Hello, and welcome to the Intertek 2020 half-year results call. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one to register your question at any time. If at any point you require assistance, please press star zero on your telephone keypad, and you will be connected to an operator. I will now hand you over to your host, André Lacroix, to begin today's call. Thank you.
Good morning to you all. Thanks for joining us on our call. Ross McCluskey and Denis Moreau are both with me. There are essentially five key takeaways in our presentation today. First, our agility to manage an unprecedented pandemic. We've acted with speed, flexibility, and innovation to support our clients resolve the temporary disruptions in their supply chain. Second, our disciplined performance management. We've delivered in H1 a resilient revenue, a robust margin, and a strong cash flow. Our superior customer service. We've provided uninterrupted customer service to our clients. Our balanced approach. We focus both on defensive and offensive initiatives, continuing to innovate and invest in attractive growth segments. Finally, the growth opportunities ahead. The need for risk-based quality assurance is greater and clearer today for all stakeholders.
Intertek has been championing Total Quality Assurance for more than five years, and we are strongly positioned for growth moving forward. Let's start with our performance highlights. As we all know, COVID-19 became a truly visible risk to the world on January 22nd when the lockdown in Wuhan was put in place. Since then, we've seen a rapid progression of the virus across all countries, changing the way we live and work. For our customers, COVID-19 has created challenging and temporary disruptions in their supply chain. The GDP growth we've seen in the last few decades was partially driven by the increase in mobility, building a highly connected global economy. Within a few weeks, COVID-19 has quickly restricted global mobility, impacting the world economy and the operations of our clients. Right from the start of the pandemic, being agile was paramount to all of us at Intertek.
We've adapted fast, enabling us to respond decisively to an unprecedented situation. We've refocused the organization on five priorities: employee health and safety, customer service, margin management, cash, and engagement. Every time, health and safety comes first. Our COVID-19 health and safety policy is very comprehensive, has been updated on a regular basis on our website, including last week with our post-lockdown health and safety policy. Our second priority is customer service. We are a passionate and customer-centric organization, providing our customers with the best possible service 24/7. What we do every day to make sure the supply chain of our clients operate safely in all countries is mission critical. The lockdown measures have created huge operational challenges for our customers.
Since day one, we've increased the frequency of communication with our clients to make sure we understand their needs quickly, and maintaining our operations open 24/7 was vital for our customers. I'm so proud of our employees. They've gone beyond their normal call of duty, and here are a few examples of what they've done. Across the world from China, Hong Kong, India, and Philippines to U.K., Turkey, and Netherlands, our colleagues have produced hand sanitizers to keep customers and colleagues safe. At the very beginning of the pandemic, when masks was in short supply, our colleagues in Indonesia have provided more than 200,000 face masks to countries that didn't have masks. Our food team in the U.K. works seven-day a week to collect, register, and process samples for clients in a safe way, supporting our customers' tight deadlines.
Importantly, we have rapidly brought to market a range of innovation. We've ensured supply chain continuity with a remote video inspection and audit solution. On May 1st, we launched Protek, the world's first health, safety, and wellbeing assurance program for people, workplace, and public places. In addition to these two major global innovations, we've brought to market a lot of new services. Priority testing service for life-saving medical equipment like ventilators. We've increased our capacity for end-to-end testing and certifications for PPE equipment. We've increased capacity and express services have been put in place for sanitizers and disinfectants. We've, of course, start supporting the pharma industry for vaccine support. Cybersecurity audit has been a huge risk and opportunity for us given the home working conditions within corporations. Our third overriding priority is margin management.
Over the years, we have built a very disciplined approach, delivering consecutive margin improvement for five years in a row. Our strict controls on pricing and cost have remained in place, and we have taken a lot of initiatives to protect our margin. This includes a pause on all recruitment, a delay of six months to the 2020 annual salary increase, and of course, we've participated in several government schemes. We believe that our clients are facing temporary disruptions in their operation. All the margin initiatives we've taken are keeping the ability for Intertek to service our clients fully when the operations are back to normal. Our fourth priority is cash management. Disciplined cash collection remains in place. We've also conducted a CapEx review, reducing our planned expenditures this year by around one-third.
