Earnings Call: H2 2019

Mar 3, 2020

Hello, and thank you for staying connected. We apologize for the delay and welcome you to the Intertek 2019 Full Year Results Conference Call. My name is Rosie, and I'll be your coordinator for today's events. Please note that we are recording this conference. And for the duration, your lines will be on listen only However, you will have the opportunity to ask questions at the end. I will also do a video running shortly. So to view this, can you please connect to the webcast via the link on the Internet website? If you need assistance, please press star 0 and you'll be connected to an operator. I will now hand you over to Audrey Clark to begin today's conference. Thank you. Good morning to you all, and thanks for joining our conference call. I'll call you again for the slide later this morning. Your patience is highly appreciated, and I know it's a busy day for all of you. Ask Michaela's CEO, CFO, and Dennis Moro, our VP of Investor Relations. I will be on the call. This morning, as you saw at 8 o'clock, we announced a very strong set of results for 2019 with revenue acceleration progression in terms of multiyear customer currency, robust EPS growth, strong cash generation, and a higher return on invested capital. 2019 marks the 5th consecutive year for intertek of an EPS delivery ahead or in line with external expectations. We are extremely pleased with the consistent performance of the group in the last 5 years. We've been valued for all of our stakeholders inspire our purpose of the inquiry, safety, and security to life. Today, I'll start with our performance highlights, then Ross will take you through the financial details and results. I'll provide an update on strategy, and then we'll discuss what you'd for. 2020. Before we start, just want to give you an update on the approach we are taking in relation to the challenges in accounting standards. For reporting consistency purposes, the numbers we'll discuss in our presentation today are based on the IS 17 standard. Even as we now have the 2019 full year numbers in our IRS this morning available on both standards moving forward, we will be guiding under IFRS 16. So let me start with our performance highlights in 2019. Okay. In 'nineteen, we continue to make progress on revenue, EPS, cash, and dividends. The group generated revenues of £3,000,000,000 appear on the 0.6% actual currency and 4.8% at constant currency, driven by good organic growth of 3.3% and by the contribution of recent acquisitions. Operating profit was £513,000,000, up 6.5% in actual currency and 5.2% at constant currency. We've delivered operating margin of 17 point and stable at actual rates of 10 basis points at constant currency. A full year adjusted EPS of 211.73 was up 6.18% actual currency and 5.2% at constant currency. In line with our dividend policy, the target, the payout ratio of circa 50 percent of earnings, we've announced the proposed annual dividend of 71 0.6p, taking the full year dividend to 105.8p, an increase year on year of 6.8%. Our cash conversion was strong with a free cash flow of £318,000,000 at 8% year on year. We are pleased with the existence of the delivery of the group underpinned by a strong earnings model and of this esteemed performance approach. In the last 5 years on CAGR basis, we have grown our revenue by 7.4% operating profit by 9.6% of free cash flow by 15.5 percent and a dividend by 16.6 percent. During that period, our margin improved by 170 basis points. In 2019, we've benefited from a broad based organic revenue growth of 3.3 percent at constant currency with a run rate improvement of 60 basis points in the second half. We've delivered log any cost of dollars of 2.3% in our prod divisions, 4.1% in our trade division, and 5.7% in our Resource Division. 2019 marks the 5th consecutive year of housing progression at constant rate. And we've delivered last year a mounting improvement of 10 basis points at cost of currency. We believe that we scope for further mounting improvement and we remain very focused on margin accretive revenue growth. Our cash performance was strong with a cash conversion of 100 27%. Our financial net debt to EBITDA ratio was one time. I will now hand over to Ross. We'll take you through our financial results in detail. Thank you, Andre, and good morning, everyone. As Andre has described, we have accelerated our revenue growth of robust EPS growth and strong cash performance. I will now take you through some of the details on the line of results. In summary, the group has delivered good revenue growth in 2019 with 3.3 percent organic revenue growth at constant currencies. For the progress of the margin with an EPS growth of 5.2%. Free cash flow generation remains strong with cash conversion of 127%. Positive FX impact on total revenue was 180 basis points for the year, driven by the depreciation of the sterling. At constant rates, operating profit was up 5.2% to 1,000,000 and margin was up by 10 basis points. Our operating profit was up 6.5% at actual rates. Overall, fully diluted EPS grew 13.4p to 211.7, being 6.8% at actual rates and 5.2% constant rates. I'll now take you through the high level margin performance by division. And as Andre said, the group recorded an operating margin in 2019 of 17.2 percent, stable year on year at actual rates. And up by 10 basis points at constant