Earnings Call: H2 2019

Feb 27, 2020

Good morning, good afternoon and good evening to everyone. Thank you for joining Dura Veltas full year 2019 results on the webcast and on the call. Francois Chabat, our group CFO, is here with me to present our full year results. We closed the year with excellent operational and financial performance. Record revenues and cash generation were delivered. We achieved the highest quarterly organic growth for 7 years, which took our revenues through the €5,000,000,000 mark for the first time ever. Cash generation was close to €620,000,000 a record performance cementing our strong financial credentials. 2019 was the 4th year of the rollout of our strategic plan and the momentum has continued. We made further significant steps in the diversification of our portfolio with 30 bolt on acquisitions and targeted disposals. The growth momentum across our businesses demonstrates the strong fundamentals that have been built over the past 4 years. Buildings and Infrastructure grew 6.8%, agri food and commodity 7.9%, industry 6.3%, while marine and offshore achieved 5%. We have delivered all the objectives we set for 2019. Euronetas delivered 4.3% organic growth in 2019, accelerated compared to 2018, a margin of 16.3%, up 20 basis points at constant currency a strong free cash flow of EUR618,000,000 representing a record of 12.1% of the group revenue. Looking at our portfolio, at the end of 2019, it has much better resilience than 4 years ago and is relevant from a cyclical perspective. We estimate that as of December 2019, 45% of the group revenue is from a platform systems derived from existing assets. Here, we are talking about high visibility, repeat business, driven by regulations or standards. 33% is products related. It comprises our agri food and commodities business, which is volume driven with notably healthy prospects in food and consumer products, which relies on innovation and technological changes. Lastly, 22% of our revenue relies on our clients' CapEx decisions, a combination of new buildings and infrastructure spread across many geographies, new energy projects and new ships. All these markets are today recovering with a visibility ensured by a solid backlog. The growing pillar to our resilience and building long term relationship with our clients is in supporting their regulatory and voluntary CSR commitments. Ever since founded in 18/28, Bureau Veritas' ambition has been to build trust between businesses, governments and clients. In this field, we do far more than verify compliance. We act as independent, impartial guarantors and thereby play a crucial role in building and protecting companies' reputations. Our clients expect us to understand their complex business environment and risks. For example, the possibility of their supply chain, concerns around the technological advances impacting the various industries, regulations making them responsible for the recycling of their end products. They need impartial experts to ensure quality, safety and sustainability vital to remaining competitive. To assume the strong Bureau of Data must lead by example. Today, we are focusing on 4 key CSR areas: safety, ethics, inclusion and environmental protection. I believe that BB is uniquely positioned to share the trust between our clients and society and to help them promote more responsible progress. Francois will now walk us through the excellent financial performance. Thank you, Francois. Thank you, Didier. Before doing a deep dive into the numbers, a few words on the key financial achievements for 2019. We continue our active portfolio management strategy by divesting nonstrategic businesses, This contributed to margin improvement. We delivered another year of strong free cash flow, thanks to the continuing positive effect from our more for cash program, which contributed to a material decrease in our leverage ratio, down to 1.9x, which is the lowest level since 2014. We pursued a proactive and opportunistic financing strategy, allowing us to optimize the cost of our debt, delivering a 20 bps decline compared to last year to 2.8%. And we have also lengthened the average maturity of the debt and now have maturities which are no longer there until 2023. Looking at the revenue bridge. We delivered €5,100,000,000 in full year 2019, breaking the €5,000,000,000 threshold for the first time with an overall growth of 6.3%. Organic growth reached 4.3% in comparison with 4% in 2018. This illustrates a steady resilience of our portfolio. Indeed, we have consistently delivered above 4% organic growth over the past 6 quarters. External growth contributed 1.2% on a net basis. And finally, ForEx had a slightly positive impact of 0.8%, which is mainly attributed to the depreciation of the U. S. Dollar and currencies against the euro, while slightly mitigated by the weaknesses of some emerging countries' currencies. Turning to the revenue growth by business for the full year. 5 out of almost 6 businesses reached a solid pace of organic growth of 4.8% on average. Only certification remained indeed in negative territory. Agri Food and Commodities and Industry both clearly outperformed the average at plus 6.7% and plus 6.4%, respectively. We benefited here from strong drivers in Agri Food and an excellent performance in energy related activities. At the same time, our Marine and Offshore business recovered, up 4.9% since to our positioning in the more dynamic segments. Consumer Products grew 2.3%, mostly affected by the wait and see situation triggered by the tariff discussions. And finally, as expected, Certification declined minus 1.5%, reflecting the transitional year post provision of standouts. In the last quarter, if we zoom on it, we delivered 5.3% organic growth. This is our best quarterly performance since the Q3 of 2012. In the quarter, all businesses grew organically without exception, with industry the best performer up 9.3%, delivering the full benefit of the balanced OpEx and CapEx related activities. Agri Food and Commodities maintaining a strong 6.6 percent organic growth, notably fueled by the double digit growth of our Agri Food business. And finally, Certification was up plus 6.7%, benefiting from strong momentum on the skills. If we focus on the M and A now, we continue our active portfolio management with the objective of seizing attractive acquisition opportunities and divesting nonstrategic businesses with beautiful margins. In 2019, we added EUR 46,000,000 of annualized revenue with 5 acquisitions, notably reinforcing our footprint in the U. S. And in Asia that support our banking infrastructure and agri food growth initiatives. In parallel, we completed the disposal of our consulting