SGS S.A.

Carla De Geyseleer - Chief Financial Officer Frankie Ng - Chief Executive Officer

Paul Sullivan - Barclays Bank PLC Aymeric Poulain - Kepler Cheuvreux Tom Sykes - Deutsche Bank Jean-Philippe Bertschy - Vontobel Chirag Pandya - HSBC Ed Steele - Citigroup Inc George Gregory - Exane BNP Paribas Patrick Jousseaume - Société Générale Karl Green - Credit Suisse

Ladies and gentlemen, good afternoon, and welcome to the presentation of our 2018 half-year results. As usual, I will give you a highlight of our first-half performances.

Carla will provide you a more detailed financial review, and I’ll come back with some business outlook for the second-half or guidance for the full-year. I’m pleased to report that our results are in line with our guidance given in January and all our nine business line in eight regions has achieved positive organic growth this year.

At group level, total revenue grew by 6.5% at constant currency, of which 5.6% is organic. Our adjusted operating income margin stands at 14.6%, or 40 basis point improvement compared to the first-half 2017.

The profit for the period amounts to CHF 296 million, an improvement of 1% compared to prior year, and free cash flow from operation amounts to CHF 176 million, a decrease of 16.2% compared to last year. Seven acquisitions were made during the first-half was focused on specific business lines and in line with our strategic plan 2020.

Four acquisitions were made in AFL, Agriculture, Food and Life, allowing us to expand our expertise and footprint, particular event [gets us] [ph] allowing us to expand our know-how and expertise in the U.S. market.

This is an important acquisition, because the U.S. markets are one of the largest – it is actually the largest food market in the world, where we have limited presence and this will help us to penetrate this [for your] [ph] market.

The other three acquisitions are in the field of skincare for consumer good in line with our development of cosmetics and personal healthcare. In the field of metrology for our space sectors in line with the expansion of the portfolio from the transportation field.

And in the polymer testing, we’ve seen the initial activities, where we’re focusing on the expansion of our expertise in the U.S., as well as in the testing filed. On that note, I’m now passing over to – presentation to Carla, who is going to give you a more detailed review of our results for the first-half.

Thank you, Frankie. Very good afternoon, ladies and gentleman.

As Frankie mentioned it already, it’s a real pleasure to confirm that our results are fully in line with the guidance that we gave earlier this year. One important development that impacted our results relates to a recent investigation in our Brazilian affiliate.

Following an internal review of our Brazilian business in late June, we identified evidence of overstatement of revenues in current and prior periods. An internal investigation is currently in progress in Brazil.

This overstatement had a cumulative effect of CHF 37 million on the group financial statement as of December 2017. And since the amounts are determined not to be material to post financial statements, a provision of CHF 47 million has been raised to account for the cumulative misstatement and a provision to cover for unforeseen additional costs, which is disclosed as a non-recurring item recorded in the first-half year.

If you have any questions related to this topic, I’m happy to answer these during the Q&A session. So in an effort to give you a greater insights into our results for the first-half of 2018, I like to begin by sharing our overall – sharing the overall P&L.

Both the first and the third column reflects the half-year performance for 2018 and 2017 at historical rates, while the middle column contains the performance of the first-half 2017 at constant currency. We delivered a strong revenue growth of 6.5%, an acceleration compared to the 5.8% revenue growth during the second-half of 2017.

We improved the adjusted operating income by 9.2% and the adjusted operating income margin of 14.6% increased by 40 basis points compared to a year ago. Three clarifying points regarding this uptake of the margin.

First, the market recovery in Minerals and the efficiency gains in GIS, CBE, and Environmental Health and Safety positively impacted our margins. Secondly, we delivered the margin uptake resulting from the initiative program supporting the 2020 plan.

And thirdly, we benefited from the recovery of the bad debt provision we account for in the first-half 2017 in GIS and which was, of course, related to a number of GIS contracts. Please note that we continue to invest in our growth transformational and efficiency projects in line with our strategic plan.

While these investments driven projects negatively impacted our bottom line in 2018, it will allow us to grow the top line and improve the bottom line in the future. Operating income decreased by 2.6% to CHF 411 million, and this was impacted by the correction of the revenue overstatement in Brazil and the related additional provision, both together amounting to CHF 47 million.

The profits for the period amounts to CHF 296 million and decreased by 2.3%, while the profits attributable to equity holders decreased by 3.9% as a result of the exceptional provision taken for SGS Brazil. The earnings per share at constant currency decreased by CHF 1.77, while the adjusted earnings per share increased by 12.2% up to CHF 45.

Our top line growth at constant currency amounts to 6.5%, of which 5.6% is organic and 0.9% is inorganic. The green part of the chart reflects the organic growth, which is driven by the continued strong performance in the full portfolio.

