Earnings Call: H1 2019

Jul 25, 2019

Hello, and welcome to the Bureau Veritas H1 2019 Results. My name is Molly, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be an opportunity to ask questions later in the call. Please note that this call is also being recorded. I will now hand you over to your host, Didier Michoud Daniel, CEO, to begin today's conference. Thank you. Thank you. Good morning, good afternoon, and good evening to everyone. Thank you for joining Bureau Veritas' H1 2019 results call and webcast. Francois Chadda, our Group CFO, is here with me to present our half year results. In the first half of the year, we have continued with our solid momentum of growth, portfolio diversification and financial and cash performance improvement. Everything is on track according to plan, and we confirm our objectives for the full year. A few comments on H1 twenty nineteen performances. Group revenue grew by 5.3% year on year at constant currency. Organically, we achieved 4%. Our adjusted operating profit is up 6.9% at constant currency. We improved our margin by 25 basis points year on year at constant currency and before the application of IFRS 16. Our adjusted net profit increased by 10.2% at constant currency. Regarding the 2018 dividend, 78.5 percent of our shareholders opted for a payment in shares, a very good pickup rate, illustrating the confidence of our shareholders. Lastly, our free cash flow improved by 54% at constant currency, together with the benefits of this credit dividend. This enables us to reduce our adjusted net debt to EBITDA ratio from 2.82 times last year to 2.25 times at the end of June. Moving to the financial review, Francois will now take us through the numbers. Francois, please? Thank you, Didier. Good morning, good afternoon to all. Starting with the revenue bridge, we've delivered EUR 2,500,000,000 in the 1st semester, with an overall growth of 5.9 percent, which breaks down as follows. 1st, organic growth reached 4% with similar growth in Q1 and in Q2. This illustrates the resilience of our portfolio today following the diversification efforts over the past few years. We have now seen circa 4% organic growth over the past 5 quarters. External growth contributed 1.3% on a metscope basis. And finally, ForEx had a slightly positive impact of 0.6%, which is mainly attributed to the appreciation of the USD and the Chinese renminbi against the euro, while mitigated by the weaknesses of some emerging countries' currencies. Turning now to the revenue growth by business in the 1st semester and the split between organic and external. As you can see, 5 out of our 6 businesses reached a solid pace of organic growth of 4.7% on average, and they represent 93% of the group revenue. Worth mentioning is the following: Agriving and commodities obviously outperformed the average at plus 7.9 percent with good growth across the board. At the same time, late cyclical activities are recovering. MNO is up 5.4%, industry is up 4.8% and it fully benefits from improving oil and gas CapEx markets. Consumer Products grew 2.2%, due notably to the phasing of new product launches in Q2. As expected, classification declined 4%, a reflection of a transitional year post revision of standards. Turning more specifically to the revenue growth for Q2. We've delivered 4% organic growth as well, with the area of food and commodities still the best performers, both Industry and Marine Offshore accelerating the recovery compared to Q1, Consumer Products easing in Q2 and certification being more negative as a result of more challenging comparisons. To comment on the growth between the base business and growth initiatives in the first half, we saw an improvement year on year on the base business, up 3.4% organically. And in addition, our organic growth initiatives have continued to perform steadily, up 5.1% in H1. Altogether, these growth initiatives now represent 37% of group revenue. Taking a look at M and A. We continue active portfolio management with the objective of sizing attractive acquisition opportunities and divesting non strategic businesses with below par margins. In the first half of twenty nineteen, we added around €45,000,000 of annualized revenue with 4 acquisitions, notably reinforcing the footprint in the USA and in Asia, that support our building infrastructure and agri food growth initiatives. In parallel, we completed the disposal of our consulting business unit, providing health, safety and environmental services in North America. This business generated roughly US30 $1,000,000 in revenue in 2018 and weighted on the overall divisional margin. It would be deconsolidated from our financial statements from the Q3 onwards. Now a few key points regarding the half year twenty nineteen results. I will comment on the numbers before application of IFRS 16, so as to compare performance versus last year's numbers. We, of course, disclose the numbers after application of IFRS 16 as well as you can read on the first column in the table. Adjusted margin increased by 30 basis points to 15.2%, of which 25 basis points at constant currency. It is fully consistent with our full year guidance. Adjusted EPS is up 9.6% at constant currency. Free cash flow is up 54% at constant currency. I will come back to the details of the cash flow in a minute. And finally, adjusted net debt is down 14% versus last year, benefiting from the strong free cash flow performance in the 1st semester and the positive impact from the SCO dividend. Turning to the adjusted operating margin. In H1, it improved to 15.2% before application of IFRS 16 again. It reflects a 20 basis points organic improvement, a 5 basis points positive scope impact and a 5 basis points positive ForEx impact. So all in all, 30 basis points gain versus last year. 3 out of 6 business activities posted stable or improving earnings margins, adding 50 basis points to the group organic margin. This was driven by a significant improvement in Aggregates and Commodities and a solid performance in Consumer Products. This improvement is the result of a combination of operating leverage, strict cost management, lean efforts and restructuring payback. 