SGS SA (SGSN) Earnings Call Transcript & Summary

Sorry for that. I'm really having a problem trying to connect. I don't know what is the cause of this technical glitch. So as I said, the last part would be if you're stuck and you need to speak to somebody and how else you can at least get to know the status of your file. And the last part will be the questions-and-answer session. Okay. So we go to the next slide, Stephanie. The Kenya Bureau of Standards is a legal entity that exists in Kenya. It's formed under the statutory body of the government and is governed by the Standard Act Chapter 496 of the laws of the Republic of Kenya, other than ensuring quality of goods that are imported into the country, the Bureau is also responsible to ensuring that goods which are manufactured in the country are complying with the applicable standards as well as the technical regulations as well as ensuring matters that relates to metrology and also certification. So they have been implementing the PVoC program since the year 2005 in the month of October. The basis of the main objective of KEBS implemented pre-export verification of conformity to standard was to ensure that goods which are imported into Kenya meets the requirements of the applicable standard as well as the technical regulations. In addition to that, the program is to ensure that goods which are coming into the country are safe for consumer's use and thereby, [indiscernible] importation of substandard goods. And any substandard products which are found in the market or are found during the clearance process at the entry point, maybe shipped back to the country of supply at the expense of the importer or even be destroyed again at the expense of the importer. Now this PVoC program is enshrined in the Standard Act Chapter 496 of the laws of Kenya. Therefore, KEBS has full mandate and full responsibility to ensure and to implement the program. We have quite a number of regulatory authorities in Kenya. Irrespective of the regulatory assets that they run, when it comes to matter of quality, they still have to ensure the [indiscernible] with KEBS and they ensure that goods still comply with applicable standard. I'll give a typical example, somebody is bringing in say, medicine. Medicine falls under Pharmacy and Poisons Board, which is a different regulatory authority. But still, the medicines have to comply with applicable standard in Kenya. So the Kenyan contracts, the PVoC contract normally is awarded to inspection companies through a very competitive international bidding process. And each mandate runs for 3 years. That's around 36 months. So for SGS we've been very, very competitive and our expertise speaks for it, that this is the sixth consecutive time that SGS is providing the PVoC services for Kenya Bureau of Standards. At the end of the interventions or the end -- main output of the pre-export verification of conformity to standard services intervention, we issue what is called certificate of conformity to evidence that goods have been verified and found to meet the requirements of the applicable Kenyan standard or applicable standards and the technical regulations. If goods are found not to comply then an unconformity report is issued. Now shipments which are arriving in Kenya without a certificate of conformity and particularly shipments coming from countries which are under PVoC program. They will be subjected to a penalty or a fee payable to KEBS, which is 5% of customs value. Okay. Can we move to the next slide? Now as we talk about the countries and the PVoC program, in the current mandate we have zones listed from Zone 1, I think, up to 18 but number 17 was missed. So we still maintain what the legal procurement entity in Kenya provided for 17 is missing. So the other zones, U.K., which was under Zone-1 actually is now back to Kenya Bureau of Standards under destination inspection. And then the rest of the zones, 2 up to 6 this would fall under China, there are inspection companies in China, which were awarded the contract. So SGS provides the PVoC services for Zone 7 up to 18, excluding 17 which were [indiscernible]. And these are the countries where we are mandated by Kenya Bureau of Standards to provide the PVoC services. Now any countries out of these shipments coming from those countries will be subjected to destination inspection by Kenya Bureau of Standards and at the normal fee of 0.6%. And of course, goods will not be cleared until testing is completed, and the test results are verified to certain compliance to the requirements of the standard. Okay. So that's my clips on the PVoC Kenya program. We go to the procedures. So in the PVoC program, we have 3 certification routes. Before, for those who are familiar with the PVoC program, before this new contract, we had almost 4, let's call them even 5, but a long list there of certification routes. We had a route M, then route A1, route B, route C and then we had route D. But KEBS excluded route A1, they also removed route D. Route A1 was actually for small-scale shipments, small value shipments and route D was specifically for consolidators. So currently, we have only 3 certification routes. And route A is applicable to any trader, any shipment or any product. And this route require that for each and every shipment products have to be inspected and tested. If test reports are not provided, then we as SGS, we need to draw the samples during inspection. And those samples need to be submitted to any of the recognized laboratories that we are going to discuss in the next slide to be tested