The green part of the chart reflects the effect of the 15 acquisitions that we made in 2017 and 2018 amounting to CHF 27 million, or 0.9%. In the first-half of 2018, the group acquired seven companies, of which four in Agriculture, Food and Life, which is in line with our strategic focus.

From a geographical perspective, two acquisitions were made in our focused market, North America. The blue part represents the Forex, which was a positive 2 percentage points contribution due to the strength of the euro and the Chinese renminbi versus the Swiss franc, which together represents more than 40% of our revenue.

There are several important points here to highlight as I take you here through the revenue performance by individual business. First, each of the nine businesses delivered organic growth as indicated by the orange bar and second, the black bar indicates the acquisitive growth.

The most significant acquisitive growth has been achieved in GIS, Agriculture, Food and Life and CRS business. These businesses are part of our key focus area for inorganic growth.

2017 was the first year in which Minerals grew its revenue since 2013. And this momentum continued in 2018, as revenue accelerated significantly in the first-half, resulting in a year-on-year organic growth of 13.8%.

Most activities in the Mineral portfolio experienced double-digit growth. Trades saw robust demand in Energy Minerals.

The Geochem saw a strong increase in sample volumes, while the Metallurgy business achieved a peak performance, particularly in Canada and Australia with a higher demand for pilot plant testing. GIS, the second business with a double-digit growth grew its business by 11.1%, a significant improvement versus the break-even position in the second-half of last year.

This impressive growth is mainly driven by a high double-digit growth of TransitNet and Scanning services and a solid growth in Single Window operation. Similar to the Minerals business, OGC accelerated the growth momentum created in the second-half of 2017, resulting in an organic growth of 7.7%.

This growth is mainly driven by the double-digit growth in Plant and Terminal operations, fueled by contract wins in the U.S., as well as volume increase of existing contracts. Our Upstream business achieved a single-digit growth into the first-half.

Trade activities realized low single-digit growth and are particularly strong in China and improved growth in Eastern Europe and the Americas. You will remember that on the back of organic decline in the second-half of 2017, we remained very cautious in predicting the further development of the revenue of our Industrial business.

In the first-half of 2018, we achieved the growth of 3.8%, of which 2.9% organic. These results were driven by both double-digit growth in oil and gas activities in South and Central America and supervision and construction activities resulting from a continued development of the material and construction lab testing activity in Asia, South America and Africa.

CRS, our most profitable business realized the growth of 6.1%, of which 4.8% organic. Major segments, Electrical and Electronics, achieved robust growth at the back of electrical safety and EMC.

The last benefiting from the new Radio Equipment Directive. And in addition, we continue to deliver double-digit growth in cosmetics, personal care and household.

Our growth slowed compared to last year due to low single-digit growth in Softlines, which experienced a weaker first quarter due to labor shortages following the Chinese New Year. CBE continued its journey of solid growth resulting in a growth of 7.4%, of which 6.2% organic.

It achieved double-digit growth in the Management System Certification business, driven by the transition to the new 2016 standard, as well as medical device and information security management. Environmental, Health and Safety realized strong growth of 6.1%, mainly driven by double-digit growth in the Health & Safety services.

And this was complemented by mid single-digit growth in fields and monitoring services and a key contributor to the Environmental, Health and Safety growth is regulation enforcements around the world accentuated by the new push in developing geographies. Another new revenue driver includes innovative packages aimed at hospitality, real – retail and real estate sectors.

Transportation, a growth of 1.1%, of which 0.8% organic fully in line with our expectations. Our colleagues in Transportation were successful in offsetting the 2017 impact of the non-recurring contracts in the U.S.

by delivering double-digit growth in Testing services across all geographies, particularly in China. And last but not least, Agriculture, Food and Life achieved growth of 4.8%, of which 2.7% organic, and this is softer than expected due to the agri trade business, which is the result of the high stocks, low volatility in prices and reduced testing in Canada high-quality crops.

This was compensated by double-digit growth in food activities and high single digits – digit growth in life science. Let’s take a look at the regions.

All three regions contributed positively to the group’s revenue growth with Asia Pacific region and the America region being the drivers. The Asia Pacific region delivered the highest organic growth, exceeding the growth of one year ago.

China’s growth outside CRS is particularly strong in Agriculture, Food and Life, OGC, CBE and Environmental, Health and Safety, and is driven by the strong growth in domestic and international markets. Australia continued nicely on the recovery part and realized high mid single-digit growth, mainly driven by the uptake in the Minerals business.

Acquisitions made in Industrial, Agriculture, Food and Life and CRS helped the Americas region to achieve growth of 7.2%, of which 5.9% organic. And the growth was positive in both sub-regions.

South America outperformed North America driven by a double-digit growth in Minerals and Industrials. And the organic growth in North America is mainly driven by a double-digit growth in Agriculture, Food and Life, OGC and Environmental, Health and Safety.

The total inorganic growth relates to the North America region, which remains a focus area for future acquisitions. Europe, Africa, Middle East achieved a good growth of 4.8%, which is slightly ahead of last year.

