Earnings Call: H1 2020

Jul 28, 2020

Hello, and welcome to the Bureau Verita Half Year twenty twenty Results Call. My name is Dan, and I will be your coordinator for today's event. Please note this conference is being recorded. And for the duration of the call, your lines will be on listen only. However, there will be an opportunity to submit questions towards the end of the call. I will now hand you over to the CEO of Bureau Veritas, Didier Michel Daniel, to begin today's conference. Thank you. Thank you, Dan. Good morning, good afternoon and good evening to everyone. Thank you for joining Bureau Veritas Half Year 2020 results, on the webcast and on the call. Francois Chabat, our Group CFO is here with me to present our results. At the time of the full year results call back in February, China was already in lockdown, With China representing 20% of the group's revenue and 22% of our employees, we were closely monitoring the impact on our local operations. The potential gravity of the virus spreading outside China became quickly apparent, so we took immediate measures to ensure of our employees, contain costs and maximize cash across the group. We placed all of Bureauvitas on a crisis management footing, and we launched 3 clear actions. First, the health and safety of all Bureau Veritas employees, a specific crisis unit was set up dedicated to monitoring actions, tracking staff and ensuring all possible measures were put in place to protect our people. 2nd, to protect the financial solidity of the group, we formalized cost control actions across the group, including anticipating lockdowns likely to come and proactive cash maximization initiatives. 3rd, to ensure business continuity with and for our clients, both in the field and remotely using digital solutions and tools. All these actions were rolled out across the group with frontline staff having responsibility for their particular areas of management. In a decentralized and diversified group such as Bureau Veritas, we know we can rely on the discipline and efficiency of all our teams. Indeed, I would like to take this opportunity to thank all our employees for the dedication, loyalty and huge effort made during these challenging times. Today, we can see that the crisis appears to be far from over. With the number of virus cases continuing to increase in places where we have large operations, We must remain vigilant and highly prudent about how the next few months will unfold. When we look at our first half performance, the impact of the pandemic is obviously significant. The resilience and diversity of our portfolio has been of considerable benefit. Revenue totaled €2,200,000,000 down 9% organically. Adjusted operating profit came in at €216,000,000 This significant decline was partially offset by the cost containment measures we put in place. Thanks to our early actions. We delivered a strong cash generation with a free cash flow of €270,000,000 up 91% versus last year. Our discipline and anticipation in cash management, together with our Move for Cash program, have delivered a major reduction of our working capital. With regard to our clients, Our teams have been very reactive in seeking ways to assist and support our clients through the crisis based on our range of digital solutions, tools and development capacity. We moved rapidly to launch innovative solutions with restart your business with BV and supply R. We launched restart your business with BV, a suite of solutions to our combined clients in restarting their operations as quickly as possible with appropriate health, safety and hygiene conditions. To develop this solution, our proactive and innovative teams have leveraged off our expertise in certification processes and the management of health, safety and hygiene risks. This enabled us to build and launch this service with a full digital platform across the group in a very short period of time. The take up by many of our clients has generated a considerable level of interest and momentum. Clients from all sectors and all geographies. We have supported, for example, Accor, Solexo, L'Oreal, Tonant, Milly Hotels, Wells Fargo, Unibail Rodamco Westfield and Tapestier. Government departments have also called us to assist the French Ministry of Education, the Turkish Ministry of Tourism, the Australian Justice Department to mention just a few. Another innovative service launched this month is SupplyR. What is SupplyR? SupplyR is a unique solution that brings together a customized risk assessment of supply chain based on field data collected through independent on-site verification of critical suppliers. We have developed this solution, thanks to our digital expertise. Our 5 key takeaways from the first half are as follows. First, the work to diversify the group over the past 5 years has proved beneficial. 2nd, we moved fast to identify as proactively as possible all means to reduce our costs. 3rd, we took initiatives to optimize cash generation by ensuring that we collect and protect cash to mitigate the impact of the revenue on margin shortfalls. This way, we preserved our strong balance sheet. 4th, the ability of Dorovetas to adapt and to innovate in a crisis to support both our employees and our clients. Lastly, we are ready for the new normal. Our work putting more emphasis on hygiene and safety issues, transparency and sustainability with more recourse of digital tools, virtual meetings, new ways of working. We were already well advanced in this field and we will accelerate even more. Francois will now walk us through the financial performance. Francois? Thank you, Didier. Good afternoon, good evening, everybody. Well, during the crisis, as a CFO, my obsession has been to protect the group's margin and the group's cash, obviously. Margin wise, we put in place an authority plan for our worldwide operations involving, amongst others, a freeze in recruitment, a freeze in salaries, pay cuts when and where possible, furlough of employees when appropriate and limiting SG and A spend and in a broader sense most non rechargeable expenses to the strict minimum. Cash wise, we took a number of proactive actions. First of all, the drawdown of our €600,000,000 syndicated credit facility, the signing of an additional liquidity credit line of EUR 500,000,000 with 1 year maturity and 6 months extension, And we finally obtained a waiver from our banks and USPP