SGS SA Stock

Good morning, and welcome to the SGS 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 a replay on the SGS website.

[Operator Instructions]

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 at 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 U.K.

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, Maine Pointe, 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 earnings per share continued 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. We generated 18% organic growth, mainly driven by wireless connected devices. Also the recent investments in bolt-on we have realized translates 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 4 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 stand-alone 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 5 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 Agroknow, a one-of-a-kind food risk intelligence platform creating FoodNexus, the most comprehensive digital solution for the food and beverage industry. So please let me warmly welcome the experts and the employees of these companies, who joined the SGS family.

Let me now share some key highlights from our business lines, and let's start with Industries & 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 & 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 PhotonAssay, which compared to traditional fire assay delivers results in minutes with around 4x 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 & Chemicals posted moderate organic growth despite business disruptions in the Middle East. Connectivity & 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 growth 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, an EU 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 contract 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 & 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 labeling requirements, in particular, in Asia.

Food safety remains a core area of focus for SGS with our globally recognized 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 & 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 its strong momentum with high single-digit growth led by medical service -- 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.

In Sustainability, double-digit organic growth 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 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 bolt-on 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 CHF 3.7 billion, 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 CHF 260 million up by 25%, excluding the proceeds from last year's disposals of our Geneva headquarters.

Moving to the sales bridge 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 U.S. dollar. The franc has remained structurally strong and this 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 U.S. dollars.

Moving to the sales per region. In Testing & Inspection in Asia Pacific, the organic growth accelerated to close to 10% in H1 and boosted by double-digit growth in Health & Nutrition and Natural Resources, together with high single-digit growth in Connectivity & Products and Industries & Environment. Europe grew organically by 2.3%, led by high single-digit growth in Food and new projects in Industries & Environment. This was partly offset by phasing of clinical testing activities in Pharma and overall soft volumes in Natural Resources and Connectivity & Products.

In North America, the soft first quarter was followed by double-digit growth in Q2, led by Industries & Environment and Health & 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 & 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 points and this despite Middle East situation and the ForEx headwinds. The adjusted operating income grew organically by CHF 39 million, 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 CHF 42 million, contributing 10 basis points of margin progression. Lastly, the negative ForEx impact of CHF 35 million 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% -- 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 nonrecurring 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 1 percentage point.

We all that the EPS reached CHF 1.58, 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 CHF 260 million, 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.

[Operator Instructions]

Our first question comes from Rory McKenzie from UBS.

It's Rory here. I guess my 1 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 that 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 of EBITDA this year. Is that still the right number to think about? And what was the margin impact of that within Industries & Environment.

And then secondly, within Business Assurance, can you just talk about the margin impact of the disposal of Maine Pointe within this year? Any other contributions of M&A in that division?

Thank you, Rory. I'm going to comment a bit and then give -- 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 cost -- 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, it is neutral and to I&E probably slightly accretive. In I&E, 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 of the -- on the margin, which is positive, Rory, overall, you see it in the bridge is it's accretive to our margins.

Yes, 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 Industries & 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.

Business Assurance, really, we completed the disposal of Maine Pointe. The overall impact on group accounts is not material. You have here indeed as well the impact of ATS. This is the forensic business, which is -- the margin is slightly above the margin of our traditional BA business.

I hope that answers, Rory.

The next question comes from Will Kirkness from Bernstein.

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?

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 1 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 a year time. That's how we do, obviously, as soon as we have a comparable. Marta, do you want to take the balance sheet question?

Yes. So Will, on unbilled revenue, we have actually 3 impacts. One is -- the first 1 is obviously ATS plus all the other bolt-on acquisitions. You have seen the 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 a 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. Yes. So in a nutshell, those 3 impacts that have to be considered when looking at our balance sheet.

The next question comes from Annelies Vermeulen from Morgan Stanley.

Two questions. So firstly, on restructuring expenses. I think when we last spoke, you were guiding to CHF 20 million to CHF 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 how -- and the time frame 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? Was that acceleration in end market activity, new contract wins, pricing? Some more detail there would be great.

Thank you Annelies. Thank you for the questions. On the restructuring, look, we have effectively you're totally right in an impact of the Middle East. I would just say quickly, and I will give -- 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 H1. 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 this. Marta, would you like to comment on the restructuring charges, and I would take the -- I would take the mic again on North America.

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

Right. Thank you, Marta. So restructuring costs 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 Industries & Environment, we have a lot of demand when it comes to nondestructive 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 Industries & 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 good momentum for the rest of the year in I&E. When it comes to H&N, and 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. We are 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're on it, and we strongly believe the trend line is up and we are on it, and we are going to take full advantage of this market opportunities.

I don't know if it was just my line, but Marta, I didn't hear any of your answer. I think the line cut out. Could you just repeat it, please?

Okay. So Marta, what was the impact of Middle East on the restructuring for H1?

The impact of Middle East is around CHF 8 million to the Middle East.

So you have an CHF 8 million that was not positive. That's for H1. And I think Marta said that we should not be above CHF 30 million for the year. That's about the...

We remain with the initial guidance, CHF 20 million to CHF 40 million, yes, which should give an average of CHF 30 million, say, to expect.

The next question comes from Victoria Chang from JPMorgan.

I just have 1 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 1 follow-up on your Natural Resources growth which actually accelerated in 2Q despite the Middle East conflicts. So what's driving the acceleration here? Is that the minerals growth in the agriculture really continuing to be strong? Or is the Oil & Gas and Chemicals business actually still holding up quite well despite the disruption.

Right. Thank you, Victoria. So you're right, we have nice exit rates as we go out of Q2 in terms of organic growth, growth and margins, and we'll do all we can to maintain this as we go throughout the year, but I think we want to stick to our guidance today. And of course, as at the year unfolds, we will give you more precise perspective on organic growth and obviously on margins.

With regards to Natural Resources, it's composed of 3 elements. We have, as you mentioned it, oil, gas, chemicals, minerals and agriculture, and you're totally right, our Minerals activity is very strong. We really enjoyed a high single-digit growth in Minerals. Agriculture was softer, and I would say Oil & Gas and Chemicals as well because there is an impact here, as you rightly said on the Middle East. But overall, we have Natural Resources segment, that is at 5.5%, 6.9% in Q2 versus 4.2% in Q1. So overall, strong momentum, and we don't see that changing as we enter Q3.

The next question comes from Virginia Montorsi from Bank of America.

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 geography we haven't touched yet on some of the softness you've discussed. And then just as a follow-up on LatAm. Can you help us understand how much of the organic growth is factoring in the hyperinflation effects from countries like Argentina? And how should we think about that?

Okay, Virginia. Thank you for your question. So look, the organic growth, you have it really described in the deck by end market and by geography. And you can see that apart from Middle East for the reasons we know. But again, Middle east is overall not more than 2% of our total sales. I want to remind everybody of that. Every -- all regions, all geographies and all of our business lines supported organic growth.

Obviously, you have to position your services to the megatrends. This is what we do. This is why we have built Digital Trust offering, the IMPACT NOW offering, which is Sustainability and 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 are doing along the years are bolt-ons that are accretive to our organic growth and our margin. 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?

Yes. So on Argentina, as you can see also in the definition of our organic growth, we are capping the hyperinflation. And so it's not something which is inflating our growth. So in the 9%, you see it is -- you should not see it as diluted 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 & Environment, strong growth. However, we have phasing in our clinical testing activities in Pharma and the volumes in Natural Resources remains soft, same very soft Connectivity & Products.

And Virginia, to come back to LatAm and your question, Argentina is a small country in LatAm, say, around 10% right of the sale of the region.

So our biggest business is Chile for now.

Thank you, Virginia. I hope that answers your questions.

The next question comes from Suhasini Varanasi from Goldman Sachs.

Just a couple of small ones left for me, please. Health & Nutrition, you did see some client project 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've 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, Suhasini. So yes, on cosmetics, we see a second half that's going to be higher than the first half because we see projects wins when it comes to clinical testing. And so all good with cosmetics and the momentum we're seeing, again, growth trends as we are entering in the second half. On cost synergies, regarding ATS, we are fully on plan. You remember that we said we would have CHF 30 million of synergies. That would be half cost half coming from the cross-selling. You see the initiatives and cross-selling. I mentioned the data center in my comments. On the cost, it's also fully on track. So you will get at least CHF 5 million for this year, if not more. as we are talking about cost synergies for ATS and SGS North America.

The next question comes from Neil Tyler from Rothschild & Redburn.

A couple, please. Firstly, M&A more broadly. You obviously completed a lot of deals on -- 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 you could help me understand the sort of relative growth contribution of the different components because from the comments, it looks like 2 of them, 3 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 the different dynamics.

Sure. Okay, Neil, thank you for the questions. Maybe we'll start with the Business Assurance one, your last one. Look, the growth drivers of our Business Assurance line is truly what we described, which are digital trust, food medical device. But we have the core management system or what we call the QHSE, which is the ISO certification. This is the historical business. This is growing, I would say, low to mid-single digits.

In the mature market, that represents about 1/4 of the total revenues of Business Assurance. And we have also some impact from automotive. You know that automotive is still impacting, especially Europe, and that's, if you will, that kind of offset of the double-digit growth that you see in other lines or other segments of Business Assurance division. So that explained the math, as you say.

If we go to M&A, we will continue on bolt-ons, absolutely. That's clear. This is a growth part of the growth engine. We're creating a lot of value for our shareholders with this. We are very strict as you remember, if you were in 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 are also a systematic approach, but not a dogmatic one. So we're 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.

The next question comes from Remo Rosenau from Helvetische Bank.

Now the net debt has gone up considerably to CHF 3.9 billion. However, the gross financial expenses only increased from CHF 43 million to CHF 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.

Yes. Marta?

Yes, 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 EUR 1 billion 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 plus we are generating stronger free cash flow. So this helps.

