Earnings Call: H2 2020

Mar 2, 2021

Hello, and welcome to the Intertek 2020 Full Year Results Conference 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. Ross McCloskey, our CFO and Denis Moreau, our VP of Investor Relations are with me. Good morning, we have announced a resilient financial performance in 2020 with earnings and cash ahead of expectations. We are extremely pleased With the consistent performance of the group delivering value for all of our stakeholders and indeed 2020 is the 6th consecutive year of an EPS delivery ahead or in line with expectations. Today, there are essentially 5 takeaways in our call. First, the agility and energy of a high performance organization has made a huge difference, enabling us to navigate an unprecedented global crisis. 2nd, We have benefited from a broad based strong recovery in H2 with improved revenue, a record operating margin and truly excellent cash performance. 3rd, moving forward, which is very important, we are really well positioned to benefit from the exciting growth opportunities That will be driven by the COVID-nineteen recovery, of course, increased corporate needs for TQA and M and A growth opportunities. Force will capitalize on the high quality earnings model to seize these exciting growth opportunities and deliver sustainable value creation. And 5th, Really important to me, Intertek is a force for good in society. We are helping our clients deliver their sustainability agenda and we are leading by example internally with sustainability excellence. So this is our agenda for today. Let's start with our performance highlights. All the comments I will make will be at constant currency. Right from the start of the pandemic, being agile was paramount. We have adopted FAST, enabling us to respond decisively with laser focus on employee health and safety, superior customer service, margin discipline, Cash discipline, purpose driven engagement. Making the world ever better and ever safer is what we stand for at Intertek in all of our operations. COVID-nineteen is the biggest crisis of our lifetime and our colleagues went way beyond their normal call of duty to provide tremendous support to their communities. We recognize our Intertek heroes every week and their story Made us very proud. 2020 has been a very challenging time for all of our clients and I have highly appreciated the help and the 20 fourseven customer service of all our TQA experts. As you can see on the screen, we've launched 15 global innovations in 2020. And let me just talk about a few examples. Of course, we have ensured supply chain continuity with our remote video inspection and audio solutions from day 1. We've launched Protec, the world's 1st health, safety and well-being assurance program for people, workplaces and public spaces. We've also introduced CarbonClear, the world's 1st certification program that verifies the upstream carbon intensity per barrel of oil, so important in the Resource Sector. These are in addition to new services that we develop rapidly, priority testing services For live selling medical equipment like ventilators, end to end testing and certification capacity increase for PPE equipment, Increased testing capacity and express service for sanitizers and disinfectants, support to the pharma industry for vaccine development And Cybersecurity Audit Related Activities for Home Working Conditions. Our resilient financial performance in 2020 demonstrates the Frank, our business model is geographic and business line diversity, our disciplined approach to performance management and importantly, our strongly cash Generative earnings call. Group revenues were €2,742,000,000 down 6.7 percent. Like for like revenue was down 6.8 percent, operating profit at €428,000,000 was down 17%. Our operating margin was robust 15.6%, down 190 basis points year on year. Our free cash flow was truly excellent at £436,000,000 up year on year by 10.2%. Aerieux delivered a super strong ROIC of 21.6%, only down 190 bps versus last year. Given the strength of our earnings model, we have confidence in the future growth opportunities for the group. We have announced a final dividend of €71,600,000 in line with the prior year, making the full year dividend payment for 2020 unchanged compared to 2019. Let's look more closely at our In H2, we've benefited from strong revenue recovery, up 8% versus H1, an excellent Profitability Recovery with OP up 56% versus H1 and a record margin of 18.4%, Up 60 basis points year on year. The good news is our recovery was broad based. Our product division delivered a strong recovery in H2 with revenue plus 12% versus H1 and excellent profitability recovery with operating profit up 61% compared to H1. In H2, operating profit was up 1.7% year on year in a declining market, and we've delivered a record margin of 24.5 percent, up year on year by 110 basis points. Our trade business delivered a robust recovery in H2 with a 4% revenue increase compared to H1, an operating profit increase of 40% versus H1, delivering a 9.1% margin, up 2 40 basis points compared to the first half. Our Resource division delivered a stable revenue versus H1 And an operating profit that was up 28% compared to H1, resulting in an H2 operating margin that was basis points year on year in H2. Our free cash flow at €436,000,000 was truly excellent, as I said, up 10.2% year on year. This excellent cash generation was driven by a reduction of EUR 42,000,000 in net CapEx and EUR 133,000,000 in working capital. Our cash conversion at 149% was a record. And we have made further progress on working capital, which is now negative at Intertek, a major milestone after multi years of working capital reduction. I'm so proud of our financing. We closed 2020 with a financial net debt of 4 £20,000,000 down year on year by £210,000,000 and with a net debt to EBITDA ratio of 4.7 times, we've got a tremendously strong balance sheet. I will now hand over to Ross, who will take you through our results in detail. Thank you, Andre, and good morning, everyone. In summary, the group has delivered a resilient revenue performance in 2020 with a like for like revenue change of minus 6.8 percent at constant rates. Operating costs were tightly controlled, resulting in operating profit of £427,700,000 Operating margin was robust at 15.6 percent, Being down 190 basis points year on year. The FX impact on revenue was minus 150 bps for the year, And FX was slightly less negative on profit with a minus 140 bps difference between actual and constant rate operating profit growth. Overall fleet diluted EPS of 117.9p was down 19.6% at actual rates and 18.1% at constant rates. Looking more closely at the group operating margin bridge, Products delivered a robust operating profit margin of 20.9%, albeit still accounting for nearly half of the net movement in group margin. The reduction in trade margin to 7.9 percent contributed 100 bps to the year on year change, while operating margin in resources at 6.2% was flat year on year, leading to no change in group margin. Divisional mix had a positive 10 bps contribution given the relative growth of freight and resources. And finally, M and A had a negative 10 bps impact on the group margin in 2020. Turning to cash flow and net debt. Our disciplined focus on cash management continued throughout 2020. This enabled the group to deliver a Strong cash results in the year with adjusted free cash flow of £435,600,000 