3 businesses experienced lower margin due to lower operating leverage, price pressure or change of mix in these activities. This concerns certification and to some extent industry and M and A. Note that our adjusted operating profit margin after application of IFRS 16 is 15.4%, which means another 20 basis points additional. Operating margin by business will be covered by dividend in the business review. Looking at the operating profit on slide 13, it is up 12.1%. Our proactive cost management measures resulted in EUR 12,100,000 restructuring costs. These were mainly headcount reduction driven. Actions were taken in building infrastructure operations, commodities related activities and industry businesses. This restructuring was lower than last year in the same period of the year. For 2019, our expectation of restructuring charges remains unchanged at around half the amount of 2018, so in the range of €20,000,000 to €25,000,000 full year. This marks the end of a period of material restructuring, obviously. Under net financial expenses, we have first a slight increase in financial charges, mainly due to higher average gross debt following early debt refinancing. Secondly, the depreciation of several emerging country currencies increases the ForEx impact from minus €2,000,000 to minus €4,300,000 in the 1st semester. Looking now at the tax rate. The adjusted effective tax rate of the group was down 170 basis points at 31.1%. This decrease is mainly explained by the new rules for the tax deduction of interest applicable in France from 2019. For the full year 2019, we expect our adjusted ETR to be at the bottom of the 33% to 34% range that we are guiding for. Moving now to the cash flow. So there are several elements behind the significant improvement. 1st, the increase in profit, before income tax, mainly driven by higher operating profit and less restructuring items. 2nd, a very disciplined approach when it comes to CapEx, with net CapEx at €51,000,000 which represents 2.1% of the revenue. We expect this to be around 3% for the full year 2019. And lastly, a decrease in interest paid. So all in non free cash flow increased by 55% year on year and organically by 59%. A rapid focus on working capital. In the first half of twenty nineteen, we continued to deploy our Move For Cash program. We further reduced working capital ratio by 70 basis points versus June last year to 11.7 percent of the group revenue. As you can read on the chart, since June 20 16, our working capital has been reduced by 130 basis points altogether. Be aware that given the seasonality of our business, as you know, working capital is always higher in H1 than on a full year basis, as you can see in the chart. Working capital reduction remains a top priority for the Group. We continue and reinforce our actions moving forward. Coming now to the overall financial structure of the company. The adjusted net debt stands at €2,100,000,000 down 14% compared to June last year and stable compared to December 2018. This strong debt situation at the end of June reflects: 1, a strong free cash flow generation of €98,000,000 before IFRS 16 a disciplined M and A strategy with €39,000,000 of spend, net of divestments and third, a reduced dividend outflow of €69,000,000 given the strong take up rate for the scrip dividend in H1. So we closed the first half of the year with a leverage ratio of 2.25 times, down from 2.82 times in June last year and far below our 3.25 times bank covenant. This ratio is below end of December 2018 ratio of 2.34 times, despite our historical seasonality H1S2. So to conclude, after the strong set of H1 2019 results, margin delivery and cash will remain our top priority for the 2nd semester. And I now hand it back to Didier for the business review. Thank you, Francois. Thank you. For the business review, please remember that the numbers I will comment are pre IFRS 16. Starting with Marine and Offshore. Revenue increased by 5.4% organically in the first half and by 7.6% in Q2, benefiting from the recovery in new orders. High single digit growth in construction led by the equipment certification business in North Asia. Low single digit growth for core in service with a modest growth of the fleet against continuing price pressure. Offshore. Offshore was primarily driven by the expansion of services and the stabilization of risk assessment studies. New orders totaled 3,500,000 gross tons at the end of June 2019, stable year on year, reflecting the group's ability to win its backlog in a market that is down year to date. In fact, the group benefits from its strong positioning on the most dynamic segments, namely LNG and passenger ships. Our