business unit providing HSE services in North America. We also divested a number of laboratories and offices, notably in North America and in Europe, and focused on underperforming units. Moving forward, we will continue to deploy a very selective growth and acquisition strategy alongside targeted disposals. Now a few key points regarding the full year 2019 results. I will comment on the numbers after application of IFRS 16 on the basis as this is now the new norm. Adjusted margin increased by 50 basis points to 16.3%, of which 45 basis points are constant currency. It is 3 consistent with our full year guidance 2019. Adjusted net profit is up 8%. Free cash flow is up 29%. And we'll come back to the detail of cash flow in a minute. Adjusted net debt is down minus 14% versus last year, benefiting from the strong financial performance of the year. Turning to adjusted operating margin in the full year 2019, it improved to 16.3%, which reflects a combination of 13 basis points of organic improvement, 7 basis points of Screw impact as a result of our targeted disposals and 5 basis points positive ForEx impact. Finally, 25 basis points from IFRS 16. So an overall gain of 50 basis points versus 2018. Focusing on the businesses, 3 out of them posted improving margin at constant currency. This was driven by a significant improvement in Agri Food and Commodities, plus 120 basis points. Marine and Offshore contributed plus 20 basis points and Building Infrastructure plus 30 basis points. This improvement is the result of a combination of operating leverage, strict cost control, restructuring payable, of course and active portfolio management. For Consumer Products and Certification, lower organic gross margin and negative mix weighted on the performance. Looking at operating profit on Slide 19. It is up 13.2 percent at EUR 721,000,000 In 2019, we further implemented structural margin improvement actions and continue to adjust our cost base. This resulted in a restructuring charge of €24,400,000 massively down from €42,100,000 in 2018. Actions were taken in commodity related activities, building and infrastructure operations and industry businesses. Net financial expenses increased in 2019, mainly due to IFRS with a €16,800,000 impact. Second, a slight increase in financial charges, mainly due to the higher average gross debt following early debt refinancing and third, the depreciation of several emerging currencies increases the ForEx impact from minus €5,000,000,000 to minus €10,000,000 Looking at the tax rate now. The adjusted effective tax rate of the group was up 20 basis points, 23.1. The decrease is mainly explained by the new rules for the tax deduction of interest applicable in France from 2019 onwards. For the full year 2020, we expect our adjusted ETR to remain at 33%. Moving now to the 29% increase in free cash on Slide 22. The underlying improvement beyond the IFRS 16 impact has been driven by an increase in profit before income tax, mainly led by higher operating profit and lower restructuring the disciplined approach to CapEx, which stood at 2.4% of the revenue compared to 2.6% in 2018, and we expect it to be slightly below 3% for the full year 2020. Obviously, the growth acceleration in Q4 held back the working capital improvement. Focusing on this in more detail and looking at it on Slide 23. In 2019, we continue to deploy our Move For Cash program. We further reduced our working capital ratio by 20 basis points versus December last year to 8.8 percent of group revenue. Since December 2016, our working capital ratio has been reduced by 120 basis points. Working capital reduction remain a top priority for the group. We will continue and reinforce our action moving forward. Regarding now our financial structure. The adjusted net debt stood at €1,800,000,000 down 14% from December 2018, Our healthy financial profile at the end of the year reflects a strong free cash flow generation of EUR618,000,000 a disciplined M and A strategy with €99,000,000 of spend net of divestments and a reduced dividend outflow of €97,000,000 given the strong pickup rate from the scrip dividend in the 1st semester 2019. So we closed the year with a leverage ratio of 1.8 7x, down from 2.34x in December last year and far below or 3.25x by government. As regards our debt profile, it's lengthened to an average maturity of 5.8 years and with no maturities before 2023. So we will propose a dividend of $0.53 per share for 2019, payable in cash. This was a payout ratio of 55% of adjusted attributed net profit. To conclude, after the strong start of 2019 results, margin focus and cash will remain our top priority in 2020. And I 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 2019 highlights and 2020 trends for each of our 6 businesses, notwithstanding the COVID-nineteen impact. Starting with Marine and Offshore. The business delivered a solid 4.9% organic revenue growth in 2019, as it benefited notably from high single digit growth in new construction. New orders grew 7% to 6,500,000 gross tons at the end of December 2019. The group significantly outperformed the market, which was down double digit, which highlights our strong position in the most dynamic segments such as the PNG fuel ships. In 2020, we expect organic revenue growth in this business to be positive. For Agri Food and Commodities, the business achieved strong organic growth of 6.7% in 2019. This reflected double digit growth for agri food led by new services and new lab openings and high single digit growth in metals and minerals. In 2020, we expect the agri food and commodities business to deliver a solid organic revenue growth, although at a slower rate compared to 2019. Let's move to industry. Revenue accelerated to 6.4% organically in the full year 2019 from plus 3.5% in 2018. In the last quarter, the business delivered a strong 9% organic growth. This was driven by diversification into power and utilities, the repositioning towards OpEx, the improving oil and gas market environment throughout the year. In 2020, we expect the business to achieve solid organic revenue goals. Our strategy of OpEx Services Diversification will continue to pay off. All non cash CapEx markets will continue to improve. For Building and Infrastructure, the business achieved an organic growth of 3.2% in 2019 spread across Asia and Americas. Growth was particularly strong in China, led by energy and infrastructure project management assistance. The U. S. Benefited from strong dynamics in data center commissioning services. France saw some improvement in Q4 in 2020. The outlook for the business is expected to improve overall, thanks to the recovery of France, backed by the delivery of a healthy backlog of OpEx