currency. Organic margin was stable at constant rates with 10 basis points improvement driven by resources margin, offset by 10 basis points movement from our trade business. Acquisitions contributed 10 basis points of margin improvements or FX at a negative 10 basis points impact on the group margin. Now turning to group cash flow and net debt. A disciplined focus on cash management continued throughout the period. Cash flow from operations was £652,000,000, up 8.1% year on year with working capital down 8% year on year, reducing to 3.4% revenue. We invested a 116,800,000 in CapEx, in line with 2018 to expand our market coverage and develop innovative solutions. Adjusted free cash flow in the period was 395,300,000. The acquisition that we made in 2019 led to an outflow of 1,000,000. Financial net debt stood at $659,400,000, and including the IFRS 16 lease liability, total net debt of $175,400,000. Now turning to our financial guidance for 2020. On an IFRS 16 basis, the expected net finance costs will be in the range of 35 to £38,000,000. Effective tax rate is expected to be in the 25.5 to 26.0 percent range. A minority interest between 202120 3. For your models, I've set up the number of shares for the EPS calculation, We're currently expecting full year CapEx to be in the range of GBP 130,000,000 to GBP 140,000,000. Of the financial net debt, we expect to close the year at £520,000,000 to £550,000,000. Although noting this guidance is stated before any M and A any material movements in FX, and of course, the impact of coronavirus. I'd now like to hand you back to Andre. Thank you, Ross, for a comprehensive review of our 19 results. So today, I would like to give you an update on on where we are on a good to great journey. You remember that 5 years ago, this is what we said we will do when we presented a 5 by 5 differentiated strategy for growth. The last 5 years, we've made continuous progress on strategy and performance. And I'd like to start with a short video that will show you how we have operationalized our strategy inside the The operationalization of our strategy, as you know, has delivered strong results over the years between 20142019 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. Now it's £318,000,000 or return invested capital has progressed from 16.3% to 22.8%. And we've improved our employees productivity. And I would like to take this opportunity to recognize and thank all of my colleagues around the world. Who are delivering sustainable value through their unmatched expertise and customer centric approach as this tool may. As you've seen in our video, we've made disciplined investment in attractive growth and margin sectors. We've invested 500 60,000,000 in CapEx over the last 5 years to better serve our clients in additional market coverage, capacity expansion, and importantly University Solutions. We've also invested in M And S selectively 710,000,000 for the period making acquisitions in attractive sectors, connected world, Sustainability, people assurance, human hospitality. We've invested both organically and inorganically in breakthrough innovative platforms like Italy and In Life that provide a tremendous level of service to our customers. The few words on acne 2019 was the 1st full year of acne at Intertek, and we are really, really to have welcomed actually inside the group. We have inherited this passionate organization, you know, working with leading edge technology in the food sector, both factories, and multi sites. And complete the report that we are on target from a financial standpoint, and we are really pleased with the progress that we are making on commercial activities, frankly reflecting the strong demand for alternate SaaS platforms. The prior year guidance that we published last year remains unchanged and that includes an EBIT margin of over 25% in year 5. Moving forward, we'll continue to execute our 5 by 5 differentiated strategy for growth as, you know, so well, our mid to long term strategic goals remain conscious focusing on our employees and superior customer service and deliver margin accretive revenue goals. Strong cash conversion remains a top priority, and we'll continue to pursue a disciplined capital allocation strategy. The growth opportunities in the quality assurance market, the way we define it, are very attractive. The total quality assurance market is worth $250,000,000,000, yet only 20% of this market is currently outsourced. The global operations of top operations are more and more complex. And that drives more demand for end to end quality assurance services as companies increase their focus on systemic operational and corporate risks. His untapped market potential is really exciting as this is all about what companies do not do today. And we'll start going to improve the quality, safety, and facility of the operations. Please only apply structural growth drivers in the global quality assurance market, we expect the group to deliver GDP plus organic revenue growth in real terms. Expect a fraud division because we turned 17 percent of the group's earnings to go ahead of the volatility. Like, I took trade division, It represents 16% of the group's earnings to go at a rate broadly similar to GDP for the cycle, the growth prospects in our risk of divisions, which represent percent of our earnings are improving with the increased investments in oil and gas, exploration, and production activities as well as in renewable energies. We are extremely well positioned to see the exact exciting growth opportunities ahead, capitalizing on our core strengths. Our strength on the one is our total quality assurance to be a customer service. 