Hello, and welcome to the Intertek May 2020 Trading Update. My name is Charis, and I will be your coordinator for today's event. For the duration of this call, your lines will be on listen-only. However, you will have the opportunity to ask questions. This can be done by pressing star one. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, André Lacroix, to begin today's conference. Thank you.
Good morning, everyone, and thanks for joining us. Today, I plan to speak for a little longer than usual. I'll discuss how we have reacted to COVID-19, responding quickly to the needs of our employees and customers. I will cover trading in the first four months of the year, which has demonstrated the defensive characteristic of our earnings model, and I will explain why we believe we are well-positioned to navigate an unprecedented pandemic and benefit from attractive growth opportunities post COVID-19. In a few short weeks, COVID-19 has had a big impact in our lives and in our communities. And on behalf of everyone at Intertek, I salute healthcare and frontline workers around the world for their magnificent response. I lead a business that at its core is about bringing quality, safety, and sustainability to life.
Our role at Intertek has never been more relevant in making the world a better, safer, and more sustainable place. In short, COVID-19 has magnified the great importance of Intertek's role in society. We have remained open 24/7 since day one of the pandemic to make sure the supply chains of our clients operate safely. We are, of course, not immune to the impact of COVID-19 on the global economy. However, I'm confident in our ability to navigate what will be a challenging 2020 for the world. Let me explain to you why. First, we are a strong company with a track record of consistent value creation. We are a global leader in an attractive quality assurance market. We have a global network of well invested state-of-the-art operations in 100 plus countries, run by innovative subject matter experts, a significant pool of intellectual capital.
We benefit from diversified revenue streams, both geographically and across several end market verticals, where we operate at scale with market leadership positions. We provide our clients with the real depth and breadth of Intertek quality assurance solutions. We run a high performance and passionate organization with engaged talents, leading with an ever better mindset, and we operate a high margin, strongly cash generative earnings model with a disciplined capital allocation policy. We've entered 2020 with a strong momentum and a track record of consistent value creation over the last five years. Indeed, between 2014 and 2019, our revenue has grown by 43%. Operating margin has increased from 15.5% to 17.2%. Our adjusted EPS has grown by 60%. Our cash generation has more than doubled.
Our ROIC has progressed from 16.3 to 22.8%, and our employee productivity has increased by 21%. Importantly, Intertek has long operated with a strong balance sheet based on the financial policy of keeping leverage within a range of 1.5 to 2 times net debt to EBITDA on IAS 17 basis. At the end of 2019, our net debt was GBP 629 million, just one time net debt to EBITDA, down from 1.4 times at the end of the prior year, reflecting our strong continued cash generation. This debt has a long duration maturity profile. The company has refinanced in 2020, and we have extended our revolving credit facility to $850 million with a syndicate of eight banks for a five-year term. At the end of 2019, we had an undrawn committed borrowing facility of circa GBP 325 million.
In addition, we have confirmed that we are in a position to draw down on the Bank of England's CCFF facility should we need to do so. The group operates a progressive dividend policy with a targeted payout ratio of circa 50%. Intertek ranks second highest in the FTSE 100 in terms of dividend progression since the IPO in 2002. The 2019 dividend of GBP 1.058 is up year-on-year by 6.8%. As you would expect, we will pay our final dividend of GBP 0.716 or GBP 150 million on June 11th this year. Our sustainable performance inspired by our purpose of bringing quality, safety, and sustainability to life demonstrates the core strength of the company, our total quality assurance value proposition, our powerful portfolio, our high-quality component earning models, our passionate customer-centric organization, and of course, our disciplined performance organization. Being agile and fast is paramount in today's environment.
I would like to explain how fast we've adapted, enabling us to respond decisively to an unprecedented situation. Cast your minds back a few short weeks. When we all go back from Christmas, none of us could foresee what was going to happen in 2020. On the 16th and 17th of January, I was in China myself, in Guangzhou and Shanghai, precisely, meeting with our top clients to thank them for the business and present our 2020 innovation. COVID-19 at this time was already in the news, but it wasn't yet on the agenda of every company. That changed just a week later. The city of Wuhan and Hubei province went into lockdown on January 23rd, just as the Chinese New Year celebration were able to start.