So we should not expect, kind of...

We should not expect a significant increase compared to the trend you see now in H1 2026.

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

Yes. So 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 coming in H1. All in all, I would say, in terms of debt leverage, we should be at around 2.2x on adjusted EBITDA at the end of December.

And you will see effectively a decline on this -- on the leverage as we go towards the year end, Remo. So all good.

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

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 growth opportunities on the way -- and -- but our goal is to have a strong balance sheet. That's clear for us.

Okay. So on a sustainable base, you would not like to go above 2x?

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

The next question comes from Francois Digard from Kepler-Cheuvreux.

That's a very simple one. On 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?

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

Yes. 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 yes, roughly of 1/3 towards 2/3 between H1 and H2 in terms of generation of free cash flow. This is the seasonality.

The next question comes from James Rowland Clark from Barclays.

Just 1 question from me, please. It's a very broad one. So you flagged that you're seeing sort of better trends in pharma. You think it's a pickup in activity in 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 & Products. Is there anywhere else in the business you're seeing a material change in either direction in activity at a sort of market level or specific to you beyond your obviously flagged Digital Trust and Sustainability?

Yes. Thank you, [ Francois ]. We -- look, 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 the fast-growing sectors. So on data centers 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 monitoring, the commissioning services. So everywhere where we have some industry pickup, we are here to capture that growth either organically or with ATS, always on bolt-on.

The last question comes from Arthur Truslove from Citi.

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, Arthur. We will start with the second question, and I will let Marta answer on the impact of the Middle East for Q2 -- 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 that?

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

And for the H1, what would be the impact?

So the H1 is around 60 basis points.

So above 6%, if we -- should we had not this impact. On your question around private equity, I think that shows the sector has got a lot of -- is attractive and very attractive. And the debate about 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 that we're doing, where we're doing our reviews geographically and from a business line standpoint. But listen again, we have a lot of business lines where we are very strong and at scale, consumer products, environmental testing, business assurance you name it and so on.

So I do think, Arthur, 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 improvement. We are not a generalist. We are deep specialists in more than 1 or 2 businesses. But in several businesses, but that reduces the risk that any single, I don't know, regulatory or 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 of SGS.

Thank you, Arthur. So with this, I would like, again, to say that our first half results demonstrate 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.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Good morning, and welcome to the SGS Q1 2026 Sales Update. 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 SGS website. [Operator Instructions] I would now like to turn the conference over to Geraldine Picaud, CEO of SGS.

Thank you, Ariel, and good morning, ladies and gentlemen. Thank you for attending this call. As usual, I will comment on the business and share our latest news before handing over to Marta for more details on the numbers. Sales reached CHF 1.75 billion, a record for SGS. We achieved this with strong organic growth of 5.3%, combined with growth from acquisition of 7.3%. We experienced a huge negative foreign exchange effect amounting to 8.7%.

Situation in the Middle East affected our operations in the region, but the impact on our sales has remained very limited, as it represents less than 3% of our total revenues. On the positive side, over the quarter, we had several successes on the business that I will comment in the coming minutes. You will see that we are very happy with the leadership we have further reinforced in digital trust and also in our AI offering. About ATS, Applied Technical Services, the integration is well underway, and we are where we expect it to be.

Another success is the scrip dividend, which recorded a final take-up exceeding 60%. To conclude, we are fully on track, which allows us to confirm our outlook. Let's now go into our Digital Trust. The first area we are especially proud of is really our leadership in Digital Trust. As you know, Digital Trust services has been from the start at the heart of our Strategy '27. We were already in a leading position, but we have further reinforced this over the quarter.

First, we have added additional capabilities in connectivity by opening a new state-of-the-art lab in the U.K. We have also completed the acquisition of Granite River Laboratories, GRL, which brings us complementary expertise in high-speed connectivity. GRL employs 200 experts working in laboratories in the U.S., in Europe and in Asia. Secondly, in AI certification, we also have achieved some successes by delivering certifications in new geographies and to key clients.

And finally, with several bolt-ons, we have enlarged our global offering by adding to our business portfolio new expertise such as payment card security or cyber-forensic. We expect to deploy these new capabilities across the entire SGS network. To continue with the business update, let me now give you some example of how we use AI to serve our clients. Of course, we also use AI in our labs to improve efficiency and processes, but the point here in this sales Q1 update is to focus on sales and to give you a strong sense on how we can improve our customer satisfaction with AI.

Chemical intelligence in China is a great example. It allows us to reduce by 80% the traditional spectral analysis processing time. It's already live in Shanghai, and it's being currently rolled out across China. Another example on the certification side is Nirmat AI, which significantly accelerates the audit reviews by prescreening the documentation, flagging potential gaps and therefore, allowing experts to focus on critical issues. But not only are we improving the customer experience, we also are in a position to propose new services.

FoodNexus is an AI-powered platform. It enables food companies to monitor regulatory changes, identify emerging safety risks and generate audit-ready evidence across their supplier networks. In a different sector, X-Analytic is a centralized tool, which allows mining companies to manage their assets and in particular, predictive maintenance. We could give plenty of other examples of this type across the group, and we see a huge potential for the future. Let's go to ATS, and let's give me a short update on where we are.

You remember that we closed the acquisition in early January. The integration is fully on track. We want to increase the value built over the years by ATS. We have implemented a governance by SGS, while keeping ATS structure unchanged. This way, we have full cooperations to find cross-selling opportunities and implement synergies with no risk of destroying the brand, the technical expertise and the Made in America culture of ATS. We are extremely happy with this acquisition. Let's move on to our bolt-on. In Q1, we continued with our active bolt-on program. In our full year results presentation, I already commented on 5 of them.

Since the end of February, we have completed the acquisition of Digital Trust deals, especially Granite River Labs that I already presented, but we also bought Alverad, a cybersecurity company in Hungary. Trident is an ATS acquisition in the U.S. nuclear sector. And finally, OSGAPI is a French company, which provides predictive analysis in connection with floodings. Please let me warmly welcome these new experts who are now part of the SGS family. Let me now share some key highlights from our business lines, and let's start with Industries & Environment.

Industries & Environment delivered a strong quarter, which excellent -- with an excellent growth driven by Inspection & Safety and a meaningful contribution from ATS. Double-digit organic growth in Inspection & Supervision with a strong performance in Safety were supported by new wins and strong execution in Latin America and Asia Pacific. Industrial testing delivered solid results led by new projects and a strong calibration activity, particularly in Europe and in Asia Pacific.

In Environment, growth was solid overall, driven by Industrial hygiene and field monitoring in North America. Scope contribution was mainly driven by ATS following the closing in January. As you remember, inspection calibration and part of the testing businesses of ATS are consolidated within industries and environment. Let's move to Natural Resources, which delivered a solid quarter with 4.2% organic growth led by Minerals and resilient performance across the rest of the portfolio. So strong growth in Minerals was driven by the Americas, Asia Pacific and Southern Africa.

Geochemistry and metallurgical testing recorded an excellent performance supported by gold and rare earth metals. In this area, we continue to pioneer and scale advanced geochemistry solutions such as coal block and PhotonAssay to help mining clients meet operational and sustainability goals. Oil, gas and chemicals also posted solid organic growth despite business disruptions coming from the Middle East in March. And agriculture grew moderately with solid organic growth in North America.

Now let's move on to Connectivity & Products, which delivered another strong quarter with 6.3% organic growth. High single-digit organic growth in connectivity was led by wireless testing and cybersecurity. Softlines also delivered high single-digit organic growth, benefiting from a surge in demand for PFAS testing in Asia Pacific, mainly driven by new European regulations. Here, we have developed highly advanced solutions to help brands move away from PFAS. By choosing PFAS-free alternatives, brands can ensure compliance across complex supply chains, while strengthening competitiveness. And this is fully aligned with our IMPACT NOW for sustainability offering.

Hardlines posted strong organic growth, supported by new contract wins. Trade facilitation services was slightly impacted by geopolitics and contract mix. Organic growth now in Health & Nutrition was driven by food, which delivered high single-digit organic growth for the quarter. The strong performance was driven by food safety services across all geographies, and we saw continued strong momentum in health, food and sports nutrition, particularly in Asia Pacific. Food safety remains a core area of focus for SGS. And with our globally recognized expertise, we remain committed to supporting the industry with science-based reliable testing solutions.

Pharma showed improving performance in North America, offset by the phasing of projects in clinical testing in Europe. Cosmetics and Personal Care was impacted by delays in the start of clients' projects. Let's move to Business Assurance, which delivered a strong quarter with 7.4% organic growth led by Sustainability and Digital Trust. Double-digit organic growth in sustainability was driven by greenhouse gas emissions verification and supply chain services. Digital Trust assurance also delivered double-digit organic growth, supported by strong demand for information security, cybersecurity and AI assurance.

And this reflects a strong commitment to scaling our leading capabilities in this area, leveraging additional expertise brought by acquisitions such as CertX. Certification posted solid organic growth led by medical devices, a critical sector where we continue to invest. Scope contribution was mainly driven by the consolidation of the forensic business of ATS, and it was partially offset by the planned disposal of our consulting business in the U.S.

With that, I will now hand over to Marta to review our Q1 2026 sales.

Thank you, Geraldine, and a very good morning to everyone. Looking now at our record first quarter sales of CHF 1.75 billion. We were very pleased with the 12.6% growth in constant currency, of which 5.3% from the strong organic growth and 7.3% from M&A, which included the consolidation of ATS since the beginning of the year. On the ForEx side, our reporting currency, the Swiss franc remained very strong, resulting in a negative translation impact of minus 8.7%, which reduced the growth in Swiss francs to plus 3.9%.

Let me now briefly put our Q1 growth in Swiss francs into context by comparing it with the euro and the U.S. dollar. 12 months ago, in early April 2025, with President Trump Liberation Day tariff announcement, there was a sharp and rapid appreciation of the Swiss franc against all major currencies. Since then, the franc has remained structurally strong, particularly against the U.S. dollar, but also versus the euro.