being up £40,300,000 or 10.2 percent year on year, and that is despite the 18% reduction year on year in absolute operating profit. Our continued focus Working capital was evident in 2020 with a record cash inflow from working capital of $1,000,000 and as Ronny said, that enabled us to achieve the significant milestone of negative working capital in the year. This was driven by strong collections in the period as well as our cash preservation activities, including the impact of government facilitated cash tax payment delays. In the year, we invested £72,000,000 in net CapEx, £42,000,000 versus prior year to be focused on essential projects and core maintenance CapEx. We finished 2020 with financial net debt that is excluding IFRS 16 lease liabilities of £420,000,000 which is down 33% year on year and significantly lower than our November guidance. In terms of financial guidance for 2021, we expect our net finance cost outlook for the year to be between £29,000,000 £33,000,000 reflecting our strong cash performance in 2020. We expect our full year effective tax rate Should be in the 26.5 percent to 27 percent range. We expect minority interest to be between £17,000,000 and £90,000,000 Our CapEx should be in the $110,000,000 to $120,000,000 range. Finally, our financial net gain for the year This is for a range of $350,000,000 to $400,000,000 and this guidance is of course before any acquisitions or any changes in FX rates. And Thanks, Ross, and let's now discuss our performance by division, starting with products. The H2 operating business benefited from a strong rebound in demand and delivered a revenue performance of 881 £300,000 up 12% on H1, as I said earlier. Operating profit was strong at £216,100,000 up 61 percent on H1 And operating margin of 24.5 percent was up 760 basis points on H1, a major recovery in terms of margin for our product businesses. Let's discuss each of our business lines one at a time. In H2, our soft line business delivered a mid single digit Decline in like for like revenue resulting in a double digit decline in like for like revenue on a full year basis. In the last 6 months, our global soft line business Benefits from continuous growth in e commerce, increased demand for testing of protective equipment and the reduction of the lockdown restrictions in some of our markets. However, Our performance was impacted by continued store closures in Western Europe and North America and some retailers delaying the launch of new products due to the disruption of the supply chain in the first half. Our hard line business saw improvement in the second half with a low single digit decline in like for like revenue, resulting in a mid single digit decline in like for like revenue for the full year. In H2, our online business benefited from continuous growth in e commerce, Increased consumer demand for home furniture and toys and the easing of lockdown restrictions in several markets, while closures Of stores in Western Europe and North America, of course, continued. Our Electrical and Connected World business delivered robust like for like revenue growth in H2, Resulting in a solid like for like revenue growth in 2020. In the last 6 months, we saw an increased demand for higher regulatory Standards in Energy Efficiency, strong growth in testing and certification of medical devices, increased testing requirements for 5 gs and a greater corporate focus on cybersecurity. Business Assurance delivered a solid like for like revenue growth in H2, resulting in a mid single digit decline in like for like revenue on a full year basis. The easing of lockdown restrictions in the second half has driven a rebound in the number of idle audits While we continue to benefit from attractive growth in supply chain assurance, the continued focus on ethical supply, the increased need of corporation And of course, the strong growth in our People Assurance segment. Our Building and Construction business delivered a mid single digit like for like revenue decline in the last 6 months, resulting in a low single digit like for like revenue decline for the full year. While we continue to benefit from the growing demand for more environmental friendly and higher quality buildings as well as strong investment In our infrastructure project, the time free reduction of building and construction activities we saw in Q2 due to the lockdown restriction in some of our North American market Continued in the second half. Our Transportation Technologies business recorded double digit like for like revenue decline Full year, the lower demand for testing activities we saw in Western Europe and North America in Q2 continued in H2, which was partially offset by the continued investment of our clients in new powertrains to lower CO2 and NOx emissions and of course increase Fuel Efficiency. Our Food business delivered a good like for like revenue growth performance in H2, resulting in a solid Like for like revenue growth on a full year basis. In H2, we benefited from the resumption of the supply operations of our clients in most markets From sustained demand for food safety testing activities and an increased demand for hygiene and safety audits in factories, Hospitalities and Retail Locations that capture with our PROTECTOR. In H2, we saw mid single digit like for like revenue in our Chemical and Pharma business, resulting in a high single digit like for like decline in revenue on a full year basis. In the last 6 months, we saw an improved In demand for regulatory assurance and clinical testing in some of our operations in America and Western Europe, while given the importance of COVID-nineteen, The pharma industry continues to reprioritize the R and D investment, delaying testing projects for our laboratory. Moving forward in 2021, we expect all of our product business lines with the exception of Transportation Technologies to deliver year on year revenue growth. Turning now to trade. In H2, our trade related business benefited from a sequential improvement in demand, Resulting in a revenue of €297,900,000 up 4% on H1. Operating profit in H2 was £27,000,000 up 40% on H1 and operating margin was 9.1%, up 240 bps on H1. Our Calabrio business saw continued momentum in H2, resulting in a high single digit like for like revenue decline on a full year basis in the second half. Our Catawba business benefits from an improvement of global mobility and the rebound of the global economy. Within our GTS Business, we saw double digit decline in like product revenue on a full year basis due to the disruption of manufacturing in China in Q1, The long term activities in the Middle East and Africa impacting cross border trade flows in both Q2 and H2. Our AgriWorld business delivered robust like for like revenue growth in H2, resulting in a solid like for like revenue growth on a full year basis. Following a stable performance in H1, we saw increasing demand for inspection activities driven by meeting a lockdown restriction in most of our markets. In 2021, we expect our trade division's revenue to be broadly flat. In H2, our resources business delivered a stable revenue performance compared to H1 with an operating profit of $16,400,000 up 28% on H1 and an operating margin of 7.1%, up 160 basis points on H1. In H2, We saw a reduction in exploration and production investments of our clients in some of our markets and our CapEx Inspection business delivered a high single digit negative Like for