I was then back in London, and on 26th of January, on Sunday, I called our China team to discuss the immediate action and priorities. We set up a daily call to ensure efficient communication. We start preparing our health and safety approach for when our people will return to work, and we agreed that the senior team from China would not join our global conference early in February. We were right to get organized because the very next day, the Chinese New Year holiday was deferred until the 3rd of February, and then it was announced that the return to work would be on the 10th. From the 10th of February, we had two main priorities. First, to make sure that all the right processes were in place to protect the health and safety of our employees.
To do this, we implemented a specific COVID-19 health and safety policy to protect all of our colleagues. Our second priority was to ensure we could give our clients all the help they needed to resume their operations. I'm sure you've noticed that since February 3rd, we've been updating the progress on these two initiatives on our website to keep all stakeholders informed. Things took another step up. On the 22nd of February, my Italian MD told me about the risk of a pandemic in Italy. We immediately put in place the same health and safety policy we had in China. When I gave you an update on March 3rd, this is what I said, that Intertek, we're not immune to the impact of coronavirus, and our 2020 performance will be affected by the temporary disruption to supply chains of our clients in China.
For people at work, in public space, and at home. Protek is based on a systemic approach to quality assurance. It's a comprehensive offering covering people, systems and processes, facilities, materials and surfaces, and product. Let me give you a bit more detail on the Protek offering. Protek People Assurance provides an on-demand e-learning certification program to help our clients deliver essential employee training on health and safety topics. Of course, world-leading platforms within Alchemy. Our Protek Business Assurance solutions provide an end-to-end audit of operating procedures and systems, enabling our clients to demonstrate their commitment to the well-being of their employees and customers. We deliver that through our global business assurance organizations. Protek Facility Assurance offers health and safety audit and inspection solutions for all types of facilities from hotels, restaurants, retail outlets, schools, transportation hubs, manufacturing sites, where consumers and employees look for visible safety verification.
Protek Materials and Surfaces provide complete testing solution to ensure spaces, material, and surfaces are safe for employees and customers in the workplace and public space. The reaction of our clients since we launched Protek a few weeks ago has been tremendous. Protek is very much in line with what the world needs right now. You can read more about these and how we are supporting our clients with COVID-19 related innovations on our website. I am tremendously proud of our teams. In addition to the development and launch of all these innovations, our teams have taken the time to support their communities in Wuhan and around the world. At Intertek, we really believe that we are born to make the world ever better. Our third overriding priority is margin management. Over the years, we've built a very disciplined approach to margin management.
Our strict controls on pricing and costs remain, of course, in place. We've also taken a number of additional steps to protect our margin. This includes a pause on our recruitment, a delay of six months of the 2020 annual salary increase, and furlough activities in the U.K., France, and Italy based on existing government schemes. We believe that our clients are facing temporary disruptions in their operations, and all of our margin initiatives ensure that we have the ability to service our clients fully when their operations are back to normal. We want to be positioned extremely well when our clients go 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 a third. We are running a voluntary salary deferral scheme from March to October.
That involves a 50% salary deferrals for our board members, Ross and me, our executive vice presidents, 30% for senior vice presidents, and 20% for the management. I'm extremely impressed by the willingness of circa 1,200 individuals to support the business during this period. We are also benefiting from local authorities' 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. A world-class digital communication platform has made it possible for us to reach out frequently to everybody in the organization. We use WhatsApp and our internal social media channels to recognize Intertek colleagues every day who have gone beyond normal expectations to help their customers and colleagues. I post a personal audio message on WhatsApp to the entire organization every week.
As I mentioned earlier, I'm having daily calls with our regional teams around the world. Turning now to trading. We have delivered a resilient trading performance in the first 4 months of 2020. These demonstrate the strengths of our business model, its geographic and business line diversity, and our disciplined approach to performance management. As usual, there is a lot of detail into this release, so I will now summarize the period's trading highlights. Before I do so, I want to emphasize the speed at which the global pandemic has unfolded and the broad-based nature of the lockdown initiatives in every country. This makes it difficult to attempt any precise guidance, and it is too early to quantify the impact of COVID-19 for 2020.
We'll provide an update on our full-year guidance once we have more visibility on when and how lockdown restrictions will be lifted around the world. Group revenues in the first four months was GBP 882 million, down 4.6% year-on-year at constant currency at actual rate, with a resilient like-for-like revenue performance of minus 4.9%. Our disciplined approach to cost and margin management remained firmly in place. We continue to be very focused on cash conversion and disciplined capital allocation. Our product-related businesses delivered a resilient revenue performance of GBP 520 million, down 6.1% at constant currency, with a like-for-like revenue performance of 6.6% below last year. We operate a diversified global portfolio of several end markets verticals with leadership market positions. Clearly, some businesses performed better than others.