2nd strength is a powerful portfolio Our high quality component earnings models is a real core strength of Intertek. We have a passionate customer centric organization and a disciplined performance management. Innovating in attractive growth in emerging sectors is an integral part of our strategy helping our clients resolve the increased complexity they face in their global operations, see that their product and services with the highest safety and sustainability standards. We continue to identify margin accretive innovations leveraging our industry leading expertise. Intertek operates with a high quality component earnings models. Our capital light business model combined with our customer centric organizations, enables us to react quickly to new growth opportunities by following the supply chain of our customers and new geographies. Our approach to value creation is based on the compounding effect year after year of margin accretive revenue growth strong cash generation and disciplined investment in growth. I believe in the value of disciplined capital allocation. Our first priority is to support organic growth with capital expenditures and investments in working capital, powertrain new services, and developing our client's relationship. Typically, we target circa 5 percent of revenue in CapEx. Our second priority is to give us a stable return for shareholders for the payment of progressive dividends. Our recognition of our highly cash related business models are strong financial position. The both confidently attractive long term growth prospects of the group and its ability to fund continued growth investments Our targeted dividend payout ratio is circa 50%. And our third priority is, of course, to pursue M and A activities in attractive growth and margin sectors to, offer superior customer service to our clients and deliver good returns. One of our core strengths at interstate is our performance management discipline. As we talked about over the years, our performance approach is based on leading and lagging indicators from every single team in the world of Intertek from every single site support in the organization. The insight you get from our NPS surveys, causing 7000 interviews a month, our members may enable us to drive a superior customer service with continuous improvement operational approach. Our incentive systems for our colleagues is aligned with the interest of our shareholders, targeting revenue, profit, margin, cash, and return on invested capital. Importantly, we believe in the growth of our people, and we give all of our people the opportunity to learn and grow using a leading global learning platform the next way. So state AT is central to a 5 by 5 differential strategy for growth. We believe that we bring business the right way with a 6 to 8 approach is the only way to deliver our corporate goals and create sustainable value creation for all stakeholders. To do that, before precise processes and standard operating procedures in 10 areas of our sustainability approach, process quality and safety, risk management, enterprise security, compliance, environment, people, and culture, communities, governance, financial, and disclosures. Now that we reviewed where we are from a strategic standpoint, I'd just like to spend some time now on the up to 2020. And let's start with an update on the coronavirus. We've made regular updates on our website since February 3rd, and then we recap where we are. We operate more than 80 sites in China with the foreign business lines, electrical softlines, headlines, food, business assurance, supply management, transportation technology, cannabis, agriculture, minerals, and industry services. We have almost 12,000 employees in mainland China in Hong Kong, and in Wuhan, which is obviously the area where the Hubert Province is locked down. We only have one site, the branch offices, which 30 employees, working for TTi food via enterprise management. The actions we are taking in China include health care costs and driving through the COVID, including the detail coronavirus control and prevention manual. In accordance with this manual, It's taking place hygiene and other protection measures in the workplace and customer locations for field based colleagues including the use of trademarks and the use of hand sanitizers and gloves. When conducting field based audits and inspections for factories, vendors, or customer sites, they're asking our partners to first confirm that they have no suspected schedule for a virus, and that they have taken the precautionary measures before we deploy our people. With a complex complete restriction on international travel from into China and Hong Kong. We also issued a prevention guide to all of our people globally in line with the World Health Organization Guidance to minimize the risk of infection. As you know, this is a developing situation, and we'll provide you with regular updates moving forward. Let's now discuss the outlook for 2020. As I said earlier, we've delivered 5 years of prospective progress on revenue, EPS, and cash existing 