Good day. Welcome to Bureau Veritas Half Year 2023 Results Conference Call. My name is Priscilla, and I'll be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask for questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand you over to your host, Hinda Gharbi, the Deputy CEO, to begin today's conference. Please go ahead. Thank you.
Thank you, Priscilla. Good morning, good afternoon, and good evening to everyone. I'm pleased to welcome you to our results presentation, the first time since becoming CEO on June 22nd. I'm joined by François Chabas, our Group CFO. The group has delivered a strong set of results for H1 2023. These are a great credit to the work of all our teams around the world. I would like to thank my colleagues for this excellent performance. Before presenting our results, let me update you on the changes to the group's governance that followed the AGM in June. Laurent Mignon, Chairman of Wendel's Managing Board, was appointed Chairman of the Board of Directors following the retirement of our previous Chairman, Aldo Cardoso. In parallel, the board committees were reorganized and are all chaired by independent directors.
As an Independent Director and Chairman of the Nomination & Compensation Committee, Pascal Lebard has been appointed Lead Independent Director and Vice-Chairman of the Board. To support the execution of the group's CSR strategy, the Board created a CSR Committee chaired by Mrs. Ana Giros Calpe. Mrs. Giros Calpe brings a long-standing operational experience around CSR matters. Her input will be valuable to the Board. Finally we're also pleased to welcome Geoffroy Roux de Bézieux to our Board of Directors as an Independent Director. Looking now at our financial highlights for the first half. Revenue in H1 was EUR 2.9 billion, up 7.8% year-on-year, 10.9% at constant currency. The organic growth was 9.4%, showing an excellent underlying performance year-to-date. In the second quarter, we delivered double-digit organic growth of 10.3%.
This is a combination of strong volumes with the conversion of our healthy backlog and a pricing benefit as expected. Adjusted operating profit increased by 5.7% year-on-year to EUR 434 million, generating a solid margin of 15%. Our adjusted net profit is up 11.1% to EUR 276 million. Free cash flow totaled EUR 131.9 million, slightly up year-on-year, reflecting CapEx increase allocated to our lab businesses, and demonstrates our excellent working capital control. The group's leverage ratio was further reduced to 0.95 from 1.1 last year. This excellent performance and our confidence in future trends allow us to revise upwards our top-line growth outlook, while we expect stable margin at constant currency.
These results have once again been driven by our diversified business mix and Bureau Veritas' global geographical footprint. Looking at the mix this semester, Marine & Offshore, industry, Buildings & Infrastructure, certification, and Agri-Food & Commodities continue their strong growth momentum in line with the previous quarters. As expected, consumer products had a mixed first half, as the contraction from reduced activity was moderated by the positive impact of our diversification strategy. From a geographical standpoint, the Americas, Africa, and Middle East are leading the pack, while Asia's organic growth picked up sequentially. Before passing on to François for the financial review, I would like to share with you our progress in CSR performance so far this year. In health and safety, we continue with our prevention programs, where we further reduced our accident rate in the first half.
On the gender diversity front, the proportion of women in leadership positions has increased to 29.7% in H1. We are committed to our 35% target by 2025. Staying true to our purpose and mission, we continue to enhance our compliance and code of ethics across all our operations through training and awareness programs. On decarbonization, we remain on track for our 20% reduction target by 2025. Year to date, our CO2 emissions per employee reduced by 3% compared to H1 2022. Most importantly, our greenhouse gas emissions targets have been validated by the Science Based Targets initiative, SBTi, as we committed to reduce absolute Scope 1 and 2 greenhouse gas emissions by 42%, and to reduce absolute Scope 3 greenhouse gas emissions by 25%, both by 2030.
I now hand over to François for the financial review.
Thank you, Hinda. Good morning, good afternoon to everyone. Before looking in more detail at the numbers, a few words on the key financial achievement of the first semester. Once again, we have proven our ability to deliver a strong and broad-based organic growth throughout the first half at 9.4%. On the profitability front, we delivered a margin of 15%, similar organically to last year.
When it come to the bottom line, our adjusted EPS climbed 11.1%, led by solid operating and financial performance. On cash, finally, we continued to reduce working cap by 100 basis points. This has contributed to maintaining a leverage below one, similar to the end of December 2022. Looking at the revenue bridge now, we delivered EUR 2.9 billion in the first half, with an overall growth of 7.8% and significant organic growth of 9.4%. It shows a strong momentum of our growth driver. External growth contributed 1.5% on a net scope basis, reflecting the impact of the bolt-on acquisition realized in the past few quarters.
As always, we continue to actively manage our portfolio, and in July, we sold our non-core automotive inspection business in the U.S., which for information, represent less than EUR 20 million of annualized revenue. On the acquisition side, we continue to have some promising projects in the pipeline. When it comes to Forex, we recorded a negative impact of 3.1%, which is mainly attributed to the strengths of the euro against most currencies. In the second quarter, we saw an additional impact due to a weaker dollar. At constant currency, our growth was 10.9% in the semester. When we look now at the overall performance of the group, this slide illustrate the broad-based growth we have enjoyed and demonstrate again the strength and mix of our portfolio.
Four businesses delivered very strong organic growth: Marine & Offshore, up 15.6%, Industry, up 15.5%, Certification, up 11.2%, and Buildings & Infrastructure, up 10.8%. Agri-Food & Commodities grew 6.5% organically, led by all subsegments. Consumer Products Services contracted by 3.1% organically due to the slow consumer demand across developed economies. This was more than offset by new acquisitions, which added 6% of incremental revenue in the first semester of 2023. As you can see, in the second quarter, the positive trend of Q1 continued and even accelerated in some businesses. Organic growth was a very strong 10.3%, with double-digit organic revenue growth in four out of six activities.
