Sorry for this little interruption. Here we go. I hope that you see it on the call as well. Let me go through quickly the numbers and the highlight of the numbers. The company grew by 6% on the top line on a constant currency basis, of which 5.3 is organic growth. The adjusted income margins has increased to 15.7 from 15.3, 40 basis points improvement. The profit for the period stands at CHF 690 million. The free cash flow at CHF 796 million, and the return on invested capital has improved by 290 basis points to 27.2%. The board of directors is proposing a dividend of CHF 78 per share. Let me try that. It works. During the year, we made eight acquisitions across four business lines.
Four of them is in agriculture, food, and life, two of them in consumer retail solutions, one each in transportation and industrial. In terms of geography, three of those acquisitions were made in the U.S., a key market focus that I'm expecting will have more acquisitions in 2019. Key focus for the team in terms of acquisitions, in terms of geography. After a full year's closing, we announced another acquisition in Spain. It's the one that you see on subsequent event here, LeanSis Productividad, if my Spanish is correct. This is an important step. It's the first step of our strategic diversification of our CBE portfolio into what we call the business enhancement, beyond the subdivision activity we do. The business enhancement part of the CBEs include training and consultancy.
This is the first step, and you should expect more aggressive approach to this kind of activity from the CBE teams there. This is with a brief update. I will leave it to Carla to give you more details on those figures, and I'll come back for an update.
Okay. Very good afternoon, ladies and gentlemen. Frankie, he mentioned already our 2018 results are in line with our expectations that were shared actually during the Capital Market Day in Bordeaux. There are clearly two standout performances. First, the strong cash flow, and second, the increase in return on invested capital. Let me provide you with some greater insight on how we generated these strong results by taking you through our P&L. You will remember that the first and the third column reflects the full year performance for 2018 and 2017, and the middle column contains the performance of 2017 at a constant currency. We delivered a strong revenue growth of 6%, our revenue growth is well ahead of last year. We improved the adjusted operating income by 8.4%, resulting in an adjusted operating income of CHF 1,050 million.
It is the first time that SGS has exceeded the CHF 1 billion mark. The adjusted operating income margin increased by 40 basis points, the same uptick as the first half of the year. As it was the case in prior years, there are some items, both negative and positive, impacting the margin. The 40 basis points is actually really an underlying improvement. It is important for me to clarify two points regarding the uptick of the margin. First, we delivered a strong profitability in the majority of the portfolio. The key contributors are GIS, minerals, CBE, environmental health and safety, and the industrial businesses. This was actually driven by continued strong market fundamentals as well as efficiency gains, which positively impacted the margins. Second, we delivered a margin uptick resulted from the initiatives and the programs supporting the 2020 Plan.
This includes a continued review of the portfolio based on the Dashboard principles. Operating income increased by 5.7% to CHF 946 million, was impacted firstly by the correction of the work in progress and unbilled revenue overstatement in Brazil and the related additional provision, both together amounting to CHF 47 million. I can confirm that we have completed our investigation into the accounting malpractices in Brazil, and that the CHF 47 million covers the cost related to the event. The second impact on the operating income is related to the restructuring cost amounting to CHF 19 million. Considering both, this led to incremental non-recurring costs amounting to CHF 30 million year-on-year. The profit for the period amounts to CHF 690 million, increased by 3.8%, while the profit attributable to equity holders increased by 3.4% as a result from the increased taxes. The taxes increased by CHF 30 million.
That is a result of the increased taxable profit and the increase of the effective tax rate by two percentage points compared to last year. You will remember that last year's effective tax rate was favorably impacted by the reduction of the U.S. corporate income tax. Earnings per share at constant currency increased by CHF 2 up to CHF 84.54. Before sharing information about the bottom line results, I like to return to the top line growth and break it down into the individual businesses. Looking at this slide, our top line growth at constant currency amounts to 6%, of which 5.3% is organic. The organic growth is driven by the continued strong performance across the majority of the businesses. The gray part reflects the impact of the acquisitions made in 2017 and 2018, as it is on a 12-month rolling basis.
The group acquired eight companies in 2018, and we continue to focus on small to medium-sized companies to expand into markets and create more diverse service offerings related to the focus areas of the 2020 Plan. The blue area represents the Forex, as you can see, unlike last year, when major currencies appreciated against the Swiss franc, our revenue was negatively impacted by the weakening of emerging market currencies throughout the year. During the first three quarters, this negative Forex was offset by a stronger Euro and Chinese renminbi, both currencies also weakened against the Swiss franc in the last quarter of the year. Looking at the organic revenue by business, there are several important points here to highlight.
First, each of our businesses, except for transportation, delivered a positive organic growth, as indicated by the orange bar, and the most significant acquisitive growth indicated by the black bar, has been achieved in the AFL, GIS, and consumer retail businesses. Minerals retained its outstanding growth momentum on the back of a continued market development in the second half of the year, and this resulted in a year-on-year double-digit growth of 11.4%. The majority of the activities in the Minerals business experienced double-digit growth. Trades saw a robust amount in energy minerals. Geochem saw a strong increase in sample volumes in both commercial and on-site labs. The metallurgy business achieved a peak performance, particularly in Canada and Australia, with a higher demand for pilot plant testing.