noteholders to relax our financial covenants for the next 3 semesters. It gives us sufficient liquidity and room to face a very volatile macro environment. As you've seen, we also took free cash flow optimization measures, including a strict CapEx control, focusing mainly on maintenance 2 very limited acquisition spend on H1 and finally, an accelerated invoicing and cash collection, leading to a very strong performance at the end of June of our working capital over revenue ratio, which went down almost 500 basis points to 7.1%. Looking now at the portfolio over the 1st semester, we posted a resilient revenue performance in the face of the COVID-nineteen shock, thanks to our diversified portfolio. In a nutshell, around 80% of the group's revenue has shown a good level of resistance, with Marine up 3.4% organically, suffering from little disruption so far. B and I Industry Agri Food and Commodities down only 6.6% organically on average within a minus 5.4% to minus 7.7% range. The remaining 20% made of Certification and Consumer Product was severely hit by the lockdown measures. Certification provides many non critical services, so we experienced postponement of audits and this despite the deployment of remote solutions during the lockdown period. And consumer product was further affected by the difficult situation of U. S. Retailers and several bankruptcies. Moving to the revenue bridge on Page 13. We delivered €2,200,000,000 in half year twenty twenty with an overall decline of 11.1%. Organically, decline reached 9%, including a negative impact of 15.6% in the 2nd quarter. The resilience and the diversity of our portfolio cushion the business disruption resulting from the lockdown measures across the world. External growth contributed minus 0.5% on the net scope, reflecting the impact from prior year of disposal, mainly the HSE Consulting business in the U. S. And it reflects as well the absence of Maceo transaction over H1. ForEx had a negative impact of minus 1.6%, mainly due to the depreciation of some emerging countries currency against the euro, partially offset by the appreciation of the U. S. Dollar and peck currency by the end of June. Now a few key points regarding the half year twenty twenty results. Despite the revenue shortfall, we succeeded in keeping margin close to a 10% threshold at 9.8%. Adjusted EPS is down a little over 0.5 as mentioned by Didier. I will come back to the details of cash flow in a minute. And finally, improvement in our net debt level continued despite the crisis, down a further EUR 200,000,000 from the position at the end of December and down EUR 500,000,000 from June last year. Turning to the adjusted operating margin. As you can see on the slide, the decline to just below 10% is largely explained by the drop in organic margin. Overall, this margin shows a revenue drop through to profitability of 59% in H1. The level of drop through between Q1 and Q2 has been influenced by the situation in China. In Q1, with the sudden lockdown and we had limited time for cost adjustments and very little possibility to take restructuring measures in our Chinese operations. Then in Q2, as the crisis started to hit other geographies, we saw the positive impact from our proactive cost actions across most countries. As to be expected, all business activities apart from Marine and Offshore posted lower margins due to the impact of the COVID-nineteen shutdowns on the activity. Marine and Offshore delivered 185 basis points of improvement to 23.1% compared to H1 last year. It benefited from the operating leverage, positive business and geographical mix as well as operational excellence. Adversely, the most impacted margin were those of Certification and Consumer Products due to the sharp revenue decline and the negative mix effect. Together, they represent around half of the group margin decline in the 1st semester. For Certification, the margin declined to 7.7% due to a decline in revenue basically in Q2. Also, it was cautioned by a more flexible cost base due to the greater use of subcontractor. The drop through was 50% in H1 on certification. For Consumer Products, the significant margin dropped to 8.9% is a straight drop through from the revenue decline. Restructuring measure were put in place in Q2. And to give you a bit more color from a negative margin in Q1, we achieved above 20% on Q2 as a semester. Looking now at the operating profit on Slide 17. In H1, the amortization of intangible assets resulting from acquisition increased due to the depreciation of certain legacy businesses. Those assets relate mainly to a niche business servicing offshore platforms and to commoditize all trade inspection activities in the U. S. In addition, we booked asset write off for a total of EUR 22,000,000 in the first half. This concern laboratory reorganization in our Consumer Product and Agri Food Commodities. And lastly, we further implemented structural margin improvement action and continued to adjust Ocao's base. As a consequence, we recorded a restructuring charge of €21,700,000 in H1, Actions were as well mainly taken in Consumer Product and Community Rating activities. For the full year 2020, we expect the total restructuring charge to remain in the range of €25,000,000 to €30,000,000 so having done the bulk of it in the 1st semester obviously. Coming to the net financial expense, increased somewhat in H1, mainly due to a slight increase of financial charges due to a higher average gross debt following early debt refinancing. And it's also due to the fees arising on the early repayments of 2 programs we had, USPP and Shuchain repayment that have been done in H1. Looking now at the tax rate. The adjusted effective tax rate of the group increased to 37.9%. The increase is mainly explained by the weight of taxes that are not directly calculated by reference to taxable income, such as withholding tax and value added contribution. For the full year 2020, we expect adjusted ETR to be in the range of 35% to 36%. Moving now to the cash flow statement and the 91% increase in free cash that you can see on Slide 20. The underlying improvement has been driven mainly by a strong working capital requirement inflow. You see a positive impact of €113,000,000 representing a swing compared to previous period of almost €275,000,000 2 third of this has been generated by action to reduce accounts receivable And the balance is coming from the deferral of cash payments related essentially to employment contribution and tax charges allowed by governments. Obviously, a strict approach to CapEx, which stood at 1.9% of revenue compared to 2.1% in the 1st semester 2019. We expect this to be around 2% for the full year 2020. So by and large, a solid cash flow statement. Interestingly, looking at the working capital, you'll see that in the first half, our move forecast program continued to demonstrate positive effect. We further reduced working capital ratio by close to 500 basis points versus June last year. We've reached 7.1% against 11.7 percent some period of time last year. And looking backwards, since June 2016, our working capital has been reduced by nearly half. Obviously, it reflects, I would say, 3 main points. 