The growth is mainly fueled by double-digit growth in Africa and the Eastern Europe, Middle East region. Strong performance in Africa is mainly driven by Minerals and GIS, while the strong performance in Eastern Europe and the Middle East is related to Minerals, OGC and Agriculture, Food and Life.

Our strategic objective is to make this organization more efficient. And this slide shows you the first signs of success with average headcount – with an average headcount increase of 4.5% year-on-year, which is well below our revenue increase of 6.5% for the same period.

The only region where our headcount growth outpaced the revenue growth is the Americas, and this is mainly related to the double-digit organic growth in the PTO business in the U.S. and the strong growth of our Industrial business in South America.

Looking now at the development of the adjusted operating income, this slide shows you that our adjusted operating income increased by 12.4% year-on-year, which has been driven primarily by the organic growth amounting to CHF 35 million, as represented by the green box. The inorganic growth of CHF 5 million included in the gray box relates to the 15 acquisitions that were made in the period 2017 and 2018.

And the blue box reflects the currency exchange impact strengthening the growth with an additional 3.2%. Year-on-year, we achieved an uptake of 40 basis points in the AOI margin, driven by margin improvements in our GIS, Environmental, Health and Safety, and Minerals businesses.

And I would like to recognize our GIS business for their top performance in improving its profit margin significantly from 11.3% to 29.4%. The uptake of the adjusted operating income margin is far beyond the partial recovery of the receivables, which were fully provided in the first-half of 2017, and relate to the economies of scale across several services and the deployments of remote inspection activities, as well as strong profitable growth in TransiNet.

Environmental, Health and Safety margin improvements by 210 basis points, resulted from improved performance in the U.S., as well as increased volume in Health & Safety work in Europe and ongoing operational efficiency in Asia Pacific and Europe. Our Minerals colleagues were successful in accelerating the top line growth, while increasing the margins by 150 basis points.

The team continued to work successfully on improved lab utilization and lab operational efficiencies. And in addition, they continued to add a number of profitable contracts to the portfolio.

The strong top line in CBE enabled an optimized capacity use. This together with the improved efficiency related to the transfer of – related to the transfer of the activities to the shared service centers led to a margin improvement of 40 basis points.

Despite the negative impact of the Brazilian event, Industrial increased profitability by 20 basis points. The underlying profitability improved mainly as a result of prior restructurings, better market outlook and an increased focus on profitable contracts in supervision and construction.

Consumer Retail Services remains by far the biggest contributor of adjusted operating income and the decrease in adjusted operating income margin by 30 basis points relates to specific market conditions in both Softlines and Toys. This has been partly compensated by strong productivity gains in the Electrical & Electronics, as well as a nice uptake of the margins in cosmetic household and personal care.

We expect the margin to recover in the second-half of 2018, as this is the peak season for our CRS business. The decrease in the Agriculture, Food and Life margin is mainly related to the challenging conditions in trades and is due to the high stocks and the low volatility both in Europe and Canada resulting in less optimal use of our capacity.

Margins of life science, including clinical research increased, while the margins in the food division slightly weakens mainly due to the end of the commercial partnership in Inner Mongolia. Pressures on the OGC margin is mainly related to the change in the business mix due to double-digit growth in Plant and Terminal Operations, as well as continued investments in the U.S.

to adjust the business to the changing competitive environment in the trade-related activities. And last but not least, the decrease in Transportation margin is the result of a variety of elements.

First, the testing and the field services margin in the first-half of 2017 was positively impacted by non-recurring contracts in North America; and secondly, rate freeze in Argentina has not allowed us to compensate for cost inflation in the country; thirdly, we experienced a slow start in the Uganda Road Safety Inspection Program, which impacted the profitability of our statutory services. Importantly, however, the Testing services improved its margins year-on-year due to improved utilization of the lab network fueled by a strong global demand.

Our balance sheet continues to remain one of our strengths. And a couple of key points, which will give you a bit of greater insights here is that our net debt of CHF 1.146 million is at the comparable level of June 2017.

The decrease in the receivables is partly due to the application of the IFRS 9 retrospectively from January 2018. The adjustments to the carrying value amounts to CHF 77 million, and this has been reflected as an adjustment in the opening equity.

The decrease in the long-term loans relates to the CHF 375 million bonds that will expire in March 2019. The effective rate – the effective interest rate of our current bond portfolio amounts to 1.3%, while the average bond maturity is five years.

After redemption of the bonds that expires in March 2019, the effective interest rate of the portfolio will be below 1%. And last but not least, our net working capital, you know, that we continue to manage our networking capital in a disciplined manner evidenced by the fact that our networking capital as a percentage of annualized sales 3.9% is stable versus a year ago and this despite a robust revenue growth.

