SGS S.A.

Good morning and welcome to the SGS first half 2025 results call. My name is Ariel Bauer and I'm in charge of communications and investor relations. I'm here with Géraldine Picot, our CEO, and Marta Vlachkova, our CFO. Please note that this call is being recorded and will be available for replay on the SGS website. Throughout today's presentation, all participants will be in listen-only mode. The presentation will be followed by a Q&A session, and you can register for questions at any time by pressing star 1 on your keypad. I would now like to turn the conference over to Géraldine Picot, CEO of SGS.

Good morning, ladies and gentlemen, and very warm welcome to our half-year results presentation. Thank you for your presence today. This is a pleasure for Martha and myself to share with you our H1 achievements. H1 has been marked by the signing of the acquisitions of ATS. This deal, combined with Bolton acquisitions and organic growth in the region, brings us very close to our initial objective to double the sales in North America in 2027 compared to 2023. This is a key milestone for our Strategy 27. We are also very happy with the progress we have made on the other key items of our strategy. Digital trust and sustainability have grown effectively by close to 20% each, driven by both organic development and bolt-on acquisitions, confirming that there remain growth engines for the group. On the cost side, you know that we have two efficiency plans in progress. The first one, dealing with corporate simplification, has been announced from the start with our Strategy 27 in January 2024, and it has a magnitude of 100 million Swiss. This one is fully implemented with almost all the savings already accounted at the end of June this year. Later in November 2024, you remember that we have identified and announced during our capital market event 50 million Swiss franc savings in procurement. The second plan will be fully secured and implemented at the end of this year and will contribute significantly to our H2 and 2026 results. On the financial results, we report a solid organic growth of 5.3%. Thanks to our efficiency plans, we've been able to significantly increase our margin rate. We're also very proud of the cash generation, with the free cash flow increasing by 34% compared to H1 2024. So we're well on track and clearly reconfirm our outlook for the full year. So let me now comment about ATS. And we are extremely happy with this acquisition. ATS is a great company which records $460 million sales and employs 2,100 professionals across the United States. They have a strong brand and a great service culture. This is a perfect match with SGS as we have very complementary operations, which will allow strong synergies in terms of cross-selling opportunities. It's also a perfect fit with our Strategy 27. As I said, the target of doubling the sales in North America is almost achieved. On top of this, ADS will give us an access to fast-growing markets in the U.S., such as manufacturing, aerospace, and insurance. It also rebalances the geographical portfolio in an increased presence in mature markets. ADS? ADS at a glance. Look, ADS is a diversified player. Their first business line is inspection, which accounts for 41% of the sales, followed by two business lines which don't exist at SGS North America, calibration and forensic consulting, which will present 22% of the sales each. And finally, testing is 15% of the total. So the business is very resilient with a large base of blue chip customers and a high level of service and a great reputation. With 85 locations across the United States, they have a nationwide footprint. I will now give more colors on the business lines. And let's start with specialized testing. Testing services range from materials testing and product assessment to advanced environmental simulations. They also have a strong expertise in chemical and contaminant analysis, including trace metals, volatile organic compounds, and regulatory testing. Importantly, ATS operates in high growth, highly regulated markets, such as aerospace and defense, automotive and medical devices. These segments offer structural tailwinds, premium pricing, and attractive margins. Recent investments in specialty capabilities, for example, additive manufacturing, materials testing, all capitalize on emerging trends in target markets. As an example of cross-selling, we see significant potential to leverage SGS testing capabilities and we can offer expanded solutions to ATS existing client base mainly across electronics, energy, mining and infrastructure sectors where SGS has established expertise and ATS has growing demand. Inspection Inspection is the main business line of ATS. It's a stable and recurring business with a high cash conversion. They deliver highly advanced services that are critical for ensuring integrity and reliability of complex infrastructures and industrial systems. They operate in various sectors, including aerospace, construction, power and manufacturing, which have