As you can see here, the M&A focus of the group remains on B&I and CPS divisions, reflecting recent acquisitions. On the margin bridge, on this slide, we delivered a 15% margin in the semester. The adjusted operating margin was resilient organically, and we are happy to report that despite inflationary pressures and the weak H1 for the CPS segment, we deliver a similar organic margin to last year. Forex was a drag of around 20 basis points to the group margins due to the strength of the euro against other currencies. Within the portfolio now, the revenue growth and operating leverage drove organic margin higher in Marine & Offshore, up 113 basis points organically to reach 24.7%. Agri-Food & Commodities was up 66 basis points to 13.5%.
In addition, our effort to be more commercially selective by focusing on more profitable contracts in industry has paid off. The industry division generated a 147 basis point organic improvement to reach 12.3%. Elsewhere, our CPS margin remained robust at 20.4%. It reflects the effort to protect the margin despite the lower level of revenue. Finally, B&I margin appears down to 12.2%, but was flat on a like-for-like basis. This is due to a positive one-off in H1 2022 regarding social liability in France, which was mostly offset in H2 2022. Our certification business maintained a high margin at 18.3%, and overall, we have managed to keep the margin at 15% in the first half, despite Forex headwinds.
Moving now to other financial metrics in the first half, EPS, cash, and balance sheet rated items. Starting first with the bottom line elements, our net financial expense decreased by nearly half compared to last year, to EUR 15.2 million in the first semester. This is mainly attributable to the increase of financial income. Bureau Veritas has a well-established policy of cash centralization, which allows to take advantage of the opportunity of higher interest rates. On the income tax front, our adjusted effective tax rate was reduced by 0.6 percentage points compared to the first half of 2022, to 30.7%. The decrease is due to the reduction in dividend distributions from countries subject to withholding tax during the period. On the next slide, you see the growth in EPS.
Here, we delivered a strong adjusted EPS of EUR 0.61, up 11.1% year-on-year. This reflects, of course, solid operating performance, also lower financial tax charges and financial charges. We are now 30% ahead of the 2019 levels, we are confident to maintain a positive EPS momentum moving forward. Moving to the cash flow statement. Free cash continues to be very strong and is up 1.5% year-on-year to EUR 131.9 million. Given the strong revenue performance in the second quarter, working capital requirement outflow was kept under control at EUR 196 million, compared to a EUR 176 million outflow the previous year.
I consider the working capital at 8.8% of revenue a good achievement, given the strong level of activity at the end of H1, and we are expecting the usual seasonality when it comes to H2 working capital reduction. On the investment front, CapEx increased to 2.6% of revenue to fund growth development in our lab-related businesses, after the relatively low levels of 1.9% in 2022. We expect this to be circa 2.5% for the full year 2023. As a conclusion, we close H1 with a very stable and robust financial structure. The group adjusted net financial debt went below EUR 1 billion at the end of June. Our leverage ratio was largely unchanged compared to the end of 2022.
As a reminder, we have no major refinancing before 2025. 100% of our debt is at fixed interest rates. Regarding the EUR 500 million bond due in September, EUR 200 million is already refinanced. EUR 300 million will be reimbursed through the use of cash. To sum up, another strong financial performance. I would like to thank all the teams across BV for their strong commitment in achieving this result quarter after quarter. I now hand back to Hinda for the business review.
Thank you, François. Let me share with you the first half highlights for our businesses. For Marine & Offshore, we delivered a very strong 15.6% organic revenue growth, driven by both in-service and new construction activities growing double-digit. This performance was led by the overall increase in the fleet, the high number of occasional surveys, and solid pricing. We expect this favorable momentum to continue in the second half with a lower organic growth. This is owing to exceptional half to 2022 performance from survey catch-ups and one-off regulatory campaigns in Q4 last year. Services grew double-digit also, thanks to a strong momentum for consulting services related to energy efficiency.
On the sales front, our new orders totaled 4.3 million gross tons, bringing our order book to 20.4 million gross tons, providing a solid outlook for future growth. MNO performance is supported by robust trends going forward and is on a structural growth path. Let me show you and give you more color on that. You see clearly on the chart that the business has delivered a steady organic growth over the past several quarters, with an upward trend over the last three years. This is driven by two long-term structural trends in the shipping industry. First, the average age of the world fleet is currently estimated at above 16 years, driving an acceleration in ship renewals. The second and most important trend is linked to the more stringent decarbonization regulations, timeline, and targets.
This is triggering the development of alternative fuel ships, which already account for half of new ship orders worldwide in tonnage from recent research. This includes also LNG fuel ships, where we have developed a leading position. In this context, the marine sector has a positive long-term build cycle. Indeed, shipyards are currently operating at full capacity, and shipowners must meet their decarbonization targets, creating opportunities for the backlog to build up. Moving now to Agri-Food & Commodities, where we delivered a 6.5% organic growth in the first half. The Oil and Petrochemical segment hosted mid-single-digit organic growth, thanks to higher testing volumes and price increase benefit. We continued our diversification into non-trade-related activities, gaining momentum in biofuels and oil condition monitoring. Our metals and minerals business grew low single digit overall.
It benefited from a strong trade activity and the success of our group on-site laboratory strategy for the upstream business. We continue to see high demand for copper and base metals, led by electrification in many sectors. Our Agri-Food business recorded high single-digit organic growth, was fueled primarily by agricultural products and food testing in new geographies such as the Middle East and the U.S. We are also benefiting from a favorable regulatory environment for traceability services in Europe. Government services achieved high single-digit organic growth, led by the ramp-up of several verification of conformity contracts in Africa, the Middle East, and Central Asia. Turning now to industry. This business recorded one of the highest organic growth levels in our portfolio at 15.5%. Energy transition continued to accelerate over the period and is triggering an increase in clean energy investment and the rollout of decarbonization solutions.
