UPDATE 3-SGS cuts dividend after restructuring charge

Thu Jan 17, 2013 8:13am EST

Related Topics

* Takes 47 mln franc charge for restructuring operations

* Net profit 556 mln Swiss francs vs 573 mln forecast

* CEO says on track to meet 2014 sales target

* Sales 5.58 bln francs, vs 5.53 bln forecast (Adds comments by chief executive)

By Silke Koltrowitz and Emma Farge

ZURICH/GENEVA, Jan 17 (Reuters) - Swiss testing and inspection services company SGS cut its dividend on Thursday after booking a charge for restructuring its European operations, saying it needed cash to continue making acquisitions.

SGS, whose activities range from testing toys to vetting seven-star hotels, said that most of the 47 million Swiss franc ($51 million) charge was related to the planned closure of its clinical trial activities in France.

"With restructuring, you have to do it once and hard. This is a unique charge and there will not be another unique charge in 2013," said Chief Executive Chris Kirk, after reporting a lower than forecast 1.5 percent rise in its net profit last year to 556 million Swiss francs ($598 million).

Analysts in a Reuters poll had on average forecast a net profit of 573 million francs.

The dividend - composed of an ordinary dividend and a special payout the group has been making since 2007 - was cut to 58 francs from 65 francs last year, also disappointing the market.

SGS shares were trading down 1.6 percent at 2,062 francs by 1220 GMT, the only stock down in the Swiss market's SMI top-20 index.

"I presume what the board was thinking was to leave some cash in the house so we have more fire power for acquisitions," said Kirk, adding that South America was a target for purchases.

Since announcing a growth plan in 2010 the firm has made dozens of small acquisitions in the highly fragmented testing and inspection market, in which it is the world's biggest player, with the largest deal so far the purchase of Spanish firm ITV for 180 million euros ($239 million) to boost its automotive business.

Kirk said the growth plan to increase revenue to 8 billion Swiss francs was still on track.

"We've still got two years to run and we think that's do-able. The very negative swing we had in the Swiss Franc is now moving in the other direction," he said.

The Swiss franc has fallen to a 13-month low against the euro as the single currency strengthened further after the European Central Bank's upbeat assessment of the euro zone crisis.

SGS, which saw its operating margin fall to 16.9 percent from 17.1 percent last year, cited a margin-dilutive impact from recent acquisitions and investments in growth initiatives.

Vontobel analyst Jean-Philippe Bertschy said while the dividend cut was disappointing, sales growth and operating profitability were strong, and highlighted a solid performance in consumer testing, the group's second biggest business unit.

U.S. ENERGY BOOM

SGS said it saw double-digit revenue growth in half its 10 business lines and in all regions outside Europe.

"SGS expects to deliver solid top and bottom line growth in 2013, notwithstanding continuing weak trading conditions in Europe," the group said.

SGS and peers Bureau Veritas and Intertek are benefiting from increasing regulation in many areas and a trend at companies to outsource testing services.

Sales in the full year rose 16 percent to 5.58 billion francs, just ahead of average estimate for 5.53 billion.

The company's oil, gas and chemicals services exceeded 1 billion francs revenue for the first time, due largely to the development of shale oil and gas in the United States.

Kirk said a key challenge for SGS will be adapting its business to these changes in the U.S. energy sector.

"One issue we are watching very closely is the U.S. moving from a net importer of oil to an exporter of gas. We have to make a step change in the way we do business," he said. ($1 = 0.9304 Swiss franc = 0.7521 euro) (Reporting by Silke Koltrowitz and Emma Farge; Editing by Greg Mahlich and Toby Chopra)

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