SGS S.A.

Good morning and welcome to the SJS First Half 2026 results call. I'm here with Geraldine Picaud, our CEO, and Marta Vlatchkova, our CFO. Please note that this call is being recorded and will be available for replay on the SJS website. Throughout today's presentation, all participants will be in listen-only mode. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star one on your keypad. I would now like to turn the conference over to Geraldine Picaud, CEO of SGS.

Thank you, Ariel. Good morning, ladies and gentlemen. Thank you for attending our H1 results presentation, and it's a pleasure to have the opportunity to share with you our highlights. As usual, I will give some colors about the business and then Marta will provide more details about the financial performance. Over the half year, we have continued the execution of our strategic pillars. You may remember from our Q1 sales update call that the beginning of 2026 was marked by strong investment in digital trust, in particular with the acquisition of Granite River Laboratories, as well as expanding our connectivity offering through new capabilities developed in the UK. We also continue to invest in AI to optimize our processes and develop new offerings. We will show more on this topic at our capital markets event in November. Our sustainability offering of impact now has remained a strong growth driver. In regards to the portfolio, ATS, Applied Technical Services delivered a strong performance and you will see that we have progressed in the implementation of the cost synergies. On the sales side, we just launched exciting offers to our clients combining ATS and SGS North America expertise. We have continued targeted bolt-on acquisitions and completed the disposal of the consulting business main point, which is consistent with what we announced in April. Now, about the financial performance, we are very happy with the results. Organic growth reached 5.6% and would have been above 6% without the crisis in the Middle East. Our EBIT, or adjusted operating income, Free Cash Flow and Earning Per Share continue to deliver strong improvement and Marta will further comment on this. So despite the uncertainty ongoing in the Middle East, I strongly believe that we will reach our guidance for this year. Now, a quick focus on digital trust and sustainability. The 38% growth in digital trust reflects the excellent trend of our organic business, which generated 18% organic growth, mainly driven by wireless connected devices. Also, the recent investments in Bolton, we have realized, translate into a scope effect of 29%. Granite River Laboratories is recording double-digit growth in several countries. On sustainability, Impact Now is also delivering strong results with 18% total growth, out of which 10% is organic. The four pillars of Impact Now have recorded high growth, especially the nature pillar where environmental testing is reported. Now let's move on to ATS, which is part of our group since the beginning of the year. In terms of governance, we have implemented a management structure where ATS remains as a standalone entity with an SGS top management and a dedicated board. This way, ATS expertise, brand and business are fully preserved while synergies can be efficiently implemented. and in H1, we have already realized cost savings in procurement, in real estate and started to consolidate the leadership positions. About cross-selling, we have launched an offering dedicated to data centers where we provide an end-to-end solution based on complementary knowledge of SGS and ATS. Marketing campaign is live these days. You might see it on the social networks. It's a first initiative which will bring business in H2, and we expect more to come before year-end. In Q2, we have continued an active bolt-on program. Since our Q1 update call, we have completed five more acquisitions. Keystone and CMIC bring bioanalytical capabilities in the U.S. K-Prime is an environmental testing laboratory also in the U.S., and TechCorp completes our offering in electrical systems in Australia. Finally, we expand SGS DigiComply with Agrono, a one-of-a-kind food risk intelligence platform creating Food Nexus, the most comprehensive digital solution for the food and beverages industry. So please let me warmly welcome the experts and the employees of these companies who join the SGS family. Let me now share some key highlights from our business lines and let's start with industries and environment. The business delivered a solid H1 with organic growth of 4.7% and total growth of 16.2% including the consolidation of ATS. Environment delivered strong results led by our environmental testing and field services in the Americas and in Europe. We see continued momentum in North America which delivered double-digit organic growth in the first half. inspection and supervision and safety delivered mid-single-digit organic growth fueled by major industrial projects in Latin America and Asia-Pacific where investment in infrastructure and in the energy transition continues. This was partially offset by disruptions linked to the situation in the Middle East. Solid growth in industrial testing was supported by contract wins in Europe, increased demand for oil condition monitoring services and strong double-digit growth in Latin America. Scope of 17.6% was driven by continued strong performance of acquisitions with high contribution from ATS in North America. Natural resources now. Our business line delivered a strong H1 with 5.5% organic growth led by minerals and a significant improvement in adjusted operating income margin to 14.4% of sales. Minerals delivered high single-digit organic growth supported by all regions with double-digit growth in Asia-Pacific. Within minerals, geochemistry recorded double-digit growth with strong results also in metallurgy and consulting led by gold and critical minerals. In this area, we continue to pioneer and scale advanced geochemistry solutions, including photon assay, which compared to traditional fire assay, delivers results in minutes with around four times lower CO2 emissions and no hazardous lead waste. This is how we help mining clients meet their operational and sustainability goals. In agriculture, performance is improving, driven by increased activity in field and laboratory testing across all regions. Oil, gas and chemicals posted moderate organic growth despite business disruptions in the Middle East. Connectivity in products delivered another excellent performance with 6.8% organic growth and an improved adjusted operating income margin of 22.7%. Connectivity delivered high single-digit organic roles led by Wireless in Asia Pacific and Project WINS in North America. The demand for technology, security, and compliance continues to increase as connectivity expands across devices, platforms, and networks. Softline grew double digit with strong momentum in PFAS testing driven by increasing consumer awareness and new regulations. And this demand is really structural. We see, for instance, after the French ban in January, a new reach restriction that will apply at European level from October covering clothing, footwear and food contact materials. Hardlines also posted high single-digit organic growth with continued strong demand for home appliances and food contact material testing. And finally, in trade facilitation services, continued strong demand for e-platform services was offset by softer trade flows in Europe. Now let's turn to health and nutrition. Following a clear acceleration in the second quarter, the business delivered 4.5% organic growth and an improved adjusted operating income margin of 12.7%. Food delivered high single-digit organic growth, led by Asia-Pacific and Europe. We see increased demand for food contaminants and safety testing driven by consumer expectations as well as new food labelling requirements in particular in Asia. The food safety remains a core area of focus for SGS. With our globally recognised expertise, we help clients respond quickly to new contaminant risks and regulatory requirements. Pharma posted moderate organic growth driven by drug development and partly offset by project delays in clinical research in Europe. In cosmetics and personal care, we saw a marked improvement in the second quarter following the delayed start of client projects. And finally, let's move to Business Assurance, which delivered an excellent first half of the year with 7.3% organic growth and an improved adjusted operating income margin of 18.9%, led by certification, digital trust and sustainability. Certification confirmed a strong momentum with high single-digit growth led by medical services, medical devices and food. These are critical fast-growing sectors where certification protects product integrity, safety and market access and where we continue to invest. Digital Trust delivered double-digit organic growth fueled by strong demand for information security, cybersecurity, and AI assurance. The need for cyber resilience continues to accelerate and the regulatory momentum on AI is building globally. and sustainability double-digit organic rules was driven by greenhouse gas emissions verification together with strong demand in forestry and circularity certification. Here we support our clients in meeting increasing regulatory requirements such as the carbon border adjustment mechanism or the CBAM where importers into Europe now need verified carbon emissions data. The scope contribution was mainly driven by the consolidation of the forensic business of ATS and by our Bolton acquisitions in digital trust and sustainability partially offset by the disposal of our U.S. consulting business. And with that, I now hand over to Marta who will present our H1 financial performance.

