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Rating Action:

Moody's assigns (P)A3 rating to SGS' new EMTN Programme; outlook stable

31 Mar 2021

London, 31 March 2021 -- Moody's Investors Service ("Moody's") has today assigned a provisional (P)A3 rating to the new €1 billion backed senior unsecured EMTN programme of SGS NEDERLAND HOLDING B.V., a subsidiary of SGS SA (SGS or the company). The programme is guaranteed by SGS SA. Concurrently, Moody's has affirmed SGS's A3 long term issuer rating and SGS NEDERLAND HOLDING B.V.'s P-2 backed commercial paper and short term P-2 rating. The outlook on the ratings is stable.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The provisional (P)A3 rating on the debt issuance programme is aligned with SGS's long term issuer rating.

SGS's A3 long term issuer rating is supported by: 1) strong long-term track record of growth through the cycle and positive long-term industry growth dynamics; 2) market leadership, global reach and sector diversity; 3) cost saving opportunities offsetting price pressure in mature segments and costs of internal systems and business development and 4) low leverage, which spiked briefly to 3x in 2020 due to the coronavirus pandemic but will reduce to around 2.5x in 2021, supported by high operational cash generation and good liquidity.

The company's rating is constrained by: 1) exposure to oil and gas and minerals sectors with fluctuations in capital investment cycles and commodity prices; 2) increasing digitalisation and technological changes within the market, and; 3) currency translation exposures particularly to depreciating emerging markets currencies.

LIQUIDITY

SGS has a good liquidity position with balance sheet cash and marketable securities of CHF1,775 million at 31 December 2020. It also has CHF600 million committed facilities which were undrawn as at 31 December 2020.

STRUCTURAL CONSIDERATIONS

The company's debt largely comprises domestic CHF bonds and bank facilities. These are all issued by SGS SA except for the EUR 1 billion EMTN programme issued by SGS NEDERLAND HOLDING B.V. and guaranteed by SGS SA. SGS NEDERLAND HOLDING B.V. is a holding company for the Dutch operations with no materially favourable access to operating cash flows of the group, and accordingly Moody's considers that all debt ranks pari passu.

RATING OUTLOOK

SGS SA's stable outlook reflects primarily its solid positioning in the A3 category and Moody's expectation that the company will generate continued positive organic growth, that the long-term growth outlook of the industry is sustained and that the company maintains conservative financial policies with low leverage and solid liquidity.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Positive pressure on the ratings could arise if (1) Moody's-adjusted leverage falls comfortably below 2x on a sustainable basis; (2) Moody's-adjusted retained cash flow/net debt in the mid-30s in percentage terms or above while maintaining positive organic growth and stable or growing margins; and (3) the company maintains a conservative financial policy.

Negative ratings pressure could develop if (1) Moody's-adjusted leverage increases above 2.5x on a sustainable basis; (2) there is a material decline in growth or profitability for a sustained period of time; (3) Moody's-adjusted retained cash flow/net debt falls below the mid-20s in percentage terms or (3) the company adopts more aggressive financial policies in relation to leverage, shareholder distributions and/or liquidity.

LIST OF AFFECTED RATINGS

Assignments:

..Issuer: SGS NEDERLAND HOLDING B.V.

....BACKED Senior Unsecured Medium-Term Note Programme, Assigned (P)A3

Affirmations:

..Issuer: SGS NEDERLAND HOLDING B.V.

....ST Issuer Rating, Affirmed P-2

....BACKED Commercial Paper, Affirmed P-2

..Issuer: SGS SA

....LT Issuer Rating, Affirmed A3

....ST Issuer Rating, Affirmed P-2

Outlook Actions:

..Issuer: SGS SA

....Outlook, Remains Stable

..Issuer: SGS NEDERLAND HOLDING B.V.

....Outlook, Changed To Stable From No Outlook

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CORPORATE PROFILE

SGS is the global leader in the testing, inspection and certification market. The company is headquartered in Geneva, Switzerland and is listed on the Swiss Stock Exchange. The company's market capitalisation was CHF19.9 billion as at 26 March 2021.

SGS operates a network of more than 2,600 offices and laboratories worldwide and employs over 89,000 staff. In 2020, the company reported revenues of CHF5.6 billion and adjusted operating income of CHF900 million.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kristin Yeatman
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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