like revenue performance, resulting in a low single digit like for like revenue decline in 2020. We saw a double digit negative revenue performance in OpEx maintenance throughout 2020. The lockdown restrictions and the cost saving initiatives of our clients Has impacted demand for inspection services. And we've delivered a robust revenue growth in our mineral business throughout 2020, benefiting from increased demand for testing and inspection activities. In 2021, we expect revenue and resource divisions to be below last year. Let's now discuss the exciting growth opportunities ahead. Intertek, as I said earlier, is a force for good, Making the world ever better and ever safer. The global pandemic has demonstrated that what we do in society is truly mission critical. And the role of bringing quality, safety and sustainability to life has never been more important. Pre COVID-nineteen, we saw many clients who take their focus on risk management, their supply chain to make sure that they provide the highest quality, safety and sustainability products and services to their customers. COVID-nineteen has demonstrated that there were major risks not properly mitigated in the supply chains of our clients. And moving forward, all stakeholders expect governments and corporations to build back a better world with a sharper focus on end to end quality assurance. 2020 will indeed be remembered as the year when we are forced to rethink how we operate to make the world a safer place. And we expect the theme of Build Back Ever Better to guide the actions of governments, companies, institutions, regulators and consumers in essentially three areas. Management, Board and shareholders will want to see their companies operate with a safer supply chain. Consumers, government and corporations will want to offer better personal safety to everyone. And the way the world will operate and invest will build a low carbon 2020 has made the need for risk based quality assurance clearer and stronger for everyone. And this is evidenced by Gartner's recent survey on the future of supply chain. 87% interviewed 87% of companies interviewed, sorry, said they will invest within 2 years to make their supply chain more resilient. And it was a global survey with slightly 500 companies around the world, a tremendous evidence that risk based quality assurance He's here to grow and to be very, very important moving forward. That's why post COVID-nineteen, we expect the total quality assurance market to grow faster Then pre COVID. Indeed, build back Evobesta will make the attractiveness of the $250,000,000,000 plus total quality assurance market greater. And as far as we are concerned at Intertek, we'll be focused on 5 growth opportunities. Of course, customer retention, customer penetration, It is cross selling, new customer wins and getting access to the quality assurance work that corporations currently do in house, which has become a bigger opportunity as many corporations had to reduce their cost base in 2020. We are extremely well positioned To benefit from these growth opportunities, Intertek has led the quality assurance industry for over 130 years, and we've built a powerful operational platform in more than 100 countries. The depth and breadth of ATIC solutions we offer to our clients is simply world leading and we have the CQA solution that our clients now. The growth outlook for quality assurance in the medium to long term is GDP plus like for like revenue growth in real terms. We expect our product divisions to represent 82% of the group's earnings to grow ahead of global GDP, benefiting from brand SKU expansion, Fast innovation cycles, increased demand for smart products and an increased focus of cooperation on safety, quality and sustainability. We expect our trade division that represents 11% of the group earnings to grow at a rate broadly similar to GDP throughout the cycle, benefiting from the development of regional and global trade and an increased focus on traceability and sustainability. The growth prospect in our Resource division, which represents 7% of the group earnings are linked to the growth drivers in the energy sector. Investment in exploration and production for essential resources like oil and minerals will grow to meet the demand of the growing population worldwide. Our resource business will also benefit from the portfolio diversification of our clients as they focus on renewables and invest in sustainability. We expect our corporate assurance activities, which are industry agnostic to get stronger and stronger. Given the increased importance of risk based quality assurance, as we just talked about, increased regulation, the importance of health, safety and well-being, the growth in support assurance And the investment in supply chain, sustainability and cybersecurity. We will capitalize on on high quality earnings model to see these growth opportunities and our high quality comparable earnings model has multiple strengths as you know, Strong pricing power, high margin, highly cash generative, capital light and also carbon light. Our approach to value Creation is based on the compounding effect year after year of margin accretive revenue growth, strong cash generation, disciplined investment in capital allocation in terms of growth and returns to our shareholders. As we've talked in the past, sustainability is the movement of our time, creating tremendous growth opportunities for all of us at Intertek. We provide end to end sustainability assurance with industry leading operational Solutions, global audit to verify our current sustainability disclosures and of course, our corporate sustainability certification program. Sustainability is central to our 5 by 5 strategy internally. And we are very focused on sustainability excellence in Every operation. We believe that doing business the right way with a systemic approach is the only way to deliver our corporate goals and considerable value. To do that, We follow precise processes in 10 areas: quality and safety, risk management, enterprise security, compliance, environment, people and culture, Communities, Governance, Financial and of course Communications and Disclosure. We've continued to make progress on our And we have achieved a carbon neutral position for the first time. We are targeting net 0 emission by 2050 and have joined the UN Race to 0 campaign. So we believe that there is much more that we can do moving forward beyond net 0. And we have set ourselves beyond FZR targets in the area of customer satisfaction, diversity and inclusion, health and safety, compliance, Employee Turnover and Engagement. Let's now discuss the outlook for 2021, starting with our 2020 exit trajectory. In H2, we have seen a strong rebound across most of our business and geographies. Following the strong progress we've made between the July October period, we've made further progress in the last 2 months of the year with a like for like revenues of minus 4.6 percent in November December compared to minus 6.3% in July October. Within November December, December like for like revenue for the group was minus 3.5% with products flat, trade at minus 5% and resource down 10%. In the May June period, we saw many governments around the world lifting some of the lockdown restrictions. Debt has increased global mobility in most economies, driving strong progress in the manufacturing sector and a rebound in export activities, resulting