Thank you, Geraldine, and a very good morning to everyone. Let me start with the main financial KPIs of this record first half. Sales reached 3.7 billion Swiss francs thanks to the strong organic growth of 5.6% and this despite the Middle East situation. The adjusted operating income continued to grow over proportionally to reach 15.1% margin on sales, up by 20 basis points. This translated into an excellent free cash flow of 260 million Swiss francs, up by 25%, excluding the proceeds from last year's disposals of our Geneva headquarters. Moving to the sales breach, where you can see the amazing 13.4% growth in constant currency. comprising of 5.6% organic growth and 7.8% from M&A including ATS. On Forex, the Swiss franc remained strong resulting into a negative translation impact of minus 5.8% which reduced the growth to 7.6% in Swiss francs. Here we see how the growth in Swiss francs translates into Euro and US dollar. The franc has remained structurally strong despite a slight appreciation of the dollar and the Euro in the second quarter of this year. This is why the 7.6% sales growth in Swiss francs translates to 10.3% growth in Euro and plus 18% in US dollars. Moving to the sales per region. In testing and inspection in Asia Pacific, the organic growth accelerated to close to 10% in H1, boosted by double-digit growth in health and nutrition and natural resources, together with high single-digit growth in connectivity and products and industries and environment. Europe grew organically by 2.3%, led by high single-digit growth in food, and new projects in industries and environment. This was partly offset by phasing of clinical testing activities in pharma and overall soft volumes in natural resources and connectivity and products. In North America, the soft first quarter was followed by double digit growth in Q2, led by industries and environment and health and nutrition, and with that helping to close the first half at 6.1% organic growth. Eastern Europe, Middle East and Africa declined by 2.8%, impacted by the Middle East situation. Latin America expanded by 9% organically, supported by very strong activity in industries and environment and minerals testing. and finally, as commented earlier by Geraldine, business assurance delivered 7.3% organic growth led by digital trust and sustainability. Now on the adjusted operating income. I'm proud to report the over-proportional growth in margin, which reached 15.1% on sales, up by 20 basis point, and these despite Middle East situation and the Forex headwinds. The adjusted operating income grew organically by 39 million Swiss francs, equivalent to 30 basis points of margin improvement. It benefited from the efficiency plan savings and the operating leverage, partially offset by the impact of the Middle East situation and investments in AI capabilities. M&A, including ATS, added 42 million Swiss francs, contributing 10 basis points of margin progression. Lastly, the negative forex impact of 35 million Swiss francs, equivalent to 20 basis points, was driven, as commented earlier, by the strong Swiss franc. Moving now to the full P&L. As previously outlined, in the first half, the sales grew by 7.6% and the adjusted operating income expanded over proportionally by 9%, or 20 basis points on margin improvement. Below the adjusted operating profit, we can see the increase in amortization of intangible assets, which is driven by ATS. Restructuring costs were broadly in line with prior year as we took action to reduce our cost base in response to the Middle East situation. In other non-recurring items and transaction costs, the variation is due to the gain on disposal of our former headquarters building in H1 2025. Below the operating income, the financial expenses have increased with the financing of the ATS acquisition, while the effective tax rate is improving by one percentage point. With all that, the EPS reached 1.58 Swiss francs, an increase by 14.5% when we strip out the gain on the HQ disposal from the baseline. And finally, the record performance of the first half translated into a record free cash flow of 260 million Swiss francs, up by 25% compared to prior year before the proceeds from the HQ disposal. And with that, I hand over to you, Geraldine.

