BUREAU VERITAS (BVI) Q2 2026 Earnings Call Transcript

Welcome to Bureau Veritas Half-Year 2026 results presentation. For the first part of the conference, the participants will be on listen-only mode. During the questions and answers session, participants will be able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the speakers. Hinda Garbi, Chief Executive Officer, and Francois Shaba, Chief Financial Officer. Please go ahead.

Good morning, good afternoon, and good evening to everyone. Thank you for joining us for our Health Year 2026 results. I'm joined by François Chabat, our group CEO. The first half of 26 demonstrates disciplined execution and the accelerating impact of our LEAP 28 strategy. Operationally, we delivered 5% organic growth in the first half, with a sequential acceleration in the second quarter to 5.5, in a complex geopolitical environment. We also extended margins, increased adjusted EPS, and maintained solid cash generation. Regarding the compliance deviations that we disclosed in April 26, we have completed our review, informed the authorities, and stopped the contracting questions. Based on our current assessment, we recorded a 32 million provision as of June 30, 2026, reflecting our best estimate today of the full financial impact we may face. Our portfolio transformation is on track. During the first half of 26, we continued to reshape our portfolio. We announced the acquisition of Lotus Works, a leading specialist in mission critical assets, and signed an agreement to divest our oil and petrochemicals and coal activities. We confirmed our decision to exit the legacy government services sub-segment. The exit process is already underway and it will be almost completed by year-end. This will be done in strict adherence with our contractual commitments to our clients. When sharing our full year 2025 results end of February, we have committed to complete a portfolio rotation of approximately 20% compared to 2023 baseline. I'm pleased to report that we reached this milestone in the first half. Bureau Veritas is now gearing its portfolio towards higher growth, higher margin and more resilient markets. As a result of this portfolio rotation and aligning with our organization, our reporting structure will evolve. Excluding the activity plan for exit, namely the oil and petrochemical and coal and government services, our 2026 organic growth outlook is upgraded. We now expect mid-to-high single-digit organic revenue growth, and we maintain our commitment to margin improvement and strong cash generation. Before moving to financial highlights, I would like to thank all our colleagues worldwide for their dedication and contribution to these strong results. Let me start with our financial highlights for the half year. In this first half, we delivered revenues of $3.3 billion with 5% organic growth. Growth accelerated in the second quarter to 5.5 cents. We also delivered margin expansion with adjusted operating margin reaching 15.5%, up 29 basis points at constant currency and up 15 basis points on a reported basis. Adjusted EPS increased by 9.8% at constant currency, supporting our objective of delivering double-digit shareholder returns over the LEAP 28 plan period. Cash generation remained healthy and leverage within our one to two range even after the early dividend payments was completed this year in q2 compared to q3 last year moving now to our revenue performance by business and by geography in this first half 26 we delivered an acceleration in the second quarter organic growth increased tender basis points to five and a half bringing first half organic growth to five percent this improvement confirms the positive momentum we anticipated and reflects both favorable market trends and disciplined execution across the group all regions contributed positively asia pacific remains the fastest growing region mature europe continued to deliver solid growth well above gdp the americas benefited from sustained investments in energy and digital infrastructure in north america the middle east and africa remained resilient in a challenging geopolitical environment. Looking at our businesses, we maintained a strong momentum in marine and offshore and in buildings and infrastructure. Mixed performances were recorded in our commodities activities, reflecting the disruption from the Middle East conflict to the oil and petrochemical business. As expected, both industry and certification had a slow start this first half and are projected to pick up in the second half. What is important to keep in mind is that a number of new strongholds and mature sub-segments continue to perform above expectations. As you can see on the slide, we deliver double-digit organic revenue growth in data centers, oil and gas capex, and metals and minerals. When we launched LEAP 28, we committed to actively reshape the portfolio, increasing our exposure to higher growth and higher margin markets while exiting activities with lower strategic relevance. Today, we're doing exactly that. Year-to-date, we completed or announced five acquisitions totaling 138 million euros of revenue and signed an agreement to complete a major disposal. Total divestment amounted to 489 million euros of revenue. The acquisition of Lotus Works significantly strengthened our position in mission-critical assets, one of the most attractive growth markets. At the same time, the planned divestment of oil and petrochemicals and coal activities represents a decisive step in optimizing our portfolios. Since the launch of LEED28, we have now executed approximately a 20 percent portfolio rotation. This is accelerating our exposure to businesses with better structural growth prospects and stronger margins. This planned disposal of oil and petrochemicals and coal activities is fully aligned with our LEED28 strategies. This business generated approximately 450 million of revenue in 2025, but operated below the group average in terms of growth rates and profitability. At an enterprise value of 470 million, an enterprise value to EBIT multiple of 11 times, this transaction represents an attractive valuation. Most importantly, proceeds will be redeployed into higher growth and higher margin markets. The transaction also reflects a disciplined approach to capital allocation, strengthens our portfolio quality and enhances our growth profile. As mentioned in my third slide, our portfolio and organization are evolving in line with the Lead28 strategy. Our reporting framework is also being adapted accordingly, reducing our reporting lines from six to four. The new structure provides a clearer representation of the group's business mix and strategic focus and aligns our external reporting with our new organization. From July 1st, 2026, our