Hello, and welcome to the Bureau Veritas Q1 2022 revenue call. My name is Jess, 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 the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you will be connected to an operator. I will now hand over to your host, Didier Michaud-Daniel, CEO of Bureau Veritas, to begin today's call. Thank you.
Thank you. Good morning, good afternoon, and good evening to everyone. Thank you for joining Bureau Veritas today on the webcast and on the call. François Chabas, our Group CFO, is here with me to present our Q1 2022 revenue. In the first quarter of 2022, the environment has remained highly volatile, and we have continued to operate on a crisis management mode. As we speak, some regions continue to be affected by the pandemic, and we are seeing new lockdowns, such as in parts of China. We continue to take measures to ensure the health and safety of all our employees. Employee safety is paramount for the management team, as you know. I would then like to take the opportunity to thank all our teams that remain highly mobilized and proactive to accompany our clients in their daily operations.
The situation in Ukraine is of grave concern to everyone, and of course, Bureau Veritas is no different. Our first worries have been for our 363 employees. We suspended our operations on February 24th, and we have continued to pay our employees' salaries. Our HR team have put in place a crisis team who check up on employees every day and provide relocation support when needed. In fact, most employees have stayed in Ukraine. There is also an emotional support hotline that they can contact 24/7. From a financial perspective, Ukraine represents 0.3% of group revenue. With regards to Russia, we have taken the decision to downsize our business activities, which are concentrated in marine, aeronautics and commodities. We are no longer inspecting Russian ships nor aircraft operated by Russian airlines. Russia only represents 0.8% of group revenues.
With no real material financial exposure, our primary concern is, of course, for our employees. Looking now at the Q1 figures. Revenue for the quarter was EUR 1.29 billion, up 11.7% year-on-year. Organic increase was 8%, showing a clear sequential improvement compared to the 2.5% increase recorded in the last quarter of 2021. This is supported by the delivery of our strong backlog and accelerating demand for our sustainability driven solutions. Amongst our businesses, three delivered strong organic growth. Industry, 11.9%, Agri-Food & Commodities, 9.5%, and Buildings & Infrastructure, 7.1%. The rest of the portfolio saw mid-single digit growth, with Marine & Offshore at 6.5% organically, Consumer Products at 4.6% and Certification at 4%. Our FY 2022 outlook is confirmed.
In Q1, we posted strong revenue growth across the board. More than half of the portfolio was up 8.1% organically on average. This includes Buildings & Infrastructure and Agri-Food & Commodities ranging from 7.1% to 9.5%. A fifth of the portfolio, Industry, delivered 11.9% organic revenue growth with strong business activity for the Power & Utilities segment, including renewable energies together with the recovery of oil and gas markets. Less than a third of the portfolio grew at 5% organically on average. Here we talk about Consumer Products, Certification and Marine & Offshore. In addition, similarly to 2021, the dynamism of our portfolio is supported by the trends from our Green Line of services on which I would like to focus.
BV Green Line services and solutions are now well on the way to representing nearly 60% of our sales at the end of Q1 2022. Buildings and Infrastructure remains the biggest contributor at 41%, driven by green building and energy efficiency programs. The sales pipeline related to European Green Deal and France Relance is increasing. Resources and production represent 32%, where renewable energy makes up the largest part. Social ethics and governance captures around 19% and is a key driver for sustainability assurance. Bureau Veritas' unique worldwide position in sustainability services ensures that we benefit from the tremendous growth opportunity. More and more clients look to us for our expertise to support them in shaping trust around topics that are at the heart of their concerns, commitments, and of course, of society at large. Health, safety, quality, environmental protection, and social responsibility.
We are the only tech company to offer global services with a full spectrum of expertise and know-how. In Q1, our new Clarity offering was fully deployed commercially. This solution helps companies manage their ESG strategy, track implementation, and measure performance. After a few weeks, the commercial pipeline is already showing a very promising momentum, notably in Europe, but also in Asia. Achieving their Net Zero climate change commitments is becoming a major objective for many of our clients, and their need for BV's expertise to track and measure progress is a significant demand driver. We have developed an integrated solution to support the real estate industry in the achievement of Net Zero, focusing on asset construction, management, and operations.