Thank you, Marta. So let's go to the outlook and to conclude, The business is very well on track and we have demonstrated that we are able to offset impact of external events like the Middle East, for instance. Therefore, we fully confirm our guidance. With this, I'm going to open to Q&A now.

We will now begin the question and answer session. You can register for questions at any time by clicking on the Q&A button on the webcast and then pressing Our first question comes from Roy McKenzie from UBS. Please go ahead. Morning all, it's Roy here. I guess my one question would be about the margins and specifically the margin impact of scope changes.

I think from your slides the kind of the average margin contribution from M&A was about 15.8% through H1 but obviously there's been some big single deals kind of within that so firstly can you just talk about ATS I think that was originally planned to bring in about 95 million dollars of EBITDA this year is that still the right number to think about and what was the margin impact of that within industries and environments and then secondly within Business Assurance, can you just talk about the margin impact of the disposal of Main Point within this year and the other contributions of M&A in that division? Thank you.

Thank you, Rory. I'm going to comment a bit and then ask Marta to go into more detail. Look, as far as ATS is concerned, we're very happy on both the sales and the margins. And as we are developing more and more the synergies on the selling side and on the cost side, as explained, we are... effectively reinforcing and getting more points of margins. But we really as per plan, so we're very happy about it. I would say overall to the group is neutral and to INE probably slightly accretive. In INE, you've got a lot of things. You've got Middle East impact. You've got a lot of elements to analyze. Marta, do you want to go a bit specifically on the margin, on the scope effect on the margin, which is positive, Rory. Overall, you see it in the bridge, it's accretive to our margins.

