SGS S.A.

Good morning ladies and gentlemen. Welcome to our Q3 sales update. Today I will take you through the highlights of the quarter and then I will hand over to Martha for more detailed information about the sales. Our Q3 sales reached 1.7 billion Swiss francs, an increase of 6% compared to Q3 2024 on an organic basis. Again, this quarter This strong achievement that you see is largely based on the first two value drivers we've identified in our strategy 27, sustainability and digital trust. Bolton acquisitions have also made a significant contribution to growth. Bolton acquisitions, actually, there we have maintained a very strong momentum, completing five more deals, since we last time met in July for half-year results. In July, we announced the acquisition of ATS, Applied Technical Service, with closing expected around the end of the year. The process is going according to plan. With ATS, we will significantly increase our presence in North America, adding complementary expertise and cross-selling opportunities. Finally, as we approach the end of this tumultuous year, which has been marked by strong Forex fluctuations, I am very happy to confirm our initial outlook for the full year. One of the things I'm most proud of is how far advanced we are in terms of digital trust services. For several years, we have been able to provide an extended range of digital trust services, For example, our cybersecurity offering delivered through BrightSight is market leading. More recently, we have been recognized by the European Union for our expertise in artificial intelligence with Certix. And I believe that our unique competencies in digital trust are one of the most valuable assets of the group. They enable SGS to accompany its customers in one of the major societal transitions of the modern world. This is the reason why it has been one of the key items of our strategy 27 from the very beginning. So, at this point, we felt it was important to organize our offering around four pillars to provide full visibility to our clients, connected products and technologies, digital services and infrastructures, data and artificial intelligence, organization and people. Practically, we certify compliance with various standards and acts of connected devices, infrastructures, virtual platforms, and AI systems. Under the pillar organization and people, we certify whether an organization has the right governance and controls in place under the applicable frameworks, which includes training, incident response, and supplier management. Let's now turn to sustainability, which has continued to be a strong driver of growth over the quarter. The four pillars, as you remember, of our offering impact now have recorded strong growth. Demand remains strong, supported by regulatory pressure, especially in Europe, and by strong consumer expectations. We also made good progress with the signing of various contracts, which will drive the growth of tomorrow. As an example, We have signed a partnership with EcoVedas, one of the main sustainability ratings platforms. So let's go to our M&A activity. You can see that during the quarter, we continued our active acquisition policy. Five new companies have joined the group. NPR Services in the U.S. is a provider of liquid and gas reclamation services with solutions to treat contaminants. Fulcrums Robotics is specialized in aerial, marine, and terrestrial drone-based inspection and robotic services. It is based in Australia, working across industrial and environmental sectors. We have taken an additional and controlling stake in Geosol, our JV in Brazil. It provides us with geochemical, environmental, and analytical laboratory services notably in mineral engineering. Trust60 is a Chilean technology integrator for mining operations. And finally, Qualitest in Canada provides services in welding engineering, mechanical testing, failure analysis, and inspection services. So let me now share some key highlights from our business lines. And let's start with industries and environment. So industries and environment, as you can see, delivered excellent organic growth in Q3. We are proud of what the teams have achieved here across all the network. The energy and momentum are tangible, and we remain fully focused on execution and delivering on all our promises. In safety, we continue to see high single-digit growth, so fueled by strong demand in North America and Europe on the back of regulatory pressures and customer focus and compliance. On project and advisory business, we delivered also robust growth, driven by new project wins in Latin America and Asia-Pac. Industrial testing also posted excellent results with solid execution and reliable performance across all regions. In-environment growth was moderate, partly offset by tough comparable bays and some temporary headwinds, notably in the US, but however, after a softer summer period, the latter part of Q3 showed a marked increase in laboratory testing. Let's turn to natural resources, which delivered solid organic growth of 4.4% in the third quarter. In minerals, we continue to benefit from strong demand for critical minerals and metals, particularly in the Americas and in Asia-Pac. This demand has been fueled by the needs and the regulation concerning electric vehicles and batteries. All gas and chemicals achieve strong rules, reflecting the impact of intensified sales and marketing efforts across Asia-Pacific and North America. In agriculture, we recorded good growth driven by double-digit expansions in the Americas and a rebound in Europe following last year's weaker crop season. Connectivity and products delivered a strong organic growth of 6.2% in the third quarter, led by sustainability and digital trust. Connectivity achieved high single-digit organic growth driven by increased demand for technology security in Asia Pacific and product safety in North America. Our recently acquired businesses in North America also continue to perform very well, including SGS ArcLight, which delivered strong double-digit growth, expanding its market share with major U.S. mobile carriers. This complements our presence in Asia, where we test mobile devices or manufacturers, creating valuable synergies across the connectivity ecosystem, from product design to carrier compliance. Softlines delivered solid organic growth, supported by strong demand for eco-friendly and sustainable products. Our SGS Blue Sign business, which recently celebrated 25 years, as a global leader in sustainable textile innovation, continues to play a key role in helping brands advance their responsible sourcing and circularity goals. Hardlines that evade high single-digit organic growth, benefiting from supply chain shifting opportunities across Southeast Asia, as manufacturers gradually start to diversify production to strengthen resilience to geopolitical risks. Mid-single-digit growth in government services reflects a strong demand for product conformity assessment and anti-fraud services, as government seeks always to strengthen consumer protection and trade compliance. Health and nutrition delivered a strong organic growth of 6.2% in the third quarter, driven primarily by food, which continued to perform very well across all regions. Food testing maintained double-digit organic growth, supported by strong demand from emerging contaminant testing and food safety services globally. We also recorded strong double-digit growth in nutraceutical and dietary supplements product certification, notably supported by record sales at SGS NutriSource. which continues to expand its leadership in clinical research, regulatory consulting, and product certification for the health and the food industries. Increasing consumer awareness and product integrity is accelerating demand for independent third-party verification. Pharma, delivered moderate organic growth, driven by clinical research in Europe, partly offset by a softer performance in drug development. In cosmetics and personal care, several new project screens were secured toward the end of the quarter, with activity expected to continue building into Q4. Finally, business assurance. Resilient organic growth was driven by strong demand for services that help our clients mitigate risk, build operational resilience, and ensure compliance, particularly in areas related to sustainability. Certification reported strong organic growth with double-digit increases in medical devices, food, and digital trust assurance. In these critical sectors where we hold leading positions, we help clients manage operational, regulatory, and reputational risk, maintain compliance, and protect the integrity of their supply chains and digital infrastructure. Sustainability continued to deliver double-digit growth, driven by strong demand for greenhouse gas emissions verification, sustainability assurance, and social audits, as clients increasingly act proactively to meet stakeholder expectations and product their brands. By contrast, consulting activity remained soft, primarily due to the delay of several large projects in North America. Our recent acquisitions in North America and Europe continue to make a strong contribution to growth, further enhancing our global capabilities in sustainability and digital trust, and positioning the division very well for future growth. So now with that, I now hand over to you, Martha.

