Good morning or afternoon wherever you may be. Welcome to our full year results for 2021, and the conference call. We hope that you have all had a good start to the year, and we also hope to be meeting many of you later face-to-face at some point later this year, which we haven't had the chance to do so much over the past 12-18 months. In a few moments, I will pass over to Frankie and Dominik, who will run through our presentation, and then we will move on to Q&A.
When we start the Q&A, please do stick to a maximum of two questions, and if we have time at the end of the call, we can answer further questions if they haven't already been addressed. Once we have taken questions from the call, I will read out any questions that we may have that have been submitted via the web. Finally, as per usual, we hope to finish in 50 minutes or so. With that, I will hand over to Frankie to start the presentation. Please, Frankie, go ahead.
Thank you, Toby. Good afternoon, everyone, and again, welcome to our full year results for 2021. As usual, I will give a highlight of our performances for the year. Dominik will then step in to give a more detailed financial review, and Adel will cover the business outlook for 2022, and we will follow up by a session of Q&A. Well, I was hoping that this slide would have disappeared by now, but unfortunately, let me start again with an update on our COVID situation. Maybe first, I would like to take this opportunity to thank my 96,000 colleagues across the SGS's network.
Their dedication in minimizing disruptions to our operations by serving our customers with the same high-level standard of professionalism, and by taking the time to ensure each other's well-being despite the challenging environment, which we have all faced during the last two years. It's a great source of pride to me and the company. Looking back at 2021, we saw a difficult Q1 with lockdowns and frequent disruptions across the network. In Q2 and Q3, generally speaking, the situation improved, with most operations returning to some normality. Then toward the very end of Q4, we have seen an increase of operational disruptions related to absenteeism due to Covid once again. We're monitoring the situation moving to Q1 this year, and for the moment, we have not seen an increase of disruption compared to the end. This situation is very volatile.
This is impacting both our customers and our own operations. Within this context, many of the measures implemented since 2020 are still in place, including a work from home policy wherever is possible, using remote technologies with our customers, ensuring there is enough PPEs to all our colleagues for adapting work practices to COVID safety requirement, and minimizing non-essential travel. SGS is also encouraging and facilitating all our colleagues to get vaccinated. In continuation of the H1, we have finished 2021 with a strong operational performance, with total revenue increasing by 14.2% at constant currency, while the organic growth was 8.9%. Adjusted operating income now stands at CHF 1,055 million, a 16.8% increase at constant currency compared to 2020.
Our profit for the period was CHF 655 million, an increase of 29.7% compared to prior year. As expected, the increased working capital requirements to support the growth of our activities led to a decrease of free cash flow compared to 2020, but this is at the healthy level of CHF 635 million compared to CHF 758 million in 2020. The board of directors is proposing a dividend of CHF 80 per share at the AGM, so same as last year. In terms of strategy, we have made good progress in all our strategy initiative during 2021. To reinforce our commitment to be a more sustainable company and to be more accountable, we have launched our Sustainability Ambition 2030, and we're finalizing the migrations of our science-based targets towards 1.5-degree path.
We have also included ESG criteria in the short- and long-term incentive schemes of senior management and other more sustainability criteria in our capital allocation decisions. Our strong growth in Connectivity & Products, Health & Nutrition, and Knowledge is in line with our strategic focus. We have also made good progress in the transformation of Industries & Environment and Natural Resources. We will build new competencies, particularly in energy transitions and ESG-related services. Those new solutions will be part of our future growth drivers. Dominik will give you some more details on our Level Up initiative later in his section. On digital, we have established the framework, the team, and the objective, which will deliver our goal of 20% revenue through digital services. This slide here gives a framework to monitor our progress to this goal, which we will develop over time.
There are three categories of revenue that are included in this target. Category one and two are existing services that we will migrate and enhance with new digital tools. This will add value to our customers, create stickiness, upselling opportunities, and efficiency for both us and our customers. It also form the basis for development of new data-driven solutions. Example of those category one and two are our smart warehouse solutions, which have now been deployed in 12 countries and is being adopted by more and more of our customers. Or our Digital Lab solutions, remote inspections being implemented across the network. Category three refers to new and fully digital solution generating incremental revenue for the group.
Examples of category threes are our Digicomply regulatory solutions, which some of you are already familiar with, and is fully automated with AI-driven application now being used by most of our top 10 food customers across the network. We're now working on expanding the scope into all the categories. True is another digital product being launched in 2022. This solution helps our customers to ensure consistency, accuracy, and compliance of online data quality of their product on e-commerce portals. During the year, we continue our portfolio evolution by investing in our strategic priorities across the different areas through 10 acquisitions. In the H2, we added Quay Pharmaceuticals and Groupe IDEA TESTS to our Health and Nutrition portfolio. Quay Pharmaceuticals is based in the U.K., a formulation CDMO focus on formulation research and development.
The addition of Quay Pharma's competence has enabled SGS to extend this, its portfolio along the health science supply chain, moving further upstream in the drug development process. Groupe IDEA TESTS is based in France and is specialized in the clinical, microbiological, and in vitro testing of cosmetic product. This is in line with our strategies to strengthen footprints in European cosmetic and hygiene product, with France being one of the key markets. We also welcome the addition of Sulphur Experts in our Natural Resources Division. Sulphur Experts is based in Canada and is a process engineering and testing provider specialized in sulfur recovery industry, helping to improve performances and lower the impact on the environment. Finally, we have acquired the remaining 49% of The Lab (Asia) based in Hong Kong.
SGS now owns 100% of this company that is active in the infrastructure and construction sector in the South China Greater Bay Area, an area comprising Hong Kong, Macau, and the Guangdong Province, with many new infrastructure projects, such as the Hong Kong Airport third runway. This followed a good level of M&A activities in the H1 when we acquired Analytical & Development Services based in the U.K. and active in the food sector, the laboratory activities of International Service Laboratory from Novartis in Ireland, active in the pharmaceutical industry, Autoscope in France to intensify our technical control network, a majority stake in BZH in Germany to expand our footprint in the complex hygiene consulting activities in the health sector.