related services. It will be mitigated by the negative impact from the COVID-nineteen on operations. For certification, as expected, the business recorded a slightly negative organic growth of 1.5% for the full year 2019, following the end of the 3 year standard revision period. In Q4, the growth resumed with a strong organic performance of 6.7%. Growth is driven by new services, meeting the growing demand from customers for brand protection and traceability all around the supply chain. In 2019, social and customized audits, sustainability and organic food certification grew double digit. In 2020, the Search Engine business is expected to deliver solid organic revenue growth led by sustainability and ESG topics, food schemes and specialized standards related to risk management. Consumer Products. The business delivered moderate organic growth of 2.3% in the full year. Our softwares business grew low single digit with very strong momentum in South Asia and Southeast Asia, continuing to benefit from an accelerating sourcing shift out of China. A new laboratory was opened in Vietnam. In hardlines, calls were stable, cosmetic experienced double digit growth and the momentum for social and CSR audits continued across all regions. The new international e commerce platform for mass market suppliers gained traction among the group customer during the year. Electrical and electronics organic growth was flat. The activity suffered from difficult trading condition with large U. S. Retailers and the effects of several bankruptcies. In 2020, we expect positive organic growth with strong momentum in South Asia and Southeast Asia, moderate growth in Europe and more challenging conditions in both the U. S. And China. As regard to COVID-nineteen, we expect the growth of our consumer products business to be negatively impacted in Q1 due to complement measures. As the CEO of Novo Nordiskas, I have been following news of the COVID 19 outbreak with deep concern. Safety is an absolute operator. It means doing everything we can to keep our people safe and our clients' people safe. We are monitoring the situation every day in real time and have set up a dedicated crisis committee. We expect a material negative impact on the group's activity from the COVID-nineteen due to the economic inactivity, primarily in China, 17% of group revenue and potentially elsewhere. Both the group's esteemed driven consumer goods activity and audit and inspections activities are affected. In the current circumstances, the impact on revenue is expected to be in the range of €60,000,000 to €100,000,000 We are focusing on protecting our profitability. Our outlook now. The group's strong fundamentals remain unchanged and clearly demonstrate the soundness of the ongoing strategy. We have now a 4th measure with the COVID-nineteen outbreak, which we will monitor. In the current circumstances, the Q1 of 2020 will be primarily impacted. Overall, for 2020, we expect to achieve solid organic revenue growth, focus on protecting the adjusted operating margin at constant currency, generate sustained strong cash flow. This strong 2019 results illustrate the extent of the transformation of the Rubitas since 2015. We now have put in place much of the growth profile and cyclical resilience we were looking to achieve in our 2020 plan, together with cash flow generation and a deleverage balance shift. So to conclude, we are extremely pleased with a strong momentum in the year 2019. With this strong fundamental growth and restored financial profile, we can now look to the group structure development, which we will share with you in September, precisely on September 29 in Paris. Thank you for listening. Francois and I are now pleased to answer any question you may have. Thank you. The first question in the queue comes from the line of Tom Sykes from Deutsche Bank. Please go ahead. Yes. Good afternoon, everybody. So congratulations on the results, but clearly, you're facing some headwinds now. So just to dive in a little bit into the COVID guidance. I wondered if you can say just how much of the suspected loss to revenue is lab based versus non lab based? And how much of it is sort of lost discretionary testing, if you like? And how much of it would be mandatory, which you may expect to come back in the second half? And then obviously, on cost mitigation, presumably the drop through on this is going to be relatively high, especially at the early stages in your high margin there. But what cost mitigation can you actually do? Is there differences in, I don't know, holiday provisions or something? Or what degree of cost flexibility do you have? And then I have a follow-up on the U. S. Retailers, please. So of course, your question is excellent. In fact, all businesses are affected in China. If you think about the lab, because you asked a question specifically about the lab, I had a call this morning with the boss of the consumer product division, who is, as you know, Chinese, Kathleen Cheng, based in Shanghai. And today, 70% of the employees are back in our laboratories. I do not see today, but again, in 1 month, we may have a different perspective on the business. But today, I do not see any real catch up regarding the testing in our laboratories in China, because first, it's too early to talk about it. And second, I would say the reaction of our clients is still not clear for instance the next collection, the summer collection. So we are working for them as now all our laboratories in China are open again to see what they are expecting from us. Now regarding the cost of time, maybe, Francois, you could give more probably more details. Yes. Thank you, Didier. So there are practically 2 types of cost containment. The first one is what we are doing in China as we speak, which is by far the region which has the strongest seat. And here, we've implemented a program regarding travel ban, regarding hiring freeze. Anything that is not necessary is simply stopped. Obviously, as you understand, we are respecting the Chinese regulations here. And the Chinese state has made it very clear that there should be no restructuring, no technical show much technique. We don't have any flexibility on the cost base when it comes to salaries, and we respect this obviously. So there is a limited element of cost saving we can do here in China. What we are looking more into this and now is discussion with the Chinese authorities on tumor repairs, potential tax reductions and some reduction in the lease of our labs, which are owned by state owned companies. So that's for China, I would say. And then we're implementing group wide a number of actions on which we are currently working to protect as much as we can the margin. And this is, in this case, beyond the Chinese geography. And in practical term, it is actually affecting all non necessary expenses while preserving the key investment for the group. Obviously, this is a very fine balance we keep on having with DDA and the Executive Committee. Yes. We were extremely reactive. And just for you to know, we started to implement this cost mitigation action already 3 weeks ago. Immediately, in fact, we thought that the situation could be serious. So we made some good decision to protect the margin. The second point I can make about China is more than 50% of the flow in commodities industry and facilities are back. I had a phone call also with the commodities industry and facility leader this morning. So they are back to work. And the good news, we had 2 guys affected in the province of 1. 