We are running a voluntary salary deferral scheme from March through October, and we are benefiting also from several local authority tax payment deferrals where available. Our fifth priority is employee engagement. With 20% of our people working remotely, it has never been more important to stay connected every day. Our world-class digital communication platform has made it possible for us to reach out frequently to everyone in the organization. Turning now to our H1 performance. We have delivered a resilient revenue performance, a robust margin, and a strong cash generation. That demonstrate the strengths of our business model, the geographic and business line diversity, our disciplined approach to performance management, and importantly, our strongly cash-generated earnings model. Let's look at the numbers. In the first six months, our group revenue was GBP 1,331,000,000, down 7.8% at constant currency. Like-for-like revenue was down 8% at constant currency.
Operating profit was GBP 168.2 million, down 32.2% at constant currency. Operating margin was robust at 12.6%, down 460 basis points year-on-year at constant currency. Free cash flow was strong at GBP 141.9 million, up year-on-year by 35.7%. Financial net debt was GBP 650 million, equivalent to a net debt EBITDA ratio of 1.1. Importantly, we have announced an interim dividend of GBP 0.324, in line with prior year, reflecting the strength of our cash generations, the strength of our earnings models, and the confidence we have in the future growth opportunities for the group. Let's discuss now performance by division. Our high-quality product portfolio with industry leading positions delivered a like-for-like revenue performance of -8.7% at constant currency, a margin of 16.9%, down 470 basis points year-on-year.
Our trade business benefited from the defensive strength of our agri business and delivered a like-for-like revenue performance of -10.2% and a margin of 6.8%, down 670 basis points versus last year. Our resource business delivered a commendable performance with a like-for-like revenue of -2.1% and a margin of 5.3%, down 90 basis points at constant currency. As you know, we entered 2020 with a strong trading momentum, and we had budgeted our cost base expecting to deliver good organic growth in 2020. We, of course, have taken a disciplined approach to cost management using our proven discipline management performance processes and tool. However, we believe that our clients are facing a temporary disruption in their supply chains.
Our cost reduction activities have been very targeted, keeping our Intertek industry-leading capability intact to make sure we can support our clients when they fully resume their operations and they start increasing their quality assurance activities. Our cost base in H1 was 6% below our budgeted cost for 2020 and 2.6% below last year. Cash management remained a high priority for all of us, and we've continued to make progress step by step. Our cash generated from operation was GBP 261.3 million below last year. Our adjusted free cash flow was GBP 142 million, up 35.7%. This excellent cash generation was driven by a reduction of GBP 14.5 million in net CapEx and circa GBP 88 million in working capital. As I said before, we ended up H1 with a strong balance sheet, a financial net debt of GBP 650 million, and a net debt to EBITDA ratio of 1.1.
Before I hand over to Ross, I just want to emphasize the speed at which the global pandemic has unfolded, the broad-based nature of the lockdown initiatives in every country, the lack of visibility on when the lockdown restrictions will be fully lifted around the world, and the complexity faced by our clients to resume their operations fully with well-functioning supply chains. That makes it difficult to give any guidance and quantify the full impact of COVID-19 for 2020. Having said that, we expect the second half of the year to be better than the first half.
Thank you, André. Good morning, everybody. In summary, the group has delivered a resilient revenue performance in H1 with a like-for-like revenue change of -8% with constant rates. Operating costs were well controlled, being down 2.7% at constant rates, resulting in operating profit of GBP 168.2 million. Operating margin was 12.6%, being down 460 basis points at constant currency. The FX impact on revenue was neutral for the half year, despite the volatility of sterling. FX still was slightly negative, impacting on profit with a 20 basis points difference between actual and constant rate operating profit change year-on-year. Overall, fully diluted EPS declined GBP 0.351- GBP 0.631, being down 35.7% at actual rates and 35.5% constantly. The group recorded a robust margin in the first half, with a 470 basis points reduction in operating margin to 12.6%.
Products delivered a robust operating profit margin of 16.9%, contributing to just over half of the net movement in group margin in the period. The reduction in trade margin contributed 150 basis points to the year-on-year change, while resources contributed 10 basis points. Divisional mix at a negative 20 basis points contribution given the relative performance in resources. Finally, FX at a modest - 10 basis points impact on the group margin. Our disciplined focus on cash management continued throughout the period, and this enabled the group to deliver a strong cash result in the first six months with adjusted free cash flow of GBP 141.9 million, being up GBP 37.3 million or 35.7%, despite the year-on-year reduction in operating profit.
