Just wanted to welcome you all here in Changzhou. I know for many of you, it's a long trip, but as well, you know what? We're often in the broad spectrum of the SGS Group. Those far-reaching regions compared to Europe are usually the more interesting one because they are in a more dynamic market, and it's a more fast-growing market. I think during the next two days between China and Taiwan, you're going to see a little bit of what we do in the regions and some of the newer activities that we are undertaking these regions. Before all, I just would like to thank the local team here. I think Juliana, she's not in the room, and Angela. I think they spent a lot of weeks and months trying to organize this event. I know it's a lot of work to be done.
I just wanted to thank the local team. As well as thanks, Camille. Camille, sorry, for all the work she's done. She's based in Geneva. I think a lot of you has exchanged email with her trying to do the coordination from Europe or from Asia to be in Changzhou. Thank you for that as well. The format of today's session is basically presentations from my side and Dominik, our new CFO. This is first Investors Day with the SGS Group. The presentation is about one and a half hours. After that, you will have a local presentation from the local management, the regional management, Hermann Check, and Steven Du for the local management. Just to show you how long since we've been operating in China. Steven already mentioned a bit yesterday. We've been in China for the last 29 years.
Compared to the 140 years of the history of the SGS Group is rather short, but still, you look at in terms of growth, in terms of expansions, it is now China, it's our largest affiliate worldwide. In terms of revenue as well as in terms of headcount. I think we are up to 16,000 colleagues here in China. A broad spectrum of what we do you'll see during the lab tour. From the presentation, we'll move to two very specific presentations, one for AFL and one for EHS. Just to give you an idea how we migrate from an affiliate that started in the international trade, which is focused purely on consumer when we started in China, and slowly migrating toward a portfolio that is nowadays 60% or close to 60% is to a domestic business.
Not that we have walked away from the consumer goods. I would say we have expanded the rest of our portfolio. During the 29 years we've been here, we have grown with the local market. We're expanding the local market. I think the AFL and EHS is a good example of how we can expand into this local market because the market is opening up. The regulators in China is starting to open the market. They have a schedule, and we are well positioned into this path evolutions. You'll be able to capture some of those opening of the market and benefit on that. AFL and EHS will show you a little bit how this expression has been made and how they are really focusing on the local market versus the international market. We'll finish the afternoon on a visit to one of our customers, is METTLER TOLEDO.
It's actually a Swiss company. It's not a Chinese company, but it's a Swiss company that has an operation in Changzhou. I think the party secretary yesterday already mentioned there's quite a lot of international companies settled here, so this is one of them. They do precision instrument. The interesting part of this visit is that they use in the manufacturing a lot of the, what we call the world-class manufacturing concept. Which is something that the SGS Group has implemented for the last couple of years, I would say a year or so. It's interesting to see how this is applying to the manufacturing locations, and you'll see a lot of the similarity, what we call the world-class services, is structured ways to look at manufacturing into the services.
This is something that we've been implementing a lot, and I will make a few mention on my presentations. To finish today, you will have to pack your bags and rush to the airport and take a flight to the next location, which is Taipei. Then late evening arrival, and the next morning early start, unfortunately. You will have a look on how the differences between what we do in China and the portfolio that we have in Taipei would be interesting. Also, the cultural aspect of the two places, Changzhou and Taipei, just to see as well, I think would be for those of you who has never been to China or to Taipei, would be an interesting aspect to see differences in culture. On that, we start to be in three minutes.
Three minutes.
Maybe just to carry on because we step over in three minutes. Just to say that in China, we started 29 years ago. The main business was consumer goods. In fact, Hermann and myself was part of the first employees, I would say, of the SGS China. Has actually started the consumer goods activities here. I think I was based in Shanghai for quite some years, and then we expanded this portfolio. It's interesting really to see the expansion of the country itself. You'll see that if you've never been to Shanghai, this is the first time, you'll see if you can move backward 15, 20 years ago, what you see as the Pudong Airport where we landed, is in fact was rice fields. There was absolutely nothing there.
Less than 15, 20 years, you see amount of building and amount of infrastructure the Chinese government has built. Changzhou is little bit the same. They are getting more and more sophisticated. They are setting up more and more infrastructures in terms of supporting the economy, in terms of communication port and transportation hub and so on. This is why we're here. Again, this afternoon, we'll see some of those facilities. Two more minutes, Toby. Maybe just to stay on the personal level. For those who don't know, I was born in Hong Kong, but actually my parents are from nearby here, Shanghai and Ningbo. This is why, to some extent, it's very interesting for me to always be back here because while Changzhou is not exactly home for me, but it's not that far from home.
A lot of the people in Shanghai is actually coming from the surrounding of Shanghai, because Shanghai is an immigration town, I would say immigration town. Somewhere, somehow, the party secretary yesterday was asking me which village of my parents coming from to figure out whether actually coming from this region or not, which I have no idea. Difficult to say. On that, let's wait for one more minute, and then we can start the webcast. Correct?
Correct.
I'm running out of ideas, so.
Okay. Maybe I'll talk a little bit. Do you know if the webcast has started? The webcast has started. Could I just say to people who are on the webcast that you are unable to ask questions over the phone. If you wish to ask a question, could you please log on to the conference call and submit it by text. With that, Frankie, if you'd like to start presentation.
Thank you. Just to finish on my background. 25 years in the SGS Group. I think Steven yesterday was 20, and Toby said was a short timeframe in term of the SGS Group horizon. Yes, 25 years, and I have a few colleagues in the room since longer than me, 27 years to 32 years, if I'm correct. I think this also shows the dedication of the people in the SGS Group in term of the long-term evolution or long-term vision of the group that we're really means to develop the businesses for the long term. Let me start the presentations with a slide that most of you knows very well, is what we call the business principle. These are really part of the culture of the SGS Group. Integrity, respect, leadership, quality, and professionalism.
This is exactly what is behind everything that we do in the field, in the office, and in the laboratories. Health and safety and sustainability is something that we'll develop little bit more during my presentations today because I don't think we talk enough, especially health and safety is something that we do a lot in the Group, but we don't talk enough, and I just want to take this opportunity this time to mention a little bit more about this aspect. In term of the Ops Council, there's a couple of changes. I already mentioned Dominik has joined us as a new CFO since February. You see that Christoph Heidler is the CIO.
In fact, Christoph was already part of the SGS Group, but the CIO position was not part of Ops Council, and he has now moved to the Ops Council as a full member of the management team there. There's one less regions. Our colleague, Pauline Earl, has decided to retire. In fact, the Western European region has been split in basically two, a big bit and a small bit, and we have a big PEs called now Africa Western Europe. Some of the smaller countries has been moved to the North Central Europe area as well. You see my face on the North American CEO positions. In fact, there's already someone there. He's not an OC member, so I don't actually run this region myself. We have a colleague down there running.
I'm just taking the roles of acting interim until this person is up to a certain level before we decide whether he will join the Ops Council or not. Toby mentioned you've seen the press release. I will not extend too much on that. You can ask questions later on during these sessions. I think the key aspect is really for the second half of 2019. We have now a low single-digit growth as a guidance. As well as that we have also changed our view on the annualized saving for the optimization plan from what we said, the CHF 75- CHF 90 million, which we're quite comfortable on that because of the latest information we have from this plan in term implementation and so on. We're comfortable with this CHF 90 million.
I think beyond this trading update, it is important also to look at that in terms of midterm and long-term drivers of the key sectors. They remain just quite strong, and this is how the presentations can be showing this, and again, the key drivers are there. From the trading update to the 2020 plan guidance, the only thing that has changed here is the first boxes. What it says, the solid organic growth from mid-single digit is mathematical. If 2019, we're not able to achieve a higher growth, then I would say we've decided to change this guidance as well. In terms of the average compounded rate across the whole plan of 2016 to 2020, it was little bit of stretch to target the mid-single digits. We have now revised that to a solid organic growth for the period of the 2016 to 2020.
What is important for me is the rest days, and more so that the 17% margins. This is something that we believe in with the management. We have all the means to achieve it, and this is something that I would say I'm quite comfortable to say that we will get it there by the end of next year. If I look at the drivers of the market. You see here a lot of what we do is driven by regulations. The market size here is about CHF 230 billion. You can talk about the CHF 350 billion depending what you put in there. I've seen the different size of the market, CHF 350 billion, CHF 230 billion. We usually use the CHF 230 billion in SGS Group, of which 55% is insourced.
Whether it is done by the industry themselves, whether it is done by the government, a lot of institutions, and in China, for example, there is tens of thousands of local institutions that does this kind of activities, they're government-related. Actually, the testing and the inspection is not accessible to the market. You look at China as well, this market is opening up. We'll see this migration of this 55% toward the 45%. The 45% is what is accessible to what we call the TIC sector. This 45% will be about CHF 100 billion. You look at on the chart on your right-hand side, is the SGS Group is a market leader with about 6.7% market share out of the CHF 100 billion. The top 20 of our peers occupy 40% market share.
You have a long trail of a lot of companies, whether it is regional players, national players, vertical player. It's a long trail of them. It is actually a very fragmented market. With a fragmented market like this, there's a lot of consolidations to be done over time. I would say consolidation, not necessarily between the large peers, but certainly in term of vertical, in term of regional approach, there will be certainly some consolidation. We've seen that in the past, but I think this will carry on into the future. The drivers. As I just mentioned, a lot of what we do is linked to regulations.