strict regulatory requirements, recurring demands and high barriers to entry. Recently, they have invested to address more attractive end markets and geographies, power generation and chemical industry manufacturing, for example. Physical proximity to client sites is critical to winning business in this segment. ADS has wide coverage in its existing geographies. But it is important to note that there is still significant geographic white space and a fragmented supplier base in the US for ADS to expand. In addition, the complementarity between ADS and SDS client phases create compelling opportunities for cross-selling. Now let's turn to calibration. ADS is a recognized leader in precision calibration. Calibration is essential to ensure equipment accuracy and full compliance with national standards. This is a recurring high-value business. Their offering ranges from electrical and environmental calibration to avionics calibration, where they support the accurate functioning of aircraft instruments. This is one of the most technically demanding and tightly regulated segments. ADS stands out as one of the few providers in North America with the depth of expertise, specialized lab infrastructure, and certifications required to operate at this level. Post acquisition, we will immediately activate SGS global commercial network to offer the ATS calibration expertise to existing SGS clients and this will unlock tangible revenue synergies. The last business line is forensic. The capabilities here range from accident and failure investigation to litigation support, structural assessment and building safety certification. They serve clients across insurance, legal, real estate and manufacturing sectors. More precisely, majority of revenue and growth derived from investigations and litigations related to insurance claims in property, construction and building industries. In the US, the number and size of claims has been growing dramatically in recent years. And this is due to weather events, higher construction costs, and more generally to a growing tendency to litigation. This trend is expected to continue. Forensics is a high-value, expertise-driven business where trust, speed, and precision are critical. Their teams use highly advanced imaging and scanning technologies to deliver the services. From a strategic standpoint, Forensic is a high growth, high margin segment that will be a strong addition to our business assurance portfolio. After going through the business description, let me now explain how this deal creates a lot of value for SGS. It brings us very close from where we wanted to be in North America. With ATS, we have strong presence in what we believe will remain fast-growing markets in the U.S., and I already commented on this. Beyond the ATS business, the combination will allow the implementation of synergies. We have identified $30 million so far, of which a bit more than half comes from cost and the rest from sales. Such synergies will be achieved in the third year post-closing. After the closing, we will confirm areas of optimization from both sides and implement the necessary actions. Sales synergies will progressively ramp up over three years. Basically, due to the complementarity of our services and expertise, we expect ATS customers to become SGS customers and the other way around. We are already working on the integration plan, starting to build dedicated team which will be in charge of implementing the synergies as soon as the deal is closed. Let me now remind you of the financial terms of the deal. The enterprise value amounted to $1325 million. and we are happy with the deal matrix, which we believe are good for an acquisition of that size in North America. The return on invested capital will be above the black in the third year. I had the opportunity already to comment on why this deal will be a growth booster. Thanks to the synergy, it will also increase the AOI margin. Please also keep in mind that the capital intensity is lower than SGS due to high part of inspection in the business mix. Let's now move on to our strategy growth drivers. In the first half of 2025, our sustainability services delivered under the Impact Now framework achieved the excellent growth of 19%. and growth was broad-based across all four key periods of impact now, climate, nature, circularity and ESG attuance. We move on now to digital trust, that's a key growth driver of strategy 27, which delivered 20% growth driven by increasing demand for data privacy, cybersecurity, wireless testing, functional safety and artificial intelligence certifications. A key milestone here was accreditation by the American National Accreditation Body, which positions SGS as one of the few globally recognized players with the authority to assure AI governance. Additionally, Certix, our digital assurance business, joined NVIDIA's Halos Labs ecosystem, strengthening our role in certifying AI in autonomous vehicles, robotics, and industrial automation, and reinforcing here our leadership in responsible AI. We