portfolio will be organized around four key reporting lines and excludes the activities of oil and petrochemicals and coal and government services. Both of these activities are planned for exit. Industrials and commodities support the development of economies. It contains energy, minerals, and shipping businesses. Buildings and infrastructure will benefit from structural trends around urbanization and infrastructure build-up both physical and digital. Business assurance will bring together certification solutions and digital assurance. It is a transverse business across all sectors managing existing risks and emerging digital risks. Product testing and services is centered around products that feed consumption and industrial activities with an increasing focus on technology. Francois will be providing some more information on this new reporting. Moving now to business highlights. I'm starting with the Marine and Offshore Division. The division delivered a strong performance in the first house with an 8.7% organic growth. New construction remains very strong, benefiting from sustained activity across most vessel category and an ongoing conversion of our strong backlog of new ships. In service, ships in service activity or OPEX also delivered stable growth against challenging comparables driven by regulatory inspections and increasing demand for decarbonization related services. In this segment, market fundamentals remain supportive with a strong order book and continued investments in new and more efficient ships. For agri-food and commodities, this business delivered a 3.3% organic growth in House 1, 2026. Metals and Minerals was the standout performer, growing double digits in the low teens organically, supported by higher exploration activities and sustained mining investments, particularly in precious metals and copper. These positive trends were partly offset by weak activity in oil and petrochemicals impacted by the conflict in the Middle East, while agri-activities remained soft. Moving now to industry. We delivered a slight sequential improvement in quarter two, resulting in a 1% organic growth in the first half. Growth at constant currency reached 3.3%, supported by the contribution of recent acquisitions in renewables and nuclear. Within the business, we had different growth dynamics by sub-segment. Boil and gas delivered low single-digit growth overall. CAPEX activities remained very strong, however, growing at double digits, reflecting a supportive investment environment. We recorded a strong momentum in North America and resilience in some key projects in the Middle East. Power and utilities were slightly down overall. Continued growth in power distribution storage and renewable projects in Asia and Europe was more than offset by weak OPEX activities in the Middle East and Latin America. Industrial product certification delivered high single-digit growth supported by strong demand in transport and logistics and pressure vessels across Europe and the Americas. For buildings and infrastructure, this business was one of the group's best performing businesses, delivering 8.7% organic growth in the first half, with a sequential acceleration to 10.2% in the second quarter. Growth was broad-based, reflecting the successful execution of our least 28 strategies in this space. Building CapEx delivered double-digit growth, led by mission critical assets data center activities remain very strong with qa qc and commissioning services growing by more than 40 percent supported by continuous investments from hyperscalers and closed cloud providers other services such as code compliance of project management continued to grow on par with the divisional growth opex building achieved mid single-digit growth driven by demands for building safety compliance environment and hse services the activity was strong across europe supported by regulatory requirements and sustainability related services infrastructure also grew with single digits benefiting from transportation projects in north america major projects in the middle east and public infrastructure investments across southern Europe. Overall the building and infrastructure business continues to benefit from powerful market structural trends including digital infrastructure build-up, urban development and climate resilience programs. In certification we had a slow start with 1.9% organic growth in the first half against very challenging comparisons. The business recorded a strong momentum in sustainability solutions or transition services as we as we call them, and digital assurance activities which achieved high single-digit growth. Environmental and carbon services remain the key growth driver supported by increasing demand for decarbonization, carbon footprint assessment, and climate-related compliance services. On the digital assurance front, we continue to expand our cyber security services and geographical footprint. This reflects growing customer focus on cyber resilience and operational continuity. QHSC and specialized teams delivered the low single-digit organic growth activity was softer in some developed economies while demand continued to grow in emerging markets particularly in Latin America, the Middle East and Africa. We're not pleased with the performance of this division and we have initiated since Q2 sales plans and operations reviews to ensure steady pickups in house two of this year lastly for consumer product services the division delivered the 5.1 percent organic growth in the first house including 5.7 percent in the second quarter performance was led by technology as the sub-segment benefits from our strategy diversification services were related to product innovation cycles and increasing testing requirements across consumer electronics. Growth was high single-digit organically. Supply chain and sustainability also delivered high single digits, driven by strong demand for supply chain resilience services. Within soft line, hard lines, and toys, growth was low to mid single-digit despite energy supply disruptions across several sourcing markets. Performance was driven by China as major brands and retailers reverted back to the country leveraging its scale speed and flexible manufacturing ecosystem overall the business benefits from three structural trends product innovation supply chain reconfiguration and rising sustainability requirements i would i will now hand over to francois for the financial review thank you in direct good afternoon to everyone um so let's have a look now a bit more in the details on our financial performance for the first semester we have delivered five percent organic growth overall so it's an acceleration compared to the first uh the first quarter and we continue to expand