You look at this chart, about 60% of what we do in terms of testing, inspection, verification, is directly linked to a certain regulations at the global level, national level, or regional level, per industry, is linked to regulations. The other 40-ish%, they're not necessarily linked directly to the regulations, but they're indirectly linked to regulations. A lot of our customers would be asking us to do quality control, because ultimately somewhere down the road, they will have to comply to certain regulations in their countries or in term of trade. Somewhere, somehow, you can say that most of what we do, with very few exceptions, is really linked to one or the others to regulations. Regulation is not the only thing that drive our industry. You also look at global GDP.
The volume of good is being produced is also something that they influence the way we're looking at the market expansions. You also look at the outsourcing. I mentioned earlier, whether it's outsourcing from the industry to the private sector, whether it is outsourcing from the government to the private sector, the regulation of some countries, the inspection testing requirement. These are additional drivers. Supply chain complexity is also one. China is a good example, where from a more neutral kind of supply chain from Europe, that with the emergence of China several years back, you see a much more complex supply chain in term of logistic and so on, where China has become a quite important supply chain for the manufacturing base for the global supply chain. This is also the complexity and the extent of supply chain influence the TIC sector's activity as well.
These two little orange bar there, which is sustainability and data. These are the new emerging trends. Sustainability is something that we've seen since the past five, six years, but you're seeing a much more strong push into this now. A lot of places that we go to talks about ESG, environmental, social, governance. This is something that in term of market vision, I think a lot of the industry start to take notice of that, and I will develop a little bit more during the presentation. Data, same thing. We talk about digital, but at the end of the day when you talk about digitalizations, what is on the background is also data. There's a lot of new requirement for data. There's a lot of drivers on that. These also create additional drivers for the TIC sectors.
This is why this pile of CHF 100 billion, CHF 230 billion will keep expanding. Good thing about all those regulations is they're not shorter. A regulation is put in here to last. Some of the regulation in which we're still working on date 20, 30, 40 years. What is critical is enforcement. Once you have the regulation, you need to enforce. Very often, the new regulation has less enforcement, but the more mature regulation will have a very strong enforcement, and this is what is really driving the market force. Capital allocations is a really simple chart, margin, growth. The evolution for us, in a simplistic way, is really to move towards the right-hand side, upper corner there, where we're looking at the other groups. We look at the more high value added services to our customers.
I think you have a presentation with the owner of Maine Pointe here, Steven, and see how Maine Pointe is typically some of those migration we're trying to look at in terms of more complex services, more digitalized and higher value to our customers, where they're willing to pay a higher price for the better return, for the better value add that they get from these kind of activities. This is where the SGS Group wants to be in. I also mentioned PSC, Petroleum Service Corporation, is a disposal that we made early this year. It doesn't really exactly fit into the lower end of the spectrum of this chart. It's more manpower intensive, but this is also to show that not only we look at the different value, but we also need to look at the strategic importance and the long-term evolution.
PSC is a typical one of those acquisitions or disposal where in the long term, we see the market is changing. The way they're doing business is the service is changing. The capital needed is going to be more intensified in terms of CapEx. This is why at this stage, we have decided to dispose of that. Not only these are the basic parameters we're looking at, but the strategic importance of an acquisition or disposal is key as well. I think Dominik will talk a little bit more about the exact parameters of those two acquisitions to you, or disposal, to give you a better look between the two of them. In terms of acquisitions, accelerations of M&A.
What you see on the CBE Certification and Business Enhancemen t is mainly due to Maine Pointe, because it's a large acquisition compared to most of the bolt-ons we have done for the past several years. On acquisitions, we've done 12 acquisitions year to date compared to nine for the full-year of last year. Focused on growth areas, even in industrial. The growth area is really testing, because there's a lot of growth in the testing area, industrial is really focused on that as well. AFL, CBE, as I mentioned. We have a full pipeline. There's more to come, certainly. Some of those targets we're looking at are larger size. Not necessarily the merger with my two or three largest peer, we're not talking about that. More focused on the mid-size players, but larger than what we used to do in term of bolt-on acquisition.
The last bullet point there is all those acquisitions will be EBITDA positive by 2020. This is a very busy slide, so I'm not going to extend too much on it, but I'll just take a couple example. A slide I wanted to put here to show you how some of the bolt-on acquisitions we made in the past has created an impact to the SGS Group. If I take SGS bluesign, it's a small acquisitions that we purchased almost 10 years back based in Switzerland. They specialize in chemical consulting. From then on, we expanded this chemical consulting across the globe in Europe and in U.S. and Asia. We use this technical consulting as a backup to the testing. We are bonding our services to sell the consultancy as well as the testing in term of chemical residue and chemical treatment for the textile industry.
Bluesign today is, I would say, only standard that has been approved by the Zero Discharge Coalitions, which is the consortium of textile manufacturers in term of discharge of chemicals into the water stream. Their standard is the only one is approved as the gold standard by the Zero Discharge Coalition in term of equivalence. This is a good example how we're taking a consultancy business, it's quite small in Switzerland. We have expanded that globally, and we have used this as a key driver for some of the chemical testing that we're doing in the group. The other one I would take is SGS Biopremier. Next generation sequencing, NGS. This is something that is needed. Today, we're doing a lot of this gene sequencing, the DNA, through a normal PCR methodology. NGS is a next generation. It's not a targeted methodology, it's a scanning methodology.
For food authenticity, it is needed for the future. What we did is we purchased a rather small company in Portugal, and we took the know-how, we expanded that into France, Germany, and now in China. In fact, I don't think we use it in Changzhou. Certainly in Shanghai, where we're using this technology to complement a lot of the food testing, specifically that authenticity is becoming a critical aspect of the food safety and is demanded by the consumer. This is two good examples of how we take a small acquisitions, because both of them were rather small. bluesign is not anymore small. We just took it, helped the group to grow, as well as growing this activity ourself.
It's a really good complement between the group and the small acquisition, and this is why the bolt-on works very well for the SGS Group. We have the footprint to expand those bolt-on acquisitions. An update on the digital evolutions. This is quite interesting. I made a lot of comment about digital. I would say it's a learning curve for the SGS Group as well. Four, five years back when I started, and I said to myself, "Digital disruptions, digital drive, we need to find something. We need to find new services. We need to take opportunity of the market." Over time, I started to realize with my teams that there's not that many new digital, pure digital services out there where you can just go and make the new solutions to the customers, because time-to-market is longer.
You need to explain to the customers what it's all about. Technology changes so fast that the customer is hesitant when you look at the totally new solution, totally new technology. Finding a new solution in the testing inspection certification market, where you just come up with a total new solution, is sometimes difficult. What is more interesting for the SGS Group is the evolution of our existing services. Where you are starting to digitalize the existing services. The simple inspection that we do, how do you look at in term of digitalizations to offer better value to your customers or to offer better productivities or better executions in term of digitalizing that?
This is what we have been focusing on more in the past two years, where we're really looking at what do we need to do to evolve our existing portfolio in the more digital age in terms of customer centricity or the back end on productivities. I will give you a couple examples on that. This is where we're looking at. If you look at the chart, I just put a few things that we've been doing. You look at Digicomply. Now we are about 5 million documents indexed, and we are scanning 10,000 webpages on a daily basis. This is a regulatory compliance approach to our customers. A typical manufacturer of chocolate, for example, that sells chocolate in 100 countries, would need at least 6,000 standard minimums to monitor to be able to comply to the local regulations.
This is a digital structure to help on that. TransitNet is a better example, where we're actually digitalizing the flow of what we were used to do. TransitNet is a digital version of what you call the TIR. You know what? These are the paper structures where a transporter that goes into Europe has to clear all the customs of each of the countries. If you take a truck that goes into Turkey and gets out of Spain, this truck, this transporter would have to clear every single customs across Europe to make sure that they have their compliance. You have to have a lot of paperwork. What we did with TransitNet is a service that we had in the past, but we actually digitalized it.
We made 20+ agreement with all the customs in Europe, and now our system is actually connected to their systems, where the transporter, the truck, will register them itself with our system at the entry of the point in Turkey, and all the custom clearance is done by our system. We basically helping him to clear all the customs. We settle the tax on his behalf, and we get the tax back from him. We're only intervening again in Spain when he have gone through his journey and all the in-between step has been cleared by our system. Very little interventions. We've done 600,000 transaction in 2019. With the Maco and ITI acquisitions, we're going to do certificate origins as well as custom declarations combined with that.
This is a typical example where, from a normal SGS inspection where we used to do inspection at some of those checkpoint, we're digitalizing that. We are connecting this with the customs, and now we are dematerializing the whole paper flow. This is something that is very interesting for our customers because they don't need to work around with this paperwork. Everything's been now deal with the system. Everything's cleared by the system. Another example, this is more linked to the digital age giving us new opportunities, is still testing inspection certification. We're still doing the product testing. We're still doing audit and verification, and we're still doing system and certifications within the cybersecurity field. You see that there is more and more regulations. I'll give you an idea. I was told that by 2025, there will be 2,500 connected devices.
It's going to be connected to any kind of network per second. You can think about 2,500 per second. You make the math on a daily basis, it's a lot of devices being connected. When you connect the device to a network, one of the key issues is obviously cybersecurity. This is where there is more and more countries putting regulation in place to control this aspect, to protect their network, to protect the infrastructures, to avoid hackers and the cybersecurity issues. The European Union has put into actions their Cybersecurity Act, and by 2021, there should be a certain requirement for some of those products to be tested. Three level, the low risk, medium risk, high risk. Low risk could be self-declared by the manufacturers. High risk has to be tested.
