BUREAU VERITAS: 2014 first half results

27.August 2014 at 17:40:00 CET

Didier Michaud-Daniel, CEO of Bureau Veritas, stated:

"The Group expects organic growth improvement in H2 2014 from a more favorable comparison base, the start of new contracts, a catch-up of delayed contracts and despite continuous softness in Europe and pending Metals & Minerals recovery. 2014 revenue growth on a constant currency basis should be above 9% with a strong contribution from acquisitions. To date, we have completed 7 acquisitions representing close to EUR 290 million in annual revenues. Profitability should continue to improve on a constant currency basis.

The Group confirms the objective to achieve revenue growth above 9% per year on average over the 2012-2015 period, at constant exchange rates, but with a different mix than the one initially contemplated:

- Due to weakness in Metals & Minerals and European markets, the average organic growth should be lower than +6%.

- Based on the current pipeline and acquisitions already carried out, the average external growth should be higher than +4%.

The Group could achieve its objective of a 100 basis points margin improvement in 2015 compared with 2011, but has decided recently to invest part of the profitability gains, generated notably through Excellence@BV, in commercial initiatives to accelerate its future organic growth. As a consequence, the 2015 adjusted operating margin will be around 17%.

In this context, the average growth of adjusted EPS for the period 2012-2015 should be in the +5-7% range per year, due notably to tax rates increase and currency headwinds."


Main consolidated financial items on June 30

The Board of Directors of Bureau Veritas met yesterday and approved the financial statements for the first half of 2014.

(in millions of euros)  H1 2014  H1 2013    Chg.   Chg. at constant currencies 
Revenue 1,967.4 1,957.5 +0.5% +7.0%
Adjusted operating profit(a) 310.0 313.2 (1.0)% +8.0%
as a % of revenue 15.8% 16.0% (0.2) point +0.1 point
Operating profit 278.5 283.1 (1.6)% +7.6%
Net financial expense (40.5) (33.7)    
Income tax (77.1) (73.0)    
Attributable net profit 154.0 170.2 (9.5)% +2.5%
Attributable adjusted net profit (a) 177.5 192.5 (7.8)% +3.7%
Operating cash flow(a) 176.1 221.5 (20.5)%  
Adjusted net financial debt (a) 1,985.5 1,386.0    

(a) Financial indicators not defined by IFRS accounting rules presented in Appendix 3

Acquisitions in North and South America

Since the beginning of the year, the Group has carried out seven acquisitions, mainly in North and South America. These acquisitions will increase the Group's exposure to the petroleum, offshore, automotive, construction and food sectors: 

The combined annual revenue for these acquisitions is close to EUR 290 million, equivalent to more than 7% of the Group's 2013 revenue.

Analysis of the Group's results and financial position

1 - Revenue up 7% on a constant currency basis

Revenue for the first half of 2014 (H1 2014) totaled EUR 1,967.4 million, an increase of 0.5% compared with the first half of 2013 (H1 2013).

As expected, there was a further contraction in the Government Services & International Trade (GSIT) business (organic growth of -8.4% in H1 2014). The comparison base is unfavorable owing to two contracts (Angola and Ivory Coast) that came to an end in H2 2013. The verification of conformity activity has been disrupted recently due to the conflict in Iraq.

The Marine business posted strong organic growth of 7.8% over the period, in both the ships-in-service and new construction segments.

2 - Adjusted operating profit up 8% on a constant currency basis

Adjusted operating profit was EUR 310 million, down 1% compared with H1 2013, but up 8% at constant currencies.

The adjusted operating margin was 15.8% in H1 2014, an increase of 10 basis points at constant currencies compared with H1 2013. The negative impact of exchange rates was 30 basis points.

On a constant currency basis, the adjusted operating margin improved in most of the divisions, i.e. in the Marine, Consumer Products, Industry, Construction and IVS businesses. It mainly benefited from the operational excellence initiatives and improvements in the activity mix. The margin contraction in the Certification, Government Services & International Trade (GSIT) and Commodities businesses was due to a reduction in volumes.

Other operating expenses totaled EUR 31.5 million, compared with EUR 30.1 million in H1 2013:

In H1 2013, the disposal of the Infrastructure business in Spain and the related restructuring process generated EUR 3.5 million of exceptional expense.

After taking into account other operating expenses, operating profit came to EUR 278.5 million, a 1.6% decrease compared with H1 2013, and up 7.6% on a constant currency basis.

3 - Adjusted net profit up 3.7% on a constant currency basis 

The EUR 6.8 million increase in net financial expense to EUR 40.5 million was attributable to the rise in finance costs. The total amount of debt increased (financing for acquisitions), while the average interest rate fell.