Asset management companies around the globe are all implementing Net Zero strategies that push for highly energy efficient buildings that are fully powered by renewable energy sources and built with low carbon materials. Our Achieving Net Zero solution is built on five steps aimed at helping our clients accelerate and deliver on their ambitions. Before handing over to François, a few illustrations of the BV Green Line momentum in Q1. Once again, more exciting news as the momentum builds across all sectors. The examples are diverse and wide-ranging. In the resources and production sector, it goes from biofuels testing to a solar site and construction management services. In the consumption and traceability area, we perform supply chain risk analysis for a large e-commerce company. We also support the Peruvian government in monitoring their responsible fishing policy.
In Buildings & Infrastructure, we support the U.K. Environment Agency with air quality compliance monitoring. For BNP Paribas, we perform energy building due diligence audits. In new mobility, we delivered an approval in principle for state-of-the-art projects such as GTT solution that combines LNG retrofits and jumbo container ships. As regards ESG, it ranges from CSR audit for Pirelli to anti-bribery schemes for Veolia. Once again, we could share with you many, many, many examples. Now, I would like to hand over to François for the financial and business reviews. François?
Thank you, Didier. Good afternoon, good evening, to everybody. Looking first at our financial review and the revenue bridge on page 14. We delivered EUR 1.29 billion in the first quarter, with a headline increase of 11.7%. Organic increase reached 8%, showing a strong recovery from the 2.5% achieved in the last quarter of 2021. Around 1% is attributed to a catch-up effect following the cyberattack we encountered in November 2021. Currency fluctuation had a positive 3.2% impact, confirming a reversing trend observed since July last year. This results from the appreciation of the US dollar and pegged currencies against the euro that happened in 2021 and is maintained.
Turning to the revenue growth by business for the quarter, three businesses delivered a strong organic performance of high single or double digits, with continued growth in the Buildings & Infrastructure business, mainly driven by the U.S. and Latin America. Strong recovery for Agri-Food & Commodities, benefiting from strong metals and minerals market and from the gradual recovery of oil and petrochemicals. Lastly, Industry outperformed the group average with an increase of 11.9%, with strong business activity for the oil and gas market, mainly OPEX, and sustained strong momentum for Power & Utilities segments, including renewable and nuclear services. Three businesses delivered mid-single digits organic revenue growth. Marine & Offshore achieving a very solid 6.5% against challenging comparables. The growth was mainly fueled by the new construction activity led by China and other services, including the offshore segment.
Consumer Products grew 4.6%. Certification up 4% against tough comparables as well, was supported by strong sales development, notably as regards sustainability and price increases. Moving now to the business review. Let me share with you the highlights of the first quarter for each of our six businesses. First, Marine & Offshore. As I mentioned, we delivered a strong 6.5% organic revenue growth in the quarter, mainly led by strong growth in the new construction activity and reflecting the improvement in the new orders intakes in the prior year. It also benefited from the recovery of the non-classification services in the context of high oil prices. Indeed, we have seen increased demand for risk assessment services for offshore and consulting services related to energy efficiency.
The order books stood at 17.1 million gross tons at the end of the quarter, up 4.9% compared to the end of 2021. The book remains very well diversified. For Agri-Food & Commodities, the business strongly improved from Q4 with a 9.5% organic revenue growth. It is worth noting that within this segment, we have metals and minerals, strong industry fundamentals, and our leading expertise enable us to grow double digits organically. Our upstream activities were supported by a strong backlog and sustained high level of exploration during activity in the context of very high metals and mineral prices. In oil and petroleum, the environment improved and we grew mid-single digit organically, reflecting price increases and higher fuel consumption, with notably increased demand for aviation fuel and gasoline.
