Earnings Call: H1 2021

Jul 30, 2021

Hello, and welcome to the Intertek 2021 Half Year Results Call. My name is Rosie, and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. I will now hand you over to Andre Lacroix to begin today's conference. Thank you. Good morning to you all, and thanks for joining us on the call following the release of our H1 results a few moments ago. I have with me Joachim Timis, our CFO And Denis Moreau, our VP of Investor Relations. I'd like to start our call today by recognizing all of my colleagues in all of our countries around the world For a very commendable performance in H1 with strong revenue, earnings, cash and ROIC metrics as you've seen already. We are on track to deliver a strong 2021 with robust like for like revenue growth, year on year margin progression and a strong free cash flow, Notwithstanding, of course, the lockdown restrictions in several of the markets impacting supply chain and mobility in our various operations. There is essentially 5 key messages for all of us today. First, we are a global industry leader with scale position in a very exciting industry Debt is expected to grow faster post COVID-nineteen. We are very customer centric as Intertek and our superior Epic customer service Gives our Intertek clients really an advantage as they operate around the world. We are investing in global and local innovations as well as acquisition To see the attractive growth opportunities in high margin segment, we continue to be laser focused on operational excellence to drive consistent margin accretiverevenuegrowth Over the years, with strong cash generation and disciplined capital allocation to deliver, of course, a superior return on invested capital. And as you know, we operate a high quality earnings model, which has a track record of delivering sustainable value creation for all of our stakeholders. So let's start with our performance highlights. I'm really pleased with our results. We've delivered a strong performance in revenue, earnings, cash and ROIC. This demonstrates the strength of our business model, our geographic and business line diversities, our disciplined approach to performance management And of course, our strongly cash narrative earnings model. Specifically, in the 1st 6 months of the year, group revenue was £1,217,600,000, Up 4.8% at constant currency, like for like revenue was up 5.8%, operating profit It was $201,700,000 up 26 percent and operating margin at 15.3% was up 260 basis points Year on year at constant currency. Our highly cash generative business model delivered a very strong cash conversion of 100 and 35%, benefiting from a continuous reduction in working capital. And as I said, our return on invested capital was very strong at 23.4 percent up year on year by 360 basis points and we have announced an unchanged interim dividend of 34.2p. So let's now look at our performance at the high level by division. Our product and trade divisions combined delivered together Like for like revenue growth of 7.4 percent and operating profit growth of 26% and margin accretion of 2 Our high quality product portfolio had a really strong performance with like for like revenue up 9.7% The margin of 20.9%, up 3.90 basis points year on year. Our trade business delivered a solid like for like revenue performance of 1.1 percent, a margin of 7.2%, up 50 basis points year on year. And as expected, our Resources business delivered a resilient performance With a like for like revenue slightly down year on year, minus 1.6% and a margin of 4.9%, slightly down year on year by 60 basis points. We continue to invest in growth and recently we've announced 2 acquisitions in attractive markets for InteTek. First, we are really excited about the acquisition of SEI Global Assurance. The IT industry is expected to grow faster. Moving forward, Assurance is High growth and high margin service and is mission critical for our clients when they try to address their increased risks in their operations. These acquisitions will scale up our global assurance offering with a high quality business run by a highly respected management team and the acquisition is deliver attractive financial return to our shareholders. Specifically, the strategic fit of SEI Global Assurance With our Intertek portfolio is excellent from a geographic standpoint as we will strengthen our scale position in attractive growth markets, especially for sustainability. Specifically post acquisition we'll have a stronger market position in Australia, the U. S, Canada, the U. K. And China. The strategic fit of SI Global Assurance from a service standpoint is also excellent and we're going to get access to additional services in high growth sectors like food, Agriculture, quick service restaurant, sustainability and global market access. Last week, we announced the acquisition of GLA To enter the fast growing food market in Brazil, GLA was established in 1990 and is a food, agri and environmental testing business With an excellent track record of organic expansion, as you know the demand for food and beverage testing solutions has accelerated in recent years As global supply chains become more complex, the importance of hygiene and safety increases and consumers demand more sustainable and healthier products. The acquisition of GLA expands our food and agri capability, and we're entering the food testing market in Brazil. And you know that Brazil is one of the largest Quarter of agri food products in a world with tremendous growth opportunities moving forward. Cash management remains a high priority for us, We've continued to make progress on working capital. If you had asked me a few years ago, could we take our working capital as well as these, I would Probably not, but this is the power of the Intertek team in actions and operating process. Look at our percentage of Revenue in terms of working capital, incredible. Our cash conversion was 135%, our cash generated from operation was £253,000,000 our adjusted free cash flow was £122,000,000 