Medair in France, complementing our network asbestos expertise in the South East region, and Brightsight, the leading players in the field of cybersecurity and a key addition to our portfolio of services in the field of connectivity. As mentioned during our capital markets day, cybersecurity issues are increasing and are becoming a fundamental component of our total service portfolio. On that, I'm going to hand over the presentation to Dominik to go through some of the financial details.
Thank you, Frankie. Good afternoon, ladies and gentlemen. I will start with the overview of the financial highlights for fiscal year 2021. Frankie already mentioned the operating highlights in his introduction, with revenues of CHF 6.4 billion and adjusted operating income of CHF 1.055 billion, and a free cash flow of CHF 635 million. Revenues for the group in constant currency increased strongly by 14.2%, driven by an organic growth of 8.9% and the growth contribution of acquisitions of 5.3%. Adjusted operating income increased by 16.8% to CHF 1.055 billion in constant currency, leading to an increase in AOI margin of 40 basis points to 16.5%.
Net profit after minority interest increased by 27.7% to CHF 613 million in the period under review. Adjusted EPS was up by 18.6% to 89.46 CHF. Cash flow from operating activities was almost stable, while the reduction of the free cash flow of 16% reflects the increase in CapEx. Organic revenues increased by 8.9% in fiscal year 2021. Compared to 2019, we experienced organically a steady improvement throughout the year, leading to a 2% growth versus 2019. The contribution from acquisitions of 5.3% reflects to a large extent the acquisition of the A&S division of Synlab, and to a smaller extent, the acquisition of Ryobi as well as Brightsight. All the other acquisitions had a very minor impact.
The currency impact is with 0.1% not relevant. Moving on to the revenue growth by business. Growth in Connectivity & Products was with 8.8% strong. The acquisition of Brightsight contributed 1.1% to it. With the exception of soft lines, given prior year strong demand for PPE, all SBUs posted strong growth during 2021. The strongest growth was achieved in connectivity, also reflecting our continued investment into this strategic priority. All SBUs are above 2019 levels. However, the main contributor to the C&P growth of 6% versus 2019 is connectivity. Revenues in Health & Nutrition increased by 30%, approximately equally split between organic growth and acquisitions. We experienced the strongest growth in health science, benefiting from work related to COVID-19 vaccines, as well as a strong rebound of activities in Northeast Asia and North America.
All SBUs performing strongly above 2019 levels. Revenues in Industries & Environment increased by 18%. The environment part of the acquired A&S division, as well as Ryobi, contributed strongly to the growth, while organic growth was 7.5%. Field services and inspection, industrial and public health and safety, as well as technical assessment and advisory, posted organic growth above average, while oil and gas-related services lagging behind. The 6% organic growth for Natural Resources is a function of strong growth in mineral commodities, laboratory testing and metallurgy, partly offset by low growth in OGC commodities, as well as a revenue decline in agricultural products due to the poor crop season in several European countries and North America. Knowledge achieved an organic growth of 14.7%. In all SBUs and regions, double-digit growth was achieved.
With the exception of our consulting and academy SBUs, all SBUs trading also strongly above the 2019 level. From a regional point of view, we delivered double-digit growth in all regions, partly driven by acquisitions. The Eastern Europe and Middle East countries achieved double-digit growth across the majority of its end markets and are strongly ahead of 2019 levels. Turkey posted very strong double-digit growth. The growth in Europe is more mixed. We achieved double-digit growth in countries with strong health and nutrition end market exposure, such as the U.K. or Belgium, while other key European countries such as Germany, France, and the Netherlands growing mid-single digit. Overall, Europe is still somewhat below the 2019 level. However, we experience in key markets such as Germany and Netherlands also growth versus 2019 towards the end of the reporting period. In the Americas, revenues increased by 13.5%.
In North America, we achieved almost double-digit growth, but we aren't yet back to 2019 levels organically. Latin America delivered strong double-digit growth, also nicely exceeding the 2019 levels. After having been very resilient in the prior year with almost stable revenues in 2020, growth in Asia Pacific for 2021 was organically up 8.2%. When comparing with 2019, the 7% growth is solely a function of Northeast Asian countries such as China, Taiwan, and Korea, while Southeast Asian Pacific countries are still below 2019 levels. That being said, several key markets in Southeast Asian Pacific growing versus 2019 towards the end of the reporting period. FTEs at the end of 2021 increased by almost 5% versus prior year, primarily driven by organic additions following the pandemic recovery.
Average FTEs in 2021 increased to 4.7%, materially lower than the total and the organic growth. That the magnitude of the change by region needs to be set in perspective with the revenue increase. Overall, we showed a good increase of productivity across all regions as we had, despite the material reduction in headcount the prior year, sufficient capacity in place to support the growth. Adjusted operating income increased at constant currency by 16.8%, which reflects the organic growth of 13.3%, as well as the net effect of acquisitions and disposals of 3.5%. Currency had a small positive impact of 4.4%, leading to a reported growth of 17.2% in the period under review.
AOI margin increased by 40 basis points to 16.5%, the best AOI margin achieved in the last 8 years. On this slide, I would like to provide an update about the integration of the former A&S division of Synlab, which is now called SGS Analytics. We are well on track to realize cost synergies of approx CHF 20 million. The related change in the management team and integration into our regional and country structure was executed in the Q1 2021. All rebranding and related communication activities have been executed in the H1 of 2021. The implementation of a common HR system is almost finalized. All group processes related to treasury, procurement, covered real estate, tax, net working capital management, and internal controls are implemented and activities are fully integrated into the SGS structure.
The ERP implementation, and with this also the transfer of key finance processes to our financial shared service centers in Katowice went live in October for Germany and the Nordics, and will be executed in the H1 of 2022 for the Benelux and the UK. The LIMS implementation for the various countries will be based on a new generation LIMS, supported by our Digital Lab concept and is progressing very well. The implementation of the hub and spoke model is fully executed and we are onboarding additional SGS countries to the environmental hubs as we speak. The implementation of the footprint consolidation Health & Nutrition and Industries & Environment is progressing according to our plan. At the same time, revenue synergies materializing according to our expectations.