The medium risk, part of that would have to be tested by the third party, while the other ones would be self-declaration. The U.S. is having a requirement. The Chinese government, which we're here, is also looking at new requirement in term of cybersecurity and IoT devices. This is really a set of regulations that is going to drive the market, is going to drive additional activities for the SGS Group. I mentioned earlier, SGS Group is not looking at becoming an IT company. We're more focusing on the hardware design because the hardware design has an incidence on the cybersecurity of the product. I'm more looking at our core skill, which is testing, inspection, certification in product. I'm not looking at the software side of the process. There are other companies for that.
In terms of locations, you know that already last year I mentioned that we have the location in Madrid, and we have now created a location in Graz, and there will be two additional locations that will be opened up in 2020. One in Asia. We have not decided where because there's quite sensitivity in terms of where you put a cybersecurity lab. The other one will be in North America. This will really complement our network in terms of growth, in terms of potential of capturing on those regulations. The third examples is, again, internal optimizations. We talk a lot about robotic optimization. I'm not going to explain too much on this slide. I'm not sure you're going to see some of those in Changzhou. I think the roboticization is more in Shanghai, unfortunately. It goes back to what I've seen.
I show you that in some of the previous Investors Day where we have created those internal processes, this box that we're helping to optimize the flow. Now we have connected those flow into robotic arms that allow us to actually process and work on the sample itself. It's not just optimizing the flow, it's really working on the process itself. The number of saving in term of headcount looks to be small, 50 FTEs here, 15 FTEs there. You look at the fragmentation of the SGS portfolio, Ian, and you just start to add all the project we do one after the other one. The actual headcount saving is not small, and we have a lot of those going on within the group. You could figure out that you start to accumulate all those small saving would be an interesting evolution.
This also requires on health and safety is better for our employees in terms of optimization and efficiency as well. I just need Sorry about that. The screen has frozen. Operational Integrity, World-class Manufacturing. I think it's good to talk about that. As I mentioned, in terms of health and safety, Operational Integrity, we don't talk enough about it. World-class Manufacturing, World-class Services, extension of the automation where I was just talking now. Let me start with World-class Manufacturing or World-class Services, what we call in SGS. We started this project a little bit over a year ago, it's been deployed across the 20 largest labs of the SGS Group. You talk about the last line there, 20 to a 200 kaizen event . It doesn't sound a lot, and it is not a lot. We should be in the thousands. We started this journey.
A kaizen event is typically a small improvement steps that we do in the labs in a very focused manner, and the saving could be a few thousand dollars to $50,000. Nothing in the millions, really thousands to $50,000-60,000. The idea is to have thousands of those small things. The return is typically less than 12 months. The concept of the world-class services is really to have a lot of small steps undertaken by the laboratories themselves and not the global corporate schemes, where the lab technician, the lab managers understand which part of the process they have to improve, and you start to accumulate a lot of those small kaizen even t with the return is less than 12 months to start to communicate the saving.
This being done by the manufacturing sectors, we're doing that now in the SGS Group in terms of services and in terms of laboratories testing our own sectors. We'll expand that into the inspection path. Interesting process. Again, the 200 project we started do have the 12-month return, this is going to be expanded across the whole network as we become more and more mature in that. The good thing about that is the saving is sustainable over time, it will have the impact in the efficiency and the cost structure of the group. One of the key pillar of world-class services is actually health and safety, what we call in SGS operational integrity. You look at this chart. We don't talk a lot about it. We have a global team on that. We have regional team. We have local team.
What we want to make sure is that all our employees goes home safe and sound in the evening. There's no reasons they should be in harm's way when they're working for the SGS Group. This is one of the key pillar of what we do as a company. In fact, this was also required by a lot of our customers because they have criterias that says that you have to have a system in place to ensure the safety of your colleagues, especially when they go into a site like oil and gas, like industrial, that has a lot of danger and we need to do risk assessment to make sure that our employees is safe and sound when they come out of the work at the end of the day. You look at the numbers.
We actually reduced our accident rates by two and a half times the last five years. This is a effort that we have put in the group to ensure that this is pushed down and we actually are amongst the best in the sectors in term of our health and safety criteria. A lot of audit per year, a lot of risk assessment per year, but this is part of what you need to do as a company to ensure that we are up to the best in class as well as for our employees, that they can work in a sound and safe environment. This is just a chart to show you the progression of the KPIs. These are specific KPIs that the industry use, what we call the lost time incident rate and the total recordable incident rate.
These are typical criteria that the industry uses to ensure that you are within a certain index. Again, if you are too high, some customers would not use you as a service provider because you have to be below a certain level in order to bid for those projects. To really finish the presentation is, what is important for the SGS Group is sustainability, what we call value to society. This is a chart that demonstrated a bit supply chain, is whatever the SGS Group procures. We are very strict with our own supply chain about in terms of procurement, in terms of their supply chain, in terms of human rights, in terms of our procurement policy. We want to make sure that we don't procure goods and services for the SGS Group with the suppliers that don't fulfill our own vision of sustainability.
This is important. Direct operations is what we do as a good company. We are very strict on that, and we'll see in the next slide some of the KPIs. We want to be the most sustainable company in the TIC sectors and in the business services sectors as well. We put a lot of emphasis. We're very strict car policy, human capital policy, building policy. We're very strict on that. We are a carbon neutral company for the past several years. This is something that is important. Community as well. What we do give to the community in which we operate. Very important for the culture of the group. Services. Services is what we offer to our customers.
We as a Group believes that a lot of what we do is helping our customers to be more sustainable, focusing on their sustainability, ensuring that our services create sustainable value to their customers as well. The services we're offering to them is we help them to be more sustainable. The stakeholders that is involved in that is really our own employees, our customers, the investors, and the general community which we serve. You look at our value to society, the some of the criteria we have. We've been at the six consecutive years now for the Dow Jones Sustainability Index. The FTSE4Good Index is the third year that we're included on that. EcoVadis is an important index standard in France, where more and more customers asking you to have the EcoVadis certification, and for last four years we are gold-rated, so something that we're proud of.
The new award, I would say we got, apparently I was told that PwC has given us the Best Integrated Report Annual Report Award for the first time. I'm quite proud of that. What is more important for us to continue this journey in terms of sustainability and carbon neutrality is an important aspect. We do a lot to ensure that we don't have a major carbon footprint to the society. This is what we do, and the other criteria will not go through them. Again, a busy slide, but I just wanted to put in place, when we talk about sustainability as the driver for the future. Just to illustrate, we already offer a lot of services to our customers in terms of sustainability, whether it is water management with AFL, whether it's GHG, greenhouse gas emissions verifications. We offer a lot of services already.
You look at the evolution of the market, even in the more traditional field like minerals, there is more and more demand for sustainability services. Here is an idea what is out there and what is coming next to the market. Responsible sourcing, circular economy. The mining sector is not only about anymore the miners and the traders pushing for our services. We're seeing now an emergence of the end user, the automotive sectors, the consumer sectors, asking for more responsible mining that forces us to start to look, asking us to start to look at what services we can offer to them to help them to ensure that their supply chain is more sustainable. You look at all those products, one of the raw materials is the mining, the cobalt, the copper, and all those things that are using their own productions.
This is something that is interesting because we're seeing an increasing demand, and with new opportunities where we can create a new service portfolio to ensure that we can help some of the end users in terms of sustainability in their own supply chain. My last slide is about, just to conclude on that, is about the mega trend. We talk a lot about that, and I try to reformulate what I call the mega trend for the TIC sector. I mentioned six of them. There's more. Connectivity, health and wellness, mobility, cybersecurity, sustainability and climate, and nutrition. These are really key themes that we see an emergence of regulations, an emergence of needs from our customers, services to be demanded by our customers.
We're looking at these six sectors plus others to see how we're going to re-strategize ourselves, our groups, to be able to capitalize on this emergence of demand. If I just take connectivity as an example. Connectivity is not just about 5G and how you connect with the mobile phone. You talk a lot about the connectivity itself. We talk also about interoperabilities. How does two product communicate with each other? This is why one of our partners, Allion, that you are going to see tomorrow in Taiwan, we can talk about how interoperability works. Really, how does two product to talk to each other, and how does the flow goes on? You talk about data privacy and data security, which goes back to cybersecurity as well.
These are really key themes in the future that we need to address in terms of new service scope that we're offering. Health and wellness. Absolutely, we're doing that, but there's more and more demand. The wellness side is an interesting evolution, so in terms of cosmetic, personal care product and so on, it's just an evolution of the portfolio. I just already mentioned about climate and nutrition is already something we do, but the demand in terms of testing and in terms of new requirements increasing on that. On that, I think I will pass the floor to Dominik that will be more focusing on the financial objective and financial framework of the SGS Group.
Thank you, Frankie. Good morning. It's a pleasure for me to talk to you this morning. As Frankie mentioned, I joined the company back in February, mid of February, almost nine months in the role. Before I start my presentation, I have a question for you. What do you think was the most often question people ask me when I was announced or in the first couple of weeks or months after I joined SGS? Any idea? The question which a lot of people had, what are the reasons that you joined SGS? For me, it comes back to a couple of key criterias. First of all, I love business services, and the TIC industry is important part of the business service sector and has on top very interesting, yeah, structural growth drivers.