Yeah, I confirm we are well on track. Just to clarify that the $98 million you were referring to, Rory, this is the EBITDA and not the adjusting operating income. but yes indeed well on track. Then there was a question on the margin in industry and environment. The impact here is I would say the strongest impact from the Middle East situation which is really visible here in the margin. Again, ATS is not, it has impact here in terms of scope but in terms of margin it is well slightly above our average industry and environment margin. And with regard to your question on business assurance really we completed the disposal of main point The overall impact on group accounts is not material. You have here indeed as well the impact of ATS. This is their forensic business, which is the margin is slightly above the margin of our traditional BA business.

I hope that answers, Rory.

Terrible, thank you.

Great. Next question. The next question comes from Will Kirkness from Bernstein. Please go ahead.

Good morning. Thanks very much. I just wanted to ask on the balance sheet how much acquisitions have impacted the unbilled sales and WIP number. It's moved up a bit, but I appreciate when you have like a full impact on the balance sheet but not anywhere else it can distort things. and then sort of following up because I expect ATS will be in that answer. I just wanted to double check how you treat the growth within ATS, whether you put that in the acquired with the base or whether you put it in organic. Thanks very much.

Okay, well, I will let Marta answer on the balance sheet. ATS is just on the scope. It's a scope effect. Fully, it's been closed in January. So for one year, you will have it fully on the scope because we didn't have it last year. So as a result, it's fully shown on the scope. It's not impacting our organic growth at all, will be. in your time. That's how we do, obviously, as soon as we have a comparable. Marta, do you want to take the balance sheet?

Yeah. So, we learn and build revenue. We have actually three impacts. One is the first one is obviously ATS plus all the other Bolton acquisitions. You have seen the and many others. We have a strong growth driven by those acquisitions, so this is increasing compared to December. Second, I was commenting on Forex, which when we look in the profit and loss in sales in adjusted operating income is headwind. However, when we look in the balance sheet and you compare June 2026 with December 2025, actually we have the dollar, the Chinese yuan who have appreciated against the Swiss franc. So this brings, I would say, mechanical increase in the underlying value. and then third part is also if you look in past years historically between in the first half there is an increase in unbilled revenue which is driven by our contracts built over time so this is seasonal. So in nutshell those three impacts that have to be considered when looking at our balance sheet.

Thank you.

Thank you. Thank you. Next question.

The next question comes from Anneliese Vermeulen from Morgan Stanley. Please go ahead.

Hi, good morning, Geraldine and Marta. Two questions. So firstly, on restructuring expenses, I think when we last spoke, you were guiding to 20 to 40 million for 2026, but I think that was before the conflict in the Middle East. So what are your expectations now for restructuring charges for this year? And within that, could you talk about the cost adjustments you're making in the Middle East and the timeframe of that? And then secondly, just on North America, as you said, a significant growth, organic growth acceleration in Q2. You mentioned I&E and H&N as drivers of that. So could you expand on that a little bit with that? Acceleration and market activity, new contract wins, pricing, some more detail there would be great. Thank you.

Thank you, Annie. Thank you for the questions on the restructuring. Look, we have effectively, you're totally right, an impact of the Middle East. I would just say quickly, and I will give the Talk to Marta to specify what are we thinking in terms of numbers for the year and what was the impact of Middle East restructuring for each one. But look, when we have a fixed cost business, you need to adjust the cost when you have less revenue. So that's simple as is. Marta, would you like to comment on the restructuring charges? And I will take the mic again on North America.

Yeah, so the first half, we have 18 million restructuring costs. If we look for the full year, we would see that around 30 million. So compared to the initial guidance, 20 to 40 million, we remain within that.

