Inspection, testing, verification and certification companies help develop materials, processes and products worldwide, and maintain the quality and safety of them. Lab testing is a key component of these companies’ services. Together, such companies operate more than one thousand laboratories serving multiple industries and markets. These laboratories are able to leverage industry and technical expertise to advance quality control and regulatory compliance, as well as improve lab efficiency and analytical methods. Through their acquisition activities, these companies have also driven consolidation among independent labs (see IBO 9/15/10).
In 2011, four of the world’s largest inspection, testing and certification companies grew revenues, despite currency effects and a slowdown in pharmaceutical testing. Food and commodities testing remained important growth factors, as did acquisitions, regional expansion and valued-added services.
SGS, the largest certification, inspection, verification and testing firm, reported 2011 revenues grew less than 1% but rose 13.7% in constant currency to CHF 4,797 million ($5,381 million = CHF 0.89 = $1). Organic constant currency sales grew 10.5%. The firm acquired 22 companies in 2011, adding CHF 30 million ($34 million) in sales. In 2010, the firm acquired 10 companies. In 2011, capital expenditures grew 32.2% to CHF 345 million ($388 million).
SGS consists of 10 segments. IBO has chosen to highlight five due to the lab services that they offer. The largest such segment is Oil, Gas & Chemical Services. Segment sales fell 4.7% in 2011 but grew 7.9% in constant currency and 7.7% organically to CHF 911.7 million ($ 1,024.4 million). Segment capital spending declined 6.0% to CHF 63 million ($70.8 million). The company reported investments in lab operations for production-fluid testing and well testing. In fall 2011, SGS opened a laboratory in Kerch, Ukraine, to provide analyses of liquid natural gas. This year, the company plans further investments in upstream labs.
The fastest-growing SGS business in 2011 that is listed in the table on this page was Minerals Services. Revenue for this business grew 10.1%, 23.8% in constant currency and 23.5% on an organic basis, to CHF 677.7 million ($761.5 million), with strength in services for geochemistry, metallurgy and energy minerals. Capital spending for the business jumped 79.4% to CHF 61 million ($69 million). Labs were opened in Turkey and Canada. In January, SGS acquired Chilean lab Centro de Investigación Minera y Metalúrgica Tecnología y Servicios, which had 2011 revenues of around $65 million. In 2010, SGS acquired Verilab, another Chilean lab, and Assayers Canada. In 2012, the company plans to expand its geochemistry operations in Canada, West Africa and Turkey.
Also posting double-digit sales growth in constant currency was SGS Environmental Services. Revenue for this unit rose 14.5% in constant currency, 13.1% organically, to CHF 248 million ($279 million). Reported sales were up 1.9%. Capital spending rose 75.0% to CHF 28 million ($32 million). SGS’s growth in this segment was related to environmental testing involved with industrial and mining operations. Lab acquisitions included Australia-based Simmonds & Bristow and Leed’s Consulting, as well as the Malaysian company that owns Consolidated Laboratory and Labservice.
Another area of expansion for SGS was Agricultural Services. Revenue from this business increased 7.8% in constant currency, 5.7% organically, to CHF 327 million ($367 million) in 2011 but declined 4.9% on a reported basis. Capital expenditures increased 30.8% to CHF 17 million ($19 million). Among the growth drivers were food safety testing and pesticide residue analysis. In addition, revenue grew around 30% for seed and crop services, as the company expanded its agricultural biotech business. Last year, SGS bought Canadian agricultural testing firm Agri-Food Laboratories.
In 2011, SGS Life Science Services revenue grew 0.8% to CHF 192 million ($216 million) but was up 11.8% in constant currency and 5.2% organically. More than half of this segment’s revenue is derived from laboratory operations. The company reported overcapacity in Western Europe for bioanalysis testing and slow demand for early-phase clinical trials. Capital expenditures declined 7.7% to CHF 12 million ($14 million). The company’s bioanalytical testing capabilities benefited from the 2010 acquisition of MS lab M-Scan. Investments included a 15,000-square-foot analytical lab in Mumbai, its second Indian lab, which opened in January.
In 2011, SGS rival Bureau Veritas grew sales 14.6% to €3,358.6 million ($4,664.7 million = €0.72 = $1), driven by the September 2010 acquisition of competitor Inspectorate for £450 million ($695 million = £0.65 = $1). The French firm’s organic sales increased 6.2% in 2011. Capital spending rose 50.6% to €115.8 million ($160.8 million). During the year, the company completed 11 acquisitions, adding €50 million ($69 million) in revenue. Bureau Veritas’s operations are divided into eight units. In the table, IBO shows the results for the three units most oriented toward laboratory testing.
Sales for Bureau Veritas’s Industry segment grew 17.6% to €715.1 million ($993.2 million), including 17.1% organic growth. The business’s largest segments are oil and gas (38% of sales), power (13%) and industrial equipment (12%). Among the test opportunities cited by the firm were liquid natural gas, nuclear power and nondestructive testing. Businesses acquired during the year were Atomic Technologies, a Singaporean nondestructive testing (NDT) company serving the oil and gas industry, and Japanese NDT firm Tohoku.
Revenue for Bureau Veritas Commodities, which largely consists of the former Inspectorate business, increased 103.3% last year to €542.1 million ($752.9 million). On a pro-forma organic basis, sales grew 10.1%. In the metals and minerals segment (54%), the firm reported growth for upstream activities and lab expansion. Oil and petrochemicals revenue (37%) showed growth in adjacent businesses such as outsourcing and port-terminal services. Agricultural sales (9%) were also strong. Labs opened during the year included a geoanalytical lab in Namibia. In January, the company acquired Canada’s AcmeLabs, which provides upstream mining testing through 29 sample preparation labs in 12 countries. AcmeLabs has annual revenues of €55 million ($76 million).