Our balance sheet is super strong with a financial net debt of £435,000,000 And a net debt to EBITDA ratio of 0.7. I will now hand over to Jonathan, who will take us through our detailed H1 results. Over to you, Jonathan. Thank you, Andre, and good morning, everybody. In summary, in the first half of twenty twenty one, the group delivered robust revenue Growth and Double digit Profit and EPS Growth. Total revenue growth was 4.8% at constant currency, but down 1% at actual rates As FX translation negatively impacted our revenue by 580 basis points, driven by depreciation of sterling, Like for like revenue grew 5.8 percent at constant rates. Operating profit at constant rates was 26.2% $201,700,000 delivering a year on year margin improvement of 260 basis points. Overall, fully diluted EPS grew 31 percent to 78.2p at constant rates. Looking more closely at the operating margin bridge, The group operating margin grew 260 basis points at constant rates. Products delivered a strong operating profit margin of 20.9% And accounted for 220 basis points of group growth. Trade margin grew 7.2% And contributed 10 basis points to the year on year change. While a decline in operating profit in Resources to 4.9% Had a negative 10 basis points year on year effect. Divisional mix had a positive 40 basis points contribution given the strong growth in products. Finally, FX had a positive 10 basis points impact on the group margin. Our disciplined focus on cash management continued during the first half of the year. The group delivered adjusted free cash flow of 122,600,000 Representing a cash conversion of 135% on an annualized basis. While cash generation was down year on year, in the first half of twenty twenty, The group benefited from some government subsidies and cash preservation initiatives to offset the impact of COVID-nineteen. During the first half of this year, we invested $40,000,000 Up 18% versus prior year. We finished the first half with financial net debt of 435,000,000 Which is down a third year on year. Now turning to our financial guidance for 2021. Assuming the group's acquisition of SAI Global Assurance closes on the 1st September 2021, we expect net finance costs for the full year to be in the range of £29,000,000 £33,000,000 We continue to expect our full year effective tax rate to be between 26.5% 27%, Our minority interest to be between $17,000,000 $19,000,000 and CapEx investment to be in the range of $110,000,000 to $120,000,000 Our financial net debt guidance before any material change in FX rates or M and A remained $350,000,000 to 400,000,000 Including the impact of the SAI Global Assurance acquisition, we expect net debt at the year end to be between $835,000,000 $885,000,000 I'll now hand back to Andre. Thank you, Jonathan. And let's now discuss our divisional performance. As always, and unless Stated otherwise, all my comments will be at constant currency. Our Products division delivered a strong performance, as I said earlier, with revenue of 8 £20,000,000 and a like for like performance of 9.7 percent. We delivered an adjusted operating profit of £1 100 £71,000,000 up year on year by 32.5 percent, our margin was 20.9%, up 390 basis points. If you look at all the individual businesses, we delivered double digit like for like revenue growth in 6 of our 8 businesses. Softline and Highline business benefited from the improved trading conditions for retailers in North America and Europe as well as from the continuous growth in e commerce and high demand For sustainable products, electrical and connected worlds saw increased demand for higher regulatory standards in energy efficiency, Strong growth in testing and certification of medical devices, the increased testing requirements for 5 gs, greater corporate focus on cybersecurity and tremendous growth with ProTech Related Medical Device. In Business Assurance, we benefited from a catch up of our clients in ISO audit And increased investment in supply chain resilience. Also, we see continued strong demand in our operations for all of our sustainability solutions. ESGO did operational sustainable solutions and of course, corporate certification. Growth in our food business reflects The high level of food safety testing and a stronger demand for hygiene and safety audits in factories, hospitals and retail locations. Our Chemicals and Pharma business benefited from greater focus on regulatory assurance and chemical testing as well as from higher R and D investments by the pharma industry. 2 of our businesses, Dealer, Lincoln and Constructions and Transportation Technology reported revenue declines, reflecting The negative impact of the weather event in Texas earlier this year and the low level of testing activities from OEMs in the automotive industry. Looking ahead for 2021, we expect our product division to deliver robust like for like revenue growth. Turning now to trade, Which David, a solid performance in H1. Revenue was £278,000,000 up 1.1%. Adjusted operating profit Increased by 8.6 percent and operating margin was 7.2%, up 50 basis points year on year. CALIBREIT as expected was down low single digits. We are seeing a gradual recovery of global mobility, although we are still below the pre COVID-nineteen level, Well, of course, our North American business was affected by the weather event in Texas. Our GTS and agri world businesses delivered a robust like for like GTS benefits from the growth in trade flow in both Africa and the Middle East and agri world continue to see increased demand For inspection activities, we are upgrading our expectations for our trade divisions, which represent circa 10% of our earnings, and we expect To deliver good like for like revenue in 2021. Our Resources division benefited from the strength of our business model and helping us deliver A resilient performance. Our reported revenue was £220,000,000 slightly down year on year by 1.6%. Adjusted operating profit was $11,000,000 down 13% and our margin at 4.9% was down 60 basis points. CapEx