During the last year's Investor Days, I talked about the Level Up program and defined our 2023 and 2025 objectives for the various initiatives in the area of finance, IT, and operations. You see on this slide the accomplishments for 2021 and objectives for 2022. Instead of going through all the individual items, I would like to highlight a couple of them. We globally rolled out our new standardized, fully integrated and digitalized third-party certification system for our Knowledge business. We designed the core for the Digital Lab model and started to roll out this new generation Digital Lab concept. We're currently covering 10% of our lab revenues. In relation to our 2022 objectives, I would like to highlight that we will establish a financial shared service center in Mexico covering the Americas.
We will onboard additional 16 countries to our financial service center concept and accelerate the go live for our centralized billing initiatives, covering 14 additional countries during 2022. From an operational and IT point of view, an accelerated rollout of the Digital Labs is of highest priority. Overall, we are well on track to achieve our 2023 Level Up objectives. For fiscal year 2021, AOI margin increased by 40 basis points to 60.5%, which is the best AOI margin in the last 8 years. The 40 basis points increase is a function of a strong margin increase in H1, while the margin H2 2021 decreased as expected and as outlined in last year's full year results release. As we all know, the prior year H1, H2 margin split is very much distorted by the impact of COVID.
Therefore, it is more meaningful to compare our development versus the 2019 level. Compared to 2019, we achieved in the H1 a margin increase of 30 basis points, while revenues compared to 2019 were flat. For the H2, the margin increase was 70 basis points, also related to the fact that growth picked up given a 3% growth in H2 2021 versus H2 2019, leading to a 50 basis points increase in AOI margin versus 2019 for the full year. Coming to the profitability by segment. Our most profitable segment, Connectivity and Products, reported a stable margin of 24.5%. The margin in Softlines decreased given last year's very high incremental margins as a result of the additional PPE business. This was completely offset by margin increases across all other SBUs, despite accelerated investments into our Connectivity segment.
Strong adjusted operating margin increase in Health & Nutrition of 170 basis points is mainly a function of a material increase in profitability in the Health Science SBU. AOI margin in Industries & Environment increased by 120 basis points to 11.3%, driven by all SBUs except for services related to the oil and gas end markets. AOI margins in Natural Resources declined by 160 basis points to 14.3% as margin increases in laboratory testing and metallurgy were more than offset by decreasing margins in trade activities, the latter primarily reflecting the weakening top line in agri-commodities and some price pressure in OGC commodities.
Strongest margin increase of 220 basis points was achieved in the Knowledge segment, reflecting the strong growth, but also the fact that the lower cost to serve model for remote audits are still applied. All SBUs contributed to a higher margin increase. We continue to align our capital allocation towards our strategic priorities. The reduction in this year's free cash flow is a function of accelerated organic investments towards our strategic priorities. We also align our CapEx to our sustainability ambitions. We acquired 9 new companies for a total consideration of CHF 214 million. We launched the beginning of the year our first euro bond with a nominal value of EUR 750 million successfully. We signed a CHF 1 billion sustainability-linked RCF in 2021, and we propose a stable dividend of CHF 80.
The management of net working capital continues to be a very strong feature of SGS. Operational net working capital stands at -2.4% of revenues in 2021, almost on a similar strong level as in 2020. We were basically able to finish two years in a row with a negative operational working capital despite a strong recovery. This is very much driven by our focus on EVA, as well as the implementation of various initiatives such as the centralized cash collection from financial sales service centers or the centralized billing project leading to a new record in DSOs. Cash flow from operating activities was CHF 1,169 million, almost in line with prior levels. We spent net CHF 331 million for CapEx, equaling 5.1%, a step up compared to prior years.
The dividend payment as well as NCI transactions amounted to CHF 652 million. We had inflows from Asian covered bonds, i.e., first euro bond issued by SGS. We paid back short-term borrowing of CHF 555 million, leading to a cash position of CHF 1.48 billion at the end of the reporting period. Gross CapEx for 2021 increased strongly by 30% to CHF 336 million or 5.2% of revenues gross, 5.1% net. The CapEx increase is to a smaller extent, a function of catch-up investments not executed during 2020, but to a larger extent, a function of more capital allocation towards our strategic priorities, namely Connectivity & Products and Health & Nutrition, leading to stronger growth.
Approximately 30% of the CapEx is allocated to C&P, and here especially towards the connectivity in Northeast Asia, which is of utmost priority. CapEx allocation of 18% in Health and Nutrition goes primarily to health science and then to the nutrition segment. CapEx allocation to Natural Resources is to a large extent based on client projects. To sum it up, our revenue in 2021 increased by 14.2%, of which 8.9% is organic. We are trading organically 2% above 2019 levels. Our adjusted operating margin increased by 40 basis points to 16.5%. Our operational cash flow is almost stable while we accelerated our organic investments towards our strategic priorities to foster growth. We are proposing a stable dividend of 80 CHF to the shareholders in the upcoming AGM. With this, I hand back to you, Frankie.
Thank you, Dominik. Let me go through the outlook of our five divisions. As usual, I will give the usual growth outlook comment relates to our expectations for full year 2022 organic growth and are relative to total group organic growth. Connectivity & Products should grow above the group average. Momentum in the connectivity remains strong and should progress well in 2022. The already strong demand for cybersecurity, wireless, and semiconductor-related services should increase as automotive sector recovers. The investment we have made in 2021 will support this growth. Softlines and trade facilitation should show good growth. Softlines should show steady growth from our traditional retail clients, while momentum should improve in the automotive sector. In trade facilitation services, we expect a strong growth from TransitNet and e-Customs solutions to continue, while PCA services should be stable.
We expect moderate growth in softlines in line with the overall market. However, for HS specifically, we do not have the same negative impact from the reduction of PPE volumes that we had in 2021. For Health & Nutrition, growth should outperform the group average. Market fundamentals and global demand for core tech services remain strong across all nutrition, health and wellness verticals. Health Sciences, particularly biopharma, will remain a key driver, a key growth driver supported by our recent organic investment in China, U.K., France, Germany, and third-party acquisitions. Vaccine testing volume will depend on the evolution of the pandemic during the year, but we already have a solid order book for the H1. Food testing demand will continue to be sustained by concern over quality, safety, and authenticity, and supported by ongoing outsourcing trends.