Income tax expense stood at EUR 77.1 million in H1 2014, compared with EUR 73.0 million in H1 2013. The effective income tax rate was 32.4% for the period, compared with 29.3% in H1 2013. The adjusted effective tax rate was 31.6%. The increase relative to the previous year is mainly attributable to the increase in taxes payable in France.

The Group's attributable net profit for the period was EUR 154.0 million, down 9.5% compared with H1 2013, but up 2.5% on a constant currency basis. Net earnings per share stood at EUR 0.35, compared with EUR 0.39 in H1 2013.

Adjusted attributable net profit totaled EUR 177.5 million, up 3.7% on a constant currency basis. Adjusted earnings per share stood at EUR 0.41 in H1 2014, a decrease of 6.8% compared with H1 2013. On a constant currency basis, it increased by 4.5%.

4 - Operating cash flow and financial position

Cash generated from operating activities (operating cash flow) stood at EUR 176.1 million in H1 2014, compared with EUR 221.5 million in H1 2013. This decrease was attributable to the increase in working capital requirements notably attributable to acquisitions, and higher tax payments.

The amount spent on the purchase of property, plant and equipment and intangible assets, net of disposals, was EUR 63.2 million in H1 2014. The Group's capex-to-revenue ratio stood at 3.2%, slightly below the 2013 level.

Levered free cash flow was EUR 71.2 million in H1 2014, compared with EUR 111.5 million in H1 2013.

At June 30, 2014, adjusted net financial debt was EUR 1,985.5 million, i.e. 2.48x EBITDA as defined in the calculation of banking covenants, compared with 1.71x at December 31, 2013. More than 95% of the Group's financing are maturing from 2017 onwards.

The increase in adjusted net financial debt of EUR 657.1 million versus December 31, 2013 (EUR 1,328.4 million) was due to:

Conference call

Wednesday, August 27, 2014 at 6:30 p.m. CET

The conference call in English will be broadcast live and after the event on the Group's website: http://finance.bureauveritas.com. The presentation document will also be available on the website.

2014 half-year financial report

The 2014 half-year financial report is to be filed with the French Financial Markets Authority (AMF) today and can be consulted on the Bureau Veritas website at the following address: http://finance.bureauveritas.com.

2014 financial calendar

October 29, 2014: publication of Q3 2013 information (after trading)

Contacts

Analysts/Investors Press
Claire Plais +33 (0)1 55 24 76 09
Mark Reinhard +33 (0)1 55 24 77 80
Véronique Gielec +33 (0)1 55 24 76 01
Finance.investors@bureauveritas.com Veronique.gielec@bureauveritas.com

About Bureau Veritas

Bureau Veritas is a world-leading provider in testing, inspection and certification. Created in 1828, the Group has more than 65,000 employees in around 1,330 offices and laboratories located in 140 countries. Bureau Veritas helps its clients to improve their performance by offering services and innovative solutions in order to ensure that their assets, products, infrastructure and processes meet standards and regulations in terms of quality, health and safety, environmental protection and social responsibility.

Bureau Veritas is listed on Euronext Paris and belongs to the Next 20 index.

Compartment A, code ISIN FR 0006174348, stock symbol: BVI.

For more information, visit www.bureauveritas.com

This press release (including the appendices) contains forward-looking statements, which are based on current plans and forecasts of Bureau Veritas' management. Such forward-looking statements are by their nature subject to a number of important risk and uncertainty factors such as those described in the registration document filed by Bureau Veritas with the French Financial Markets Authority that could cause actual results to differ from the plans, objectives and expectations expressed in such forward-looking statements. These forward-looking statements speak only as of the date on which they are made, and Bureau Veritas undertakes no obligation to update or revise any of them, whether as a result of new information, future events or otherwise, according to applicable regulations


Appendix 1: Results by business

The Group's performance in terms of revenue and results by business is described in the half-year financial report.