Our continued focus on working capital was evident in the first half with a reduction both versus prior year and December 2019. This was driven by strong cash collections in the period, as well as our cash preservation activities, including the impact of government-facilitated cash tax payment delays. We invested GBP 31.2 million in net CapEx in the period, being down GBP 14.5 billion versus prior year. As André said, we finished the first half with financial net debt of GBP 650.1 million, which is down 21% year-on-year. That's despite the final dividend payment of GBP 150 million in June. Net debt is up just GBP 21 million versus December 2019. This includes FX, which had a negative impact of GBP 19 million in the first half, given the depreciation of sterling versus the US dollar since December 2019.
The group's liquidity position is well-balanced and has been further enhanced by recent actions. As we highlighted at the full year 2019 results, we've refinanced our RCF facility in January of this year, replacing the existing GBP 800 million facility with a new GBP 850 million RCF with an initial five-year tenor. In Q2, we have secured a new fully committed $200 million US private placement split into two tranches with $120 million expiring in three years and $80 million in five years. This facility will be drawn down in December 2020. We saw excellent demand for this issuance, enabling us to secure a very attractive coupon. In terms of maturity, we have $150 million of USPPs expiring in December 2020 and just $50 million in 2021.
The group is in a strong position from a liquidity perspective, and we have undrawn but committed headroom of GBP 324 million at the end of June, and that is excluding the new GBP 200 million USPP, which I said will be drawn down in December. Turning to financial guidance, we have adjusted our net finance cost outlook for the full year to be GBP 35 million-GBP 38 million, reflecting a strong cash performance in the first half and also lower finance costs in H1.
We continue to expect our full year effective tax rate to be in the 25.5%-26% range. We expect minority interest to be GBP 19 million-GBP 21 million, and CapEx to be in the GBP 90 million-GBP 100 million range. We are adjusting our financial net debt guidance to be in the GBP 625 million-GBP 675 million range, reflecting the group's strong cash generation in the first half.
This guidance is of course before any acquisitions or changing prevailing FX rates. More generally on FX, we continue to expect FX to have a broadly neutral impact on the group's full year P&L results.
Thank you, Ross. I'd like now to give you an update on strategy. As I said earlier, what we do is mission critical to our clients to make sure that their supply chains operate fully and safely 24/7. As you know, we offer testing, inspection, and certification in the critical areas of our clients' operations, and our assurance solutions provide end-to-end assessment of their quality and safety process. That's what we call ATIC or Total Quality Assurance. The supply chain of our clients has been disrupted significantly on a temporary basis. It's much easier to close a factory than to restart a production system, and the same applies to a restaurant, an airline, a hotel, and any retail operations. Given our end-to-end ATIC capability, we are well-positioned to help our clients resume their operations and benefit from the COVID-19 recovery.
We work with more than 300,000 clients around the world, and we have deep and trusted relationships with them. These relationships are based on our superior customer service and our strong technical expertise in all the sectors we operate in. We truly value these long-lasting relationships, and that's why we have stayed fully open and operational during the pandemic. This excellent B2B relationship will play a major role as we help our clients rebuild their operations capacity. Globally, across all sectors, with our differentiated Total Quality Assurance value proposition, we support the existing and emerging quality assurance needs of our customers in each area of their operations. There is no question that the COVID-19 pandemic has magnified some of the structural risks in the operation of our clients.
The lack of end-to-end systemic QA operating system has been a wake-up call for a lot of board and management teams, and that makes our Total Quality Assurance value proposition even more relevant post-COVID-19. All the conversations I had with our clients have demonstrated that they have to address risks moving forward that they didn't address before the pandemic. Everyone has a new appreciation for the health and safety and well-being of employees and customers. COVID-19 has identified the need for our clients to rethink and improve the resilience in their supply chain. Supply chain diversification has become much more important. Getting better and faster intelligence inside their supply chain is now a huge priority for our clients. As I said earlier, working remotely has identified serious cybersecurity risks for our corporate clients. We've been focused both on defensive and offensive initiatives during the pandemic.