according to the requirements of the applicable standard. That's very, very important. Before we would wait that tests have to be done, get test report, we evaluate and then we proceed into inspection. But now KEBS demand and instructs that as soon as we receive the duly field request for certificate, we received the invoice beta pro forma or a commercial, we'll receive the IDF and the UCR number. We've received the payment, okay? And this confirmation of availability of good we are supposed to conduct the inspections within the 4 working days, meaning if there were no test reports provided, or acceptable certification documentations provided that we may use to certain conformity of the products in the shipment or applicable standard, okay? We need to proceed and conduct the inspection. The rest of the intervention processes that is testing or verification of conformity documents or verification of test report would come after. So this is a very key change in the processes, very, very important. And that's why it's very important that we know what we may need to do before we can submit the request for certificate. So these are the key changes in route A, okay? And I repeat. In route A we'll do -- would verify the test reports or the certification documentations only once the certification documentations or the test reports are validated and considered acceptable, then we would proceed with the inspection. But now KEBS says may proceed with the inspections one, RFC is received, two, invoice or pro forma or commercial is received, IDF and UCR is received, payment for large inspection is received or confirmed or for those who have credit agreements with SGS that part is covered. And availability of goods of product is confirmed than our inspector need to do inspection within 4 working days. Where testing or test report is not provided that samples need to be drawn by our inspectors during the inspection process, the samples to be submitted to any of the recognized laboratories for test to be done. Those are the key changes in route A. And in route B, go to the next slide, route B. Route B is specifically applicable to products that are shipped in homogeneous manner. Shipments are very frequent, and proof that there's consistency in compliance. So when -- and I'm talking about this because I want to believe we are familiar with the certification route. So that I'm going specifically or straight for to the key changes. So KEBS new procedure requires that a new applicant, what I mean by a new applicant. This is somebody who's never shipped the goods to Kenya, okay? They've never shipped their goods to Kenya at all. So if a new applicant, they need to at least subject the shipment to route A and cover or have at least 2 consignments satisfied under route A, okay? The test report, which are used for certifying consignments under route A, basically, the test reports used or the conformity document used in issuing COCs in route A would form the basis for processing the product registration. And very, very important, applicant must have valid quality management system certificate in place without quality management system certificate in place then registration process might not be provided. The statement of registration, which is normally issued, that is for product registration has a validity period of 1 year. Now the mandatory certification of consignments under route A and the use of subsequent test reports from 2 COCs under route A is only applicable to new applicants. But for renewal, the applicant would just need to submit recent test report for renewal process, not need to go back to route A because there's already a proof of compliance to the program. Because the registration has been there for those number of years or there has been -- there's been, I mean, monitoring, which you see here in the previous segment of registration. So we go straight to renewal, but we'll need the most recent certificates or test report, certificate of analysis or applicable conformity documentations. A very key revision done by KEBS is and monitoring for hour to be client and KEBS require that during the validity period of the registration. We should ensure that 30% of registered consignments are inspected, just the normal inspection. However, when it's time to do the inspection, then the exporter is required to submit test report traceable to the consignment to the inspector or the consignment inspected. So when we are doing monitoring, we'll conduct the inspection. But before we go for inspection, the exporter must submit test report traceable to the consignment. The test report for monitoring need not to be 100% compliant to the requirements of the applicable standard. There could be certain key elements or key parameters of our product, what you verify after every production, you verify to a certain that the output still meets the requirements of the standard. Such internal test report is what we are requesting for. Okay. Such internal test report is what we are requesting for. I just had a loud voice -- loud something. I don't know what has exploded just near my office. Okay. So we go to the next one, it's route C. Route C is applicable only to manufactures and the manufacturers must have valid quality management system certificates in place. It involves the factory audit or the applicant may share the last factory inspection report submitted with necessary certification, documentation, certificates of analysis, test report, technical specification, in-house test reports and the like. And license is issued, the license