order book stood at 14,100,000 gross tons, stable compared to December 2018, with ships including more technological content. Our margin was slightly down, impacted by a positive one off item recorded last year. 2019 outlook. We continue to expect Ameluz full year organic growth to be positive and full year margin to slightly improve. Turning to Agri Food and Commodities. Revenue increased by 7.9% organically in H1, pursuing the strong trend observed in the Q1. By sub segment, metals and minerals confirmed strong recovery with organic growth up 10%, both upstream and trade activities performed strongly across most geographies. Gold and base metals continue to be strong performers. Agri Food grew by 9.2% organically coming from both Agri and Food Products. The Agri business benefited from new contract wins, notably in Precision Farming. The food business maintained strong trends across all geographies, thanks to the development of several growth initiatives and the contribution from recent acquisitions. Oil and Petrochemicals was up by 1.4% organically, reflecting high single digit growth in Europe, thanks to new services, marine fuels, oil condition monitoring, while being broadly stable in North America due to bad weather conditions and persistent price pressure. Lastly, Government Services performed strongly benefiting from the ramp up of VOC and single window contracts. The margin was strongly up by 230 basis points to 13.5%, a combination of operating leverage, mix and restructuring payback. 2019 outlook. We now expect slightly higher organic revenue growth compared to 2018, fueled by solid Metals and Minerals markets, robust agri food businesses and improving government services. We also expect margin improvement led by restructuring and positive mix. For IndustryNow, the business confirmed its recovery up 4.8% organically with acceleration in Q2 at 5.8%. This results from improving oil and gas market conditions and the benefits of our successful OpEx diversification. Oil and Gas CapEx related activities grew 7.8% in the first half and 11% in Q2. Growth was led by the U. S, by LatAm and Africa. Projects were primarily small and medium sized projects focused on gas and onshore activities. Oil and Gas OpEx was up high single digit with strong volumes increases in LatAm, the Middle East and Europe. We achieved 16.8% organic growth in Power and Utilities OpEx with a ramp up of several contracts in Latin America. The margin declined 70 basis points organically due to negative mix effects with the high growth in OpEx rated services still in a ramp up phase. The outlook for 2019. We expect the business to achieve slightly higher organic revenue growth versus 2018. Our strategy of OpEx services diversification will continue to pay off. Oil and gas CapEx markets will continue to improve. We expect a margin improvement led by restructuring benefit and more positive mix. In B and I now, Building and Infrastructure. Revenue increased by 3.1% organically, with slightly stronger organic growth for construction related activities. Organic growth performance was varied across the different continents. Our operations in China delivered 10% organic growth, where our prospects remain strong from infrastructure projects driving the high single digit growth across the Asia Pacific region. The recall in Brazil, strong growth in Colombia and solid growth in the United States, in particular for code compliance services and data center commissioning, all contributed to the mid single digit in the Americas. Europe was stable with limited growth in France, offsetting negative performance in Spain and in the UK. France is facing subdued conditions in the CapEx related activities and the weak start to the year of OpEx related works, we expect gradual improvement here. The margin was largely stable organically. For the full year of 2019, we expect the business to achieve slightly lower rate of organic revenue growth compared to 2018, with an acceleration expected in H2. This will be led by solid growth in Asia, U. S. And Latin America and resilience in France. Margins are expected to improve slightly. Turning to Certification. The business, of course, continues to record negative organic growth in 2019 as expected, minus 4.1% in H1 and minus 5.9% in Q2. You will remember last year, we benefited from an exceptionally high level of activity due to the September compliance deadline for new HSE and transportation dollars. This backdrop has masked our highly successful portfolio diversification, where revenues from new product development are up 22%. That includes double digit growth in food certification, sustainability, social audits and for our enterprise risk management offering. Margins declined by 110 basis points to 16.8%, reflecting the impact of negative revenue growth and mix effect. Outlook for 2019. Certification is expected to deliver a negative organic revenue growth with the impact from the QHSE and transportation transition, which ended in September 2018, and of course, creates challenging comparables for the 1st 9 months of the year. Solid growth elsewhere, primarily driven by food schemes, sustainability, training and customized audits. Profitability wise, we are focusing on margin protection. For Consumer Products, the business delivered a 2.2% organic growth in the first half, but slowed to 0.8% in Q2 as anticipated. Top lines grew in line with the divisional