For example, electrical, transportation, technology, building and construction, Business Assurance, while understandably some were impacted more significantly, like soflines and hardlines . In our trade business, we've delivered a resilient revenue of GBP 201 million, with like-for-like revenue performance of -5.9% at constant currency. Our business line remained open for business during the pandemic to make sure that the essential global trade activities are functioning safely and freely. I would like to highlight the strong resilience of our agribusiness in the first four months of the year. Turning to our resources-related business, where we have delivered a revenue of GBP 161 million, with good like-for-like revenue growth of 2.4% at constant currency. We are pleased with the robust revenue growth we saw in minerals and a good like-for-like growth in CapEx inspection.
Let me take you through the key components of our financial guidance at constant currency. On IFRS 16 basis, we expect the net finance cost to be around GBP 37 million-GBP 40 million. We expect the effective tax rate to be in the 25.5%-26% range, minority interest between GBP 19 million and GBP 20 million. We are investing in growth. As I mentioned, we've reviewed our CapEx plans, we now expect our full-year CapEx investment to be circa GBP 90 million-GBP 100 million. In terms of financial debt, we expect to close the year between GBP 650 million and GBP 700 million before any M&A and any material movement in Forex. A quick update on currency for your model.
Based on the year-to-date performance and the average Forex in the last three months applied for the remainder of the year, Forex will be broadly neutral at the revenue and earn level. Moving to our summary. We are well-positioned to navigate an unprecedented pandemic in 2020, and we are confident moving forward. Quite simply, our role of bringing quality, safety, and sustainability to life has never been more important. We are mission-critical to making the world ever safer. The global pandemic is demonstrating that the world needs Intertek more than ever. Our insights, our innovations, our expertise, and our passion. By staying open for business, we've enabled companies to operate safely wherever they are. Of course, we don't know how long it will take for all lockdown measures to be lifted, and how long we'll have to wait for a cure or a vaccine.
Just consider for a minute how the pandemic will continue to affect the way people live their lives every day. How will we know if a home delivery is clean? If we'll be safe in a restaurant, if our children are safe at school, and even if it's safe to have a family reunion. Health, safety, and wellbeing issues are now the number one concern for the entire world, and this is not going to go away anytime soon. What does it mean for us at Intertek? This is the first pandemic to take place in a highly connected global world, and that make the case for quality assurance even stronger. It is clear that the need for solutions that make the world a better and safer place is much greater than anybody had previously imagined.
We are more confident than ever about the future growth prospect of Intertek as the exciting structural growth drivers pre-COVID-19 have now been joined by a wide array of new quality assurance opportunities in key areas: health, safety, and wellbeing, quality assurance in the workplace and public spaces, at home. Growing demand in the healthcare sector for PPE, for new medical devices, for stronger healthcare infrastructure. An increasing need for risk management and supply chain to diversify the approach to sourcing. A change in corporate environment where working remotely will create new operational risks. A changing retail landscape, where the growth of e-commerce will create supply challenges for retailers, and a changing approach to investment and research globally in the health sector. That world will need us more than ever.
We are truly mission-critical for the whole society in a post-COVID-19 world, and we will benefit from all these opportunities and more. In conclusion, Intertek has been an industry leader for more than 130 years, and we have demonstrated many times that we can successfully navigate challenging external environments. We work with more than 300,000 companies across 17 industries and 100-plus countries. Our heritage of delivering uninterrupted quality assurance to our clients during such times has created incredible loyalty. This trust means a lot to our clients. They know they can count on Intertek to keep their supply chains operating safely during these challenging times. We are confident moving forward. This is the simple way of putting it. Intertek is a strong, agile, responsive, resilient, and responsible company. We are well-positioned to navigate an unprecedented pandemic and will benefit from additional growth opportunities post-COVID-19.
Thanks for being on the call today, and we'll take any questions you might have.
If you have a question you would like to ask on the call, please press star one on your telephone keypad now. If you change your mind and wish to withdraw your question, please press star two. Please ensure your line remains unmuted. The first question we have in the queue comes from the line of David Drew from Bank of America. You are unmuted. Please go ahead.