in an improved global economy In Q3, the 3rd wave of COVID-nineteen in several countries has triggered additional disruption in the supply chain of our clients And as we do global mobility, as you can see on the slide, which makes trading conditions challenging in some of our operations. Given our well diversified revenue streams across industries and geographies and our progress in H2, in 2021, we will continue to benefit from the post COVID-nineteen recovery and the attractive TQA growth opportunities I just described. We are confident That the group will deliver good like for like revenue growth at constant currency with margin progression and a strong free cash flow performance. We'll continue to invest in growth and we expect Our full year CapEx investment to be circa £110,000,000 to £120,000,000 We expect our financial net debt to be in the range of £250,000,000 to £400,000,000 As Ross has explained to us. A quick update on currency for your model. The average selling rate since the beginning of the year applied to the full year results of 2020 Would reduce our revenue and earnings by circa 3.50 basis points. An important point for the phasing of your model, we expect The recovery in H1 to be less strong than originally expected given the impact of the 3rd wave in several countries and the challenges The governments are still facing to roll out the vaccine. In conclusion, here are the 5 takeaways of today's presentation. The agility and energy of a high performance organization has made a huge difference, enabling us to deliver a resilient financial performance with earning and cash ahead Of expectations in 2020. We have benefited from a broad based strong recovery in H2 with improved revenue, Record operating margin and a truly excellent cash performance. Importantly, moving forward, we are well positioned To benefit from exciting growth opportunities driven by the COVID-nineteen recovery, of course, increased corporate needs for TQA and M and A growth opportunities, we'll capitalize On our high quality earnings model sees these growth opportunities and deliver sustainable value for all. Intertek is a force for good in society, helping our clients to deliver the sustainability agenda and focus internally on sustainability excellence. Thank you for your time this morning and we'll now answer any questions you might Thank So our first question comes from the line of Sylvia Barker from JPMorgan. Please go ahead. Thank you. Hi, good morning everyone. Two questions, please. Firstly, on Products, a very strong H2 margin. Given Softlines and Hardlines We're actually still down. Presumably, the mix wasn't actually that positive. Could you maybe talk about kind of The gross margin going into 2021 and especially relative to that second half of twenty twenty performance. Secondly, your net debt assumption sorry, your net debt guidance seems to imply quite a big working capital reversal Or maybe there's another moving part within that. Could you maybe just comment on that? And then finally, There were no acquisitions in 2020, obviously quite a difficult year, but the balance sheet is very, very healthy. Could you maybe comment if you participated in some auctions or competitive processes, but the prices were too high? Or was it a deliberate decision? And what does the pipeline look like? Thank you. Thanks. Look, tremendous performance indeed in H2 from our product division. As you know, Opera Business is a leading portfolio around the world with number 1, number 2 positions in most of our markets And very, very strong operational excellence from obviously customer service, quality, productivity, margin and cash management. And what you're seeing here is the effect of our end to end operational excellence At work, and I have to say that we expect obviously to make progress in margin in 2021, it wouldn't be possible without product making progress. So look, we are very, very pleased about where we are. One thing that we have done, which is very important for everyone on the call is that we have been disciplined on cost, But we have not reduced our cost base and undermined our capability moving forward because we believe that COVID-nineteen, Although it's been a tremendous challenge for the world, it is a temporary disruption in the supply chain of our clients and we want to be ready for clients when they need them. So although we've been, of course, focused on financial performance with productivity metrics, we have retained our entire capabilities. So we are ready, if you want, for Klarna and this is a tremendous business with high margin and growth combined with operational Does wonders as you've seen. As far as the net debt, I'll let Ross comment on that, and I'll come back on M and A. Yes. So I mean, there are a few things to obviously mention when looking at the cash flow movements year on year. Firstly, we're expecting CapEx to return to a more typical level. So Got it to 110, 120. Dividends, obviously, we've announced today that we're holding that in line with prior year. So there'll be an impact there. And then thirdly, on working capital, clearly in 2020, we benefited from a number of Government initiatives with working capital and cash by around about £20,000,000 over the course of the full year, which we expect to And in addition, we're factoring in some receivable pressure as we move back to Top line growth during the course of 2021. And then finally on tax, you've seen we've given an update in terms of our guidance on tax for the year With an increase in the rate to 26.5% to 27%, which will also have an impact on the cash flow on a go forward basis as well. So Look, I think when you factor those points together, it gets you to the range that we've talked about today in terms of the guidance Thanks, Ross. And Silvia, as you know, this is the beginning of the year. So this is our first guidance. And we'll continue to obviously comment on where we are, and we are always very considerate, as you know, as we guide our financial colleagues in the market. And as far as M and A is concerned, look, we are very selective in M and A. We are interested in high quality assets, Which provide high growth, high margin on sustainable basis and we're now going into markets that are commoditized and we are obviously very disciplined. Now how did 2020 look like from an M and A standpoint, I mean, as you can imagine, who would want to sell a high quality asset in 2020? It's not a good time for any seller to basically monetize the business because With a trajectory like the one we had in 2020, it makes a huge difference to your model because the entry point is lower. So it's no surprise That we didn't do any M and A in 2020 because high quality assets were not for sale in 2020 from our perspective. It doesn't mean that as we move in 2021, that's not going to change. We're going to remain disciplined. We've got a tremendous balance sheet. We know where the quality assets are. We are in contact with these owners and we'll take it a step at a time. But Essentially, we are very well positioned provided that we remain very selective and focused on high quality, high growth, high margin of sustainable businesses That basically added to our TQA value proposition. So the year is young, it's just started. So we'll see. Thank you very much. The next question comes from the line of Edward Stanley from Morgan Stanley. Please go ahead. Morning. Thanks for taking