Thank you, Geraldine, and a very good morning to everyone. Let's now look at our third quarter sales drivers in more detail. First, we are very pleased with the acceleration of organic growth to 6%, resulting in 102 million Swiss francs of incremental sales. Second, the sustained bolt-on acquisition momentum further expanded the sales by 1.9%, bringing the Q3 growth in constant currencies to 7.9%. On the forex side, our reporting currency, the Swiss franc, remained strong, resulting in a negative translation impact of minus 6.1%, leading to 1.8% growth in Swiss francs. Let's now move on the next slide and see how our growth in Swiss francs compares to the euro and the US dollar. At the beginning of April, with Trump's Liberation Day announcement on tariffs, The Swiss franc appreciated sharply against all currencies and remained at those levels through Q3. This led, as just presented, to a minus 6.1% translation impact in Swiss francs in Q3, to compare to minus 4.3% should we translate sales to euros, and to plus 2.4% when translating to the US dollar. As a result, the third quarter reported growth in Swiss francs of plus 1.8% is equivalent to a growth of plus 3.6% in euros and plus 10.3% in US dollars. Let's now continue with the sales breakdown by region. As you can see, the organic growth was supported by all regions. In testing and inspection, Asia-Pacific expanded by 7.6% organically in Q3, with continued high single-digit growth in connectivity and products and double-digit growth in food. In addition, growth in industries and environment and natural resources accelerated, notably with a strong performance in Australia. In Europe, organic growth improved to 4.5%. benefiting from new contract wins in industries and environment, while trading volumes in natural resources improved. North America expanded by 3.9% organically, on top of a high prior year baseline. We saw excellent performance in safety, connectivity, food and agri, partially offset by a softer summer period in environment, while pharma remained stable. Eastern Europe, Middle East and Africa delivered 3.8% organic growth, impacted by a slowdown in Africa, with several countries going through political uncertainty. Latin America grew by 14.1% organically, an acceleration supported by new project wins in Chile and Brazil. And finally, as commented earlier by Geraldine, Business Assurance delivers 3.7% organic growth, driven by strong momentum in sustainability, offset by underperformance in consulting. Let's now review how the sales of the first nine months compare to prior year. Our nine-month sales reached 5.2 billion Swiss francs, up by 2.3%. The strong organic growth of 5.5% was complemented by 1.6% additional growth from bolt-ons, leading to a high constant currency growth of 7.1%. The strength of the Swiss franc against all major currencies led to a minus 4.8% translation effect, resulting in a 2.3% growth in reported terms. And with that, I hand it back to you, Geraldine.