This is why the plus 3.9% growth in Swiss franc is equivalent to plus 7.1% growth in euro or to plus 19.3% in U.S. dollar. As you can see here, the organic growth continues to be supported by all regions and this despite the Middle East situation. In Testing and Inspection, Asia Pacific expanded by 8.9% organically in Q1 with double-digit growth in Natural Resources, notably by continued strong performance in Australia as well as double-digit growth in both pharma and food. In addition, growth in Connectivity & Products accelerated. Europe grew organically by 2.4%, led by Industries & Environment with new industrial testing projects, partly offset by phasing of clinical testing activities in pharma.

Volumes in Natural Resources improved, while Connectivity & Products remained soft. North America grew by 1.4% organically with strong performance in Minerals, solid Environmental and Connectivity & Products, which were offset by phasing of projects in cosmetics and nutraceutical supplement testing. Eastern Europe, Middle East and Africa delivered 2% organic growth, impacted by the current situation in the Middle East. Latin America grew by 8.5% organically, supported by new project wins in Chile and Peru.

And finally, as commented earlier by Geraldine, Business Assurance delivered 7.4% organic growth, driven by double-digit growth in Sustainability and Digital Trust assurance services. As announced on the 21st of April, 61.35% of the dividend for the financial year 2025 was elected to be paid in the form of new SGS shares, the remaining 38.65% to be paid in cash. This represents a continued clear endorsement of Strategy '27 and allows SGS to reward the loyalty of its shareholders, while redirecting close to CHF 400 million of cash towards the continued execution of Strategy '27. The delivery of the new shares and the payment of dividend will take place on the 24th of April tomorrow.

With that, I hand it back to you, Geraldine.

Thank you, Marta. With that, I am pleased to confirm our 2026 outlook, and I will now open the floor for questions.

[Operator Instructions] The first question comes from Arthur Truslove from Citi.

Arthur from Citi. So one for me. So obviously, one of your competitors has announced a strategic review. I'm just wondering, I mean, do you think there's a potential sum of the parts angle for SGS? And would you consider doing a similar kind of review? And I suppose, if not, are you able to talk about the synergies between, for instance, your product testing business and your commodity testing or asset inspection businesses?

Thank you, Arthur. Thank you for your question. Look, there's no sum of the part per se study as we -- in SGS for the simple reason that this occurs when you want to realize or monetize value, which is not the case for us. We're here to grow, and we're here to keep the business thriving. So that's the first point. I would say the second point is that there's no value creation for me or loss of value to have a portfolio that is diverse and having a geographical balance on your presence.

When people say that separating business lines allow a greater expertise, I don't agree with that. I think that you can do food and you can do pharma and you can do industry and environment, and you've got experts in the 3 end markets, right? And that coexists and that actually add resilience, which is what SGS is all about. And you see that quarter after quarter. And also, of course, you can have some cross-selling in some areas where you're complementary in order to offer all services. The next question please?

The next question comes from Will Kirkness from Bernstein.

I know it's sort of early days on ATS, but I wonder if you could talk about that, how it's performing in terms of your original expectations, just thinking about next year and really when it falls into organic growth. And then I just wanted to follow up on the comments on the scrip, whether you're happy with that sort of level of take-up. It seems like it's in the range of expectations. But I guess the scrip is sort of part of Strategy '27. So maybe we expect another one this year. But just wondered how we should think about it longer term within your capital allocation framework?

Yes. Thank you very much. Look, we effectively hope and then so far, so good, we'll have an ATS that will be accretive to our organic growth next year. The second remark about the scrip, I think, it's much early to talk about what we are going to do next year. You know we have a capital market event in end of this year, and let's do that in due course, if you allow me, Will.

The next question comes from Annelies Vermeulen from Morgan Stanley.

Two questions, please. So just firstly, coming back, Geraldine, to your comments around AI implementation. I wondered what it meant for pricing. Are you typically able to use AI to bolster pricing by offering faster, more detailed, more accurate research reports? Or are you seeing instances of customers seeking lower pricing perhaps because more of the service is automated, for example? So what's your strategy around that?

And then secondly, following up, I guess, on some of Will's questions. Could you comment on leverage? I appreciate this is a sales update. But since December, we've had the closing of ATS, we've had the scrip take-up. So could you comment on where you expect leverage to land at the -- say, the half year? And with that in mind, would you say you have potentially appetite for larger acquisitions? Or do you expect to stick to bolt-ons this year? Sorry, that might have been 2.5.

No, no problem. Look, I will let Marta answer on the leverage projection maybe for year-end rather than the half year. I think it would make more sense. And then I will take the larger acquisition space and the AI implementation. Marta, do you want to start?

Yes. Annelies, on leverage, as I already commented for the full year results with the acquisition of ATS, indeed, we have a peak of around 2.2x on EBITDA, which will gradually reduce in the next 18 to 24 months.

Okay. So look, this would allow us to continue, obviously, our bolt-on acquisitions. You've seen that we've been quite successful, and we obviously want to continue on this. It's clear that our approach to date has been to acquire really expertise or geographic regions that really -- where we had gaps, and that allows us to better serve our global clients around the world to better balance our geographic portfolio so that we can really capitalize on high-growth market while limiting risk.

Look, the -- we think we have space to do bigger acquisitions and I would say that -- and continue our bolt-ons that have been successful for the reason I've just mentioned. On AI, it's most and foremost, new offers that we're doing. So we are really doing new offers, and that is a growth driver that is becoming more and more prominent, and I wanted to really give you concrete examples already in Q1. I think all the customer service enhancing is also helping to reinforce the stickiness with the customer. And we don't experiment as we speak, any pressure on our prices or on pricing at all.

The next question comes from Rory McKenzie from UBS.

I'm Rory here. I just want to ask about the U.S. consulting business. Can you just clarify whether you found a buyer for that or you're in a sale process at the moment? And can you also talk about how big it still is after the past 2 years and what the recent trends have been? And just following up on the question on AI. Nirmat AI sounds a very sensible way to speed up documentation and free up expert time. But I would have thought that would be applicable to much more of the group than just Business Assurance. Is this just a start and you think this tool will go to all divisions? Or actually is the AI strategy about having different tools or solutions for the different divisions? Just interested about your kind of internal deployment.

Okay. Okay. Yes, of course, AI is -- here, we showcased some example with Business Assurance, but when it comes to identifying the bacteria in a food lab, we have AI. We have AI with our pharma. We have agents deployed on all pharmaceutical labs. We have many examples we could have showcased, as I explained. So this is full speed across the organization. And we will have a lot to showcase when -- outside of Business Assurance when we will meet at the capital market event. So it's really in full deployment.

And as I said, it's new offers -- it's new offers. So we're building the pricing on these new offers. And obviously, the margin to the point of Annelies, is maintained on the rest. So we actually have plus when it comes to AI in terms of sales and margins. If I go to your first question on Maine Pointe, look, we came to a stage where the sale of the business become quite advanced. And we could state that at this stage, we were going to separate ourselves from this business on a certain manner.

I think I told you a business that are very cyclical, where we don't have any synergies with group businesses are candidates for sale. We also tried to improve the business. In the end, we found a solution to exit. So we adopted and we opted for that solution. So that's why it should happen very shortly as we speak, and the definitive disposal of the business.

And apologies, I think back in 2018, Maine Pointe was doing about USD 70 million of revenues. Can you comment on what the size of it is today?

It's a cyclical business. I don't comment on that. It goes up and down all the time. It depends on the project you have in a year -- in a given year. You can't have a constant trend. That's not the operating model.

The next question comes from Victoria Chang from JPMorgan.

My first question is also on the U.S. consulting business. Please may I confirm that the organic growth of 7.4% you posted in Certification excludes the consulting business, and that would be included in scope? And are you able to give some color on how the U.S. consulting business performed in 1Q? Did the weakness continue? And what effect it would have had on organic growth in the division? And my second question is on your March growth rate, please. Given the Middle East conflict, how are you thinking about growth in 2Q and through the rest of the year?

Yes, I will start on the March growth rate, and I will give the floor to Marta to explain to you the accounting treatment related to the Maine Pointe Consulting U.S. business that we are exiting from. So March, we see a very good growth. So we are confident as we speak, if things stay as is, that we will effectively deliver on our guidance and on our promises. So no -- yes, as I said, Middle East is impacted in March, but Middle East is less than 3% of sales overall as a group. So we have easily offset this impact with the rest of our activities and geographies. So Marta, do you want to comment the pure accounting treatment of...

Yes, Maine Pointe, it's actually reported as discontinued operations. This is why it is not inorganic growth. It's part of the scope offsetting partially the positive scoping from the forensic business of ATS. What I can say is should we have had no intention -- firm intention to sell and should have that been part of the organic growth, it is not material for the group as impact.

The next question comes from Allen Wells from Jefferies.

Just one quick follow-up from me, please. Obviously, you talked a little bit about the resilience in the business in Q1 and that the Middle East had a little bit of impact in March. But as we think about the shape of growth through the year, could you talk a little bit about -- specifically about kind of the exit rates in some of those areas that were impacted? How to think about the impact should things continue in April? And then maybe just more generally, I'd love to get a feeling for -- or get some color on some of the broader conversations you're having with customers that are clearly looking at this geopolitical uncertainty and the potential risk around some of their businesses.

Are they the types of discussions you're having in terms of planning, in terms of potential impact? And how comfortable are they with the scenario that they're in at the minute? Just thinking about how this shapes through the year.

Yes. Thank you. Look, again, it's -- Allen, it really depends on with which customer you're talking to. So you're talking of a biosimilar manufacturer in the U.S. is all very positive because of the reindustrialization and the promise of having for us more QA/QC testing. You're talking with another one in another place or in the Middle East, it is not the same sound. Everybody is acknowledging there is global uncertainty and there is political geopolitics playing here.