my questions. I've got 3 as well. On your guidance, I guess morning. I guess we have to ask what good means because Most people are assuming around 4%. Some of your peers are talking around maybe 6% is possible. Therefore, something's wrong at Intertek. Can you just give a response to nervous investors who might be thinking that on your good growth guidance? On the second point, I guess following A bit from Sylvia. Conscious of your comments on Transport Technology, is there any reason why the Products division Couldn't return to 2019 margin levels in 2021. And finally, again, following on from an answer you just gave, you say that You've been cost focused but not taken out any capabilities that would allow you to recover and provide normal services. Can you explain what those costs are Or were and whether any of those will be coming back in 2021, please? Look, starting with the last question on cost, we've been very transparent. And if you go back to the statement that we made in May, we clearly explained what we did To protect our cost base on a temporary basis. So I will refer to this presentation without repeating everything we said. And obviously, we've been very careful in terms of hiring additional colleagues. So because In a downturn market like we've seen, there is no point in adding capability. So that's what we've done. All of the cost activities that we have been To have been on a temporary basis, and I would refer you to this presentation, which is quite detailed, but it would be A long explanation at this stage. As far as the margin outlook, As you know, we are too respectful for our shareholders and our colleagues in the analyst industry to give quantitative guidance. We never do that. We believe that this is not the right way moving forward. Today, we've given our high level guidance as we always do at the beginning of the year. We'll update that During the year as we go. And look, we want to make progress. And as you can imagine, we are winning organizations. And of course, We can't wait to go back to our previous speaker and we can't wait to go back there and beyond, but we're not going to give you any time there. I think it's For you and your modeling skills to determine how fast we can get there and then we'll see at the end what happens. We don't give quantitative guidance. And as far as your question On good, look, the same point. We've used objectives for many, many years at Intertek. They are quite well calibrated. It's the beginning of the year. And we'll see how it goes, but good is the guidance we're giving at this stage and then let's take it a step at a time. And as I said during the call, we should not forget that there is a 3rd wave that is disrupting supply chains and mobility around the world that needs to be taken into consideration as you do your model bottom up, right? Thank you. The next question comes from the line of David Ryu from Bank of America. Please go ahead. Good morning, Andre and Ross, and thanks for taking my questions. Good morning. I've got 3 from my side, perhaps Following on from Ed's question around costs. Can you please confirm what the change was in full time equivalent headcounts In 2020 versus 2019. My second question is on the resources business. I mean growth for this business looks to have Sequentially declined a bit into the year end of the last two months. Has this business perhaps displayed any signs Of stabilization or recovery in January February this year? Or are you seeing a similar trend? And then lastly, on Remote Solutions, Is it possible to put a number on how big the revenue contribution was from remote solutions in 2020? Thank you very much. As far as remote solutions or any solution that we bring To our customers, we do not disclose financial numbers because it's commercially sensitive. And we only disclose numbers, as you know, At the group level P and L and cash and balance sheet and product trade and resources from a revenue and margin. So we are very selective in terms of what we say. And we are also very disciplined, true to our sustainability standards in terms of being consistent With what we said, so we never disclose any numbers on any solution. As far as resource is concerned, look, I believe that our team has done a tremendous job. If you look at the CapEx invested by oil and gas companies in 2020, It was significantly down given the pressure they had on their financials and balance sheet. And the numbers are very, very, very Negative and I think we clearly have outperformed. We're not going to give any data at this stage in terms of The outlook for January February, of course, we will report back in May for the January to April Period. And I'm going to have to wait until then. And as far as the question On cost, I'll let Ross answer that. Yes, sure. So the headcount at the end of the year was about 43,800 Versus 45500 previous year, it's about 4% decline. And that's come through national Okay. Thank you. The next question comes from the line of Rory McKenzie from UBS. Please go ahead. Good morning, everyone. Just 2 for me, please. Firstly, in Softlines, you still lift increased Number of brands and SKUs are the driver. But do you think that part of the volume reductions you've had here could be structural? Do you know, for example, how many of your customers are closing permanently or maybe even reducing SKUs due to financial or could even be sustainability constraints There's a bit of a pushback in a fast fashion and in that part of the world. And then secondly, I wanted to ask you about some of the new innovations that you've launched or accelerate This year, can you talk about ProTech, for example? You said you won't give any numbers on the kind of take up of it so far. But could you talk about how widely that could be applied to your customer base? And do you have any kind of targets internally you can talk about? Or similarly, the things like Sourceclear or FastStack. Just curious to think about how you're setting kind of plans and Thanks, Roy. I mean, look, as far as target setting is concerned, we've got targets for Every part of our business. So I wouldn't want you to worry about that. We are very disciplined in terms of monthly, weekly Financial performance and of course, when our teams develop a business case for any innovation, there is a business case With clear volume, price, revenue, cost, CapEx, operating profit, cash flow and of course even return investment CapEx. So On that front, I wouldn't want anyone to worry about it. We've got targets. Obviously, that's the only way to be disciplined financially. As far as your question On Protec, look, health, safety and well-being is a trend that we had obviously identified many years ago. We had started Quite a bit of work on that and obviously COVID-nineteen accelerated the launch of our branded proposition ProTech. This is end to end. It's looking at obviously industrial retail office Facilities in terms of the health and safety protocol in these operations, the cleanness, the hygiene of the place. We do audits, as you can imagine, as well as Training and it's really industry agnostic and we are seeing tremendous success because Everyone is recognizing that health, safety and well-being in public and working spaces is a concern rightly so. So no, this is You're going very well and I'm so pleased that we've launched the brand. And as far as your question on Softline, look, the Softline industry