1 is out of the hospital and the other one seems to be okay and should be out situation today. So and as you can imagine, as a CEO of a company, your first concern is about the safety of office employees, of course. Exactly. Well, that's good news. And thank you for the answers. And then just a follow-up on your comment on U. S. Retailers and the issues that they need to have. I mean, obviously, there's a couple of high profile bankruptcies. But is this something that you're seeing some stress as you go down the tiers of suppliers? And do you think you're well positioned as e commerce versus, I suppose, traditional retail when you look at the consumer business, please? In fact, there is nothing really new. It was the case already in 2018, it's changing in 2019. Of course, the online business is now becoming a competitor to these retailers. The good news, of course, is that now the consumers are looking for even more quality even for the online business, meaning that clearly we are going to do more inspection, more deep and more testing even for the products which are sold through e commerce. What sorry, why do you pick it out now if it's obviously, it's peak in effect of e commerce versus traditional retail for a period of time, but why it kicked out now? What's particularly happened over the last few months? It's already, yes. We looked at it in the detail. We feel that probably already something like 15% of the products which are sold through e commerce are tested, inspected. But we can clearly see now because of the strengthening of the regulations in most countries an acceleration. And this acceleration will continue because as there is more business through e commerce, of course, consumers are more demanding in terms of quality. So we can see clearly now and for the future an acceleration in testing and inspection as well. The next question comes from the line of Paul Sullivan from Barclays. Just a couple for me. Firstly, just to be clear and I appreciate how difficult it is to forecast at this moment in time. In terms of the proportion and how we should think about the proportion of the €60,000,000 to €100,000,000 and where that falls because I'm by division, because I'm not sure how I'm trying to reconcile your comment about consumer growth with the €60,000,000 to €100,000,000 I'm struggling to see how that fits the gap because I would imagine that the vast majority or high proportions on the impact for consumer business. And then just in terms of the parameters of how you've calculated it, should we view that as a Q1 specific impact at this stage and largely related just to China? Are you seeing any other impacts in the Southeast Asia region, for example? Thank you. Of course, Paul, it's a very good question. And today, of course, I'm talking about today. As of today, this is a situation as we see it. We are talking, of course, mostly about China because it's quite, I would say, even if it's difficult, quite easy to understand what is happening in China because after the New Year, the Chinese New Year vacation, they promised it by 1 week for so you know that our people were not working, so there was no activity. Now people are coming back progressively. Of course, it affected CPS, building on infrastructure, and commodities activities in China. And again, now we have 70% of our people in our labs. All labs are open for Consumer Product division and even for the food business. And regarding the building and infrastructure and commodities, again, I had the growth of China this morning and you told me that it could be more than 50% are back working again for Bouaveges. Some people on top are going to come back progressively as long as the projects are restarting. So it's the reason why we in fact, when you look at the range 60 to 100, it's quite a large one. We are still we took some assumption and we are still evaluating, of course, today what could be the assumption. Today, of course, Q1 is impacted, but we still believe that we should come back to a normal situation in Q2, Q3, Q4. So but in February, several weeks were lost. And for the moment, again, maybe I'm too prudent, but I do not see any catch up. It's too early to talk about it. And again, I'm probably too cautious. You want to add something, Francois? No, I think we've decided together with Didier to be very transparent to you guys and to the looking at this situation in a very, very precise manner with, let's say, more than weekly calls, as you may imagine, with our team over there. That is a material part of our business. And we thought it was the adequate manner to tell you what our risk assumption is. When it comes to the assumptions, we factored in business disruption throughout all of February and a good chunk of March and with a step by step ramp up somewhere in the middle of March to get them to more of the normal by April. And what we've put here is what we know as of today. We can only say what we know, and this is what we estimate being the best assumption with some signs of activity starting back again in China, which is by DDA. It's early, still early, but we thought at this moment that was important to share that with you and the market. Appreciate the transparency. Just a follow-up. With your act to work rate of between sort of 50% 70%, would you say that's indicative of your clients' behavior as of today? Or is that maybe lagging? I could take a good example around the food business. Of course, you can imagine that if we do not respond, it would be a disaster for China. So on this type of testing, I'm talking about food, of course, it had to restart very quickly. So Brazil, it will take a little bit longer, but we can see and again have, I would say, really call with our team in China. And there is a clear encouragement from the local authorities to restart and so we start 100%. So and again, in our assumption, we thought