By sub-segment, power and utilities is a key driver of growth, with a double-digit organic performance in both OpEx and CapEx activities. This included a solid momentum in the grid OpEx business in Latin America and projects related to nuclear power generation in Europe, both in new build and decommissioning. In renewables, we grew high double digits organically, with opportunities mainly in wind, battery energy storage, and carbon capture projects. In oil and gas, the performance was strong overall, with OpEx benefiting from a strong sales pipeline conversion. CapEx growth on the other hand, stems from the startup of new projects, specifically on the gas side. For Buildings & Infrastructure now. In H1, we delivered 10.8% organic revenue growth, led by strong performance across most geographies. From a mixed perspective, both construction-related activities and in-service activities grew double digit.
This performance highlights our balanced and resilient B&I growth platform. Asia Pacific was one of the best performing regions, delivering a double-digit organic revenue increase in H1 and in Q2, driven by strong performance in India. The Chinese activity is steadily improving. In the Middle East, we continued our expansion with numerous projects in the region, including Saudi Arabia. Europe delivered strong growth as well, with France maintaining a solid momentum led by its in-service activity and energy efficiency programs. Moving to the certification business, we delivered a strong organic growth at 11.2% in the first half of 2023. Our growth was supported by both volumes and robust price increases across most geographies and schemes. This good performance was enhanced by the acceleration of the diversification of our portfolio in cybersecurity and new certification schemes. These generated half of the H1 organic growth performance.
Sustainability-driven solutions continued to perform strongly, up 17.3%. The drive for more brand protection, data transparency, and social responsibility commitments all along the supply chain continues to gather pace. This growth was driven by high demand for verification of carbon emissions, supply chain audits, and assurance of sustainability reporting. For Consumer Products, the resilience of our business in China in H1 last year now represents tougher comparables. For soft lines, we experienced a different set of dynamics in the various country. As expected, the slower activity in China was mitigated by South Asian countries, benefiting from the continuing structural shift outside China. Technology-wise, the business is still affected by the slowdown in new product launches in information communication technologies and wireless. On a positive note, we grew double digits organically in the new mobility subsegment.
We continued our growth momentum for inspection and audit services with strong growth in sustainability services. This includes organic sourcing, recycling, social audits, and green claim verifications. In the next slide, you will see how we are evolving our Consumer Products Services strategy. In Consumer Products, we are steadily strengthening our resilience and developing our footprint through acquisitions and sustained investment. Last year, we acquired three companies representing EUR 44 million in annualized revenue. This year, we increased our CapEx to support customers expansions in new geographies. We are developing this business by accelerating our diversification in three ways: by sector, by service, and by geography. First, we have expanded in Health, Beauty & Household. This now represents 8% of divisional revenue and has excellent growth potential. In H1, it generated double-digit organic growth, with Asia and the U.S. leading the way.
The integration of Advanced Testing Laboratory and Gold-i-Crest Laboratories, both acquired last year in the U.S., progressed well with a growing sales pipeline. Secondly, we are expanding our expertise and solutions in sustainability and CSR-related services. As an example, the acquisition of AMS Fashion has enabled us to support European retailers and brands looking to improve their supply chain reliability and resilience. Thirdly, many manufacturers are evolving their Asian footprint to de-risk China. This structural change in the supply chain is providing opportunities in many other Asian countries. Recently, we have invested in a new technology testing lab in Southeast Asia. On the European side, retailers have been relocating closer to end markets, creating opportunities in nearshoring zones such as Turkey and Morocco. Now, I would like to talk to you about our sustainability services innovation in the first half.
As we have mentioned many times, sustainability and energy transitions are important drivers of our group's growth potential. The BV Green Line of solutions and services is a good proxy for our development in these fields, which represents today 55% of the last 12 months' sales. Continuing the trends from last year, our sustainability solutions are in high demand. We continue to expand and innovate to address new needs. A few examples in H1: First, in response to the newly introduced German Supply Chain Act, we developed a risk assessment methodology built around our Clarity solution to address customer needs. This will also allow us to roll out rapidly in other countries when other regulators put in place similar requirements. A second example relates to our ship financing model that addresses the maritime sector decarbonization goals.
We developed this tool to help a group of banks assess their investment risks and build their own strategies aligned with the Poseidon Principles. In Q1, we introduced an audit framework for the Climate Neutral Data Centre Pact. I'm pleased to report that we have signed contracts with three major data center companies based in Denmark in order to assess and verify their compliance in terms of sustainability and efficiency. Moving now to the outlook. Based on the first half performance and a healthy sales pipeline, we now expect for the full year 2023 to deliver mid-to-high single-digit organic revenue growth. This is to compare to mid-single-digit previously. A stable adjusted operating margin at constant currency, and a strong cash flow with a cash conversion above 90%.
Before taking your questions with François, I would like to close by saying that I am more than honored to take over as CEO of this great company. I believe Bureau Veritas has a highly robust portfolio of businesses, a global footprint, and a great team of people and experts around the world. These strengths are demonstrated by the first half results that also enabled us to raise our full-year organic growth outlook. We're leading in so many fields, particularly with innovative solutions that ensure our customers can meet their own challenges proactively. Looking further ahead, the TIC market has a very promising future. We are very fast. We'll continue to create value by investing and taking advantage of the growth opportunities that are key to building in the next chapter for the group. Thank you all very much for your attention.