True to our ever better culture, we have reinvented ourselves on how to manage the company, and importantly, how to service our clients better. Protek is the world's first end-to-end health, safety, and wellbeing assurance program for people, workplace, and public spaces, offering audits, training, inspection, verification, and certification solutions. The reactions of our clients around the world to Protek has been very strong. Protek is very much in line with what the world needs right now. For example, the CEO of Club Med posted a personal welcome back video message on social media reassuring his guests about the health and safety measures which have been implemented with Intertek Protek solutions. We've introduced Intertek Inlight 2.0, adding enhanced features to our market-leading supply intelligence and compliance solution. We've launched the Alchemy Playbook app, making it easy for our clients to optimize their scheduling as to training.
In our trade business, Inview is our unique remote auditing and inspection solution, connecting clients real-time with our experts through a live video stream. Our Caleb Brett business has joined VAKT, an innovative platform to create a secure, trusted ecosystems powered by blockchain. In our resource business last week, we've launched CarbonClear, the world's first assurance program that certifies the upstream carbon intensity per barrel of oil. 2020 will also be remembered as the year when we were forced to rethink how we operate to make the world a safer place. We expect the theme of build back ever better to guide the actions of governments, companies, institutions, shareholders, regulators, consumers in three areas. Management board and shareholders will want to see their companies operate with a safer supply chain.
Consumers, governments, corporations will want to offer better personal safety, and the way the world will operate and invest will build a lower carbon society. Build back ever better will make the attractiveness of the GBP 250 billion Total Quality Assurance market greater. We see strong growth opportunities with existing and new customers. Getting access to the quality assurance work that corporations currently doing in-house is, of course, an attractive opportunity. The global operations of corporations have become much more complex, and corporations are increasing their focus on systemic operational risks. That untapped market potential is really exciting. This is all about what companies do not do today and will start doing to improve their operations. The growth outlook for quality assurance in a medium to long term is GDP plus organic revenue growth in real terms.
We expect our product division that represent 81% of the group earnings to grow ahead of global GDP, benefiting from brand SKU expansion, faster innovation cycle, increased demand for smart products, and increased focus of corporations on safety, quality, and sustainability. We expect our trade division that represents 12% of the group's earnings to grow at a rate broadly similar to GDP through 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's 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.
Our resource business will also benefit from the portfolio re-diversifications of our clients as they now focus on renewables and invest in sustainability and digital data management. We expect our Corporate Assurance activities, which are industry agnostic, to get stronger and stronger given the increased importance of risk-based quality assurance, the increased regulation, the importance of health, safety, and well-being, the growth in People Assurance, and the investment in supply intelligence, sustainability, and cybersecurity. Intertek has been an industry leaders for more than 130 years, and we are well-positioned to seize these growth opportunities, capitalizing on our strengths. Our Total Quality Assurance, superior customer service, our powerful portfolio, our high-quality compounding earnings models, our passionate customer-centric organization, and of course, our disciplined performance management. Moving forward, the group will deliver sustainable value creation for all stakeholders, building on a strong track record.
I'm not sure you're aware of it, since its IPO in 2002, Intertek has ranked number one in the FTSE 100 in annual dividend growth with a 17% CAGR between 2003 and 2019. Let's now discuss our divisional performance. In H1, our Product business delivered a resilient revenue performance and a robust margin benefiting from its defensive strengths. Our product business delivered a revenue performance of GBP 800 million, down 8.4% at constant currency, and a like-for-like revenue of -8.7%. Operating profit was GBP 135.5 million, down 28.3% at constant currency, and our margin was 16.9%, down 470 basis points compared to last year. Our supply business saw a double-digit decline in like-for-like revenue due to supply chain disruption in China and India, and the temporary closures of non-food retailers in Western Europe and North America.
This was partially offset by continuous growth in e-commerce and increased demand for PPE testing. Our hardlines business saw a double-digit negative like-for-like revenue growth, revenue performance due to the supply chain disruption in China and the temporary closure of non-food retailers in Western Europe and North America, which was partially offset by strong growth in e-commerce, growing demand for smart toys, and increased demand for testing of PPE equipment. We've delivered a low single-digit like-for-like performance in our Electrical and Connected World business as a negative impact of the supply chain disruptions due to lockdown measures around the world has been partially offset by higher ATIC demand in energy efficiency, medical device, 5G, and cybersecurity. Our business assurance business delivered a high single-digit negative like-for-like.