But it's -- there's a lot of diversity of reactions depending on the business and on the geography. And fortunately, we are everywhere. So when I look at the exit growth rate of Q1, I mean, we're good. And I'm confident that at least April is going to be a very good growth. And as we continue to -- through the year, there's nothing which tells me as of today that we shouldn't deliver. I'm very confident on the delivery.

The next question comes from Neil Tyler from Redburn & Co.

Just a follow-up on capital allocation, really, please, Geraldine and Marta. You've almost fulfilled your ambition to double sales in the U.S. Can you sort of help us with your perspective on sort of priorities really in terms of regions or divisions where you'd like to expand inorganically? What sort of tops your list? Obviously, I don't want to give very specific because I don't expect you to. But how you sort of frame the portfolio at the moment in terms of -- if we're sitting here in 2 or 3 years' time, where you're more likely to have allocated more inorganic expansion capital compared to today, please?

Sure. Look, we keep our portfolio as is, Neil, for the reason I've just explained since the beginning of this call. And our approach to date has really been to acquire expertise or geographies where we have gaps. But look -- I mean, I think this question is really a question for our capital market event at the year-end. So be a little bit patient, and we'll answer that in detail.

Okay. Fine. In that case, a follow-up, I'm just going to keep sort of picking all this consulting question. In your revenue bridge, there's CHF 12 million of revenue in the sort of discontinued and disposed line. Is there anything other than consulting in that number?

Marta?

Yes. As you have seen already the impacts from last year, we had a few divestments in the Middle East. So the CHF 12 million includes them plus Maine Pointe.

The next question comes from Suhasini Varanasi from Goldman Sachs.

Just a couple from me, please. One is on North America, where I think the organic growth was around 1.5% below group average. Just want to understand the key moving parts here. Was it mainly Health & Nutrition that was -- that drove the weakness? And given your strategy to grow this region, how do you see growth prospects and which divisions will drive it medium term? The second one, just a small admin, please. Where do you see FX at current spot rates for the rest of the year?

Okay. Well, maybe Marta is going to answer your question on ForEx and how she sees it at least for H1, right, or for Q2? Marta?

Yes, indeed, we have a very strong negative impact in Q1. But as I was mentioning, it is in comparison to the period before the tariff announcement last year and appreciation of the Swiss franc. Should the rate -- exchange rates remain as they are now, we -- this effect will obviously slow down and reverse. So for H1, that would mean around 4%, 4.5% negative ForEx.

Yes. And on your point about organic growth in North America, it's a mixed bag, Suhasini. So we have a very strong actually performance from our Minerals and the Softlines division in the U.S., and this has been offset by cosmetics and some clinical testing in cosmetics, where projects have not started yet and we expect that to come sometime in the year. we see a slow start in pharma. But as I explained, I'm quite confident that pharma will catch up and get to a much higher growth as we develop through the year, and we are very well positioned to capture QA/QC in most of our lab, the Fairfield lab and so on from biosimilars that are keeping increasing as we speak. And as you know, the focus on reindustrialization is coming into effect in the U.S.

The next question comes from James Rowland Clark from Barclays.

Just one on Consulting. For a while now, you've been looking to turn this business around. I just wondered what levers you implemented to try to turn it around and how come that wasn't successful? And is it because you've had an offer come in into you that you sort of ended that turnaround process or simply had you completed the turnaround and it was unsuccessful and then you look to sell it? And then finally, on consulting, can you disclose, is it above the group margin or below the group margin? Just anything on profitability?

Thank you. No, on the margin, it's completely neutral. I would say that the turnaround was going to take a lot of time because it's an activity, again, that by nature, is very, very much cyclical. and on which we never found some synergy. So having a possibility to dispose it was some opportunity that we wanted to seize, and that's what we've done. Yes.

The next question comes from Virginia Montorsi from BAM.

I just have a quick follow-up to the consulting business question that James just asked. In the press release, you described the consulting disposal as planned, but I think this is the first time we're actually publicly discussing it with you. I think at full year results, we were discussing more the turnaround of the Business Assurance segment in general. So can you help us just understand the choice of wording on the plan? Was this still the plan at full year? Or has anything changed? And how should we think about this?

Well, I think it's simple. The process was -- the M&A process did not go step by step. In February -- end of February, the process was clearly not advanced enough. It was an assumption. Now it's a process that is certain and IFRS tells you then in this case to put it in discontinued operations. This is what we have done, but it was always an option for me to dispose this business. It's something that I've always thought of either managing to find synergies. But as I just explained, it was too cyclical business to find any synergies, but we've tried.

We also tried a lot to turn it around. And in the end, it's a business that will go better as its own, functioning on its own, and that's what we are doing. So this is going to happen effectively in the next coming weeks. Yes.

Can I just ask a follow-up to this? Can you disclose what would have been the organic growth of Business Assurance if you had kept U.S. consulting in it?

I think that was already a question before that. As I said, it is not material on organic growth for the group.

The last question is a follow-up from Arthur Truslove from Citi.

Sorry, actually, all my questions have been answered.

I'm glad you're happy, Arthur. Fantastic. Okay. So let me now conclude this call. I would say that in conclusion, we do what we say and which is exactly what our brand promise stands for SGS when you need to be sure. So many thanks. We look forward to speaking with you again at our half year results in July. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Well, good morning, everyone. Thank you for being here for our annual 2025 results presentation. So let me start now here with our first performance. Marta and I will go through the full financial presentations. But here, I would like to start with a couple of remarks. As we know, for the whole world, 2025 has been a challenging year, marked by international conflicts and fluctuating or volatility in economy. I'm happy to say that at SGS, we've kept the course and even executed our best financial performance ever. We have recorded the highest sales in Swiss francs, highest adjusted operating income and highest free cash flow in the group history.

Sales grew by 2.2% despite a strong adverse ForEx during the year, again, offset by a strong organic growth of 5.6% and good contribution from acquisitions. The adjusted operating income margin has reached 16%, boosted by operational performance and cost saving plans. Cash generation and earnings per share have recorded excellent growth, and Marta will give more color about this. For 2026 now, we expect to follow the same trends. Organic growth should remain between 5% and 7%. You may remember that we signed the acquisition of Applied Technical Services in July 2025. ATS deal was successfully closed early January 2026. And together with the bolt-on acquisitions, we will exceed an additional 5% sales coming from acquisitions.

In terms of margin now, we want to keep full flexibility to invest in innovative solutions. Therefore, we don't want to put more pressure on profitability for 2026, which I remind you is also subject to ForEx fluctuations. Therefore, we will maintain 16% adjusted operating income margin minimum in reported terms. And similarly, cash generation will remain high. On top of our excellent 2025 results, I'm also very proud of how we have executed our Strategy 27. I can now say that we have achieved all necessary milestones to reach all of our initial objectives. We have launched -- for sustainability and digital trust, we have launched powerful offerings designed to match client needs. And these offers are the foundation of double-digit organic growth. Together with a targeted bolt-on policy, we are already in 2025, close to where we are expecting to be in 2 years.

In July, I already had the opportunity to share with you that we had achieved 80% of our objective to double sales in North America compared to the baseline of 2023. And now ATS is closed. So it's a great achievement that we have accomplished. And this will be obviously an excellent complementary of expertise and services for SGS. Finally, as you know, we've completed the reorganization that gives us more agility and performance. So with all these actions, we have reached the excellent level of profitability, cash flow and balance sheet that we report today. So focusing on sustainability, we have recorded about 15% growth. The 4 pillars of Impact now strongly contributed, leading to a very strong performance on an organic basis, and we also added complementary offers through bolt-on acquisitions, especially in environmental testing.

Digital trust services are really at the heart of our strategy more than ever. And in this area, we have a very solid basis to our clients' growing needs in connectivity, cybersecurity and in AI. Here, we also recorded a very strong organic growth and a double-digit growth from acquisitions. In our Strategic Plan 2027, we included the objective to significantly increase our presence in North America. We believe that North America will provide the foundations for sustainable growth on a long-term basis. The reasons for this are that it's a market with high consumption levels. There is high consumer demand and regulatory requirements, notably for life sciences. In addition, a few years ago, as you know, the country entered into a phase of reindustrialization, which is now further accelerating. So we definitely needed to be there. We definitely need to be there, and this is done with the acquisition of ATS.

Now let me give you a short update on bolt-on acquisitions. Since our last sales update call in October, we have acquired 7 additional companies. Let me go briefly into these companies. And I remind you that all these bolt-ons represent CHF 190 million of additional sales on an annual basis. So who are the new covers? Semi in France, essentially a carbon accounting platform. Australian Superintendence Company provides inspection and laboratory services for exported agricultural products. Information Quality, again in Australia, is a digital engineering services company. Panacea Infosec is a leading cybersecurity services company based in India. MSMIN in Chile provides asset reliability and integrity services for the mining sector. Murray-Brown Laboratories is specialized in food safety in the U.S. Cyanre, finally, is a digital trust player with an expertise in digital forensic in South Africa. So I'm very excited to welcome the talented employees of these companies.

So before reviewing the business drivers of 2025 in more detail, we wanted to give you a sense of the group development since we implemented our Strategy 27. Sales has regularly expanded, sustained by organic growth between 5% and 7%. Adjusted operating income and free cash flow have both grown over proportionally to the sales growth and also benefited from improved organizations and improved operations. Earnings per share has followed the same positive trend.

Now let's start with Industries & Environment. The business here delivered strong organic sales growth of 6.5% and an improved adjusted operating income margin of 13.1%, driven by inspection, safety and supervision. Safety, for instance, delivered double-digit organic growth, fueled by robust demand in the Americas and in Eastern Europe, Middle East, Africa. Inspection & Supervision of construction projects recorded also a double-digit growth. It was driven by new project wins and robust execution, particularly in Latin America as well as Asia Pacific, which benefited from infrastructure development and energy transition-related activity. Industrial Testing delivered solid performance across all regions, supported by construction material testing. And finally, Environmental testing achieved solid organic growth with sustained momentum in field monitoring and sustainability-related services like PFAS, supported by tighter regulation and growing customer focus on environmental quality.