also extended our high-assurance cybersecurity footprint. BrightSight achieved the highest EU certification level across its European labs, while Gossamer, acquired last year, continued to deliver strong double-digit growth. These achievements put us firmly on track to meet our strategy 27 goal of 200 million Swiss francs in incremental digital trust revenues by 2027 and confirm our leadership in supporting safe, reliable and resilient digital ecosystems. So, in 2025, as of now, If we look now at our M&A activity, we have signed 12 Bolton acquisitions. Since the Q1 call, we have welcomed four more companies in the SGS family. H2 Safety, which is based in Canada and specialized in emergency management and safety solutions. Ecoloss in the Netherlands is an expert in environmental emergency response and remediation services. ERBA does staffing for bicycle and e-bikes in Germany. And finally, Walsh in Peru is specialized in environmental and social management. It provides services to the infrastructure, mining, and energy sectors. Let me now share some key highlights from our business lines, and let's start with industries and environment. Strong organic growth in environment led by continued demand, as you can see. It delivered solid results with 5.3% organic growth and an improved adjusted operating income margin of 12%. Organic growth in environment was strong, mainly in the Americas and Asia-Pacific. The safety services accelerated to deliver double-digit growth and this included robust activity in road safety and in industrial site protection services, notably related to asbestos, noise and radiation. Projects and advisory benefited from supervision and consulting mandates across multiple sectors. Key wins here included new railway and mining projects in Mexico and Chile, as well as large infrastructure and renewable energy supply chain projects in India. In industrial testing, growth was partly offset by the completion of some low margin contracts in non-destructive testing, which we continue to gradually and voluntarily exit. Let's now look at natural resources which delivered resilient organic sales growth of 2.9% and adjusted operating income of 12.9%. Mineral solid growth driven by robust trade services and double digit performance in metallurgical testing supported by new contract winds across the Americas and Asia-Pacific. We observed here a strong demand in North America in critical metal testing, reflecting the shift toward U.S. production and federal incentives. Oil and gas and chemicals delivered moderate growth despite lower trading volumes, which were influenced by ongoing geopolitical and economic uncertainty. Agriculture remained broadly stable, with encouraging early signs of a stronger crop season in Europe. Connectivity and products now. Connectivity and products deliver strong organic sales growth of 6.5% and improved adjusted operating income of 22.3%. High single-digit organic growth in connectivity was supported by large contract wins in wireless in North America and Asia-Pacific, particularly in support of next-gen 5G, 6G technologies and connected consumer devices. Continued momentum from our recent acquisitions, Gossamer, Arclight, also contributed to performance. Softlines delivered high single-digit organic growth driven by growing consumer awareness and regulations, putting pressure on brands for sustainable textile production. You know we are very proud of our blue sign label which helps brands and manufacturers to produce sustainable textiles and reduce hazardous substances. Adline reported mid-single-digit organic growth despite some near-term volatility created by tariffs in early 2025. Let's go to health and nutrition, which delivered excellent performance with 8.9% organic sales growth and 11.8% adjusted operating income. Food recorded double-digit organic growth, and this was supported by rising food safety demand and new rules around nutritional labeling in China, India, and Japan, and growing focus on food toxicology. We have upgraded our capabilities in Southeast Asia in analytical platforms to respond to the growing demand. Strong organic growth in pharma was driven by drug testing, where we will continue to strongly focus and invest on biologics capabilities. Solid organic growth in cosmetics and personal care was partly impacted by tariffs. Business Assurance delivered 4.4 organic sales growth and 17.9% adjusted operating income. Mid-single-digit organic growth in certification was led by double-digit strength in medical devices and digital trust assurance. Continued double-digit organic growth synergy was fueled by strong demand for non-financial reporting assurance, social artists, and greenhouse gas emissions verification. This reflects the growing adoption of our ImpactNow platform, with recent project wins, including lots of chem in Europe and multiple new contracts, especially in India. Consulting remains soft in North America due to ongoing market uncertainty and investment decision delays. With this, I will now pass on to Marta.