average. Performance was nuked geographically with a strong momentum in South and Southeast Asia and weaker trading conditions in the U. S. Hardlines grew thanks to Europe at a rate below the divisional average. The Electrical and Electronics segment grew low single digit. Here, the growth came from mobile testing even if we have noticed a temporary slowdown on new product development ahead of the 5 gs launch later this year. Our margin improved by 70 basis points to a strong 24.3%, thanks to efficiency gains. I would like to say a quick word on the U. S. Trade tariffs on China. As a reminder, only 5% of our Consumer Products business is within the current scope of tariff increases. Consumer Products is a global business with multiple growth engines and we can easily follow manufacturing locations and supply chain changes. While our business is stable in Northeast Asia, it is growing elsewhere, including double digit growth in Southeast Asia. In 2019, we expect for Consumer Products a slightly lower organic growth compared to 2018 with a gradual improvement in H2, full momentum in Southeast Asia, solid growth in Europe, resilience in China and challenging conditions in the U. S. We are focusing on margin protection throughout 2019. The outlook following the strong first half, we confirm our full year 2019 guidance and expect the good momentum to continue in H2 to deliver solid organic revenue growth, continued adjusted operating margin improvement at constant currency sustained strong cash flow generation. This strong set of results provides a perfect illustration of the group's new profile, thanks to the successful transformation undertaken over the past 3 years. We now have much of the growth profile and cyclical resilience we were looking to achieve. We have significantly improved cash flow generation and leveraged the balance sheet. In the first half, we have seen the full benefits of diversification. So to conclude, we are extremely pleased with a strong momentum in the first half of twenty nineteen. Thank you for listening. Francois and I are now pleased to answer any questions you may have. The first question comes from the line of Edward Stanley calling from Morgan Stanley. Please go ahead. Afternoon. Thank you for taking the questions. I've got 3 quick ones, please. On Agri Food, you say slightly higher for the year versus FY 'eighteen for organic growth. If I assume it's 5% or so for the full year, then that implies 2% in the second half. And yes, you've got some tough comps in Metals and Agri Food, but that seems quite an extreme slowdown in a division that's doing well. Secondly, in Consumer, you talk about margin protection in the outlook, but the only other place you talk about that kind of wording is in the certification division where growth and margin trends are obviously very different in the first half. So can you elaborate on what margin protection really means specifically for consumer? And I hate to labor the point finally, but on the scrip dividends, I mean, it's clearly a big contributor to better cash and deleveraging. So in an ideal world, would you continue to try to do that until you reach a certain leverage level? Or what's the thinking behind continuing doing that? So thank you, Eduardo, for your question and good afternoon. For the strict dividend, of course, this is not a decision which has been made today. And as you can imagine, the position is today in the future in the board. So I'm not going to talk about next year or today. So we will what's going to happen next year. We are very happy this year that 78.5% of the dividends were taken in shares, which is really showing the confidence of the market in the future of the Orbeitas. Regarding the margin protection of the consumer business, clearly, in the first half, we did very well by improving by 70 basis points the margin. It's coming, when you look at it in the detail, essentially from the mix because as you could see and you could see with the slowdown of CPS in Q2, some projects are deferred waiting for the 5 gs testing implementation. And we know that there is a mix effect, so we did very well in each one. What we want is to keep the margin at the level we had last year for the full year. Regarding the Agri Food and Commodities business, I gave a qualitative guidance. 2018 was at 4.5% organic growth. We believe that we will achieve probably the same type of organic growth. When I say the same type, better than last year in 2019. The next question comes from the line of Paul Sullivan calling from Barclays. Please go ahead. Yes, good afternoon everybody. Just to follow-up on the margin points. So in Consumer, should we be thinking or is it a risk of the margin could go backwards in the second half? And similarly, in AFL ASL sorry, in Agri Food and Commodities, the margin expansion in the first half, is there any reason why that shouldn't be extrapolated into the second half? And then just to most of a bigger picture perspective, overall, is there anything on your horizon that would suggest that for the group, organic growth or margins shouldn't be better in the second half versus the first? Because in theory, looking at some of the mix effects and some of the acceleration that you expect to see in some divisions, it should improve second half on first half? Thank you. Paul, thank you for your question. It's a good try regarding the second half organic