The ramp-up of our recent investment in Americas and the increased regulation will remain strong drivers for the top-line growth. Integration of recent acquisition and many efficiency initiatives are set to improve operational excellence as well. Finally, for cosmetics and hygiene, we expect a strong performance following good momentum in 2021. Natural Resources. Growth should be broadly in line with the group average. Strong momentum in the mining industry is expected to continue in 2022 with exploration budget forecasted to increase in the range of 5%-9%. This will support growth in our geochemistry and metallurgy consultancy business unit, where we have expanded our footprint over the past few years. In agricultural sectors, also global output for main agricultural product is expected to be slightly higher in H1 2022, with further improvement in the H2 2022.
We will see a negative impact on our trade activities in the Q1 due to the anticipated Canadian export reduction related to the drought of last summer. In the oil, gas, and chemical sectors, global oil demand is expected to recover to above 2019 level. This will give some support to our trade and testing businesses. However, pricing continue to remain competitive due to excess capacity on the market. Oh, sorry. I think I missed the one slide on the industrial environment. Let me come back to that. Industries & Environment growth should be below the group average. We expect a strong development of health and safety to continue into 2022 with the further recovery of different industrial sectors and new services being deployed.
A good example of those new services is our AirSense solutions, which monitors air quality in school, warehouses, and other building by using sensors. A volatile year 2021 for environmental testing, with better market conditions and customer site access in the H2 of the year. This improvement should continue into second, into 2022, and we're expecting a solid development in this strategically important sector. The deployment of the hub and spoke model of SGS Analytics, formerly Synlab, will support this growth acceleration. Both technical assessment advisory and field services and inspection should continue to perform well in line with 2021, particularly in LatAm and Asia, supported by a strong project pipeline. As for our public mandate, growth will be impacted by discontinuation of a vehicle compliance concession in Spain and a change in scope of a few government contract in Africa.
After Natural Resources, let me go down to Knowledge now. Finally, for Knowledge, growth should be broadly in line or better than the group average. The underlying market for Knowledge services remains strong. We do expect lower growth in certification due to the additional work performed in 2021 related to the recertification cycle and the tail end of COVID catch-up effect that was still impacting H1 2021. However, industrial specific standards such as information security and medical device certification should deliver strong growth. Demand for customized audit across all industrial sectors will remain strong in areas of ESG services and supply chain risk management solutions. Technical consulting services are expected to continue to rebound after a challenging 2020 and start of 2021. Demand will increase, especially in the field of process and supply chain optimizations.
The training market will continue to recover, but we are still not expected to reach the pre-pandemic level. In terms of outlook 2022 for the group, while we are seeing ongoing disruptions, we are confident that moving into the year we will see further normalization of our business environment. Our outlook assumes no incremental pandemic-related disruptions occurring beyond what we are experiencing today. Given this, we expect mid-single-digit% organic growth, improving the adjusted operating income benefiting from operational leverage, strong cash conversion, maintaining the best-in-class organic return on invested capital, accelerating investment into our strategic focus area with M&A as a key differentiator, and at least maintaining the dividend. This last slide is a reminder of our 2020-2023 mid-term target. Our balanced approach to planet, performance and people is again reflecting our belief that only focusing on financial performance is not enough anymore.
As already mentioned, we have added ESG criteria to the short and long-term incentive plan of management. We have introduced new ESG criteria for CapEx approval across the network. As Dominik already mentioned, we have linked some of our financial borrowings to our ESG performances to further enhance our culture of sustainability at SGS. I'm proud to say that each one of my 96,000 colleagues are committed to our purpose of enabling a better, safer, and more interconnected world. On that, I'm handing back to Toby for the Q&A session. Thank you.
Okay. Thanks very much, Frankie and Dominik. We will now move over to the Q&A section. Please remember to limit it to two questions per person. Please, if you are thinking of joining and asking a question, please jump on that call now. We will start with Paul Sullivan from Barclays. Please go ahead, Paul.
Thanks. Thanks, Toby. Afternoon, everyone. Firstly, just on margins. I mean, obviously there's lots of moving parts as we go through this year, given comps and things. Given the uptick in FTEs and underlying wage inflation, can you provide a little bit more color on your thoughts for the margin bridge for this year? Following on from that, on pricing more generally, I mean, given the inflationary backdrop, shouldn't that point to more than mid-single-digit growth, organic growth for this year? Particularly as it sounds like the exit rate was pretty good. W hat's holding you back in that respect?
Good afternoon, Paul. First, if we look to the margin development, I think it's important to see first for 2021. If we look to it, I think it's important, H2 was really good. It was of course down compared to the prior year as we outlined already one year ago, that the year before was really, for various reasons, extremely strong. If you look from H1 to H2, we actually had an uptick in 2021 of 300 basis points sequentially. If I look to this historically, I have to say between 2015 and 2018 it was between 220-50.
In 2019 it was 300 basis points and actually for 2021, 330. I think we are margin aligned really on a good track and it also shows that we raise our prices because obviously inflation is kicking in. Now, if you think about this year, we're not guiding, as you know, the margin specifically, but we are very committed to show operational leverage. There obviously is also a supporting element from the fact that the integration of A&S is progressing.
There will be also some additional benefits on the cost side and we are very keen to basically increase the prices. We work intensively on it to pass on the majority of wage inflation. To your second question, now mid-single-digit is also a range. In general, I agree that in a more inflationary environment, it's also a stimulant for revenue growth. For the time being, we believe mid-single-digit is the right guidance for this year.
That's great. Just following up, I mean, when you listen to BV at their investor days at the end of last year, they seemed to suggest that decent organic growth and margin expansion were somewhat incompatible. That is clearly not your view, just to be clear.