Finally, the third bucket, our agri-food business, delivered low single-digit growth with the best momentum in agricultural products, where strong growth from agricultural inspection activities was led by Latin America. Food testing suffered from the COVID-19 related shutdowns, notably early in the year in Asia and Australia. Moving to Industry now, which was the best performing business in the quarter. 11.9% organic growth led by all segments of the business. Strategy of diversification towards OpEx and power and utilities markets continue to bear fruit. In addition, the oil and gas OpEx markets have been a key contributor to the growth. The power and utilities segment continued to be a strong growth driver with high single-digit organic performance achieved in the quarter. In the medium to long term, we see multiple growth opportunities for renewable energies.
Several contracts were awarded during the quarter and the pipeline is significant. For Buildings & Infrastructure, organic revenue growth was 7.1%. By region, we delivered a major organic growth in the Americas, led by the U.S. Here, the activity remains supported by our leading position in data center commissioning services, alongside strong position for project management assistance and transactional activity for OPEX-related services. Adding to that, Latin America organic growth was very strong as well, fueled by Brazil and several new contract wins. Conversely, the organic revenue increase in Asia-Pacific varied by country. In China, the business was stable in the quarter, but with declining activity in March, offsetting the good start to the year due to the new regional lockdowns in Shenzhen and then Shanghai. Consequently, many construction sites are closed, which delayed the revenue booking until the projects resume later in the year.
Elsewhere, the activity strongly recovered, namely in India and Japan. Certification now 4% organic revenue growth. Against tough comparable, this was supported by strong sales and price increases. Strong growth was achieved in corporate responsibility and sustainability, organic food product certification, as well as for training and personal services. The activity slightly declines for the standard, the quality, health and safety schemes and transportation schemes due to tough comparables against prior year of recertification. As Didier Michaud-Daniel said a moment ago, Bureau Veritas Sustainability Services continued to maintain a solid momentum in Q1, led by the search for more data transparency, ESG reporting and new regulations. Finally, consumer products, 4.6% organic growth across most product categories. By geography, very high growth in South America and Turkey, benefiting from nearshoring trends.
In South East Asia, the growth was robust, but still mixed by regions due to continuing COVID-19 impacts. South Asia countries, Bangladesh, India, continue to benefit from a structural sourcing shift out of China. Conversely, China starts to be impacted by the disruptions caused by the regional COVID-19 shutdowns and the difficulty to operate laboratory testing services in normal conditions. It is a strong start to the year and, handing back now to Didier for the outlook for the rest of the year.
Thank you, François. Thank you. Okay, for the 2022 outlook, despite the uncertain environment we are currently facing, we confirm our 2022 outlook. There have been a few challenging weeks in China with various lockdowns and of course the situation in Ukraine will result in changes to the dynamics for several businesses. Thanks to the geographical and business diversity that BV now enjoys, we do not currently expect this to change our overall growth momentum, nor financial performance in 2022. Based on the current environment and assuming there are no severe lockdowns in our main countries of operation, we still expect to achieve mid-single-digit organic revenue growth, improve the adjusted operating margin, generate sustained strong cash flow with a cash conversion above 90%. In this highly volatile environment that has not been seen for decades, we are demonstrating the benefits of the group's profound transformation.
Our Q1 performance bodes well for the year. Moving forward, Bureau Veritas is well positioned to benefit from strong macro drivers such as sustainability. With the '25 strategic plan, we will capitalize on our strength and continue our successful journey of delivering value-creating strategy for Bureau Veritas. Thank you for your attention. François and I are now happy to take your questions on the call.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. The first question comes from the line of Paul Sullivan from Barclays. Please go ahead.
Good afternoon, everyone. Just briefly, sorry if I missed it, but can you just remind us of the catch-up from Q4 and how that impacted Q1? Secondly, I note very strong LATAM growth. How should we think about the contribution from inflation through the quarter and can you provide an update on your thoughts going forward? Finally, on China and Asia, could you give us the March exit rate there? How should we be thinking about the second quarter in light of sort of ongoing lockdowns? I know you say the guidance assumes no further lockdowns, but given we're in a lockdown, what is your assumption in terms of the duration of the current series of lockdowns in China? Thank you.