inspection revenue declined low single digit, although we saw an improvement in momentum in the first half compared to the second half of 2020. OpEx inspection revenues were stable. The impact of lockdown restriction in the 1st 4 months of the year As well as the savings of our clients were offset by strong catch up in inspections in the May June period. We delivered a good revenue performance in our Minerals Business reflecting the increased demand for testing and inspection services in all of our minerals operation. We are upgrading our expectations for our resource divisions which represent 5 And we expect to deliver good like for like revenue growth in 2021. I'd like now to move forward and talk about The industry and how we see the exciting growth opportunities moving forward for all of us. As you know, the total value of the global quality assurance market $250,000,000,000 only $50,000,000,000 of this is outsourced. Given the increased complexity in global corporations, we companies to continue to invest in new quality assurance areas to mitigate emerging risk in their supply chain. These are what we call untapped quality And indeed COVID-nineteen has demonstrated there were major risks in the operations of our clients, which were not properly mitigated. And we expect the increased focus in quality assurance essentially in 3 areas moving forward, safer supply chain, better personal safety and sustainability. And this is why the industry is expected to grow faster post COVID-nineteen. As you know, over the years, we've seen clients increase their focus on Risk management and supply chains trying to provide higher quality safety and sustainability standards to their clients. We have evolved our value proposition from TIC to ATIC to offer an end to end risk paid quality assurance with our ATIC solutions. COVID-nineteen from our perspective has made the case for total quality assurance, clearer and moving forward all stakeholders expect governments, corporations To build back a much better world with a sharper focus on end to end quality assurance and the ATIC solution we offer to our clients are mission critical to help corporations and our clients Build stronger supply chain. We are uniquely positioned to benefit from the expected growth and acceleration in the industry. An important point, we are very customer centric at Intertek and our colleagues operate with industry leading technical expertise in their field. Based on the feedback we get from clients, we never stop reinventing ourselves to make sure we deliver our customer promise every day ever better. That's how we deliver superior customer service, which gives our clients an advantage when they operate around the world. And our clients have learned a lot during COVID-nineteen and based on the recent government survey that I mentioned last time we talked, 87% of companies will invest Over the next 2 years to strengthen the supply chain. Since our last call, we've talked to about 1500 of our clients To better understand what they mean with these investments and here's what they told us. They need to make their supply chain more resilient 20 fourseven. We know, we are still seeing some short range in supply all over the world at the moment. They need to meet higher operational and corporate And with the expectations from all, we know that sustainability is the movement of our time. They must operate with risk based quality assurance powered by big data. This is what ATIC is all about, giving our clients the end to end analytics to understand where the risks in the operations are And what they need to do for a testing inspection certification? They need to ensure health, safety and well-being for employees and consumers. COVID-nineteen has raised the bar for health and safety in public and factories and workplaces forever. And they face, as we all know, higher operational complexity, which is driven by the explosion of e commerce and of course, the ever faster innovation cycle. That's why we are so focused at Intertek on innovation to meet these emerging needs of our clients. And we invest essentially in 3 types of innovation. First, we always build on the strength of existing services, which we call innovation from the core. Then we look at new products and services in adjacent fast growing high margin And of course, we look at breakthrough products and services to enter new markets. In the last few years, we've shared with you some of our new ATIC solutions like PSA, Crotec, Inlight, Carbon Clear, these are what we call the 1 to 100 innovations, which after having proved their potential in a few markets And I'm being scaled up around the world with our commercial teams. I'm very pleased with the progress we are making with the scale up of these activities every day. But we don't stop here. We constantly look at opportunities to invest in new growth opportunities in high margin sector. The world never stops changing, Now stop moving. We can see on the slide some of the recent innovations that we have launched in our key markets and business lines. These are very To drive sustainable value creation for all of our shareholders and stakeholders, we remain very focused On operational excellence, our track record of consistent performance delivery is enabled by industry leading processes and tools That are available to all of our employees. Just to name a few, our performance management approach is based on leading and lagging indicators. The insights we get from our 6,000 plus NPS survey every month are incredible. This is what helps us to get ever better in terms of superior customer service. Our incentive system is aligned with the interest of our shareholders. We offer the opportunity for our people to grow within Intertek and use our global learning platform. I don't know if you know that, but our nickname in the industry is ITS, the International Training School. Our engagement activities are purpose led and we focus On sustainability excellence throughout the organization, we want of course to lead by example in the terms of sustainability. Another very important part of our approach to value creation is of course how we look at capital allocation and we believe In accretive, disciplined capital allocations to do that, we focus on 4 priorities. 