Right. Thank you. Thank you, Marta. So restructuring costs are well controlled, even if we have to adjust and address the Middle East crisis. Look, on North America, we are seeing a lot of positive momentum. You mentioned it. We see that in our industry and environment, we have a lot of demand when it comes to for non-destructive testing. We have a lot of demand for a lot of our services in the energy sector. We see also strong demand when it comes to aerospace, defense sector, and a lot of project wins, actually, that we are having here in industry and environment. So you've got everything, obviously, around environmental testing, which is literally booming. So we have a strong double-digit growth and that's accelerating in Q2 and we see a good momentum for the rest of the year in IAEA. When it comes to H&N and me, you know, on food we have a double-digit growth. We don't see that slowing down at all. We have a lot in our pipeline and on pharma we really have a lot of nice opportunities where We're having a lot of new wins that will translate into revenues as we go into H2. And this is fueled by all the reshoring efforts and the manufacturing which is building out in North America as far as pharma is concerned. Money is starting to pick up in all analytical testing in pharma. And we are on it. We strongly believe the trend line is up and we're on it. And we are going to take... What was the impact of Middle East on the restructuring for H1?

The impact of Middle East is around 8 million into the Middle East.

So you have an 8 million that was not possible. That's for each one. And I think, Marta, you said that we should not be above 30 million for the year.

That's about the... We remain with the initial guidance 20 to 40 million, yeah, which should give an average of 30, okay, to expect. Yeah.

Okay, perfect. Very clear. Thank you.

Thank you. The next question comes from Victoria Chang from JP Morgan. Please go ahead.

Thanks for taking my question. I just have one on the exit rate out of 2Q and how you see growth progressing from here into the second half as well as margins. And then maybe just one follow up on your natural resources growth which actually accelerated in Thank you Victoria. So you're right, we have nice exit rates as we go out of Q2 in terms of

Thank you very much. perspective on organic growth and obviously on margins. With regards to natural resources, you know, it's composed of three elements. We have, as you mentioned it, oil, gas, chemicals, minerals, and agriculture. And you're totally right on minerals activity is very, very strong. We really enjoyed a high single digit growth in minerals. Agriculture was softer, and I would say oil and gas and chemicals as well, because there is an impact here, as you rightly said, of the Middle East. But overall, we have a natural resource segment that is, you know, at 5.5%, 6.9% in Q2 versus 4.2% in Q1. So overall, you know, It's full momentum, and we don't see that changing as we enter Q3.

Okay, thank you. Next question. The next question comes from Virginia Montorsi from Bank of America. Please go ahead.

Good morning, and thank you for taking my question. Just a quick follow-up on the organic growth. Could you help us understand a little bit more on the organic growth in Europe, given it's the only... Thank you very much. Okay, Virginia, thank you for your question. So look at the organic growth, you have it really described in the deck by

Thank you very much. Obviously, you know, you have to position your services to the megatrends. This is what we do. This is why we have built the digital trust offering, the impact now offering, which is sustainability, energy transition in one hand, and everything around digital, because this is areas where our services are growing double digits. And we'll continue to do that. You see all the bolt-ons we're doing. along the years are buttons that are critical to organic growth and our margins. So we will continue to drive value through our organic growth. You have more technical question on LATAM with Argentina.

Would you like to answer that one, please, Marta? Yeah, so in Argentina, as you can see also in the definition of our organic growth, we are capping the hyperinflation. So it's not something which is inflating our growth. So in the 9%, you should not see it as polluted by hyperinflation. And I think you were asking specifically a bit more for Europe. As I commented, I wanted to say repeat on food. We see very high single-digit growth, strong in Europe. There are new projects in industries and environment, strong growth. However, we have phasing in our clinical testing activities, in pharma. and the volumes in natural resources remain soft, same, very soft connectivity in product.

And Virginia, to come back to LATAM and your question, Argentina is a small country in LATAM. It's, say, around 10% of the sales of the region.

Our biggest business is Chile.

Okay, thank you, Virginia. I hope that answers your questions. Thank you very much.

Next question, please. Thank you. The next question comes from Suhazini Varazini from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my questions. Just a couple of small ones left for me, please. Health and nutrition, you did see some client projects start up in cosmetics and personal care. Just wanted to check if that was something that would continue to benefit growth in the second half of the year. The second question is on the cost synergies that you achieved on ATS so far this year. Is it possible to quantify the impact that you've seen already in first half and what you're expecting for the full year? Thank you.