Thank you, Martha. To conclude this presentation, let me reconfirm our outlook for the full year 2025. In terms of growth, our nine-month sales are fully aligned with our full-year guidance. We expect this trend to continue in the fourth quarter. I'm happy to confirm on the profitability side that we will improve our adjusted operating income margin by at least 30 basis points, thanks partly to our corporate savings plans. I remind you that this guidance is in reported terms, so in Swiss francs, and therefore includes the full effect of the foreign exchange on our margin. Finally, I confirm here again that the free cash flow will be strong for the full year, even excluding the non-recurring impact of the sale of the headquarter building in Geneva. So thank you for your attention, and we can now take your questions.

Thank you. We will now begin the question and answer session. You can register for questions at any time by clicking the Q&A button in the webcast and then pressing star 1 on the vehicle keypad. If you are joined by phone, just press star 1. please limit yourselves to a maximum of one question and one follow-up question. One moment, please, for the first question. The first question comes from Daniel Burke from ZKB. Please go ahead.

Yeah, good morning, everyone. I would have a question regarding mix of volume and price and also wage inflation. How does it look at the moment? It was a big topic during the inflation period. How does it look now?

Okay, Daniel, good morning to you. Marta is going to take your question.

Good morning. Yes.

Thank you. Yeah, hi, Daniel. Out of the 6% organic growth for Q3, pricing contributed slightly below 3%, and it was stable compared to H1. So the acceleration of organic growth in Q3 compared to H1 really came from pickup of volumes, in particular in Europe, APAC, and Latin America.

And wage inflation?

On the wage inflation, we don't see it for the moment as something quite fairly stable. We don't see a major wage inflation. Nonetheless, we're going to continue to master operating leverage. Daniel, you know that what is important and what Marta is telling us here is that we've increased business. What she called the volumes is that we have an increase in business. in terms of number of projects or samples or testing of inspections, visits and so on. So we do have an increase in activity on top of the pricing. The wage inflation, as you say, is controlled, I would say stable. And again, you know, the focus and our focus, as I just explained, is on productivity and utilization.

Excellent.

Thank you very much.

Thank you, Daniel.

The next question comes from Arthur from Citi. Please go ahead.

Good morning, everyone. Thank you very much for taking my question. The first question I have was just around the comparators. My sense is they're easier in the fourth quarter than the third quarter. I guess my sort of main question is why you shouldn't see an acceleration of organic growth in the fourth quarter relative to the third. And I guess kind of linked to that, you've obviously been pruning contracts in industries and environment. Can you just remind us what the organic growth headwind associated with that in Q3 was and, again, how that impacts Q4? Thank you very much.

Okay. Look, when it comes to Q4 and growth, we see that our nine-month sales are fully aligned with our full-year guidance, with in particular our year-to-date organic growth at 5.5%. And to be perfectly honest, we want to keep to be on the prudent side. The economic situation remains uncertain that can create potential delays in the short term therefore we want and we see that the full year learned more or less close to the nine months in terms of organic growth so let's say like that we still have also you know a bit of impact from the contracts we are exiting so look we are sticking to our guidance as I said during the outlook on the industry and environment You had the questions?

Yeah, industry and environment, indeed, we saw acceleration of growth in Q3 to reach 7.9% organically. As a reminder, this was around 5.3% in H1. Really driven by improvements in Asia Pacific, Latin America, and Europe, we saw new contract wins. And of course, we have slightly lower impact from low margin contracts, which we have been exiting since Q3 2024.