Good morning, André, thank you very much for the comprehensive update. I've just got three questions from my side. The first one, on aggregates, what proportion of the revenue lost this year or in the first half due to COVID, do you believe can be recovered at some stage? i.e., in addition to your usual budgeted revenue, how much of the lost revenue or volumes this year can be recovered? My second question relates to the oil and gas CapEx inspection business and perhaps even OpEx. In recent weeks, in your discussions with clients, have you seen the tone change, perhaps any postponements or cancellations of projects due to the oil price? Lastly, just on group overall revenue growth, could you perhaps give us the March and April like-for-like revenue growth numbers? Thank you very much.
Thanks for your question. I'll start with the last question, which obviously was to be expected. Look, we do not break down the disclosure by months when we do our trading statement. I understand the question. What I can say that obviously, we are pleased with the first four months of the year, but I expect Q2 to be more challenging than Q1, given the fact that the broad-based impact of lockdown restrictions will be really across the world. That's what I would say on this question. As far as oil and gas, look, we've done very well in the first four months in CapEx inspections, which is our main business. We have won quite a lot of new projects in the last few years, as we've talked about previously.
Of course, we have seen the announcements from our oil and gas clients in terms of future CapEx. What's not clear at this stage is when will these CapEx reductions take effect. Think of a refinery or platform being built. It's like when you build a house, right? Although you want to protect your short-term cash, you've got to finish the project. I think we will have to take it a step at a time. We are in contact with our clients and there will be, of course, some impact, but it's very difficult at this stage to quantify until we know precisely from them where they want to make these CapEx reductions, because it can be very difficult for them to stop existing projects going on.
As far as how much of the revenue lost due to COVID-19 Can be created or recuperated in the rest of the year. It's a very difficult question. I'm going to try to help you a bit. I think in the trade businesses, this is really very much a function of global supply and demand. It's going to depend on how the demand for energy, oil, and gas pick up in the rest of the year. Actually, if you've not driven a car for the first four months of the year, you're not going to drive it much more in the rest of the year. I don't think there will be much in global trade.
As far as project is concerned, this is obviously a bit different because a lot of our activities are project-based or SKU-based. We know that clients want to go back on the offensive. We know, for instance, business assurance that some of the audits that were canceled, have not been canceled or postponed. I hope it helps. It will be a bit different between product and trade. Thank you.
Thank you very much.
Thank you. The next question comes from the line of Suhasini Varanasi from Goldman Sachs. You are unmuted. Please go ahead.
Good morning, André. Thanks for taking my questions. Just two, please. You mentioned in your earlier statement that you expect Q2 to be worse than Q1. I'm guessing you mean the April to June period to be worse than January to March. Given April is already in your numbers, in the reported numbers, can you give us a sense of whether you think you are now past the worst, in terms of revenue declines?
What was your second question? Thanks.
Sorry. The second question is, on the working capital and the net debt guidance, is there a degree of caution on the working capital that has gone into the net debt guidance for the year? Are you actually seeing any weakness in terms of longer payment terms from customers or shorter payment cycles from suppliers, for example? Thank you.
Yeah, on debt and working capital guidance, we're always very prudent. It's true that this guidance looked at the various components, EBITDA, interest, minority interest, CapEx, and working capital. I think it is prudent to expect there could be some working capital increase during the year. Obviously, we'll report on that when we announce our results in June. Look, I think it's very difficult to answer your first question. Having run companies in multiple sectors all my life and having to deal with external events, maybe not of that nature, but similar in terms of the impact it has on the business, I've learned a very simple lesson. Don't call the bottom until you've seen it. You remember, we had these questions in the oil and gas sector for several years. Until I've seen the bottom, I'm not going to call it.
Sorry to not give you the answer maybe you want to hear. I think this is an unprecedented year. There are multiple trends in our business, as I explained, and I will call the bottom when we've seen it.
Understood. Thank you very much.
Thank you. The next question comes from the line of Paul Sullivan from Barclays. Paul, you're unmuted. Please go ahead.
Good morning. Good morning, André. Thank you.
Morning.
Just firstly for me, the 10% reduction in minority interest guidance is relatively modest. What does that tell us about the profitability of, I would imagine, the Chinese operations? Can we read anything into that? Secondly, more broadly, can you give us any sort of regional color, and where are we in the sort of return to work across Asia and improving activity levels there? Finally, how concerned are you about retail bankruptcies, and what are customers telling you about product innovation and launches as we go into the second half? Obviously, people are starting to think about or plan for the pre-Christmas season. I know SKUs are very important to you. Thanks.