Secondly, I used to work for global leaders, and with no doubt, we are truly global and we are a leader in the industry. Of course, very important is strategy and people. When I had my first interview with Frankie, I was very impressed by his vision for the business, for SGS, also for the market, and by his strategy and what he would like to accomplish with his team. Needless to say, of course, his massive experience in the company. Subsequently, I had a meeting with the Chief HR Officer, Jose Maria. He's also here. Was a great meeting. We talked a lot about operations. I really enjoyed this meeting. After I met these two key guys, I felt, hey, there's a good chemistry.
I also felt that I can bring something to the table, that I can bring something to the company from my experience. Finally, I had a couple of meetings with several board members, and I felt strong support towards the management and towards the strategy, which is absolutely key. Finally, I was very happy when they offered me the job. Now let's talk about more the financials. I would briefly go through the financial highlights, then spend much more time on what kind of initiatives we're doing. Are we accelerating in order to drive the performance of our company? I will talk a bit about capital allocation, about the way how we achieve the 17%+ next year, and then conclude. What are the key elements of our company in general? We have a strong track record of solid organic revenue growth and a very resilient profitability.
Our cash flow generation is very strong, outlined by, if you look the last five years, on average, around 80% cash conversion ratio and very strong free cash flow generation. Our returns are very strong, several times, more than three times weighted average cost of capital, and the company did a fantastic job over the recent years to reduce the net working capital. These are very strong fundamentals in general. Here we have taken numbers from analyst reports and aligned the KPIs or our numbers to the measures because sometimes the measures are a little bit different, so that we really compare here apples with apples. In summary, we can see we have net CapEx and percentage of revenue, of course, depends a little bit on the end businesses. It's in general very similar with the peers.
We have clearly best-in-class return on invested capital, as well as net working capital, and finally, a leading cash flow conversion. With this in mind, I think we have very strong fundamentals, but there are opportunities that we continue to accelerate our profit growth and our cash flow growth. Here I want to spend a bit more time on it. I will not touch on all the points, and maybe my part is obviously a bit more financially related, but I will cover a couple of key items. On the one hand, active portfolio management, a EVA-driven performance management, what we currently roll out. The Structural Cost Optimization Program, which we announced with the half year numbers. Obviously efficiency gains. I give the example more related to finance. Frankie pointed out several other initiatives, if we think about the initiatives towards digitalization, but also world-class services.
All these things will provide efficiency gains in the years to come. I mentioned before, working capital was very well managed, but I do believe on the AR side, there are still some opportunities to continue to improve. Procurement, spent not a lot of time on it. I think great job was done so far, but also here, we have a couple of more things which we can tackle. Let's start with our portfolio, and I have to explain this slide a bit more. What you basically see here, it's a mapping of our activities based on end market growth and on relative market share. The relative market share basically means if we are the leader, we are on the right side of this slide with the activity because we have a relative market share above one, right?
If we are follower, if we are not the leader, we are more on the left side because there's somebody else bigger than us. Relative market share is below one. We mapped what is the market growth potential. It's more, let's say, over several years. You have businesses who have, let's say, a midterm growth, more low single digit up to mid-single digit, and you have businesses, they grow mid-single digit, high single digit, or even double digit. Obviously, our intention in terms of portfolio management is move more to the businesses with high growth and preferably we have a strong relative market share because we know if we have a strong relative market share, the ability that we achieve great returns is just higher.
You have with color code indicated for all these activities, how much value they create from value destroying to areas where we have a positive EVA, so we create value, to what I call good value creation. There I mean that we clearly have a ROIC, which is at least doubling the double of the weighted average cost of capital. Of course, we have a lot of businesses where the ROIC is several times higher than the weighted average cost of capital. If you look to the box and the percentage indicate how much of our group revenue are roughly in these boxes, right? If you look to the box right down, so market growth, lower single-digit to mid-single-digits, but we are the clear leader. This is a great position which we have.
In this part, you find primarily our trade activities, then in agri and in Oil, Gas & Chemicals, then energy minerals, but also our certification activities, and they have great returns. One reason is obviously that we are the clear leader, that we have a very strong relative market share. These businesses are very important because we can grow them organically. There's not a need of acquisition. We have limited need for additional CapEx, and we generate a ton of cash. With this cash generation, it allows us on the one hand to pay a very strong dividend, but more importantly, to allocate more capital to areas where we see more growth potential in terms of growth, especially to the bucket next up. Basically, areas where we have higher market growth opportunity, so above 5% up to double digit. Where is our relative market share?
Not above one. In some cases, it will stay below one, because maybe the market leader is much, much bigger. To improve the relative market share will also help. There will be more capital allocation in areas like within CRS, E&E, in food, in life, because these are very interesting parts, higher growth, great returns at the same time. We have the area, the segment left down. Basically market growth, lower single digit up to mid-single digit. We are not the market leader. Some of them, we are very close. Some businesses, our relative market share is maybe 0.9. The leader is 10% bigger than us. It's not massive. Some of them have a similar criteria like the right part, but we are not the market leader. Also here, strong returns. If you think about our Softline business, very high returns.
Softline growth rate is more below 5%, it's a great business, and of course, we aim to continue to strengthen this business. There are also businesses, as you can see, who destroy value. There we have to do something about it. It is obviously a rather small part if we look to the overall pie, there are areas where we continue to actively pursue a disposal or looking for partners for which this business adds more value than for us. This is mainly related to various field activities. Frankie mentioned already the disposal of PSC, acquisition of Maine Pointe, I think these two examples actually illustrate quite well what I said on the slide before. We disposed PSC. I think it was a great journey for PSC within SGS.
The business was acquired back in 2014, had very good growth over the time, but the characteristics of this business were changing going forward. It's a non-core activity for us, so we disposed this business for a valuation of around 10.5x EBITDA. At the same time, we acquired Maine Pointe. I don't want to go to the details. You know this transaction in detail, and then we have also Steven there, who's running this business and still holds 40% of this company, and he will surely explain you much more about the potentials which we have. We are all very excited about this business and how it fits well in our CBE business in general, and the fact that it should create after the year one already a positive EVA.
If we look to our business units in terms of capital intensity, in terms of returns and M&A appetite, I illustrate here the nine different units. Please consider if I talk about CapEx intensity or net working capital intensity, we always compare relatively to the group, right? If we say higher, it does not mean it has high working capital need. It's higher means it's higher than the group average, right? The average is basically our CapEx intensity, which is in the higher 4% area, and for working capital below, more in the 1.5% area. You see indications by business, whether they're higher, lower, or on average in terms of intensity. More importantly, if you look to all these units, they all have a strong return profile.
They're clearly outgrowing their cost of capital in some, but in some of these businesses, if we go to subunits or sub-activities, it is not good enough and we have to improve it, or some of them, as I mentioned before, need to consider some disposals. Obviously, the return profile depends also on the margin profile and the intensity, and not surprisingly, you have businesses like CRS with a very high return profile given the margins which we are achieving in this business. Where is our key focus when it comes to M&A? I mentioned already, definitely high in food and life. Also within CRS and E&E and in cosmetics, in EHS, general high. You have seen a lot of bolt-on acquisitions, especially in this part the last one and a half years. For a lot of the other ones in selective areas.
It is lower in Oil, Gas, Chemicals, and minerals because we have very strong market share, and we believe we can do this to the main part organically. Obviously, when you talk about acquisition, it often comes back about pricing and what kind of price we are willing to pay. It's very clear for us, if we say we want to accelerate M&A, it still means we do this in a disciplined way. I want to provide a little bit of a framework what I mean with this. It is important, the price or the value you pay depends much on how important is this business view, how strategically is it important, what does it change for us as a company? Depending on the importance, we would like to give these businesses a different time frame until we expect from them to earn their cost of capital.
As simple as this. You see on the upper part indicate us where we expect the EVA to be quickly positive, let's say within a year or a bit more. You see in the lower part indicate us where we would like to give this business more time, given the importance, given the synergy potential, given the impact it has on a certain business unit. I believe with this framework, we combine on the one hand, to not miss out interesting strategic opportunities, but at the same time not committing a price which we maybe later regret. Coming to EVA-driven performance management. We are in the process of integrating the EVA framework for strategic decision-making and with this to drive performance.
If we look to it and think about EVA, it comes simply back about achieving awareness of people in the whole organization, whether they create value, and if they create value, how much value they create. Right? Today, they are of course, partly paid on working capital, which is very good. They get their P&L, they have their numbers, and they see how much profit they generate, including overhead costs and all these things, what is their margin. It doesn't necessarily mean whether they create or destroy value, or if they create value, how much value they create. This is a bit of a change in mindset that people understand we have costs which are not allocated, like the G&A corporate headquarter costs, like the global business unit structure.
We have to allocate taxes, of course, most importantly, consider that the invested capital needs a minimum interest. By doing so, and by creating awareness, it will help to drive performance. I'm sure if people see I destroy value, they will do something about it because they recognize that they have a problem. From my point of view, if you recognize you have a problem, half of the problem is solved because you recognize it, you can do something about it. I do believe this will change the performance. What we did as a first step, we assessed all individual businesses on a certain level and kind of analyzed them and realized that roughly 150 + of these individual businesses are today value destroying. A lot of them only for small amounts, it doesn't matter.
They should create value, so we need to do something about it. These 150+ businesses, contribute roughly 8% to group revenues. In Q4, so the current running quarter, we are in the process of establishing a recovery plan. It's a standard recovery plan which will be applied by each individual owner who's accountable for this individual business. He will come up with his action plan. You see it on the right side of the slide, what is due to expect to be covered in order to drive the performance. These plans will be followed up on a quarterly basis to see whether we are on track or not on track on what we're doing about it. It's really about to improve the performance and maybe in some cases, also think about a disposal or a merger with other units. The structural cost optimization program.