Temporary factory closures in several of our markets has triggered a delay of the audit later in the year. This was partially offset by the attractive growth in supply chain assurance, the continuous focus on ethical supply, the increased needs for corporations on sustainability, the strong growth in our people assurance business, and the launch of remote audit solution. Our building and construction business delivered stable like-for-like revenue. In the first quarter, we benefited North America from the growing demand for more environmentally friendly and high-quality buildings, as well as a strong investment in large infrastructure projects. We saw a temporary reduction of building construction activities in Q2 due to lockdown. Our transportation technology business delivered a high single-digit like-for-like revenue decline.
The lower demand for testing in April, May, and June due to the lockdown activities in Western Europe and North America was partially offset by the continuous investment of our clients in new powertrains to lower our CO2 and NOx emissions and increase fuel efficiency. Our food business delivered a mid-single-digit like-for-like decline. The supply chain disruptions across several markets impacted the demand for testing of new products, and that was partially offset by the sustained demand for food safety testing activities and the increased demand for hygiene and safety audits. We saw double-digit like-for-like negative revenue in our chemical and pharma business. The lockdown measures have reduced the demand for regulatory assurance and chemical testing in our operations in North America and Western Europe. Given the importance of COVID-19, the pharma industry has reprioritized their investment and delayed several long-term projects.
We are, of course, in contact with our clients to support their development activities of a COVID-19 vaccine. Our trade business benefited from the defensive strengths of our agri business. We delivered a revenue of GBP 294.7 million, with a like-for-like revenue of -10.2% at constant currency, an operating profit of GBP 20.1 million, and an operating margin of 6.8%, down 670 basis points compared to last year. Our Caleb Brett business delivered a high single digit negative like-for-like revenue due to the low level of demand for oil and gas. As you know, Caleb Brett is the global leader in crude oil and refined product trading markets. Our Government and Trading Services business provides certification services to governments in the Middle East and Africa to facilitate the import of goods in their markets based on acceptable quality and safety standards.
We saw a double-digit negative like-for-like revenue decline due to the disruption of manufacturing in China in February and March. The lockdown activities in all countries impacting cross-border trade. Our AgriWorld business delivered a stable like-for-like revenue performance. We provide inspection activities globally. We remain open 24/7 during the pandemic to make sure that the global food supply chain of our clients is operating safely and fully. Our resource business delivered a commendable performance in revenue and margin. We delivered a revenue performance of GBP 235.6 million, with a like-for-like revenue of -2.1% at constant currency, an operating profit of GBP 12.6 million, down year-on-year by 15.4%, and a margin of 5.3%, down year-on-year by 90 basis points. We delivered good like-for-like growth in our CapEx inspection business, benefiting from the increased investment of our clients in exploration and production and from the win of several new contracts.
We saw double-digit negative like-for-like revenue in OpEx maintenance services as the lockdown initiative impacted the demand for inspection services in the months of March, April, May, and June. We've delivered robust revenue growth in our mineral business as we saw increased demand for testing inspection activities. In conclusion, Intertek provides mission-critical ATIC solutions to make the world ever better, ever safer. The growth opportunities ahead are exciting. We are well-placed to seize these. We operate in an attractive GBP 250 billion ATIC market with increased need for quality assurance. We have scale positions in our verticals. We provide a superior customer service to our clients. Our innovative culture and operational disciplines are making Intertek ever better, ever stronger every day. Finally, I would like to thank my colleagues around the world for all their commitment, passion, and energy in the last six months.
It has been a very different first half of 2020 compared to what we expected. Some of their actions were truly heroic, I want to recognize one team, our Bangladesh team. Our team in Dhaka had anticipated that hospitals in the country will get overwhelmed. Our team had started to stock oxygen cylinders in our labs to provide support to employees and families in case someone with respiratory distress could not get admitted in a hospital. Oxygen cylinders have been delivered to homes of many colleagues and family members during these times. An incredible, generous community activity from our team, true to our value of making the world ever better, ever safer. Thanks for your attention. I will now take any question you might have.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. We do have a couple of questions in the queue. The first question comes from the line of Alexander Mees from J.P. Morgan. Please go ahead.
Thank you. Good morning, André and Ross. Thank you for the presentation. Three questions, please. Firstly, I believe the implied like-to-like decline was 14% in May and June. I wonder if you are able to comment on the shape of that like-to-like decline over the period, specifically the exit rate for June, perhaps normalizing for any difference in trading days. Secondly, André, you mentioned that the business had participated in several government schemes. I wonder if you can quantify the support the business received from furloughing, and also the working capital benefit from cash tax deferrals. Finally, more broadly, I wonder, André, if you believe that Intertek now has stronger growth opportunities as a result of the risks that have been exposed by COVID-19 than perhaps it did this time last year. Thank you.