Let's now move on to Natural Resources. Natural Resources delivered a solid performance in the year with organic sales growth of 3.4% and an adjusted operating income margin of 13.6%. Minerals delivered solid growth led by trade services in Europe, Latin America and Asia Pacific. This growth was supported by strong demand for metals, including gold and copper and critical minerals. This demand, as you know, was driven by electric vehicles, battery-related regulations. When we look at oil, gas and chemicals, they achieved a solid growth, reflecting resilient demand, particularly in Asia Pacific and also in Latin America.

Finally, Agriculture grew moderately with strong activity in the Americas, but that was partly offset by softer market conditions, notably in Europe. If we look at Connectivity & Products now, they delivered a strong organic sales growth of 6.4% and an improved margin of 22.8%. That was driven by positive momentum across all the business segments of Connectivity & Products.

And let's start with connectivity, which delivered strong organic growth led by product safety, continued electric vehicle momentum in Asia Pacific and robust wireless demand in North America. The demand for technology, security and compliance continues to increase as connectivity requirements expand across devices, platforms and networks. This reflects the strong demand for digital trust services. Hardlines achieved excellent organic growth, benefiting from strong demand for home appliances. When we look at Softlines, they posted a very strong organic growth driven by performance testing in what we call athleisure, athletic leisure and all the wellness products, alongside with high demand for eco-friendly products. Government services also recorded solid organic growth that was led by anti-fraud and conformity assessment services as authorities continue to strengthen consumer protection and trade compliance.

Let's turn to Health & Nutrition. This business line recorded a strong performance with 7.3% organic sales growth and an improved adjusted operating income margin of 14.1%. Food delivered double-digit organic growth was supported by strong demand for food safety services and contaminant testing that was across all regions. This growth reflects tightening regulation and an increased focus on food toxicology, rising consumer health awareness and growing expectation around the product safety and transparency. We have continued to invest in analytical capabilities, particularly in Southeast Asia to support this growing demand.

Pharma. Pharma delivered a solid growth. It was led by clinical research activity in Europe, which was partly offset by softer performance in drug development despite improving pipeline conditions in the United States. Here, we continue to focus investment on higher-value areas, including biologics and advanced drug development, and that will support our long-term growth in Pharma. Cosmetics & Personal Care recorded solid organic growth. Performance was partly impacted by midyear tariffs followed by a recovery in activity towards the end of the year. That was supported by new project wins and an improving demand.

Let's now turn on to Business Assurance. Business Assurance delivered organic growth of 4.2% and adjusted operating income margin of 19.6%. Performance was led by sustainability and Digital Trust. Digging into more details, all the quality management systems, the ISO certification schemes were impacted by a high comparable of last year that was coming out of a post-certification cycle. Consulting also remained soft in Business Assurance. But by contrast, sustainability continued to deliver double-digit growth, driven by strong demand for supply chain audits and greenhouse gas emissions verification. It was also supported by increasing regulatory requirements and stakeholders' expectation there. Food and Medical Devices certification also maintained double-digit growth, reflecting tightening regulation. And you know that certification here plays an absolute key role in protecting product integrity, safety and market access. Digital Trust delivered strong double-digit growth as demand for cyber resilience and data protection continues to accelerate.

So with that, I will now hand over to Marta to review our 2025 financial performance.

Thank you, Geraldine, and a very warm welcome to everyone. Let me start with the main financial indicators of 2025. Sales reached a record high of CHF 6.95 billion, supported by the strong organic growth of 5.6%. Adjusted operating income also hit a record high of CHF 1.1 billion or a 16% margin on sales. This is an excellent improvement of 70 basis points compared to 2024 and 130 basis points when compared to 2023, which is the baseline of Strategy 27. Earnings per share before the gain on disposal of our former headquarters in Geneva amounted to CHF 3.21, up 3.5%. Lastly, the record results were confirmed by a record free cash flow generation of CHF 774 million, representing 57% cash conversion, in line with the already very strong cash conversion in last year.

Moving to the sales bridge. You can see the strong 7.3% growth in constant currency, comprising of 5.6% organic growth and 1.7% from M&A. The Swiss franc continued its appreciation, generating 5.1% negative ForEx, reducing the growth to 2.2% in reported terms. As you can see, sales growth was supported by all regions. In Testing & Inspection, Europe added 2.4% organically with solid growth in Health & Nutrition and Industries & Environment. This was partially offset by low trading volumes in Natural Resources and Connectivity & Products. Asia Pacific delivered high 7.7% organic growth with strong performance across all business lines and in particular, double-digit growth in Food and high single digits in Connectivity & Products. North America expanded 3.9% organically, led by a double-digit growth in Safety, Connectivity and Food and moderate growth in Environment. Minerals and Pharma remained stable. Eastern Europe, Middle East and Africa grew by 5.3% despite low trading volumes in Natural Resources, impacted by the political uncertainty in the region. Latin America added 13.6% organically, supported by new project wins in Chile. We saw double-digit growth in Inspection & Supervision, Environment, Safety and Food. And finally, as presented earlier by Geraldine, Business Assurance delivered 4.2% organic growth, led by sustainability and Digital Trust services, while quality management systems were impacted by a high comparable from a post-certification year. Consulting remained soft.

Looking now at the adjusted operating income of CHF 1.1 billion, which is 16% margin on sales. It expanded organically by CHF 108 million, equivalent to 70 basis points of margin improvement, boosted by the successful execution of the organizational efficiencies plan. Accretive bolt-on acquisitions added CHF 26 million, contributing 20 basis points of margin progression. Lastly, the negative ForEx impact of CHF 66 million, equivalent to minus 20 basis points was driven, as commented earlier, by the strength of the Swiss franc. Looking now at the ForEx, which remains a headwind. You can see here the main currency impact. Overall, the negative 5.1% ForEx on sales was equivalent to minus 6.4% on adjusted operating income or 20 basis points in the AOI margin, as commented earlier.

Moving at our efficiency plans update. We are proud to confirm that both the lean operating model and the procurement savings plans are now fully executed. They delivered CHF 115 million visible in the P&L since 2024, with CHF 150 million run rate reached at the end of 2025. In terms of savings, you remember that in 2024, we already accounted for CHF 50 million savings. This was followed by CHF 65 million in 2025, bringing the cumulative impact to CHF 115 million. The remaining part of the savings will flow through the P&L in 2026.

Let's now dig into the full P&L. As presented earlier, sales grew by 2.2% and the adjusted operating income expanded over proportionately by 6.5% or CHF 68 million in absolute. When we look below the adjusted operating income, you can see the decrease in restructuring expenses as the lean operating program is now fully executed. The other nonrecurring items and transaction costs include the gain on the HQ disposal, which was offset by acquisitions and legal costs and loss on divestments from noncore businesses in Eastern Europe, Middle East and Africa. The financial expenses improved slightly, thanks to the net debt decrease. And the effective tax rate improved as well to 25% from 26% in prior year. Thanks to all that, the earnings per share reached CHF 3.48 or an increase by 12.3%. When we exclude the HQ disposal gain, this becomes 3.5% expansion. Now -- and as we report in Swiss francs, often regarded as the strongest currency in the world, especially today, we wanted to show how this compares when presented in euro or U.S. dollars.

In terms of sales growth, the 2.2% in Swiss francs corresponds to 3.9% in euros and 8.3% should we report in U.S. dollars. The earnings per share before HQ disposal, which grew by 3.5% in Swiss francs translates to 5.3% in euros and close to 10% in U.S. dollars. Coming to the free cash flow, where I'm happy to report that the record '25 results were confirmed by the strong free cash flow, a record high as well of CHF 774 million. This is 57% cash conversion on adjusted EBITDA, in line with last year. Furthermore, the net proceeds from the former Geneva HQ disposal brought additional CHF 67 million, bringing the total free cash flow to CHF 841 million.

Moving now at the return of invested capital ratio. In 2025, the ROIC remained at the industry-leading 24%. This illustrates our highly efficient operating model and disciplined M&A program execution. Now in terms of debt leverage, the excellent profitability and high cash conversion further improved the ratio, which stood at 1.7x of net debt on adjusted EBITDA. This improvement reflects our commitment to maintaining a solid financial profile, which is crucial for supporting growth initiatives.

Finally, our excellent results allow us to maintain a highly attractive dividend of CHF 3.20 per share. This will be proposed as a scrip dividend, giving shareholders the option to receive it in cash or shares. 2025 was also a year of big progress in terms of ESG. Most notably, customer satisfaction increased to 92%, and we provided 7.7 million training hours to our customers and employees. We also maintained our leading ESG ratings position, and SGS was included for a second consecutive year in Times World's most Sustainable Companies list.

And with that, I hand over to you, Geraldine.

Thank you, Marta. So now let's turn on the outlook again. And for 2026, I see that part of our megatrends becoming even more stronger and stronger. More precisely, cybersecurity and AI as well as customer awareness and well-being, also called conscientiousness that will drive growth in the future. And this will especially benefit digital trust services and life science activities and we will provide more color at our next capital market event. So thank you for listening.

And with that, we will now move to Q&A. Thank you.

[Operator Instructions]

Annelies Vermeulen from Morgan Stanley. Firstly, just on the margins, you've clearly delivered more rapid progress than you originally guided for. So could you talk a little bit more specifically about what contributed more positively to that margin expansion than you originally anticipated when you set the plan 2 years ago? And if you think about margin progress from here, do you still see further upside opportunity from cost cutting, productivity gains, et cetera, as you think about the future? And then secondly, on organic growth and the guidance, you had quite a range between the divisions in 2025. Do you expect growth to be more balanced between the divisions in 2026? And if not, where do you see the strongest and lowest growth?

