SGS First-Half Profit Down on Weak Commodities, Strong Franc

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SGS SA’s first-half profit fell 16 percent as the biggest inspector of commodities and manufactured goods suffered from currency movements and weaker demand from oil and mining companies after prices for crude and metals declined.

Net income declined to 214 million Swiss francs ($224 million) from 255 million last year, the Geneva-based company said in an e-mailed statement Friday. A strong franc reduced overseas earnings in local terms, while restructuring costs cut 47 million francs from the result, the company said.

Organic revenue growth was 1.8 percent and SGS expects a similar performance in the full year but with improved margins. First-half adjusted operating margin held at 15 percent.

SGS rose 2.6 percent to 1,848 francs by 9:48 am in Zurich.

“Organic growth was impacted by reduced and delayed capital and operating expenditures by our clients in the oil and mining industries,” the company said in the statement.

That growth was slightly weaker than expected and estimates for 2015 may be too optimistic, private bank Berenberg wrote in a note to clients.

Sales sank 2 percent to 2.75 billion francs, in line with the median of 11 analyst estimates. Adjusted operating income declined to 412 million francs from 420 million.

SGS can be a gauge of the global economy as it checks the quality of goods for industries including autos and medical devices, and commodities ranging from oil to rapeseed and zinc. The company also plans a reorganization of its structure to help reverse a drop in its shares to the lowest in three years.

The company cut its full-year revenue growth forecast excluding currency and oil-price fluctuations in January to 4 percent to 6 percent, from as much as 9 percent.

In March, Frankie Ng replaced Christopher Kirk as chief executive officer, a switch announced as the company said profit margins would be flat this year. Ng plans to unveil a new strategy in the autumn that will cut costs, reduce overlap and establish new lines of business.

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