Thanks, Alexander. Look, I'm going to start with the last question, which in my view is the most important, which is the future of Intertek. Look, we've been championing quality assurance, as you know, for several years, believing that testing, inspection, certification is important, is necessary, but it's not sufficient for corporations to comprehend, mitigate their risks end-to-end. What that obviously unfortunate global pandemic has demonstrated that companies were not ready with the right health and safety protocol for their employees around the world, that companies were not ready with diversification of the supply chain in case one country will get problems to supply their goods or raw materials. They were not ready with some of the, frankly speaking, crisis protocols in some of their operations, and they didn't have, obviously, the information in their supply chain. Then, the remote working has demonstrated some major gaps in terms of cybersecurity.
I think, we believe that what we saw a few years ago is more relevant today than it has ever been. I think management and boards are realizing that there were a lot of risks in their supply chain that were not identified. We've talked about it with many of you over the last few years. Corporations today do more in terms of risks management than they ever did. Boards today around the world spend more time on risk. That's true. I can assure you that they don't spend enough time on the complexity of their supply operations. It cannot be done in a one-hour risk judicial review. This is very, very complex. I think these huge temporary disruptions of global supply chains operations around the world has identified these risks that we've been talking about, and we are ready to seize.
That's why we are extremely well positioned moving forward. Yes, the case for risk-based quality assurance is greater today than it was six months ago, and that makes me very confident that given all the hard work that we've done in terms of repositioning our value proposition five years ago with ATIC, making sure that our teams are equipped with the toolbox, the solutions to sell, understand how to pitch these solutions to our clients, is a huge process we have today. There is no conversation that I'm having with our clients that doesn't show that they need more support in terms of end-to-end risks. That's why we've launched some of the innovations, and there are more innovations to come. As far as your specific questions, look, on the furlough schemes, as you know, Intertek is very strong in Asia, very strong in the Americas.
Europe is not a very strong operation for us. It's important. The benefit of the furlough schemes for us have been obviously welcome, but they've not been very material. The other thing I would say, and it's a point I made in the script a couple of times, is that we believe it's a temporary supply chain disruption. We operate a highly skilled workforce with PhDs, scientists, auditors, engineers. What's really important for us, recognizing it's a temporary supply chain disruption, is that we do not lose this fabulous capability we have to service our clients. What we have done in terms of cost has been very soft, because what matters first is the health and safety of our people and the customer service of our clients. Yes, we've taken advantage of the furlough activities, but it's been very reasonable.
The government scheme support in terms of cash, yes, that has been slightly more meaningful and about one-third of the impact in working capital in H1 is driven by that. Your first question on like-for-like, as you know, typically, we do not give data on either May or June in these periods, but I understand it's a very difficult time for all of you to model the company, and we're not giving you guidance, so we're not making it easier for you. What I will say is, yes, June was better than May, and that's welcome news.
Thank you very much. That's very clear.
The next question comes from the line of Suhasini Varanasi from Goldman Sachs. Please go ahead.
Hi, good morning, André.
Morning.
Thank you for taking my questions. Just a few from me, please. You mentioned that June has been better than May. Was it still down double digits in June, or had it improved to high single-digit decline? Second question is, if we think about the drop-through rate to EBIT, it was 70% in the first half. The current consensus implies something like a 40% drop-through to EBIT in the second half of the year. What gives you a bit of comfort that the second half can be better? Is it just the improvement of the declines? Are there more cost savings that can help you improve the drop-through to EBIT? Thank you very much.
Okay. Let me just start with the second question on drop-through to put things in context. If you look at the track record of the company over the last five years, as you know, we've made consecutive progress year-on-year on margin till obviously the end of 2019. If you look at H1 2017, 2018, and 2019, you will have seen the very strong progress we have done. One thing that you have to bear in mind when you look at the data for the full year is obviously, we had made stronger progress in H1 than H2, certainly in 2019. That's one point that I would say. The other thing too is, and this is why it's very complicated for you without having the company's data in details, is there is obviously a mix effect by division and by vertical.