1st, an optimized invoice to cash process on which we have been focusing our efforts as early as possible this year. 2nd, accelerating of bidding and cash collection in the first half across the group with our collection team across the network being energized by the reinforced central task force. And finally, we've also benefited from the accelerated cash collection at a time of revenue decline in Q2. So be aware that the working capital in H2 in the 2nd semester will be obviously impacted by the deferral from H1 to H2 of those cash payments as mentioned before related to tax and payroll charges. So to summarize on working capital, this reduction remains a top priority for the group. We'll continue and reinforce our actions moving forward. As a consequence of this good performance, we can now have a look at our financial structure. The adjusted net debt stand at €1,600,000,000 which is down €200,000,000 compared to December last year. Our healthy financial profile at the end of the half year reflect a strong free cash flow, as mentioned before, euros 270,000,000 in H1, very limited M and A, euros 17,000,000 of spend net of divestments and no dividend outflow following cancellation earlier this year. So we closed the semester with a leverage ratio of 2 times, only slightly up from the 1.9 times in December last year. As regard, our debt profile has been lengthened to an average maturity of 5.6 years, extended in terms of bank covenants and with all maturity already refinanced until 2023. At the end of June 2020, Bureau Veritas had €2,100,000,000 of in available cash and cash equivalent and €500,000,000 in undrawn committed credit line. In the second half of the year and in the face of Didier mentioned continued uncertainty, margin protection, cash preservation will continue to be our main priority. So to sum up on this financial part, I would like to share with you that I think first we took action to protect our margin as much as possible with cost containment measures. We maintained a strong financial position having taken proactive action to ensure liquidity. And lastly, at the same time as taking major cost adjustment measure, we have taken care not to lose any expertise or skills vital to serving our clients when the market pick up again. I'll now hand it back to Didier for the business review. Thank you, Francois. Thank you very much. Let me now share with you the key H1 2020 factors for each of our 6 businesses. I'm going to start with Certification, which is the business most affected within the portfolio, down 21.9% in the first half. Obviously, we slowed down, meaning on a central audit initially planned during the first half were postponed, notably training and customized audit. On the positive side, certification of organic food products grew and sustainable development and CSR showed strong resiliency. We were able to perform some audits remotely, which amounted to 13% of the program. Restart your business with BV offer is expected to contribute to the gradual improvement of the business from Q3 onwards. Consumer Products now. So for Consumer Products, organic revenue declined by 20.8% in the first half of twenty twenty. The pandemic has shown that the diversification strategy towards new geographies, products and clients whilst well underway is still work in progress. I cannot pretend to be satisfied by our Consumer Product division performance. Our performance varied widely between the different segments. Softline, this business segment has suffered from its overexposure to the U. S.-China trade channel, particularly in retail where we have seen a collapse in activity and an increase in the number of client businesses going under. The uncertainty around trade tariffs has also brought additional pressure. Hardline Toys and Audits. The business has been weak across most geographies and notably in China and in the U. S. The toy sector is under significant pressure even though we have already reduced our exposure. Inspection and audit services showed a good level of resilience in H1 led by high single digit organic growth in China. The momentum continues to gather for social and CSR audit. Electrical and Electronics now. The activity suffered from difficult trading conditions with large U. S. Retailers and the effects of the COVID-nineteen shutdowns. The Electrical Automotive segment was particularly challenging notably in China. Mobile testing held up quite well and the group's 5 gs related products infrastructure continue to ramp up. Our Asian test platforms in South Korea and Taiwan are now fully operational. As Francois mentioned, margins were back up much closer to normal levels of above 20% in Q2. In the Consumer Product division, we continue to roll out our strategy to diversify the geographic footprint and client sector mix of this business. Moving now to Marine and Offshore. The business delivered a solid 3.4% organic revenue growth in the first half, benefiting notably from double digit growth in new construction and the good level of in service activity as we continue to deliver essential services to clients around the world. The solid momentum of new orders continued, totaling 3,200,000 gross tons at the end of June 2020, close to the order book of 3,500,000 gross tons last year. Once again, the group significantly outperformed the market, which is sharply down. This highlights our strong position in the most dynamic segments such as the ELNG fueled ships. During the semester, new digital tools were launched such as e learning modules and the rising number of adult surveys were led remotely. Agri