margins both at constant currency as well as on a reported basis as you can see the adjusted operating margin improved by 29 basis points at constant currency the adjusted eps increased by almost 10% at constant currency as well. And whatever it remains comfortably within our target range, despite the impact of the early dividend payments in the second quarter, compared to the usual third quarter over the last few years. So taken together, these results confirm that Buoy Pass remains fully on track to deliver the ambition that we set out for the plans 2028 B204 today. Having a look at the review, The group generated 3.2 billion of revenue in the first half. Organic growth reached 5%. Scope was slightly negative as the contribution from acquisition was offset by recent portfolio exits. As a reminder, from August 1st, Lotus Works would be included to the scope onwards, and it would contribute indeed to the positive effect, which is not the case yet. We just closed that deal a few days ago, right? foreign exchange impact is improving quarter to quarter from 5.2 percent in the first quarter to minus 0.6 percent in the second quarter and even for the first time i think uh for the last two years the month of june in isolation was reporting a slightly accretive amount in terms of ethics So, which I think brings us to some more positive outlook for the rest of the year on ethics. Overall, revenue grew 2.1% on the reporting basis and 4.8% at constant currency. Again, it's a good demonstration of the resilience of the portfolio and the quality of the underlying market. If we zoom on the second quarter, which is on the next stage, organic growth improved compared to the first one so we moved from 4.5 percent in the first quarter to 5.5 in the second quarter and it is supported by continuous strength in our services related to data centers energy investments and mining related activities if we take a bit of a closer look by by division as mentioned previously by hilda all divisions grew with several delivering very strong performance including scope for businesses posted double-digit growth reflecting both solid organic trends and the impact of our discipline and many execution if we go through that briefly building infrastructure first together with marine offshore where the two strongest contributors reading infrastructure which is the largest segment of the group by the size grew at 10.2 percent on the seventh quarter it's again a sequential acceleration versus the first one and the two main drivers remained sustained strong activity in data center rated services and the sustainability transition services that we offer to our clients more broadly. Marine maintained its growth trajectory and capitalized again on favorable shipping market dynamic and vessels investments. Consumer products delivered solid growth supported by the expected rebound of technology-related activities especially in asia and the development of a supply chain diversification throughout the segment agri-food and commodities sustained growth momentum especially in metal and minerals which has got traction over the first semester moving now to industry mentioned before was the Our growth was somewhat soft due to the impact linked to the Middle East conflict and some weaker OPEX activities, both in that region and in the Americas. Growth at constant currency of 3.3 percent reflects the positive impact of two acquisitions made in Europe, in the renewable sector and the nuclear sector, which both are developing as planned and we'll from most probably year and two four we start to to get into the organic development of the business if we turn now to the margin bridge so as you can see here on the reported basis we delivered 15 percent 15 basis points sorry of margin improvements so we closed the half share at 15.5 percent versus 15.4 percent at the end of 20 h1 2025 organically it's a seven basis point improvements uh here it's a combination of the benefit of all 2024 restructuring tight cut discipline and it largely offsets some of the Middle East impacts especially in our oil and petroleum division scope had a positive impact of 22 basis points so it does reflect the portfolio people in that was mentioning exiting less profitable activities and acquiring more profitable ones in line with our lead commitments we deliver all together 29 basis points of margin uplift at constant currency compared to the same semester last year if we look at the divisional margin now on the next page marine offshore another strong improvement this is a story of favorable expansion of capex activities and the end of some low margin consulting activities that we've decided to stop reading an infrastructure the margin expansion of 132 basis points on the larger segment of the group is actually a blend of three elements one the operational leverage different driven by performance programs especially in europe they have been started at the end of last year and uh for an effective over the first semester this year two the positive mix effect of our commissioning services uh related to uh to assets such as data centers and three the accurate contribution from mna especially the acquisition made now for the last two years which are slowly getting into organic numbers and are here in average having a higher margin than the average of the division so overall we are pleased with the development of this division which is the largest again of the book as far as consumer products is concerned the margin continues to improve here we've benefited from two years of our growth and performance strategy execution we have expanded the geographical coverage restructured several sites delivered multiple performance programs and we now start to see the positive outcome of recent acquisition notably in latin america so the the picture is as well pretty encouraging uh finally agri-food and commodities and industry so agri-food and commodities here the main adverse impact is the conflict in the middle east and the contraction of our oil and petrochemical activities we have deployed several programs to retain staff and preserve margins we are ready to resume operation when condition will allow of course and to close industry certification h1 reflects the impacts of lower volume from software activity in the middle east and delays in the ramp up of several opex contracts and then finally this time certification experience temporary pressure on margin linked to softer growth in h1 and slower than expected ramp up of recent acquisitions we expect the review to pick up from q3 and the margin to recover from h21 words uh several programs are being put in place as in that just mentioned in your first comments so overall as you can see the company continues to deliver on margin expansion semester after semester and it reflects indeed mixed effects and the result of our performance program at large if we now have a look into the other financial metrics so bottom line the adjusted earning per share continue to grow regularly it grow 9.8 percent at constant currency which is again encouraging and aligned with our lead 28 trajectory The net financial expense remained broadly stable, 55.5 million, and the higher cost of refinancing from October 2025 were largely offset by significant lower adverse foreign exchange effects. And on the tax front, the adjusted effective tax rates were broadly stable at 29%. if we turn now to cash flow generation we delivered another solid cash performance in the first half free cash flow amounted to 158 million up 3.2 organically as is shown on the chart we maintain a discipline discipline management of working cap which represents 6.8 percent of the revenue at the end of june 2026 and reflects the what is very important the sustainability of the efforts we have to grow the group for a number of years to optimize cash production and working capital management so turning now to the new 2026 reporting perimeter so we put here some numbers to help you you know manage those those changes so as a note by in that just a few minutes ago we are updating or reporting structure this view provides first a clearer picture of the group in terms of future operating frame perimeter and obviously the underlying performance of the avatar going forward so it highlights the fact that this new parameter would enhance both the group growth profile as you can see here and its profitability so we concentrate further on businesses with stronger structural drivers and higher value added services this change will be effective starting july 1st and will be reflected in your q3 revenue publication both on the quarterly and year-to-date basis so to order you to update your models um you will find uh in the in the appendix in the annex some some qualitative and quantitative elements on the the few moving pieces from the sixth division to the four division uh obviously laurent colin and the entire investment uh ration team is here to help you to get to get your numbers right um it's relatively simple and relative um and these numbers here i give you already an illustrative view on what the new is looking like once we have taken into account the discontinued activities which are both government services on the one hand and to our oil and petrochemical and cold testing activities for which we have announced a few weeks ago that we will divest to a third party more probably we expect this to be completed at the very beginning of 2027 at the latest. I now hand over back to Linda for the outlook for the year 2026.