We announced it with the half-year numbers, that we spent CHF 75 million. We are looking for savings, CHF 75 million plus, fully annualized. Today we update you that we expect with the same spending, CHF 75 million spending, savings of at least CHF 90 million annualized. Some of them will kick in towards the end of the year. The vast majority will be fully realized in 2020, which is a strong margin uplift. What is important in that respect is the reason why we can be more precise is that the actions which we decided were implemented very well. We had 970 actions. There was a strong support from the complete leadership team, to work on these actions, to come up with these actions and implement them.
We are very satisfied with the process so far, so that we are very comfortable to achieve this CHF 90 million sustained savings structurally, who should stay with us. You see on the pies how the savings are split. There is a bit of more saving, especially in Europe, Africa, Middle East, compared relatively to revenues. In general. All regions working on the plan, all functions, and all business units. Very important that it's done across the board because a lot of it is about duplication. On the right side, on the bottom, you see in which areas the savings will occur. I would like to show you one that is a bit more tangible, one example of a country. How does it look like for a country? I have chosen Germany. Germany is important business for us. The saving target for Germany is CHF 8 million+.
We're looking for the impact. If this plan is completely executed and roll out, it will lead on a like-for-like basis to 4% less headcount. In that respect, I would like to outline the target of this program is primarily overhead costs and indirect costs. Less so people working in a lab. Some of them, yes, because in some cases we consolidate labs. In some cases, we consolidate subunits. The main focus is the overhead and the indirect cost. Overall, staff reduction out of this program, around 4%. The reduction of the overhead people in Germany around 16%. We had two units where we had opportunities to consolidate something within the country, in industrial and oil, gas, chemicals. In each of them, yeah, headcount reduction 12% and respectively 6%.
If we look in which areas we have this duplication, a lot of the savings are coming from duplication, which we assessed and analyzed in detail. They are duplication in different areas between business and functions within a country, between business and business within a country. Sometimes both several business units have the same additional task, which can be consolidated by working more closer together. Between global functions, local functions, between the global business and the local business. Finally, in some countries, we had opportunities to also consolidate some of the business and some of the locations. Besides the saving benefit, I do believe that with this program, we simplify the structure. We're becoming a bit more agile, and it should help, in terms of decision-making and execution. How does the saving occur in Germany?
65% of their actions are implemented, so it's a bit more than group average. Remaining will be done in the rest of the year. Just to point out, for Germany, but also for the group, the data, 65% or 47% on the group was end of September. This was happening in two and a half months. Obviously, having now first week of November is already much more accelerated. It's end of September data, just to point this out here. The saving will occur indirect and overhead is the main part now in Germany, also direct to a certain extent, given lab consolidation and subunit consolidation. You see in which units the main driver for Germany overhead, followed by industrial and oil, gas, chemicals. Now let me talk about one example for efficiency gains.
I think the last years, SGS did a good job to move key processes, key finance processes into shared services and onboarded it in shared services, and it was done with a very low level of noise, which is actually very good. However, if you do this with a lift-and-shift approach, which is very often used because it's just faster and simpler, it leads to a certain moment that you have complexity. Complexity in a way, if you lift and shift decentralized businesses where every business, every country has a different process, you end up in a shared service center with a variety of processes, and you never achieve the efficiency gains. For us, it is key for the remainder of this year and next year to basically standardize and harmonize all these processes. These are three key areas, the P2P, the R2R, and the O2C.
We are now in the process to harmonize and standardize the P2P process, and then we follow with the other ones. The timing also depends on onboarding of new countries. With this in mind, we will move from a situation today in shared services, which I would say it's more managing complexity, to a situation in one year from now, very managing standardized processes. That should help going forward to have continuous efficiency gains out of shared services, which we need. I mentioned before net working capital management, clearly leading in the industry, very good job done over the last year to bring it down. I do believe we can still do on the AR side, particularly a little bit better, and I would like to outline this in a certain detail.
If we think about the process order to cash, or better to say when the order is finished to the time we get the money, you can split this process in three parts: the time to bill, the payment term, so the time how long the client has time to pay the bill, and then the overdue. If we look to it and start with time to bill, which has no impact on DSO, but it has an impact on when we get the money from the client back. We have a situation today that billing is primarily done in each and every laboratory, in each and every branch. This is, of course, not very efficient. We had two pilots. One is already done, the second one is ongoing. One was in Poland, where we basically centralized this work on a national level.
We were able to reduce the headcount who was involved in billing by 40%, by just replacing it centrally. It's a cost saving. We do the same currently in South Africa, a little bit bigger country, and it looks more or less that we achieve the same potential. Now, this is a cost-saving benefit, so it should be rather on the efficiency gains. Interesting here, if we centralize billing, we clearly see we bill faster and we have less mistakes. This is a key area where we're focusing on. We have two pilots, and we're working out after the pilots on a rollout plan, going forward. The payments term in general, I think they are very well negotiated, but we can always improve a little bit. I think the EVA driven culture will also help.
In some areas, we maybe should be tighter on top of when it comes to milestone payments, but in general, very well done. When we come to overdue, there's quite some potential because as the same for the billing, if this is done out of every lab, the overdue management is very difficult. This process was already moved to shared services, which is good, but now we have to start to basically drive more productivity. We're currently rolling out advanced collection. This will help as a system that we collect faster and more efficient. We're rolling out a new policy for collection. I do believe the overdue can come down over time. DSOs for the company are currently 47 days. Taking these actions into account, I feel comfortable that we can reduce this in the midterm by around four days. Coming to capital allocation.
Here you see the CapEx in order to maintain the business, but also grow the business. You have seen the capital potential revenue went down in the last years. 2014, 2015 was partly also a bit higher given investments in more natural resources segment, where it's less necessary today. The 4.3% in the last 12 months, they look a bit low. I mentioned already to the first half year numbers, we will have clearly more CapEx in the second half. For the full-year, it's definitely in the range, 4.5%-5% what we usually am guiding. M&A activity, Frankie showed acquisition, which we did so far. Last 12 months were eight for consideration, CHF 147 million. We're accelerating.
For the full-year, we definitely should have more acquisition done than last year, the total consideration for the full-year should be also higher than what we had in 2016. If we look to the dividend and shareholder return policy, we have a high payout ratio. You notice it's a key feature of our company. If I look to the dividend yield, in the individual years, the yield was ranging depending year by year between 3.2%, 4.9%, average around 3.7%. Looking to the source and use of funding, not surprisingly, cash flow from operations is the main driver of the source of funding. Obviously, depending on the year, sometimes we have proceeds from corporate bonds, which is the main financing instrument to be used.
In terms of spending, we have, besides a big part in the dividend, we have, of course, the CapEx and to a certain extent, acquisition. Going forward, we definitely expect more from the acquisition side in that respect, but at the same time, maintaining a strong dividend policy, which is mentioned here. Basically, sustained enhanced growth by organic CapEx. We want to accelerate M&A and dividend policy is the same, in line with earnings growth to reward performance. We are committed to our current balance sheet, and looking to our balance sheet allows us enough capacity to make decent M&A transactions. In general, we prioritize investments over distribution. However, following a very stringent approach when it comes to return invested capital EVA and not jeopardizing our dividend capacity. How we achieve 2020, the 17%+ . The main driver is obviously the cost optimization program.
We said this morning that we're aiming for at least CHF 90 million. As I mentioned before, the majority of it will realize in 2020. There is a margin uplift from this program of 100 basis points plus. At the same time, we're still benefiting only for a half year because the first half year is already this year end. From the mix change of the fact that we sold PSC, which had a margin below group average and acquired smaller business, but it has, of course, some impact, Maine Pointe with a higher margin. There's still some benefit into next year because the business was deconsolidated July 1st.
I do believe that the focus on the EHS performance and performance management in general should have also some uplift to the margin, so that we feel very comfortable to basically achieve this target of a margin in 2020 of 17%+ . With this, I would like to come to a conclusion and kind of summarize, what can investors expect who invest in SGS?
It's definitely exposure to the global leader in the tech industry with a very broad and balanced portfolio, a proven track record of sustainable, solid, organic growth, best in class ROIC with very strong cash conversion, a very shareholder-friendly dividend policy with a high payout ratio, a strong unleveraged balance sheet with the capacity to basically leverage a little bit more, in order to basically drive or add businesses with higher growth potential, with higher value add, and in general, as I outlined before, opportunities to accelerate profit and cash flow growth, given the underlying growth we see, given the structural growth we see in the near term, and the measures which we are taking, which I just outlined. With this, I would like to conclude my remarks, and I would like to ask Frankie Ng and Toby to join for the Q&A.
Thank you very much, Dominik. We've got plenty of time for Q&A, you'll be pleased to know. I would like to reiterate to those people on the call and the webcast, if you would like to ask a question, please submit it by text. If we start with some questions in the room.
Hi, good morning. Suhasini from Goldman Sachs. Just a couple from me, please. When you think about the change in the growth outlook for this year and for the next year, what has exactly changed? Which divisions have seen the most deterioration in the last three months since you reiterated it at the first half results? Secondly, as you do this restructuring program, it looks like there could have been some disruption to operations, especially as you consolidate labs, reduce headcount. Can you talk about what impact it had on your growth so far, and is it going to be done by the end of the year? Thank you.