1st is to support the organic growth of our business through capital Investment in working capital, offering new services and developing clients' relationship. The second is to deliver sustainable returns for our shareholders Through the payment of a progressive business policy, the third is to pursue M and A activities that strengthen our portfolio in attractive growth and margin areas Provided of course we can deliver superior returns and of course priority is to maintain an efficient balance sheet to give us the flexibility to invest in growth. We are very proud of our high quality earnings model. Our high quality earnings model combined with our customer centric culture enable us To react quickly to new growth opportunities by following the supply chain of our customers in new market, Intertek's approach to value creation is based on the compounding effect Year after year of margin equity revenue growth, strong cash generation and disciplined investment in growth. Let's now discuss the outlook. On this slide, we are showing the like for like revenue progression of the group and of 3 divisions In the last 4 months, we've benefited from a broad based like for like revenue acceleration, as you can see. In May June, our like for like revenue was up 12%, product was up 13.9%, trade was up 8.5% and resources was up 9.5%. For the full year, we are confident that the group will deliver robust like for like revenue growth, notwithstanding the continued lockdown restrictions in We expect the product divisions to deliver robust like for like revenue growth with trade and resources both We expect margin progression year on year and a strong free cash flow. An update on currencies for your model Based on the year to date performance and the average rates in the last few months, the average rate applied to the full year results would reduce our revenue and earnings by circa Let's look at the mid to long term potential of the industry. We operate in a very The like for like revenue growth outlook for Quality Assurance is GDP plus We expect products that represent 85% of the group's earnings to grow ahead Our GDP benefiting from brand and SKU expansion, faster innovation cycle, increased demand for smart products and an increased focus of course of corporations Safety, quality and sustainability. We expect our trade divisions that represent 10% of the group earnings to grow at a rate broadly similar to GDP through the cycle, Benefiting from the development of regional and global freight as well as from the increased focus, of course, on flexibility and sustainability. The growth prospects in our Resource division should present 5% of our earnings are really exciting, giving the growth drivers in the energy sector. Investment in exploration and production for essential resources like oil and minerals will continue to grow to meet the demand of the growing population. In addition, our resource business will benefit from the portfolio diversification of our clients as they focus on renewables and invest also in sustainability. Finally, we expect our corporate assurance activities, which are industry agnostic, to remain our fastest growing service, Given the growing importance of risk based quality assurance, the increased regulation, the increased importance of health and safety, the growth in people assurance and of course, The corporate investment in supply intelligence, cybersecurity and last but not least, sustainability. So in conclusion and moving forward, We are well positioned to benefit from the growth acceleration in our industry. We are seeing emerging risk in the supply chain of our clients, Which will have to be mitigated, and that's why the industry will accelerate. We are a global industry leader with scale position in our portfolio, and our epic Superior customer service gives our clients the total quality assurance advantage they need. We're investing in innovation and acquisitions targeting the high growth and high margin segments. We remain laser focused on operational excellence to drive consistent margin accretive revenue growth with strong cash generation and disciplined capital allocations To deliver a superior return on investment. We operate a high quality earning model, which has, as you know, the track record of delivering sustainable value creation for all. So thanks for your attention today, and we're ready to take any questions you have. And the first question comes from the line of Simon Lachipa from Stifel. Please go ahead. Yes. Good morning. Three questions, please. First of all, looking to products, could you come back on the different moving parts of your margin performance In H1, please. I see the material year on year improvement, but I'm still a bit surprised to see you are 80 bps below H1 'nineteen despite the positive mix Within the division? And so one is still on product. The robust guidance implies basically no acceleration in H2 on a 2 year view. Does that reflect some conservatism given the uncertainties? And if you could help us understand the key moving parts you have in mind for H2. And lastly, on margins at the group level, how should we think about H2? If you could give us some details on the drivers we need to have in mind when we think about Okay. Well, look, thanks for your questions, and appreciate The time you spend on our results. Look, in terms of product, look, we are really pleased with the progress we've made. I've talked about The various business lines, there is a lot of details in the R and S. We are not giving any specifics on margin by Business line that's not something that we do at Intertek. I can tell you that wouldn't be able to deliver that kind of margin without progression On all of the important business lines