Thank you, Francois. An update on our outlook. Our first half performance was robust and demand across our businesses remained healthy. We continue also, as you have seen, to make good progress on League 28. Now as we actively reshape our portfolio to increase our exposure to high growth and higher value businesses, we are essentially enhancing the group's growth profile. Taking out the oil and petrochemical and coal and government services, we have now a new scope and on this new scope we are upgrading our four-year 2026 outlook as follows. We now expect to have a a growth mid to high single digit organic revenue growth we will maintain margin improvement as a guidance margin improvement at constant currency and we will maintain our strong cash flow generation target in conclusion we have delivered a solid performance in house 126 and as we have forecasted a sequential quarterly acceleration in quarter two we also recorded margin improvements at constant currency and on a reported basis. This was achieved in a volatile business environment and with geopolitical uncertainties and key geographies and disruptions in energy markets. As we have shared earlier, the LEAP28 strategy is on track. Our portfolio rotation is progressing at pace and we are continuing our M&A programs to meet our portfolio the shaping goals we remain fully committed to our leap 28 ambitions of growth and performance and we will take the opportunity of the capital market day update in september to share with you our progress in terms of portfolio performance and people programs we have elected in this busy call not to discuss ai matters as the next phase of development for leap 28 will integrate ai and we will give you then a comprehensive update. Before opening the Q&A session, I wanted to remind you that we will be looking forward to welcoming you to our Capital Market Day on September 22nd in Paris. This will be an opportunity to update you on the next phase of our LEAP 28 strategy. Thank you, and Francois and I are now happy to take your question.

Ladies and gentlemen, if you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6. The next question comes from Anneliese Vermeulen from Morgan Stanley. Please go ahead.

Sorry, good afternoon, Hinderk and Francois. I have two questions, please. So firstly, on the margin guidance, which is unchanged, despite the higher growth guidance and the exit of those lower margin businesses. So what are the other moving parts within the margin guidance? And I appreciate the wording hasn't changed, but do you actually now expect perhaps a bit more margin improvement versus before? And then secondly, on certification, where you mentioned you're not happy with the performance and you're doing an operations review, could you expand on what that involves and could that review ultimately end with contract exits or divestments? Anneliese, could you repeat the second question, please? yes of course it was just on certification where you mentioned you're doing an operations review um could you expand on what that is expected to involve and could that review ultimately end with any contract exits or divestments or is it more of a sales program thank you yes yes thank you thank you for for repeating that um look i i think um we uh you know our margin guidance in general, when you look at since the inception of the LEAP 28 program, is based on two things.