Thank you, Swazini. So yes, on cosmetics, we see a second half that's going to be higher than the first half because we see projects win when it comes to clinical testing. So all good with cosmetics and the momentum we're seeing Again, a growth trend as we are entering on the second half. On the cost synergies, regarding ATS, we are fully on plan. You remember that we said we would have 30 million of synergies. That would be cost half coming from the cross-selling. You see the initiatives and cost selling. I mentioned the data center in my comments. On the cost, it's also fully on track. So you will get at least 5 million for this year, if not more, as we're talking about cost synergies for ATS and SGS North America.

Great. Thank you very much.

Thank you. Next question. The next question comes from Neil Tyler from Rothschild and Redburn. Please go ahead.

Good morning. Thank you. A couple, please. Firstly, M&A more broadly. You obviously completed a lot of deals as well as ATS in the first half. So I wonder, Geraldine, perhaps if you could share your thoughts on the sort of evolution of the portfolio to date and whether you expect the recent pace of bolt-ons to continue, and also maybe a few comments beyond ATS on the sort of pace of integration of the acquired businesses into the wider group. And then secondly, on business assurance, just it could help me understand the sort of relative growth contribution of the different components because from the comments, it looks like two of them, three segments called out are growing at double digit. The other is growing at high single digit and the division is growing at 7.3. So I'm just kind of trying to square those numbers in my head and just understand understand the different dynamics. Thank you.

Sure. Okay. Neil, thank you for the questions. Maybe we'll start with the business assurance one, your last one. Look, the gross drivers of business assurance line is truly what we describe, which are, you know, digital trust, food, medical device. But we have, you know, the core management system or what we call the QHSC, which is the ISO certification. This is, you know, the historical business. This is growing, I would say, low to mid single digit. in the metro market that will present about a quarter of the total revenues of business assurance. And you have also some impact from automotive, you know, that automotive is still impacting, especially Europe. And that's, if you will, the kind of and all set of the double-digit growth that you see in other lines or other segments of our business assurance division. So that explains the math, as you say. If we go to M&A, we will continue on Bolton's, absolutely. That's clear. This is a part of the growth engine. We're creating a lot of value for shareholders with this. we have very strict as you remember if you were on our previous capital market event where we explained how we are making sure we have a growth and value creation engine with our bolt-ons so that is going to continue we've described the way we integrate ATS on the bolt-ons we have also A systematic approach, but not a dogmatic one. So we are making sure that when we effectively add new capabilities and expertise to the group, we can scale it up and leverage it across the regions by obviously keeping the expertise. So there's not one size fits all in integration. It depends on the acquisition. If it's a testing lab, Environmental Testing Lab, or it is cyber capabilities that's not going to be the same way to integrate the business into the SGS family. I hope that answers your question.

It does. Thank you very much.

Thank you. Next question. The next question comes from Remo Rosenau from Helvetica Bank. Please go ahead.

Thank you. Hi, Geraldine. Now the net debt has gone up considerably to 3.9 billion. However, the gross financial expenses only increased from 43 to 53 million. Looking forward, should we expect some increase in the financial expenses with some kind of delayed effect here? It seems like a very moderate increase in financial expenses.

Yeah. Marta? Yeah, Remo, I confirm that what you see in H1, you should not expect something significantly higher in H2. So indeed, we were able to, of course, we have the 1 billion euro bond we issued last year, so we have the interest expense on that to finance ATS, but we have also optimized how we manage our cash balance plus we are generating, or we know, stronger free cash flow, so this helps. So we should not expect... We should not expect a significant increase compared to the trend you see now in H1 2026.

Okay, great. And my follow-up question would be, these 3.9 billion should of course decreased somewhat to the end of the year with an increased free cash flow in the second half despite some additional of course. However, I mean, what is the kind of net debt EBITDA figure you would say is the upper end of what you would think is reasonable given your acquisition strategy?

Indeed, we have the phasing in our free cash flow generation, even though it's very strong in H1. H2 is higher. We have also the phasing of the dividend cash out, which is happening in H1. All we know, I would say, in terms of debt leverage, we should be around 2.2 times on adjusted EBITDA at the end of December.

You will see, effectively, a decline on the leverage as we go towards the Guerrero Remo. It's all good.

Yeah, I know that. I mean, technically, that is obvious. But, you know, given your acquisition strategy and that you did not exclude another larger deal, what I wanted to get at is which kind of net at the WTA level is kind of your upper ceiling?