No, I mean, I cannot comment on competitors. I can only comment on us. We are very committed that we can increase our margins, as we say in our outlook statement. We're looking for operational leverage. While we do not have anymore a fixed margin target, we are very clear in our plan 2020 to 2023 to look for high single-digit growth, including acquisitions and implying mid-single-digit organic growth. We're also saying that earnings growth has to be 10%+, and that implies very clearly a commitment that we drive operational leverage. We believe we can do this. We have several levers to pull. Among others, also the reason why we're spending time to talk about the different initiatives, to talk about Level Up, to talk about world-class services, because we believe these things will drive productivity in a way that shareholders in terms of operational levels will also benefit.
That's very clear. Thank you.
Thank you. Could we move on to the next person on the call? Simona from Bank of America. Please go ahead.
Yes. Good afternoon, gentlemen, and thank you for taking my question. One specifically, if you could please give an indication of the organic growth tailwind on group organic growth in H2 and overall for 2021 from COVID-19 vaccine work in Health & Nutrition. Similarly also the contribution from PPE and Connectivity & Products. Then just a very quick follow-up on the question that has been asked previously from Paul on wage inflation. This is more related to the fact if you're seeing any material talent scarcity and how difficult it is at the moment for you to recruit personnel. Thank you.
I'll answer the second question about the talent scarcity. It is different depending on which sector we're talking about. It is clearly that it is a challenge in sector like health sciences, the connectivity, where we see clearly that we're not just competing against our peers in the tech sector, we're also competing for talent with some of our end customers. This is something that we're monitoring. We have implemented different measures in terms of getting earlier the recruitment at university, technical institute to help us to have a strong pipeline of talent that we can develop over time. Stay a little bit more stable, I would say.
As well as looking at partnership with different organizations so that we can cross-utilize some of the resources on talent. It is part of the challenges been facing the last Last few years in these growth areas, we're seeing some of the challenges on the wage pressure, but nothing that we cannot manage for time being because we also have good added value to our end customers, where we can pass over some of the wage pressure on our end customers because it's not those sectors that has the biggest price pressure, I would say. Talent scarcity is one of the key topics for us to look at in 2022.
Coming to the second question. If we think about the H2 of 2021 versus the H2 of 2020, we had 5.8% growth. If we look to these two components which you outlined, one is a tailwind, the other one is a headwind, right? Because the PPE business was extremely strong in the H2 of 2020, and now it's back to a level where it was before COVID. On the other hand, obviously there was a further vaccine work acceleration. If you set this off, there is still, in sum, a tiny bit of headwind, so to say, because the PPE reduction is bigger than the vaccine increase for the H2. It's not that much impacting, yeah. It's not that meaningful. The only difference is obviously.
Thank you.
Yeah. Thanks.
Oh, sorry. If you want to carry on, Dominik, please do.
I just want to say that the PPE is now on a normal level, so there is no further risk coming, so to say, while vaccine work. We have to see going forward, but obviously, at least for the short term, there is no risk.
Thank you very much. Now we will continue with Daniel from ZKB. Daniel, please go ahead.
Yes, thank you very much. I would have a question on the synergies and of A&S. You expect the full CHF 20 million already in 2022, and I understand there was a slightly negative impact in 2021, so can we speak of a swing factor of about 30 basis points by A&S alone?
The full synergy potential will be fully realized in the year after. There is a big step up into 2022, yeah, because we achieved this year, 2021, around CHF 5 million and there is a big step up towards the 20, but it's not fully 20 yet because some of the synergies will not be the full year there, so to say, yeah. Obviously it will have a positive impact on the profitability, yeah, for sure. Now, for 2021, not surprisingly, if we buy assets with a lower profitability than our own assets, especially in the first year where the synergies are not all there yet, it had a small dilutive impact. It's true that acquisition of A&S, the biggest part, dilutive impact on margin is around 20 basis points. This will obviously recover by achieving the cost savings according to plan. It's everything according to plan.
Thank you very much.
Thank you. Next on the line, we have Sylvia from J.P. Morgan. Sylvia, please go ahead.
Thanks, Toby. Hi, good afternoon, everyone. Firstly, could I ask on CapEx? I guess it is interesting that you're investing potentially ahead of peers. Could you maybe talk about where you see that CapEx going forward, both I guess you mentioned the areas where you're investing, but is that mainly going to be lab based or is there anything else to think about? Then maybe numerically on the back of that, you know, CapEx to sales and depreciation to sales, where could we see that? Then secondly, just a quick check-in. Provisions for bad debt clearly went down a lot in the H2 of 2020. You were expecting maybe a 40 basis points drag in the H2 of 2021. That's not crystallized. Could we expect any normalization in 2022 or is this the new level that you're comfortable with? Thank you.
If we start with the bad debt development, 2020 was really good year, but 2021 as well. It seems this is the normalized level. We finished very strong in 2020. We had also a good year in 2021. There were no, let's say, meaningful changes in that respect. It's also the case that over the years, we maybe have a little bit less, still some, but less exposures to very large government contracts, where sometimes collection is a bit difficult. You may recall years ago when we had a GIS unit, margins were often fluctuating because there were large contracts which were very dependent on payment behavior of governments. This is still in the portfolio, but maybe to a little bit lower extent than historically. The volatility in that respect should be somewhat lower.
On the CapEx side, Sylvia, obviously the focus for the CapEx development will be in line with our strategic priorities, same as this year. I would say looking to future connectivity. Health, nutrition, renewable energy are all our factors. Some of them are lab based. For example, renewable energy is more field-based. Wind OpEx or wind farm OpEx and so on are more field based. A large part of it would be linked to our laboratory activities, where we have good leverage as operational leverage as well. In terms of evolutions, we are at 5.1% this year. I think we always gave the bracket of 4%-5%, and we should be in this range in the medium term. Dominik, you want to add anything?
Yeah. Also the depreciation. I mean, if you look, I would say in the years, the 3 years up to 2021, so basically the 3 years before, so, 2018, 2019, 2020, we were more on average, I mean, we are between 4.4 and 4.6. Now, obviously, in the last year, we were slightly above 5%. We indicated towards 5%. Now we were slightly higher, but not very meaningful. I think to assume around 5% is a good number. Now, in last year number, the 5.2 gross or 5.1 net was also a little bit of CapEx, which simply shifted from the first COVID year to last year.