If I take the second one as the first question. If you look to this consolidation program, where we, because of this consolidation program, close also some of the businesses, the impact on revenue is rather limited. It's between CHF 10 million and CHF 15 million annualized. This is rather limited, and otherwise, if you look to the whole program, it's really about much more the overhead costs, the indirect costs, the not client-facing function. It's not about salespeople. If we consolidate labs, usually, as I mentioned, you assume a bit of client attrition, which is considered in CHF 10 million-CHF 15 million, but it's rather limited. The first question was?
The first question was which businesses have slowed since the first half to get to the lower growth in the second half?
I think that we can answer in next slide.
If we look to the main drivers, the industrial business had quite strong growth in the first half of the year. Their growth is decelerating. To be fair to say, it's also the business where we actively cancel some contracts who were loss-making or value destroying. It's partly related to it. I do believe that for the whole year, the growth rate for the whole year is maybe impacted by 0.5% from basically stopping value destroying contracts, and this 0.5% is more geared to the second half of the year. This is the main point.
Would you like to add anything to that or Next question?
I think the two businesses that we flag already in the first half that was going to be slow in the second half, specifically transportations, that I mentioned at the beginning of the year that for next 12-18 months, we'll have a situation where some of the existing contract was closing while the others are now starting. Certainly, this is also a part of the gap that we're seeing here, and it's continuing to deteriorate. For example, you look at the transportations, one of the contract within Africa that was supposed to restart in the second half of the year, are just not restarting, not much because of the elections itself. It's more because of the government's issues, that they're not willing to restart for political reasons that we cannot influence, so we're trying to do our best.
Obviously, we will carry on till end of this year and begin next year as well.
Okay. Next. Sorry, can we start on that side and work our way across. Tom.
Hi, Tom Sykes with Deutsche Bank. Just, firstly, SGS and SGX, what's the degree of more on either side? What we see before the 2012 as well, is there a problem to look at it from a change management being implemented in business? Is there any way it can also lie in the different bringing large number? What would be the approach to that? It sounds like a struggle a bit more beyond the 2020. Just in terms of this year's margin, could you talk about have you actually got collection fee as an issue for GIS? Were you still expecting that before the end of the year?
Okay. If we look to the EVA process, of course, it is to a certain extent a cultural change. However, the fundament is already very strong. If you look to SGS people, all the key people, all the leaders in the company, they were already paid not only on their profits, they were also paid on working capital. They had a working capital thinking already in their mindset, which is a big advantage. Of course, now we're adding also cost of capital for the real invested capital, and this is definitely a cultural change because people before were thinking in their profitability, in their margin.
What we're seeing also with the discussions and when we start to talk about these things, that people start to think differently and ask the question, "Okay, why are we doing this in this or that way?" I do believe that the organization is ready for this change. I also know that longer time ago, there was a similar concept applied. There was also once a time, where something similar like EVA was applied, so it was already once there.
I think it's a bit of a cultural change as well as a refocus on EVA. If you recall, several years back, we have a program called Certiva, was implemented by our former chairman, Sergio, that the Certiva concept was not that far off from EVA. It was just more complex in terms of a lot of moving parts. We kind of gave up this concept. We focus on a pure P&L aspect, net working capital, and so on. I think with the new discussions, with the arrival of Dominik, we have kind of refocused the organization towards this EVA, which is a simpler concept to understand for the network, and we're just refocusing on that as well.
To add on, from a timing point of view, there will be some positive impact in 2020, I do believe it's like you also just said, it's more for the midterm. We're starting now, with the business who are value destroying, obviously it's not only to say what destroys value or creates value, it's also the ones who create value. Is this good enough? What can we do to improve it? I do believe it is also for the midterm and especially when it comes towards M&A, also important CapEx projects where it is a supporting tool to make a decision-making whether you invest or not invest. This is not for the short term, it's more for the midterm. Regarding the bad debt, the two bigger bad debts within GIS, they are not yet collected.
The team is very actively working it, but they're not yet collected.
Thank you. Yeah, as we just said on the EVA, I think like world-class services, most of the benefit will be met beyond the 2020 plan. Yes, please. Let's move over here.
Thank you. It's Alexander Mees from JP Morgan. Firstly, on the value destroying businesses, Dominik, that you've identified, presumably they haven't always been value destroying or maybe they have been under the new framework, if they have become so, what has changed to cause them to be value destroying? Is it competitive pressure? Is it the cycle? Is it changing market dynamics? Is it possible to generalize? Secondly, I wonder if you're able to put any numbers around the larger M&A targets that you say that you're looking for. Large is obviously a relative term, is it possible to put any metrics about the upper limit of the size of businesses that you would like to acquire, if you can?
You want to talk to the M&A first?
No, go ahead for the EVA.
If we look to it, there are some businesses who are, let's say, value destroying only the short term, yeah, for various reasons. It could be you depend on a big client and he's aggressive to cut the price down. In business with the lower value add activity or if you're in areas where you have businesses, where the value add, like a cost-plus model is not very great. You have other players maybe from other industry than our sector who just do this more efficient, with a different margin profile. There are also some who destroy value for several years, but I think this is kind of the awareness of changing from a mindset, this is the margin, to a mindset, this is the real value creation or value destroyment. There are various reasons. Certainly, the majority of the things are more in field activities, right?
More labor-intensive parts where you have sometimes pressure in terms of wage inflation, but the inability to pass on the price. If you understand it destroy values, you may be better in negotiating the price increase.
Can I just add on this that out of 150 units that Dominik talked about, some of them are structurally made for the purpose of feeding work in other labs in our strategic evolution. Not all of them are destroying value because they are badly run or performed. Some of them, for example, some of the units that we have in the U.S., actually, because the nature of the consumer goods activities that we have in China, this lab has developed to be a feeder lab where they will have a probably lower price, a smaller volumes, but they fit the bigger volumes into another lab. In terms of performances, you probably see them being.
Yes, we have to see this combined.
They are strategically.
Yep
Fitting a purpose elsewhere. Those one need to be combined.
Yep.
For the time being, the list that we put in there are not yet combined, I would say.
Yep.
If I answer your second question, in terms of acquisitions, in terms of size and shape, we don't have a set target. I would say that we are also actively looking at the acquisition in the CHF 200 million, CHF 300 million, CHF 400 million in terms of revenue, in terms of size. I would say we are more looking at the CHF 300 million to CHF 500 million size than something much more substantial. Again, only if the value is right, the strategy is right, that we will go for it. The core of the strategy is still on bolt-on acquisitions.
Thank you. Yes, let's keep moving us through.
Hello, good morning. Philip Gottschalk from CQS. I also have a few follow-up questions on these value destroying businesses. How much time do you give them to recover? Also, have you put in place some special incentives for the local business leaders to recover? Finally, are these recovery programs more geared towards cost-cutting, or are you also ready to invest money in order to drive innovation and drive sales? Finally, do you also have already a new disposal target in mind or not yet?
If we look to this business, basically, in Q4, the current quarter is about to provide back the action plans and the recovery plans. The recovery plans as a standard template is basically a plan until the end of next year, follow up on a quarterly basis. All these plans basically were coming back last weekend, but as you can imagine with this event this week, I didn't look to them yet, and Frankie as well not. For sure, we review and the leadership team will review this in the weeks to come. Then we have to see what are the different reasons, like Frankie was saying, there's maybe one or the other, which is very destroying, but it has a bigger purpose. We have to think about this differently than individual business.
We review these plans and see, are they feasible or not? In terms of I think it's too easy to say just cut costs, right? There will be for sure, or they are for sure, I mean, this is 100% clear. A lot of them, they are just small, and they are, let's call it subscale, right? Even if you cut cost, it doesn't change it. I think we have with the Structural Cost Optimization Program, an important initiative who will help a lot of them, yeah, because they will of course benefit if we have less overhead cost in a certain country, if we have less overhead cost in general. There will be some of them on the list. They were only short-term on the list because they had also kind of timing of bad debt, in this last 12 month.
If they recover the bad debt, they're okay again. There will be, from my point of view, quite a lot where it's really about a very good plan to accelerate revenue growth, yeah, if possible. Thinking about pricing versus wage inflation. This is about in Q4, we have to review and assess this in detail, in that respect. It's solely not just a function of cost cutting because by the end of the day, if you want to have sustainable, strong EVA, you need a focus also on the top line for the right price.
In term of your second question, do we have disposals in the pipeline? I would say the answer is yes. We're still actively looking at our portfolio. I think the larger one was done with PSC at the beginning of this year. We're also having some smaller asset that we're looking at disposing of. They will be coming in the next few months as we found the right partners and so on.
I think given the effort that we've had from someone actually sending a question from Europe, I think we should probably answer it. Rajesh Kumar would like to know how much of the gross cost savings will be reinvested for future growth? The first question. The second one is, what is the average margin of the 8% of revenues that are not EVA accretive? There's a final one. Do divisional and branch managers have different EVA thresholds?
If you look to the first question, the vast majority of this are structural savings. The intention is not to reinvest this into growth. It's about to make a structural saving, which should give us a sustainable margin uplift. The second question regarding the average profitability. If you look through this 8%, there are quite some business that are profitable, but they have a negative EVA because you allocate, in our thinking, also the cost of Geneva, you also allocate the cost of the global business unit, and you have the cost of capital, right? Underlying locally, some of them or quite a lot are profitable, but there are also some are loss-making. The average margin is flattish to tiny negative.
Clearly we use a different cost of capital depending on the region.
The cost of capital, obviously, it really depends on the region. Yeah.
Are there different EVA thresholds given to different businesses?