Similar to the Minerals business, OGC continued the growth momentum created in the second half of 2017, and this resulted in an organic growth of 7.2% for the full year. The growth is mainly driven by double-digit growth in plant and terminal operations, fueled by contract wins in the U.S. as well as volume increase of existing contracts. Trade activities realized a low single-digit growth as a result of increased volatility in commodity trade. Our trade activities were particularly strong in Asia. We experienced also an improved growth in Europe, Africa, and the Middle East. GIS continued its strong revenue growth through its business by 7.5%, of which 6.3% organic, which is a significant improvement versus the break-even position in prior years.
This growth is mainly driven by double-digit growth of border control services as TransitNet, tracking and scanning services, and solid growth in the single window operations supported by strong trade volumes. CBE continued its journey of solid growth, resulting in a growth of 7%, of which 6.2% is organic, and it achieved this high single double-digit growth in the management system certification, which was driven by the transition to the new 2015 standards during the first three quarters of the year. Additionally, also, performance assessment improved its growth in the second half of the year. Looking at consumer retail services, they realized a growth of 6.2%, of which 5.2% organic. Similar to the first half of the year, the segment electronics and electrical continued really its robust growth on the back of increased volumes, mainly restrictive substance testing by addition of new substances to the applicable regulations.
They also continued to deliver double-digit growth in the cosmetics, personal care, and household. The overall consumer retail services growth has been impacted by the slowdown of the growth in softline, as softline market conditions remain challenging, mainly in China. Environmental health and safety, they realized a strong growth of 5.7%, mainly driven by mid-single digit growth in health and safety services. This was complemented by high single digits in fields and monitoring services, and a key contributor to the growth is regulation enforcement all around the world. This is further accentuated by a new push in developing geographies, which is reflecting in the double-digit growth in sustainable asset solutions. Another new revenue driver includes innovative packages aimed at hospitality, retail, and the real estate sector.
I'm also happy to share that the Industrial business continued its revenue growth during the second half, and they achieved a growth of 4.8%, of which 4% organic. These results were driven by double-digit growth in two core areas of the business. First, in the oil and gas supervision and inspection services. Supervision achieved a strong growth in South and Central America. The growth in inspection services is mainly related to shutdowns in Asia, Europe, and the Middle East. Second driver is in the area of infrastructure and construction activities. Our continued development there of the material and construction lab testing activity in the major regions is having really a positive impact on this growth. Agriculture, Food and Life, they realized a growth of 4.4%, and this is a combination of two elements.
Firstly, we achieved a double-digit growth in the Food activities and a high single-digit growth in Life Science, including the clinical research, fully in line with the strategy and fully in line with the expectations. Unfortunately, the strong growth was partially offset by the impact of weak market conditions in Agriculture, related mainly to climate conditions. First, the weather conditions impacted seed and crop. Second, trade with exports were negatively impacted by the summer heat in Western and Southern Europe. In addition, the prevailing market conditions also remain challenging for the contract research activities. This brings us to Transportation. Transportation is close to break even, while organic revenue slightly declined. This is fully in line with our expectations, given the 2017 non-recurring contracts in the U.S.
Our colleagues in Transportation were successful in offsetting the 2017 impact of this contract, as well as volume pressures related to some specific vehicle inspection contracts by delivering high double-digit growth in the components, the engine, and the battery testing services across all geographies, but particularly in China. All three regions contributed positively to the group's revenue growth, with the Asia-Pacific and the Americas region being the real key drivers. The Asia-Pacific region delivered the highest growth of 7.4%, slightly below last year. China's growth, which is outside Consumer Retail Services, particularly strong in Agriculture, Food and Life, OGC, CBE, and Environmental Health and Safety, and is driven by a strong growth both in the domestic market and the international market. Australia continued nicely on the growth path, realized a high mid-single digit growth, which was mainly driven by the double-digit growth in their Minerals business.
Acquisitions made in Industrial, Agriculture, Food and Life, and Consumer Retail Services helped the Americas region to achieve a growth of 7.5%, of which 6.4% organic. The organic growth was actually positive in both subregions. South America outperformed North America, and this was driven by a double-digit growth in Minerals and Industrial. The organic growth in North America was mainly driven by the double-digit growth in OGC and Agriculture, Food and Life. Total inorganic growth relates to the North America region, which remains a focus area for future acquisitions. Europe, Africa, and the Middle East achieved a good growth of 4.1%, which is in line with last year. This growth is mainly fueled by double-digit growth in Eastern Europe, Middle East region, and it's mainly driven by Minerals, Consumer Retail Services, and OGC.