is valid for 3 years. During the validity period of the license, KEBS request that we conduct surveillance inspection. And the surveillance inspection needs to be done at least once a year or cover at least 10% of the total shipments satisfied during the validity period of the license. And at the term of inspection, the manufacturer must submit test report traceable to the shipment inspected. Without that, then we are not able to proceed with the certification process. Next slide is on the products which are not eligible for registration according to instructions from KEBS. These are the items or the products which are not eligible for registration. And these have to go through route A, where testing or submission of conformity documents have to be done by shipment. For bulk shipments is that one, it's mandatory that our inspectors have to sample and samples have to submitted in SGS laboratories for testing. So bulk shipment or petroleum products, bulk shipments of cereals, edible oil, fertilizer, this ones, we -- the sampling have to be done by SGS inspectors as well as sampling of shipments of sugar, okay. I mean for certification of used clothes, for those who are dealing in used clothes, still the factory audit or rather the billing site audit is still a requirement before inspection can be done, okay? On the next slide is about a recognized laboratories. If you may recall, this year and even at the beginning of this current contract, which started on the 23rd of June came for a very, very strict and they demanded that test reports have to be from any of these recognized laboratories. Key test report from SGS laboratory or third-party laboratory accretive to ISO 17025 or a government-owned a laboratory. Well, a government-owned laboratory, the qualifying for such laboratory is just documentation to a certain that the laboratory is owned by the government, okay? So this is what KEBS provided and tests have to be done according to the requirements of the applicable standard and they will not accept any other test report. It was a bit difficult. So with the feedback to KEBS, they came back with a revision of what is considered as the recognized report that we'll discuss in the next slide. So SGS, first in the list of recognized laboratories, the SGS laboratories. KEBS require that we, as the inspection company given this mandate to conduct PVoC program is to ensure that tests are done in our laboratories because anyway, that was one of the qualifying criteria for us to be awarded a contract. So SGS has a network of laboratories, there are over 2,700 laboratories and offices around the world. All SGS laboratories are accredited to ISO 17025, and they have a very, very wide scope of testing. Very wide scope of testing. Well, somebody would say or ask, but sometimes we have certain test that SGS cannot do. Well, it is very much possible, very much possible that SGS laboratory might not be able to conduct certain tests, which are in applicable Kenyan standard. The reason being as we all may appreciate is that we want to invest in a laboratory, get the equipment, the reagents, the personnel, the analysts. It depend on the frequency for such tests to be done. So certain parameters are really unique to Kenyan standards, and they are not global. So it's not unique and even KEBS themselves, as they might not have capability to test each and every parameter in their standard. And that's why, again, KEBS gave certain leeways on how to deal in such scenario where a test parameter cannot be tested in any laboratory, not in SGS and not in any of the laboratory that I mentioned, apart from the accredited laboratories ISO 17025 or a government-owned laboratory. So our laboratory services -- the team is on stand by very much ready to help to ensure that they identify the labs, okay? The labs, SGS labs the capability to test your products and also to talk to their lab to ensure they prioritize on the samples. Basically for shipments coming to Kenya to ensure that the turnaround time is met without any delays. So it's very important that priority and for faster resolution and for faster services, quicker turnaround time, you have your product tested in SGS laboratories. So remember in the previous slide, you talked about the recognized laboratories, which are very, very difficult for compliance purposes. And because not every product in this world need to be tested in an African laboratory. So with this in mind, KEBS came back to us with what they call recognized test report and they try to break the product into 5 categories, the consumer products, machinery and spares, medical equipment, automotive part and spares then chemical and raw materials without applicable Kenyan standard. So for consumer products, KEBS advises that priority, first and foremost, is that tests have to be done in any of the recognized laboratory. Only in the absence of such recognized laboratories in your countries would we, as inspection companies arrange for witness testing in the manufacturers laboratory. Again, that will depend whether the manufacturer has a laboratory in place, they have laboratory equipment calibrated and the analyst is able to conduct the test. And if there isn't any capability whatsoever, then such communication should be shared with, of course, your SGS office at your country, who will then let us know as the contract management office to inform KEBS of the challenges we are having. For machinery and spares, what was -- this was really good. It was a very good kind of flexibility on KEBS side because ideally to have