Our view is that the second half should get better. We are not giving any guidance, as you know. We are overall comfortable with the general consensus out there, and we'll take it a step at a time. We continue to obviously make progress. As you know, when you are high margin and you're very disciplined in terms of cost and margin management, every 100 basis points of revenue improvement can make a big difference. That's what I would say, but as you know, we are not giving any guidance. Hopefully, it helps. As far as June is concerned, the June organic growth rate was not double-digit.
Thank you. That's clear.
Thank you.
The next question comes from the line of Edward Stanley from Morgan Stanley. Please go ahead.
Morning.
Morning.
I've got three, please. Could you give us a feel of why you think the drop-through in the second half might improve from here? What gives you confidence in that? The second point, conditions in Electrical seem to have been the notable deterioration, I'd say, between Q1 and Q2. Is that macro led or is there more of a pull forward of testing volumes in Q1 that's now dropped off in Q2? I'm just curious what's going on there. The salary deferral scheme sounds like it could be potentially a meaningful impact on margins. Can you give us an idea of what proportion of staff have taken that on, and whether that benefit's already come through in H1 margins, or whether we should expect more of that benefit to come through in the second half? Thank you.
Thanks. The salary deferral point is not a cost initiative, it's a cash initiative. We've talked about it in the May trading statement, and we had a significant uptake. It's going to be only meaningful for the cash. Look, as far as Electrical is concerned, this is not complicated. As I said in the presentation, in H1 you have four months of supply chain disruption due to the lockdown activities in U.S. and Europe compared to two months in the May trading statement. That's as simple as that. It's just two additional months. The business is in good shape. Look, as far as your question on drop two, I tried to answer that question in the previous question, so I'm not sure what else you want me to say.
The next question comes from the line of Rory McKenzie from UBS. Please go ahead.
Morning, all. It's Rory here. Two, please. Firstly, André, appreciate your view on this being a temporary disruption for many of your clients and obviously new opportunities opening through this crisis. Where or have you seen any evidence yet that some customers are going to be structurally impacted or reduce activities from this? Obviously, we've seen bankruptcies and reductions in retail or food service industries. I'm just interested into your thoughts there. Obviously, I note that your restructuring charge was actually down year-over-year in H1, which of course is in line with what you're saying, just wondering any thoughts about what we could expect in H2.
Yeah. Look, on the restructuring program, we are in the last year of the five-year portfolio review we started a few years ago, and we are working our way through. We typically do not give guidance on what we're going to do in the second half. As I said, we are very careful of keeping our capability intact because it's a temporary disruption of supply chain of our clients. As far as the structural issues, post COVID-19 from a negative stand, which is your question. Look, it's a bit early to say, but clearly, some sectors in the world economy are more impacted than others. If you look at, of course, the airline industry, which we are not doing a lot of work in, is a big question mark, right? Is the capacity that we have today going to be there tomorrow?
If you look at the hotel and travel industry also question mark. Of course, all of this will change if there is a vaccine very soon and people have got the confidence to start all over again. Look, we're going to have to wait to see some of the restructuring activities in these sectors. Obviously, you see the news like I do. A lot of corporations are using this pandemic to basically rebase their cost base, which we are not doing because we believe it's a temporary disruption for our business model. I think the sector that has been impacted pre-COVID-19 and during COVID-19 is the general retail. I'm not talking about food retail, I'm talking about the non-food retail with the competition of e-commerce.
I think here you're going to see some continuing restructuring activities in terms of closing non-profitable stores, which obviously is in the news every single day, and rebalance their management priorities to e-commerce, which is obviously a very strong growth opportunity. I think that's what we expect in terms of structural challenge. We're going to have to take it a step at a time.
Okay. Thank you. Just another question on innovation. Obviously, you've been talking about efforts to digitalize or modernize services within testing, and I guess client adoption has always been quite low historically, and particularly things like remote inspection. Can you talk about how much maybe some of these areas have grown through the crisis? Whether you think that would stick as a trend, and what the implications could be for your own profitability or the range of services you can get into clients?
Look, there is no question that digitalization has been happening for several years. There are many initiatives that we've been pursuing. i2Q, which is our remote inspection tool, which is providing digital end-to-end data to our clients. In resources sector, PipeAware, RiskAware, which is helping our clients to digitalize their supply chain intelligence. The remote audit and inspection solutions, we had developed that before COVID-19 for our GTS operations to basically provide an additional service to the clients we work with in terms of faster turnaround time when they need it. It's not a cost initiative, it's a customer service initiative. It is obviously a very enhanced customer service for clients because you get speed and you get different type of expertise.