One, on our performance programs, if you recall, we have talked about our operational leverage programs that include some process improvement, but also performance management in a very granular and rigorous way, and then functional scalability, and there are a number of programs there and we have also talked about our portfolio reshaping and the mix that we wanted to have at the back end of the strategy and I think we're doing both and that's what we are using at this point. The one point I want to make and then I'll pass to Francois on this point is that part of our performance program's output was improvements in margin that will allow us to invest in the modernization of our business. And that's a very important point to keep in mind. And we continue to invest and you will see when we talk about our update in September, we'll be talking about investments in AI in particular that will help us accelerate some of those programs.

So keep that in mind as think about the margin but our guidance indeed didn't change in terms of continuous improvement and we haven't really given a specific uh uh quantum on that but on the trajectory we're not deviating from that also just one thing and then um we try and that's the whole exercise of the lead 28 to time everything whether it is the mna the portfolio pivot the investment the growth the performance so that ultimately we reach the 17 percent margin kind of while you guys will not see ups and downs during the drone and and and i think you could you could recognize that from 2024 onwards we've we've we've managed to put that everything together but year on year you get incrementals in margin while um you know we don't see suddenly a big investment in year two and we expect a recovery in your fourth. That's not the way we're doing that plan. So just reinforcing the message of India here, there is a number of investment happening, it's unnecessary, and we're gonna use whatever room we have from sometimes performance, as we've seen, for example, in BNI, or sometime portfolio reshaping to make sure that at the end of the day, by 2028, you have a stronger, well-equipped, well-structured, and capable to sustain its performance for the U.S. to go.

Thanks, Francois. On the second question, Annelies, on the certification, what we meant by operations review is really around sales efforts. And just to give you a bit more color on that, the mature markets, I talked about mature markets and emerging markets. on emerging markets our growth is on track can we do better yes that is we're trying to get the team to to capitalize on possible websites there on the mature markets that's where we have seen uh we have seen really a performance that we don't like uh keeping in mind that mature markets tend to be large in terms of qhsc um qhsc and and voluntary schemes but qhsc is the traditional teams that we had, and that's where we're pushing the sales efforts. We're aggressively doing that in key markets. And across both mature markets and emerging markets, we're pushing new services, in particular transition services. That's in the sustainability space, everything from decarbonization solutions to supply chain resilience to lifecycle assessment. So we are we are going on all fronts but um as i said we weren't pleased with the performance and all hands on deck on this going forward uh and we are uh we are planning on delivering on that pickup in in half two very clear thank you thank you the next question comes from suhasini varanasi from goldman sachs please go ahead hi good afternoon thank you for taking my questions Two from me as well, please.

Can I just clarify, I know that at the time of first quarter results, you had indicated that 1Q would be the low point on organic growth and that growth should improve through the rest of the year. Clearly, 2Q has delivered on that. Is that still your expectation for 3Q and 4Q? And specifically, maybe on industry, where growth was a little bit weak in first half, do you expect projects to start again in second half and therefore help with the sequential improvement? My second question is on margins and certification, please, which did lag a little bit. Can you help us understand what changed there beyond just the slowdown and growth? And is part of your portfolio review, et cetera, is that something that's going to help deliver margin expansion in the second half of the year?

Yes, thanks for the questions. I'm going to let Francois answer after the margins on certification. but let me start with the growth side. You're absolutely right. We did expect quarter one to be a low point, certainly in health one, and we worked to make sure with our teams to deliver a sequential improvement in Q2. As you can see with our guidance, of course, we expect health two to be a sequential improvement over health one. Now, I'm not going to dive by quarter. We remain in a somewhat complex environment, But what is clear is that we are working on delivering a Health 2 improvement over Health 1. Now, for industry, I think it's important to pause a bit on industry to explain the dynamic in Health 1. Health 1, what's important to understand is we actually had a good, resilient performance across our CAPEX activities. I'm going to say it generally like that, both in oil and gas and power and utilities. For the simple reason, these tend to be long-term projects. People don't, you know, pull the plugs on capital projects for any disruptions. They have to take their time and decide. So very resilient. You've seen the oil and gas is growing double digits. The PNU CapEx also is doing well. where we have seen indeed a reaction, and some of it actually was predating the health one, particularly in OPEX, oil and gas in the Middle East. What we have seen is we have seen two dynamics in OPEX. We've seen the Middle East that slowed down in OPEX initially because this requires a lot of people on sites and there were concerns on safety and all that. And then after that, it was a matter of capacity to deploy versus, you know, with the flow stopping, preserving cash. And if you could delay some of that discretionary spend, you could, you would do it. For other parts of the world, what we have seen is people really wanted to rather keep up time. So you don't want to shut down your facilities when you can produce at those kind of prices we're seeing for a number of months. So that dual dynamic there impacted in particular our oil and gas, but I would say OPEX in general for PNU for power and utilities and oil and gas was slow in our two key markets, Middle East and Africa and Latin America. Those are the two markets where we have seen that. Now if I look at health two. For me, industry in health two, we are expecting a pickup for two things. And the other thing to add for health one, we're really going against very tough comparables in health one, double-digit growth last year. Now, as we move to health two, the comparables are easier for sure, but also there is a pickup. Why we believe in that? Our backlog is clear. We have a huge focus on this activity our teams on the ground are prepared to execute those that backlog and ultimately we are not building on our house to an industry banking on some rebound inactivity or rebound from the war we're building this on existing backlog uh existing execution capacity and clear oversight from our managers to deliver on our plans. So that's really our plans for industry. François, would you like to comment on that?