growth. Clearly, the guidance is solid organic growth for the full year. What you could see clearly is that we have already achieved 5 times in a row, 5 quarters in a row, 4% of organic growth. So it could give you an idea of what we will achieve in the 2nd part of the year, which will probably be a good news to achieve our guidance, which is solid organic growth for the year. Now regarding the margin for Agri Food, in fact, it's a different distribution between the 1st semester as we did extremely well in terms of organic growth and the second one. I'm talking about Agri Food margin. Knowing that, of course, we will benefit for sure and we are benefiting already from the good job that we did in the past, in particular, in restructuring. And I'm talking in the case of the restructuring of the nipples and minerals lab. Knowing that and in the week, we decided to close some labs in the past others, which is helping, of course, us to achieve a better margin. As we know in this business, most of the improvement in the margin is coming from volume. As the volume is very good in H1, it should be good in the second part of the year, we should see an improvement in terms of margin. Now regarding the consumer product division, the impact on the margin is positive on the H1 because we have less you know that we are a leader in wireless testing, wireless solar testing, And we have less electronics and electrics to be tested in the first part, which has a lower margin. We know, Orie, that there will be an acceleration in the 2nd part of the year and the organic growth should resume, meaning that we believe that we could achieve the margin that we enjoyed last year for CPS for the full year. Okay. That's clear. Thank you. Thank you, Paolo. The next question comes from the line of Alexander Breese calling from JPMorgan. Please go ahead. Good afternoon, gentlemen, and thanks for taking my questions. Just firstly, I wonder within Marine and Offshore, do you expect the recovery in new construction to continue into 2020? I wonder what your 4th year is in that respect. Secondly, with regard to the Consumer Products division, you referred to challenging conditions in the U. S. Could you just clarify whether that's entirely a function of the trade tensions with China or whether there's something else going on there? And finally, just thinking about your 20 20 revenue targets, I wonder if you could quantify how much revenue you would like to acquire by the end of 2020 to make sure you get to that target, please? Okay. So on your last question, I'm not going to give you more details. What I can tell you is that we have a robust pipeline. As you know, Alessandro, we decided to be extremely disciplined in our acquisitions, which are fully focused on the various markets that we decided to tackle in 2015 and mostly into the overseas China and U. S. So we still have some opportunities. My obsession is not the start. My obsession is to make the right acquisition, which fits perfectly to our model, which will help us to be sure that we deliver in the future more organic growth with a good working capital fact, you know it, I'm sure you read the newspaper as I do. You have some companies which are Chapter 11, I think about Sears or I think about Toys R Us. These companies are big clients for us. So we had large contracts with them and it's the reason why clearly in Q2, we were at the end of this contract. What we can see is that we decided to focus on some of our clients, our backlog now is ready to go again in the second half of the year. On the line, I'm not sure it's too early to talk about 2020, of course. Just what I can tell you is that we have good order intake. And the good news is that these orders are coming mostly from ships which have a high content of technology, meaning it's probably a good opportunity in terms of revenue recognition this year and probably for 2020, but we'll discuss 2020 next year at the end of February. The next question comes from the line of Rory McKenzie calling from UBS. Please go ahead. Afternoon, guys. Just 2 for me, please. Firstly, can you talk about the sustainability of your growth in industry? Also, you've signed some good projects. So how long do they run out for? And what's the pipeline for further contract wins? And then secondly, on the working capital as a percent of sales, you clearly reduced that and that's great. But I'm aware that the period end was on a weekend, which presumably made collections more difficult. As you've clearly kind of stepped up your efforts on that front, do you think that we should expect an even bigger year on year improvement by the end of H2 as that period end impact shouldn't be as visible? Thank you. Okay. Thank you, Aurelio. Francois, maybe you could start by answering the second question, and I will take the first one. Yes. Good afternoon, Rory. Well, I think you've spotted well that we've been negatively impacted by the slide that the 29th 30th June were weakened. So mathematically, we have indeed a lot of clients paying with payment terms, whatever, 45 days end of month. So this has been indeed moved to 1st July. So mathematically, we got a transfer from H1 to H2. That's very clear. Now this being said, do not expect us to deliver another time 50% more free cash flow on a full year basis. I would be very happy to report this in at the end of February, but I'm afraid this is not our guidance at the