François and I are now ready to take your questions on the call or on the webcast.
Thank you. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. We will now take our first question from Suhasini Varanasi from Goldman Sachs. Please go ahead. Your line is open.
Hi, good afternoon. Thank you for taking my questions.
Hi.
Three for me, please. Hi there. Can you please talk about how much price contributed to growth, organic growth in the first half? That's my first one. Second, your outlook on margins is now stable at constant FX rates. I think earlier it was stable year-over-year. Can you please talk about what the FX impact, what's the drag that you expect on a full year basis at current rates? The third one actually is on certification division. Margins have fallen 60 basis points roughly on an organic basis. Can you help us understand why there was the weakness in 1H and your expectations for second half? Thank you.
Thank you, Suhasini. I'll let François answer. Go ahead.
Hello, Suhasini. Taking by your three questions in the reverse order. Margin for certification, I would say we put a bit more of investment in terms of, you know, Salesforce in this segment that we believe is very promising. Hinda has mentioned the cybersecurity schemes, great development here. Overall, we don't expect a margin erosion for the full year, no worry on the 12-month basis. Second, the outlook, the margin, well, as you know, we report in EUR, and seems like this year EUR is pretty strong. Our H1 numbers have been eroded margin-wise around 20-21 basis points in term of margin.
You know, if I could predict the FX, I would not be sitting in this chair answering your question. I would be somewhere on a paradise island. It is not the case, so the best I can tell you, and we've run our models and with the help of banks, I think as, you know, most companies are doing, and what we can see today is on a full year basis, the origin would be, you know, between 20 and to 30 basis points at current spot rates. So when we factor into it in H2 where we had the U.S. dollar in particular would be very weak. You know, 20 to 30 basis points on a full year basis.
Finally, the price component, you know, we're careful about what we say around prices for obvious reasons, commercial reasons in particular. I think the growth we're doing in H1, as mentioned by Hinda, has been first and foremost driven by volume. We want to remain very competitive, very active in the markets in which we operate. We reiterate what we said at the beginning of the year, we have reported in 2022 a price component in the growth of 2% in the PNL on a 12-month basis. We confirm that will be better this year in terms of price component. It is not for us a, you know, a goal per se.
What matters is that what we see in the H1 numbers, we have been capable to deal with inflationary pressures. You know, the best proof of it is that the margin is basically the same compared to last year. We reiterate the fact that on a full year basis, at constant currency, the margin will remain the one we have enjoyed last year. Pricing is doing great. Do not worry, the bulk of the growth is coming from volume, and we're happy about it.
Very clear. Thank you so much.
Thank you, Suhasini.
Thank you. We'll move on to Annelies Vermeulen from Morgan Stanley. Please go ahead. Your line is open.
Hi, good afternoon. I have two questions, please. Firstly, on consumer, you know, sort of divisionally, the weakest growth was in Consumer Products and also by geography, weakest was in Asia. Given that you talked about building an infrastructure, growing double digit in Asia, can we therefore infer that consumer in Asia, and I'm guessing China, remains particularly weak? I think previously you talked about, you know, the benefits from reopening in the second quarter. Is it fair to say that this perhaps hasn't been as strong as you expected? Secondly, on Marine & Offshore, you know, clearly the growth was very good in Q1, has it accelerated further in the second quarter?
I think in Q1, you were still benefiting from some regulatory tailwinds rollover from last year. You know, given some of the structural trends that you've called out in that division, you know, do we need to think about a rebasing of growth in this division going forward, i.e., that it will sort of be structurally higher for longer? Or are there still some sort of short-term benefits that will roll off? Thank you.
Thank you, Annelies. I think there are three questions there. I might come back to you on the second one. Let's start with CPS. I think, as we've said, we're expecting CPS to have a challenging H1. Thinking about the fact that last year, H1 last year, we actually had a very resilient performance, so the comparables are not particularly helpful when you look at H1 this year. What is very clear to us now, Annelies, is that we need to accelerate the diversification of our CPS business, and as I mentioned in my prepared remarks, we're looking at it by sector, by service, by geography. We have made acquisitions last year. It is absolutely no secret that we're looking to continue to accelerate our M&A in this space.
We also increased our investment. We're very clear that we need to make sure that we evolve our footprint and our offering so we can actually ensure a stronger growth. What we see is Q2 this year will probably hit bottom, and we expect that the second half of the year for CPS to be more favorable because, again, the comparables are this time favorable in H2, so we expect that. We, of course, going forward, our diversification strategy should pay off. That's CPS. I believe you asked the second question on B&I, specifically B&I China. Is that correct?
To do with consumer, yes, around the more than... Because you, I think you called out double digit B&I growth in Asia. You know, giving your mix and your exposure in Asia, just around the comment around consumer, and particularly in China, what you can comment on that? Then the last question was on Marine and Offshore.
Yeah. Let me take care of M&O. Look, we had an excellent performance of M&O, as we said in Q1, we have seen there are two ways to think of the M&O performance. I think the fundamentals of the sector are very strong. It's very clear. There is a renewal of ships, and there is decarbonization targets that are basically going to push shipowners to upgrade their fleet and improve and really commit to these targets and have a plan to do it. From a build perspective, we consider that these are really good trends for a resilient build cycle for the sector.
If you look at our order book, then we have a very good baseline of growth in term of conversion of that order book backlog into growth. That is a fact. What we have seen that was a bit more exceptional were some of the catch-ups that we have seen late last year and some regulatory inspections, and if you recall, it was the ballast water inspections that were done that really boosted the revenue last year. What we see is we have seen continued exceptional surveys as people really caught up with all the delays they had throughout COVID.