of Intertek. And you're right that products is from a like for like revenue growth Back in line with 2019 and the margin is slightly below. I think what you have to factor into your model, of course, is that there is a bit of inflation, not a lot, The compounding effect over 2 years creates a little delta in margin, but I'm not really worried about it. And as far as The H2 margin is a great question. If you look at the history of the group, we typically have a stronger H2 than H1 in terms of Margin, because we have a higher revenue level and therefore higher operating leverage. The second thing I would say when you look at it, we've disclosed last year The incremental government subsidies that the group got in H1 and H2, so please have that in mind when you look at your model. But as I said, we expect margin progression year on year. Thank you. The next question comes from the line of Oscar Wao from JPMorgan. Please go ahead. Yes. Good morning, Andre and Jonathan. I have three questions. The first one on organic growth, you've upgraded your guidance, in particular, for Trade and Resources. First of all, in Trade, could you comment What has gotten better compared to when you gave the guidance in May and how much forward visibility you have into this recovery? And then similarly in resources, Could you help us understand if the impact in H1 was more from mobility restrictions or if it was more from lower CapEx and OpEx spending? When do you think We'll see a trough in this CapEx spending in oil and gas. That's the first question. And then secondly, coming Back on margin, I appreciate you don't give H2 guidance, but could you help us understand if there's any one off impact in H1 From things like the U. S. Weather? And then kind of a different way to think about it is, if trade and resources is back to 2019 levels, Is there any reason why the margin can't be back to 2019 levels? And then the third question is around wage inflation and pricing. Okay. You touched on it in the first question, but could you comment on how you tend to offset wage inflation in the business? Okay. Sure. So I'm going to try to work them work your questions 1 by 1. Let me just First start with the last question on inflation. So when you think about the Intertek business, we are essentially a people business, As you know, so for us inflation on costs is essentially driven by wage inflations. Of course, we have our own policy and we increase our wage every year according to what's required in the market to be a very good employer. And you can imagine that this is a Bit different by country, but this is something we do every single year. The way we look at inflation Our business in terms of cost and how we pass it to our customers is very simple. We try to basically pass 50% of the inflation To our clients and 50% through proactivities, this is how we offset it. We basically have experienced, as you know, in High inflationary environment because we've been operating in all of these markets for many years. So this is something that we do regularly. One thing that I would say, and this is why you're not seeing much Inflation in our cost base and that's why if you look at our margin ex the government subsidies in the first half of last year, the incremental progress It's significant. As you remember, when we dealt with COVID-nineteen last year, I was reluctant to do a blanket restructuring and reduce the cost Because I always thought that COVID-nineteen was temporary. So we have kept all capability broadly intact in terms of delivery for our clients. And therefore, we have not had Go into the market if you want and have to hire a lot of people at potentially higher wage, would there be any wage inflationary pressures in this market? So that's the way I would answer your question on inflation. I hope that's okay. As far as the organic growth In trade and resources, look, as you know, COVID-nineteen is still affecting The supply chain and the mobility around the world. Evidently, we are making great progress in many parts of the world and we've seen An acceleration in terms of performance in the 7th part of H1 in all of our trade businesses. And that's why we are more confident in the second half that we were a few months ago given the progress that COVID-nineteen is making. Now As far as the bigger of the 3 businesses, which is Cadence Burette, we are essentially the global leaders in oil and gas And we find products inspection and testing and we are very much linked to the global mobility. So what we're seeing at the moment is increased mobility Not everywhere, but in many parts of the world and we expect to benefit from that in the second half. At the moment, we are still pre COVID-nineteen and you know that the global demand for oil is around 5 And below what it was pre COVID-nineteen, and this is Q2. Q1, obviously, was lower than that, but the outlook is favorable. As far as resource is concerned, we are pleased with the May June performance. We Continue to see some really good demand in minerals and a bit of acceleration if I could say. And the business that did better in the second part of H1 Well, the OpEx inspections, as you know, this is a relatively small business for Intertek, but we benefited from a lot of turn on operations, which means our clients Had to invest in operational inspections. As far as the main business within Resource, which is our Moody business, which is CapEx inspection, There is no question that we saw a reduction of investment in exploration production from our clients given what happened to their cash flow last year. But as you know, The financials of our oil and gas clients have improved significantly with the oil price and they are obviously starting to plan ahead And we expect an increase of investments moving forward in exploration production. That's why we expect a better second half. The oil price progression has had a major impact, of course, on the P and L and gas flow of oil and gas companies in the first half Of this year as you've