that February, we will not work April and the Q1 of March. So this is the way we decided to work on it to be as transparent as Francois said as we could. But today, there is no indicative, I would say, decision from the client, but they are not going to restart the opposite. Now they are really accelerating the restart. Of course, when you close the factory for 2 or 3 weeks, it depends on the production because it can be more complex or less complex. So but progressively, clearly, it is restarting. Thank you very much. The next question comes from the line of Edward Stanley from Morgan Stanley. Please go ahead. Thank you for taking my questions. I've got 3, please. On the Marine division, can you give us an idea of how much the margin, the 55 basis points of organic margin upside related to restructuring that you've done in the past and whether there is more of this sort of restructuring benefit to come through in future periods. On the Industry division, clearly, that was certainly took me slightly by surprise in terms of how big the growth was there. And just to get a feeling for the sustainability of growth in Industry, could you give us more of a feeling on price and volume, both for the sort of OpEx markets you've got and the CapEx markets just to see what the trends are slightly beneath the surface? And finally, terms of the market, could you just quickly tell us what your view on how fast the market is growing, what your growth rate in food is and what these initiatives are that allows you to grow in excess of the market? Thanks. Thank you, Lior. So I'm going to start with the number 2 and number 3 question and Francois will give an answer to you regarding the restructuring. On the industry, it's the consequence of the strategy that we implemented in 2015. As you know, we decided to work a lot on the OpEx solution and in oil and gas, but also in power and utilities. So we won very, very good contracts in Power and Utilities, in particular in Latin America. When we talk about the contracts in Latin America, just to give you a size, we are talking about contracts which are between €20,000,000 to €60,000,000 over a period of 3 or 4 years. And in fact, we did so well that now we are replicating the successful receipt of what we did in the country because we started with with Chile in other countries by agreeing and meeting the client. The second reason of this very good result, of course, is the fact that for 3 years, the oil companies decided to freeze any investment and oil and gas, I mean, in terms of CapEx. And in fact, it has restarted and clearly, we can see an increase and we are talking about approximately 15% and 9.8% in 2019 to be precise. So the good news for me that this CapEx is not the one we entered in the past, meaning there were very big CapEx in the past when you stick to a vulnerability problem. In this case, it's not the case at all. In fact, it's more, I would say, some big CapEx maintenance because they did not do anything for 3 years. So of course, they had to work on the quality and safety to control challenges. And the second, of course, is that there are new CapEx just because we still need, if you think about the new CapEx, to work in particular on gas, in particular on LNG projects. There are strong gas field and we are, as you know, we have a very, very good leadership position on gas. So it's the reason why we are doing so well in industry. On the food business, we did superbly well last year. We have performed the market, 10% growth. In fact, the strategy that we adopted some years ago was to be essentially in Asia. And we opened some lab in Asia and in the U. S, by the way. We also made some acquisitions. We have now a very large hub in Singapore, and our footprint now is probably one of the best one on this Asian market. You remember we made this acquisition with DTS about milk product in India. And thanks to it, we are developing further with dairy products all across Asia. So in fact, strategy wise, the fact that we decided to be in Asia, which is the fast growing market today, was a good decision knowing that in Asia consumers are more and more demanding as it was the case before in Europe. It's now clearly the case in Asia. Today, 80 laps for food across the globe. In 2015, the number was not at that level by far. So we are now clearly a player in this domain. On Marine, there was a question from Edwards regarding the margin evolution, Francois. Yes. On the margin, so you've put it right. That's a significant improvement, which was a little bit hidden, if you remember, at the end of H1. Because at the end of H1, the margin was still down because of a comparable related to some releases of accrual in 2018. So by the end of 2019, we now see the operational full picture. And as expected, it has improved significantly. 2019, any good story, it's a mix of actions. But to try and answer your question the most precise possible, on Slide 18, you have the split of margin improvement, whether it is copper organic. And you will see there that the scope part of Marine's 35 basis points is, if I want to make it simple, practically the impact of our restructuring. Then the other part, which is a 55 basis point, is a combination of 2 elements. The first element is a mix aspect, our new construction activity. If you remember, Marine, 60% in service OpEx, 40% in construction. New construction activity has restarted strongly in 2019, thanks to good backlog we had in 2018 and despite the fact that the markets were down. And the second element, we've used pricing power on the OpEx part of the business, so the other 60%, for which we had implemented on the 1st January 2019. And then again in July 2019, pricing increases on the surveillance inspection of the BB fleet. So in a nutshell, this is really the key moving parts that explain the significant increase in profitability, which if I would conclude, I would say we are back to where we should be. This is a profit around 22% plus for Marine is the expected profit margin we have for this business. Yes. You're totally right, Francois. It's true that we the fact that we are very well placed on technological shifts I'm thinking about LNG where we have very strong market share and the market is there, yet the dynamic is there or the passenger ships is helping a lot because these ships, of course, as they are more sophisticated, the margin we can get is higher. So we have today good everything is coming together in the Marine vision. Excellent. Thank you. My pleasure. Thank you. The next question comes from the line of Suhasini Varanasi from Goldman Sachs. Please go ahead. Hi, good afternoon. Thank you for taking my questions. I have 2, please. 