Thank you, Andy. So on your first question about the margins, when you start to have cost saving plans, you better execute them fast. So that's what we've done and not communicate on that year-on-year. So that's what we've done, and that's just the speed of the execution that lead us to basically get to our 2027 target faster than planned initially. So we have overperformed in terms of, let's say, in terms of speed of execution, we are ahead of schedule. That's clear. That's also why we are positioning a new capital market event at the end of this year. So basically, speed of execution is key.

When it comes to the future, you're asking what the future margins are going to look like. And I think I have said at least for 2026 that we want to maintain at least, again, at least a 16% adjusted operating income margin. And remember that I'm guiding in reported terms. And you've seen the slide of Marta, there was 20 basis points as a headwind this year on the margin on top. So that's not going to fade away. There's going to be some headwind on the margins next year. So that means we need to get efficiencies. We need to go always for more efficiencies, and there are some that we can get. So we will get the surplus. But my message here is that I'm keeping the right to investing this surplus into innovative solutions as we need to provide more digitalization and offering and so on and so forth. And then I want to keep that possibility. That's why you have this guidance.

And then you mentioned about the organic growth. We are just at the beginning of the year. It's a bit too early to say. I think the megatrends that I described are here to fuel the growth, right? So that's where -- when you look at it, these megatrends are selected because they are impacting our customer the most and therefore, are propelling and fueling our own growth, right? You see. And this is where, of course, we need to always see how things are evolving because things are evolving and accelerating very fast. So you need also to adapt. That's also a good reason for doing another capital markets event at the end of this year. But let us enter the year, and we'll give more color for the Q1, right?

Tom Burlton here from BNP Paribas. I just had a couple of questions. One on the U.S. You talked about signs of -- or at least the theme of U.S. reindustrialization. Just curious as we think about that U.S. up cycle, what evidence are you seeing already within your business of the early signs or sort of green shoots of that? And then separately, if I think about your Health & Nutrition business, I wonder if you could comment on your exposure to this building infant formula recall issue that we're seeing from some of the staples companies. What exposure you might have already there? What services you might provide or what services you could in theory provide as that crisis builds?

Sure. So in the U.S., we see a lot of demand around all the energy needs with regards to data centers and obviously, in AI. And that provides a need for safety, a need for compliance, the need for ensuring that the environment -- environmental testing needs are also required there. So that is driving the demand. All -- everything around digital is also very, very strong in the U.S., all the cyber resilience, AI -- well, is the AI true it's sake is the algorithm proper? Is it biased or not based and so on and so forth? So we see a lot of demand in the U.S., as I said.

And in terms of reindustrialization, it's basically all the building construction sites for sure, but also -- all the aerospace, military, industry, defense industry are also effectively driving this reindustrialization that has taken place already for some years. It's just not yesterday, but it's accelerating.

On the infant formula recall, well, first, I mean, it's a big topic. I mean we're talking about nutrition for babies. So our goal here is to be side-by-side with our customers and to accompany them and obviously, to help them to do the new test in the new -- fulfill the regulations requirements that are effectively changing and becoming strengthened, are stronger. And we are there all over our network to accompany our clients and be with them so that they can ensure safety for the consumers.

It's Will from Bernstein. If I could just go back to the margin point. So just thinking about the bridge for '25, because I think the CHF 115 million of cost savings would give you a decent uplift, maybe 170 bps, 20 off for FX. So there's still a bit to bridge that gap, which I guess is sort of investments M&A. So if you could to run through what that is? And then how we think for '26 as well. So I guess you've got 50 basis points that should flow through just from the incremental cost savings to come in. And then secondly, I just wonder if you could talk a bit about AI tooling, so how that's driving efficiency in the business, where those efficiencies are and whether it's really realistic to think about them as margin accretive?

On the AI efficiency?

On the AI efficiency.

Yes. So I'll let the first question to Marta. He's going to go through the bridge for you. Yes. I'll take the second one.

So indeed, if you look at the 2025 margin bridge, you have 70 basis points coming from the organic growth of the margin. Into that, a bit more than 80 basis points are coming from the lean operating model and procurement savings. And then the difference is to be attributed to the investments we did in commercial excellence in marketing and also building new service offerings, especially in digital trust.

So on AI, obviously, we are looking at it to generate more efficiency and more productivity. We are a people business. So there is a potential, as you can imagine, to optimize greatly SGS. Now the first thing we see is there's going to be an upskilling. So as we put AI into more and more of our business lines, it's going to be an upskilling. And then we will obviously identify productivity gains clearly. And that's part of the journey and part of the constant improvement and efficiencies that I've mentioned that we have to produce each year, and we are committed, obviously, to use AI also for ourselves. But also for our customers, it's also a source of growth as we're putting AI into our services that we're rendering to our customers. So you have to see it both ways, externally and internally.

Arthur from Citi. So a couple of questions from me. So the first one was just around the scrip dividend. So I was just wondering where you think -- when you think that will stop? And where do you want the net debt EBITDA to go to kind of within that context? And then second question, going to sort of Softlines, Hardlines within Connectivity & Products. Obviously, there has been some sense in the market that, that has been performing sort of unusually strongly in the last couple of years. How are you thinking about that as it progresses forward into 2026? And are you seeing any sign of any sort of slowing or tough comps or any of that?

Thank you, Arthur. Look, on the Softlines and Hardlines, we're very happy about the performance. It's very strong in effectively in Asia Pacific region. It continues. We see it continuing actually. We don't see it slowing down as we are also enhancing our services here. Connectivity also is a part that remains particularly strong as you have more and more cyber resilience required, AI sometimes embedded into the devices that you're using. So we see also a strong demand part of this digital trust megatrend. And on the scrip dividend, do you want to comment on our ideal net debt to EBITDA level?

Yes. You have seen we started in the baseline year 2023 with 2x debt leverage. This improved to 1.8 in '24, now at 1.7. Of course, we have closed ATS at the beginning of 2026. So the net debt leverage will temporarily go up to around 2.1, 2.2x and then gradually reduce in the years following the acquisition. Now you have seen also the attractive dividend we have committed and we distribute of CHF 3.20 per share. So it's important for us. It's important to keep this highly attractive remuneration to shareholders. And the elegant way to reconcile growth and investments with attractive remuneration is the scrip dividend. It's optional. Taking shares is also tax effective, so proven successfully over the last 2 years with more than 60% take-up. So yes, we are happy with that setup and our investors as well.

[indiscernible] with the scrip beyond '25 year-end, would you expect to be doing a scrip for the summer '27 as well?

I remind you that's part of the Strategy 27 to ensure a solid financial profile. So that's part of the strategy was announced in January. So at the moment, yes.

Allen Wells from Jefferies. Just a couple from me. I'd like to follow up on Will's question on the margin progression in 2026. If I look at 2025 and as you kindly provided, you strip out the investment, the savings, it looks like underlying margins are broadly flat, which is explained by the reinvestment you're putting in the business. How should we think about the underlying margin progression in 2026? I mean the savings will come through, there will be an FX will be what it is. But would you expect underlying margins to broadly be flat again as you reinvest most of that back into growth? And maybe you can elaborate on building blocks there to what extent you think mix, operating leverage, reinvestment will play a part in that?

And then second question, just on M&A. Obviously, post the ATS deal, could you maybe just talk about appetite for slightly larger deals in 2026, what the pipeline looks like? I guess it feels like with the 5% to 7% guidance, 1% to 2% from additional deals, it's maybe a bit more of a year of bolt-ons, but any expansion would be helpful.

Yes, I'll take your second question. And Marta, you can maybe build on all the positive actions that we have to boost our margins and underlying margins. Even though I don't like this underlying margins because it looks like you're slicing down everything. But when a lab manager make an effort to reduce costs, it's not a bucket separately. It is part of his operating leverage. When it increases the business, it's part of this operating leverage. So slicing it down to bits and pieces like that is not really how we look at it, but Marta will answer you.

So about a big acquisition, another one. Look, we will continue certainly our bolt-on acquisition program. And you've seen that we've done already 5 or 6 already since the beginning of the year. And that is something we want to continue to do because it's accretive to the growth. It's accretive to our margins. We have to consolidate our offering into the megatrends that I described in the right geographies and the right segments. So that's something we will continue to do. And look, if something happens that we have or we can't miss, then we'll see in due course. I don't have a crystal ball for now, but who knows.

And on 2026 margin, you have seen that we have another CHF 35 million to flow through the P&L from the CHF 150 million operational efficiency plan. So that is there. That's secured. Then, of course, we are, you may say, a fixed cost business to a big extent, especially for the testing part of the business. Then naturally, when we grow volumes, when sales are growing, this drives positive operating leverage. But now we are also a high-growth business and it's services. So you have to see the investment in the business on one side as CapEx for our facilities in our testing labs. But on the other hand, as pure OpEx investments to build those new service offerings.

And our ambition, and this is constantly the feedback I give, don't expect from us to be a business at 17%, 18% margin, but flopping sales. So right now, I think we are lean, we are agile. We are hungry to continue growing fast. and that's our focus. So we will continue to reinvest and it is not margin at all cost. We have now bridged the gap with peers if you had to compare us. We are happy with that. Important to remain at those levels to keep agility. And again, I'm confident if it is the case. I think the key word is keeping flexibility about the same. So yes, we'll get the surplus. We'll get more than 16%. But the point, we want the flexibility to invest that surplus and we will or we will not, but we want that flexibility.

Daniel from Z�rcher Kantonalbank. I have 2 questions. One, about the extraordinary costs, you had like CHF 90 million in '25 plus the headquarter, so it was about CHF 150 million. Could you give a run rate on extraordinary cost restructuring? And the second one, could you remind us of the integration plan you have for ATS, how you can get stronger growth in the U.S. because of it and also of the CHF 30 million savings you plan there when they will come through?