H1 revenue by business

 (in millions of euros)       Growth
2014 (a) 2013 (b)  Overall   Organic   Scope  Currency impact
Marine 77.9 76.3 +2.1% +6.1% - (4.0)%
Industry 239.6 242.5 (1.2)% +3.4% +4.6% (9.2)%
In-Service Inspection & Verification 136.0 112.7 +20.7% +1.6% +20.8% (1.7)%
Construction 108.3 108.1 +0.2% +0.6% +2.6% (3.0)%
Certification 86.5 90.8 (4.7)% (0.2)% - (4.5)%
Commodities 172.9 178.0 (2.9)% (3.1)% +8.7% (8.5)%
Consumer Products 148.9 142.0 +4.9% +4.9% +4.8% (4.8)%
Government Services & International Trade 68.3 76.5 (10.7)% (8.7)% +4.9% (6.9)%
Total 2nd quarter 1,038.4 1,026.9 +1.1% +0.9% +6.2% (6.0)%
Marine 150.3 145.3 +3.4% +7.8% - (4.4)%
Industry 458.8 465.6 (1.5)% +3.6% +5.0% (10.1)%
In-Service Inspection & Verification 265.5 226.5 +17.2% +3.5% +15.4% (1.7)%
Construction 213.6 213.3 +0.1% +1.7% +1.5% (3.1)%
Certification 160.4 170.2 (5.8)% (1.0)% - (4.8)%
Commodities 330.7 340.8 (3.0)% (1.3)% +7.6% (9.3)%
Consumer Products 261.9 249.2 +5.1% +5.4% +4.4% (4.7)%
Government Services & International Trade 126.2 146.6 (13.9)% (8.4)% +2.5% (8.0)%
Total 1st half 1,967.4  1,957.5 +0.5% +1.8% +5.2% (6.5)%
  1. Following a change in consolidation method for two entities, for which the Group has chosen the equity method, revenue for the first quarter of 2014 was restated by EUR -0.4 million.
  2. The 2013 figures by business have been restated following the reclassification of the activity of two food analysis laboratories from the IVS to the Consumer Products business.
    Change in adjusted operating profit by business
(in millions of euros)  Adjusted operating profit   Adjusted operating margin 
H1 2014 H1
2013 (a)
 Change

(%)
 2014   2013 (a)   Change (point) 
Marine 40.2 39.5 +1.8% 26.7% 27.2% (0.5)
Industry 67.9 67.9 - 14.8% 14.6% +0.2
In-Service Inspection & Verification 30.3 23.6 +28.4% 11.4% 10.4% +1.0
Construction 27.8 25.4 +9.4% 13.0% 11.9% +1.1
Certification 26.6 30.4 (12.5)% 16.6% 17.9% (1.3)
Commodities 36.9 39.7 (7.1)% 11.2% 11.6% (0.4)
Consumer Products 59.9 56.7 +5.6% 22.9% 22.8% +0.1
Government Services & International Trade 20.4 30.0 (32.0)% 16.2% 20.5% (4.3)
Total Group 310.0 313.2 (1.0)% 15.8% 16.0% (0.2)
  1. The 2013 figures by business have been restated following the reclassification of the activity of two food analysis laboratories from the IVS business to the Consumer Products business.

Appendix 2: Extracts from the half-year consolidated financial statements

Extracts from the half-year consolidated financial statements audited and closed on August 26, 2014 by the Board of Directors. The audit procedures for the half-year accounts have been undertaken and the Statutory Auditor's report has been published.

CONSOLIDATED INCOME STATEMENT

(in millions of euros)  H1 2014   H1 2013 
Revenue 1,967.4 1,957.5
Purchases and external charges (553.1) (560.4)
Personnel costs (1,030.4) (1,018.0)
Taxes other than on income (27.4) (25.3)
Net (additions to)/reversals of provisions 0.3 (5.5)
Depreciation and amortization (84.7) (73.8)
Other operating income and expense, net 6.4 8.7
Operating profit 278.5 283.1
Income from cash and cash equivalents 0.7 0.6
Finance costs, gross (38.3) (30.7)
Finance costs, net (37.6) (30.1)
Other financial income and expense, net (2.9) (3.6)
Net financial expense (40.5) (33.7)
Share of profit (losses) of associates - (0.1)
Profit before income tax 238.0 249.3
Income tax expense (77.1) (73.0)
Net profit 160.9 176.3
Non-controlling interests 6.9 6.1
Attributable net profit 154.0 170.2
Basic earnings per share (in euros):    
Net profit 0.35 0.39
Diluted earnings per share 0.35 0.38


 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(in millions of euros)  June 2014   Dec. 2013 
Goodwill 1,663.1 1,412.1
Intangible assets 607.1 374.5
Property, plant and equipment 443.9 401.3
Investments in associates 2.6 0.8
Deferred income tax assets 129.0 122.2
Investments in non-consolidated companies 1.3 1.2
Other non-current financial assets 52.1 44.3
Total non-current assets 2,899.1 2,356.4
Trade and other receivables 1,261.3 1,122.5
Current income tax assets 50.9 40.7
Current financial assets 5.4 6.3
Derivative financial instruments 0.5 0.6
Cash and cash equivalents 176.8 190.6
Total current assets 1,494.9 1,360.7
TOTAL ASSETS 4,394.0 3,717.1
     