Food and Communities. So for Agri Food and Communities, the business held up with a decline of organic revenues of 7.7%, a decline of 7.7% in the first half. The main supply chains in agri food and in metals and minerals continued operating. In Q2, the oil and petrochemicals business suffered from the lower demand for oil. Government services were impacted by the lockdown measures taken in some African countries. Industry now. Revenue declined by 6 0.8% organically in the first half of twenty twenty. This performance reflects the positive consequences of having diversified into the OpEx and non oil and gas markets over the past 4 years. Power and Utilities OpEx related activities were broadly stable, primarily led by Latin America, thanks to the ramp up of large contract wins with various power distribution clients. As regards oil and gas, CapEx activities representing today only 3.6% of group revenue were under pressure with muted opportunities. Conversely, OpEx continues to grow and offers a good pipeline. 4, building an infrastructure. As with industry, our moves to diversify the geographical footprint of the business and develop the activity over the past 4 years has played a key part in limiting the decline in organic revenues to 5.4% in H1. And this in spite of the shutdowns across many of the group operations. After strong negative organic revenue in Q1, Our Chinese operations delivered positive 8.6 percent organic growth in Q2. Regarding the 2020 outlook, the crisis is still with us. And given the uncertainty, it's very difficult to predict how the next few months will unfold. We are currently working with 3 different scenarios for the full year 2020. 1st, the situation improves enough to see a slow recovery. 2nd, the current situation continues with localized lockdowns, which may enable some muted recovery. 3rd, the pandemic worsens again. This is why for the remainder of the year, we must remain prudent. So to conclude, the absolute priority for all of us at this time remains health and safety. We will continue to contain costs and maintain our cash and strong financial structure. At the same time, we are accelerating our strategy towards meeting the trends of the new normal. We are talking about digital and fiber tools, supply chain relocation and the increased spotlight on ESG. Execution, by the way, is already underway. This would have been the central theme of our Investor Day that we have had to cancel in September for obvious reasons. We expect to reschedule this for the second half of next year and we'll announce the date shortly. Thank you for your attention. Thank you for listening. Francois and I are now pleased to answer any questions you may The first question will come from Julien Fouache of Societe Generale. Julien, when you are ready, please go ahead with your question. [SPEAKER JULIEN DUMOULIN SMITH:] Hi. Thank you for taking my question. Just two questions. So firstly, could you comment on what proportion of revenue that you lost in H1 is likely to be lost permanently? And how much you expect to catch up in H2 or in 2021? And the second question is, could you share what the organic growth rate was month over month in the second quarter? Thank you. So maybe I want to start by your second question. In fact, I'm going to give you June because it's interesting to see after the lockdown in Europe what June is. And June was at minus 8.8%, showing a clear improvement from, of course, May April, which was more which were more on the something like minus 15%. So in June, I would say in a more normal conditions, even if the conditions are still not normal, at least in Europe, The negative organic growth was minus 8.8%. Your first question, honestly, not easy to answer. And I'm going to be very cautious on the catch up in H2. First, of course, we should look at it business by business. But maybe we could discuss the business which were the most affected by the various lockdowns. I'm talking about certification, of course. I'm talking about consumer product division. If you think about certification, there will be some catch up. But of course, we are talking here mostly of voluntary type of schemes. So meaning that some clients will come back and will ask us to do some certification before the end of the year, sometime because their own clients are needing it. I'm thinking about the client who called us because he had to be ISO 9000 certified to sell his own product. Are we going to catch up all of it in H2 this year? Honestly, I'm not sure. It's going to be probably spread over H2 this year and next year. Now if you think about the Consumer Product division, clearly with the concentration of the tariff war between the U. S. And China and the fact that the election are still in front of us in the U. S. And also the fact that we are clearly very exposed to the U. S. Retailer market because of the business model of our CPS division with Bureau Veritas. I'm not sure we will catch up in the 2nd part of the year. It will come progressively for the 2nd part of the year. So for next year, sorry. So for CPS, of course, I'm still very prudent in the short term, even if we are working hard and we started to work already last year because of the trade war between China and the U. S. On diversifying the portfolio, diversifying the products, testing opportunities and looking at new opportunities in terms of geographies. So I cannot say more Julien than that today. As of today, as you know, the situation is still very uncertain. So the catch up will occur probably between H2 and next year. Okay. Thank you. Thank you, Julien, for your question. And the next question will come from Paul Sullivan of Barclays. Paul, when you are ready, your line is open. Please go ahead. Great. Thank you. Good evening, everybody. Just a couple for me. Just firstly, can you give us sort of indication of how certification is faring as lockdowns ease and sort of indication of growth going into the summer months? Secondly, all your scenarios have double digit margins. Can you give us any sort of color on the range of outcomes based on the revenues there? Or just give us any sort of guidance or help in terms of how we think about operational gearing over those revenue ranges? And then thirdly, on the consumer margin, back to over 20% margin in the second quarter, is there any reason why we would see that deteriorate in the second