5% is a number going forward, I think. As Frankie outlined, it's very much the strategic priorities, but it's also investment into systems. The Digital Lab system, where we have clear targets that in 2023 more than 30% of our lab revenues will be done with the new generation Digital Lab concept. In 2025 more than 70%, that needs some CapEx. There's also some CapEx allocation in that respect. It's the reason why we are more in the close to 5% or 5% area. Depreciation will of course then adjust accordingly.
Thank you.
Thank you so much.
Thank you, Sylvia. Andy's next. Andy from Credit Suisse. Please go ahead.
Hi. Good afternoon, everybody. First one, could I go back to the original question and ask a little more around pricing and wage inflation? W hat levels of wage inflation were you seeing last year, and how much of that was offset just by pricing, and how much had to be done through efficiency and so forth? What are your expectations for 2022 and beyond? Secondly, just on M&A, there's been some very large deals in the subsector or in the sector in recent days. What is the environment like for getting the deals across the line and for pricing? Thank you.
If you think about last year, the real impact of wage inflation hadn't had yet. It was a little bit higher, but it was not much higher last year because in the majority of our end markets, it's that we have agreements with the local management, with the employee representation. Usually these things getting then implemented after end of Q1, beginning of Q2. This is the normal cycle. That being said, there are certain end markets where it's more liquid, where it's more fluent, like the U.S., like Australia. Yes, we had also there some more wage inflation. I think it was also partly driven.
There was a bit of a structural change, for example, in Australia, not a possibility to really import people or in Canada, given the government support to people during COVID, there was maybe not the highest willingness to go back to the job market, which had some inflation. Now, the good thing is in businesses where we have strong positions, like in our minerals business and so on, we are able to pass this on completely because clients also understand.
I would not say now that wage inflation would have or we are not able to pass on in pricing, because otherwise it would be also not explainable that we had from H1 to H2 where you start to see, for example, on consumers, some price inflation, cost inflation, so to say, that we had from H1 to H2 actually, an margin increase if you take out the year before because it was COVID, which was the best margin increase back to 2015. I didn't check the years before. Now more important, I think this is where we will see this wage inflation topic is really into this year.
Now, it is, of course, really depends country by country and end market to end market. It will definitely happen, but I think we as an organization worked early enough last year to prepare this, to price this, to have proper discussions with clients. I think we are confident that in the majority of the cases we can pass this on, but there will be a part of it where part of the productivity is needed. I think in general, the bigger part is passed on. Emily?
The other question on M&A. I think the market already in 2021 was quite dynamic for M&A. Yes, we understand a large deal beginning of this year. I don't think it's going to change too much our view on M&A. We have our focus in terms of strategy. We have our discipline in terms of the way we're looking at the strategic significance of the asset in terms of EVA, in terms of value creation.
We just want to focus on what we believe the right asset to join SGS Group, and if the price tag is creating the right synergy at the right time in terms of EV and so on, we'll go after it. If not, we'll just pass and move to the next target. We are quite active in this domain. We're trying to discuss with a lot of different parties on this part of our strategy for 2022.
Thank you for that. Could I just ask one follow-up on, in terms of, wage inflation and pricing? I g ot the message. W ondered what your thoughts were in terms of how much wage inflation you expect to see this year and how much you saw last year. You didn't, you t alked around it, but didn't quantify.
Yeah, I mean, let's say the wage inflation last year was not a lot. It was whatever close to 2%. It was not really a lot because, as I said, it was more by Anglo-Saxon market. Now, for this year, you know, I don't think it makes too much sense to give a number because every end market is very different and we look market to market to those things. T hings are a little bit fluid as well currently, right? It is more important that we are ahead. I think we are ahead because we try to increase prices, and in that respect, we should cover this appropriately.
Okay. Thank you very much.
Thank you, Andy. Next we have Joel from HSBC. Please go ahead, Joel. Okay. Maybe Joel wasn't actually on the line. Apologies if you were and you dropped off. Okay, so we'll move on to the next caller, which is Rory from UBS. Rory, please go ahead.
Good afternoon. It's Rory here. Yeah, firstly, within Knowledge, the organic revenue versus 2019 was a little lower in H2 than H1. Was that because the traditional certification volume normalized? Does that mean tough comps to start 2022? Secondly, do you still run and evaluate your EVA reviews? I'm just wondering how much of Group revenue is in SBUs that are still EVA negative compared to the 8% you found in 2019. Are there any SBUs that are still on a performance improvement plan or that could be considered for further disposals? Thank you.
If you compare on the Knowledge side, the comparison versus 2019, there is definitely not, it is not with my management system certification, because in it was only in 2020 where you have this big shift now that you have, that you see for the full year lower growth versus 2019 in the H1 is more related to other situation, and that's related to the fact that we did an acquisition in July 2019, Maine Pointe for our consulting business. This was in the H1 this year, not yet in the comp, because it was the organic. It's only the H2 in the comparison organically because we acquired it in 2019.
Now this business, not surprisingly, this consulting work had a very tough year in 2020. It recovered quite strongly in 2021, but we are not yet back on the level of 2019. Like I said in my remarks, the consulting business and the academy, so the training business, they are not back yet on the 2019 level. T he legacy management system certification, customer orders and so on, they are well above 2019 levels and actually accelerated versus 2019 from H1 to H2.
Any other question?
The second question was related.
EVA negative.
Excuse me. Sorry.
EVA negative. Yeah.
I thought it was this one. Excuse me. This continues to be a strong focus area, obviously. Now, one thing I have to say, when we presented this, we had a different business structure where we had 9 different business units. Now with the change to 5, things moved a bit left and right, but we have a strong focus on this. We have this EVA review. For example, next month we have the full EVA review of the ones who are very thin, but some of them are delayed given the fact that, especially if you think about certain oil and gas end markets, they'll be still somewhat below 2020, 2019.
They are progressing and the picture is a little bit better than what I showed at the investor days in the main meeting when I indicated to you what is value destroying in this corner left down. We are continuing to focus and we can give an update maybe to the half year numbers more in detail.
Okay. Thank you.
Thank you. Thank you, Rory. Next please is Arthur from Citigroup. Please go ahead, Arthur.