Okay. I'm gonna start with your last question, Paul, with China, and the catch-up will be taken by François. I will say one word on LATAM. On China, it's very difficult to predict, of course. As you know, there are some big cities like Shanghai who are today locked down. Growth was good in the quarter. It started, of course, to slow down in March. In April, of course, because of these lockdowns, our business will be impacted. What we should remember is what happened in 2020 when the entire country was locked down. In fact, after the lockdown, commodities, industrial facilities, in particular, building and infrastructure restarted with a V shape.
Meaning that today you have some projects which are clearly stopped, which will restart very quickly when the lockdown will be over. Regarding CPS, it's a different story. We had a very strong backlog, so we continued to work on the backlog until, I would say, last week. We have a large backlog of potential sales for the future. Of course, at the moment, it's more difficult to get the samples in some labs in some cities in China. It's very difficult to predict for a simple reason. It's just, if I take the example of Shanghai, at first, China decided to lock Shanghai down for 10 days. After 10 days, because they found some COVID-19 cases, they decided to prolong it by 14 days. What's gonna be the next step?
Again, difficult to predict. What I can tell you is, again, by experience, because we had this experience before, we will recover quite a big part of this business. Of course, it's gonna impact our organic growth in China in April, and it's too early to talk about May or June. In April, for sure. After, if you look at the dynamics elsewhere, and you can see it in our results, it's very good. We are doing very well elsewhere. In fact, if you think about our organic growth in Q1 and the fact that we were already impacted by both the war between Russia and Ukraine and the Chinese lockdown, you can imagine that we did extremely well in terms of organic growth. On the LATAM growth, we are doing extremely well.
We have high level of growth. It has no comparison with the inflation rate for a simple reason. It's just because we won very large contracts. The good news is that we can see that our efforts in some countries, even Brazil now, is turning positive, which is good news. Meaning it's real growth. Now I'm gonna leave François answering your question regarding Q4, Q1 catch-up.
Yes. Hi, Paul. Just to complement what Didier just mentioned on Latin America, we start to mention it in our publication for a simple reason. This region has been, as you know, the region which back in 2016 was the most harshly hit by the exposure to oil and gas Capex. This is the first region who has chosen and followed the group strategy to go to oil and gas Opex, deploy B&I related services and invest into food safety. It is paying off these days to an extent that for a region which is compared to others, less material to BV.
Now, having this strategy fully deployed, they are really starting to make a difference in terms of growth and I confirm what Didier just mentioned, it's nothing to do with inflation. It's really a good sound sales backlog with, frankly speaking, extra large contract being signed all through 2021. This is no surprise to us. We knew it, I would say, already end of last year, that the year would be very good in this segment of the portfolio. Coming to the catchup you were mentioning, I guess you are referring to the catchup following the disruption brought by the cyberattack.
When we publish our yearly financials, we had indicated that the cyberattack had impacted the year 2021 up to EUR 25 million in terms of revenue. To be on the safe side, you could count that we've captured half of it. There is roughly, you know, EUR 12 million-EUR 13 million of business that we have managed to deliver with a one- to one-and-a-half-month delay, which is roughly 1% of growth on the quarter.
Super. That's very clear. Thank you.
Thank you, Paul.
The next question comes from the line of Rajesh Kumar from HSBC. Please go ahead.
Hi, good evening. Thanks for taking the questions. The first one is, through the release at various points, you've talked about pricing, and, you know, that there have been pricing negotiations, price increases. Could you just give us a general sense of what sort of pricing discussions you've had in the market, especially given that there's so much demand backlog and wage inflation as well in the supply chain. I appreciate that you always have wage inflation in Asia. But just within your different regions, what sort of pricing discussions you've gone through, and how does that compare with the typical year, and when you look at the implications for margins for the year, what would that mean? That's the first question.
Second question is, you know, if you look at the changes in supply chain you mentioned, what are the main risks and opportunities you see for Bureau Veritas? Do you think your, you know, growth aspirations, if you stick to them, can the supply chain rewriting be margin dilutive? And finally, when we look at your strong performance in Q1 and your guidance is unchanged, is it a reflection on, you know, difficult comps in Q2, and, you know, a lack of certainty in the world or, and a bit of conservatism or something more which you're aware of, which is why you are, you know, not revisiting the full year guidance now?