2019 with an improved organic growth momentum. We are well positioned to continue to give us sustained value creation for all stakeholders. Prior to your break of the coronavirus, we are targeting the group to deliver continuous progress in 2020 with broad based, good organic growth across the group with comfort services, placed on good organic growth in profit and trade, robust growth in resources, moderate margin progression at the group level, and, of course, strong cash conversion. We are not immune to the impact of the coronavirus and our 2020 performance will be affected by the temporary disruption to the supply chain of our clients in China and any impact it might have on global trade activities. It is too early to quantify the impact of the coronavirus. We need to provide an update at a late later stage in the year once we have more visibility on the full resumption of the supply chain of our clients. We remain, of course, very disciplined on cash conversion. We continue to invest in growth, and we expect to full year CapEx investments to be circa 130 to £140,000,000. If you update on currencies for your model, The average selling rate in the last three months applies to the full year results of 2019 would reduce our revenue and earnings by circa 250 bps. Let's now discuss our divisions and given difficulty in modifying the impact of coronavirus, we are not providing business line guidance for 2020 at this time. In 2019, our product business delivered a robust performance with continuous margin accretive revenue growth. Our revenue growth at personal rate was 4.6 percent and organic revenue growth was 2.50 percent driven by broad based revenue growth across business lines and geographies. You give it robust operating profit of £398.6 with 5.7 percent at constant currency. Enabling us to deliver a margin of 22.2 percent, up 20 basis points compared to last year as we benefited from quality operating leverage in the system cost management. Our Softline business reported operating cost of common slightly below last year. We benefit from the investment we made to supporting expansion of our customers into new market, seizing seizing the exciting growth opportunities, the foodwear sectors, and continue to leverage the strong demand from our customers who can go testing. However, I discussed in I discussed, you know, in Nevada, lack of visibility around the outcome of negotiation and tariffs has resulted in a delay in the loss of new products in the second half. Our hardline and for businesses to take advantage of our strong global account relationships, the expansion of the customer supply chain into new markets, and our innovative approach to factory inspection. You can give us solid organic revenue book performance across our main markets of Greater China, India, and Vietnam. We give a good organic revenue boost. You know, I like to call and connect world business, driven by higher regulatory standards, energy efficiencies, and by the increased demand for wireless devices and cyber security. Our business assurance business delivered good organic revenue growth we continue to benefit from the increased focus of corporations on risk management, resulting in strong growth in supply chain audit and increased consumer government focused on ethical and sustainable supply, driven by the growing demand for more environmental friendly and high quality buildings in the auction in the U. S. Market, our Building Construction business recorded good organic revenue growth. Our Transportation Technology business delivered robust organic revenue, benefiting from our client investment in mutual trend, lower emissions, increased fuel efficiencies. We continue to benefit from the increased focus of corporation on food safety and delivered good organic revenue growth in our food business. It delivered an organic revenue performance slightly below here in a chemical and pharma business due to the decline effect driven by the 2019 reach registration deadline. I need to long term our fraud division will continue to benefit from exciting structural growth drivers, including fraud, variety, brand and supply chain expansion, prior to innovation and regulation, the growing demand for quality and sustainability from developed and emerging markets. The acceleration of e Commerce as a new child self panels and the increased corporate focus on rates. Let's now move to trade. Our trade related businesses benefit from acceleration with revenue momentum with 4.5 percent growth and 4.1 percent organic revenue growth at constant rate, driven by broad based revenue growth across business lines and geographies. We've delivered a stable operating profit of £83,700,000. That being us to deliver an operating margin of 12 point 50¢ down 60 basis points versus last year, driven by portfolio mix effect within GTS and challenging training conditions being calibrated in North America and North America. The Cadbury business business reported good organic revenue growth reflecting the structural growth drivers in the crude oil and refined product civil trade markets. Our governments and trade services business delivered double digit organic revenue growth, driven by growth existing contracts and new contracts. Our agri world business has a good organic revenue growth, driven by a broad based gross performance across of global inspection