We won't see as much in H2. The other thing is the comparables in H2 are going to be tougher because of the pickup we have seen in H2 last year. Structurally, I think we have a solid growth. To upgrade it to a much higher growth, I think that won't be the case, certainly not in H2. What I can say is that we are positioning ourselves on segments of the market that should grow, namely, dual propulsion systems, LNG fueled ships. We are preparing ourselves to benefit from that growth in the market. I'll let François Chabas answer on the B&I.
I think your question on B&I or the reference was trying and compare or draw a comparison between the trend of B&I and the one of CPS in China. The situation in the building infrastructure in China is, you know, vastly different. The activity has well restarted. I say we have here easier comps because Q2 last year was of course under full lockdown for construction sites. Overall, it's a double-digit growth on H1 for B&I China, and I think all the projects we are active at the moment have reopened, have restarted. The pipeline of sales is very strong. I would say we are quite optimistic for the second half in our building infrastructure activity in China.
Okay. Thank you very much.
Thank you.
Thank you. We'll move on to our next participant, Neil Tyler from Redburn. Please go ahead. Your line is open.
Yeah, good afternoon. Thank you. three for me, please. Firstly, the restructuring and impairment costs that you've booked, I wonder if you could provide a little bit more detail on the background to and progress on what specific initiatives? I think, you mentioned some of the initiatives that are taking place within CPS, but how much more is to come and any specifics on the asset impairments that you've booked, and how comfortable you are with the, you know, with what's on the balance sheet remaining?
Secondly, sticking with CPS and the comments you just made in response to Annelies's question, it sounds like, you know, you think the answer to the challenges there is sort of accelerating restructuring, but also investment. How confident are you that the returns on, you know, some of the M&A and organic investment that you need to make will be acceptable over the sort of medium to long term? Final question, specifically, that you mentioned it in the statement, I'm quite interested in the sort of opportunities that are arising from the Olympics that will take place in France in 2024. I suspect you're quite well positioned across a number of your activities to benefit from those.
Whether you've had any opportunity to frame that in terms of, you know, revenue or profit opportunity, across the group and the longevity of that opportunity, please?
Okay. Thank you, Neil, for that. I'll let François answer on the restructuring. Go ahead.
Neil, on the restructuring, it's pretty straightforward. We've done most of it. There will be very little left for H2, couple of millions, not more.
Okay.
I think I've mentioned what we're looking at, you know, the profitability by sector. It's no mystery that when you are running a lab business, if your top line goes down, you know as good as me that it falls straight downwards. I think our teams within the consumer product division have acted very rapidly. That's the margin overall was, frankly, very, very well protected. We've closed H1 at more than 20%. We've rationalized... I'm coming to your sub-questions. We've rationalized a couple of labs to concentrate the revenue on those, mainly in Asia and a bit in Europe.
Okay.
This is part of, you know, the diversification that Hinda was mentioning. On the one hand, we invest into new labs in better location. We invest through M&A. On the other hand, some legacy labs, which for whatever reason, have lost, you know, the volume they used to enjoy at some places, have been closed. It's, it's a rapid turnaround, frankly speaking, and it's been done very diligently by the team, a bit in Q4 last year and a bit, a little bit as well in so in H1 this year, as you see.
When it comes to the, I mean, the payback on those, the CPS return investment, I think we are very pleased, as Hinda mentioned, that the acquisition we've done last year will contribute to the organic growth starting H2. With, I would say the 3 acquisition we've made last year, 2 in the U.S., 1 in Europe, are actually delivering more than on plan. It's been a real pleasure to see this unfolding. When it comes to payback, frankly, no question here. The price we paid was, you know, correct, and the payback is as per standard.
Yeah, thanks, François. I think the only thing I would add to that is, at the end, we will consider investments in a very disciplined way. If you look at the diversification in the HBH space, as I mentioned, that's a vast market. It's growing well, it's very resilient. It's also a move into the upstream side, if you like, of the testing, the analytical testings. That's an area we're interested in. So we're very clear on the strategic fit, on the return, and the ability for us to really execute these M&As. On the investment side, I think it's very important, especially on the tech side, to be aligned with the evolution of technologies, of the opportunities. What we see today, human mobility is growing double-digit.
For us, it's an area of interest. We see a lot of energy-related consumer products are also an area we're looking at. So there are a number of new segments that are linked to a bit energy transition, technology evolution that are actually important. So I'm not worried on the returns like François was saying. On the final point on Olympic Games, this is already included into our financials. We don't break it down. What's important to think about for this Olympic Games, of course, we're very fortunate to be here in Paris, is there's a lot of investment by the French government and the city here to refurbish stadiums and facilities and buildings and any of the sport and leisure facilities.
Of course, there is a real renewal around accommodations here, in Paris and elsewhere, where games will take place. We are obviously very opportunistic and following up on those.
Thank you. That's very helpful.
Thank you.
Thank you. We'll move on with our next participant, Harry Martin from Bernstein. Please go ahead. Your line is open.
Yeah, thank you very much. Good afternoon, everyone. The first question, I don't think you've mentioned, but I wondered if you could give any sort of outlook for the oil and gas, renewables, related businesses into the second half. Are there any signs of softness or tougher comps in that segment, particularly? The second one is, yeah, is on CapEx. I think it's quite interesting, CapEx for sales came up to 2.6% in the first half. Yeah, and you've mentioned that in order to finance growth in the lab activities, going against many years of reductions in CapEx for sales into as you've grown in less capital-intensive areas.