half? Or should we view that as a good number for the remainder of this year? Thank you. Well, thank you, Paul, for your questions. I'm going to start by the last one. So in fact, when you think about what happened with the Consumer Product division regarding the margin, we were taken by surprise, of course, when China locked down, clearly. So because of the revenue impact, we made decisions. By the way, you need to know that I was already working on the sort of restructuring of the Consumer Product division last year. And we already decided with Francois that we would probably put some restructuring cash in this operation. So we acted we were already working on it. We accelerated the restructuring and thanks to this good job done on cost, not cost containment, I'm talking of real restructuring. We achieved a margin over 20% in Q2. Clearly, because now we adapted our cost base to the let's say, what I could consider the worst case scenario, which is probably what is happening today with the minus 20%. We can imagine a margin at that level for the 2nd part of the year. Regarding your first question about July, it's too early. I cannot give you any answer, any trend. I will know more next week. The second question, Francois, could you answer? Yes. Hi, Paul. On your second question regarding the differentiation of margin in the 3 scenarios, I mean, obviously, you understand we are very cautious as there are plenty of moving pieces, obviously. But not to leave you completely in the dark, I think what we're thinking around is a yearly drop through level ranging between 50% to 60% across the three scenarios. So you can put them and look at them the way you wish, but that's basically the ideas we have at the moment. Didier mentioned and as you see, we haven't reiterated the guidance for reasons which are obvious. But I think with this in mind, you can fill up your model and I'm sure that Laurent would be happy to take some further detailed questions on this particular matter now that you have this range in mind. Right. That's very kind. Thank you. Pleasure, Paul. And the next question will come from Edward Stanley calling from Morgan Stanley. Edward, when you are ready, your line is open. Please go ahead with your question. Thank you. I think I had 3, but maybe it's only 2. You mentioned in the consumer outlook that China has recovered in Q2. Can you give us an idea of what the China growth rate is for Q2 to give us some kind of indication of where the rest of the group may be in Q3 given that it's following what generally what the trends in China have been doing 1 quarter later? And to follow-up on something Francois said, just so I understand it right, the tax deferrals that help the working capital, you mentioned that a third of that was related to tax and other benefits you've had. Is that a third of the €113,000,000 benefit or a third of the year on year swing in working capital on the cash flow, just so I understood that right? And I think that is everything for now. Thank you. Francois, I propose you answer the second question, and I will answer the first one. So to start on the second one, Ed, to be very clear, we are talking roughly €90,000,000 to €100,000,000 So it's a third of the total swing. And it relates mainly to measures which have been offered by the French government, Canadian and the U. S. Governments. So it's a third of the total swing. So on your first question regarding you asked a question in fact, when I think about your question, I think about China because you asked question regarding the consumer division. Clearly, we could see an improvement in particular in CSR audits, inspection and audit services in China in the Q2. But more important for me is the fact that we grew our business in Industry and Facilities and in particular in Building and Infrastructure by 8.6% in Q2, showing that the Chinese government has decided clearly to put more cash in the economy and in particular on the energy infrastructure and we are extremely well positioned as you know, thanks to the business that we developed in the past and in particular the joint ventures that we have in China in construction and in building and infrastructure. Regarding the certification, it's nearly flat in Q2 in China, which is, of course, quite a good news, nearly flat to last year. So if you think about Commodities Industry and Facilities business, China is going to do better clearly in Q3 and Q4 with positive organic growth. Regarding CPS, the pure Chinese domestic market is going probably to be flattish, but it is not material at the company level. Okay. Can I ask one quick follow-up? Because you mentioned that you've been approached by boohoo in the wake of what's happened with them. I'm just wondering whether that is a one off isolated event or whether you're beginning to see more retailers take on this kind of supply chain certification and assurance, and whether it may be something that could move it off for you beyond just restart with BB? Laurent, I'll let you answer this question. Yes. Hello, Ed. So on Bou, it's quite a recent relationship. We are just at the early stage, but we've been selected amongst 2 audit bodies to make a full review of their supply chain following their well known issues. So it is showing you that clearly there is a clear focus on CSR and audit social audit topics. And what we can say also that we've been working for them as well to manage some products under licenses on a very well known U. S. Customer. And so it's a new relationship, but it will be clearly moving in the right direction. More broadly, the restart your business initiative was a great initiative developed by Bureau Veritas. As you know, we were the first one to launch this program. And I'm very proud to say that thanks to it, we opened doors of some clients, which knew the rate has in the past, but we are not really clients. So it was a way for us to promote bureau veritas brand. And these clients will be loyal after. I take the example of the hotels for instance. We developed some protocols, hygiene protocols with them And clearly, in the future, we'll continue to work with them, keeping this hygiene type of inspection, because it will be more and more requested by the clients. The second good news for us regarding we start your business with BV is that we could touch any type of clients from government to whatever industry, stores, any