We have a strong growth after from environment, you know, it's picking up in September. So, yeah, we are quite positive for the rest of the year in environmental.

Thank you. And are you giving a number for the headwind associated with... contract pruning in Q3. I think in the first half you talked about 50 basis points at group level.

I just want... Yes, Arthur, you want to have an estimate for the full year. Martha, do you want to give that estimate?

Yeah, we were getting on 0.5 in H1, so this is slightly softening for the full year. Look at around 40 basis points, meaning H2 of around 0.3. Thank you.

Thank you very much indeed.

Thank you, Arthur. Next question, please. The next question comes from Rory McKenzie from UBS. Please go ahead.

Morning, both. Rory here. I wanted to ask about in connectivity and products. Can you talk more about the opportunities coming from the supply chain shifts in hard lines? Is that revenue from early vendor inspection services, or is it genuine new testing volumes coming from production sites from clients? And then in general, if you talk about the behavior across the division, are clients still in a wait-and-see mode around Paris? And is that at all weighing on volumes and any segments, do you think?

Thank you. Yeah, thank you, Rory. Look, in connectivity and product, we see a strong, you know, drive and organic growth coming from all connected device and connectivity, really. This is where we see the greatest opportunity, as I explained. But, yes, in hardline, any... Any supply chain shift is an opportunity for us. It gives also, we see new suppliers. That gives us more testing. And we are matching, you know, exports with markets. And that gives also, again, more opportunities for us in terms of testing and inspection. So, yes, this is quite positive. And we see this positive momentum continuing. Across all business lines, we're quite fairly, you know, positive. I mean, we see a good momentum here in the activity. So there is always up and downs in natural resources by definition. But all the other business lines, you know, we have a turnaround to execute in business assurance consulting business. That's been said. The rest is really doing very, very fine.

That's great. Thank you.

Thank you. Next question, please. The next question comes from Jack Alcoyote from Morgan Stanley. Please go ahead.

Good morning, Geraldine. Good morning, Marta. Maybe could you just please comment on where you expect the year-end leverage to land? And given it could be a little elevated, how does that impact your capacity for further bolt-on deals in the short term? And then just kind of a follow-up, are there any levers you would consider to control that leverage, maybe disposals or another script dividend? Thank you.

Yes, thank you for your question. I will let Martha answer on the year-end leverage precisely. It depends, obviously, if we close or not, apply technical service before year-end or after year-end. But no, that will not impair our ability to continue to do Bolton acquisitions, and we will continue to consolidate the right markets with the right momentum according to the strategy 27. Strategy 27 also has a third pillar, which is solid financial profile, so we'll take care of that. We took care of it with the script dividend, and we'll continue with the support of the board, but we'll talk about that in due course. Martha, do you want to comment more precisely?

Yeah, on the net leverage, you remember we exceeded 2024 with 1.8 times leverage on adjusted EBITDA. By the end of 25, we expect this to slightly improve thanks to the improvement in margins.

Thank you.

Yeah, and that is without ABS, obviously. Yeah, thank you. Okay, clear.

Thank you, Marta. Next question, please. The next question comes from Michael Furth from Fontobel. Please go ahead.

Yes. Hi. Good morning, everyone. Two questions. The first one is if you could give any details on how the consulting business performed and what your view is on the situation there, on the situation more generally in private equity environment and what your intentions are for that business turnaround. And the second question is if you could give any information about your exposure to the toys industry and how that affected your business. I think it was an issue at your competitor. So that would be helpful. Thank you.

Okay, I'll start with the first question on our consulting business. You know, we've changed management. So we're going to let the new management doing the turnaround and working on this. And hopefully we'll see We'll see benefits as we go to the course of next year. Consulting has really been a big, you know, headwind for our business assurance division. That's clear, you know. It's been down 30% in Q3 consulting business. So it's fairly a huge, a huge, a huge drop. So look, again, that's the consulting business school main point. We will turn it around, and it will be a successful business as we go into the year of 2026. So let the time to the team to do it, and we will get it back on the feet. But, you know, let's be clear that, you know, we have something else in business assurance. We have recorded double-digit growth in strategic segments in BA including food, sustainability services, digital trust, and this we are going to accelerate further. So I can confirm this division. I have the ambition of 10% organic growth and more than 20% margin. This business is going to deliver these KPIs. as we go through 2026 and further. Okay? That's your first question. Your second question about the toys, so I don't comment on competition, but, you know, toys grew for us in Q3. We have a good growth in our Q3 for toys. We don't disclose exactly the growth rate, but it is... Quite good, so probably gain market share. Good.