Looking at our cash flow for the first-half of 2018, we of course, remain proud of our ability to continuously deliver solid cash flow as evidenced again this year. And the operating cash flow reached CHF 316 million and the decrease versus last year is actually mainly related to the increase in the taxes paid.

The uptake of the networking capital is driven by seasonal patterns and the growth of the business. Free cash flow amounts to CHF 176 million, a decrease of CHF 34 million and impacted by the increased investment in CapEx.

However, CapEx as a percentage of revenue remains at a level of last year. The cash flow related to acquisitions amounts to CHF 41 million compared to CHF 12 million last year and the increased investments is a confirmation of our continued interest in acquiring businesses that provide value to the group and to our shareholders.

And the increase in cash outflow from financing activities is related to two factors. First, the dividends increased by CHF 45 million compared to the year before; and second, the group placed a bond of CHF 375 million in March 2017.

We continue to invest in capital in a controlled manner during the first-half of 2018 in order to fuel our long-term organic growth. Close to two-thirds of our CapEx investments are related to growth, while one-third relates to maintenance.

And during the first-half of 2018, we spent CHF 144 million of CapEx, representing 4.4% of revenue. This is at a level comparable with last year and the stable CapEx intensity is partly related to the attractive pricing and asset redeployment program driven by our procurement initiative.

I reconfirm that the future CapEx intensity is expected to be within the range 5%, 5.5% and for 2018, I do not expect our capital intensity to increase above the lower end of the range. So before I conclude my presentation, I’d like to leave you with some important points that summarize our performance of the first-half 2018.

First, we achieved the revenue growth of 6.5%, of which 5.6% organic. Second, we grew our adjusted operating income margin – income by 9.2%, while the adjusted operating income margin increased to 14.6%.

Third, our profits at historical rate increased 1% to CHF 296 million. And fourth, we invested CHF 181 million, both in CapEx and acquisition.

And finally, we delivered a solid free cash flow of CHF 176 million. So in summary, we delivered solid results in line with expectations and it is very clear that these results would have never been possible without the strong engagement and contribution of our 96,000-plus SGS employees around the world.

Thank you, Carla. So let me close quickly for the outlook – for the second-half outlook.

Let me start with Agriculture, Food and Life. The trade condition should improve in the second-half.

We forecasted better export outlook in key geographies. Testing volumes in the food and life sciences sectors is expected to remain strong in the second-half, as market fundamentals remained positive.

The acquisition made in the first-half of the year will have to expand our footprint and drive further growth. So on that, I expect the better organic growth in the second-half of the year and we should see some catch-up of margins as the agricultural market condition improves.

Minerals, the good margin momentum should continue in the second-half with good volume projections for our commercial labs and for our Metallurgical Testing. New onsite opportunities coming on line would further shift our growth momentum.

The overall market trend of the first-half is expected to continue subject to stable market for global trade macroeconomic environment. Note that expect organic growth to slowdown in the second-half mainly due to high comparables that we have in the second-half of 2017.

Oil, Gas and Chemicals, some market condition expected in the second-half, strong volume already secured for our PTO activities, especially in the U.S. Trade volume is expected to remain stable, but with competitive pressure on price.

Further efficiency measure will be taken to limit the impact. Positive momentum on Upstream activities partly in the Africa and Middle East where we secure new contract that will be put in place on running in the second-half.

Overall, with the pick up of Upstream and the pickup of PTO [indiscernible] overall expect the second-half margins to be back in line with the second-half of 2017. Consumer and Retail.

Second-half main driver will stay – remains the E&E activities, EMC, safety with excess substances testing for electronic product will continue to grow. Wireless testing outlook is positive for China and Taiwan, but will still face high positive pressure in Korea.

I’ve also find market condition will be stable with second-half with strong growth in countries like Turkey, Bangladesh, Vietnam, but the softer growth in China and India. Growth in Cosmetic and Personal Care is expected to continue at double-digit.

As Carla already mentioned, we expect margin to improve in the second-half compared to first-half as we hit the peak season. Certification and Business Enhancement, a transition to a new standard ISO 2015 standard will continue to drive the market in Q3 as the deadline is in September.

There’s some uncertainty regarding growth moving to November and December after market will react itself to the post transition of volumes, so we have to monitor that and see what is the development. But overall, we should expect a year – full-year growth comparable to the first-half and we should expect margins to develop positively, although there will be uncertainty about positive acquisition in November and December.

Industrial Services. The focus on Industrial Services will be on continued improve – continued margin improvement moving to second-half.

With most stable market condition and realignment of our portfolio and capacities, we should see a steady improvement of our – of the margin as we progress into the second-half of the year.

Transportations. As mentioned by Carla, we did end of the last contract in North America had a negative impact in the group in H1 and we should see some of this impact move into H2.

The remaining of the portfolio should perform well with different activity expected to maintain a double-digit growth in the second-half. Also, the long awaited price increase in Argentina that Carla mentioned as well has occurred actually in end of June.