moment. The reason, I think, we need to be very humble here. As you know, you know the profile of the cash in the company. H1 remains, I would say, a small part of our full year free cash flow quarter. So we've done very well with relatively low comparables and very strict discipline, especially on CapEx. As you see, we spent a bit more than 2 percent of revenue. We are guiding for the year to reach 3% of the revenue on CapEx, which mathematically means 4% of the revenue on CapEx for H2. Didier mentioned investments we want to make to support the growth of CPS in 5 gs. This is coming in H2 and other projects like this. So I think we obviously, we confirm our guidance on strong cash flow generation, but do not put yet in your model the plus 50% you are coming on. Okay. Francois, thank you for this very valuable answer, I think. Okay, let's move in now to Industry. In Industry, your question is a very interesting one because as you could see in Q2, we accelerated our organic growth. Of course, and we know it, we will have tougher comparables in Q4. But even though, I must say that we have a good pipeline. We have a good pipeline and a good backlog of opportunities in Oil and Gas, And we have a good backlog and good opportunities in Power and Utilities. So we should have clearly a good year in industry and achieve the guidance that I just have given to you. And just on the industry, are they still the smaller types of projects? Is there anything larger in your pipeline at the moment? I don't know what you mean by larger. If larger is €10,000,000 we can see more contracts, potential contracts at that level. If larger means €60,000,000 we do not see any now of this type of contract. That's clear. Thank you both very much. My pleasure. The next question comes from the line of Tom Sykes calling from Deutsche Bank. Please go ahead. Yes. Good afternoon, everybody. So just coming back to that comment on CapEx and then the working capital. So you're saying it's likely you'll spend about €100,000,000 dollars on CapEx in the second half? Or is that very much at the upper end? And if you look at the combined impact, say, of increased CapEx and better working capital, are you expecting those to sort of net off this year? Or would you expect the combination of those to be a little bit positive for you, please? And then just on LatAm growth, it was very strong at 9%. And I was wondering if you could just give a little bit of detail as to what was driving that sort of business wise. And then also the inflation element that was in that and whether that growth rate is really sustainable at the 9%, please? First, I must say that LATAM has done a very good job. It's quite a very good organic growth. And talking about inflation, when you have so many different countries with very different inflation from Chile to Argentina, we cannot compare. Whatever, at the end of the day, we are close to 10% of organic growth, which is good. And it's coming from 3 major factors. The first one, we are really continuing to enjoy very good and important contracts in Power and Utilities business, which is good news because it's mostly OpEx, meaning that resilient type of business, long term contract. The second good news is coming from Agri, and we are doing very well in agriculture. As you know, Brazil is now becoming the first exporter of soda to China, and we are very involved in this type of the business in Brazil. The third factor is construction, which is resuming in Brazil, in Colombia and in Mexico. We made a regular acquisition a little bit more than 1 year. And last but not least, the core business has stabilized now at a low level, but it has stabilized. We could expect even in the future that it will start, but for the month it has stabilized. Of course, it's helping us to deliver a good organic growth in LatAm. And the second question on CapEx and Francois? Yes, Tom. So again, your question between the balance on CapEx and working capital. Your competition is correct, 4% means roughly €100,000,000 in terms of CapEx. Whether we're going to spend all of it or not is still to be assessed, but that's the order of magnitude, you're right. When it comes to will that be exactly 100% balanced by the operating cash flow generated by the company? I mean, as I said, when you look at the amount of free cash we see on H2, it's too early to say. I mean, we are talking here big numbers. So what is for sure is that we'll keep on our focus on the free cash and on work capital reduction. There is no doubt about it. And all the management team of Viratas is clearly committed and focused on those indicators. Frankly speaking, what counts for us is to make sure that we make the right CapEx movement, especially when it comes to CPS, to prepare the growth on 5 gs. Whether it would be exactly the equivalent of the working cap improvement or a bit below, too early to say. And but what is for sure is that we maintain our guidance when it comes to a strong cash flow generation for the year. Okay. Thank you. And I must say maybe through even if Francois gave you very good comment on that, we are really putting a lot of focus on cash. As you could see, I can tell you that with the move for cash, and it's true, Jose, that we put in place, The pressure is high. And the good news is that we get the tobacco. Well, I was going to ask what behavioral changes can you maybe point to? Or specifically, I suppose, in