Okay. Thanks, Paul. I'll take the last three, and Ross will be happy to answer the first one. I think what are we hearing from our clients, what we are all feeling in this incredible time in our life, applies to everyone around the world. There is a strong need for everyone to go back to normal. Obviously, when the pandemic became a worldwide issue, you had people under shock and dealing with themselves internally in their businesses. We are seeing quite a lot of interest from our clients wanting to go back into action because, I think everybody has realized that there might be a second wave, but we're going to be living with the COVID-19 virus in the air, if I could say it like this, for quite a while.
We are seeing clients to start planning again for offensive activities, which is what you would expect. Look, I think this is the mood of our clients around the world. Of course, they're all careful with cost and cash for the obvious reasons, but there is a strong willingness to go back to normal, starting with planning new launch activities. Certainly, a lot of companies are using these periods like us to innovate and make sure they improve their value proposition to customers. As far as retail bankruptcies, look, the financial difficulties of retailers did start, as you recall, before COVID-19. What we basically see is not necessarily retail brands getting out of the high street. It's about restructuring. It's about cutting their costs, rethinking their strategy.
Typically, we keep our relationships because they will want to reinvent themselves, and new product will be interesting to them and our approach to quality assurance is also very interesting to them to take a risk-based approach. As far as regions are concerned, if you look in the chronology, China has been back to normal in terms of capacity for Intertek, beginning of April. Our clients were slightly later because their supply chain is much more complex than ours. It doesn't mean that we are back to the revenue level we were in China, because what's happening, obviously, in China is they have the impact of less exports toward the Western world, given the shutdown in North America and in Europe. I think the rest of Asia is not back to 100%, but the restrictions are being lifted.
The small Asian economies, as you've seen, have been quite good at mitigating the impact of coronavirus. You can see that there is light at the end of the tunnel. Obviously, you know what's happening in our part of the world, in Europe. We have different speed in different economy. Italy, which has been the first one to get into the pandemic, is definitely now going back to normal, and that's good news. It's not the case, obviously, in the U--.
Okay. All right. That's very helpful. Thank you very much.
Thanks, Paul.
Thank you. The next question comes from the line of Will Cames from Jefferies. You are unmuted. Please go ahead.
Thanks very much. I had a couple of questions, please. Firstly, this is clearly not an update on margins here, but just wondered if you could talk a bit about how you've been able to protect EBIT, and whether that sort of, I guess, our fears around the drop through from revenue to profits to EBIT are maybe not as bad. Clearly, there are some countries that are offering quite good support there. Then secondly, you spoke quite a lot about the new initiatives and extra testing and inspections you would expect to see. I just wondered so far whether that's actually been noticeable to the growth rates in the businesses. Thanks so much.
Thanks, Will. Thanks for asking the question margin. Look, let me just give you the full year perspective. When we went into 2020, we were expecting continuous organic growth as you remember. Therefore, we basically budgeted for continuous growth in our business. What we are trying to do, if you want, is strike the right balance between, number 1, protecting our margin as much as we can with the initiatives available to us. I've talked about several in the call, but in addition to that, there are other opportunities, travel expenses, energy bills, consumables, marketing, overtime costs in peak periods. I also want to strike the other side of the equation, which is, I don't want to undermine the quality of customer service that we're providing to our clients.
We are a highly skilled workforce with a lot of PhD scientists, tremendous IP in all parts of the world. We believe that it's a temporary disruption in the global economy from a supply chain quality assurance standpoint. We are B2B as you know, we are not B2C. What's really important for me is do the right thing tactically in a short term, but not undermine our ability to deliver our superior customer service today, and also to be ready when our clients start increasing their spendings again in supply chain quality assurance. I want us to be well-positioned for the upturn in the market. I hope that helps understanding. We are obviously very disciplined, as you know, in terms of margin management. We're very careful in terms of pricing, and there is also the mix management, which is quite important.
As far as the new initiatives are concerned, look, we've been quite quick at coming up with the relevant innovations. I believe that when you manage such an external event, you got to play both defense and offense. Defense, we all understand, it's health and safety, it's obviously cost and cash management, but offense is customer service innovations and revenue management. I have to say that our remote audit solutions has done very well in our Business Assurance operations, as you've seen the numbers. It has also done very well in our CapEx inspections activities. If you look at some of the innovations that we are doing in terms of medical devices, we have a strong presence globally with our electrical business. We are a global leader in terms of certifications for all medical devices, OEMs around the world.