Thank you, Geraldine, and a very good morning to everyone. Let me start with the main financial KPIs of the first half. the sales reached 3.4 billion Swiss francs, supported by a solid 5.3% organic growth. The adjusted operating income grew over proportionately to reach 14.9% margin on sales, a strong 80 basis points improvement. This translated into an excellent free cash flow of 208 million Swiss francs, which is 34% higher than prior year. Furthermore, in the first half of this year, we sold our Geneva headquarters building, which brought additional 80 million Swiss francs of cash. Let's now move on the next slide and see how the sales compared to last year. In the first half, sales reached 3.4 billion Swiss francs. up 2.6% in reported terms. First, the solid organic growth of 5.3% resulted in 175 million CHF of incremental sales, demonstrating the strong fundamentals of our business. Second, the net scope contributed 1.4% of growth, or 47 million CHF, driven by the acceleration of bolt-on acquisitions partially offset by non-core businesses' divestments in EMEA. Finally, the sharp appreciation of the Swiss franc against all major currencies as a reaction to the market uncertainties triggered by the Liberation Day in early April resulted into a negative translation forex of 135 million Swiss francs. or 4.1%. Let's now see how the sales breakdowns by region. First and very important growth was supported by all regions. In testing and inspection, Europe grew organically by 1.1%, impacted by the completion of low margin contracts in industries and environment, and soft trading volumes in natural resources. This was partially offset by strong growth in pharma and cosmetics. Asia-Pacific remained very strong, expanding by 6.5% organically. The growth was fueled by high single-digit growth in connectivity and products and double-digit growth in food. North America sales increased by 4.7% organically with acceleration of growth through Q2 supported by the strong pickup of demand in minerals. Eastern Europe, Middle East and Africa remained strong with 8.4% organic growth despite soft trading volumes in natural resources impacted by the political uncertainties in the region. Latin America expanded by 13.4% organically, supported by new project wins. And finally, as commented earlier by Geraldine, business assurance delivered 4.4% organic growth, driven by digital trust and ESG, while consulting remained soft in North America. Moving now to the adjusted operating income. I'm proud to report an over-proportionate growth in margin, which reached 14.9% on sales, a strong improvement of 80 basis points. The adjusted operating income grew organically by 52 million Swiss francs, equivalent to 80 basis points of margin improvement. It benefited from the efficiency plan savings, partially offset by growth investments. Accretive Bolton acquisitions added 13 million Swiss francs, contributing 20 basis points of margin progression. Lastly, the negative forex impact of 27 million Swiss francs, equivalent to 20 basis points, was driven, as commented earlier, by the sharp appreciation of the Swiss franc post-liberation day in early April. Moving now to the efficiency plans progress update. The disciplined and fast execution of the efficiency plans continued in the first half. The linear operating model is now completed while the procurement plan is progressing well with 70% savings secured. And let's now see how the saving is shaping through the P&L. As a reminder, the first positive impacts from the linear operating model were accounted for in H1 2024 with 9 million savings, followed by 41 million in H2 2024. In the first half of 2025, additional 46 million were delivered, bringing the cumulative savings to 96 million compared to the 2023 baseline. The remaining part will mostly come from the procurement plan on track to be completed by the end of the year and flow through the P&L until 2026. And let's now have a look at the full P&L. As previously outlined in the first half, the sales grew by 2.6%. and the adjusted operating income expanded over proportionately by 8.1%, equivalent to 80 basis points of margin improvement. In addition, one-time transactions were recorded below the adjusted operating income, with a net positive effect of 34 million Swiss francs. This included the gain on our Geneva headquarters building sale, the loss of non-core businesses divestments in EMEA and strategic transactional costs. As a result, the operating income reached 486 million Swiss francs, up 17.1% versus prior year. The financial expenses as well as the effective tax rate were broadly stable. With that, The EPS was 1.64 Swiss francs, an increase of 13.9%, or around 5% growth, excluding the one-time transactions I just described. Moving now to the free cash flow. The strong performance of the first half translated into an excellent free cash flow of 208 million Swiss francs. up 34% compared to prior year, with continued attention on working capital and disciplined capex focused on growth. Furthermore, in the first half of this year, we sold our Geneva headquarters building, bringing additional 18 million Swiss francs of cash. And with that, I hand over to you, Geraldine.