No. EVA is basically a concept where you allocate the related overhead costs, taxes, and the cost of capital. The only difference is that, of course, in a country like Brazil, you have much higher cost of capital than in Switzerland.
Thank you. I'd like to remind anyone else on the call or the webcast, if you'd like to submit questions, we'll of course answer them out. Yeah. Should we go to Ed, please?
Thank you. Ed Stanley from Goldman. I've got three for you. You sound more cautious on probably organic growth. You said that's more impactful than
I take the last one?
Sure.
Yes. You know what? We see indeed the multiples for the acquisition has come down from the last 12 months, I would say partly because some of the large asset that was the target of the peers was purchased the previous two years, and we're seeing much less of those particular asset on the market. You look at the way we're looking at it as well, not only that we're looking at the specific asset in some newer field that is not targeted by our peers or the peers, as well as we're taking that in a much forward-looking way in the sense that we're approaching those company ourselves rather than waiting for them to be on the market.
I think as Steven could mention that from my point earlier, that we have to approach them much earlier, talking to them and try to convince them of the strategic evolution. There's also different ways that we have approached the market. To say whether the multiple will change, for time being, I believe we have the good window of opportunities to keep pushing ahead with acquisition with the right value, that we believe is fair to pay. We see less of the headwinds that we had in the past couple of years, I would say.
Regarding the CapEx, what I said was basically if you look in the first half with rather low CapEx compared to prior the historic trend, and this is partly a timing issue. In the second half we have a higher CapEx, and this is primarily related to the fact that we had several great wins in our minerals business for on-site laboratories, where the CapEx spending is happening in the second half. Also within CRS and E&E, we're investing into wireless 5G, where some CapEx will occur because these are definitely great growth opportunities going forward. What Frank talked about it in his speech about connectivity. We're actively investing in this and have no doubt that it has a great return, in that respect. The second question was related to the revenue growth.
Obviously with the structural optimization program, the 17% + is more geared towards the cost saving. This is without doubt. The revenue growth by the end of the day will have a certain impact, on how much it is above 17%, right? If you have a bit more revenue growth, you have a bit more leverage. There's underlying leverage around it. We want to be sure that the structural optimization program, and this is not just done because of the 17%, this is done because we think it's the right way to do for the mid and long term of the company, will be an important lever to get there.
Okay. Thank you. Let's go to George.
Morning. It's George Gregory from Exane BNP Paribas. Just following up on some of the prior questions around the margins, please. Firstly, for this current year, could you just indicate what you expect the impact to be from the disposal of PSC on the margin, and any other relevant building blocks? I think Tom earlier asked about the collections. Are you making any implicit assumption on what happens on collections this year? Then perhaps looking to next year, clearly good upside potential from the cost savings, the annualization of PSC, some impact of Maine Pointe, the contract exits. What are the offsets to that, or potential offsets to that improvement in margin, please? Thank you.
If we look to it, if we start with the bad debt recovery, we said in the first half that the kind of timing of bad debt collection was a negative of around 20, 25 basis points. The biggest part, or let's call it not the biggest, but an important part was this collection within GIS, but there were also other areas where we have delay in collections. While in these other areas, we clearly see we get this collected. In the GIS business, we are still very active. It's not there. This will maybe partly be a slight, will be a timing issue. If it happens in Q1, we do everything it happens this year, but it's going to happen to Q1, right? It's not that this money is lost.
On the equity, if I take on the one hand PSC, and on the other hand, Maine Pointe, the impact in the second half year just from the change for the second half is around 30 basis points for the second half. That means annualized, to simplify, let's call it 15, since next year it's full-year there. This year was a half year there. It's still 15 for next year. The other 15 basis points in that respect. We're aiming for 17%+ , so we obviously don't know yet what the revenue growth will be next year. Now we have to see, these are the kind of building blocks.
Thank you. Rory?
Rory from UBS. I was looking at the savings program and the new planned savings. I was wondering if you might be able to quickly run through the savings? Frankly, I think your last call was great with a lot more detail and I think things may have moved on since then or backed off. Maybe , a few words on the slow development this year. How you're looking at the momentum going into next year and we also need to play out what next year looks like.
If we start with the saving. First of all, this program is global. It goes to all units, all functions. Relatively speaking, you have the highest saving potential in Europe and in Africa. I think in Europe it is also partly a function of labor law regulations. It needs a special program that will really change things. It is less of an impact in the Asian markets. Also they will contribute because duplications are also there, but the bigger part is definitely Europe in general and Africa, and to a certain extent, Latin America. Was there additional part before? Okay.
A few months into the plan, where are the additional savings coming from?
The additional savings. The additional savings, basically, if we look to it, several areas were coming up with additional potential, but a lot was from Europe as well, yeah.
Okay.
For the consumer good.
Comment from consumer, yeah.
Yeah. This is the perfect place to talk about the trade dispute. There's an impact. There's no question about that. We've seen it, specifically in Hong Kong. The China operational consumer good has seen some impact in term of volume between the U.S. and the China trade. The good news is we managed to compensate that with some of the domestic market activity, even in the consumer good. In the Chinese market, you have the GB standard, which is also a testing requirement, so we are actively expanding to this. You also see a migration of some of the work that we used to do in China into some of the other location like Vietnam, Indonesia, and so on, and even Turkey, we have a quite strong growth. You see the consumer goods result are not that bad.
We also gain additional volumes, I would say, from some of our European-based customers. These are the overall structures that we put in place that allow us to be quite stable in the consumer goods. We're actually growing in a good pace. In the way investment, obviously, we are migrating together with our customers. If they're moving to a location like Vietnam, we are certainly putting. I think Vietnam this day for us is double-digit growth. We're certainly putting more resources and the CapEx there. Some of the equipment is moved from other locations, if we can. It's just following up with customers. For next year, if I understand the last part of the question, we're still talking to our customers.
I think, there's still a lot of uncertainty on the market with our customers to see what this trade dispute is going to end. There seems that the Chinese government and the U.S. government wants to make some kind of first phase deals. We're monitoring that, but still a lot of uncertainty. It doesn't really change much of our strategies that we put in place. We need to focus on better servicing our customers, migrating our portfolio to the European customers, to the Asian customers, to our Chinese customers, and following up the newer supply chain migrations to China and elsewhere, whether this is Vietnam or Indonesia, I would say.
Thank you, JP
To come back to the cost savings, Jean-Philippe Bertschy from Vontobel. To come back to the cost savings, the CHF 90 million, if I understood well, it's 100% retention rate, and then you have the portfolio management, so we're looking at 150 basis points more margin. If you don't have any headwinds next year, an improvement in the business, in the annual business, you're aiming at well above 17%, if I'm right, if you can maybe precise this one. On the disposals, you were aiming at divesting CHF 350 million last year. You had this PSC. Now, how should we understand this 8% value-destroying activities? How much more you could divest, if you could put a number maybe on these disposals from total sales. The last one, Frankie, I think you were talking about being the number one in sustainability.
Are you planning to put some incentive for management to get to those targets?
You want me to start the last one?
Yes.
Yes. We're already number one in terms of sustainability. Yes, not to scare my colleagues at the back there. With their discussion about the evolution of our incentive schemes, and certainly at, I would say at the country level already, a lot of the business manager, the managing directors have part of this sustainability, specifically OI, operational integrity criteria into their incentive plan. In this day, discussion of human resources to migrate and move part of this into the senior management's incentive plan because at the end of the day, as we evolve as the corporations, sustainability is a key aspect of what we do and it has to be reflecting toward the way we incentivize our colleagues as well.
I would say at the lower level for time being, yes, because it's more tangible to what they're doing, but we're in discussion to move this one step up as well.
Regarding your first question, JP, I agree with the methodology of calculation. Just one caveat. When we talk about the movement from 2019 to 2020, we are from now, or let's call it half-year number to end of next year, for the, let's say, impact business portfolio change, Maine Pointe versus PSC, half of this benefit happens, of course, already this year and the run rate, the other half next year. While the vast majority of the CHF 90 million is hitting next year, some of the stuff will hit already this year. In general, I agree it should be clearly above 17%. When it comes to disposals, there was a clear statement last year by Frankie aiming for CHF 350 million. The biggest part was the disposal of PSC, which had last year revenues of CHF 308 million.
The majority of this is done. Obviously, with what we outlined today, there are more opportunities where we're working on. We will not give a new revenue target on this one, but we continue to look to it. As we always said, these are smaller things, so there is nothing with the size or magnitude like PSC in the pipeline.
Thank you. Yeah. Kate. Doesn't matter.
Hi, Kate from RBC. Just a question on your organic growth. How much of the pressure has come from pricing? If so, which areas have seen the most pressure? Going forward, do you think you have more downside than ?
Should I?
Sure, go ahead.
If you think about pricing, there's certain areas where you have a tougher pricing environment in certain parts, but this was before also the case, not that it's accelerating. It's not that the pricing environment has now fundamentally changed the last couple of months or quarters, but what is the case, and maybe you can say this is pricing related, if we stop certain contracts who not have the right profitability or value destroying, it is of course a pricing issue, or is one lever in that respect. That being said, from the businesses which we decided to stop, the impact would be roughly a negative impact on the growth rate of roughly 0.5% for this year. The second question was?
Would gross margin become a KPI?
Currently, we're doing this on a LC level, right? I think there are opportunities to look more to gross margins, but we have today not the systems on the Group level in place to look to real gross margin. It's definitely something which is interesting to look at it, especially in a laboratory business, to really understand what's the break-even point, what's the margin on a laboratory level.
