UPDATE 2-SGS H1 profit up, keeps improved full-yr outlook


(Adds CEO and analyst comment, updates shares, changes dateline from ZURICH)

By Karen Iley

GENEVA, July 24 (Reuters) - Swiss inspection services group Societe Generale de Surveillance posted better-than-expected first-half results on Wednesday and reiterated its improved outlook for the full year as operating margins climbed.

Net income rose by half to 66 million Swiss francs ($45 million) on revenues which rose 3.2 percent to 1.2 billion francs. Operating profit at the firm, which inspects goods ranging from agricultural commodities and minerals to food and toys, jumped 59 percent to 97 million francs.

Analysts polled by Reuters had expected operating income of 85 million francs, lifted by an improvement at Global Trade Solutions (GTS), whose poor results hit group figures last year.

SGS said it would buy back up to 250 million francs of its shares, to be held as treasury stock rather than cancelled.

SGS stock was down 1.8 percent at 355.50 at 1130 GMT, but still outperformed the leading Swiss Market Index which was 3.7 percent lower.

Analyst Pascal Pruess at Zuercher Kantonalbank said the jump in net profit exceeded both ZKB and consensus expectations and said margin improvements pointed to early successes for the recently arrived chief executive, Sergio Marchionne.

Pruees said the buy-back programme was an indication that major acquisitions were unlikely in the near term.

The Geneva-based firm repeated full-year 2002 net profit before exceptional items would be better than in 2001 and Chief Executive Marchionne said SGS was moving in the right direction to meet its aggressive medium-term growth targets.

By 2004, he wants sales to reach 3.1 billion francs without major acquisitions, an operating margin of at least 12 percent and earnings per share of 38 francs.

Operating margins rose to 8.1 percent in the first half from 5.2 percent and earnings before exceptionals were 8.69 francs per share.


Marchionne expected a reduction by the end of the year in the payroll, which absorbs 60 percent of SGS revenue, but he would not give precise numbers. The group employs 32,339 people.

"Productivity is the key driver of performance. The initiatives are in place...the process is underway. The question is how do we make ourselves more efficient and productive. If it involves headcount reductions, which I think it will, then we will deal with it issue by issue," he said.

The main drivers of revenue growth were SGS's consumer goods and certification units as well as its automotive inspection division, which all posted growth of more than 10 percent.

The GTS government contracts division was renamed Trade Assurance Services and posted first-half operating profit of 16 million francs against five million a year earlier and improved its operating margin to 13.8 percent from 4.2 percent.

Marchionne expressed confidence that SGS would eventually receive 200 million francs owed to it by the Philippines.

"The timing is uncertain but we'll get our money," he said.

The charismatic CEO, who took the helm in February, said acquisitions were still on the radar screen -- once the productivity and efficiency of the business was sorted out.

"The medium-term future for all of us entails some level of aggregation. I don't know how it will happen, but it needs to happen. We will look aggressively to avoid becoming the victim," he said. "Acquisitions are still an objective and a strong one, but only once we've got our house in order. We're not ready." (additional reporting by Tom Armitage in Zurich)



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