creations. Likewise, for the trade activities from what we see so far in terms of flow and in terms of contract, we're quite comfortable that we're going to be pretty okay in terms of growth.
So all in all, with the soft expirations into our more commercial app, which is a more stable portfolio on solar batteries as well as the trading unit, we'll see that we're probably a little bit short of DCS growth, but not that far.
Thank you. Should we go to Rory? And they're over. While Roy is getting ready to answer questions, can I remind the people on the webcast if they would like to ask a question they need to submit it by typing it in? Thank you.
And now you've done one round of, EVA recovery meetings so far. Just interested to hear what you've learned about the 8% of your business. You said it was be a negative. What have you found out? Will those be consisting more restructuring?
Any change in future disposal, plans or when would you update us on that? And then secondly, do you think that the shifting supply chains in Asia will further accelerate growth the frontier markets like Vietnam you mentioned this year and whether you're thinking about redeploying capacity away from China your own business to support the growth in those markets.
So, we have this clear recovery plans like I outlined at the Investor Days and then basically they are we consider several closures they are they would be, they are too small or too hard to sell, so to say, right? So we closed several of them. So the the kind of hole and, units, which are on the AVA recovery plan, they, they do in the on the last 12 month basis, less revenue than they did some months ago, but the negative EV improved a lot, right? So we have, the negative EVA of this portfolio is actually, since we started this reduced by one third, which was so far primarily a function of either cost savings. Obviously, it happened more or less also at the same time like the structural cost optimization program.
So some of these things are kind of driven by the cost optimization program and benefiting on the EBA side I also think if you look to unbilled revenue and this is definitely more aptitude to to get the things built. Now you see this in the balance sheet, it's improving and especially in the last couple of months. So I do think it has some impact also on working capital.
Looking at, just a second question in terms of capital deployment, you know, to China, been a strong drivers for us, so in 2019 and we expect that to carry on 2020. Interestingly is that Dupend stick market is, developing really fast. 2 indications I mentioned is
about 55
percent of what we do in China is already linked to domestic market. And this is probably going to increase further some of the international supply chain migrate to the other countries. So don't expect to have to de redeploy the capacity we're here in China. We're telling that we use that to give to local domestic market the 20 government has committed and we see the changes that are opening up additional categories for the product sectors to play while some
of them was just 2 entities.
In terms of capital, for the rest of Asia, Well, it's just going to do to spend more in Vietnam in Indonesia,
increases in Malaysia, but see a lot
of opportunities, not necessarily all in customer good,
channels is not all in culture.
So we see a lot of opportunities Vietnam been one of the large opportunities to both these, is a high double digit and we don't see that slowing down.
Thanks very much.
It's Stanley from Morgan Stanley. On slide 15, I'm interested on your $15,000,000 of realized cost savings when you talk about 2260 heads taken out of the business, how much of that 15,000,000 is is the head versus how much is coming down from lab closures, for example?
For the savings 85% is related to headcount for the whole for the whole program. You have, you see in the bulk of 2200 people because obviously some people who stand who are at the company until the end and the end of last year are still employed. So there will be additional more than 500 leaving. So the total headcount reduction will be in some roughly 2800 and 85% of the savings are personnel costs related. The other 15% are other closure costs lower rent, no depreciation.
Thank you. The second
question follow though from, from Rory's, I guess, on domestic versus export China. Can you give us any figures on how fast each of those are growing? APAC is quite a large proportion of the overall group growth rate last year. And to what extent you may or may not be planning for disruption in China given what's going on there?
We don't have to give, exact growth numbers for domestic international. The only thing I can say is that considering the coverage issues, the headwinds, the Western American market, the domestic market has been going faster than the the international market and this is why you're also seeing the fact that this percentage of domestic versus international is accelerating. But again, not necessarily all related to consumer goods. The domestic market is also about automotive, heavy safety, industrial, food products. So this is also a diversification of our strategy in China, which is a good additions to the to focus consumer good activity that we're adding in the past.
If you look at the current situation, I guess you're talking about the coronavirus. We're monitoring the situation. It's too early for me to give you an impact assessment. Obviously, the 1st week of all the movement is happening in China was in the middle of the Chinese New Year holidays. So, the impact of that park every week was rather minimal because with older person was anyway off on vacations.
Certainly the latest announcement by the governments to extend on the County to extend the holidays from the initial days to 3rd February on some of those provinces on the cities extending up to 9th February will have an impact on us in the February results. So we're still monitoring I guess we don't have to wait for more news. If the situation stands as it is today, our saving pack would be mainly on a federal result. Because we have 1 less week of activities that ask the situation developed, I will come back to you if there's further impact on the well at this in a very serious way to make sure that we minimize the impact.
Thanks. Ed Steele from Citi. Two questions, please. First of all, what roughly what percentage of divisional revenue did the various contracts that have the bad debtors, in 2019 comprise of 2019 revenue, please.
Very small because we have, if you look to it, that that that provision in some cases like Haiti is 100% provided, right? So it's in terms of revenues, they are not that big, right? We talk
It's several years worth of revenue that you've signed for?
No, no,
no, no, no,
no. The
outstanding, we have a clear click for them. So you provide as as you go. But, but, let's say, if a government is not paying, you provide the full revenue, which is outstanding, right? It's not a massive amount, right?
Okay. Thank you. And I just want to say a little bit more about your thinking. If I might, you're putting the the vehicle inspection contracts into GIS. Is that right?