Yes, good afternoon, Frassini. So on the margin of certification, so we're not super pleased about it. That's said clearly. I think we should not overinterpret it. Two things which differ a bit from just being, I mean, it's slow in H1 in terms of revenue. one we have a couple of acquisitions that took more time to scale a couple of years ago we're expecting them to be a file level they are not yet there and two we have a couple of operational very localized situation that we need to solve i think you guys have been very clear on the front that this would be addressing this too so let's do not draw you know definitive conclusion on this uh but they need to be of the accident parkour in good french so um we will we would recover in h2 thank you very much that's very clear the next question comes from geofroy michael a from auto bhf please go ahead

yes hi uh thank you and congratulations for the good set of results two questions for me the first one on the exit of government service you mentioned that you will have ended it by the of 26 in respect with your contract commitment can you elaborate a bit on that since some of your contracts are multi-year contract with duration with duration above the end of 26 is it about let's say paying an exit early termination fee or something else the second question is on marine and offshore and on the the margin is there a kind of limit on the margin you can reach uh can you come back a bit on what drove it really and is it somehow sustainable this kind margin in the mining offshore. Thank you very much.

Thank you Geoffroy for the questions. On the exit of government services, you are correct. There are a number of contracts. In fact, most contracts are multi-year contracts, but they also have clauses for us to exit contracts at some point. Not all of them, but most of them. And generally when we say strict adherence to customer expectations and contractual expectations we are essentially working with the customers as we express our desire to exit these activities we work with them to make sure that there is business continuity that they have plans with other players that they might onboard the activity themselves so it's it's not a one-go transaction you have to engage with the customers understand their the parameters that we'll work with, understand the sensitivity of the activity, but in general I would say where I sit today and with the plans we have in place by end of 2026 we pretty much would have done most of the contract. So there's one or two that might have to flow to early in the year with the understanding that it would be completed and it wouldn't surpass quarter one at the latest and we have a team a task force fully focused on this working with the regions working with the countries working with the customers we have very clear um um effort to stand committee driving this so we have full visibility on what's happening and we take the business continuity of our customers uh very very seriously uh francois you want to comment on the marine and offshore margins yeah sure uh good afternoon jofar so you know the company for a while so you know that the limits for marine offshore in terms of margin is and been achieved

a couple of years ago at higher level than this one uh so that's a way to answer your question the the second way to answer your question is to say i mentioned uh recognized rapidly the fact that we've stopped you know some micro consulting businesses that were nice to have have and not bringing much value in terms of bottom line so it does help a little bit here the i would say that the picture at the end of of of june and then we continue to have the picture at the end of the year so um what we try here to balance is the necessary need to um to recruit uh engineers now an engineer to be able to uh to feed the level of service for clients expects um we don't have a specific objective but i would say um you would expect that this type of margin is the one of an mno business that is in full swing in terms of business cycle and in terms of the deployment of resources and for the max number i just encourage you to look back at your archive and you will see you will find it somewhere in 2010 or 11. thank you very much Thank you.

The next question comes from Virginia Montourcy from BOFA. Please go ahead.

Good afternoon, and thank you for taking my questions. I just had two quick ones. One is on the margins for agri-food and commodities as the division in H2. I appreciate we're changing the reporting structure, but now that we are considering oil and petrochemicals and government services out of the scope, can you help us understand how to think about margins for the remaining part of the business for the second half? And then the last question would be, can you talk a little bit more about your decision to change the reporting structure now, and kind of what are your priorities, and what do you think you can get out of this into the capital markets, say, and then obviously into the medium term?

Thank you for the questions, Virginia. I'll let the pathway when I cover the aggregate food margins and how to model all this.