And with the better volume that we expect in our Chilean concession, we should expect some better growth momentum and also help to recover some of the margin losses in the first-half moving to the second-half. And to finish on the outlook for GIS similar market condition we expect in the second-half improved driven by TransiNet, Product Conformity Assessment and Scanning Services.

Growth in GIS has been strong despite the delay in some of the implementation of the renewable U.S. project in Africa and these new project into U.S.

would be coming online on the quarter for this year. This would support further the growth of the other division here.

So I think that at this point in time, let me go for the guidance for 2018. On the overall, I expect stable market condition for most of our business line with some macroeconomic uncertainties.

If there is a further escalation of the tariff conflict between the U.S., China and other countries, it would likely have a negative impact on our – on global GDP and on our global business outlook. However, as it stands today, we have seen little impact to our activities.

So on that, our guidance for 2018 remained unchanged and they are solid organic growth, higher adjusted operating income margins and workers’ cash flow. To conclude, just a reminder of our 2020 strategic plan mid single-digit organic growth on average over the period accelerated M&A activities with acquired growth in the range of CHF 1 billion, adjusted operating margins of at least 18%, strong cash flow conversions with robust return in invested capital and solid dividend distribution in line with improvement of net earnings.

On that, I’ll – Carla and I will be happy to take your questions. I guess, we start first in the room here.

Great. Hi, it’s Paul Sullivan from Barclays.

Just a couple for me. Just in terms of the second-half outlook, perhaps actually if you could help clarify a bit.

Would you expect growth to be very similar to the first-half? Do you see any growth rate acceleration in the second-half versus the first-half?

And secondly, on margin, going through the divisional detail. It sounds like margin expansion should be higher than the 40 bps underlying dividends in the first-half.

Would that be a correct assumption?

For the group, we’re looking at similar kind of growth with some of the businesses with different comparables against H1 last year. But in terms of overall portfolio, we look at more or less the same kind of growth pattern.

For the margins, it’s – as I mentioned earlier, it’s a different outlook for the – by business line, but on the whole, we’re looking at just kind of pickup in the second-half of the year compared to last year as well.

Okay, that’s better. And in terms of the margin trajectory, it looks like it’s still inefficient or it looks like it’s not substantial enough to get you towards your 2020 objectives.

When do you think we’ll start to see that step-change come through that would put you on track?

I think, all the measures that we have put in place part of the FX that we’ve been seeing for this year, we’re going to see an acceleration of this effect. And we’re also putting additional measures to make sure that the pickup is what it should be at the end of this year and we should have an acceleration for next year as well.

Yes, it’s Aymeric Poulain at Kepler. It’s a follow-up on this margin trajectory.

Could you explain the lack of operating leverage that should be showed in the first-half, because we have 5.6% organic growth. You have a procurement savings of about 60 basis points.

And if I’m correct in understanding that the underlying margin if you adjust for the provision of GIS and the Brazilian restructuring charge that is above the line is 40 basis points, that suggest that we get a negative adjusted for procurement saving margin effect with some niche effect, but still it’s significantly less that you would expect with an operating leverage for the business. So could you explain a bit the moving part?

And have you also have investments that you’re doing as part of your digitalization effort? Could you explain also how that phasing is going out, because you don’t provide a lot of details on that and obviously by division even less, so very difficult to really appreciate the true operating leverage of the business?

And as a follow-up on the cash flow, it seems that also there’s no depreciation increase, so before working capital, before tax payment, there is quite a significant operating cash margin decline. So again, could you explain why this is the case?

Yes. I do understand the complexity and you are not part of the company to try – to understand, because there are a lot of moving parts with respect to the margin.

Let me start first with confirming that 40% basis points uptake that you see is really reflecting the underlying profitability improvement. So that’s one.

And then, of course, there are a lot of moving parts because, of course, the underlying profitability improvements includes the procurement. And yes, there’s a positive effect coming from less bad debt compared to half-year ago.

But there are also negative effects coming from first of all, the events in Brazil. So there’s also a negative effect there above the line.

And as you pointed out, we are also – we continue to invest in our transformation and efficiency programs. And on top of it, we also invested incrementally into the digitalization and innovation initiatives in the company.

So all these pluses and minuses leads to the underlying business – the underlying profitability increase of 14 basis points. Obviously, I cannot give you all, I would say, the exact percentages of every part of the puzzle, because that will make it very complicated to that.

This – yes, these are the moving parts. Yes, sorry, I forgot the cash flow.

Sorry, I apologize, I forgot the cash flow question. Cash flow, indeed the operational cash flow decreased versus last yet, but as I explained, this is mainly related to the increase of the taxes paid.

So that is actually a phasing, a timing issue, because the effective tax rate is at 24%, where we also expected to be for the remainder of the year and which is in line with last year. And if you look at the free cash flow, the second element that impacted is really the increased investment of – in CapEx that obviously that is also related to the growth of our business, because CapEx as a percentage of revenue is at the same level of last year.