Look, we always want to be around 1.7 like last year. That's our sweet spot and we'll get there. But we don't want to miss opportunities on the way. And, you know, but our goal is to have a strong balance sheet. That's clear for us.

Okay. So on a sustainable ways, you would not like to go above two times?

No. No, we prefer to be below that. Yes. Yes.

Okay. Okay. Good.

Thank you, Raymond.

Next question. The next question comes from Francois Digard from Cap Le Chevreux. Please, go ahead.

Good morning. Thank you to take my questions. That's a very simple one. Free cash flow, so could you help us understand the seasonality of free cash flow on the EBITDA to free cash flow conversion rates? Should the H1-H2 phasing in 26 be considered representative of what we should expect in future years. Thank you.

Okay, Marta, do you want to take it without any dramatic change on the business, obviously?

Yeah, basically, this is the seasonality which you can see also from past years, although it is improving because we try to drive a bit more balance between H1 and H2. But, yeah, roughly one-third towards two-thirds between H1 and H2 in terms of generation. This is the seasonality.

Thank you.

All right, next question.

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

Hi, just one question from me, please. It's a very broad one. So you found that you're seeing sort of better trends in pharma. You think it's a pickup in activity and clinical testing. You've also mentioned that agriculture is seeing improved performance. But you've also got sort of slightly softer trade flows in Europe mentioned in sort of connectivity and product. Is there anywhere else in the business you're seeing a material shift? Thank you. Yes, thank you, Francois.

We are always focusing on where growth and double-digit growth is coming from. And we see, as you mentioned, digital trust and impact now as key. We see sectors such as aerospace and defense also very strong. everything around energy transitions, data centers. And this is where we are providing a lot of services and we develop offering in order to answer these fast-growing sectors. So on data center, we're promoting the entire cycle concept, design verification, geotechnical, fire construction, environmental assessment, and so on and so forth, and all around the construction and monitoring, the commissioning services. So everywhere where we have some industry pickup, we are here to capture that growth, either organically, always ATS, always on bullet tons.

Last question now. The last question comes from Artur Truslov from Citi. Please go ahead.

Thank you very much for taking my questions. So first one, there seems to be some sort of private equity-driven portfolio management going on in the testing and inspection space involving both of your peers. Do you think that operating on a diversified basis as you do enables you to maximize shareholder value at this moment in time? And is there anything that you're likely to do to sort of demonstrate perhaps some hidden value within the group? And then second question, it looks like excluding the impact of the war, you might have grown pretty close to 7% in the second quarter. Is that right? And can you talk about the impact of contract pruning on both organic growth and margin in the first half and how that should impact things in H2? Thank you.

Thank you, Arthur. We will start with the second questions and I will let Marta answer on the impact of the Middle East for Q2 organic growth. and maybe you can give also for H1, Marta. So on the contract pruning, we always do that. And I would say the impact is much lower for the H1, probably around 0.1, 0.2 percentage points on the organic growth. On the Middle East, Marta, do you want to answer?

Yeah, in Q2, the impact of Middle East is roughly 80 basis points. So indeed, it will be... Not 7% underlying growth, but close to, yeah.

Yeah, and for the H1, what would be the impact?

So the H1 is around 60 basis points.

So above 6% if we, should we have not this impact. On your question around private equity, I think that shows the sector's got a lot of, is attractive and very attractive. And the debate about, you know, being specialized or being diversified. I can see it's a debate that is ongoing, but you know what? We have a lot of business lines where we are very strong. There are some others that we might consider to effectively divest and unlock some value. That's part of the portfolio. and so on. I do think that a blended portfolio really reduce earnings volatility, as I explained already, which is part of why we are posting continuous organic growth in line with our guidance and steady margin of improvement. We are not a generalist. We are deep specialists in more than one or two businesses, but in several businesses. but that reduces the risk that any single, I don't know, regulatory shock or contract that would end or cycle or any downturns defines your results. That's why we're so resilient. So again, this is a strength, a strength of SGS.

Great, thank you very much.

Thank you, Arthur. So with this, I would like again to say that our first half results demonstrate that strategy 27 is fully successful. And at SGS, we turn promises into tangible performance, and we will continue to deliver. Thank you for being with us this morning.