It's a fabulous industry from our perspective. We are very well positioned there. And you have to differentiate The general high street creators from the e commerce players and all the new brands. And what has happened in the industry The industry had a huge period of growth till the end of 2018 And start basically being a bit of pressure in 2019 and obviously 2020. Why? Because the General retailers, the brick and mortars had to recognize that the competitive set had changed and they had to adapt their footprint to reduce their costs and of course To reduce the SKUs and in addition to these structural trends that were very negative for the general retailers, We had the tariff issues that we talked about quite a bit between the U. S. And China in 2019, obviously, in 2020, COVID-nineteen. Having said all of that, if you look at the world population, the apparel industry, there is one thing that remains very clear is that Consumers want choice, want better quality, want to know where the apparel that they buy are coming from. So the focus on quality, safety and sustainability has never been so strong because consumers are very demanding, there are more brands. And the smaller the brands are coming into the market, I mean, you will see, I'm sure, yourself with your family, you will see that people are shopping these local, regional brands In addition to global brands and these smaller entities don't have the pure resources. So we are very, very excited About the prospect of SoftBank going forward, it's true that the last years have been difficult for the industry for COVID and the restructuring that I just talked about in general retailers. But I think there is light at the end of the tunnel in this industry. Okay. That's very helpful. Thank you. The next question comes from the line of Neil Tyler from Redburn. Please go ahead. Hey, good morning. Thank you. Three questions from me, please. Firstly, within the Products division, you mentioned TPE and Medical Device Testing in various segments therein, can you give us any figures around the growth Or in those areas. And is it accurate to think of both as margin accretive? And how you Expect the cadence of those of that demand to develop. And second question on the carbon clear offering. Have you already begun to book any meaningful revenues from that offering? And can you perhaps help me understand I'll frame the value offering and whether the revenue model is, to any extent, volume reliant. And then finally, On the Alchemy business, there are some mentions of the innovation, the playbook app in the release. But could you Talk more broadly about the Alchemy business and whether that is still on the flight path that you Envisioned for it at this stage and hitting the financial targets that you set. Thank you. Thanks for your questions. Look, PPE, Personal Protective Equipment, is a very good category in terms of growth and margin. And there's been obviously huge demand in 2020 for masks and gowns as we've all have seen in the news and we've always seen in our own life. Moving forward, the focus will be on quality PPEs, Which is really, really good for us because consumers and governments know that not every mask has got the same quality. And there is a really, really, really strong market out there. We've got capability in multiple parts of the world. We've got capability in, of course, Greater China, we've got capability in India. We've got capability in Southeast Asia and in Europe. And this is very, very good Margin for us, I'm not going to say much more than that because I don't want our competitors to get too excited about the way we deliver As far as Carbon Clear is concerned, look, this is a certification program That applies to the oil and gas exploration productions. So, and for instance, not every client has been public, But I'm just going to talk about one that is public and you can look at it online. If you look at Lundin, we've got Norway operations And we've basically done an end to end assessment of the capital intensity of the operations to produce Every barrel of oil and it's basically certified. So it is an audit of Field operated by our customers and it's down field by field because every field of operation is different. So It's a very interesting revenue stream and to certify you need to do it obviously every year. So that's recurring and that's the advantage of Certification, audit based certifications. As far as SME is concerned, We are really pleased with the progress we've made over the last few years. The demand for People Assurance continues to be very, very strong. We've seen also some really good Update linked to the product activities that we have, Housing and Safety in the workplace, as you can imagine, is very, very important. We are on track Regarding the goals we've given ourselves, if anything, we are better than I thought because you might recall that We have given ourselves goals over 5 years and we've already achieved our year 5 margin in EBITDA and EBIT In year 2, so it's not bad business. I would say it's an excellent business. SaaS is really, really exciting. Okay. Thank you very much. The next question comes from the line of Nicholas Tabo from Stifel. Please go ahead. Good morning. Thank you very much for taking my question. The first question would be not just the very short term of 2021, but Beyond COVID-nineteen, I wanted to understand with this difficult year, how do you see the margin evolving Beyond 2021, and how far could it go above the 2019 levels depending on how product You're expecting to perform compared to trade and resources and what you're seeing in terms of change of long term trends at the moment And how we should think about that? Then you've talked in the product outlook about the Transport sub segment, could you remind us what's the actual exposure to the auto industry and How the chip shortage is actually impacting you at the moment? Thank you very much. Yes, thanks. Look, Obviously, you would have heard me say it a couple of times on the call. We never give long term targets, Quantitative targets, we do that out of respect for all of our shareholders and analysts. But what we can say is that we are very, very focused On margin equity revenue growth year after year, strong cash conversion, investment in high growth, high margin areas, both organically, inorganically To basically drive further revenue growth and margin accretion and strong ROIC, that's the virtuous economic Model that Intertek is operating on and this is something if you look at our 5 year trajectory between 2015 2019, you can have a real demonstration Of what we have been able to do over a long period of time. Obviously, 2020 is a disruption in our long term trajectory, But there is no question that the growth prospects, as I said, remains very exciting. It is my view that The industry will grow fast moving forward because the awareness of all stakeholders on the lack of quality assurance end to end in society is now clear and Of course, we all see the opportunity in terms of sustainability as a major growth driver moving forward. But just take safety, for instance, How is it possible in the world that within the same weekend you had 2 or 3 aircraft with the same engine manufacturers Having issues and severe issues. I mean, you saw the video of the Slide 7 77 in Denver on the way to Hawaii. Hi, is it possible? And these questions popping up everywhere. And I think the