Yes. I'll come with the -- I'll start with the ATS and give the first question to Marta. So we were ready day 1. We appointed an SGS talented director to lead ATS, lead the 4 P&L leaders of ATS that you remember are testing, inspection, calibration, forensic in order to ensure that we can get the cross-selling synergies and we can get the best of the 2 worlds between SGS North America and ATS. So it's not an integration where you're putting a bolt-on into your systems here, they are a big group. They have already very good and very best practices. It was important to have things going both ways. And this is ensured through a governance, which is Marcus is taking the lead on ATS and he reports directly to me.

Regarding the items below the adjusted operating income. So the first big line is restructuring expenses, right, where you saw the peak in 2024 with the lean operating model program, which is now in 2025 reduced to around CHF 45 million level. In 2026, again, you should expect there CHF 20 million to CHF 40 million restructuring expenses, which is continuing the business to operate. They are already -- they are always a need of some level of restructuring expenses.

Then the level below what we call other nonrecurring items or extraordinary items, we don't usually guide on that. Again, a reasonable level. If you look at the historical trend over the average few years, you will be at a level of CHF 120 million, something like that, but it can fluctuate. So again, we don't guide on that. Those are items that are not easy to forecast. They wouldn't be extraordinary otherwise.

So in short, the restructuring costs are going to continue to decrease. They've already halved by compared to '24, and we are going to continue to lower this. The rest is noncash cost that Marta has and that might not have in the years to come or it's kind of difficult to predict. But in any case, what does imply the free cash flow.

Victoria Chang from JPMorgan. My first question is on the margin phasing between first half and second half. So given that you still have the run rate savings from the procurement done in 2025 to be seen in the first half, would you expect first half margin expansion to be higher year-on-year versus second half?

And my second question is on Natural Resources and on the margin specifically. Marta, I think you mentioned in your opening remarks that there was some political uncertainty impacting growth in the Middle East within Natural Resources. Could you also expand a little bit more on the key drivers on the margin in 2025 and the weakness there?

Okay. Marta, do you want to start with the Natural Resources maybe and what...

Yes. So you see all the news, be it in the Middle East or in Africa. So again, this leads to uncertainty. This leads to less trading volumes, and it's reflected in the slower growth of natural resources, specifically in the Middle East. Now the margin, it's a business. There is an inspection component and, of course, testing. But when the top line is temporarily down, we have chosen not to reduce our inspectors because it's a cyclical business by definition.

So Natural Resources, if you also look back at the historical data, it fluctuates. But it always come back because it's driven eventually by consumption. You can have temporary slowdown. Inventories are depleted, then it has to pick up. So you see it that way. And again, Eastern Europe, Middle East and Africa is a difficult region politically.

It's been fairly challenging on the political uncertainties, and you've got 3 components on Natural Resources. So you've got agriculture, you've got minerals and you've got oil and gas and chemicals. And we really have suffered from a very bad crop in Europe for agriculture. So that has really lowered our performance in agriculture. Minerals has done super well. Metallurgical testing is booming because of gold, copper, critical minerals that has been offset by a, I would say, sluggish or slowdown in oil gas chemicals, but -- and this crop is agricultural. But as Marta said, it's bouncing back. And 2 years ago, that was almost the opposite. So it's changing. And the fact that we are having this exposure to these 3 areas makes it -- makes us quite resilient.

And maybe on the procurement savings and the phasing of Bayer Impact in 2026. Again, those are structural procurement savings, and they are really driven by the renegotiation of our main suppliers contracts, which happened at the end in Q4 of 2025. Therefore, in terms of saving, it is really throughout 2026. There is no biggest portion to fall in H1. It is more evenly spread because the new contract and new prices were signed at the end of 2025.

Arnaud Palliez, CIC CIB. On Sustainability Products and Solutions, do you see any change in trend following the environmental backlash in the U.S. and softer regulations in Europe? Or are we still on the same kind of trend?

No, that's a good question. But look at our performance in sustainability, we have 15% of growth, reported growth, organic growth, 15%. So there's still a very strong demand in all areas related to the energy transition, I would say, also to what I described as this consumer consciousness. And it's not only the X or the Y and the Z generation that people want to know where the product they use has been produced, how it is being produced. Does it contain heavy metals, PFAS, contaminants? They want to know it. And this trend is really fueling the growth on the sustainability impact now framework that we have inaugurated. So it's really no. And it's not only U.S., it's also Europe. And in Europe, the carbon emissions still matter and still matter a lot. So overall, no, I don't see any decline here on this megatrend.

Maria Virginia Montorsi from Bank of America. Could I ask you, if we think about I&E for 2026, what are the key moving pieces for growth when I think about end markets? Because you obviously had a very strong Q3 and a little bit of a sequential slowdown in Q4 despite easier comps. So -- and obviously, it's a very good end market for you guys. So how should we think about the full year and what's really driving the strength?

Yes. Thank you. Look, we have a very good performance that we see continuing and everything we call safety. You see inspection, testing, that is something that we feel is going to continue. Remember that we were impacted also a bit by shutdown in the U.S. also in Q4 that didn't help. But everything around construction is an area that we need to definitely focus more because construction material testing is effectively growing fast, notably in APAC, actually. So look, we see fundamental strong growth for I&E.

Suhasini from Goldman Sachs. Just a couple for me, please. Given the growth rates that you saw first half, second half in '25, when you think about the growth for 2026, underlying organic, do you expect growth to be weighted maybe a little bit to the first half or the second half? That's the first question. And do you anticipate doing any more portfolio review work that can be a drag on numbers in '26?

The second is just more housekeeping, to be honest. When we think about including ATS in the numbers, do we expect it to be accretive to EBIT margins? What is the current FX drag on revenues, profits, interest tax? If you could just run through that.

So there are several questions. So we are going to start with the FX question with Marta, and then I'll take on ATS, the portfolio. And about the growth, it's a bit too early to really give something. We really, as I said to early, I think I prefer to wait for the Q1 call to give more perspective on how the organic growth is going to unfold for us during 2026. Marta, you're taking the ForEx?

Yes. So ATS, they are operating exclusively in the United States. So their margin per se is not really impacted. Of course, if the U.S. dollar depreciates further, it is proportionate between sales and EBIT. In terms of is it accretive, we were showing 20 basis points here in 2025 from our bolt-ons. Now that we have reached the 16% EBIT margin level, I would say ATS is slightly accretive in our EBIT, but don't expect the same proportion. Obviously, we are now at a higher level compared to '25.

It's accretive with the synergy. I want to insist on that. So let us put the synergies in place. But I think it's the ForEx for 2026, the impact on sales, I think that was more.

Overall -- yes. Now the overall impact of ForEx, you remember in terms of evolution in the baseline last year, Q1 actually, the Swiss franc was stable compared to other currencies until liberation day in early April 2025. So now in '26, when you compare, we are having huge ForEx in Q1. You should expect 8% ForEx and then easy comps in terms of ForEx from Q2, Q3, Q4. Again, this is if we take the current levels.

Yes. So we prepared for another strong ForEx adverse impact as we are going to publish Q1, we're on a minus 8%, minus 9%, probably if rate stays as is for Q1. That's what it is. Again, you can make the translation and see the impact if we were publishing in another currency. You mentioned about portfolio, I would say that there's -- if you're thinking in terms of sales of potential activities, there's nothing we want to sell apart from little things here and there, but that's not worth really making an announcement about that. We've done some in 2025, derisk clean, and that's part of the things that we are going to continue to do. But overall, we are happy with our businesses. They have good margins.

It's Neil Tyler from Redburn. Two questions, please. Coming back to margin. Divisionally, the 2 areas that grew the strongest of those were typically the kind of higher fixed costs, the testing-based businesses, CP and Health & Nutrition. Is that sort of right to draw a line between that cost structure and the margin progression? Or was there more efficiency to be gained within those businesses? And taking that sort of one step further into your comments about reinvesting, are you looking at that sort of reinvestment of margin on a division-by-division basis? Or if one division produces more gain, is there scope to reinvest it elsewhere?

Second question on capital allocation and M&A. It's a pretty impressive and diverse list of bolt-ons, both sort of regionally and business line-wise. Can you talk about a little bit about the process of selecting those businesses? How many you have to sift through to kind of get to that point? And some of these are sort of relatively small and emerging and fast-growing businesses. And how do you get comfortable given you've said that the sort of megatrends and the backdrop are changing so quickly that you get comfortable that these businesses aren't those that are going to be sort of potentially of disintermediated or at risk as things continue to change.

Right. It's a good question. Look, on the bolt-ons, we have a very strict process. But first and foremost, it is a business leader that source the deal. It's not coming out from any fancy consulting consultant presentation or whatever. It is really sourced by the business. The business has to know its market, has to liaise with competitions or with complementary services that is missing in its offering. And obviously, we look at it. There's a very big pipeline. We're very selective. We described during our capital markets event the criteria upon which we do acquisitions. We look at it from a ROIC standpoint, from a payback standpoint, and we always assign a business leader in charge.

So there's no one that can come with, oh, I have this idea that would be great -- looks great, it's fancy, it's fashion, whatever, without having someone that is fully committed to execute the business the acquisition business plan. And that's really the important thing here. So it's payback, and there's a business ownership that is extremely strong.

We obviously look and study the business. We see how resilient the growth is, how the customer base is. We see how it can fit in our portfolio as well, what kind of complementary services. And then we effectively scale what we can scale to get synergies on top on the cost side, right? This is what -- you've seen it's accretive to our margin. It's accretive to our growth. So it is very important that in an industry which is growing and which is so fragmented, you have an active role. Otherwise, you wake up one morning and then you stick with your own lab, but you haven't provided or evolved into what you offer to customers. And it takes time to get an accreditation. That's also one of the fundamental barriers to entry we're having in our business. And acquiring a lab is already the set of accreditation that you don't have just provides you an edge and allow you to speed up. And that's why bolt-ons are a key component of our strategy. So that was your question on the bolt-ons.