So, aggregate food communities margin, H1, as I mentioned, have been heavily impacted by our oil and petrochemical activities which make it super simple in terms of impact of the crisis in the Gulf. This is the one activity that suffers for obvious reasons. We have laboratories around the Gulf and their business is to test oil. So you need oil to flow so they can test it because there is no flow, there is no test. In fact that's very simple to get. So these activities oil and petroleum is driving the margin of uh agriculture community down in h1 when we look now in the head i think as i mentioned we have in the in the appendix the moving species from agriculture communities that would go into the industrial energy and you can read here that roughly at the end of h1 you have 250 million of metals and minerals and agriculture which have respectively a margin of from metals and minerals the margin is in line with the agri-food community divisional margin and agriculture a bit below those one will flow into next year there is no reason that those two sub-segments change dramatically the margin on each two so i encourage you to have a look at page 43 and and reach out to Laurent and Nicolas for more color. But I think that would help you to, you know, directionally being able to translate where the remaining parts of the agriculture community segment will land in terms of margin over the end of the year.

Thanks, Francois. On the second questions on why we are changing the report, first why now we are, as we announced the exit, the plant exit of oil and petrochemicals and coal and government services it's a good time so we have that change it allows us also to align with the current organization we have um it's it's it's a direct result really for us um as we reshape the portfolio and go from a very broad portfolio to a diversified company with very strong leadership positions in our markets we want reflect that. And that's why Virginia, we, industries and commodities also aligns with how we are organized internally and it focuses on businesses that are very adjacent, energy, minerals and shipping. BNI will continue to exist as it existed now. Product testing and services as we expand our testing activities in complex products. We are putting together businesses, the consumer side, the technology side, and the industrial product certification side. And then finally, business assurance is essentially certification as it is. So it's a way for us also to simplify our equity story. Just to give you an idea on the existing reporting, We actually share 21 sub-segments, and in this new one, it would be 10. It makes sense. It aligns with the market segments we actually cover. So it's really a need for us to make sure that we explain our multi-specialist approach and diversify through much, much better.

Thank you very much.

Thank you both. thank you the next question comes from Victoria Chong from JP Morgan please go ahead thanks for taking my question and I have two both on the consumer products business and so the first one is on the China driven growth and in soft line hard lines and toys that you've mentioned in the press release so it seems like there's been just absorbing away from impacting countries towards China. So can I clarify which of these are the impacted countries that you're referring to? And do you see this movement towards China as a trend that can continue despite the ongoing uncertainty around tariffs? And the second one is on the technology subdivision.

Do you see the higher memory pricing and shortages delaying and slowing down new product introductions in the space um clearly the division has grown very strongly in the first half but curious if you expect any impact from this going forward thank you thank you thank you for the question so look in fact what was very interesting um late uh in q2 um the um the reduction of uh oil flows uh from the middle east impacted very quickly a number of countries in southeast asia and particularly in South Asia. What is very interesting in that is that the retailers and the brands, they quickly were able to move back to China. And I'm saying back to China because at the start their sourcing was China centric and as they started to do it, they moved to Southeast Asia and South Asia. The minute energy became a problem and a bottleneck in their supply chain they reverted back. To me, what I take as a conclusion from that is the amazing flexibility of the China production platform for consumers, soft lines, hard lines, and toys. It's just very flexible. It's available. It's extremely deep. Expertise exists, and we've seen that happen. Now, would that stay? I think from what we observe, you will always have companies trying to de-risk China. They won't fall out completely. It doesn't make sense because that's unmatched in terms of breadth and depth of what they do. But you will always have a mix. And you're right, the tariff story is that compelling reason why they will always de-risk. So I expect to see this movement and I expect to see a mix between China and non-China. On the technology side, look, we haven't seen the chips prices impacting the product innovation yet because a lot of what we do, significant parts of what you do, is actually during the product innovation cycle, and these projects are still ongoing. In fact, we consider today that the integration of AI capabilities, the concern around cyber are making the products a lot more sophisticated. And there is a lot of innovation in everything from ICT products to other electronics to industrial products. So we haven't seen the impact of that on these projects. And you have seen we have a high single-digit growth in technology today, which is very reassuring. And, of course, it's a direct result of our diversification of our technology business as the consumer division today.

Thank you.

Thank you.

The next question comes from Neil Tyler from Rothschild and Co. Redburn. Please go ahead.

Thank you. Good afternoon. Two questions, please. Firstly, back to the certification and the operations review, I just wanted to perhaps clarify your earlier comments or maybe ask a similar question from a different perspective. Am I right in framing the slowdown that you've witnessed as reflecting, I suppose, internal issues and a divergence in your own offering from the market growth? It's not a slowdown in the end market opportunity. And therefore, if that is the case, you know, it's it's sort of relatively i don't want to use the word easily but sort of it's within your own hands uh fixable and that's the first question and so just if you can sort of help me understand the done the organic growth dynamics and the differentiation between what's happening in your end markets as you see it and what's happening in your business as you see it certification i don't think it's a market slowdown that's not at all what uh what we're talking about here i think and it's not you you made a comment there neil on diversion of our own offering from the market?