Thank you, Marta. So to conclude this presentation, let me give you a few words about H2 2025. On sales, as you've seen, H1 results are totally aligned with our full year guidance, and we expect this trend to continue in the second half of the year. Our profitability has significantly increased over the H1, far above the full year guidance. This was mainly attributable to the corporate simplification plan, which delivered almost all the expected savings of the year already in the first six months. Therefore, we are very confident about our full year guidance, which we confirm again today. Finally, we have demonstrated our ability to improve the cash generation and confirm here again the strong free cash flow generation for the full year. This is obviously excluding the non-recurring impact of the sale of the building of the HQ in Geneva. So thank you for your attention. We can now take your questions.

We will now begin the question and answer session. You can register for questions at any time by clicking on the Q&A button in the webcast and then pressing star 1 on the virtual keypad. If you are joined by phone, just press star 1. Please limit yourself to a maximum of one question and one follow-up question. One moment, please, for the first question. First question comes from Anne-Lise Vermeulen from Morgan Stanley. Please go ahead.

Hi, good morning, Geraldine. Good morning, Marta. Two questions, please. So firstly, just on tariffs, I think hard lines in CMP and cosmetics and personal care and health and nutrition, both of those you mentioned a partial impact from tariffs in Q2. So could you elaborate a little bit on the dynamics that you saw there in Q2, which regions or customers, anything you can comment on and how you expect that to develop over the second half? Appreciate there's still a lot of uncertainty, but interested to hear what you're seeing on the ground. And then secondly, just on ATS, I think you mentioned calibration is new for you in the US. Could you remind me if that's something that you do elsewhere in the business? And you've talked about cross-selling that to other US customers. But is this something that you plan to roll out to customers globally over time as a sort of a new service offering as part of the portfolio? Thank you.

Thank you. Thank you, Amy. Look, you know, we had good growth in hard line for the H1. That's the first thing to bear in mind. We were doing quite well. On the tariffs, I would say, you know, the first point is that we accompany our clients wherever they are, right? So whatever the supply chain shift that our customer want, we are there. We are in more than 110 countries and we can accompany our customers wherever they are. That's the first thing. And the second point, you know, of course, when you have some economic uncertainties and things are changing quite frequently, that creates a bit of a wait-and-see attitude on certain of our customers. But I would say overall, we are very resilient and we don't see any, I would say, major impact about the tariffs as we speak on our results. And that's why we fully confirm the guidance for the full year and also on medium term. So that's on your first question. You mentioned on calibration. and yes actually we don't do calibration in north america but we do calibration uh in uh in europe it's uh this service exists uh in europe and in other countries actually of the group but not in north america and uh obviously there is opportunities to grow because we are going to expand all these services to broader geographies, and as I said, it will be a package with testing services. So a lot of cross-selling opportunities as we look at our ADS acquisition and what we can do. That's right.

Thank you. Thank you.

Next question.

The next question comes from Carl Rainsford from Bernberg. Please go ahead.

Hi, morning, Jodie. Morning, Martha. I'll ask my one question on ATS, please. I just want to talk about the multiple. From my calculations, anyway, it's relatively dilutive from a determined capital perspective. So how confident are you that the earnings profile of ATS can be one that means returns in a few years appear much stronger? And on top of that, could you talk a little bit about the capex intensity for the business and if you believe there is any risk whatsoever that it's been underfunded in the past? Thank you.

Thank you, Carl. So, look, I mean, it's on the multiple, you know, as you know, we've disclosed it, 14 times multiple pre-synergy, 11.2 times post-synergy on 2026, EBITDA multiple now, as we are estimating that will close the acquisition end of this year, beginning of next year. We do think that we will deliver all the synergies, the 30 million that we have started to identify, and this is going to ramp up. So we have strong drivers in ATS, actually, long-term drivers for all the markets that they are in, which are growth boosters, I mentioned it, aerospace, defense, infrastructure. So all this, you know, looks very, very strong and accurate to our current KPIs. You mentioned about the capex intensity. Look, this is also a very positive thing with ATS. ATS, as I said, has major part of its business here. as an inspection, and they are below. They are below our own capex and lease. So if you take, you know, the capex and the leases of SGS and you compare it to the capex and leases rate to ATS, ATS is much, much below.