center, even in tourism, in the hotel that I mentioned. So for us, it was and still is because we are still in the middle of selling this product, a great opportunity again, of course, to make some revenue, but more important for me to develop our brand image. And the next question will come from Rajesh Kumar of HSBC. Rajesh, when you are ready, please go ahead with your question. Hi, good evening. Thanks for taking the questions. Could you give us some color on the type of write downs and restructuring expenses you chose to take in the first half? I mean, the provision charge to the P and L seems to be a bigger number than the restructuring provision. So what are the various parts in that one? The second, if we look at your revenue decline, thanks to million, which was quite resilient, It's compared better than a few other companies that have reported recently. But if we look at the drop through margins, then you've had higher drop through margin negative. In part that is down to consumer, in part because if you look at the headcount that seems to be quite resilient. It's only personal expenses are down only $0.08 to $0.09 So just on that piece, can you give us a color on if you have kept more capacity waiting for a recovery? And second, why do you think your consumer business is trending the way it is compared to some of your peers? I mean or is it just a matter of geographic exposure? And last, I promise here this is the last one. When you look at your revenues and profits lost in first half, what are the revenues and profits that you think won't come back? No, no, sorry, sorry. Rakesh, sorry. Yes, that's it. Yes, please. Okay. So Francois will touch on the restructuring on the drop through. It's true that when you look at the number of people, the number of employees working for the organic growth was negative 9% and the number of employees negative something like 3% or 3.5%. There is a good reason. It's just because we decided, as you suggested, to keep the expertise when the recovery is going to be here. And we hope, of course, that it will start already in H2. So in fact, what we did, we worked on the salaries, on the packages and so on. And when we did that, we could save something like probably closer to the 9% impact of the revenue. And Francois will give you more details about the drop through. But today, I can say that we when you look at the number of employees, again, we are ready if there is a rebound in the 2nd part of the year and for next year. In terms of expertise, we do not want to lose the employees that we might need in the near future. I'm going to let you, Francois, give you more details about the drop through and the question about restructuring. Yes. So just some color on the authority plan. I mean, at the end of the day, the number of action we've put in place around packet, reduce spend, etcetera, it represents €170,000,000 of costs that have been out of the P and L in H1 compared to H1 last year to be very down to the facts, 9% less personal charges, 9% less business contractors and the like. So this has been no answer to the unprecedented situation we face. When it comes to the drop through, clearly, we had this 1st semester has obviously shown 2 phases, Q1 and Q2, with as I mentioned, Q1 dropped through, which was higher than 70% and Q2 lower than 40%. Having said that, the bulk of the issue we have and we faced in the 1st semester is related to consumer product. If you do your math and even without mentioning competitors, you would find out that this is where we've lost part of the margin in H1. How have we addressed this? As I said with Didier, I mean, I was visiting the Consumer Products division end of last year, September, October. And from there on, we had decided to launch a restructuring plan to, I would say, get our network of laboratories adapted to the flows of business coming forward. So at least we had already from our forecast those plans, which have been implemented very rapidly in the 1st semester. That's why you have a restructuring charge of €20 ish million in H1, most of it being customer products and all of it having been executed already. So we do not expect for the full year, as I mentioned, to be well above €25,000,000 €30,000,000 max. So this has been addressed and this enables us in the second quarter to have a consumer product closer to 20% margin already in Q2. So that's one element. Coming to your you had other question yes, the write offs. Coming to the write offs, they relate to 2 aspects. 1, being intangible assets, so 2 specifically, I guess the business, one that belongs to our Marine Offshore division that is specialized on offshore platforms And the second one being inspection in a commoditized oil and petroleum business in the U. S. So we took the decision to impair them. So that's roughly the €60,000,000 difference you have compared to the historical amortization level on this line. And when it comes to physical assets, we've applied to ourselves a very strict discipline when reviewing our laboratories or networks, mainly on consumer product and commodities. And we actually reduced some of the footprint. Aggregate Laboratories, the margin is coming from more volume on the same place. I will not teach that to you. So we took very, very rapid actions to get this happening. And again, the bulk of the write offs is made in H1. So that's why we are where we are today. Thank you very much. That's very helpful. Thank you for your question. The next question will come from the line of Rory McKenzie calling from UBS. Rory, when you are ready, your line is open. Please go ahead. Thank you. It's Rory here. I know you've already given a lot of detail on the costs and the drop through. I want to try and ask it slightly differently. So through H1, your cost base was down about 5%, I think. Can you quantify how much benefit you got from government support schemes that might not be there to help through H2? And also, given you're talking about this restructuring, shouldn't we expect a, I guess, a further decline in the H2 cost base year over year? Thank you. Yes. Good afternoon, Rory. Well, on the first question, it'd be very straightforward and direct. So we have applied for governmental schemes where our activities were eligible, so that's mainly U. S, Canada, France. Altogether, it represents in terms of subsidies being received and booked in our accounts