1 on the impact that you mentioned, 600,000,000 to 100,000,000 due to the virus. I wanted to ask, have you seen any slowdown in Europe because of China among your flight base in Europe? And secondly, if you think about the CapEx sales number, it has been coming down quite steadily over the last 4, 5 years, under 2.5% of sales in 2019. I think you're guiding for a little under 2 or 3% of sales for 2020. Given you're more OpEx based, is there a reason why it should not be around 2.5% sales making from other investment you're doing in 2020, please? Thank you. Pablo, your first question, maybe before answering it, I would like to reiterate the fact that thanks to the good work we did in the past 4 years, the fundamentals are clearly very robust today and we are confident that after the situation, of course, we will be back to a good normal and I should say a better normal in fact than in the past. We're too early to say about any slowdown today. We have not seen any. Again, we are very carefully monitoring the situation. Cost containment measures are in place and taken all across the group. But today, I say today, we have not seen any other consequence elsewhere. The second question, which was raised, Francois, about CapEx, can you answer it? CapEx wise, so percentage wise, you're right. We went down from 2.6% to 2.4% and to from 2.8% the year before. From a pure amount in Europe, €4,000,000 in 20.18 and the €23,000,000 in 20 19. So what is true is that we're very cautious when it comes to capital allocation. And we made decision that we've actually we've commented upon already for the last 18 months that we are expecting a payback in a very selective and disciplined manner. Translate with a payback lower than 15 months have a very hard time in our CapEx committee. So selective is one of the answer why we have managed to keep this level of CapEx around the €120 ish million. Then coming to next year 2020, we still do expect to have a number of investment to make, which are around, I would say, 3 main areas. 1st area is 5 gs. We have already a good chunk of the investment done in Q4 2019. There is another half in 2020. The second element is CapEx that we believe are bringing growth and margin in line with DV strategy. We are talking here mainly about food laboratories. And third, can translate it to the digital transformation of the group where we'll accelerate. So that's why we guide, and you're right, for something, I would say, in the area of 3% or slightly ahead of what we're doing today. But we will still do it in the same very disciplined and focused approach when it comes to capital spend. Thank you. One quick follow-up, please. And you mentioned you want to start a food lab in the sector regions in the world. So you want to start it? We have decided to start some food labs in the U. S. For a simple reason, I can be very transparent with the financial community. If you think about the U. S. Operations today, if you want to buy a lab, multiple is becoming too too crazy. So I can tell you that the feedback is a lot better when you go for greenfield. So this is what we have decided to do. Initially, it's a different situation and we will probably have the opportunity to discuss it again before the end of the year. We are looking at start in greenfield labs, but also buying some of the labs in particular, of course, in China with 2 labs today and we want to have more. But not just in China, we know that the population of Asia will be probably 70% of the worldwide population in 2,050. So of course, we are now clearly working on extending our footprint there. Today, in China, we have 3 laps, in fact, and to be very clear, and we are looking at making some other question. Again, why not function from Finland? Thank you very much. The next question comes from the line of Andrew Mees from JPMorgan. Two questions, please. Firstly, on the consumer business, it's dropped off the headlines, but I wonder what your clients are saying to you now about the U. S.-China trade access. Are they continuing to look to shift their supply chain out of China into South and Southeast Asia? And I wonder if that has implications for your CapEx and M and A strategy, if so. And then secondly, I just wonder if you can give a sense for how material a part of your certification business your environmental sustainability activities are? I can imagine you expect to see accelerating customer demand for these services in 20 century, but I'd love to hear your views on that. Thank you. Thank you for your question, Alexandra. I'm going to start with the second question because there is no I'm used to meet a lot of clients. I think it's part of the journey of the CEO. And each time, I meet a CEO of a company, he's asking me, Didier, could you help me on the CSR? And could you in fact, the point here, today, a lot of companies decide to get KPIs and committed on some, let's say, numbers or achievements with their board and with their consumers. And now the boards are asking for EBITDA. So we are very well placed to do the audit and propose certification level or you see showing that what they are saying is true, in fact. And you are ticker right, the market is really booming and we have the opportunity to talk about it in our Investor Day in September, but you will see probably that in the next months, we will launch a very important certification around this business. Your first question about the consumer business. Even without the trade war and even before, the supply chain was moving from China to Southeast region to and in fact, when you think about the evolution of the salaries in China, it was obvious that it's not unlocked. I'm talking mostly about the supply in this case. And the good news is that we decided to build some lots in Vietnam, in Cambodia, in India. And now we are and we opened a lab last year, for instance, in Vietnam. I could give you another example. I met a client New York City. It was now 1 year and a half ago. This very large client said, could you accompany me in Ethiopia because we are going to open a big factory there. We are offering a leverage in Ethiopia. So clearly, you can see that even if this trade war not happen, the move would have accelerated. And it's still the case and we are following our clients. The good news is in some cases we were even before our clients, which is good news. So we are totally ready to work, of course, with our clients with their new supply chain. After, is there an acceleration? Honestly, today, no, of course, because first, as you know, this war was a little bit, I would say, stopped or different. And there were some discussions. I did not see any acceleration. What I can see clearly on the soft clients is a