the B and I business in China, is the change in payment terms there, is that having a tangible benefit yet? Or is that something we hopefully would see in H2? Well, I think this we are I mean, it's too early to say that the improvement you see here is But this is, as I've mentioned now for a couple of times, But this is as I've mentioned now for a couple of times, this is our focus. And as I mentioned, regarding the contractual terms, this is a journey that we have embarked on that will last most probably 12 to 18 months simply because of the current duration of the contract. So in a nutshell, the figures you see at the end of June are not impacted in any positive manner by China, to make it very simple. Okay. Okay. Thank you very much indeed. Thank you, Ben. The next question comes from the line of Suhasini Baranati calling from Goldman Sachs. Please go ahead. Hi, good afternoon. Just a few from me, please. On the Industry division, margins have obviously fallen in first half despite your CapEx activities reaching double digit levels in 2Q. Can you please talk about what happened in why you expect the price mix to improve in second half of the year and why margin should improve as a result of that? And maybe a comment on pricing in the oil and gas projects. That would be helpful. Thank you. And maybe 2 housekeeping questions. CapEx to sales has been circa 3% or less in the last 2 years. You're guiding for circa 3% this year as well. So is it fair to assume that it's going to remain at these levels medium term as well? And the last one is on the tax rate. Can you give your guidance on tax rate for this year and the next? Because it looks like you had some small changes to your French tax rate according to your first half release. Okay. I'm going to start with your 2 first questions. So on the industry, you're right. I mean, the margin at the beginning of the year is a little bit lower than last year. Clearly, we have recorded some very good contracts, as I said before, in Latin America. And most of them are OpEx power and utilities. There is a ramp up phase. We need to invest at first and we need to buy cars, tools and so on. So and on top of it, of course, we need sometimes to train the guys who are going to be in charge of delivering the services. And there is a ramp up phase. And of course, from the beginning of the year, we are very happy because we can enjoy, thanks to this contract, a good organic growth. But progressively, the margin is going to move up along the year to be at a level that we estimate probably slightly above last year. On the pricing on oil and gas, we discussed it before. There was some price pressure, a lot of price pressure. There is clearly because of the demand, which is becoming higher than the supply today, less than price pressure than before. I'm not talking about the tax where we can still see some price pressure. But on the CapEx side, of course, there are a lot more projects and we are a leader, as you know, in this CapEx activity. Clearly, there is no comparison between now and what was the pressure of 3 years ago. So you should be able to see margin improvement coming from the CapEx activities at least. Yes, that's for sure. Yes, okay. You are right. Now, questions for you, Francois. Yes, I will take the housekeeping ones. So first, CapEx, 3% moving forward. That's what you can plug in your model. Tax rates, we have a situation where we added, say, a good news in H1. The what we are guiding for is still within the 33% to 34% range, perhaps at the lower part of the range. The reason being that in H2, we will have to distribute internally dividends the usual way we're doing it. And as you know, there are some tax friction, as we say in good French, when you internally distribute dividends, move them up the ladder, we'll have more in H2 than we had last year. So by and large, we are a bit more optimistic on the guidance moving at the lower end of the range, 33% to 34%. Got it. Just one follow-up, please. In 3Q, I think you have one extra working day as well. So you would expect some small benefit from that in 3Q? When you mean in Q3? Q3, yes. In Q4. Yes, because you said Q2, so I was a little bit I'm still a bit surprised by your question. In fact, it's going to be plus 1 in Q3, minus 1 in Q4. So there will be no impact in H2 in fact. So in Q3, Q3, you should see some benefit, right, Q3? When do you have one more day? As you know, we usually have some benefit. But again, there is one less day in Q4. In Q4, yes. Got it. Thank you very much. My pleasure. The next question comes from the line of Aymeric Poulin calling from Kepler Cheuvreux. Please go ahead. Yes. Thank you. Good afternoon. Three questions, please. One is a follow-up on the working capital comments you mentioned on the Chinese payment terms. Just wondering in the new Chinese contract that you are signing right now on the infrastructure side? Are you seeing a change of behavior or not? That would be helpful. Secondly, you made a disposal in the first half. I was wondering if there were other parts of the portfolio that could be also disposed off in the coming year? And lastly, on certification, you mentioned a new product development segment up 22%. I was wondering what was this new product development you're referring to and how big this segment represented as a percentage of the total and how we should interpret this figure going forward? Thank