And we are really confident that we can manage that in a disciplined way also going forward.

Yes, thank you. I have two questions.

One relates to the event in Brazil. One relates to the organic growth, which was shown as 5.6%.

With the Brazilian problem of CHF 47 million, I believe, is it correct to assume that if you would adjust revenue in 2017, in fact, you’ll be not at 5.6%, but more likely at 6% over the year, that’s the first question?

Yes. Just to answer that question, obviously, I mean, it it has also, I would say, the Brazilian event had also an effect on the 2017.

So I mean, you cannot just, I would say, take it in 2018. We are looking, I would say, in the cumulative effect how it is placed between the prior years.

But our principal, yes, you’re right, yes. But not to the full extent that you say, because like-for-like the impact would be less, yes.

Thank you. Second question is, you guided to a seven or eight acquisitions since the start of the year and your objective is to get to something like CHF 1 billion of revenue until 2020.

And today, you’re far behind your objective, 2020. Are you planning for bigger acquisitions in the near future?

I think some acquisitions were made for the first-half year does not reflect what was done on the background. We’ve done a lot all of processes for a lot of acquisitions and for several reasons in terms of financial discipline, in terms of value-creation, and so on.

We started to secure those probably seven that we have achieved for the first-half, but we’ll keep continuing looking at the market, where we believe this good value creation for the group in term of speaking to our financial discipline. So I would say, we’ll keep looking at the acquisitions.

It’s on a high- priority list, but not at any cost and any multiple, so we stick to what our discipline has been for the past couple of years. But we’ve been more active that the result is showing here.

You’re great. We take the questions [indiscernible]

There’s no question on the room. We can take the question over the phone.

Yes, good afternoon, everybody. Just on the GIS business, could you maybe just detail a bit more what the improvement in profitability, or how you got the improvement in profitability, please, excluding the change in provision?

And then just on the oil and gas business, you obviously say that there’s mix implications for the margin, but could you also confirm whether excluding PTO, the margin was down or not and just why we would have confidence that the second-half margin would be better, please?

Okay. So first of all, coming back to the question of GIS and the impressive uptake of the margin.

So next to, I would say, the effect of not having the bad debt expense there are actually two reasons. Our GIS colleagues added some very profitable contracts to the portfolio, that is one element.

And second element, there is also, I would say, a non-recurring one-off effect that is related to the end of contract in the portfolio.

Secondly, you’ll have to say how large that might be, please, the non-recurring effect?

[Multiple Speakers] I would say, that is public as it’s a single contract.

Okay.

And Tom, for the second question, I would say, the margin has come down. The mix certainly is finishing that with PTO business, which should have lower margins in our trade activities.

I would say that for the rest of the portfolio, it’s a mixed bag, where some activities have some lower margin, while others have stable margins. In the second-half, the positive impact is first, Upstream businesses has much more contract coming onboard, as well as some of the seasonality that we’re going to see in the Southeast Asia Pacific going to kick in.

So we have a much more volumes on the Upstream side that we had in the first-half, as well as in some of the other sectors like fuel market on some of the testing activities we’ve seen better volumes moving to second-half as well. This is what is positive momentum in the outlook after the margins.

Okay, thank you. But your oil and gas business was obviously down in absolute EBIT year-on-year.

So are you saying, are you confident that you will actually be up in absolute EBIT year-on-year, even taking into account your mix, please?

No, in fact, I was saying that the second-half will be better, will be catch up for some of the downs of the first-half of the year.

But that’s in only year-on-year, not just any seasonality, that will be year-on-year up in absolute EBIT?

Yes, margin.

Yes. Okay, perfect.

Thank you very much.

Jean-Philippe Bertschy, Vontobel Sorry to insist on the margin, because the line was not so good. But I think you said that we have some one-off positive in GIS.

And I think, when you’re talking about Industrial, the restructuring is like not in the underlying. So I don’t understand really what’s you’re saying.

And then we consider the CHF 11 million provision from last year, so I derived something like plus 10 bps at constant currencies. What am I missing here, please?

And then….

Sorry, I apologize. You had one question [Multiple Speakers]

Sorry, thank you, Carla. And the second one on digitalization.

You had full update at Investor Day last year. Maybe, Frankie, if you can update us on that program, and if you can confirm the sales of CHF 300 at 25% margin?

And maybe the last one on Transportation. You’re talking about double-digit growth in Testing services, which I think is high margin and we see that the margin in transportation is below the level of H1 2016.

I understand that we had some positive impact in 2017, but what’s the problem versus 2016? Thanks.

Coming back Jean-Philippe to your first question. I think, what I was missing in your explanation is the incremental investments in the transformational and efficiency programs and in the digitalization and the innovation.

We clearly invested significantly more than the first-half of 2017. So that’s why I can also confirm that 40 basis points uptake is really reflecting the underlying profitability improvement.