change because of the costs in China and looking for countries where the cost is just lower. If you think about your second question about environment and sustainability, you have also a new market trend, which is accelerating a lot, which is brand protection. Each time there is a struggle with a problem with a brand, the brand could be destroyed. With the social media, you have a problem anywhere in the world, everyone knows the day after. So our clients want to protect their brands and their reputation. So it's about sustainability, but not just sustainability. It's about, I mean, the age of the people who are working for them, the diversity. So we do social of these, we do risk management, we do a quality assessment, quality inspection and this one is clearly accelerating faster. That's very clear. Thank you, Julian. Thank you for your question. The next question comes from the line of George Gregory from Exane. I have 3, please. Firstly, going back to the coronavirus guidance. This I think this question was asked previously, but just trying to reconcile the guidance of €60,000,000 to €100,000,000 with guidance of growth in Consumer. If we assume let's say, half of that impact at the midpoint is in Consumer, you would need to offset over 5% dilution to your revenue. Just some help in reconciling that guidance would be helpful. And secondly, on the margins, Didier, in the past, you've given us some quantitative color of how you would expect margins to evolve over the coming year? If you're able to do that, that would be helpful. And finally, one for Francois. I mean, obviously, working capital progression this year was offset by the strong organic growth. Just wondered if you had any additional thoughts on the targeted production and expectations for 2020, please? Georges, on the margin, I'm going to give you an answer that could surprise you. But in fact, if we had not had this issue with COVID-nineteen, our guidance would have been improving margin compared to last year. And in fact, our guidance would have been probably to achieve the margin, which was in our plan when we launched it in 2015. So it's not the case anymore, of course, because China is, as you know, the largest country for us. And the second reason also is that the margin coming from China, mostly because of CPS, is a high one. It's too early to give a precise guidance in fact. We put a lot of containment plan in place. We need to wait to the end of Q1 to really understand what's going to be the impact. But what you can be sure about is that we are really, I would say, implementing all action you could imagine to mitigate this Chinese COVID-nineteen issue. And the working capital, I'll let you answer in, Francois? Yes. Thanks, Georges, for your question. Yes, I would say, in a nutshell, first, what I've indicated for now 1.5 years, that our ambition is to achieve 8% by the end of 2021. One thing we could be happy about is that at least we've gone into the 8% area for the first time now after several years at the 9% and 10% level. Now you're right, frankly speaking, the strong organic growth hasn't really helped, especially when it's done at Q4, which is above 5%. And let me disclose you something that, Laurent, that you know well, will not be happy about, but December was even above 7% due to, I would say, number of days, working days, etcetera. So when and again, I'm very consistent to what I've said because a year and a half to go and say, if this group grow 5% on a quarterly basis, that would be very tough to achieve the 8%. So imagine we're in group 7 in December. I am actually very proud of what has been done and the fact that we went down to 8.8%. That's for the first part. For the second part, it doesn't mean we're happy with it. It's a journey. And as I mentioned several times, there is no factoring. It's pure, healthy work with our cash collection team, with our suppliers as well. So it's plain vanilla, working capital reduction. And as usual, we're saying when things are done in a normal manner, it takes a bit of time. So that's why we haven't promised in 12 months to bring it back to 2%. It's a journey. We're on it. We're well on track, and I'm very happy with what has been done this year. I'll come back on your first question. The €60,000,000 to €100,000,000 range is for the group overall, not just on the CPSR. So and again, it is as it is today and with what we know today. But it is for the group, not just for CPS. Okay. If we take half of that or a portion of that, it would seem to suggest quite a big chunk out of consumer revenues. I think we're all a bit surprised, I suppose, that consumer can still grow despite that sort of quantum of headwind in the Q1? We will see what the Q2 Q3 and Q4 will be. I can understand your point, but today, I mean, at a certain point, our clients are going to come back in our laboratories for sure and they are today already. And clearly, if you take the example of 4H2, for instance, we knew that the growth could be fueled by the 5 gs positive impact. So there will be some positive impact. There will be so clearly, for the month, this is a guidance that we can give to you today, okay? At the end of Q1, when we communicate again in April, you will need more flavor. The next question comes from the line of Patrick Schusserme from Societe Generale. Please go ahead. Yes. Good afternoon. I have 2 one follow-up question. First on the margin. So you mentioned that without the COVID-nineteen impact, you would have been able probably to reach your target for 2020, which was 17%. But this 17% was with the ForEx of 2015 and with previous accounting standards. So could you give us the figure with current ForEx and current accounting standards? First question. And second question, regarding the number of the laboratories and obviously that you have divested, Could you give some colors about the impact on revenue and margin, if any? Thank you. Okay. So pre IFRS, 15.4%. So it's very clear. And by the way, you communicated it last year, 16.4%. And you are still right by the way, Patrick, it's because of the impact of the FX from 2015. So we made a calculation at the end of last year if we had and we would have achieved 16.4% at transmittance rate. Pre FMS, we would have achieved the wrong number. So I think this is a very clear answer. 