Thanks, Toby. Yes, Arthur from Citigroup. Within the Industries & Environment business, you mentioned that the outlook looked pretty strong in field services and technical advisory. Does this reflect an acceleration from both renewables, which clearly were strong in 2021, and also oil and gas? Is that also improving? The second question I had was on the Natural Resources side. You mentioned that the oil and gas trading business struggled a little bit from a pricing perspective. Is it right to assume that the volume trend improved in the H2 of 2021? How did that impact the pricing trend? Thank you.
I'll go for the first part of the questions. What we call the field services and the other part is basically one part linked to the construction supervision sectors. Infrastructure and constructions. This sector is very dynamic in Asia and in South America, where we have strong position. We're less present like in Singapore, in Hong Kong. I mentioned about the South China Greater Bay Area and Southern LatAm, where field services technical assessment advisory is really linked to this evolution. Strong double-digit growth in some region in this activity.
We see a strong pipeline on that. On the field services and inspection, you're right. These are migration of some of our existing services toward the renewables, whether it is wind farm, wind energy, or to some extent, like a country like in France, nuclear is also part of the part of renewables. The oil and gas sectors is still stable, I would say. It's not going backwards. It's stable, but it's not where some of the bigger growth is coming from.
Now regarding the commodity trading business. If we look to it, oil and gas commodities and natural resources were down for sure in the H1 because certain products like jet fuel and so on, they were not really back yet. We definitely see an improvement, yeah. In the H2, it's growing. In sum, we are a tiny bit growing. Not a lot, but a tiny bit growing. Obviously the trend into this year is therefore clearly better. The remark about pricing is related. It is a rather competitive environment in this end market. There's still quite some capacity in the market, so the pricing environment is not easy. We don't think it will become much easier in the short term, but volumes definitely are increasing.
Thanks very much.
Thank-
Thank you, Arthur. The next one on the call is Neil from Redburn. Neil, please go ahead.
Yeah, good afternoon. Thank you. Thanks, Toby. A couple of questions, please. Firstly, I'd like to go back to the subject of CapEx and the growth projects that you referred to. Can you give us an indication of when, I'm thinking particularly in Connectivity & Products, these projects will begin to reflect in the growth rate itself? How long they take to complete and you know and any comments you'd like to make about the incremental return on capital that those sorts of you know connectivity labs might generate. Then secondly, back to the Industries & Environment.
The comment you make around the flat organic progress in some of those activities, do you think that was principally the result of external factors and the lack of sampling collection availability? Or do you think there might have been some evidence of negative revenue synergy, either, you know, because of the disruption or otherwise around the A&S deal? Thank you.
If we take these questions. First of all, on the Connectivity side, we're seeing this already today. I mean, if you look to our Connectivity business, it is 16% above 2019, yeah? This is also partly as we allocate more capital to it, and we continue to allocate capital to it. If we allocate capital, it takes a couple of months, but then this thing's ramping up, and we get very quickly good utilization. The returns are materially higher than the returns which we has as a group average. It has high returns. It grows rather quickly. I would say it's not only last year. We also invested during 2020 into it.
This is now already realizing in terms of growth, and we continue to invest in this part. On the environment testing, I think there is. First of all, what is interesting, the environment testing, if we talk about organic growth, it is flat. That's correct. The A&S acquisition as well instead is growing. So our environment testing in A&S, they actually had seen growth in the COVID years or the year before we bought them, and they have seen a solid growth also in 2021. What is true and what is definitely a market related item is, on one hand, we had a rather tough winter at the beginning of last year, so there was definitely some delay.
We had expectation that demand for soil testing is picking stronger up during summer, which didn't happen. I think this is a market related item that construction projects are not started or partly also delayed. If you look to our business, where we didn't see really all the improvement is North America. North America has now nothing to do with our A&S acquisition. A&S is really focused on Europe. We don't believe it has anything to do with the acquisition. Really, it's more a market situation.
Neil, maybe I can.
Yeah.
Just add one more comment on the connectivity. It's also a factor that we have a really strong network of connectivity labs worldwide, 'cause a lot of those CapEx that we're putting in is incremental CapEx, so they're just adding on the capacity and development of our network. They're not new labs that we're building. If you're building
Mm-hmm.
A totally new lab somewhere, indeed, by the time you build the capacity, by the time you get accreditation, it takes time. We're not at this stage anymore.
Yeah.
Our network is complete. It's just incremental CapEx. We use our existing accreditation. We use as often as we use the same manpower that just expands the capacity. We're in a different level of maturity.
I understand. That's very helpful. Thank you.
Thank you, Neil. The next on the line. We've got two more on the line, and we do have some questions on the web, which I'll read out in due course. First, next on the call, I should say, is Annelies from Morgan Stanley. Annelies, please go ahead.
Hi. Thanks, Toby. I just have one question remaining, if that's okay. I was hoping you could give some more color on the situation on the ground in Asia as you're seeing it at the moment. During the presentation you called out that Northeast Asia saw a very good recovery through the year, but Southeast Asia or certainly parts of it are still below 2019 levels, but parts have started to improve towards the end of the year. To the extent that you have visibility, I'm just wondering how you see that developing in the early months of this year. I f you're able to quantify how much of a drag was that on growth with when there was localized lockdowns and so on. Any detail you can give around that would be very helpful. Thank you.
I'll try to answer a little bit part of the question on SEAP versus Northeast Asia. You look at the composition of the countries in SEAP, and you look at the evolution of the pandemic over the past 12-plus months, it is clear that country like Indonesia, Philippines, Malaysia, Singapore had a much stronger, stricter lockdown than some of the other economy that we see in Northeast Asia, a nd not just the fact that you cannot travel between countries.
A factor, some of the lockdowns within the countries in terms of economic activities was more severe, including India, that had incurred a significant rise of cases at the beginning of the year. As we move with the evolution of the pandemic, we've seen that countries like Bangladesh, India was much stronger and coming back online in the H2 of the year where the market was reopening. While you're seeing, again, Malaysia is a good example, is not fully back on track as an economy, and we're still dealing with some of the legacy issues. Indonesia is getting better. Thailand is just getting out of the sectors where tourism is an important aspect, and we're not back to there. Australia is opening up.