Thanks, Jody. Maybe just as a follow-up on, you know, you've got ATS, as you say, motion inspection, and the talks in Bureau of ATS earlier in the year, it does appear you're trying to get more exposure to those inspection activities. So just from a sort of high level, could you broadly talk about what the idea is in gaining more inspection exposure? I know obviously you're doing acquisitions or bolt-ons with lab exposure, but it appears to be a strategy that you're targeting inspection a little more.

This is specialized inspection, as explained, in the right sectors, in the right end market industries, where we're not, so where we can do this cost setting. So that's why I explained we're very complementary, and we can leverage a lot of other services. And it's fast-growing industries, you know. This is new market for us, such as aerospace, where they are one of the market leaders. So it's a highly specialized inspection with low capital intensity. So good.

Thank you very much. I appreciate it. Thanks, Ellie.

You're welcome.

Next question, please.

The next question comes from Roy McKenzie from UBS. Please go ahead.

Hello, good morning. It's Roy here. Two questions, please. Firstly, on business assurance, I appreciate it's a tough market for consulting at the moment. McKenzie talked about plans to re-accelerate growth for that division. you've obviously made a change in divisional leadership. So wondering whether that signals a new approach or strategy there overall. And then secondly, to ask about margins after the strong H1. The organic increase in profits looks like it can be nearly all accounted for by the step up in savings, which is great. But clearly that suggests that you're making a lot of organic investments back into the group at the moment. Can you talk about the expected payback you think about for making organic OPEX investments into businesses and how we think about that evolving over the next few years? Thank you.

Thank you, Rory. Look, on VA, it's true to acknowledge that it was below my expectation, and you've noted yourself that we made some managerial changes, so I won't comment further. I would say, look, business insurance, we have a strong legacy here. We have a strong reputation in core business. We're fully engaged with clients and customers. and their needs now and on the future needs. So we have existing schemes. We have also new schemes that we're developing. Sustainability, as you know, ESG assurance and the Impact Now framework. We're developing the medical device. All this is new schemes that are bringing a lot of growth and will pay off as we go, you know, further to 2026. So there is, on main point, a pipeline refresh ongoing. And, you know, I'll assign that as we go, the comparison basis will ease, obviously, and that will also, you know, help us as we progress towards 2026. You mentioned about the margin. I would say, look, our H1 margin is effectively very strong. It's fair to say that we will have... on a full year basis, less increase, obviously, as I'm maintaining the guidance. But this is on purpose, as you mentioned it, actually, Rory, because we want to get flexibility to invest as we wish. So, therefore, it is on purpose that we are conservative. Thank you.

Thank you. I'm sorry about the expected payback on those organic investments. Say you spend, you know, five million on hiring new headcounts or opening new services. What kind of timeline would you give that investment to kind of become break even and then obviously accretive to the group in time?

Martha wants to jump in here.

Yeah, Rory, indeed, the investment in growth is really in sales and marketing and ramping up new services with a payback of below one year translated into boosting our sales growth.

So in 2026, you will see some progress in 2026 and beyond, Rory, okay?

That's perfect. Thank you. Next question, please.

The next question comes from Neil Tyler from Rothschild & Co. Please go ahead.

Good morning. Thank you. Just following up on Rory's question actually, with regard to the balance between savings and reinvestment, can you help us connect the 100 million of savings basically sort of to the year-on-year development by divisional margin? you know, where the savings have settled most significantly and where the reinvestment is, more reinvestment is required. Can you just sort of perhaps call out a couple of divisions, you know, which top each of those lists, please? And then secondly, on the ATS business, can you just help us understand the growth trajectory that that business has been enjoying, even in sort of quantitative terms if you can provide it at sales and EBITDA or operating profit, whichever you prefer, just over the last two or three years, please. Thank you.

Okay. Thank you, Neil. We will start with the saving and reinvestment, and Marta will give you more color on the amounts there and a bit of the split of how much is reinvested. And obviously, on where, you know, digital trust, sustainability and all the goals drivers are the primarily focus for the reinvestment.