16%, the guidance would have been 16.6%, in fact. Regarding your second question, Francois? Yes. Regarding the divestments, I would say the impact overall of the divestment operations are, to make it pretty simple, not material in terms of revenue as we are talking about EUR 35,000,000 of divestment on a yearly basis, yearly revenue annualized revenue. This is roughly 2 50 FT feet feet feet feet feet feet feet feet feet feet feet feet Es. But at the bottom line, this improved the margin by 10 basis points. There is no big piece of it, no big division whatsoever. We have performed the portfolio analysis now several now years ago, And we are actually we have identified already what is underperforming, what is not in the BV core business as per our 2020 plan with the growth initiative that you know. And then we are opportunistic about the divestments. If we find a good offer, we sell. If there is no good offer on the market, which because those businesses usually remain profitable even though they are below, obviously, the, I would say, the group average, but they are still interesting assets. So we will go about it in a very detailed manner, but that's the only way actually to make progress. And at the end of the period, to get a positive activity, which is consistent with the ambition of Veritas, with our initiative of growth. And it's I would say it's a healthy discipline. There is nothing exceptional here. It's the healthy discipline of a group that is in 140 countries, that's been acquiring companies for the last 15 to 20 years. And on a regular basis, decide to divest from this not clear any longer. Nothing more, nothing less. Portfolio Management. That's the portfolio management. The next question comes from the line of Andy Grobler from Credit Suisse. Please go ahead. Hi. 3 for me, if I may. First one, just on CapEx, oil and gas CapEx, which performed very well through the year. Could you just talk a little about which regions were performing? And exactly one of your competitors in the oil and gas market seems to have a much tougher time through 2019? Secondly, and just following up from a previous question on CSR, Within that certification division, how much of it is of that division is really focused on CSR related things rather than some of the more traditional certification operations? And then certainly, and apologies for the impact. So in terms of COVID-nineteen, you've given the guidance of €60,000,000 to €100,000,000 pre any of the other things you're doing across the group in terms of travel bans and so forth that you talked about, how much of the cost within that 60,000,000 to 100,000,000 is fixed versus flexible, I. E, what is the drop through going to be on that €60,000,000 to €100,000,000 as you see it right now? Thank you very much. Francois, you answered the last question. I don't want to beat up on you, but I will be quick and fast. It's too early to say. I mean, frankly speaking, we're in the middle of implementing those measures. And contrary to some other companies, we are giving you, as we speak, a very clear guidance about the impact in revenue. You would understand that the margin part will be for later on. At the moment, as Didier mentioned, the company is focused in mitigating the impact clearly. And when you have the number of employees that we have in China, you understand that it's better the management is focused at mitigating the impact more than making, I would say, gut feeling impression about what the margin could be. That's very fair. I thought I'd ask anyway just in case. And coming back on your first question, which is about oil and gas CapEx. So last year, we grew this business by 9.8%, so quite a good growth, coming essentially from the U. S. And from LatAm and also from Africa. Now when I say LatAm, it's excluding your business. When you look at it in detail, it's a lot about gas and LNG. So and again, it's because we have a great expertise in this domain and our clients know it. The reason why they come to us to for help on this big CapEx. And we know already that we are working, we are working on CapEx projects and there is a very, very healthy pipeline with this type of CapEx and good opportunities for the future. So this is good news. It has not stopped. I don't see it stopping because again, the production in some cases will not start before 1 before 2 years. So these projects have started and I think that they will be completed. The second question was about the CSR. It's not an easy question. On the subscription business purely, I consider 8% of the subscription business, which is sustainability today. But sustainability is not enough. As we discussed, CSR is corporate social responsibility and this is more than just sustainability. And in fact, across the group, you could imagine that some other services are embedded for instance. We do a lot of social audits for our clients in the U. S. And Europe with the Consumer Product division. I think it's a good example. Now if I take purely certification of this 8% business linked to sustainability, last year we grew it double digits, so high double digit. So we can clearly see that this market is moving very fast. And again, the demand from clients is very important. We will have the opportunity to talk about it again as we launch a new product and we'll have more details about it in the months to come. All right. Thank you very much. The next and last question in the queue comes from the line of Ed Steele from Citi. Please go ahead. Only one question for me. The oil and natural gas prices have fallen a lot in the last few weeks and couple of months. The oil majors share prices have fallen a lot as well. Presumably, their P and Ls are going to start coming under quite a lot of pressure as it print the Q1 numbers and the cash flow savings as well. Why do you not think that will not have any knock on effect for your 2020 guidance in your Industry division, please? I'd say 2 main reasons. The first one, many projects remain profitable at Chevron. And the second one is meaning we are talking mainly about onshore projects. Maybe I would like to add the third one, which is the fact that some of these projects now are becoming mandatory. And in this case for 2 reasons, the first one to replenish the results. The second one is because again in terms of reliability, safety of the platform, there are CapEx maintenance projects that can be postponed. Okay. Obviously, in previous times that we've had these sorts of commodity price declines, companies have pushed out some of these obligatory inspection workloads. You can make that happen this time. We can do it for a while, but you cannot do it for so long. And as they did it, and you are right, I know about the past, for, I would say, it's too long time now, this is not becoming an option now. We have no further questions in the queue. So I'll hand back over to the host for any closing remarks. Well, I just would like to thank you for your attention, and I wish you good morning, good afternoon and good evening. Thank you for joining today's call. You may now disconnect your handset.