seen. As far as your question on margin, look, as you know, we do not give Any quantitative guidance in terms of margin? There is no question that we are very focused on margin accretive revenue goals with strong cash generation. We try Strike the right balance. Like everyone, we want to go back to 2019 and beyond, but this is obviously something that we're going to manage just ahead of time and We will monitor and communicate accordingly. Look, we have tremendous operating systems in terms of margin management. You would recall The margin progression that we have benefited from between 2015 2019 and have not worry at all on our ability to continue to make progress. But Sorry for that. We don't give constructive guidance as a policy. Thank you. That's fine. Thank you very much, Andre. Very clear. The next question comes from the line of Paul Sullivan from Barclays. Please go ahead. Yes. Good morning, everyone. I mean, just to sort of lay the point on margin. Can you tell us sort of what happened to the drop Through right in the first half, as the recovery margin certainly looks light across the board versus sort of consensus in my expectations. Is there a message on phasing or investment that we should be aware of? And then for the full year, Yes, forgive me. The difference between accretion and progression, is there a subtle change in margin guidance there? And are you willing Okay. Paul, first of all, I have to say that I have a lot of sympathy for you and your colleagues because it's super difficult to build the model when a company like Intertek doesn't give consolidated guidance, and I really appreciate all of that. So I feel how difficult it is for you and what you have to deal with your car. So I just wanted to say that upfront, as you know, I have the highest respect for what you do in the industry. Look, In terms of margin, we disclose what we disclose. We are really pleased, as I said, with the performance that we have made. If you look at the product And then trade, the resource was a bit down. I don't know how you did your model splitting H1 and H2. You certainly didn't get any information from me. So I can tell you that from our own internal model at Intertek, we are on track versus our own internal expectations. And there is No difference in terms of guidance between progression and accretion. And sorry for that, we'll Have to check the progress moving forward. And I have to say that that's what I'm going to say. Sorry, I cannot be more helpful than that, but you're pro and you know the industry very well. So I'm sure you will figure it out. And you know that we have had investments in the business Over the years, we continue to do so, so that there is no difference here. And we had these subsidies in H1 and H2 last year. Okay. I think that's very clear. Thank you. And June are you prepared to provide June exit rate? Could the others have? Yes, we're going to be different here. I don't think it's that important. Sorry to frustrate you. Sorry, sorry. Look, I mean, look, I've given more disclosures on May June this time around. So I hope you appreciate the effort. Sorry to be pathetic, but working days was a slight drag in sort of January to Was that did that reverse out in May, June at all? Well, I mean, if you look at another working guess for H1 It's just like, indeed, it's too sorry for us, right? Okay. Thank you. Thank you, Paul. The next question comes from the line of Annalise Vermeulen from Morgan Stanley. Please go ahead. Hi, good morning. Just two questions left for me, please. So firstly, I know you talked a lot about cost inflation and so on, but specifically on labor, I understand your ability to pass on The wage inflation is going to the customers, but are you seeing any issues in any markets with labor shortages or difficulty in rehiring People in areas that were weaker last year, any comments on that? And how you are managing that if that's And how you expect that to develop over the second half? And then just secondly, we've talked a lot today about the growth in Assurant And how you expect that to grow relative to the rest of your business? Are you able to quantify that at all in terms of How to what extent you the growth level that you expect from that business and how you expect that to accelerate over This year and next year and so on, any color on that would be helpful. Thank you. Yes. Thanks. And look, really, really good questions. I mean the answer to labor shortage and impact preventing us to hire The colleague that we need, is it an issue at Intertek? The answer is no. And why? It's because last year, as I was trying to explain a few moments ago, We made the decisions to keep our capability intact because we recognize that COVID-nineteen was a temporary issue and we didn't want to lose Any capability, as you know, we are a people based business, very specialized workforce, PhD scientists, and To basically reduce our capability and then start hiring again was going to be very costly and not the right thing from a customer service standpoint. So Look, we are not seeing any issue with shortage of labor because We have to hire. We do it all the time, but we don't have a huge gap in our capability issue given where the market And as far as Assurance is concerned, look, if you look at the track record of the company, Assurance has always been the fastest Service in terms of growth at Intertek, we've disclosed it from time to time and we will do it of course in the future. We do that every few years. And maybe to help you think about it and if you think about GDP plus being the growth outlook mid- to long term for the group, I think of Assurance as GDP plus plus if you want. Okay. That's helpful. Thank you very much. You're welcome. The next question comes from the line of Rajesh Kumar from HSBC. Please go ahead. Good morning. The first question is on the product margin. Basically, appreciate that revenues are back to 2019 levels. But Clearly, looking through the details of sub segments like