You can imagine the demand in ventilators and other device- for the emergency rooms in hospitals. We basically have changed the way we prioritize and basically have offered express solutions. Protek, I have to say, is really strong. We've just launched it a few weeks ago, and therefore it's not the numbers, but clearly we are seeing very strong demand across the board. You've seen probably in the news yesterday, on BBC that all countries in Europe are now getting ready to go back in terms of tourism activities, so an important part of the economy in Southern Europe and obviously North Africa and the Middle East. The POSI-Check, which is basically a hotel solution, has done a tremendous bounce. With People Assurance, we are seeing some real traction in North America, facility inspections.
No, I think, it's very important in these difficult periods for any companies to play both defense and offense, and I think we've played the offense card quite well so far.
Okay, thanks. That's helpful. Cheers.
Thank you. The next question comes from the line of Andy Grobler from Credit Suisse. You are unmuted. Please go ahead.
Hi, good morning. Just a couple from me if I may.
Sure.
Firstly, on Alchemy. I just wondered if you could update us on how that's been trading through this year, in broad terms. Secondly, just going back to the net debt guidance with the expectation that it goes up a bit. Am I missing something or is that implying that cash from operations roughly halves from last year, given the CapEx guidance and ongoing dividend payments?
Yeah.
Thank you.
Look, on Alchemy, we had a really strong start to the year. As you know, our contracts are multi-year, and we've had good wins last year, so, we are really pleased with Alchemy. The Alchemy platform we have, has given us the ability to go very fast with the People Assurance offering within Protek. Because we have, if you want the subject matter expertise, and we can offer this training and certifications for people in factories and in retail outlets very easily. It's doing well. As far as the debt, obviously we're not gonna go into a lot of details. I would suggest that you walk through the cash flow and you take an assumptions on EBITDA, and you've got some guidance on the various other lines, CapEx, minorities, finance.
Then if you take a view on working capital, you will see that our guidance is quite there. Obviously, we are always very prudent, as you know. I'm not gonna make any statements on any metrics moving forward as we don't do that.
Okay. Thank you.
Thanks.
Thank you. A couple more questions in the queue. The next question comes from the line of Tom Sykes from Deutsche Bank. You are unmuted. Please go ahead.
Yeah. Morning, everybody.
Morning.
Morning, everybody. Sorry. Just following on from your comments, please, on the planning of people for the second half of this year. Is there any more detail that you can give on sort of hard lines, soft lines? There has been a bit of a narrowing of SKUs across consumer perhaps. Do you think you're still going to get the same breadth of testing, or do you expect sort of the volume of testing coming back, maybe not with the same breadth, please? Maybe sort of related to that, the overnight tests and the rapid turnaround tests where you tend to get quite a high margin, are you seeing a return of those? Does that suggest that there is quite high appetite and quite a high level of innovation taking place now?
I wondered if there are any comments you can make about competitive capacity, not necessarily the ones that we may cover, but a view of capacity in any areas of your business where you think people have particularly pulled out or seen any difficulty. I guess just finally on China, and your headcount, you alluded before to wanting to retain the capacity. Are there any structural changes that you are going to make to the way your cost base is, perhaps in China or elsewhere because of this pandemic, that you've taken the chance to actually make some longer term changes to the cost base at all? Would that indeed be in any way letting go of anybody in China?
Okay. Thanks, Tom. Is it your last Intertek call? Are we gonna say farewell to you on this call, or are you gonna come for the next one?
It is my last call. It's my last call, full stop, actually. Yes.
Okay, before I answer all these questions, I just want to thank you on behalf of all your colleagues for your tremendous support over the years. I know that a lot of people in the analyst communities have learned a lot from you over the years, directly or indirectly, so it's been a pleasure to work with you. Now go back to business. I think on the express service, yes, we have seen an increased demand, as I said, in several sectors. No question that medical device is high in demand. No question that you have companies wanting to go back into the innovation agenda. It's good news. Yes, and it's good margin for us because we charge the right price for it.