businesses. In the medium to long term, our trade division would continue to benefit from regional and global trade flow as well as increased capacity, quantity control, and supply chain risk management. Let's now discuss resource. We benefit from an improved revenue momentum with margin accretion in our resource related businesses. We've recorded a robust organic revenue growth, up year on year, 5.7% of total rate, and we believe with an operating profit of 31,200,000 We've got that year on year by 16%, and have been asked to deliver a margin of 6.1% up year on year by 50 basis points. We delivered robust organic revenue growth in our CapEx inspection business, which benefited from the increased digital customers in exploration and production activities as well as the wind of new clouds in several geographies. Demand for OpEx Management services remains stable, with benefits from robust organic revenue growth in our mineral business driven by stronger demand for testing and inspections across most geographies. In the young folks in our Whistills division with Computability from investment in exploration and production of our kind of oil, investment in renewable energies and minerals, to meet the demand of the growing populations around the world. Please summarize. We are pleased with the progress we've made goes on strategy and performance the last 5 years, and this is a real tribute to the quality of our organization. The opportunity to go ahead are exciting, and we are well positioned to see this. We are superior to who create the assurance customer service. We remain very focused on saving sustainable value for all stakeholders, executing our 5 by 5 strategy with operating discipline. Thank you for your attention this morning, and we'll now answer any question you might have. Thank you, sir. As a reminder, if you would like to ask question. Our first question comes from the line of Suezini Varanasi from Goldman Sachs. Please go ahead. Hi. Good morning. Thank you for taking my questions. Again, she cannot quantify the impact from the coronavirus, but can you give some color on how February has been in terms of, let's say, trading activity in China and Hong Kong or in terms of, let's say, how inflow how many employees have actually come back to work until the end of February. That would be helpful. Thank you. And, regarding the virus impact, can you talk about what kind of leverage you have on the base to mitigate any impact to margins. Are you interested in taking any cost saving measures? Thank you. Okay. Thank you very much for for your question. I guess you can have quite a few questions on the coronavirus. So maybe, let me just, you know, give you, a bit of color on how we are, handling the situation. And you can imagine, we are very close to our Chinese colleagues and, I personally share, you know, a very, you know, session to track the progress of, all of our activities in Greater China, given the fact that, you know, China and Hong Kong represent 19% of our group revenue stays on the 2018 annual report data. As I said, you know, in in the call, of course, we are not immune to the impact that these temporary supply chain disruptions is creating in the world of our clients because this is basically, it's the main point here. And as I said, trying to, be helpful, you know, as much as we can, it is not possible to why, precisely the impact. And I will, you know, give you a few, you know, data points. As you know, the Chinese New Year holiday was postponed the return was postponed, I should say, to February 10th, and we've basically resumed operations from February 10th onward in mainland China. Hong Kong operates with a different calendar, and we resume operation on January 29, as expected. Unfortunately, you know, we had one case of, one of our employees inside operations being identified having the virus. And we decided for the health and safety of everyone inside operations in Hong Kong to basically close the operation for 14 days to give everybody the time to go through the required quarantine period. We will open in Hong Kong on the 26th February. And Hong Kong is now, like, made on China fully operational Our power operations has resumed operation on January, searches as expected. What's very important, for all of us to consider on how to think about the, you know, next steps is twofold. One is It's a function of how many employees do we have inside of our operations back towards your work. This is if you want our own capacity if you want. And I will give you some basic points on that, but this also applies to our clients. And there is another important factor for clients is, you know, what is the availability they have in their supply chain of all the components and parts from their tier 1, tier 2, tier 3 suppliers. And if you visualize, you know, all operations in in in in China, as I said, we have, you know, you know, more close to 12,000 colleagues, we operate in more than 80 sites. Just to give you a sense, you know, we work for close to 130,000,140,000 clients in Greater China. It's not only a question of how much capacity does Evotec have, and I'll come back to this point, but it's how much, you know, of the capacity of clients can basically resume because for them, it's a function of 2 dimensions. How many of the employees do you have to work? And do they have but from the tier 1 tier 