Please. Hi. Florian from LGM Investments. Just discussing a bit more growth once again. One way of breaking it down is, still you have a chunk of your business in emerging markets outside China and India. This pocket of geographic areas hasn't grown that much in the past 10 years, especially in our currencies. Going forward, maybe you can discuss the breakdown and what has changed there. Another one is, you discussed a lot about the big mega trends driving growth for the TIC sector. Also big mega trends impacting in growth for the TIC sector. It seems the trade slowdown is more structural than what we discuss. Now it's been five-six years that trade globally isn't growing. Same, you see pressure on oil and gas and the commodity sector.
Maybe we can discuss a bit more the negative trends and how structural they are. Another question, a bit different, is between organic and inorganic growth. My understanding is from an EVA perspective, organic growth generates higher EVA. Should we also look at this M&A strategy as a failure on your part to capture more market share organically and generating more EVA this way?
To start with the last one?
Yeah. Go ahead.
Without a doubt, organic growth always has the best return. There's no question. I would not call it as a failure because there are obviously always opportunities where an acquisition is just the better way to do it because it's the benefit of the acquisitions. You can do this much faster, in that respect. It has obviously over time a certain impact on the ROIC. Because if we acquire an asset and even if it's EVA positive in the first year, it will influence the overall ROIC, because our ROIC of around 24% is partly also that high that M&A growth was rather remote. I think on the other hand, M&A is important in certain areas to start the business, and we see often a lot of synergy potential.
I'm sure when you see Steven in his presentation, he will outline the benefits which is happening thanks to the fact that we acquired this business.
If I look at the trade business, you're also right. We will talk about the opportunity of the new future trends. If you look at the current businesses, indeed, commodity, specifically the oil and gas, oil, gas, and chemical activities are under pressure. There's no question about that. The industrial activities linked to oil and gas businesses under pressure is a natural evolution of the market. I think the key point for us is always you look at the evolution of the SGS Group for the past 20, 30 years, or even longer, is always trying to look at the constant evolution of the portfolio toward what we do traditionally and moving to the new sectors where we can create more value added, try to evolve the portfolio. This is why the group has in the past, a lot of focus on the government services.
We move to the trade businesses, we move to consumer goods. It's a constant evolution. Some of those sectors, part of those sectors, not all the whole oil, gas, chemical, industrial sectors, will be under pressure. It's the speed at which we can innovate and move to the new sectors to compensate for some of those sub-segment of the businesses on the pressure is critical to us, and it's just an evolution of the portfolio. We were very happy about the PSC businesses, port terminal operation businesses for more than 10, 15 years. We decided to dispose of it because the market condition is changing, and we are happy to move into something that's new with the consultancy activities. This is a constant evolution of our portfolio.
The last one was EM growth ex China and India. We could maybe leave that to the COOs. You can ask the COOs of the two regions who are here today.
What was the question? I'm sorry.
The question is growth outside of China and India in emerging markets has been slow or at least slow in hard currencies.
Yes. It's been slow. I would say if you look at Malcolm is here. You look at the Southeast Asia Pacific, which is still the regions in Asia for us. It has been slow for several reasons in the past year or so, partly because of a lot of those elections that was going on. It's typically in our kind of activities when you have a post or pre or post-election years, businesses are sometimes slowing down. Certainly, you look at places like Thailand in terms of political stability or in terms of India, in terms of administrative hurdles. This is where we're a little bit underperforming for the time being in terms of growth. It's not that they're negative growth. I don't see that as a long-term trend. If you look at our evolution in the South Asia Pacific region, it's been pretty strong.
I think the more challenging region would be Africa. We do good businesses in some years, bad in some others, because it's highly volatile in terms of business environment. This is also amongst the regions that we have the highest margins. It's like the other day, you pay for the risk that we're taking in some of those regions. In some years we're doing good, some of the other years it's more challenging. I think overall, we are still growing in terms of growth potential. Whether you convert that into a Swiss franc currency, I don't know. I have not make the math.
Organic growth is what we're focusing.
Exactly.
Yes, Andy. Just there. Thank you.
Hi, Andy Grobler from Credit Suisse. Actually, a similar question to the last one in terms of some of the structural headwinds that you're also facing. When you did the EVA analysis and you looked at 90%+ of your business being EVA positive, were there segments of your operations where they were still positive, but the trend was negative? If that's the case, why and which areas were under most pressure?
There are definitely areas where you have good EVAs, but they may be structurally coming a bit more under pressure. If you think about certain trade activities, there's more competition. There's a bit more price pressure. It's not something happened the last quarter. It happened the last, I would say, at least two years. There are definitely areas where it needs, from our side, attention and ways of thinking how we can run these businesses more efficient. Obviously, having a very strong market share in these segments is then helpful. They are here and there are sometimes headwinds, but this is, I think, normal operational things which we have to daily work with it.
In general, I would say in some markets, there may be our value add is more on the lower side, on the slide, which you have seen by Frankie, and there's maybe a market with rather high wage inflation. It's sometimes the ability to pass this completely on is sometimes tough. I do believe EVA analysis is helping because it illustrates better. You may have a certain profitability, but you destroy value. You have to do something about it, or you create not a lot of value.
Thank you. One last Oh, two more in the room.
Hi, this is Ben Hezo from Matthews Asia. I have a question on digital. Obviously, it's been a very hot topic, impacting every single industry and every single end market that you've been operating in. You collect a lot of data, right, from TIC. Can you just help us flesh out a little bit more how you plan to monetize that data? Because the data is hugely valuable, right? I'm sure internally, you must be thinking of various initiatives to monetize the data that you've collected over the past few decades. It's a goldmine for you to mine if you can find the right revenue model. Also, speaking of revenue model, I know that maybe today my impression, which could be wrong, is maybe a tiny portion of your revenue is already generated from what people call SaaS, right? Subscription as a service.
How do you think, where in your vast portfolio do you think will be more amenable for a SaaS model going forward, either through organic growth or through M&As? Thank you.
Sure. You're absolutely right. In fact, we have vast amounts of data. Let me step two step back to illustrate that. First, you look at my slide about digital. There's one box that says that we moved the 2,000 servers to the cloud. What happened up to now is that we had the 4,000 servers in the SGS Group were sitting in the basement of each one of the laboratories. In term of using a consolidated data lake was a bit complicated. One of the first steps that we did is to migrate all those server into a cloud concept where we can start to really, truly utilize the fullest set of data versus just having them sit in different servers. This is still ongoing, should be finished by sometime next year. This was the first step.
Second step is, you've seen that actually we are already using some of the data for two purpose, internal and external. For the oil, gas, chemicals activities, I think I mentioned about 15 million data point per year that we actually already recording from the different operations that we do in the field, as well as some external oil, gas, chemical data that is coming from outside the SGS Group that we are consolidating, and we're working with external partners to publish that to our end customers, for them to be able to take some decision on the trade side. We're doing the same with a smaller company in Switzerland called AgFlow, that we have a small participation in. Where some of the agricultural data that is being captured by AgFlow is already sold to them as a service. We're migrating that. We're evolving into this aspect.
We recently has appointed two external companies to look at the amount of data that SGS Group has. To ask the question is, who else would be interested by the kind of data that the TIC sector has in term of pure data, not just the TIC sector's players, our own customers, but outside this field. This is something that we're also looking at because we personally don't know who else outside the TIC customers would be interested by the kind of data that we have. We're also looking at these opportunities now with external providers to look at this. Internal use, interestingly, is Oh, sorry, I forgot. For external use, CBE is also using a lot of their certification information because in the certification informations, you have a lot of discrepancies or no compliance into the audit.
Actually, they're using this information to enhance their training and their consulting activities for their customers. This is also the use of internal information to enhance the value proposition that we offer to our customers. On the internal side, we actually have.
Project that we're using our past analytical data to optimize the way we are looking at the statistics for the result to be able to automate that in terms of optimizing the productivity of some of our testing process. This is also something we do with our data. In terms of SaaS, in fact, we have a few pilots going on now. One of them is with OGC, is that we have a portal that we actually offering to our customers in terms of SaaS model subscriptions, where basically we put some of the specific information. I can't talk too much about it, but we're putting on some specific information about oil and gas sectors, plus some external white paper that we are working on with partnership with university or research group that we're publishing, combined with our own informations to offer that as a SaaS model.
It's a very tiny part of what we do, but this is certainly something that we're looking at in terms of expansion, in terms of understanding we can expand that. This is why we have those pilots in terms of looking at the future.
Okay, for the final question.
Hi, James Rose from Barclays. In the press release, it states that organic can get back to mid-single digits in the near term. Is that guidance for FY 2020? How do we get back there? I mean, the divisions which are currently under more pressure, do they need to reverse for us to get back there? Thanks.
First of all, it's near term, it's something between one or two years, right. It's not necessary for the whole year 2020. If we look to the underlying business, we are very sure about certain business will pick up next year, like the GIS business. We are sure about the CBE business because the CBE business had this year up to mid-September, transition year. This business will definitely pick up. There are also other areas where things should improve, so that we in general feel comfortable in the near term to achieve mid-single digit growth also. Frankie outlined the investments which we are doing into areas where we have more growth opportunities and the growth drivers we have in our industry.
Okay, thank you very much. We'll draw this part of the presentation to end, and we'll close the webcast. Thank you for getting up in the middle of the night and joining the webcast, and I hope you get a couple of hours sleep before you start work again. Now we've got coffee. A break for coffee, and could we be back inside the room for about 10:35 A.M., please? For 10:35 A.M. Thank you.