Softline, Hardline, Toys, the mix is Likely to be different now compared to what it was in 2019. So could you help us Help us with some idea of how much the mix impacted the margin positively or negatively. That would Help us understand one of the moving parts. The second question is reflecting on the comment you made earlier about wage inflation. I appreciate that you held on to your cost base and staff At a difficult time, and it potentially is giving you some dividends now in terms of Lower cost inflation. But as the markets open, you would imagine that the churn goes up because Greater opportunities come in the market. So sooner or later, some of the wage inflation is likely to seep through And your peers' businesses. So how are you thinking in terms of the pricing power In the market at the moment, can you go to the clients and argue for a higher price point? Or is that some As you said, you can only eat 50% of the prices and the 50% you'll have to find in productivity. As in can that equation change now given that rate inflation is much higher? And The third one is on basically, when you talk about the restart activities like Helping the hospitality sector and some of those, clearly, some of that growth is Shorter duration, but then you are also talking about growth from reviving of supply chain or carbon Ratings and things like that. So that's longer duration. So can you give us a sense of how much of your first half growth was a flush of Backed up demand and how much of it you see as a recurring growth in the medium term? So the line got cut off a bit from my side for your last question. Do you mind repeating it? So I'll say Yes. How much of your growth is Flush of factored demand in the first half versus long term recurring revenue potential. Okay. Great. So look, in terms of your first question On product, look, as I said to your colleague asking a similar question, Product is back to the 2019 level. The margin is slightly below. It's not a mix effect. It's essentially When you look at 2 year compounded in aggregate, you've got a bit of cost inflation. And to deliver margin accretion, you need to basically Deliver growth ahead of your 2019 revenue level. So that's as simple as that. And all the businesses that has grown double digit In the first half, as I mentioned earlier, they grew well in terms of margin and I appreciate your question on the mix, But I don't think there is a mix, no factor or worry here to have in mind. As far as the Inflation is concerned and I understand your point about it could change. And your question on pricing power is really good. How do we Well, first of all, we have very discipline from a pricing standpoint. We've always been, it's nothing new. And as I said, when I got the question in the past, I would rather have good revenue growth, which She's volume with good price then slightly better revenue growth with lower price and higher volume. I'm not saying that we're not commercial and sometimes we don't negotiate. Of course, we do because we are a scale operation. But the way we track our pricing, I can assure you that we've got a very strong pricing power and the revenue growth that we delivered is both volume and And price. And Halt, your question is how do you drive price in our industry? Well, it's essentially through upsell. And when you sell higher services, you basically increase the ticket price for the client and you obviously get Hi, Martin from your operating base. Of course, when you negotiate new services, you take Into consideration all factors and one of the key area of pricing is innovation and that's why we are so focused On margin accretive innovation, because at the end of the day, there are new risks and supply chain of our plants, they need new solutions. And if you got a good innovation and they're willing to pay for it, then it's got to be margin accretive. So we are very disciplined in terms of innovation and we talk internally about margin Pretty innovation of course. As far as your question on the revenue growth we are seeing catch up versus structural demand. Look, I mean the only real Catch up area that we have seen so far has been on ISO audit because some of our clients had the opportunity to do their ISO A bit later, which they didn't do in 2020. And as I said, in our OpEx business, otherwise, All of the growth that we are seeing is structural based on structural growth drivers. And as I said, the outlook for the industry is looking very, very good. And on the mix point, clearly, if I look at the commentary on transportation, You had double digit decline, it's still mid single digit over 1.5 years now, where electrical good robust Double digit, double digit. So you clearly have more electrical versus transportation. So are you telling us that the margin for the 2 businesses are pretty similar? So the mix has had no impact to the margins? Oh no, I thought your question was about 2019. Of course, A business that is high margin declines will have a mix effect. In the case of Transportation Technology, the margin It's not the highest margin we have in the product business. Electrical would be better. So if anything, if it declines, it's having a positive margin effect to product, okay? Okay, understood. And You think all the restart activities for hospitality, that is also likely to sustain in the medium term? Yes. Look, as I said, your health and safety in the workplace and public places is, In my view, we're going to be a very, very important solution going forward because it's just not only about COVID-nineteen, there are other And we've been investing quite a bit in health and safety over the years, and we are very, very optimistic about the outlook. Understood. Thank you. Thank you. The next question comes from the line of George Gregory from Exane. Please go ahead. Good morning. It's George. Good morning. Yes. Just hi, Andre. If I could just go back to The consensus expectations, please. I'm just interested to get your sense of whether You think the market expectation is