in H1, I would say, between EUR 30,000,000 EUR 40,000,000. That's the magnitude. And then can we expect similar thing to happen in H2? Obviously, it's very early to say it's a case by case situation. For example, in France, we had a significant part of our team on a specific program, which is partial work type of things where you get funding from the state. We currently have only now only 1% of the staff as they are back to work. So in my view, I don't look at those amounts as an improvement of margin. It's just a way to go through a crisis at a time where your revenue is down. I mean, I really do hope we will not get it in H2 because it will mean that things would have started again. So that's one. The second question you had was on restructuring. We've correct me if I'm wrong, but basically, my answer to what I think your question here is we've gone through 21,000,000 something in H1. We aim for the full year at 20 five-thirty maximum. So the bulk of it is done already and it's been on the consumer products. All these plans have a payback time of, I would say, 10 to 14 months. That's the average of our plans. Perfect. Yes, I'll also add the payback. That's extremely helpful. Thank you very much. And in fact, when you look at the payback, we have even better and quicker payback. As you could see, if you take the example of CPS, the margin already at more than 20% in Q2. So clearly, we did very well in term of restructuring some businesses as quickly as possible. And by this way, preparing the 2nd part of the year and of course the years to come in 2021 and the years to come. And the next question will come from Suhasini Varanasi calling from Goldman Sachs. Suhasini, when you are ready, please go ahead with your question. Hi, good afternoon. Just a couple from me, please. You mentioned that within the soft lines division, you had issues with the U. S. Retailers and the bankruptcy situation there. Did it impact your working capital in the first half? Do you expect further impact to working capital in the second half as a result of this? And the second one is on your restart your business with DV, quite a lot of it's very interesting to see the number of customers who have already signed up to it. Can it materially move the needle, you think, on organic revenue growth in second half of the year and maybe mitigate some of the declines that you're seeing? Okay. So when we start your business, we are still in the middle of getting some win. At the company level, it's not really material even if, of course, it's going to impact positively our certification revenue started in Q3 because most of these schemes will be in place starting now, July, August and so on. So again, I'm happy because we won some contracts and it's going to give us a clear opportunity in terms of revenue for certification. But more important than in this thing, it opened doors for the future clearly. So and again, we know that North America is still in the crisis. Latin America is also still in the crisis. So we will recover more wins in the future. Even if I'm happy already with the revenue that we could generate from this initiative. Francois, the first question about Softline and the impact on the So as you can see on our numbers, our working capital has gone south quite significantly in H1, which and it's driven mainly by the reduction in outstanding receivables. So as a matter of fact, we don't see today any major impact. What we see now from bad debt point of view is we are still today well below 1% of the group sales. So even if the situation was to become very worth and kind of double, that would not materially affect our liquidity. Lastly, on the specific point you mentioned of the U. S. Retailers, we have cases where today we work actually for some of those companies being Chapter 11. They're still operating. But obviously, we have payment them with them that enables to the consumer test business is based on a big number of small operations. So it enables for them to pay in advance each and every test. So we do not build up a strong exposure to clients having financial difficulties. That's it. Thank you. Thank you for answering. Our next question will come from Alexander Mees calling from JPMorgan. Alexander, when you are ready, your line is open. Please go ahead. Thank you. Good evening, gentlemen. Three questions, please. Just firstly, within B and I, the organic growth was very good in Europe. I just wondered how you managed to achieve that, particularly in France, given presumably a number of your sites or the sites that you visit were inaccessible during the period? It seems like a very strong outcome. Secondly, sorry to go back to consumer, but I just wondered what has happened in that division in terms of the setup or the cost base that made it necessary to take the restructuring action that you have? And thirdly, Francois, my apologies if you mentioned this earlier, but I wondered if you had any guidance for financing expenses in the second half, please? Thank you. Okay. So I'm going to start by the first question, a question on B and I. So it's true and you're right, I cannot say that we achieved quite a good performance. And when you think about the lockdown period in particular in France and also in Europe. So it came of course from 2 factors. I would say the first one, the decision we made in 2015 to diversify our portfolio geographically, meaning that it's a lot more balanced. And again, we grew 8% more close to 9% in China in Q2. The second one is we strongly benefited from new services launched related to energy efficiency programs in France in particular. And also we had a very, very healthy backlog for OpEx related activities when we restarted the year. And in fact, when you think about the OpEx, if you combine the energy efficiency programs and the execution of our healthy backlog, we are at around 3 quarter of the French construction business. So it had a good impact. The CapEx related work is under pressure as you can imagine, but it's clear that the fact that we decided again to be present in several countries gave a good balance to achieve this minus 5.4%, which is quite remarkable knowing that there was a general lockdown in Q1 in China and in Europe for 2 months, 2 months and a half. The second question is about the consumer setup and the cost base. So Francois is going to answer this question. But Francois said