2 tier 3 suppliers. That's why it's very difficult to, you know, to quantify how long it's gonna take than what it means. Having said that, I can assure you that everybody in China is focused on network trying to resume as much as possible their operations, but it will take time. And I will keep you informed throughout the next few months when we've got more visibility. So what does it mean, you know, for for for for intake? We've seen gradual progress of capacity build up in and we will see also see in a gradual progress of the supply chain resumptions from all of our clients. But just to give you a sense We really restart our operations on February 10th. And in the 1st week after the Chinese New Year, we basically had about 20 to 30% of our employees back to work. And you will recall that after the Chinese New Year, for lots of provinces, if anyone had traveled outside of the province, they had to go on Karen Chan for 2 weeks. That was typically mandatory. That was but created to delay in the capacity buildup. In the week of February 17, we saw some further progress and we had about 35 to 45 percent of capacity back. And last week, before the week of February 24th, we had about 55 to 65%. So that gives you a debt, an an idea of, you know, how much capacity we have revealed step by step. But I want to really stress here, this is the inter tech capacity, I. E. How much, you know, can we produce for our time? It's not an indication of our revenues because as I explained before, our clients also need to rebuild their supply chain. And it's complex, it's taking time, and nobody can really quantify that. What we are doing for our clients is very important making sure that, you know, we have the utmost, you know, hygiene and safety standards inside our operations and when we go and visit our client. We're obviously available 247 to help them review their work when they need to start, you know, testing for the, export activities. And, you know, we basically, cannot really quantify and determine when all of our suppliers, customers I gotta be back to 100% capacity. Now one thing that I would like to stress is we are a B2B business. We are not a B2C business. So what matters for us is the resumption of the supply chains of our clients. And you know that so well, if you're on a B2C business, if you're in a restaurant business, If you don't go out for dinner because you're worried about certain things, you're not gonna have two dinners the next night. In our business, we have an audiobook. And, you know, it is the usual, you know, industry to make sure that we add extra shifts to serve our clients and meet demand in the order book we have. So there will be some catch up down the road in China. Obviously, I cannot say more than that. So the last question you asked in terms of, you know, what type of cost saving could we pursue if, you know, we want to reduce the impact of the lost revenue. Of you is that, you know, we have had a very good year last year in in China. We had targeted, you know, our China, you know, businesses to continue to grow. At a very healthy rate. And all our costs, you know, fixed desirable ideas to deliver that growth it's not, you know, possible, you know, to save cost, you know, during, that's going to be a temporary, reduction of the supply chain because we want to be there when our cars need us to resume the production of, investing activities for them. So Thanks for asking that question. Are you the opportunity to give you a broader perspective on on where we are? That'll take any additional question from anyone. Can I just ask one follow-up, please? You mentioned that at the end of February, you've got 55 to 60% capacity at your, businesses in China. Would it be fair to say that, in your customer base, the has not been very strong, and therefore you have not been able to use your existing employee facility to service all your clients, but basically the customers are still ramping up. So your employees are just sitting some of them as an ID. Look. I I know exactly where you're trying to go. Today is not a trading statement about 2020. I'm trying to give you the parameters to think through, you know, how to look at your model. As I said, this is Intertekcap and I'm not making any statement on our revenue in January, February. We'll do that in in due time when we announce our results for the 1st 4 months in May. So and that's right to be difficult. I just want to be precise. This is our own capacity numbers. We just need to give you a sense of, you know, where we are I would also ask you to think through that, you know, there are different, you know, level of business presumptions in the supply chains of our clients in China There's a bit of data out there. We have to be all very careful with the, like, data being, you know, you know, published publicly sometimes, and and we have to be patient. And I think the best way is still wait for the numbers to be released. Thank you. The next question comes from the line of Paul Sullivan from Barclays. Please go ahead. Good morning, everybody, and and and thanks for the color Andre. Just following up on that. Good morning. Can you hear me? Yeah. Yeah. Yeah. Okay. Great. Outside of China, are you seeing any impacts, in other parts of Southeast Asia? At this stage. Hey. That's a that's a great question, Paul. Thanks for asking it. If you can imagine