Bureau Veritas Consumer Products revenue declined 0.8% to €379.4 million ($526.9 million), with 1.5% organic growth. Revenue from toy services (38%) fell, as Bureau Veritas was no longer an exclusive supplier to several companies. Textile testing (40%) revenue increased. In 2011, the company acquired Indian food testing lab Sargam. This year, it acquired Turkish food lab Kontrollab Gida/Su, Cevre Analiz Laboratuvari ve Hijyen Denetim. In June 2011, the company launched food testing services in Hong Kong.
Like SGS, UK company Intertek provides laboratory testing services for a wide range of industries, as well as inspection, certification and associated services. Intertek’s 2011 revenues increased 27.3% to £1,749 million ($2,821 million = £0.62 = $1) for 8.3% organic growth in constant currency. Capital spending grew 9.0% to £265.0 million ($427.4 million), as the firm opened more than 20 facilities. Annual sales were boosted by the acquisition of technical services company Moody’s in April 2010 for £450 million ($726 million). During the year, the company acquired several testing labs: Food Analytical Laboratories, a UK provider of chemical and microbiological services; QinetiQ UK Fuel and Lubricants Testing Business, which provides fuel and lubricant analysis and consulting services; Chile’s Labs and Testing, which is a provider of testing and inspection services; and American Analytical Chemistry Laboratories, which serves the cosmetic, food and pharmaceutical industries.
Intertek operates five units, three of which are discussed here due to their lab operations. The fastest-growing business was Industry & Assurance due to the Moody’s acquisition. Segment sales increased 145.5% to £468.6 million ($755.8 million), including 7.5% organic growth. The business includes Intertek’s energy and food testing businesses, which both recorded good growth. During the year, the business opened a center of excellence for food in Istanbul, Turkey, which is the firm’s second food lab in the country. The company also opened an agricultural services lab in Bangladesh.
Revenue for Intertek’s Commodities unit grew 12.0% in 2011, both on reported and constant currency bases, to £530.2 million ($855.2 million), and the unit invested £24 million ($39 million). Among the growing areas of the business were mineral testing, oil testing and outsourcing. Earlier this year, the company opened a petroleum lab in Ghana for testing and inspection. Serving multiple Intertek businesses, a new facility was also opened in Khan Chamkarmon, Cambodia.
Intertek Consumer Goods revenue rose 5.0%, 4.8% organically, to £315.7 million ($509.2 million) due to growth in toy and textile testing. Revenue for the Chemicals & Pharmaceuticals business increased 5.5%, 3.9% organically, to £143.9 million ($232.1 million), with organic sales increasing 3%. Chemicals and materials testing revenue increased, but the pharmaceutical business revenue was flat.
In contrast to the other firms discussed here, Eurofins solely provides testing services, performing more than 80 million assays annually. The company operates in three markets: food and feed (40%), pharmaceutical and biotech (40%), and environmental (20%). Eurofins reported 21.8% growth in 2011 revenues to €828.9 million ($1,151.3 million). Sales increased 8% organically. The firm aims to increase revenues to €900 million ($1,250 million) this year and to €1 billion ($1.4 billion) by 2013. Capital spending rose 19.0% to €163.2 million ($226.7 million).
Eurofins gained a leading position in the environmental testing market with its largest acquisition ever. In April 2011, Eurofins purchased US-based Lancaster Laboratories, a provider of environmental, pharmaceutical and food testing services, from Thermo Fisher Scientific for $200 million (see IBO 2/28/11). In 2010, Lancaster had revenues of $115 million. Last year, Eurofins also acquired a 67% stake in IPL Invest and IPL Santé Environnement Durable Nord. IPL has €45 million ($63 million) in annual sales and 10 labs in France. Last month, the company announced the acquisition of US-based air testing lab Air Toxics.
For 2011, Eurofins reported strong growth in food testing due to regulations, food scandals and increasing reliance on larger-sized lab firms, such as itself. In fall 2011, the company expanded its food testing lab in Nantes, France, which is designed to process as many as one million samples annually, to 11,500 square meters. The expansion included a 3,000-square-meter microbiological lab. Eurofins’s Chinese food testing business had 967 customers in 2011. Adding to its food testing business, Eurofins purchased US dairy testing lab DQCI Services and Belgium lab Chemiphar in 2011.
For its environmental business, Eurofins noted market share gains due to project wins in Scandinavia. Adding to its environmental business, the company acquired Belgium’s Bewa lab in 2011. As for pharmaceutical business, it opened its third central Asian lab in Bangalore, India, last year. The company reported the stabilization of its preclinical and clinical testing business and reported strong growth for its Operon genomics business. Early in 2011, the business acquired Swedish pharmaceutical lab services firm Mikro Kemi.
Selected 2011 Financial Results for Testing, Inspection and Certification Companies
2011 Rev. (M) % Chg.
SGS CHF 4,797 0.8%
Over 1,350 Offices and Labs
Oil, Gas & Chemicals Svcs. CHF 911.7 -4.7%
Minerals Svcs. CHF 677.7 10.1%
Agricultural Svcs. CHF 327.1 -4.9%
Environmental Svcs. CHF 283.8 1.9%
Life Science Svcs. CHF 192.0 -0.8%
Bureau Veritas € 3,358.6 14.6%
Industry € 715.1 17.6%
Commodities € 542.1 103.3%
Consumer Products € 379.4 -0.8%
Intertek £1,749 27.3%
Over 1,000 Offices and Labs
Commodities £530.2 12.0%
Industry & Assurance £468.6 145.5%
Consumer Goods £315.7 5.0%
Chemicals & Pharma £143.9 5.5%
Eurofins € 828.9 21.8%
Over 150 Labs