Okay. I'm gonna start with your first question regarding pricing. As you know, Bureau Veritas is a service company, meaning that we are labor-intensive industry. In fact, the wage inflation is very different country to country. Of course, as you can imagine, it's under control. All wage increases are decided by me, by the way, country by country. It's totally under control. We can see very various situations from the U.S. to Spain now or to the U.K., France, Italy, or in China or in Latin America. Of course, because of the wage inflation, prices in particular in the U.S. have been increased.
To avoid heavy attrition rates going through the roof, we've started to increase our price. We know that the impact is gonna be along the year. It has not been recorded yet. We will have an impact, positive one, in the second part of the year. Clearly, we are now adjusting our price according to the wages increase because, again, it's mostly the cost that we incur at Bureau Veritas. I'm not going to comment on the margin because this is not today. The publication is exclusively on revenue. We will discuss the margin, and I will be more than pleased to give you more details at the end of the first semester. The strong performance in Q1, yes, we have the strong performance. It's coming from several reasons in fact.
The first one, we did a very good job in diversifying our portfolio. We decided, you know that very well, Rajesh, to accelerate on OpEx. The good news is that when you are more OpEx, of course, at the beginning of the year, you have already a big part of your revenue, which is in your bag. On top, the sustainability and the Green Line now is really accelerating. Last year, if you take the example of the sales at the end of Q1, we were more at something like 50% of our sales. At the end of Q1, it's 58%. It's a huge increase and it's across the board, across the Green Line, from Buildings and Infrastructure to Industry with renewables, with energy to CSR assurance.
In fact, because we are in all these activities where sustainability now is becoming a key objective for all companies, we can deliver a service. Last year, I must say, I was very happy because we recorded a lot of contracts. A good example for me is renewables. Imagine that today, our renewable revenue are above the oil and gas revenue. It shows you something about what is happening. I'm talking about CapEx, of course, oil and gas CapEx revenue, which is more or less at 2% now. It shows you a huge approach and difference between what BV was in 2015 and what BV is today. Q2, you're right, I'm not going to comment anymore because we will see what Q2 will be. Q2 comps indeed are of course more challenging.
Understood. Thank you. That's very helpful. Just on the full year guidance, why not revisit at this juncture?
The guidance is what it is. I've just confirmed the guidance for the year. At the moment, I have no reason why I should do anything about the guidance. I just confirm it.
Understood. Thank you.
The next question comes from the line of Arthur Truslove from Citi. Please go ahead.
Hi there. It's Arthur Truslove from Citi. I guess first question from me is just around China and Asia more broadly. I just wondered how easy is it for you to sort of move work around the Far East or indeed China if certain areas are locked down. I'm particularly referring to the consumer business there. Secondly, I'm not sure if this has been touched on already, but I just wondered what's the level wage growth was running at at the moment. Thank you.
You are talking about the level of wages increase, in China or globally?
No, across the pace.
It's very different country to country. If I take the biggest revenue of the company, which is France today, still is 2.1%. It's very low. If I go to the U.S., it's closer to 4%. It's very different country to country. I cannot give you an average. It would not make any sense, of course, and I'm sure you know that. We are 82,000 people now in the company. Giving an average on wages increase doesn't make any sense. The good news, again, is the fact that wages increase are under control. We are working on pricing because we feel that it's time now to push our price up. We do it by country, by activity, and we're very precise action plan on the pricing.
In China, the answer is yes and no. Some samples because why is it yes and no? It's because some manufacturing sites, of course, are closed in China. We are not getting the samples from these manufacturing sites. When I think about soft lines, of course, we continue to deliver our services in South East Asia, in Bangladesh, in Sri Lanka, in India. Back as usual, if I could say that, because you remember last year, same period, Bangladesh was closed, Sri Lanka was closed, India was more or less locked down. In fact, if we compare year-on-year, now South East Asia is running at a normal pace. Some part of China, some cities in China are locked down, some are not.