No, I think we have the offering. We've been developing what we consider high growth subsegments or strategic priorities for us in the market. We have an execution challenge and we are pushing the businesses where we have seen that execution challenge on the sales front, on the execution front to recover and to make sure that they were well prepared for the pickup. In fact, if you look at our sustainability and digital business, digital assurance, they're growing high single digits and we're doing well on that front and we see that across most markets. So it's really very specific to our mature markets, meaning mature geography and mature offering where we have seen a bit of a below expectation performance that we quickly converged on and put plans in place to make sure the pickup does occur in the second quarter. Now, the comparables weren't exactly easy in half one for certification. If you look at last year, I think we had in quarter one, we grew 10.9%, and we grew less than that, around mid-single, 6.5% in the second quarter.

So there's a bit of that, but I don't want to fully justify by that, and that's why to me it's an operation review that's zeroed in on where we see that slow down and we we we have very clear plans on how to recover understood thank you that's very clear and then the second question just coming back to the um the provision you've taken um with relation with respect to these and the issues mentioned at q1 um can you sort of clarify a little bit what that covers is that just um your best estimate of financial penalties is it sort of exit costs uh lost profit um and from from exiting the contracts and sort of what you've what you've um

provision provided for um in that number thank you i think just uh thank you for the question um you know on on this whole matter i think what's important to keep in mind is that we acted very quickly transparently and decisively and um the review is complete the provision is recorded i'll pass to francois to talk a bit more about that uh the exit is underway and we're strengthening our compliance framework this is a legacy activity and we're addressing it with a discipline that you would expect from a company in azura so um that provision reflects our best estimate today of the full financial impact in my life. I don't know if Francois wants to add anything to that.

Francois Nunez- I can't add much more, but that's really the full financial impact of this whole story. Okay, thank you very much.

The next question comes from Alan Wells from Jefferies. Please go ahead.

Alan Wells- Hey, good afternoon, guys. Just two very quick clarification questions from me, please and firstly just on the 22 basis points of margin improvement from scope in the first half on the known knowns disposals contract taxes etc how should we think about that number for the full year and would be my first question and then secondly just on the guidance upgrade the growth guidance upgrade and can i just check my understanding was that that's now obviously on a group excluding the activities and exiting and being sold and from memory i think the part of the downgrade in guidance back at Q1 was the impact of those government services exits so I'm just trying to understand how much of the guidance upgrade is kind of the accounting reporting and how much is it is an

actually underlying upgrade more broadly any clarification there would be would be great thank you start with the guidance upgrade look it's the guidance upgrade is is it's really coming from a based on performance what we believe the business can do and and you're right it does you have to remove out the oil and petrol chemical and coal and government services you take those businesses out the remaining scope will perform mental high single digits that's the guidance why do we think that we think that based on the performance you have seen that pickup in quarter two we will watch very closely our pipeline and our backlog and we have very clear visibility on our execution capacity and that's how we we were able to make that guidance. We and we are not the guidance doesn't really it's not based on some major rebound from from from the Middle East for example so it's really well balanced guidance that shows that our our businesses that we have been working to shape for the last two three years are prepared to deliver or are being prepared to deliver the middle high single digit and I think I gave a few explanations and prior questions on a number of these businesses. On the scope, you want to take that?

Yes, and so on the scope, there is a simple way to answer which is the 22 two basis points of positive scope effects are not at all being driven by anything related to our fuel business or oil petroleum business neither our gsit government services business so they are here to stay regardless of the format you know all reporting your reporting they stay that's element number one element number two obviously this is a current scope i mean the scope at the end of June right so whatever could come you know acquisition etc will alter this number for down but if we were in a world that this scope at the end of June would not change that these 20 X basis point of improvements easier to stay for the year so it's something I really think based on the current scope thank you thank you the next question comes from Rory McKenzie from UBS.

Please go ahead.

Thanks all. Rory here. Just last one for me just to clarify, following up from Alan's question. So slide 29 makes it look like the exited activities will be classified as held for sale and so excluded from the, you know, group organic growth and margin calculations, even if those disposals aren't completed until the start of next year. Is that correct?

And I can follow up with the wrong, but are we going to get any restated numbers um for these new divisions for the past uh years as well please so just make it very simple i first like those two activities will be treated as a discontinued activity and you will see it from reporting q3 as of first of jan backward so you would have the full q3 and usually q3 based on this new whole division and treating the the two activities i've mentioned under discontinuation mode. That's that point one. And your second half of question was, I'll use this one.

Just about.

Ah, yeah, great comparables. Oh, you already have a nice illustrative H1 picture, and the comparison will come together with the actual numbers. Okay, great, thank you. Thank you.

This concludes the question-and-answer session, so I hand the conference back to the speakers for any closing comments.

Thank you everyone for attending the call, and I'm looking forward to meeting most of you in the capital market today on September 22nd in Paris. Thank you very much and have a safe and restful summer.