SGS, a Swiss company that audits the quality of raw materials, capital and consumer goods, on July 16 reported a 17 percent rise in first-half net profits, but concerns over margins and take-overs hit its shares.
The Geneva-based SGS, whose initials stand for Societe Generale de Surveillance, said its full-year performance should be consistent with its 2008 outlook for 5 billion Swiss francs in revenues and operating margins of 17 percent.
While its 234 million Swiss franc ($194.5 million) net profit was in line with market forecasts, first-half operating margins of 15.5 percent were "clearly disappointing", said Kepler analyst Roger Steiner.
SGS shares dipped as much as 2.4 percent after the earnings announcement, which came one week after French rival Bureau Veritas filed to go public, raising questions about SGS's take-over options.
Chief Executive Chris Kirk told journalists that he expected margins to improve in the second half of 2007, and said the company was continuing to seek acquisitions to expand its reach across wide-ranging business areas including farming, oil, gas, minerals, automobiles and the environment.
SGS, which competes with Britain's Intertek, also inspects London's black cabs, monitors spending of international aid funds, checks for counterfeiting in branded and controlled goods, such as alcohol and tobacco.
Kirk said while the company was not now in talks with Bureau Veritas for take-over, it was considering several "strategic" purchases, some of which worth several billions of francs each. He would not rule out a "mega-merger" taking place this year. SGS has set up a team to target alternative energy markets such as biofuels and wind power, Kirk said, noting potential business in evaluating the quality and safety of such products. The company already inspects wind turbines and blades made in Asia and the assembly of wind-power plants in Europe.
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