Yes.
Could you talk for your thought process around that?
Because that seems like a lot of challenges for one division. I mean, Roger is not here, so maybe it's busy sorting some of those out, but just talk a little bit too heavily.
I think it's always way too high to hear from some
of the issues.
Now you are the we are more focused on the on the tendering process because all the process of the sales and tendering is with the government structure. Of either way we are focusing on because once the delivery or once the contract is accepted and delivery is done, the delivery is typically handled by the affiliate themselves. So the involvement of the business structure is to much lesser extent. We need at this point on once the contract or the concession has been assigned is really operational activities that kicks in. So the business managers do not focus on that.
The commonality is important. I'll give you an example, for example, a lot of what some of the activities that we do in the trade could be easy to combine results and we see sometimes twice as some ministry for different reasons. So the idea was we to go or combine all that into one single portfolio management with the different ministry, that the country level and the execution will be handled by by the country. So it's not going to be a major project. We'll not be going around trying to understand how each one of those stations is going to work.
Thank you very much. We've got one more in the room currently.
Thank you. I'm wondering, just technically, on the, the other nonrecurring items that totaled $165,000,000. You enumerated, the PSE gain. I mean, I'm wondering, 1st of all, the tax provision on the gain of $33,000,000, is that netted or is that included in the tax expense?
So the gain of the PC disposal is shown in the tax expense.
I'm just trying to reconcile it coming from the $259,000,000 gain, then you had the less the $24,000,000 impairment of fixed and intangible assets, less the $10,000,000 defined benefit. Then how do you then get down to $165,000,000? Because I think you did all your provisioning excluding, like, for your bad debts, that's not in these other
non incurring items?
I mean, it's the following situation. You have the 259 to start with. Then the 1,000,000 provision for taxes is not related to PSC. These were tax provisions for indirect taxes considered in the first half So they are not related to PEC. The taxes on PEC, they're shown in the income tax line.
These are basically provisions which are indirect tax right, which are basically in the in the EBIT. And then you have to implement of 24,000,000 for for for fixed and intertriple assets. You have around 10,000,000 for the 5th, pension obligation and then other items which we not line by line disclosure that you come to the 165. Remaining income. We can go through
a bit more detail later if you'd like to help. Right. Let's move out of the room and onto the webcast, please. Okay. Well, why don't we go to the question that was on the web on the webcast, I said, very quickly, that is asking about GIS and Ghana.
And given, the payment issues we've had there, does it affect any other cash flow in Ghana specifically? Very simply, it doesn't. Okay, nice and easy. Are we ready to go to the webcast?
The first question coming from the conference call comes from George Gregory from Exane BNP Paribas. Please go ahead.
I have three questions, please. Firstly, just looking at the profit contribution from acquisitions, specifically in the second half, it looked a bit lower than I would have expected given the first time contribution of main point, was there anything offsetting that perhaps first time integration costs, please? Secondly, in AFL, I think from your comments suggests that both food and life decelerated in the second half. I'm wondering if there was anything in particular behind that. And finally, Dominic, I think you mentioned that, 70% 70 of the, the the margin decline in GIS can be ascribed to the collection delays, the provisions.
Could you just clarify that just check that my calculation of what was a 40 basis point headwind this year is correct, please.
Maybe should I take the first and last one? So if we first look to to the acquisition impact. The main point is a bit below our expectation for the half of the year. We have, let's say, very good project book for 2020, but it's said, it was slightly lower in the second half of of last year, assuming obviously the the our partner will say 40% also very busy with the deal, instead of focusing completely on on this business. So there's a bit of timing issue.
I would say So it's a bit lower, but in general, we are convinced that both in the right direction hits the number, which we expect for 2020. So it's definitely some impact are there on top, maybe some the bit of cost of integration as well, but it's true. It's a bit below expectation. If we what I said regarding TRS, we have bad debt provisions in in as you take the resides and you basically look okay. The result or the performance of the business, the revenue decrease how much of the earnings decline of 40% is related to bad debt provision and what's the underlying reduction.
And if you look to this, basically 70% out of the earnings decline is explained by higher debt provision compared to the prior year. And maybe one word, obviously, you need to consider here that while we have a normal aging for this project, we have taken on top the decisions to completely put allowance on the IIT receivable given the fact that we have not recorded recorded any, any, let's say, collection throughout last year.
Charles, if I go to the question on the food and life, I would say there's nothing measured there. If you look at licenses, we had some I would say some short term issues in terms of manpower, retentions, you know, one of that affiliate because they are everything into pharmaceutical hubs. So sometimes we need to lose some of our customers to some of our employees to our customer base. That adopt the particular cases. We have lost it a bit more than we were expecting, but these are not unusual situations and we have managed to catch up the situation pretty fast.
So we should expect this to be back on track for 2020. And the food I would say is up and down. So some of the softer market like in Germany where I think the current market situations with a bit of tighter market conditions makes that our customers are looking at typically tighter in terms of, volumes and and so on, but nothing major, I would say, again, the situation will come back on track. I do not see that as a major issues for the food and life activities in 2020.
Thank you very much. I don't think there is another question on the conference call, but I check there is? No? Okay. Well, also I'd like to say that don't think by staying in at home and dialing in, you get three questions.
That's not part of the deal. Anyway, I'd like to invite you all, we would like to invite you all upstairs to a for a cocktail and thank you very much.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.