that less, important export activities, you know, in China. And that is, of course, you know, having an impact on some of the global trade activities. You would have the third that, you know, some of the factories in Europe or the US are not getting the supply. Of components that you need to produce, and that's basically a reflection of that because, you know, it's more difficult to get in and get out of port in China. So Yes. I expect some impact on global trade. Very difficult to quantify, Paul, but, you know, we are monitoring it, very, very carefully because it's out of the global supply chain points I mentioned earlier, yes. And just following on from that, if we can, which we're thinking maybe to decide for one second. The impact from the trade war was becoming a little bit more evident in the second half. How are you seeing that push through? And then finally, were you on the changing changing tax levy on the balance sheet The cash flow is good. You've been on the left now. Were you tempted to think about the cash return this year? But has the uncertainty put sort of add into the loan graph? Look, I think, the news at the end of the year certainly confirmed early January on the tariff discussions between the US and China have been very welcome, the entire business community. And what is really a downfall. It has, reduced the level of uncertainties in terms of future issues. Unfortunately, with the Chinese holidays in January and what's happening in in February, could not be able, you know, to to see any benefit from that, as you can imagine, but certainly, this is positive news in terms of reducing the uncertainties moving forward for all of our clients. You know, as far as our balance sheet and the strength of our balance sheet, look, you know, we we believe in you know, discipline capture locations. We have a tremendous opportunities, organic, you know, organic, you know, as you probably have seen with Better saw acquisition at the end of of December, you know, we continue to look at acquisition opportunities around the world in a very disciplined fashion. We've been at what time, one time net debt to EBITDA, you know, in the past, and, you know, we are happy to be there if, this is, what we need to find the right, acquisitions We've never made any any commitments to any, you know, return to to to shelters in terms of cash because we never had to do that in the past, but you can imagine this is a decision for our board and and, you know, we want to do the right thing to do this for long term. So the good news is, yeah, you know, it's extremely strong financially. We've got a tremendous balance sheet. We've got a lot of opportunities. We are very disciplined, and we will, you know, make the right call. Thank you very much. Thank you. The next question comes from the line of Edward Stanley from Morgan Stanley. Please go ahead. Morning. Thanks for taking my questions. I'm following up from Paul's question on, on the impact from trade war. Can you give us a feeling for the the products that are being delayed in the second half? Is that a small number of products from a small number of customers, or is that a sort of larger number of customers spread across your total customer base. Just trying to get a feeling for how quickly it might bounce back, whether it's isolated or broad spread. The second point, I'm just wondering whether you're seeing any incremental pressure on price or increased competition in either hard lines or soft lines in the second half of the year, because the operational gearing products, that's not as as great as I, might have had my model. And then on the 3rd point, during the year, you said you lost some food share or market share in in the food business, do you do you have a long term, plan to how how you get that market share back in food and where you that division to grow over the medium to long term? Okay. Thanks. Look, I think, going back to your first questions in terms of the delay of the launch of new products that we saw on the back of these, discussions on tariff. Basically, it's not complicated to understand is if you are a brand or if you are a factory in in in China and you know that the tariffs are gonna increase across lots of categories. And you know that potentially there will be some solution to these negotiations. Why would you invest in tuning and equipments to start producing your equipment. So what your new products. So what we saw is is, you know, you know, across, you know, several, you know, customers these decisions to be, you know, delaying investments, nothing more than that. As far as, the, you know, the the situations in soft line and hard lines. Look, we we operate in in a global market. We have, as you know, your competitors There is always, you know, price competition out there. We do not, you know, use price to deliver you know, revenue goals. We believe that good revenues based on, you know, volume and, you know, strong pricing power. And, you know, the operating leverage point that you, you, you, you've mentioned is just a function of the portfolio of multiple business lines. And it's true that, you know, in our Softline business, we saw slower revenue, in, in, in, in, in, in, in 'nineteen. And when you have a business that is a high quality business, and you value your customer service, you have to accept to, get some negative operating