We concluded the year with 97,368 FTEs, a 1.7% growth versus the end of last year, and our strategic objective to make our organization more efficient is showing some signs of success. Our average headcount increased by 3.1% year-on-year, which is well below our revenue increase of 6% for the same period. Our aim of managing our FTE growth is ultimately to improve our bottom line. Hence, I'd like to provide you with some details regarding the adjusted operating income growth during the past year. Year-on-year, our adjusted operating income increased by 8.4% at constant currency, and this has been primarily driven by organic growth. The inorganic growth of CHF 7 million included here in the gray box related to the 2018 acquisitions that I pointed out earlier.
The blue box reflects the currency exchange impact on the adjusted operating income, which is neutral, and the gap between the negative Forex impact on the top line and the neutral Forex impact on the bottom line is driven by the different relative weight of the currencies in the revenue and in the adjusted operating income. Breaking down our uptick of the adjusted operating income by business. Starting, of course, with the star performer, GIS. I really believe that our GIS team members should be recognized for this performance, an uptick of 720 basis points up to 28.7%. This uptick is beyond the partial recovery of the bad debt provisions clearly in 2017.
Instead, the margin gain really relates to the strong top-line growth, a sustainable operational efficiency improvement related to automation, digital inspection in the mature activity of the PCA, as well as the start of new profitable contracts around the world. Environmental health and safety improved by one percentage point, up to 11.1%, and these results are based on improved performance in the U.S. as well as increased volume in health and safety work in Europe. Moreover, ongoing operational efficiencies in Asia Pacific and Europe and a positive activity mix contributed to this improvement. Our minerals business, they continue to deliver margin improvement while growing the top line double digits, and the team continued to work really successfully on improved lab utilizations and lab operational efficiencies.
In addition, they add a number of profitable contracts to the portfolio, which are laying a good foundation for the future growth and further margin improvements. Despite the negative effect of the Brazilian event, industrial increased its profitability by 80 basis points, and the underlying profitability improved mainly as a result of prior restructurings, a better market outlook, expansion of the lab testing network, and portfolio rationalization focusing on profitable segments. Agriculture, food, and life, they recovered the margin in the second half of the year, mainly as a result of the margin improvement in food, life science, and clinical research, benefiting from past restructuring, business turnarounds, and efficiency on the back of increased volumes. Consumer retail services remains by far the main contributor of adjusted operating income.
Given the importance of this business, I'm happy to share that in line with expectations, the margin recovered in the second half of the year, and it improved year-on-year with an additional 40 basis points. This has been mainly driven by the strong volume growth in the electrics and electronics, and the productivity gains across the portfolio. Strong top line in the CBE enabled the further optimization of capacity use, and this together, of course, with the ongoing benefits related to the shared service center, led to an improvement of the margin of 10 basis points. Brings us to OGC.
The pressure on the OGC margin is due to a combination, first of all, of the portfolio mix, driven by the double-digit growth in plant and terminal operation, and second, the continuous investment in the U.S. to adjust the business to the changing competitive environment in trade-related services. Brings us to transportation, a decrease of the margin by 160 basis points, which is actually a result of a couple of elements. First, the testing and field services margin in prior year was positively impacted by the non-recurring contracts in the U.S. Second, a rate freeze in Argentina has not allowed us to compensate for cost inflation till the middle of the year. Third, we experienced a slow start of the Uganda Road Safety Inspection Program, which impacted the profitability of the statutory services.
Finally, we also experienced a margin pressure resulting from the liberalization of regulated markets in certain geographies. As said, the testing services, which are now representing one-third of the portfolio, improved its margin year-on-year, due to improved utilization of the lab network, which was fueled by the strong global demand. Next to the business improvement, I'm of course happy to share the 2018 savings of procurement, which are exceeding the target. Of course, they remain a very important contributor to the margin development of the group. The split of the savings, by nature, is in line with the projections that I gave during the Capital Market Day. CapEx savings amounting to approximately 30% has had a positive impact also on our CapEx intensity, which I will explain later in the presentation. Brings us to the balance sheet.
Of course, the balance sheet remains one of our strengths, and we would definitely like to keep it like that. I just draw your attention to four key points here. First, our net debt of CHF 738 million slightly increased, partly as a result of the finalization of the two-year share buyback program that started in 2017. We completed the program in 2018, and during that program, we purchased approximately 106,000 shares for an amount of CHF 250 million, of which CHF 205 million in 2018. It's our intention to open a new 12-month share buyback program for an identical amount.
Second, the decrease in trade receivables and unbilled revenue and work in progress is partly related to the application of IFRS 9, retrospectively from January 2018 onwards, and the adjustment to the carrying value amounting to CHF 121 million has been reflected as an adjustment to the opening equity. In addition, the correction of the unbilled and WIP balances in Brazil contributed to the decrease of the unbilled and WIP balances next to the continued focus on reducing our accounts receivable under the net working capital initiative. Third, the increase in the long-term loans is a net effect of two factors. First, the reclass of CHF 375 million bonds that will expire in March 2019, and second, the issuance of the CHF 400 million in new bonds that happened in the fourth quarter of 2018. The effective tax rate of the current bond portfolio amounts to 1.26%, and the average bond maturity is 5.2 years.