But maybe Martha can... Yeah, indeed, the savings, as commented also earlier, were mainly targeting overheads. close to half of them corporate overheads, the other is the country regional overheads, so really bringing the business to be more agile. In terms of regions, for the portion which was concerning, which was targeting corporate overheads, it was really focused on Europe and North America. Now, as far as the reinvestment, again, sales and marketing, and this is across all regions. We have restructured how we do sales, how we frontline that. And again, that's one part. The second part is ramping up services, notably in Europe. again in ESG and specifically on medical device.

Now, on your question about ATS, Neil, look, the business has been growing mid-single digit over the past year, depending on which division. The forensic business has a very strong growth momentum. Testing and calibration business are exposed to high growth in markets, also here. high single-digit manufacturing or IOS space, as we mentioned. On top of this, ATS has blue-chip clients, and the complementarity of our businesses opens opportunities for cross-selling, as I said.

Thank you, that's very helpful.

Okay, thank you, Anil.

Next question, please.

The next question comes from Suhazini Varanasi from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my question. Just a couple for me, please. So within the cash flow statement, congratulations on the strong cash flows. But I just wanted to check if you had any outflows linked to the restructuring charges that you booked last year, the $80 million or so. Has that come out of the cash flow statement yet? Or is that yet to come out in the second half? And just a second one, just a follow-up on the ATS question. Organic growth at ATS in recent years, has it been consistent with SGS growth rates of mid-single digits? Thank you.

Thank you, Swazini. I'm going to start with ATS. We just commented on the growth rate, and I just said it. So you know the growth rate of ATS. And on ATS, we are enjoying – they have enjoyed a mid-single digit – from mid-single to high single digit over the past years, with the forensic division going very strong – testing and calibration on high single digit. So they are exposed, as I said, high growth and markets such as manufacturing or IO space. So they really have a good growth potential. There will be growth boosters for SGS in the future, which is what it counts. Marta, do you want to take the

So, Zinni, regarding the cash flow and specifically the outflow on restructuring, last year we spent around 40 million that impacted the free cash flow. In H1 this year, we have around another 30 million, and I would say we have 10 to 15 to come in the second half in terms of cash out.

Thank you. That's very clear.

Next question, please.

The next question comes from Artur Truslov from City. Please go ahead.

Good morning. Thank you very much. This question is on the market.

Artur, we cannot hear you, I'm afraid. Artur, if you could go closer to your mic.

Can you hear me now?

Yes, much better. Thank you.

Okay. Thank you. On the... Firstly, on the margin, so you obviously did 80 basis points in the first half. Clearly, foreign exchange is going to be ahead within the second half. Are you expecting year-over-year margins to go up in reported terms in the second half once again? And I guess within that, how significant is the FX headwinds to margin at current spot rate? Second question is, From an organic growth perspective, clearly at Q1, you were saying Q2 would be the weakest quarter of the year in terms of organic growth. It's obviously come in slightly ahead of what most people would have expected. Are you still expecting Q2 to be the weakest in terms of growth? And are you therefore expecting H2 to be better than Q2 in terms of growth? Thank you.

Yes, thank you, Arthur. Look, it's true that Q2 was 5%, so that's, you know, our guidance. Our guidance is 5% to 7%. So we do expect, effectively, that Q2, in terms of organic growth, was the weakest organic growth quarter. That's correct. So, obviously, Q3, Q4 to be better. Nonetheless, we remain cautious. There is uncertainty and that's, you know, we don't want to guide too high here. We remain on our guidance of 5% to 7%. There are some projects in the pipeline, a lot, but there is this economy uncertainty, so it depends a bit on timing. But we are positive about our organic growth, and we confirm our guidance for the year and for the median term as well. So that leads to the margin. I'll let Martha comment a bit further. But what I can say is that we have guided to reach a 16.2% in reported term by 2027. We're fully committed to that. We're not there yet. So let us grow gradually to that level. We have plans, and we will deliver on this growth. guidance. So bear with us on that. Martha, do you want to comment a bit on the FX headwinds? It's always hard to predict, right?