Okay. So Philippe, for your question on digitalization, yes, we’re working on the program.

We’ll probably give an update on the next Investors Day. It is clear that we’re putting the report into this program that we have made call, additional progress in some of those – I’m not going to go through one by one, but some of the project that we discussed in last October has picked up momentum.

And in fact, some of those projects are actually indicating to the bundled services that we’re offering to the market now. So you’re going to see that some of the services digitalization is a standalone that we can easily track, while other services that we’re offering now is quite bundled into the cost of this offering.

If I take one example, transparency one now is not just a single service offering, it’s really linked to a bundled service offering. So we will have to speed up a little the way we track that, but should be able to do it on, again, the program is in line.

We’re just pushing on – pushing further on that with internal, external optimization in terms of digitalizations.

In the CHF 300 million target, you’re confirming the target, yes?

I’m sorry.

You’re confirming the CHF 300 million sales targets and 35% margin 2020?

The numbers, yes, absolutely.

Thanks, and that’s on anticipation?

Should I take it?

Yes.

Yes. In Transportation, indeed, the Testing services, they improved in profitability year-on-year.

However, that was not, I would say, sufficient to offset the affect of the non-recurring of last year. And as I said also before, we faced also the reality that in the first-half of 2018, we were not able to increase our inspection rates in Argentina to really fully cover for the inflation – for the inflation effect.

And these are the two offsetting effects.

Thank you.

Next question…

Hi, there. Just one question.

Given that there were provisions in the first-half last year and their provisions in the first-half this year. How should we think about provisions in general going forward?

Thanks.

Let me say that the provisioning for our Brazilian event, I can say that I don’t expect that to be recurring. This was, I would say, totally unexpectedly.

And yes, clearly, the result of the work we have done internally in terms of improving our governance and internal control. It’s true, I think, you refer also to the restructuring and provisions that we had a year before.

But going forward, I would not expect, I would say, significant provisioning related to the nature or to a similar nature. And for the – yes.

Well, clearly, the Brazilian issue exaggerated and now we have with intermittent strong governance over the past few years and this was detected by our governance structures and we have taken a one-off adjustment in the beginning of our first-half of this year. And we don’t expect any kind of – this kind of nature happening again, in the second-half or subsequently there’s no indications that similar things happen in the network.

So we’re retreating that as a one-off. For the rest of the provisioning, we made the small provision of CHF 5 million for restructuring on the first-half.

I would say, if there’s a need, we’re looking still at dashboard, if there’s any kind of a restructuring amount that we’re going to put will be in this kind of magnitude, but no more than that, I would say.

Thank you.

Good afternoon, Carla. Thank you, everyone.

I have two questions, please. First of all, on GIS.

Obviously, the business mix has changed quite a lot in the last few years. What do you perceive as being the normalized margin range for that business now, excluding all the one-offs like the provision movements, et cetera, please?

And then secondly, just coming back to the second-half margin guidance, obviously, there’s a tough composite in the second-half from last year’s provision release in GIS. So are you – is your guidance – and you expect to see a similar amount, i.e., 40 basis points year-on-year increase ex or including that please, or is – have I just understood?

Thank you.

Do you want to go first?

Yes. I mean for the second-half, I would say, the expectation is to keep the margin in line actually with the first-half.

So that’s a bit, the guidance, I would say, for GIS.

And for the full margin, I would stick to the outlook I just gave, which is higher adjusting operating income margins. So I think, you have to make the math with all the detail I gave earlier.

Okay, correct. Thank you.

Good afternoon, everyone. Ed just asked a question on the GIS margin.

So thanks for clarifying color. Just second one just maybe touching on the trade wars, you’ve referenced it as a potential major risk for the tech products industry in your slides.

And I think, frankly, you mentioned it in your concluding remarks. Just wondered if there was anything you could add in terms of color or areas you see most at risk, and how the business could mitigate any risk could arise, please?

Thanks.

We, as I said for the time being, there’s quite a limited impact from what we have seen. There’s a lot of comment on the market about this tariff.

Certainly, I would say, on the Minerals side, it won’t be more precise. On the Minerals, the discussion for the tariff has been have no impact to our businesses.

Some of the small impact was seen up to now is bit on the consumer goods, where a couple of contract has been reducing size, because the scope has changed to fulfill some requirements, I would say. So the impact is rather limited.

We’re monitoring the situations, but I believe that because of our global footprint whatever escalation of the tariff is going to happen between specific countries, some of those volumes will move to somewhere else. And in terms of network, we will be able to pickup part of this volume.

Also, we’re agile in terms of movement of our operations. So some of the mitigation measures, I would say, is the agility to our network, as well as the footprint.

We’ll be able to reshuffle ourselves in terms of the supply chain change as the tariff create disturbances. But for time being, again, we have not seen anything.