pressure on shareholders, on regulators, on governments, On companies and employees to take risk mitigations at its heart very, very seriously is only going to increase. I mean, we've been on this for a long, long, long time. We know how much progress companies have made in terms of risk mitigation, But we also know how much more there is to be made. And there is no industry out there that doesn't have major gaps In terms of quality assurance end to end. And this is the opportunity we have because we have the depth and breadth of ATX solutions looking at quality, safety, sustainability end to end. And we are providing the end to end visibility to our clients. And we've talked about After me, as a SaaS, but we have another SaaS platform called inlight, which is the best visibility that our clients get End to end on the supply chain, Sourceclear is the same. So look, we are very, very, very excited about the opportunities moving forward. And we're going to continue to make progress step by step on revenue, margin, cash, ROIC. This is The performance management approach we pursue and you've seen it in action for so many years. As far as TT is concerned, obviously, a more detailed question. Look, we are not a big global player in terms of transportation technology. This is one of the business lines where we are focused on being number 1, number 2 on a local basis in a few markets. So we have a very, I would say, good business in North America. We have a very good business in the UK, very good business in Germany and in China, and we are essentially working with OEMs on R and D development. And the reason why I'm being cautious on PTT for 2021 is because I know how tough the automotive industry has been, Not in 2020, but also in 2019. And as a matter of fact, the global automotive industry started declining in the second half of twenty eighteen And their balance sheet has been really, really, really under a lot of pressure, and they are basically delaying the R and D investments For new products, new powertrain, it's a shame because they're going to have to accelerate down the road, but it's understandable given the pressure in the automotive industry, P and L and cash flow. But at the end of the day, here again in terms of trends, am I worried? No, because everybody knows That moving towards hybrid electrical vehicles and maybe tomorrow hydrogen is the only way forward because to get to net 0, we're all going to have to Stop using diesel and engine businesses that we use today. Great. Thank you very much. Very clear. The next question comes from the line of George Gregory from Exane. Please go ahead. Good morning, Andre. Good morning, everyone. Just a couple from me, please. Firstly, just on trade, Andre. Your guidance of broadly flat, I just Looking to understand how that sits against an improvement, one would assume an improvement in mobility as we Move through 2021. Is there anything holding that back? And my second question relates To the broader opportunity in Carbon Assessment, Environmental Impact Assessment. Where do you see, Andre, the greatest opportunity outside of oil and gas for carbon footprint assessments or environmental Footprint assessment and that could be either B2B or B2C. Clearly, there are lots of The potential use case is there. Thanks. Yes. Look, thanks, George, for your questions. There are several factors impacting trade. Number 1, as I mentioned earlier today, the 3rd wave has had an impact on mobility and our global trade business, which is made of agri, GTS and kelp bread is very sensitive to global mobility, Not so much in agri because agri is driven by food consumption. But as you can imagine, the supply chain in mobility is not back to Where it used to be in the Middle East and Africa. And certainly, trading in the oil and gas industry is not where it was Pre COVID-nineteen, I'm sure you've seen this in the news, it's everywhere, the shortage in containers is also impacting global trade. And if you go shopping, you will see that lots So our other retailers have got stock issues. So that's one thing. So it's going to take some time for global ability to come back To pre COVID-nineteen levels and it will going to take some time for us to benefit from that. The other thing I would say, very early, and I know If you look at the oil and gas industry like I do, but there's been quite a lot of oil production in the oil and gas industry for, Believe it or not, many, many years, it didn't start in 2020. There was overproduction also in 2019, which results Steel in excess storage around the world, right? And our Calibrate business is very driven to trading, Which is basically producing, storing and obviously delivering. And when there is storage in the pad, It tends to impact our global calibrate business. As far as hence my statement on global trade flow full year. As far as the carbon intensity, I've never seen so much awareness On the need to basically be clear as a company on what is your carbon intensity and how do you calculate it? Do you have accountability inside your business at every single line of accountability, I. E. Every operation? And importantly, Do you have the plans to drive to net 0? Science based targets, obviously, if you are truly committed. So where are the opportunities? Essentially for every single corporation in this world To be truly rigorous about capturing the right data, scope 1, scope 2, scope 3, making sure that this data is well organized, That this data is well understood, that this data is well performance managed in every single business, that there is accountability to reduce The carbon intensity and importantly, to have a plan moving forward to get to net 0 is If as a company you get there and to get to net 0 is just not about saying I want to be get net 0, you need to have a signed base target You know approval and you need to have a plan for that. So this is where the opportunity is and I don't know if you saw that, but I had the opportunity to speak at Carbonomics a few months ago and we talked about that. And in the U. K, we are well positioned with COP26. I mean, there is so much more That needs to be done and hopefully, the governments and the regulators will basically increase the focus on What type of disclosures? What type of definitions? How people are basically tracing these data, Verifying these data and this is a space where we are so well positioned to play. Thank you, Andrew. And just one follow-up, please. Do you see that Translating it to your products business in terms of products, carbon assessments or do you think it's It's still too early to be in that uptake. Yes, so it's a great question. So there, if you want, in our sustainability approach, 3, if you want, big difference areas. 