Yeah, and the proof is Liberation Day and the sharp appreciation of the Swiss franc as a reaction. But listen, 80 basis point in H1, the margin will continue to improve in H2, but of course to a smaller proportion, because as we commented, the linear operating model program is now fully delivered. So we will have the positive impact, of course, of the procurement savings that start flowing through the P&L, but this is a smaller program. So in terms of Forex, you saw 20 basis points, a negative impact in H1. Concretely, in H2, we should be looking at another, you know, this to slightly increase to around 30 basis points. We do not forecast, again, this is if the rates remain as they are now.

I would say, remember that we are guiding in reported terms. So, we can put whatever we want in the Forex. We will progress on our margins, whatever the Forex is, which simplifies, help you in your... in your modeling, Arthur, as we are guiding, and we're the only one, as you know, that guides increase in margins in Swiss francs.

Thank you very much.

You're welcome.

Thank you. We're going to take our last question.

The last question comes from James Roland Clark from Barclays. Please go ahead.

Thank you. I've got two questions, please. My first is on organic growth. As you just outlined, Q2 should be your weakest quarter of the year, but the second half is implied, in order to hit the four-year guidance of five to seven, is implied, you know, five at the bottom end and nine at the top. So I'm conscious that comps are a little bit easier in the second half, but maybe could you talk about some of the items that could get you towards the top end of the range? I think you just alluded to potentially some new contracts in the pipeline and it depends on timing. So can you just elaborate on some of the items that can get you from five to nine in the second half, including easier comps, some of the tailwinds that you're currently seeing, maybe easing, and any of the contracts coming in a little earlier. Secondly, your free cash flow exit disposal was up 34% year on year. I realize it's a very good performance and driven partly by the higher profit you generated in the first half. It was also driven by lower capex, which looks to be around the 3% of sales. So I just wondered if that's a sustainable level, whether it's sort of lumpy and to do with timing, and perhaps to extrapolate that, and it is underlying, whether you're sort of shifting to being a less capital-intensive business, and we should help your returns. And any comments on that, please? Thank you.

Yes, thank you, James. On the organic growth, you know, the environment remains uncertain. I remind you that our guidance is 5 to 7%, not 5 to 9, 5 to 7%. And the environment remains quite uncertain. But we have powerful drivers. We have sustainability. We have digital trust. So we stay on our guidance of 5 to 7%. And that's all I can tell you here. That's for this year, and that's going to be for strategy 27, so until 27. When it comes to the free cash flow, we have also guided on a cash conversion that we want to be strong, and we stay on this. And we have CapEx that are more focused than they used to be, maybe in the past, before I took the role and this is something we are now very much cash flow focused and we look up our generation of free cash flow. Do you want to comment, Marta?

Yeah, just to also remind that CAPEX is to be seen with our bolt-on acquisitions acceleration. So you have seen already 12 bolt-ons to date. This is actually additional capex that comes through in the pipeline, but already working and growing. So this is the second factor besides being very focused in investment. It is to be seen with acceleration of botons, which was not the case in the prior years with one or two acquisitions per year.

Yeah, now we do two per month. Good. Okay. James, is that all right?

Second half could be 5 to 9, not the full year, 5 to 9. I guess that's just quite a wide range now, just wondering what the reflective options are.

James, it's 5 to 7, not 5 to 9. I mean, I think we reached 9, but it's 5 to 7 or guidance. That's what it is. It's 5 to 7, no? That's... That's what we wrote on the outlook. Right. And that's what we've given as our guidance on strategy 27. So no change here. With this, I think we have reached the end of our Q&A session. So I want to thank you, all of you. We have delivered, as you noted, strong H1 results thanks to the fast execution of strategy 27. The signing of the acquisition of ATS is a perfect fit, and our targets of almost doubling sales in North America is almost achieved. So we continue to accelerate our growth. and profitability and I'm proud of our performance in sustainability and in digital trust as also you have seen. So SGS all in all is well on track to meet its objectives and we remain focused on executing strategy 27, accelerating growth, building trust, this at full speed. Thank you very much. Thank you for joining us. Thanks.

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