This is the more hypothetical. We have some scenarios, in which we anticipate and it happens, we could act on.

But for the time being, they are just scenarios and not fact yet.

Okay. And as there’s the reason for highlighting the risk to the tech product industry has been the tariffs announced thus far as opposed to anything relating to your particular exposure as a business or rather does it relate to your exposure?

Now you relate it to be thedigital,but tech specifically will have a couple of contract considerations because of some of the issues linked to technological transfer, I would say, but not directly to a tariff personally, I would say.

Thank you.

Good afternoon, ladies and gentlemen. On the Brazilian one-off, can you actually confirm that this is an isolated event and not just a start of something even much bigger ones you continue investigating and cleaning up?

And then secondly, GIS again, sorry. For that, do I understand it correctly that GIS will become and probably also remain the most profitable division in full-year 2018, and that they should also be the case going forward?

Thank you.

Yes, maybe for me to answer the questions, it’s absolutely it’s a one-off event. As I mentioned earlier this is Brazilian – the governance structure that we have in place is – has identified these issues of overstatement in Brazil.

We have taken action on it and we do not expect or foresee any further cases like this. We have already checked again with the network and we don’t expect any other things happening like this.

And I can confirm that the provisions rather conservatively.

On the Brazilian case.

On the Brazilian case, yes, definitely.

And second question…

Definitely by profitable division going forward?

Yes. It will be a profitable decision going forward.

And I must say, the nice uptick also in the revenue is not new and we have seen that already in the past.

I think, historically, GIS has been one of the two most profitable businesses together with consumer goods over the past five, seven, 10 years, I guess.

Yes.

Okay. And this means that it will probably even overtake now consumers going forward?

Yes. Can you repeat those?

And this means that it will probably even overtake consumer testing and remained at the most profitable division going forward?

For the moment, I’m expecting my colleagues from consumer to make an extra effort as well to catch them up. So I would say, for the time being, yes.

Okay, great. Thank you very much.

Yes, good afternoon. Can you hear me?

Perfect.

Yes. Simple question regarding the guidance.

In the press release in January 2018, you mentioned in your guidance 2018 is expected to be a significant step towards the accomplishment of the 2020 plan. You have removed this sentence from the guidance.

Could you explain why, please?

Yes, I would say, it does not change our objective to move towards 18% margin for 2020, whether we put this comment last year or we took out. It does not change our commitment to the 2020 objective, let me clear on that.

Thank you.

But it was not part of us.

Not particularly.

Yes, thank you very much. One of my question has been answered.

So just one residual question. Just a clarification on the comments around CBE in the second-half.

I think, you referred to some uncertainties around November and December. Could you just clarify what those uncertainties are, please?

Also, yes. The uncertainty for CBE is more toward November and December, because these are lot of push for completing the auditing – the audit – transition audit, because at that time is end of September.

So we would expect some delay, so we’re probably going to fall into October, November and December. But typically, because these are quite a bit rush towards the fact that if you don’t complete the deadline, you have the risk of losing your certifications.

So this follow a spike of customers pushing for the transition audit. So we’re expecting the spike to go over September, October.

And we’re not yet certain how many of our customers will have an idea, but we’re not of full certainty of how many of our customers will be late and how much of this delay will be falling into November and December. But typically, after transition, you always have a slower volumes, which is typical to this kind of market.

So the comment made on that was a cautious – cushion about how fast we could pickup versus what is the volume moving to November and December and digitalization rate of our auditors. But for the whole year, we’re still expecting a strong full-year result for CBE.

Okay. Thank you very much.

That’s clear.

Hi, yes. Just one, if I may.

Just on the Brazilian provision, were the full provision to be deemed unnecessary, how would you recognize any releases, will that be booked as a non-recurring items well, please?

Yes. I mean, very likely, yes.

Thanks.

A follow-up on oil and gas. It’s your biggest division, you have a very low margin.

Is it fair to assume that the petrol is a low capital in terms of business and therefore, you’re like cushioning a lot trade like cash cow for you, is that a fair assumption? And the second one, if my assumptions are right, you’re acquiring the seven acquisitions for 1.7 times sales, 9.5 times EBIT, so it’s a little bit higher than in last years.

So is it something that you share as well, so you’re paying a bit more for these smaller acquisitions? And would you be ready to be a – to go above 10 times of EBIT for bigger targets?

Maybe I’ll go to this – you go for the first, Carla. I’ll go second.

Yes, I can confirm your assumption, there is absolutely no CapEx involved in the PTO business. So hence, I would say, business, it’s a very attractive return on invested capital.

Yes. For the acquisition, Philippe, whether it’s above or below 10, I think, the key point is strategic fit, value added to the group, financial disciple.

If this means I’ll go for certain multiple that we used to pay as a group, why not.

Thanks.

So within the room, I think, we’re going off with breakout [indiscernible] able to take your questions related to that.

Thank you very much.

Thank you.

Thank you.