1 is the corporate sustainability program where we certify the process of in place to make sure that the Board and the CEO and shareholders of this company have got the assurance that this company is doing the right thing in terms of sustainability management. That's corporate certification program. What I've just talked about Is the simple need for companies to be super rigorous in terms of ESG disclosures and carbon intensity. Now The 3rd area where we do a lot is on the operational sustainable solutions, where we provide lots of different In our solutions and end to end carbon intensity by brand or by product like we are doing with Carbon Clear at At the moment for every barrel of oil is an opportunity, but it's going to be linked if you want to the previous point unless companies have got The data to underpin their carbon intensity metrics, they're not going to be able to do it by product. So I think it's Possible down the road, it's going to be easier for companies that are mono brand, but they will have to do it because at the end of the day, consumers will want to know is this In appliances, carbon intensity X or Y, this is going in the direction, no question about it. You're absolutely right. Thank you. And our next question comes from the line of Sureshini Varanasi from Goldman Sachs. Please go ahead. Hi, good morning. Thank you for taking my questions. Good morning. Good morning. Just a couple from me, please. Can you comment on how the trends have improved in the last 2 months of the year? And maybe any commentary around January, February this year? Obviously, this time last year, you had China in lockdown. So any color here would be very helpful. And the second one is just a housekeeping one. Going into 1Q, 2Q This year, should we be aware of any trading day impact? Thank you. Okay. So look, thanks for your question. Starting with the second one, yes, there will be a working day impact in January, April, which will be one less than Look, as far as January, February trend, as I said to one of your colleagues, we're not going to make any comment at this stage. There is no question that Greater China is back in good form. And there is no question that There is a lot of activities in the domestic and international export markets. It's very, very public. So you can imagine that our Greater China business is doing very well. Thank you. The next question comes from the line of Rajesh Kumar from HSBC. Please go ahead. Hi, good morning. I've got 2 questions. Good morning. Yes. Hi, good morning. So the first one is on working capital. Appreciate you have provided some color on The kind of outflow we should expect in 2021. Just in terms of The collection process or the payable process, do you see any structural Improvement potential or did you identify that during the course of pandemic as you Looked at your credit levels you were extending to customers or the way you're paying to your suppliers. I mean, clearly, the payroll side seems to be down. And if you adjust balance sheet What is income statement, currency difference, then it seems down a bit more. So are some of those changes structural and can be sustained or should we just model them going back to the previous levels? That is the first one. And on the second question, just appreciate you don't wish to give a guidance on Any of the numbers, but when you look at your cost base in 2020, Can you please identify what are the one offs through the P and L In terms of revenue as well, etcetera, but also what are the structural digitization opportunities you identified, Which can reduce the cost base on an ongoing basis. Look, thanks for your question. Look, I'm going to answer the question the 2 questions with the same answer, because I think it's important That we are all on the same page. We do not believe at Intertek in the value of the single metric. And you know that When we introduced our 5x5 strategy back in 2015, I said it's volume, price, mix And revenue is fixed variable total cost. It's productivity. It's obviously margin. It's receivable, it's payable, it's obviously accrued income and therefore working cash flow and cash, it's CapEx, It's return on investment and it's the capital allocation in M and A and return on invested capital. That's the virtuous economics That I just talked about earlier. There is no one single metric in this approach where we don't have targets And where our targets are based on last year budget, but the potential. There is no single metric where we don't believe we can make improvement. You've talked about I've talked about in the past about our ever better performance management approach. So if you look at our Tremendous performance in working capital in 2020. Ross has talked about the one off. We take that aside, We made progress on payables and receivables. We have a tremendous business around the world with 100 plus countries, multiple business lines, 1,000 plus sites And Spanner's performance is the opportunity for us in terms of moving the needle step by step from a continuous improvement standpoint. So, look, this is the structural opportunity in terms of performance management at Intertek. We recognize that we have a diversified business. And if you have a very well organized engineered data capture systems like we do it digitally, if you have professional Daily, weekly, monthly, quarterly performance management, as you've got the visibility and you know how to drive continuous improvement, you get there. And this applies to working capital and to cost. So that's basically the answer I will give. Of course, To your question on digitization, we use technology every time we can to improve productivity. But we've been doing it for many, many, many years. If you look At all of our labs, we are high-tech because we believe in using technology when it's appropriate to drive continuous improvement. So, Elvabesa in everything we do is what underpins our virtuous economics models and this is what you should expect from Intertek moving forward, continuous progress Volume, price, mix, revenue, fixed, variable cost, productivity, margin, working capital investment and ROIC. Okay? So, I appreciate that. So effectively, what you're telling us is that because you have done this total performance management Over the years, the pandemic did not make you identify one single large Opportunity, but it will be more of a continuous trend as it was before, unlike your peers who have identified a Large single few opportunities which we can capitalize on. I mean, look, if you remember what we said back in 2016, I said, look, we have a For your that is of great quality, we're going to do a few challenges here and there, but we didn't change our portfolio much. All the progress that Intertek has done between 2015 and 2019 2020 is an interruption on this trajectory is all organic and inorganic Management of the opportunities and when it comes to organic, it's performance management. I mean, we I mean, I cannot show it to you because You're not part of Intersect, but if you were part of Intersect, you'd be amazed by the level of data that we have on daily, weekly, monthly basis. I mean, in this company, when it comes to data transparency, there is no way to hide. Everything is transparent. And by the way, this is our culture. We are an ever better culture. We are very proud of what we've done in 2020, but our focus is on 2021 and there is much more we can do. We never stop looking at The continuous improvement opportunity and that's the right approach given the quality of our business, right? This is a high quality company. So Continuous Improvement is the only way with obviously investment in growth, organic and organic. Okay? Understood. Thank you. We have no further questions coming through. So I will now hand back to Andre for any closing remarks. Well, thanks everyone for your time today and thanks also for the time you took to ask us important questions. And We look forward to staying in touch. And any question you have, please reach out to Denis and wish you a great day. Thank you. Thank you for joining today's conference. You may now disconnect