I wondered if the increase is maybe a suggestion that the reduction down, all the way down to below 2% of sales was a little bit too far, and where you expect that capital intensity to reach in the medium term. Then the final question, just on the balance sheet, I mean, we're already at sub one times leverage EV. Once run at over two times of free cash flow forecast into this, it's clear that there's quite a bit of cash to deploy over time. Hinda, I wonder if you can just outline your approach to capital allocation, your attitude to your M&A in the future, shareholder returns, and what we can expect to see over time. Thank you very much.
Yeah. Thank you. Thank you, Harry, for those questions. Let me start with the oil and gas. Francois will answer on the CapEx. First of all my connections in the oil and gas sector and everything I read tells me that the international business for oil and gas is super strong. There's a real strong cycle going on. In particular, we have seen that the gas projects have really taken off, and we've been very focused on those because this is complex work, and it's an area where we are particularly good at. Frankly, as I look forward, I don't see any signs of slowdown. You will hear headlines about North America versus international, but considering our footprint, that is not really of a great impact to us.
Very positive about the oil and gas activity. We remain very disciplined, though, on that. We are mostly focused on OpEx, and we're very selective on CapEx work, and we make sure that we are really going for accretive work that we are able to execute. On the renewable side, look, I really think the outlook is quite positive. For the first time now, for every dollar spent in fossil fuels, $1.7 is spent on renewables. We are seeing a real takeoff in term of projects. We have seen recently that our Bradley Construction, which is an expert in wind farms, has really taken off in the U.S. We have a number of projects around the world.
We just secured a project in Saudi Arabia for for some renewable as well. This area is very buoyant, very busy, and we are well positioned for that. Both for the energy side, for me, the near term is quite solid. We'll let François answer on CapEx.
No worry. You know, on CapEx, by nature, we remain an asset-light business. You know, even looking at the H1 numbers, if you take the industry segment, grow more than 50%, the B&I segment grew more than 10%, certification more than 10%, M&O more than 15%. None of these segments consume more than 0.8% of the revenue in CapEx. CapEx to us is necessary in the lab businesses and only in those ones. We took some opportunities, I would say, back in the year 1920-ish, where the cost of money was very low, to go on, you know, some lease for some machines and equipment that kind of, visually a little bit reduce our CapEx number by, as per accounting standards.
I would say you should expect on a yearly basis, you know, 2.5 as being a pretty reasonable and normal level. There would be some acceleration indeed in Consumer Products. I think we are doing well in the metal and minerals and O&P business. You know, by a sense, we do remain an asset-light business, and, you know, just the portfolio we have will never get us to a 5%, 6%, or 7%. That's not possible, and that's not what we want to do. We are following our clients as best as we can. I think you had a third question on capital allocation. Am I correct?
Yes. Yes, yes, yeah.
On capital allocation, so a few changes compared to past years. As you may have seen, when it comes to return to the shareholder, we've updated our dividend policy to distribute now, and you've seen the result in July, 65% of our net, adjusted net results. We've set this policy to be able to last, not just being a, you know, a one-off. It's been calibrated. That's point A. Point B, when it comes to capital allocation, as I mentioned, CapEx, we can count on 2.5% of the revenue, by and large. M&A, we have, you know, what is necessary to move. With pipelines, we remain disciplined here.
Last but not least, when it comes to, you know, the leverage, we don't have intrinsically a leverage objective. You know, one-ish is good for us. It will be function of, you know, the M&A opportunity we can find. Here, anywhere below one and two, I think, the most important is that I can sleep well at night, and I sleep very well below two .
Maybe to add on to that, Harry, to answer fully your question is: we have made no secret in recent discussions with investors and yourselves that we want to accelerate M&A. As François pointed out, we have a healthy balance sheet, and we have room to do things. We want to remain disciplined in a sense that we want to make sure that the attributes of the targets we're looking after, we're looking at, are actually aligned with what we want. We're really looking to accelerate in markets of leadership for us. We have said that we want to expand in North America, and it continue to be a market for us, both on the B&I and industry side of things.
We have said that we want to grow in high-growth space. Renewable comes to mind. Cyber is another. Sustainability as well. We have very clear plans. I just mentioned earlier, CPS. While we didn't have specific acquisitions in H1, we are working on the pipeline. We're looking at targets, we're assessing them, and in due time, we will materialize them.
Thank you.
Thank you.
Thank you. We'll move on to our next participant, James Rose from Barclays. Please go ahead. Your line is open.
Hi. Thanks very much. I've got two, please. The first, it's been flagged on previous calls that you were seeing, and you had a very strong sales pipeline, which is visible in the results today. How is this pipeline looking now? Has it been replenished, and can we still expect good, you know, good volume growth to continue? Secondly, on margins, slightly down at constant currency, despite 9% organic growth. Is there anything beyond the consumer business to flag, which has held the group back? When we think about the second half, if consumer comes back slightly, is there reason to think the drop-through should be incrementally stronger in the second half? Thank you.
Yeah. Thank you. On the sales front, we actually are very focused on growing the pipeline of our business. We have good tools today. We installed Salesforce a few years ago. We have a real take-up. It's becoming a tool now for our sales effort. We are focusing on, also on high demand services where we have programs specifically to follow on that. All hands on deck, if you like, when it comes to the sales pipeline. I'm quite pleased with where the pipeline sits today. Our sales are at budget or above, depending on the businesses, we are doing well on the sales front.
I'm not really particularly concerned, but of course, we have to make sure that we are very sharp in key strategic markets. Let's also address the margins, perhaps.