After the redemption of the bond that expires in March 2019, the effective rate of the portfolio will be below 1%, which is a great average interest rate. Fourth, we generated a market-leading return on invested capital of 24.2%, well above last year. This increase is mainly related to the increased profit, the decreased net working capital, as well as the effect of the IFRS 9 and Forex on the assets. Brings us to the cash flow. Most of you will know that we have a track record of generating a strong cash flow, at least based on the past few years. Also this year, we generated an operating cash flow amounting to CHF 1,074,000,000. This is only the second time in the history of the company that we exceeded the CHF 1 billion mark.
The increase versus last year is mainly related to the increased profit and decreased net working capital, despite the solid uptake of our revenue. Free cash flow amounts to CHF 796 million, an increase of CHF 91 million, resulting from the increase of the operational cash flow and partly offset by slight increased investment in CapEx and acquisitions. CapEx as a percentage of revenue amounts to 4.5%, which is slightly below last year. The increase in the cash outflow from the financing activities is actually the net of three movements. First, the dividends increased by CHF 48 million compared to 2017. Second, the net of the share buyback and the treasury shares led to an increased cash outflow of CHF 106 million. Finally, the group placed a bond of CHF 400 million in September 2018 versus CHF 375 the year before.
As you can see from the slide, we really continue to manage our net working capital in a very disciplined manner. Our performance is clearly ahead of our expectations, but resulting in a positive cash flow movement of CHF 95 million. This is a significant achievement given our top-line growth. Net working capital as a percentage of sales amounts to 0.6%, which is a new historical low. One of our capital allocation priorities is to invest also in organic growth through CapEx. Our CapEx investment for the year amounts to CHF 304 million. That represents 4.5% of sales. This percentage is slightly below last year's, and there are some positive reasons behind this. The decrease in the CapEx intensity is partly related to the attractive pricing and asset redeployment driven by our procurement initiatives as well as business mix.
The majority of the businesses had a stable CapEx intensity with the exception of Minerals, but there the increase is directly related to the strong development of the global lab network. Two-thirds of our CapEx investments are related to growth, and our primary CapEx investments, they were made in Consumer Retail Services, OGC, and Agriculture, Food and Life. Together with Minerals, these four were the most capital-intense business, and they represent actually two-thirds of the group's CapEx investments. As I mentioned already, the second standout performance of our financial performance relates to the improvement of the return on invested capital, which is related to the uptake of the profit in combination with the decrease of net working capital, the impact of the IFRS application on the receivables, unbilled revenue, and WIP. You also see that it has a positive effect, obviously, on the uptake of the asset turnover.
I highlighted our strong cash flow position, which actually allows us to fund the organic growth as well as our acquisitions, but at the same time reward our shareholders. This gives you a bit of a perspective on how we used the funds that were generated. 70% of the funds were used to finance the dividend payments and the share buyback program, and the remaining 30% was focused on the CapEx and the acquisitions. I make it clear that our aim is to continue to find a balance between investing in the long-term growth of the business, while also, of course, continue to recognize our shareholders. This brings us to an overview of the performance in the second half of the year. Four key points here to highlight.
Solid revenue growth at 5.4% during the second half, while the organic growth amounts to 4.9%, equal to a year ago. It is mainly driven by an improved growth in the Consumer Retail Services and Industrial, at least when you compare it to the first half of the year. The Forex impact is slightly more significantly, sorry, more negative than what we experienced in the first half, as explained to you earlier, as a result of the weakening of the euro and the Chinese renminbi towards the end of the year. The adjusted operating income increased 7.8% compared to a year ago, and the adjusted operating income margin amounts to 16.7%, same uptick as in the first half.
The biggest uptick of margins between the first half and the second half has been realized by our Agriculture, Food and Life, Industrial, CBE, and Consumer Retail Services businesses. The 13.1% increase in our operating income mainly relates to the flow- through of the incremental adjusted operating income, partly netted off by the restructuring costs amounting to CHF 15 million in the second half of the year. Finally, the increase in the net profit after tax by 8.8% is the net effect of the increase in the operating income and the increase of the effective tax rate by two percentage points versus the second half of last year. The slightly decreased growth in the second half is partly related to the tougher comparables of last year.
It's also related to some specific business-related reasons. That was most noticeable in Transportation and GIS, which was partially offset by accelerated growth in Consumer Retail Services and Industrial. Brings us to the margin by business for the second half. I'm happy to share that four out of the nine businesses improved their margin in the second half of the year compared to the second half of last year. I like to recognize three businesses in particular, Agriculture, Food and Life, Consumer Retail Services, and Industrial, as they grew their margin by a minimum of 110 basis points. The profitability improvement is the net effect of the benefits that are resulting from, first, the operational efficiencies, second, the restructuring benefits, third, the measures resulting from the dashboard review, and finally, also the procurement savings.