As far as competitors are concerned, there will be indeed a few instances where competitors will have difficulties in terms of cash if they don't have a quality business model. You're right, some of the consolidations may be easier in the market. Obviously, we keep monitoring that. I think I will take the first and last questions together on headcount planning and restructuring activities. Look, on the restructuring front, as you know, we started a five-year program going through our portfolio, and we are running into the last year of this program. Of course, we are looking at the various metrics to see how we bring this program to a close at the end of the year. Yes, we are looking at restructuring some of the businesses that have been underperforming, and we believe it's the right thing to do.
I wouldn't label anyone at this stage, and I wouldn't want you to think it's targeted to China. As far as China is concerned and our planning in terms of people, look, we expected 2020 to be slightly more challenging in softlines. Hardlines, I have to say, is a different situation as we are seeing good demand in terms of traditional hardline testing inspections. e-commerce is booming, and we are seeing a lot of good demand for toy testing. Obviously, softline is slightly more difficult. Softline got into 2020 with some structural issues. We are looking into it. We have to be careful, because we work with lots of brands around the world, and I don't have any brand that has stopped ordering testing activities for us. The volume has obviously been impacted given the shutdown. We're going to monitor it, Tom. It's a good question.
The other thing I would say is that softline is a broad-based category for us in terms of testing. You've got the traditional physical testing. We've got chemical testings. We are obviously seeing a lot of demand for PPEs, gowns, masks, gloves, as you can imagine. Also, we are seeing a lot of interest from a lot of brands for sustainability. Although the traditional testing for the high street brands that we know might not be the same, I think some of the brands that want to stay very fit going forward are also investing, and we see a lot of demand in sustainability.
That's great. Thank you very much indeed for your answers. I'm sure we'll stay in touch. It's been a pleasure. Thank you.
Yeah. Stay in touch. Thank you. Bye-bye.
Thank you, Tom. The next question comes from the line of Rory McKenzie from UBS. You are unmuted. Please go ahead.
Morning. It's Rory here. Trying to think ahead to the post-COVID world. I wanted to ask about the risks that this disruption accelerates global protectionism or re-onshoring of manufacturing. It's a trend we already discussed a lot last year. Could you share your latest thoughts, whether you do see it accelerating that, and how Intertek is positioned? Secondly, if you want me to attempt to follow up on Alchemy, could you at all quantify the boost that it gave to the products like-for-like growth rates in this IMS? Thank you.
Okay. Thanks. I'll start with the second one. Unfortunately not. Sorry to be frustrating you. We don't disclose more than what's being publicly disclosed. Look, I think the question about post COVID-19 is very good. I don't know if you saw it, but the Minister of Commerce in Germany did a very interesting speech recently. What the world has basically come to realize is that the speed component of supply chain management, which means fewer suppliers to go faster, while it's good, it's an impediment when you've got a supply chain issue like we have today. There is no question that there will be some activities inside corporations to think through how they de-risk their supply chain medical devices in PPEs. It's on the news every single day. Having said that, I think everybody knows that the global trade is a reality.
The trade flow are very intertwined, and it's going to be difficult to change that. My sense it's going to be evolution more than anything else. Obviously, we can for clients if they want to rethink their supply chain risk. This is part of what we do with BA. I wouldn't expect a big bang move on that. It's going to be step by step.
If I may just follow up. I guess it's this trend of moving from just in time to just in case supply chains.
Can you talk about within the world of products and where obviously at the moment today you gain the revenue from the clients, it's quite a lot to do with fast turnaround, need to get products on shelves quickly. Would more elongated supply chains change the pricing power of you in the industry there, or that would be unaffected?
Look, I don't think it will affect our pricing power because at the end of the day, we tend to price our subject matter expertise based on our cost base and the added value we bring for our clients, and our offering is global. Of course, the price is not exactly the same in every country, depending on the cost of doing business. It's very difficult to be precise. I don't think it will change our pricing power. What I think it will do, it will reinforce the approach we take with companies, which is to talk about risk-based quality assurance approach, which is basically looking at supply chain end to end, not just in time, as you said, but with the right quality and the right supply all the time. I think it's going to be interesting.
Yeah, interesting. Great. Thank you.
Thank you. The next question comes from the line of Raj Escuma from HSBC. You are unmuted. Please go ahead.
Hi. Good morning. Thanks for taking the questions.
Welcome.
First is, you've very helpfully provided capacity utilization numbers at the full year presentation for China. We've gone into lockdown in many other geographies since. Just in terms of where we are, when it comes to some of the key high margin product businesses in terms of capacity utilization or capacity back online and operating, could we get some color on that? Would it be fair to say that your comments earlier about being prepared for a recovery meant that you're not doing mass capacity reductions across different businesses? Second question is on your March and April trading terms. Totally appreciate you don't want to give out monthly trading patterns.