On the margins, you know, the one issue you flagged is correct. We have, of course, a softer margin on CPS at 20, a bit more than 20%, but lower than usual. The second element is what has been mentioned on B&I, where we had, you know, a positive one-off in H1 last year that has phased out over H2. On a full-year basis, this is natural, but H1 last year was positively impacted. Now moving to H2, if you factor those two things, will be easier on the B&I front, for sure.
On industry, which is to me, the best news of H1, because industry is a large chunk of our business, we should continue to see an increased profitability. You know, we've been talking now for, I think, three quarters about the efforts taken by our operational leadership to be slightly more selective on, in the industry segment, which is related to renewable, which is related to power entity, to OpEx businesses. I think we've reached a balance, which is frankly, not bad in being able to grow fast, but at the same time to bring the margin up. We expect this to continue on H2. You know, overall, I'm not too worried for the second half when it comes to margin.
That's why we've reiterated our guidance to keep the margin stable compared to last year at constant currency. We'll see later on during the year how it evolves, you know, we are usually prudent in our guidance moving forward.
Okay. Thanks very much.
Thank you, James.
You're welcome, James.
Thank you. We'll move on to our next participant, Simon Lechipre from Stifel. Please go ahead. Your line is open.
Yes, good afternoon. Two on my side, please. First of all, on B&I in North America, could you comment a bit on the backdrop here? I think the trend slowed down a bit. What are the drivers behind this, and how should we view the outlook? Secondly, I mean, looking at your medium-term target set at the CMD, on top line, you do much better than meeting a digit, but on margin, your target was to be above 16%. You should be at 16% at constant currency this year.
My question would be, should we still expect margins to improve going forward, or should we rather focus on the absolute AUP and the pace of growth, given your focus on growing the top line and with a mix which is not really helpful for you? Thank you.
Thank you, Simon. On the B&I side, the B&I platform is, has been designed, and all our acquisitions and efforts, and investments were made to ensure we have a resilient platform there. We build this mix of businesses with exposure to CapEx, very good exposure to OpEx as well. Really, it's doing its job as we expect it to do. Our growth, I consider it resilience, resilient this year. The comparables were made. There were some businesses that there were projects that, you know, finished at some point, so you have some cycle there, a small one. Reality is I'm quite actually pleased with the resilience of the business. The interest rates haven't had, which we were watching very closely, haven't had really a negative impact.
We've seen delayed decisions, particularly on the transactional side of the business, which tends to be around real estate transactions and some of the inspection work we do there. In general, the rest of the business has held actually quite well. And I expect that as things start stabilizing in term of interest rates in the States, that even that part will recover in due time. In general, it's played its role. We continue to watch that market. We consider it a prime or premium market for us, B&I, and we continue to invest there. The other thing which I need to mention is in the U.S., is the, if you like, the new IRA, the Inflation Reduction Act, is preparing the ground for real momentum of growth in this space.
It's gonna take a bit of time. We're not gonna see the impact immediately this year, but probably in the next 18 months to two years as projects start, there will be an element of infrastructure attached to it that will be actually quite beneficial for us. That's on the on the B&I side of things. I think on the margin side, I'll let... You want to take that, Cosmo?
Yeah, sure. First, you know, when comparing the current performance with the one of, the plan that has been shared at the end of 2021, you're right, we're delivering faster on the top line front, and we deliver the 16% floor we've promised upon. I think this plan will set up on two element. It's not, you know, a three year plan that says in three years, this is what we're gonna achieve. It's a plan that say each and every year, we'll at least achieve 5% and 16%. Happy on the top line, bottom line has been delivered.
you know, at the end of the day, I'm always sometimes surprised that in this call there is so little ask about the what, at the end of the day, the value creation for the company, which is the adjusted EPS. I think more and more, this company, what drive our decisions is that the ultimate impact on the EPS. We've tried, you know, step by step, quarter after quarter, to build a trajectory on the growth front. Maintain the trajectory on the margin front, and start to build a trajectory, and I recognize it's early in the story of recent history of Bureau Veritas. We are, you know, since 2019, step by step, starting to build a story on the EPS front. So it's early days.
I think there is still a lot to do. H1 results are in the right direction. I think we'll talk more and more about, you know, the bottom line EPS contribution, which we believe is what matters for shareholders.
Yeah.
Thank you.
Thanks, Simon.
You're welcome.
Thank you. We'll move on with our next participant, Arthur Truslove from Citi. Please go ahead, your line is open.
Good afternoon. Thank you very much for taking my questions. Sorry if I missed the answer to this one, but just, if I look at the restructuring and the impairment again, I remember, in 2022, the majority or a lot of that related to Consumer Products in China. I wasn't sure from your previous answer whether that was the case once again in the first half of this year. I just wondered if you could confirm whether or not...
Yeah
that was the case. The second question I had, related to depreciation and amortization. If I strip out the acquisition amortization and the impairment, it looks like underlying D&A is around EUR 10 million below the previous year in the first half. I just wondered if you could provide some detail as to how that came about. Then, I guess my final question, really, clearly, your industry division did very, very well. It seems to have, you know, materially outperformed your major competitor that reported the other day. I just wondered if you could sort of talk about, you know, what you're doing right there that's enabling you to outperform your competitors. Thank you.
Yeah. Thank you. François, you want to take the question, the finance question?
Yeah, sure. On the restructuring, just to be very precise, you're right. Good chunk was done in 22 was China, a little bit of 2023 was China again, and rationalization of our European footprint. That's kind of close to all restructuring we had to do on CPS, as I mentioned, most of it is done now and delivered. China, most of China in 2022, 2023, China/Europe. That's A. B, on depreciation and amortization, I'm keen to see you are a precise readers of our financial statements. I don't want to deprive you from the right level of information, I recommend you contact our investor relations team that will give you more details about it, so that you can refine your model.
