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Testing group SGS hit by weak Europe and minerals decline
July 17, 2013 / 8:02 AM / 4 years ago

Testing group SGS hit by weak Europe and minerals decline

ZURICH (Reuters) - The world’s biggest testing and inspection company SGS SGSN.VX missed expectations for first-half net profit, hit by a charge for restructuring as weak demand hit its minerals services, sending its shares down sharply.

Net profit at the company, whose activities span from food and toy safety to testing London’s black cabs, rose 10 percent to 265 million Swiss francs ($278.82 million) but missed average forecasts for 293 million in a Reuters poll.

That included one-off expenses of 12 million francs resulting from restructuring measures “in response to the deteriorating market conditions in Europe”.

“Despite this economic backdrop, SGS expects to deliver solid top and bottom-line growth in 2013,” the Geneva-based group said in a statement as it reiterated its outlook.

Testing and inspection companies such as SGS and peers Intertek (ITRK.L) and Bureau Veritas (BVI.PA), which are benefiting from increasing regulation in many sectors, have been hit by slow growth because of the sluggish European economy and weak global demand for minerals testing amid a downturn in the mining sector.

Revenue at SGS rose 7.2 percent to 2.857 billion francs, against 15.1 percent growth in last year’s first half. Sales at the minerals division - its fourth-biggest behind oil, gas and chemicals, consumer testing and industrial services - fell by 3 percent.

The company said that steps taken to rein in costs in the minerals unit should bear fruit in the second half, adding that it will take further measures if the market does not pick up.

SGS shares were down 3.2 percent by 0710 GMT, the biggest faller on the Swiss SMI blue-chip index .SSMI.

“The organic revenue decline in the Minerals Services division was more severe than expected,” J.Safra Sarasin analyst Patrick Hasenboehler said.

“A further pullback of the share price could be a contrarian buying opportunity for the market leader in a structural growth industry.”

SGS also said that agricultural services made a slow start to the year because of lower grain export volumes from eastern Europe.

Britain’s Intertek said in May that a sharper than expected decline in demand for its minerals business, particularly in Australia, Brazil and the Philippines, would drag on its profit margin this year.

SGS announced last month that carmaker Fiat’s parent company Exor (EXOR.MI) sold its 15 percent stake in SGS to Belgian conglomerate Groupe Bruxelles Lambert (GBLB.BR). ($1 = 0.9505 Swiss francs)

Reporting by Emma Thomasson; Editing by David Cowell and David Goodman

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