you. Okay, Marie. Thank you. So I'm going to start by your last question on certification. So clearly, the 22% up is coming from, what I could say, new schemes. The good news is, as you may know, in certification, there are more and more clients, which are asking for schemes, mostly to protect their brand or to improve sustainability. A good example, for instance, or if you have one you could have one of our clients who is committing on CO2 emission. And of course, we would like now to have Gloria Esteb to certify that this result is consistent with what he is announcing. So and there was a search for bids, which are customized and new certification programs. For instance, we launched a new scheme, which is circular plus to work on the Circular Economy. So the good news for me is that all of these new schemes are not purely ISO and there is a clear acceleration of clients asking us to certify against sustainability, social audits, customized, even food supply chain. So this is the news clearly for the future. Cybersecurity is another example. So this business is going to go in the future, but we have the opportunity to talk about it in the future, no doubt about it. Francois, you take the first question? Yes, of course. Henrique, first question on working capital and more specifically China. So the main moves we are making frankly to cascade down the incentive scheme on cash generation down to the sales teams to ensure that the salespeople get to, let's say, get to feel the pressure as well as, as you rightfully pointed out, the core of the battle is on the contract returns. So I would say right now, a third of our business is moving towards getting down payments in the contract. So that's where we are at the moment. It's not yet fully satisfactory. So we continue pushing with going further with the team into the direction of reducing working capital requirements. 2nd question, another housekeeping question from what I understand when it comes to disposal with, as you say, perform 1 disposal in H1. This is the outcome of a portfolio review that has been conducted whereby we've identified couple of businesses that are not core for BV and below par margins. You may see in the coming months or semesters disposal if the market is fit, and we are in no hurry. Things will take the time it's needed to get the best value. But we don't expect us to divest the division. We're talking about targeted geographically located disposal, a little bit the same like you've seen in the U. S. U. S. Okay. Thank you. Thank you, mate. Before we take the next The next question comes from the line of George Gregory calling from Exane. Please go ahead. 3, please. Firstly, I wondered sorry, I'm not sure if I missed this because I briefly disconnected. Could you provide a rough indication of the margin on the disposed HSE business, which if I understood correctly from Francois's comments is dilutive to the industry margin? Secondly, looking at the difference between adjusted EBIT and your cash flow from operations, it looks like there's about a EUR 47,000,000 cash outflow in the first half. Just wondering what drove this and whether we should expect additional cash outflows or movements in the second half? Yes. And my final question relates to your average net debt position. You highlighted, I think, from our presentations an increase in average indebtedness. Yet if we compare the average net debt position for the first half of twenty eighteen and the same for 2019 using your disclosed period end debt levels, it would appear to be lower. Does that mean your average net debt intra period has gone up, please? Thanks. I'm going to start by doing your first question, Georges. We decided to divest EHS in the U. S. The reason why we decided to divest was not because of the margin, even if the margin was below the average margin of the group, but mostly because as we worked on the portfolio and we had a portfolio review really detailed, we decided that this business is not core business for the aircraft anymore. And it's the reason why we decided it's more a strategic decision first. Of course, it has an impact on the margin, but it's a very small impact because their business was very small. It's marginal, the type of impact. So there was another question from George, Francois. I have 2 questions, sorry. Two questions. So George, for the €4,000,000 €5,000,000 question, not quite sure which line you're referring to. For the sake of you getting the right answer and everybody not taking too much time, I suggest you turn the question to Laurent and we will get back to you in more details. When it comes to the net financial charges, what we are actually carrying is the cost that is ending at this has ended actually at the end of June. This is the cost of the refinancing of the PV debt. We have refinanced all of 2020 in October. So we are carrying some interest in the 1st semester. Now all the program has been refinanced and we are back to normal. Okay. So it was the gross indebtedness rather than the net position that you're referring to. Correct. Okay. No problem. Great. I will leave on Laurent on that last point. Thanks. Thank you for your time. Okay, George. Thank you. That was the last question, Laurent. Okay. Thank you very much to all and I wish you for those who are going to be holidays, it is good holidays. Not bad. Thank you for joining today's call. You may now disconnect your lines.