Some of your peers have indicated, and a lot of people in your supply chain have given April and May trading updates, which sort of suggests that the step down has been quite sharp and meaningful. Just when we read the release, it says double-digit in softline. That could be in teens, that could be 25%. Just an order of magnitude, for softline, hardline, where you have said double-digit, does it mean double-digit 25%? Double-digit 15%? Some order of magnitude that would really help. Final, it's a follow-up from an earlier question. When we look at your net debt for the full year, GBP 650 million-GBP 700 million, you've very clearly given that number in the release.
If we assume what you have done for dividend and what you're saying for CapEx, it implies an operating cash flow between GBP 330 million-GBP 370 million. Which is down quite a lot. You've made some comments about working capital. Should we assume that step down is because you're keeping capacity and you will bear some negative operational gearing? Or is working capital a bigger part of that?
Okay. Thanks. I'll try to answer all your questions, starting maybe with the last one. Look, what I said to previous question is what we can say at this stage. I think if you work your way through from the EBITDA assumptions that you will make for the business, and you take line by line, and you take an assumption that expect working capital to increase, you will see that you come to these numbers. As I said, we always want to be helpful by giving you a net debt range so that you get a sense when you reverse engineer the numbers of what the outlook could be. As far as people are concerned, no, we are not doing a capacity reduction across the board.
As I said during the call, it's very important for us to make sure we continue to provide a superior customer service to our clients. We are ready for when the supply chain activity is resumed fully. We want to benefit from that, and we don't want to undermine our quality today. As far as capacity availability around the world, I think, we are open for business, so our businesses are fully operational around the world. With the exception, as I said on the call, of India, which is still quite difficult. Okay. Thank you.
The decline rate?
Sorry, I cannot say more than what we said today. Look, we try to be helpful.
Double digit. Double digit. Is it 25? Is it 15? Order of magnitude. They're different numbers. Very different.
Yeah, of course. If it was not easy to read or to understand, we'll say it differently. I will leave it to that. Sorry, we're not giving any more color on that. I'm sorry.
Okay.
Thank you. The next question comes from the line of Ed Steel from Citi. You are unmuted. Please go ahead.
Good morning, everyone. Morning, Andre.
Morning. Morning, Ed.
Just one question really, please. You've given a pretty tight net debt guidance for end of 2020, just GBP 50 million range. That's the sort of tightness of guidance one would expect in a more normal year. This year there's going to be really quite a variety of profit performances depending on how COVID-19 lockdowns ease, whether it's second spike, et cetera. Profit guidance is very difficult, as you've acknowledged. CapEx guidance is tight. Minority guidance is tight. The working capital is not necessarily fully in your control. I'm just trying to understand what the flex is within your control to ensure your delivery of net debt within that guidance range. The one missing component, of course, is the interim dividend for 2020.
Is that something you consider a flex item to ensure you deliver net debt within the range given that profit could fall short by a material amount, please?
Look, the answer on the interim divvy obviously is not for now. This is as you've seen today, we are gonna pay our final for 2019. This is something that is a board decision. Look, I reckon your point about the range being a bit on the narrow side. Look, Ross and I have run multiple scenarios, as you can imagine. At this moment of time, we believe that's the right guidance to be helpful to you and your colleagues. What can we do to manage the businesses? Obviously, we can influence revenue, we can influence margin, we can influence working capital, we can influence CapEx. We've got quite a few levers, and all in all, believe it's the right guidance.
Obviously, it's only the end of April. I will remember your questions at the end of the year. We can check our books.
Absolutely. Okay. Thanks very much. We'll do that.
Thanks, Ed. Thanks.
Thanks. Bye-bye.
Thank you. There are no further questions in the queue. As a final reminder, please press star one on your telephone keypad now. Okay, as no questions are coming through, I'll turn the call back to you, André. Thank you.
Well, thank you very much, everyone, for being on the call today. I really appreciate your time. We know it's a busy time. Obviously, Denis is available if you have any questions. On behalf of all of us, I'm sure we're wishing Tom a fantastic future in his next career opportunities at Deutsche Bank. Thanks, Tom, again, for all your support over the years. Have a good day, everyone. Bye-bye.
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