Transport, OGC, CBE, and GIS had a lower margin in the second half of 2018 compared to the second half of last year. The decrease in the OGC margin is mainly related to the change in business mix and the investments in the North America trade business to adapt to that competitive climate. The decrease in GIS margin is mainly related to the positive impact of the collection of long-outstanding receivables in the second half of 2017. Brings us to my conclusion. Just leaving you with some key financial highlights that my OC colleagues, but also the worldwide team helped us to deliver. I'm actually very happy to be able to conclude with these results. Revenue growth of 6%, of which 5.3% organic, fully in line with the guidance.
An increase in the adjusted operating income of 8.4%, reaching a historical mark of an adjusted operating income beyond CHF 1 billion. Profit for the period increased by 3.9%, up to CHF 690 million. Investments of CHF 323 million in CapEx and acquisitions, and an operating cash flow beyond the CHF 1 billion mark brings us to a return on invested capital of 24.2%. Based on these good results, the board proposed a dividend of CHF 78. I'd like to pass back to Frankie, who will give an overview of the individual businesses.
Thank you. Yes, a quick overview of the 2019 outlook. I mean, Carla has given you a lot of details about 2018. I would not go through. The slide shows what we have in 2018, but I'm more focused on 2019 to save a little bit of time as well. If I start with Agriculture, Food and Life, the trading condition remained difficult in H2 2018 due to weather and overall market conditions. For the first half of next, 2019 this year, the market condition will remain difficult. We're looking at the similar conditions for H2 last year, but with improvement of the conditions, possibly recovery in the second half of the year, depending on the crop condition and so on. For the Food and Life, everything is according to the plan. The expectation, we're looking up to the 19th December, 2018.
Strong top line growth, strong bottom line margin improvement as well, especially that we have new operation coming online in North America and in China. We'll enhance our network of laboratories for the life sciences and food sectors as well. If I go into the Minerals sectors, I just expect another good year for the Minerals, but just the comparative compared 2018 will be tougher. Additional volume in our commercial lab and the start of some of the on-site lab that we have started to build in 2018 will help to support the growth on the margins throughout the year. Now look at Oil, Gas and Chemicals. In fact, there's two aspects on Oil, Gas and Chemicals. We secure qualitative contract in the field integrity, PTO businesses as well as upstream activities. These new contracts will support the growth for 2019.
On the volatility of the oil price, it certainly creates some uncertainty, but it's not much different than we've seen in 2018. I would say on that aspect, I don't see any significant differences from what I've seen in 2018 versus 2019. All in all, the margin should improve with the efficiency that will be implemented during 2018, and the internal growth will be similar to what we've seen in 2018. On the consumer activities. In fact, the consumer business is the one that is most affected by the China-U.S. trade disputes currently. We've seen an impact toward the end of quarter four. While we were quite strong in moving to the second half, we've seen a more clear impact toward the end of quarter four. Moving into the first half of next year, 2019. It's subject to some resolution by March.
We'll see some impact on the first half and with a good recovery and back on track in the second half. This is, again, subject to some kind of positive resolution of the dispute by the March deadline. On the other hand, besides China, that's looking at the temporary slowdown. The remain of the network, just remind that the CRS, the consumer network, is composed of 70 affiliates and not just China. The rest of our network has had a very strong growth during 2018, and we expect that to carry on in 2019. The countries I'm talking about is Turkey, India, Bangladesh, Vietnam, and even in some of the European countries like France and Spain, we had quite solid growth during 2018.
All combined, I'm expecting CRS to grow organically, and the optimization measure that Carla mentioned earlier will keep taking effect in 2019 to support the margins. For CBE, well, as expected, the post transitions of the ISO standard by September deadline, led to a kind of slowdown toward the last quarter of the year, which was already flagged several times during the different discussion in the past. I expect this trend to carry on into the beginning of 2019. There's still this hang on effect on these transitions of the new standard. On the other hand, as Carla also mentioned, the performance assessment, the training, the consultancy business that we have started has a very strong pipeline. All combined CBEs targeted on moderate growth in 2019, will broadly similar margins, I would say. Industrial Services.
Well, Industrial should continue with the focus on the high-margin segments during 2019. The focus on those high-margin segments are testing, supervisions, and supply chain inspection activities. We are looking at discontinuing some of the lower-margin activities, such as the maintenance work that we do in some of the countries in North and South America. This is a kind of segment that we decided as a result of dashboard that is not contributing much to the group, and we are looking at diversifying from these kind of activities. The latter might be impacting little bit growth in the short term, all in all , the focus for Industrial for 2019 is the improvement of the margins. If I look at Environment, Health and Safety. Market conditions remain favorable with increased regulation and demand from the private sectors as well for industrial hygiene and health and safety services.