machinery test in accredited laboratory was not going to work. So KEBS have agreed that you may use the manufacturers internal test report, but the manufacturer must have valid ISO 9001 certificate in place or any other quality management systems in place. This has to be evidenced. So we have that, that will be very, very helpful. We use that for certification. For medical equipment, the feedback that KEBS received from Pharmacy and Poison's Board is that medical equipment importers must obtain the permit. So to proceed the certification of medical equipment, the manufacturer is required is expected to submit their test report that the manufacturers test report, the permit issued by Pharmacy and Poisons Board and the manufacturer must have a valid ISO 13485 certificate in place. Very important, all these test reports must be traceable to the shipment. For automotive parts and spares, again, here KEBS are very flexible. We have considered acceptance of manufacturers internal test report or internal test report and the manufacturer must be having IATF 16949 certificate in place. Now these requirements actually were supported. These were supported by the industry, who also echoed our suggestion to KEBS as we have received feedback from the industry globally. And for chemicals and raw materials, specifically without applicable Kenyan standards, then the manufacturers internal this report may be considered and the manufacturer must have a valid ISO 9001 certificate. So you see that from the machinery, medical device, automotive parts to chemicals without Kenyan standards, it's more of -- we consider the internal or manufacturers internal test report and then with the ISO certificate for chemicals and raw materials as well as machineries and parts, well for medical devices and automotive parts and spares would receive -- will need the certificate, a valid one, of course, of ISO 13485 and IATF 16949, that is for medical devices and automotive parts and accessories, respectively. So this is a very good change in the process. It's more flexible. It's something that I believe should not -- should facilitate the conformity assessment. And next slide is on the -- what can you do before you submit your request for certificate. It's very important that one gets to understand what are the applicable standards for the product, what is the parameters, what are the parameters that need to be tested. Such that if possible, you can already arrange for testing of the products in any of the recognized laboratories in case of consumer products. But in case of manufacturer or the manufacturing of the -- where manufacturers internal report will be considered, then also need to get to know the parameters so that you can arrange the test or the testing way in advance before you even request for certificate. Similarly, if you request to know, you get to know the requirements of your product in terms of the standard, you'll be able to know what are the requirements with respect to marking and labeling as well as the requirements with respect to shelf life. Because we've had instances where the processes test are done, inspection supposed to be, it's about to be done, then you realize that the product shelf life is not meeting the such requirements or the regulations of Kenya. For food, KEBS requires that -- I'm not even [ care ] at the regulation, requires that food must have at least 75% shelf life upon arrival in the country. And for nonfood items, must have at least 50% shelf life remaining upon arrival in Kenya. So this is very important. So if these are prepared way in advance, it would help a great deal. We have instances where shipments cannot proceed simply because the labels are lacking brand name. And for Kenya now, brand name is a mandatory requirement. No product can enter the market or enter Kenya or be cleared without a brand name. And now KEBS is reinforcing this requirement. But it's also under the responsibility of anti-counterfeit agency of Kenya. So they can block the shipment. It would not be cleared simply because there's no brand name. It will be difficult to identify for counterfeit if it doesn't have a brand name. And we've had instances where certain shipments are blocked for a long term, some even shipped back because there was no brand name yet quality and everything else was in order. Critically, there's country of origin. Sometimes, we've seen shipments which do not -- or consignment of products with no country of origin, it's a very, very important part. So it's very important to know all these requirements before, way before when you say fine, now I'm settling on my sales agreement or my order is okay or I'm submitting request for certificate I'm ready for inspection. Because for us, you give us the RSC or all the document that I mentioned in the previous slide, we've received payment. We will do the inspection. But look, you'll get stuck because you won't be able to ship unless you undertake corrective actions. So you can do this way in advance. It's very important always to -- when you do this, it will be evident that you are maintaining compliance to the requirements of the standard. If your products are eligible, if your products are eligible for registration route B and route C please have them registered. It will help in attaining and reducing the turnaround time. And also, we reduced the cost of testing. For example, consumer products where you need to do test per consignment and test reports or certificate of analysis must be traceable to the shipment. So the cost aspect of testing per