New Zealand is still in lockdown, but New Zealand has an issue of workers. A lot of the technical people comes from outside to work in New Zealand. For the time being, we're dealing with a situation where the country stays closed. There works to be done, but they probably shortage on manpower because they use a lot of people coming from outside the countries. As things opens up, we see the market conditions becoming more and more normal, which was a little bit less obvious, I would say, in Northeast Asia, where I think South Korea, China, Taiwan, Hong Kong was operating. Maybe the traveling between the country was not great, but as an economy was operating at a satisfactory level.
The only one that was the tail, the headwind for us in Northeast Asia was Vietnam. Because of the serious infection rate that they had in the Q4 of last year, we basically had to shut down some of the facilities for a couple month. A gain, end of the year, December, when the economy went back online, we're back to the whole trajectory that we have. I would say, as I mentioned earlier, moving to 2022, I'm expecting Northeast Asia to be performing in line with what I've seen at the end of the year, and probably SEAP having more upside than downside, assuming that there's no new wave or lockdown coming around that's going to disturb the processes.
Thank you very much.
Thank-
Thank you, Annelies. Saving the best to last, I hope, Carl. Carl, from RBC. No pressure. Please go ahead.
Thanks, Toby. Yeah, yeah, I think probably.
The last on the call, I should say. We've got a couple more to read out, but please go ahead, Carl.
Thanks very much. Just a couple of residual ones from me. I mean, just in terms of that impact of the step up in CapEx over the last couple of years, what are you expecting in terms of the depreciation and non-acquisition intangible amortization charge this year, just in terms of step up there for cash flow modeling? A lso just following from that, is it fair to say that the rapid utilization you get from that asset deployment means that actually you're unlikely to see any material divisional margin drag from that step up in depreciation?
That's the first one. The second one, completely unrelated. Agri, I think took the shine off the very good performance in minerals and Natural Resources in the year just gone. There's talk that the big step up in fertilizer and nutrient cost is going to lead to planters applying much less fertilizer, which is raising the specter of very low crop yields in H1 next year. Is that something you've already factored into your dynamics and your outlook for the Natural Resources, please?
Should I start with that?
Yeah, you want to deal with the first one, I'll deal with
I'm happy to deal with it. If you look to the whole depreciation amortization. If you take everything as charges around CHF 500 million, but this considers also the amortization of the right of use and a lease. It considers the amortization of intangibles, and so on. Let's say the depreciation related to, let's call it traditional CapEx, was last year CHF 275 million. If you think about this and say, "Okay, the last couple of the years before we had now more 5%," a bit more, 5.2% this time, we had around 4.5%.
If we're now adding a year with five, or more years with five, over the next couple of years, yeah, if you assume average usage of CapEx is five years, you can easily calculate how the depreciation is step-by-step moving up. It's now not jumping up because obviously it takes time until the five years average. For example, if you buy equipment, what is depreciated over five years will happen. So depreciation will grow, of course, a bit more than the years before, but it's step-by-step. Because you have in the current run rate of depreciation still other years of prior investments, yeah. O ver time it will increase by roughly this 0.5% of revenues over time.
Okay. Carl, maybe for your second questions, I'm not trying to divert your question because I don't have a direct answer. Let me put this way. In our assessment of the agricultural sectors, for 2022, we factored, well, the team and I factor all the known conditions in terms of where we stand in terms of potential growth and market conditions, so on. I don't have the specific comments on nutrient and fertilizer use, and so on. If you don't mind, I will ask Toby to come back to you, if this was a particular high or lower element of the assessment we made. I'm pretty sure it's part of the assessment we made because the team are pretty diligent to look at all particular aspect. I just want to say something specific on that one without knowing the exact information.
Thanks very much.
I will check in with Derek and I'll get back to you, Carl. That's it for the call. We have got some questions. We've got three questions remaining. I've moved a couple 'cause we've already answered them, and I think one we can combine. The question from Julian, from SocGen, and from Kolminder from AlphaValue, are basically asking about the sustainability of margins in Health and Nutrition and Knowledge. That's one. Do we think these levels can be sustained going forward? The second one is what. Or a similar question is, or a related question maybe, is the H&N margin sustainable, given the vaccine work? What do we expect for vaccine work going forward? Which I guess we've already answered to a good extent. I guess that's for Dominik.
I mean, if you look to it, obviously there was a good margin increase also related to the vaccine work, and for sure we had also very good pricing. I also have to say that in the recent years, we also invest the.
I'm not sure whether we answered or whether Julian got the answer to his questions to the extent we assume that it is. Maybe, Toby, you have one last question before we close the session?
Yes. The final question is from HSBC, and it's on pricing. What impact does pricing have on the profit and cash flow, and is there a mismatch by any chance, I guess? The final one is the working capital to sales ratio is at a low level. Is it sustainable going forward?
If you think about pricing, I mean, there should be no mismatch between cash flow or P&L. I mean, it's just adjustment of the pricing. There should be no issue. What's the related part of it? Working capital is negative. Working capital was -CHF 2.4 billion. It was a negative working capital of CHF 2.4 billion. The year before, CHF 2.5 billion. Obviously, we have a bit of an outflow this year for working capital. Even if you assume whatever, CHF 60 million-CHF 70 million outflow for supporting the growth, working capital would still remain negative at the end of this year.
Okay, thank you very much. That brings us to the end of the call for today. I'll leave it to Frankie or Dominik to say a couple of final words, and we look forward to seeing you all later in the year.
Final word. I hope that we answered most of your questions. Again, a strong set of results. I think the fundamentals of the TIC industry remain solid. We believe that the different sectors we're focusing on, whether it is Connectivity & Products, Health & Nutrition, and the Knowledge and Natural Resources, are having a lot of strong drivers. We'll transform our Industries & Environment and Natural Resources portfolio towards something more sustainable in terms of the service scope. S ome of those activities will support our customers to transition themselves well. I think at the end, we're looking at a good result for 2022 in line with the guidance we just gave. Thank you.
Thank you for your question. Thank you for listening to us. Bye-bye.