And you asked about -- what was it about the margins, right? About reinvesting, how we are going to reinvest? Look, again, it has to be accretive to the growth. It has to be accretive to margins. So this is where we're going to reinvest. I think the important thing is that when people ask a lot about digital or AI, and there's a lot of fancy startups all over the place and great. But here, we often prefer to do it organically and to invest into people to develop this capability internally. So that will cost some basis points of margins because we're going to have the cost internally, but I prefer big time this and taking a bet in. So we take care.

Michael Foeth, Vontobel. I have a question on Business Assurance. If you could give some more color on the trajectory of the consulting business. I think there's a big discrepancy between all the double-digit growth that you described in many parts of Business Assurance and the overall growth is only 4%. I'm trying to figure out at what point we can see a real reacceleration of the overall business there.

Yes. It's clearly we've been impacted in consulting. It's a business that is suffering for the last 2 years. That's clear. Projects have been a lot delayed last year. We see and are hoping it to bounce back this year. But I will remain cautious. I hope I'll have better news to announce to you in the end of Q1 when we have our Q1 call. I always want to remain cautious. You know me. I will not start to overpromise anything and deliver, not with me. So we have to fix the business. You've seen that we changed the management of Business Assurance, and this is in process. But I think the environment is better for consulting this year than it was last year. So let's see. Last question.

James Rowland-Clark from Barclays. My first is, after all this M&A in the last year plus, has the competitive backdrop changed at all? Is there a greater attention on the bolt-on deals that you're after? And then secondly, you've done maybe 2/3 of the deals in North America and Europe, which are organically underperforming the rest of the group. So can you just talk about whether those regions should accelerate back up to near the group average over time as you drive growth? Or is it really a margin story and a return story on those deals?

No, there's no margin or return story on North America and Europe. We needed to -- we're in a process to fix these regions. It's been tough in Europe economically and politically. I mean, it's fair to say that there's been a recession in Germany with the automotive industry. There has been challenges. And I said it's been challenging here in 2025. But we are in good -- let's say, good momentum to get things much better. And the fact that we are going to have better results in all verticals like Business Assurance, like environmental testing, like Food and Pharma is going to help Europe and North America. And ATS is going obviously also to help greatly in North America. So no, there's no fatality there at all, and it remains core sectors and core geographies for us to invest.

And on the M&A, right, the M&A, the competitive, yes, well, we see some competitors entering the same areas and the same verticals that we like. So that's true that on some targets, we can feel the competition that we were not necessarily having when I started 2 years ago. That's fair to say. But we want to remain disciplined. And if we can't get synergies or anything, we won't go -- we won't change our rule and our financial discipline rule, which is very simple. It's about payback, as I said, and double-digit ROIC in 5 years. So that's clear. And therefore, that's where we are playing, and we are fine with that.

So I think this is the end of our session. Thank you for being here with us today. It was great having this time with you and answering your questions. I hope that you enjoyed it and bear with us because it's just the beginning. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.

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 Marta for more detailed information about the sales.

Our Q3 sales reached CHF 1.7 billion, an increase of 6% compared to Q3 2024 on an organic basis. Again, this quarter, the strong achievement that you see is largely based on the first 2 value drivers we have identified in our Strategy 27, Sustainability and Digital Trust. Bolt-on acquisitions have also made a significant contribution to growth. Bolt-on acquisitions, actually, there, we have maintained a very strong momentum, completing 5 more deals in Q3 since we last time met in July for half year results.

In July, we announced the acquisition of ATS, Applied Technical Services, 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 CertX. 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 4 pillars to provide full visibility to our clients, Connected Products & Technologies, Digital Services & Infrastructure, Data & Artificial Intelligence, Organizations & 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 4 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 EcoVadis, 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. MPR Services in the U.S. is a provider of liquid and gas reclamation services with solutions to treat contaminants. Fulcrum 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. Tres60 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 & Environment. So Industries & 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, fueled by strong demand in North America and Europe on the back of regulatory pressures and customer focus on compliance. On Projects & Advisory business, we delivered also a 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 a tough comparable base and some temporary headwinds, notably in the U.S. 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. Oil, Gas and Chemicals achieved strong growth, 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 & 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 continued 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 for 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 Bluesign 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 delivered 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 reflected strong demand for product conformity assessment and anti-fraud services as government seeks always to strengthen consumer protection and trade compliance. Health & 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 supplement product certification, notably supported by record sales at SGS Nutrasource, 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 & Personal Care, several new project wins were secured towards 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 protect 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 continued 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, Marta.

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 CHF 102 million 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 U.S. dollar. In 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 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 U.S. 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 U.S. 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 & Inspection, Asia Pacific expanded by 7.6% organically in Q3 with continued high single-digit growth in Connectivity & Products and double-digit growth in Food. In addition, growth in Industries & 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 & 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 delivered 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 9 months compared to prior year. Our 9-month sales reached CHF 5.2 billion, 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 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, Marta. To conclude this presentation, let me reconfirm our outlook for the full year 2025. In terms of growth, our 9-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 nonrecurring impact of the sale of the headquarter building in Geneva.

So thank you for your attention, and we can now take your questions.

[Operator Instructions] First question comes from Daniel Bürki from ZKB.

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

Daniel, Marta is going to take your question.

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 -- we 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 you call the volumes is that we have an increase in business in terms of number of projects, of samples for 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, the focus -- our focus, as I just explained, is on productivity and utilization.

The next question comes from Arthur Truslove from Citi.

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 & Environment. Can you just remind us what the organic growth headwind associated with that in Q3 was and, again, how that impacts Q4?

Okay. Look, when it comes to Q4 and growth, we see that our 9-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 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 lands more or less close to the 9 months in terms of organic growth. So let's say, like that. We still have also 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 Industries & Environment, you had the questions...

Yes, in Industries & 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 quite strong growth after from Environment. It's picking up in September. So yes, we are quite positive for the rest of the year in Environment.

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. Marta, do you want to give that estimate?

Yes, we were guiding 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%.

The next question comes from Rory McKenzie from UBS.

Rory here. I wanted to ask about in Connectivity & Products. Can you talk more about the opportunities coming from the supply chain shifts in Hardlines? 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 tariffs? And is that at all weighing on volumes in any segments do you think?

Yes. Thank you, Rory. Look, in Connectivity & Products, we see a strong drive in our organic growth coming from all connected devices and connectivity really. This is where we see the greatest opportunity, as I explained. But yes, in Hardlines, 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 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 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, we have a turnaround to execute in Business Assurance, Consulting business. That's been said. The rest is really doing very fine.

The next question comes from Zach Al-Qaryooti from Morgan Stanley.

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 scrip dividend?

Yes. Thank you for your question. Look, I will let Marta 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 bolt-on acquisitions. And we will continue to consolidate the right markets with the right momentum according to 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 that with the scrip dividend, and we'll continue with the support of the Board, but we'll talk about that in due course.

Marta, do you want to comment more precisely?

Yes. On the net leverage, you remember, we exited 2024 with 1.8x leverage on adjusted EBITDA. By the end of '25, we expect this to slightly improve, thanks to the improvement in margins.

Yes. And that is without ADS, obviously, you know that.

Yes.

The next question comes from Michael Foeth from Vontobel.

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 the 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.

Okay. I'll start with the first question on our Consulting business. 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 benefits as we go through the course of next year. Consulting has really been a big headwind for our Business Assurance division. That's clear. It's been down 30% in Q3, Consulting business. So it's fairly a huge drop.

So look, again, that's the Consulting business 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 let's be clear that 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 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.

The next question comes from James Rowland Clark from Barclays.

I have 2, please. In your mining vertical, are you able to comment on the level or the sort of 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, Industries & Environment was much better in the third quarter, as you 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?

Yes. Thank you. Look, in mining, we have commodities, there's cycle, there's up and down. But 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. Gold being strong on the technology, and you're talking about end markets, everything across the energy transition, EV and so on.

We see actually a strong pipeline of metallurgical projects, especially in North America for the battery and the critical metals. All our geochemistry is strong organic growth. We had even double-digit growth in Australia. So we do see strong projects here. And metallurgy, as I just said, is growing double digits. 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 what's working well and which end market. Well, look, we see a lot, for instance, I'd like to mention that we have a lot of strategic wins, for instance, with construction of data centers that is impacting us 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, pharma, but also data centers, as I mentioned, energy. So yes, so fairly positive across all industries.

The next question comes from [ Jeffrey Maillard ] from ODDO.

I have one. In some divisions like E&E, you sometimes mentioned qualitative performance in some subdivisions 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 the qualitative comments in terms of numbers?

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 3% to 5%. Is that answering your question?

Perfect. Yes.

The last question comes from Thomas Burlton from BNP Paribas.

Two questions from me, please. Just I wanted to clarify on the contract exits, the contract pruning we've seen year-to-date. 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 FY '26? Or is that now done?

And then secondly, and somewhat related to that, I know it's primarily a sales update, but just on margin and since you mentioned the reported guidance is struck on a reported basis. If we were to see a further strengthening in the Swiss franc relative to sort of operational currencies and that FX headwind 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 out years?

Thank you. Look, on the contract exit, we are not completely done, but the rhythm of exit is slowing down. So the impact will be less and less as we go further into 2026, okay?

On the margins, yes, we still think the Swiss francs 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 a toolbox, as you said, and we do have it. So look, we are progressing on our operating leverage. We are having the full results of the Renew plan, which is the CHF 100 million restructuring plan, corporate savings plans. We've got some corporate savings that are coming also. Yes, we will deliver on our promises even if the Swiss francs strengthen further. Yes.

Thank you, everyone, for your questions.