When it comes to the margin of industry, do you want me to.
I will. It's more about the business, I guess, not only the margin, I'm assuming there, Art, right? Did you wanna clarify? You were asking in general about the business-
Yeah. Exactly.
Yeah.
Yeah, I mean, you've outperformed-
Okay. Yeah.
From an organic growth perspective, yeah, it just looks like it's gone very well. I just wondered what you were doing better?
Yeah
than your competition.
Yeah, yeah. No, no worries. Thank you. Look, I think it's good to understand really what's our position in the industry space. We've always been a strong player, an expert player in the energy system and started with oil and gas, and it's an area, even if we pivoted from it and we diversified in the company, we retained a lot of the expertise. That expertise, we further augmented now with expertise in the renewables space, and we are not going into just one space. We're looking at wind, at solar, we're looking now at hydrogen, we're looking at auxiliary systems, energy storage systems.
We're really expanding, we're investing into the capabilities for the industry, and and really, we're making sure that we're leveraging also our global footprint, specifically to accompany, if you will, you like, the build cycle that is going on right now. You have the build cycle on the on the low-carbon energy system, and that includes also nuclear, and we have capabilities on all these. We have excellent expertise, we have a global footprint, and we have a brand recognition across all the players in this sector. Where we don't have that brand recognition or a footprint, we have made acquisitions. We bought Bradley, as I mentioned, in the West, and we continue to scout the markets to find other capabilities that we need.
For us, this industry space is in many way our legitimate playground, and it's something we want to develop. I'm quite pleased with the performance, of course.
Sure.
We've seen double-digit growth on the renewable side specifically. We'll continue with that. Of course, the other thing which is important is our history around M&O capabilities, our Marine & Offshore capabilities in term of floating capabilities, and we are seeing now growth in floating wind farms. That's an additional differentiation that some others maybe don't have. We're very committed to this space, and we'll continue to invest in it.
Great. Thank you very much.
Thank you. I think we are looking at.
Thank.
Yeah, go ahead, please, Priscilla.
A ll right. We'll move on with Karl Green from RBC. Please go ahead. Your line is open.
Yeah, thanks very much. Just two remaining questions from me, please. First one, for François, quite straightforwardly. Obviously, interest income in the first half was up materially on the back of rising interest rates. Just thinking about the second half, given that you should see the seasonal working capital inflows, a good cash generation, and arguably an annualization of higher interest rates, what sort of interest income number are you looking at, budgeting for the second half? That's the first question. The second question, sort of more broadly for the team, just on M&A. I mean, clearly, you've said you would like to accelerate work and activity there. I mean, how confident are you that you can actually do that on a 12-18 month view versus, say, six months ago?
I think one of your bigger competitors seems to be quite confident they can actually get the execution through, you know, more clearly over the next 12 to 18 months. Just any further color you can add there? Thanks.
Yes, thank you. I'll take the second question, and then I'll let François address the interest rates. Look, our intentions are very clear, and the work we're doing are also very clear. We would like to accelerate. We have the capability, the financial capabilities for it, and we know what markets we want to go after. It's a matter then now of really assessing the opportunities we find or the targets we find, and making sure that we can actually find a path to secure them. We're hard at work, if you like, Karl, on that, and our intention is to try to accelerate and to within a timeframe that makes sense in the near term. This is not a very, very long term.
In the near term, we would like to do that. I can't really tell you more than that, and we'll have to show you in the future.
Understood. Thanks.
Coming back to your point, I think where you're making a wise assumptions about, you know, the usual influx of cash coming or seasonally over H2 mainly. You should not, however, underestimate the fact that we've paid dividends in July, and these dividends were actually 45% higher than the year before. We're very pleased about it, and I'm sure shareholders are. We have a little bit of, you know, it's a dual equation to manage, a bit less central cash, higher interest rates. However, this being said, we have a really an ironclad discipline in this company when it comes to cash centralization, and believe me, when you operate in a 140 country, you better have it.
We are very, very proud of being able to really centralize each and every EUR and make the best use of it. What we see today, you know, in terms of net financial costs, if the high rates environment stays around us, and if we don't have, you know, major M&A coming in, the net financial cost at, you know, current scope, say, without transformational M&A whatsoever, should be around EUR 60 million-ish on a full year basis, which, you know, allows us to get a bit of a kick in the EPS.
Great. Thanks for the clarification.
You're welcome.
Thank you, Karl.
Thank you. We'll have our last question from Geoffroy Michalet from ODDO BHF. Please go ahead. Your line is open.
Yes. Hello, thank you for taking the question. Just one from me. I was wondering in the industry division, if it is fair to assume that the pricing component is probably superior to other division, given the scarcity of resource, i.e, the people, the qualified people in this sector, meaning that going forward, the more contract you, the more demand there will be, the more pricing power will the company have for those who have the people? Thank you.
Yes, thank you, Jocelyn. I don't know that I will compare it to other divisions. I think what's important here is having the capabilities at the right place and at the right time is definitely a very good competitive position to be in, and that's why we're very busy augmenting the capabilities in our technical centers around the world. Does that give us some price advantage? Absolutely, and that's what we want to bank on. At the same time, it's a busy space, and there is a lot of interest from others, of course. Our ability to find the right targets to expand in the right markets is going to be very important.
Okay. Thank you.
Thank you. Okay. Thank you very much.
Yes, because it appears there is no more further questions, please go ahead with your, additional or closing remarks. Thank you.
Yes, thank you very much. Thank you everyone for your questions. Thanks, Priscilla.
Thank you, everyone. You may now disconnect. Have a great day ahead.
Bye-bye.