If I were to basically visualize it for you can have remote inspections happening in a factory of Seoul, and then you can have multiples, experts from Intertek around the world helping a client resolve an issue. That's growing, no question about it. That's growing with GTS, that's growing with our, obviously, BA activities. I'm not going to give any numbers because it will be too sensitive from a competitive standpoint. Yes, this is a great initiative, and the technology solution that we have put in place is really good to a point that last week I was on a top-to-top call with one of our major client in the U.S., and you're talking about one of the most successful retailer there. They said, "André, this is so impressive.
Would you license your tool to some of our internal users?" We have a really good tool and no question, the COVID-19 period will change client's perspective on what can we do remotely. To give an example of meeting clients. It's easier to meet clients today than it's ever been because of conference calls remotely.
Yeah. Understood. Thank you very much.
As another reminder, if you would like to ask a question, please press star one on your telephone key pad. The next question comes from the line of Rajesh Kumar from HSBC. Please go ahead.
Good morning. Thanks for taking the question. Just in terms of looking ahead, what are the incremental investments you need to do to be prepared for a post-pandemic world in terms of capabilities, in terms of the services you would like to offer to your clients over the next two to three years? That was the first question. The second one is I'm sorry, I'm going to ask about the drop-through margin. When you looked at your cost base in the first half, and you indicated that you've not cut it aggressively because you think it is a temporary disruption. Do you think you've got the capacity to get back to growth? In a recovery, would you expect a similar 70% drop-through margin on the upside as well? Finally, in terms of your receivables, the working capital work has been quite impressive.
When you look at the receivables and you look at your SME exposure across the globe, what proportion of your clients you think normally if you churn normally 3% or 4% because of bankruptcies of your customers, is there a risk that churn number goes up in the next 12-18 months?
Thanks for your question. I think the first question is absolutely right. Are you expected to invest? The answer is, of course, yes. Typically, we expect to invest 4%-5% in CapEx to stimulate organic growth. I think it's a good proxy for your model. We've been at the low end of 4% over the last few years. Obviously, this year is going to be lower. Yes, we are ready to invest, and this is super important. Look, on the drop-through margin, as I said at the beginning of the call to the first question on drop-through, look, we're not giving any guidance for the second half. If you look at your model and you see the trajectory of the group over the last few years, continuous margin improvement year by year, that I think should say several things.
That we know how to drive margin when there is revenue growth, that we have made continuous progress on volume price, mix management costs and productivity. Which means that when we entered 2021, there was very little slack in terms of taking cost out. That is an important point when you look at what we did in the first half. That's why we say in the first half, we believe we have the right capability to operate in this market. We are putting a pause on recruitment because obviously we don't need additional heads. We are solely focused on cost control activities on the pure variable cost. Because we want to be there for our clients when they need us.
Yes, we do have the capability today to do more than what we've done in the first half because arithmetically, mathematically, our volume is down compared to where it was in 2019. We've kept our headcounts at the same level ex attrition, and therefore, we have some productivity improvement, which answers the question differently on what to expect in the second half with revenue progression. Yes, we have decided to temporarily lower our productivity because we are a highly skilled workforce company with PhDs, scientists, engineers, and we don't want to lose this winning capability because our clients, we know, need this. As far as your question on bad debt. Look, yes, to the question we just had before on some structural issues in the markets, there are some companies in difficulties.
We are very disciplined in terms of cost management, receivable management, and the work we've done on receivables over the years compounds, and we are very careful. We'll continue to be very disciplined and careful in terms of receivable management because, as you rightly said, some of the companies out there are not doing well. One thing I would also add to your very important question is what we do for our clients is mission-critical. It's like you and I, we might want to save a lot of things in our life, but would we save on our medical coverage policy or insurance policy? Probably not. That's why our clients know that what we do is super important, and they know they need to pay us. Thank you.
Thank you very much.
There are no further questions in the queue, so I'll hand back over to your host for any closing remarks.
Thank you very much, everyone, for being with us today. I know it's a super busy week and super busy day, so we really appreciate your time. If you have any questions, we are obviously available as usual, and Denis is on standby. Thank you very much, everyone.
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