I expect both me to grow, and to continue to grow and the margin to improve, during 2019. No much change in the same kind of development as we've seen in 2018. Transportation. I flagged the fact that we had the lack of diversification during our Capital Market Day in Bordeaux last year, and this lack of diversification is indeed putting some pressure on our transportation activities. During 2018, toward the end of 2018, we've seen a couple of additional contracts in the railroad and field activities has been ended. This would put some negative pressures on these activities in 2019. On the other hand, the testing portfolio that we have into the automotive part, material testing on board electronics and battery, has been growing very strongly, and this will support growth.
The two combined, I'm also expecting a moderate growth in 2019 with the margins expectation on margin to improve because of mix of activities between testing, which is high margin, and some of the old activities that we've seen in the past. I will conclude with our Government and Institutions Services. Similar market condition will support the growth of our PCA and single window services. A new mandate and larger market share will help us to accelerate the growth in the TransitNet and scanning activities. To finish our renewable e-waste services will strengthen our portfolio. As a result, I'm really expecting G to go to the high single to double digit for 2019. With that, I think it will give you a good idea of what we're looking at per business line.
The guidance for the SGS group for 2019 are solid organic revenue growth, high adjusted operating income, and the robust cash flow, which is similarly to what we've seen last year as well. Just a reminder before I conclude, a reminder about the Chinese-U.S. trade dispute. Just bear in mind that around 4% of global growth is linked to this U.S.-Chinese trade link, and any further escalations beyond March would have a negative impact on our operations. This is what we also flagged during the Capital Market Day in Bordeaux. For the moment, this escalation is not our base case. We're waiting for the outcome of those discussions by March.
In any case, this contingency plan that the group has put in place in case of a very negative outcome of those discussions, but again, it's not the base case in which we have based our assumptions for next year's guidance. To finalize the presentation and go through Q&A, just to remind you about the Outlook 2020 that we have set during the Capital Market Day in Bordeaux, is mid-single organic, digital organic growth, accelerated M&A activities, remaining discipline on returns. Adjusted operating income margins above 17% behind in the period. Strong cash flow conversion, solid return on invested capital, and dividend distribution are at least maintained or in line with improvement of net earnings. On that, Toby.
Thank you very much. We'll start with questions, we'll start in the room. If you could put your hand up, give your name and institution, and let's keep it at two questions. If we've got time at the end, we can have some more. Ed.
Ed from Morgan Stanley. Two then. Procurement savings. You say the mix was in line with what you said at the Capital Markets Day, your forecast at the Capital Markets Day was about CHF 65 million, and it came in at CHF 75.
Yeah.
I wonder where you were positively surprised in getting those savings and where you think they
Hello, everyone. Thank you for joining our call. I just wanted to state that if you have a question, please stay on the line. If you do not have a question, please hang up from the line and go directly to the webcast and listen from there. Thank you.
Did you want me to start?
I want to start because I think mine is shorter. On the procurement savings, yeah, the upside was mainly, I would say, in the cost avoidance and the CapEx. You saw also that it changed slightly, I would say, in the mix, it came from some initiatives that were running that gave additional, clearly, I would say, benefits beyond the initial expectations. Yeah, go on.
For the CBE, in fact, the business we're looking at with the consultancy on operational consultancy that helps some of the SMEs to improve their quality control and productivity and so on. The reason for this push is a priority for CBE. I insist on that. At group level, we have different priorities that I mentioned during the board meetings about AFL and so on. CBE, because the certification business is the steady business. We have the chance in 2018 to have the transition that driven the market a little faster than expected. In term of diversification of portfolio, it is important for each of the business lines to have a balanced portfolio of its own.
You look at beyond CBE, the certification business that we've been running for quite some years, it is important for the CBE teams to start to diversify into training activities that we have developed over the past three years, and the consultancy activities, which is quite interlinked with the training, as well as some of the certification business that we do, will be the extension of what the business evolution is going to be for this business line. The market entry is a question of getting the right people on board so we can, in some countries, we're doing that greenfield where we have the expertise. In some other countries, we're just buying the right expertise. It's a combination of both greenfield and acquisition.
Obviously, the acquisition path at this point in time would be faster, and the multiples that we're looking at on this sector for what we want to do is reasonable, I would say, going back to my discipline returns.
If we haven't diversified, we'd probably be looking at growth next year.
Absolutely. We're still looking at, as I mentioned, we're still looking at growth next year, the portfolio need to evolve as well over time.
Excuse me. Sorry. It's Paul Sullivan, Barclays. Could you just give us an update on your current thinking about disposals, how should we think about this year's margins in light of that? When you look at the group and underlying margin development, what do you think is feasible this year?
First of all, starting with the end of your question, we guide for an improved margin, we will not be more specific than that. Secondly, where do we stand? You will remember that we were targeting this CHF 350 million of divestment. There is one major part, that is advancing in line, I would say, with the timeline, we are very active on that one, we expect to bring more news by the first half of 2019. Yeah. It's progressing according to plan. That will definitely, of course, lead to any improvements, have an effect on the margin. Yeah.