consignment if you're having frequent shipment, well, it will not be good for certifying this under route A. So route B and route C. Please assess if you are a manufacturer, your goods are eligible for route C, its not a month, the leases which are not eligible, then have these licensed for route B, this is for any trader with frequent shipment homogeneous product. Another thing is very important, prepare your containers way in advance in case of those billing in used clothing and for shipments coming from Dubai under route A where sealing is mandatory. So we -- if you ask for inspection, we come for inspection, containers are not available. It means we not be able to supervise the loading, we will not be able to seal and therefore, it will require a revisit and that a revisit has cost implication because we'll have to deal for a reinspection. So it's very important that you look at this information, prepare yourself before you submit your request for certificate. Okay. Next slide is basically on the verification fee. These are the verification fee, which mandated to us by Kenya Bureau of Standards. And actually, we cannot judge above or below the fee structure. However, the ad valorem fee, okay and exclusive of laboratory testing, licensing, registration, sampling of bulk shipment, audit of billing sites in case of used clothes or in cases of reinspection or aborted inspection, so we have to come back to the inspection, such fees will be quoted on a case-by-case basis. Almost done and the next slide, Stephanie here with me is when you need to get information, you want to ship to Kenya, we've been shipping to Kenya, but the certain things which are not clear to you, SGS have services I would say, in almost all the countries because until these current contracts SGS was providing PVoC services in all the countries in the world. I can't remember any country where SGS was not able to provide services. But when the contract the way it was designed, we qualified to provide the services globally until now that KEBS came up with certain restrictions according to the way they want. So we have global representation. And our staff are readily available to assist you. Should you send a query, say, for example, you are in U.K., but your shipments are going to come from Germany. And you don't know who to speak to in Germany or the exporter in Germany does -- I mean doesn't know who to speak to in Germany, but you're sitting in the U.K., still, when you speak to our colleagues in U.K., they will link you up or they link our exporter to our contract offices in Germany. So we provide account management facilities, specifically for frequent exposures as well as the importers, so that you don't need to talk somebody, Mary today, I talked to John the other day, No. We have the key account managers so that they can coordinate certification of your consignment irrespective of the countries, so long as the country is under PVoC program. And even if it's not under PVoC program, we still give it. And the contract management office here also readily available, we'll you up with our affiliates where your goods will be shipped from easily, we provide you the necessary information where necessary or you want a clarification from KEBS would be readily available and always readily available to provide information. And we try as much as we can as a service entity to readily avail the information to our client. Sometimes, we go out of our way to seek certain information, which are not within the PVoC mandate. But for us it's important because we need to facilitate our importers with the information that help them to make an informed decision with respect to imports into Kenya and other PVoC program or not. And we have the online tracking services that you can use to track the status of your file. You can know where the inspection has been done. And that also give a summary what is spending. And when talk about the online services, for those who already use our services or our system, we have the exporter portal. So we discovered use of the manual filling of requests for certificate, something that was there before, but you've moved from the manual aspect to processing the request or you're just filling the request online. And once you submit, it automatically received in our application that we use for processing the file. We have high experience and very competent and I call us as very friendly staff because if we aren't -- our staff aren't friendly, we'll not be providing information which are even out of the PVoC program. And we have the use of exporter portal any of the parties be it an importer or an exporter or even the clearing agent, they can submit the request for certificate. So this is what are ahead for us today. I try to capture a few, I may not have captured everything or provided all the information on what you needed to hear. But I think with that it back to Steph. We can now go to maybe questions.