achievable, should we say, Particularly bearing in mind, the second half implied margin would be Slightly above, I think all in line with the second half of last year, taking on board the Comments you made around the subsidies and inflation. Yes. Look, as I said earlier today, we understand the way The consensus has been built and it's difficult to look at H1, H2 from your perspective. But for the full year, broadly speaking, I'm comfortable with where the consensus is. Okay. That's perfect. Thank you. The next question comes from the line of Rory McKenzie from UBS. Please go ahead. Good morning, all. It's Rory here. Just 2 from me, please. Firstly, just to kind of tie together 2 themes you've talked about. We can see you've kept capabilities intact As restructuring charges have been low in your case and clearly fell to 0 in H1. But just help us understand what that means for the future. Does that mean there are no real costs to go back in the business as the recovery continues? Maybe you could comment on your plans or your needs To add headcount or capacity through H2. And then secondly, moving to a longer term growth outlook question. You said that you spoke to, I think, 1500 clients about supply chain solutions since our last results call. How and when should we think about that converting into new contracts? What's the sales and delivery timeline like for these newer services, maybe bigger service Launching. And is this kind of a later cycle portfolio than maybe what we're used to? Thank you. Thanks. Look, on the first question, keeping our capability intact Because temporary disruption of COVID-nineteen were impacting revenue and productivity in 2020 has been our strategy, which means That indeed we have opportunity to go back to our pre COVID-nineteen productivity level without increasing the headcount. That's the other way of looking at it absolutely spot on. Equally, we operate in 100 plus countries in multiple industries And it might not be like this in every single vertical, in every single location. So of course, we will of course have to hire colleagues. And I've talked about the way we think about it in the earlier questions. Look, when it comes to the sales agenda Intertek, regarding the opportunities that we have mentioned in the call earlier, we work with More than 400,000 customers around the world, we have long lasting relationships with these customers. These Discussions we had were basically issue on trying to make sure we understand where the expectations are in terms of service solutions Intertek moving forward, given the disruption in the supply chain, they're learnings, whenever it's a global disruption like when we've seen there are always New things evolving and of course some of these will take time to materialize because when you do B2B Sales development, it's not like immediate. Having said that, it does make the point that the Structural growth drivers post COVID-nineteen for our industry are more exciting than pre COVID-nineteen, but it will take time. You're absolutely right. Okay. Thank you. Before we go to the next question, please be reminded that if you have a question, you can And the next question comes from the line of Neil Tyler from Redburn. Please go ahead. Thank you. Yes. Good morning, Andre. Good morning, Neil. I'll come back to the or ask a question on Cost phasing, please. And firstly, can you remind us of the Absolute amount of government support. You've mentioned you referred to a couple of times that you received last year, 1st, 2nd half and what, anything, you've received in the 1st 6 months of this year. And then similarly, were there any abnormal Sort of mobilization type costs over the last 6 months, do you feel it worth highlighting as activity As accelerated or equally any cost lines, for example, T and E costs that might still be below normal levels and It might reinflate the second half of the year. So that's sort of first question, a few parts. And then the second question, just very specifically, On the previous call, you talked enthusiastically about the PPE testing that you're undertaking and And the sort of margin accretion that was likely to ensue from that. Can you just give us a quick update on activity levels in that particular activity? Thank you. Yes, perfect. Look, starting with PPE, we are focused, as I mentioned the other day, On high quality PPEs, and we had a really strong H1, and that was Very visual to our margin because it's a higher margin business for our supply and hard line business. So PPE Well, it's very, very helpful. As far as mobilization costs or costs were lost because of The acceleration of the business. Look, unfortunately, travel is not back to where it was, so our TD costs remain Very, very low. It doesn't mean it's not going to increase moving forward. There are certain parts around the world where we start doing face to face client meetings like, of course, Greater China or the Americas, but I wouldn't worry too much about that. And to your question On subsidies, I mean, we firstly disclosed in our numbers at the full year. But essentially, the way to think about it If you think about the incremental subsidies that we've got in 2020, that's just what we get on recurring basis. And it was about 17.5 With 7 million H1 and slightly more in the second half, it's fully disclosed. And if you want some more details, then we can give this to you. And Of course, we got some subsidies as we always do in the first half, but it's no dissimilar to what we got in 2019 and before. Okay? That's really helpful. Thank you very much. We have no further questions coming Drew, so I will now hand back to Andre for any closing remarks. Okay. Well, thank you very much for your time today. I know a busy week and a busy Friday for everyone. We appreciate your time. And if you have any questions, Denis is obviously on standby No chance to answer any of these. So have a good day. Thank you. Thank you, everyone, for joining today's conference. You may now disconnect your lines.