it, and I would like you to make it clear, last year, when we saw the trade war between the U. S. And China and knowing that we were highly dependent on American retailer, we started to work on restructuring the Consumer Product division. Of course, the COVID-nineteen impact pushed us to accelerate this restructuring and to work on the strategy as well for diversification as we did well for the rest of the portfolio. Regarding the cost base, you want to add something? I think you said it, but in practical terms, those these restructuring is mainly focused at rationalizing our laboratory footprint in China. And this is all the plan had been set up end of last year and have been executed as soon as the lockdown was over with a view to maximize the margin. But it's important, Alexander. Again, I'm sorry, maybe a little bit heavy, but we in fact, at the beginning of the year in February, when we told you that we will have some restructuring, if I remember well, we gave up to €15,000,000 It was at that time mostly the CPS restructuring. Of course, the COVID-nineteen again impacted the organic growth, but we were already working on it. It's probably and I'm sure the reason why with our margin grew up significantly in Q2 already and we'll be probably at that we'll be at that level in H2 and I hope even better next year. I would take your last point on the financial cost. I would broaden it a little bit prior to answer precisely to your question, but we have a pretty prudent view on the way we manage our debt. So we have taken a couple of reimbursements earlier this year in H1 that inflate a little bit the finance cost on H1. For the full year, we expect to remain within the €90,000,000 range. So we have an H2, which will be softer on finance cost, taking advantage of, A, the action we've made last year in refinancing B, the last steps of this plan that has been executed in H1 this year, meaning some legacy program, which were expensive, are now off the table, and we're starting to gain the benefit on the financial costs. That's perfect. Thank you. And the next question will come from the line of Neil Tyler calling from Redburn. Neil, when you are ready, please go ahead with your question. Good afternoon. Thank you. Just one really late I'm sorry to labor the point on the restructuring in consumer, but I just wanted to understand specifically whether you can share details of what proportion of the labs in China, you have closed. Which of the perhaps another way of looking at it is which of the 3 scenarios in your outlook best reflect the revised footprint that your lab footprint is now designed to serve? And when do you anticipate anticipate the revenues generated by your consumer Lada footprint in China re achieving the previous high watermark, which I assume was in 2018? First, it's more rationalization than anything else. I'm not going to disclose the number of labs that I decided to close. What is important for you to understand is that it's all about because we had this act between the U. S. And China, it was really to anticipate what the footprint in China should be for the future. The second point I wanted to insist on is the fact that, as you know, we decided to open labs in Vietnam, in Cambodia, in India because the Softline business was already moving in term of testing from China to these regions. And for instance, we even opened the lab because a client asked us to accompany in Ethiopia. So the supply chain was already moving. It's the reason why we decided to rationalize the what I could call the production, the testing in China. Now I'm not going to give you the number of labs that we decided to close. And the final caller on the line today is going to be George Gregory calling from Exane. George, when you are ready, please go ahead with your question. Good evening, Didier. Good evening, Francois Laurin. Just I will take the 3, please. Firstly, back to the drop through. I just wanted to clarify whether, Francois, the 50 to 60 that you mentioned is organic. When I look at the first half, the organic drop through looks to have been around 70%. I'm just trying to reconcile the 50% to 60% with that and also your comments around the Q1, Q2 split. Secondly, do you have a full year expectation for the currency headwind relative to the, I think, the 1.6% in the first half? And finally, I appreciate there's an awful lot of uncertainty going into 2021, but if conditions continue as you expect into the second half, should we expect the tax rate to normalize into 2021, please? Thank you. Okay. I'll take those last three questions. So on the drop through first, let's be careful with the concept. It's not exactly a normalized indicator. So instead of being an out drop through is all inclusive. It's not organic, it's all together. When it comes to pre sizing exactly the H1 versus the 3 scenarios, what I would advise, it's late already, join and get in touch with Laurent to ensure that your numbers are in line with ours just to avoid misunderstanding. Coming to your second point, which is foreign exchange. As I used to say, if I could predict foreign exchange, I would not be sitting here. I would have made a fortune somewhere else. But frankly speaking, what we see at the moment is that our exposure on H1, even though by and large we are at minus 1.6, we were minus 1.1 negative impact in Q1, minus 2.3 in Q2. Reading the news, you see the dollar moving crossing the line of the 1.17 against the euro. So I would say it's reasonable to think that we continue to have a drag on H2 due to a foreign exchange, Very little doubt about it. And your last question was about tax. I think we guide for the year at 35% to 36%. When it comes to next year 2021, then I promise I will answer this question in our yearly call, but it's a bit early. It will obviously normalize 2020, the year is an exceptional year in that regard. As I mentioned, we have especially within Bureau Veritas, a lot of internal dividend distributions that are obviously having tax friction, withholding tax. And this cashment has been happening in H1 as it is normal. We wanted to maximize our cash centrally considering what was going what is happening. So I will not take 2020 as a reference here on tax. It's an exceptional year to many regards including tax. Thank you. Okay. It seems that we have no more questions. So good evening to everyone and of course stay safe.