I'm seeing a question here. I'll start from the first one. Okay. I'm seeing there is concern from -- is that from Don? or that's from the [indiscernible] the first one. Okay. We have a question from [ Spencer ]. Confirm you do not do preshipment especially from U.K. anymore. That is very true. If not, please suggest a service that does. Okay. [ Spencer ] it's true. We do not provide PVoC services in U.K. However, I may want to suggest something here that you may look into. There's no inspection company that is providing PVoC in U.K. at all. So shipments coming from U.K. will be subjected to destination inspection by KEBS. However, sometimes I feel that it's not safe to ship goods blindly without at least having an idea whether they meet the requirements of the applicable standard or not. So we may help you to arrange for testing and also the SGS office can arrange -- can help you verify labeling, marking and packaging of your product. If your products have limited shlef life, we may also verify that for you. But this is out of PVoC program and if you'll be tried according to the rate that U.K. might -- will determine. And when the shipments arrive here, at least, you have confidence that your shipments have been verified and they're meeting requirements. So when we gather such kind of or give kind of services out of the normal PVoC, which is just a private arrangement, we issued what is called certificate of inspection. We just give a report of our findings during the inspection process, and then we attach the test report of certificate of analysis. Okay. The next question is from [ Massimo ]. Can you reconfirm that in case of test reports required, you can still schedule the physical inspection to speed up the process, especially for route A? Correct [ Massimo ]. Yes, we can arrange -- conduct the inspection, but you'll not be able to ship until you -- we have reviewed the test report and is confirmed that your products are meeting the requirements of the standard, okay? But we are required to do the inspection for route A within the 4 working days upon receipt of the document that I mentioned, the IDF, RFC, invoice payment and confirmation availability of goods. Simon. Why do we need to do a [indiscernible] for standard food care beg produced by a company which is IFS and POC certified? I think I did see this Simon, I did see this one from -- received this one and a product has -- it has a Kenyan standard or something? I know I had received this query and it has a standard. I think it's a regulation. It's a regulation, and that's why it needs to be tested. So if this -- none of the recognized laboratory can conduct a test, then we may consider test witnessing. However, if it's different, and maybe the information I've received on this care bag is not adequate perhaps you can take my e-mail address, which I believe Stephanie is projecting now. And you drop me a mail, and let me dig into it. Interrogate the file and then I'll advise you accordingly. [indiscernible] Now goods from China are subject to PVoC program, but SGS is not providing PVoC services in China. China was subdivided into a number of zones, okay? They put certain provinces in number of zones. So for you to know which zone belongs to each inspection company. Well, the other option is if you visit KEBS website you might see the subdivision or the zones in China. If not, please drop us a mail and we'll send you the zonal as done by Kenya Bureau of Standards, and that would guide you but we do not provide PVoC services in China, but China has PVoC program going on. And for [indiscernible], we are from Vietnam, we are a group A. Our product is plywood. We have been working with the SGS, we've now done a group of [indiscernible]. Advise us that testing items, but some items could not be listed in Vietnam laws. Kindly please help to advise the solution. Kindly drop me a mail, drop me a mail so that I can review the case and know what we can do. But the first, the first priority is evaluate if you can conduct tests in your laboratory. If you can conduct the test then our offices in Vietnam will do witness testing, okay? They'll witness the testing process and the results that they will issue will be considered for processing your certificate. Okay. Stephanie, are we still within reasonable time? And as you type, I might not be able to see. Okay. Okay. And another question is from Lucas. The template for the manufacturer sales report, what information should be included here? Does it need to be signed? No, there's no template for manufacturers test report because if a manufacturer having a quality management system in place. They already must be having their own template for their test report. So it cannot be a standardized kind of report so that's why we are saying the manufacturer would give us their in-house test report, and we are not dictating the template. However, the parameters of the standard must be captured in that report, meaning that the parameters of the applicable standard must be tested, okay? If it's a full standard. If not, then the specific parameter that is being tested has to be indicated in the report. For [ Katherine ], I think I responded to that. She [ wanna ] know route B. Can we use the test report which we submit to route A from SGS laboratory or we need to get test report again for route B? No, if test is already done and COC issued under route A, if you're a new applicant at least will need 2 COCs under route A and the very just report which were used to satisfy consignment under route A should be used for registration purposes. No need to do specific tests. So I think we've really gone above the set time lines, Stephanie. If it's okay, we'll -- with the rest of the questions, we will address them and send them to you through the e-mail. Back to you, Stephanie. And because I can't hear you, I think that's it from me. Thank you very much, everybody. So Stephanie, you proceed to close? Okay. Okay. Thank you, everybody for this, and I'm sorry for the glitch. I hope when we're arranging the next one, at least I'll be able to use the -- we will not have this problem again. Thank you very much, and I look forward to hearing from you. Bye-bye.