Thank you. Thank you very much. Thank you.

Next question, please. The next question comes from James Roland Clark from Barclays. Please go ahead.

Thank you for taking my questions. I have two, please. In your mining vertical, are you able to comment on the level of or the scale of the pipeline that you've got coming or perhaps sort of conversations with clients and about the sort of future business that could come your way, particularly in gold and copper? And maybe just remind us of your exposure there as well. And then secondly, industry as an environment was much better in the third quarter, as you've mentioned. And industrial testing was behind that, and you flagged the geographies that were very strong. Can you talk about the end industries that were particularly strong in the third quarter? Thank you.

Yeah, thank you. Look, in mining we have, you know, commodities, there's cycle, there's up and down. But, you know, today we are in several metals. So we don't see any, I would say, headwinds coming from gold or copper, as you're mentioning it. You know, gold being strong and the technology and, you know, you're talking about in markets or everything across the energy transitions, EV and so on. We see actually a strong pipeline of metallurgical projects, especially in North America for the battery and the critical metals projects. All our geochemistry is strong organic growth. We had even double-digit growth in Australia. So we do see, you know, strong projects here, and our methodology, as I just said, was growing double-digit. So very strong here. So we are not having the issues you're mentioning at all. On the opposite, we are really leading many advisory platforms for critical and battery metals. You mentioned about industries, and that's across all regions, by the way. So you mentioned about the industries and, you know, what's working well and which end market. Well, look, we see a lot, for instance, I like to mention that we have a lot of strategic wins, for instance, with construction of data centers. That is impacting us, you know, very positively in Europe. That's new and that's driving the growth. So we do have a lot of also growth coming from the food industry that is also very positive. In industry particularly, I would say, you know, pharma, but also data centers, as I mentioned, energy, so yeah, so fairly positive across all industries.

Great, thank you.

Thank you very much. So next question, please. The next question comes from Jeffrey Miller from Odoo. Please go ahead.

Yes, hi, thank you for taking the question. I have one. In some divisions like E&E, you sometimes mention qualitative performance in some subdivision, like high single digit in safety, and sometimes qualitative performance in some other divisions, like strong growth in project advisory. Can you give us the rationale behind that and help us navigate those qualitative commands in terms of numbers? Thank you very much.

When we say strong, it's usually high single digit. In terms of qualitative translation into numbers, when we say solid, it's generally mid-single digit. And when it's resilient, it's between three to five. Is that answering your question?

Perfect. Yes, thank you.

Okay, great. Thank you. The next question, please.

The last question comes from Tom Bolton from BNP Paribas. Please go ahead.

Hi. Morning, Jardine. Morning, Marta. Two questions left for me, please. I wanted to clarify on the contract exits, the contract pruning we've seen yesterday. To what extent are we done with those now, or to what extent do you see the need for further contract pruning as we go through FY26, or is that now done? And then secondly, and somewhat related to that, I know this is primarily a sales update, but just on margin, and since you've mentioned the report, the guidance has struck on a reported basis, if we were to see a further strengthening of the Swiss franc relative to operational currencies and that effect has been to grow further, to what extent do you have other tools within your toolbox to sort of make up that gap on margins beyond further contract pruning such that you'd still be comfortable in hitting your margin guidance for the financiers. Thank you.

Thank you. Thank you. Look, on the contract exit, we are not completely done, but the rhythm of exit is slowing down. So the impact will continue. be, you know, less and less as we go, you know, further into 2026. Okay. On the margins, yes, we still think, you know, the Swiss rings can appreciate further and it's appreciating further. So as we promised an improvement of at least 30 basis points on our margins for this year, we need to have toolbox as you said and we do have it so look we are progressing on operating leverage we are having the full results of the renew plan which is you know the 100 million restructuring plan corporate savings plans we've got some corporate savings you know that are coming also yes we will deliver on our promises even if the Swiss francs trend in Yes. Thank you everyone for your questions.