Again, we are looking at the situation and adapting our costs in particular regarding the evolution of the situation. Honestly, at the time, who knows what's gonna be the next step in China regarding potential lockdown and it's too early. Again, we will come out more at the end of the second quarter. Dynamic situation everywhere today, Southeast Asia, but also in Europe. We discussed, François stated, some countries because of nearshoring, like Turkey now are doing extremely well. Is it going to compensate China short term, no. Longer term, it will.
That's very helpful. Thank you.
Thank you for the question.
The next question comes from the line of Virginia Montorsi from Bank of America. Please go ahead.
Hi, everyone. Thank you for taking my question. Just a quick one on inflation and your contracts. I'm just curious if, given how we've seen inflation developing in the U.S. over the past few months, whether you've had made any shifts in how you develop your contracts for new project wins, and whether you're starting to implement more inflation indexation clauses in new wins going forward, or if you're just viewing this as kind of a one-off, and just keeping contract structures similar. Just to confirm, you said that Latin America was almost no inflation impact. I just wanna confirm that at a group level, the 8% growth is also almost entirely volume and very little pricing. Is that correct?
Your second point is gonna be taken by François, and I will come back. On the indexation, it's a very simple answer. It is systematic now. It's not just by the way in the U.S., okay, we do that across the board. As you know, for a long time, the world has not had this type of inflation. In the past, indexation clauses were existing systematically. We are now putting indexation clauses in all of our contracts, not just in North America, but everywhere. François, could you answer the second point made by Kate?
Yeah, sure. Kate, on the second question, when it comes to having the group view in Q1 on what I would say the volume contribution to the growth against the price increase contribution, I think let's refer second to what Didier said somewhere in the Q&A. We have the chance to be a backlog-based company. When we start the year, we have a good chunk of our business already signed, which is good. In the context of price increase, we have started end of last year to increase our prices, but there is a bit of a time lag. I would say to put it very straightforward, in Q1, you could count on the 1%-1.5% contribution of price increase in the mix.
The rest is volume driven, to make it very, very simple for you to get.
Perfect. That's very helpful. Thank you.
Pleasure.
The next question comes from the line of Anvesh Agrawal from Morgan Stanley. Please go ahead.
Hi, good evening. I got two questions. First, just on marine and the pickup you have seen in the business. I mean, if you look at some of the lead indicators like vessel contracting, that is sort of going backwards now. At the same time, your new construction business seems to have picked up. If you can give a bit more color on sort of the lead indicators you are seeing and the pipeline you have for that business, that would be very helpful. Then just second, to pick up on the outlook question again. I mean, Q1 8%, the pricing benefit to come through in second half. What is holding you back from raising the guidance on the organic growth for the full year?
Prudence. Your first question now about marine is very interesting. In fact, as you know, we did extremely well last year. We recorded 8 million gross tons. If I think about the last 10 years, I think we recorded this performance seven or eight years ago. It was probably at that level, and after for eight or 9 years, we did not get, of course, 8 million gross tons of orders. The second good news for our backlog, the backlog which has an impact this year already, is that we recorded ships which are high technology ships. I'm thinking about LNG and container ships. Of course, these ships need more inspection, and because they need more inspection, the level of revenue that we record with these ships is higher.
Now, when I look at the beginning of the year, it's too early, of course, to talk about the second part of the year. What I can tell you, we have a good start of the year. We have a strong backlog, very diversified, high CGT. Decarbonization is a strong driver of growth. Of course, I'm sure you follow and you read the newspaper as I do, you can see clearly that gas transport, which means LNG ships, the number of LNG ship is gonna go to increase because of the sanction, we will have the world is gonna look in Europe in particular for gas coming from the U.S. or Qatar. We have a strong leadership position in term of share with these ships.
I am optimistic for this year again in terms of sales, which means that this year should be good and I can foresee a good backlog at the end of the year, except of course if something happens I have not foreseen yet. On the marine division, again, we should have a good year this year, and I'm optimistic for the near future.
Okay, that's clear. Thank you.
There are no further questions, so I will hand the call back to your host for some closing remarks.
Thank you very much for your attention. I wish you all a good morning, good afternoon, and good evening.
Thank you for joining today's call. You may now disconnect your lines.