Thanks. It's Alex Smith here from JPMorgan. Two questions. Just on OGC to start with. You talk about confidence having improved over the course of the year, obviously uncertainty arising towards the end of the year with the decline in the crude price. I wonder if you are seeing any project cancellations or delays which might suggest that growth could stall in 2019. Secondly, Carla, just on the working capital movement, which was very impressive in the course of the year. Should we expect any sort of rebound in 2019, which would mean that that ratio would increase again?
Yes. Just to clarify, there are actually three buckets that are driving that improvement. First one, there is an, I would say, representing, you can say, each bucket one third of the improvement. The first one is related to a real improvement of our payables. We have been working very actively on standardizing the payment terms. That led to a further improvement of our DPO. The second bucket is actually related to the write-off of the unbilled and the WIP in Brazil. That is a non-recurring one. The third bucket is more related to non-operating items. You definitely should forecast an uptake of the net working capital in 2019. I would say, in line with what we have seen more the year before. I would say operating approximately max 2% of sales then take into consideration, of course, also the projected growth.
Yeah.
For the oil and gas, in fact, no. The trade activities has been quite stable across the year. Now the price has dropped toward the end of the year, but we have not seen a major dip into our trading activities, I would say. The rest of the portfolio, this is just one part of the portfolio. The rest of the portfolio, like PTO activities, are more fueled by the cheap natural gas that you see in North America. It's leading to more activity into petrochemical sectors, polyethylene, and so on. We also see some increased activities on the upstream, especially for the national oil companies versus international oil companies. The market landscape is pretty much the same that we've seen towards the end of the year than earlier in the year. I'm expecting that to move towards the American activities in 2019.
Tom.
Good afternoon. Tom Sykes from Deutsche Bank. Just on the ROIC, firstly, do you think you're a little bit ROIC obsessed at all? I know that it is strong, but your PPE is essentially the same as 2015, and you used to be able to grow the top line and grow the invested capital, and now you're growing the top line but not growing the invested capital. I know there's a lot that goes into that, and that's been part of the structure, part of the shift down in CapEx and the lowering the intensity. Are we going to see that pick up at all? Just a two-part for me on China. Could you just explain what's happening to your domestic-orientated Chinese business, given people's views on what might be happening to Chinese GDP growth?
The market seems a bit more relaxed on trade now, and you're not. Why are you so sure that your activity will slow down in consumer, please?
Okay. I think the first one, I don't think the risk to discuss China with the Chinese next to me. I don't think we are obsessed with it. It's also, of course, a combination of elements. First one, of course, the uptake in the profit. It's very sensitive to the profit at this one. You have a combination of these elements. Net working capital, as I just explained, you have the impact of the application of the IFRS 9, which is coming, and you have on top of it our Brazil events, which we are less proud of, but it has a positive effect on the assets. It's not a question of obsession. It's a question of combination. Yeah.
For China, you're right. The news comes out every day or every two days about the change of directions. I think, beyond the headlines of the news, the reason why I'm looking at the more slowdown that we've seen towards the end of Q4 is the real feel out there in terms of operations, supply chain, and so on. When the news is the old news, the operation has to restart. There's always a timeline from the moment where people say there's no more crisis, there's no more dispute. From the factory to say, "Oh, great. Now we can reinvest, we can get the people. When we get the machine running, we can start to order the materials to start all the production." There is a delay. This is what I'm saying. In H1, there's a concern because of the uncertainty that has been created up to now.
Even so, if they're all happily saying that everything is fine back to order, there will be a certain delay for everything to restart for ourselves to get orders and for factories to get the production running. This is one aspect. This is what I'm saying. If everything goes back on its schedule by March, second half of the year should be back in order versus the first half where we'll not be seeing some of those impacts toward the end of the year that would be dragging on. On top of that, we have the Chinese New Year coming end of this month, beginning of next month. We'll be having a few impacts on the totality of the trade. On the domestic market, I'm still comfortable with this market.
I mentioned that we're doing more or less 50/50 of what we do in China, 50% linked to domestic market, the other 50% is linked to the trade.
Okay.
We'll be having a full impact on the totality of the trade. That's what we're seeing in the field. On the domestic market, I'm still comfortable with this market. I mentioned that we're doing more or less 50/50 about of what we do in China, 50% linked to domestic market or the 50 is linked to the trade international businesses, all business combined. While there's a lot of discussion about the slowdown, slowing down of the economy in China, the reality is, compared to the size of the TIC sectors in China, what we do currently is rather small. The Chinese market, the government is still having schedules to open up some of those segments, and we're seeing opportunities every day for us to get into.
I just mentioned about the expansion of our life sciences lab in China, which is one good example of what we're being able to achieve as well as some of those calibration activities that we're also doing in China and so on. The market itself, indeed, the total may be slowing down, but because of the size of the market versus what we do, we still see a lot of opportunity for us to take advantage of this market that we're not tapping into.
Aymeric.