Share capital 53.1 53.0
Retained earnings and other reserves 855.2 903.1
Equity attributable to owners of the Company 908.3 956.1
Non-controlling interests 29.2 26.0
Total equity 937.5 982.1
Bank borrowings 1,933.3 1,407.1
Derivative financial instruments 21.2 22.5
Other non-current financial liabilities 1.7 1.8
Deferred income tax liabilities 150.3 85.8
Pension plans and other long-term employee benefits 138.3 125.6
Provisions for other liabilities and charges 64.5 71.4
Total non-current liabilities 2,309.3 1,714.2
Trade and other payables 807.5 787.9
Current income tax liabilities 72.7 80.9
Bank borrowings 222.8 104.2
Derivative financial instruments 2.2 5.6
Other current financial liabilities 42.0 42.2
Total current liabilities 1,147.2 1,020.8
TOTAL EQUITY AND LIABILITIES 4,394.0 3,717.1

Consolidated statement of cash flows

(in millions of euros)  H1 2014  H1 2013
Profit before income tax 238.0 249.3
Elimination of cash flows from financing and investing activities 37.7 31.4
Provisions and other non-cash items 11.3 2.4
Depreciation, amortization and impairment 86.2 73.8
Movements in working capital requirement attributable to operations (95.0) (71.1)
Income tax paid (102.1) (64.3)
Net cash generated from operating activities 176.1 221.5
Acquisitions of subsidiaries (477.9) (60.2)
Proceeds from sales of subsidiaries - 4.3
Purchases of property, plant and equipment and intangible assets (64.4) (71.8)
Proceeds from sales of property, plant and equipment and intangible assets 1.2 4.7
Purchases of non-current financial assets (9.0) (8.8)
Proceeds from sales of non-current financial assets 3.3 4.1
Net cash used in investing activities (546.8) (127.7)
Capital increase 2.2 1.3
Purchases/sales of treasury shares (25.3) (57.1)
Dividends paid (213.6) (207.6)
Increase in borrowings and other debt 693.5 258.8
Repayment of borrowings and other debt (52.1) (102.5)
Interest paid (41.7) (42.9)
Net cash generated from (used in) financing activities 363.0 (150.0)
Impact of currency translation differences (3.7) 0.8
Impact of changes in methodology (0.8) -
Net decrease in cash and cash equivalents (12.2) (55.4)
Cash and cash equivalents at beginning of period 157.7 234.8
Net cash and cash equivalents at end of period 145.5 179.4
o/w cash and cash equivalents 176.8 226.1
o/w bank overdrafts (31.3) (46.7)


Appendix 3: Financial indicators not defined by IFRS accounting rules

Adjusted operating profit is defined as Group operating profit before income and expenses relative to acquisitions and other non-recurring items.

(in millions of euros)  H1 2014   H1 2013 
Operating profit 278.5 283.1
Amortization of acquisition intangibles 30.2 26.4
Goodwill impairment 1.5 -
Other acquisition-related expenses 0.1 (0.1)
Disposals and restructuring (0.3) 3.8
Adjusted operating profit 310.0 313.2

Attributable adjusted net profit is defined as attributable net profit adjusted for other operating expense after tax.

(in millions of euros)  H1 2014   H1 2013 
Attributable net profit 154.0 170.2
EPS(a) (EUR per share) 0.35 0.39
Other operating expenses 31.5 30.1
Tax effect on other operating expenses (8.0) (7.8)
Attributable adjusted net profit 177.5 192.5
Adjusted EPS(a) (EUR per share) 0.41 0.44

(a) Calculated using the weighted average number of shares of 437,061,389 in H1 2014 and 438,925,614 shares in H1 2013

"Levered free cash flow" is defined as follows:

(in millions of euros)  H1 2014   H1 2013 
Cash flow generated from operating activities (operating cash flow) 176.1 221.5
Purchases of property, plant and equipment and intangible assets net of disposals (63.2) (67.1)
Interest paid (41.7) (42.9)
Levered free cash flow 71.2 111.5

"Adjusted" net financial debt is defined as net financial debt after currency hedging instruments as defined in the calculation of banking covenants.

(in millions of euros)  H1 2014   H1 2013 
Gross financial debt 2,156.1 1,604.0
Cash and cash equivalents 176.8 226.1
Consolidated net financial debt 1,979.3 1,377.9
Currency hedging instruments 6.2 8.1
Adjusted net financial debt 1,985.5 1,386.0

HY2014_VUS