Yes, it's Aymeric Poulain from Kepler Cheuvreux. Two follow-up question to Tom's questions. Actually, if the world economy was to slow faster than your base case, what flexibility do you have in your cost base? Because you mentioned some productivity initiatives, but also you reinvest quite a lot of that. The staff growth of 3%, in fact it's translating to 6% salary increase. I'm just wondering how flexible your P&L is to absorb a bigger shock in case the economy is really in trouble this year. On the capital investment side, M&A. You allude to M&A set to accelerate. We have this disposal program that is likely to be improving the margin, but potentially dilutive to the net earnings. How big the M&A pipeline is for this year in particular?
Do you want to take that?
I can take it.
For the first questions about China, we do have contingency plan. Obviously one of the key aspect is restructuring. I don't want to preempt this for the sake of respect to my colleagues in China. We have contingency plan, but certainly if the market global economic situation is deteriorating significantly, one of the key aspect of our contingency, we need to look at the size of operation in China and start to decide on some of those activity and scale back in term of volume and operational capacities. These we will assess. This is feasible because we have a timeline. Typically, after Chinese New Year, there's always the quite high turnover, and this is pretty much a good timing for us to look into that in the deeper ways to ensure that we have already restructuring of the activities.
For the time being, it's not our base case. I'm just giving a hypothetical answers here. We do have a contingency plan. For the acquisitions, we do have quite a strong pipeline of acquisitions. The focus is not different than the focus of our activities, which is AFL, life sciences, particularly on food as well in different geographies. CBE in the less extent to the consulting sectors. Transportation in the aerospace sectors. Consumer good into cosmetic and personal care sectors. Do I miss a few? These are quite strong pipelines. I don't have everything in mind, but we do have a strong pipeline, and this question of executing that and ensuring that we get the right price for the right return. We're working on that.
If there's no more questions in the room, should we go over to the call, please?
Just before we take phone questions, we have received a question here via the webcast from George Gregory from BNP Paribas. I'm just going to read the question. Could you please reconcile the cash flow from adjusted EBITDA to net operating cash flow? The second question from the same person is, could you quantify the likely impact of contract exits in industrial?
The first one, if okay for you, George, I will take that one offline. The second one, the impact of contracts existing in industrial, you mean on the cash flow or on the total?
Not on the revenue because I mentioned this as well.
Okay, sorry.
Those are mainly contract we have in South Africa and North Africa in term of maintenance work. I don't have the exact numbers here, and I'm not sure whether we should be giving these numbers. I would have a look, maybe we can address that with Gregory afterwards. I don't have the exact numbers here.
Okay. George, I'll get back to you after the call. Should we go on to the webcast or have we got any on the dial-in?
Yes, we should have a phone question right now. We'll put the caller through. Might take a few seconds.
You are entering the sub-conference.
A few more seconds, apparently. Okay. Well, I guess I'll ask another questions that were received in writing from David Roux from Bank of America Merrill Lynch. Here is his first question: Can you please comment on CapEx inspection activity within your minerals division? Was there a volume recovery in the second half of 2018?
CapEx inspections, do I understand an inspection linked to the capital expenditure of the mineral mine site, I would assume? I would say not the big segment for us. We are more focused in the past from our industrial services into the oil and gas sectors, where when the CapEx has kind of slowed down, we had quite a lot of problems. We have resolved these issues in the oil and gas sectors. The mineral sector is a rather small sector for us in term of capital CapEx in inspection, I would say. The mineral business itself is mainly focused on the natural resources coming out of the mine. The inspection for the mining-related activities is not a big activities of us.
Whether we have seen a pickup, I'm looking at My colleagues, Wim, the Head of Industrial, is telling me they we've seen a pickup in South Africa from the model volume we're doing. Yes, in South Africa, mainly.
Thank you, Frankie. There was a second question from the same person. Do you expect any adverse impact from the U.S. government shutdown in the first quarter of 2019?
Not from what we've seen so far. We're not really linked to what's going on there, no.
Okay. Can we move to the call again? Could we try and get Mr. Call?
It seems that we are having some technical issues, but we'll try one more time.
Okay. Thank you. Any more questions on email?
No. That was the last question we received.
Okay. Would anyone like to ask another question in the room? Okay.
Just interested because it's been a few months since the Brazilian accounting problems came out. Have you put any incremental safety measures in place to assure that doesn't happen again? What kind of safety?
Yeah. We have definitely put a number of measures in place. These measures, they really vary from strengthening the internal control, maybe first starting with a complete change of management. Quite some senior positions have new people there. Secondly, really strengthening the internal controls. We also, I would say, reviewed the complete ERP platform. There are also strong, I would say, red flag scorecards or reports that we have set up. There is a much stronger link between finance and the operational businesses. All actually to avoid that such a story would repeat itself in Brazil or somewhere else. It's across, I would say, the functions and the businesses that we have taken measures.
Okay. I think most of the people I would have expected to ask a question have emailed. If anyone is on the call and would like to ask a question, feel free to email me afterwards and I will get those questions answered. I think with that, we'll bring the meeting to a close, and we'll go upstairs and have a drink.
Thank you.
Thank you very much.