leverage from time to time because you want to protect the quality of your customer service. As far as, that wouldn't say that, you know, the pricing environment has changed significantly. It's been, you know, more or less the same, for many years. And, you know, which companies use price, more than others and, you know, good luck for them. As far as the food point, yes, you're right. I mentioned that you know, during the year, as I said at the time, it's it was really, you know, local issues in a few sites. As a matter of fact, I was there, a few weeks ago and and, you know, some of the customers that went for the lower price is that that's come back to us because that's a better customer service. So Sometimes it takes a few, a few months to stick to your guns and say, you know what? We are the, superior operator here. If our competition won't pay all the price and our car wants to try it, they can do that. And and, this is the best, you know, compliment we can get from the account. You know what? We're back. Thank you. The next question comes from the line of Tom Sykes from Deutsche Bank. Please go ahead. Morning. Just going back to, sorry, COVID again, are you able to say which sort of supply chains have been most affected that be sort of soft lines or, electronics at all. And and perhaps is there any way you can kind of give us a typical walk through of age one in terms of the seasonality and and kind of what months are really important, Ty, if people comes back in is quite strong. It's a disproportionate for you in the first half in industries that maybe disproportionately large for you, please. Then just on the cash flow, I think a payables pushed out for it. Obviously, you, have brought working capital down again, but you still see some improvement in that work capital and and where might that come from, please. And then finally, just on the tax rate. What what's the reason for the tax rate increase, please? Because you've got a serial number of last year fees, which are not the that level of tax, please. Thanks. So I'll just start with your question on the the profile of resumption across industries and the seasonality in China. Just on the first question, as you can imagine, this is something that we are looking at in details with our with our colleagues. And just to give you, because I want you to to get the full picture. Maybe the difference in terms of, resumptions between you know, the testing that we do, you know, own, labs and the inspections and audit activities if we do, you know, factories, the structural kinds. I just can't imagine the code Turning out to a factory, there is an additional complexity to the factory, ready for us to get there. So I just wanted to you know, mentioned that because I didn't do that upfront and it's important. Obviously, inspection, I know that it's not majority of our activities in in China, but it's important to understand that. He actually lied. You know, there is a difference in terms of the profile of of the patching redemptions between cars. I wouldn't say necessarily between industries, Northland, because every cars have done their own, you know, supply chain and where they source the components. And, you know, this is something that we are monitoring. Very complex though because, you know, it's also a function of how many, you know, start companies operate with So this is gonna be, you know, the the difficulties because the car change are super intertwined, super connected, and and we have to do it instead of the time, the differences we are seeing at home is by cars, not necessarily by industry. And that's part of your question. In terms of seasonality. Not all of our businesses have got seasonality in in in China, but it's fair to say that, you know, softlines that the fixed season tends to be, you know, slightly, in the year. So that's that's a that's a fair point. I will let, you know, Ross, handle the the the the tax rate and the working capital questions. Sure. Thanks, Andre. Tom, thanks for your questions. I mean, like, on on working capital, as you saw in 2019, we continue to make good progress, reducing working capital intensity down to 3.4 percent of sales down to down from 3.9% in 2018. And that's been driven both by improvements in the receivable side and the payables side. So the DSOs and DPOs have both moved in the right direction over a period of time. As we talked about before, we continue to see the opportunity over the medium term to make them better by driving down this banner performance across their global operations. In terms of tax As you saw, the guidance was 25.5 to 26% versus the 24.5% we delivered. In 2019. The driver of that really is around simply the mix of, operations across the globe, the changing tax regimes, that are out there, and also how the the group is using its tax attributes over a period of time. So it's, it's no more than that. Okay. Thank you. And just in terms of, behaviors of people around the virus, is there any or or what effects of switching of sourcing, sending, I don't know, sending products to different labs. At all or, you know, is there is there any counterbalance? I know you mentioned to Paul that, you know, would expect World Trade to be a thing, but is there any counterbalancing that you're actually seeing some you know, unexpected increases everywhere, or is it just all bad? And then we're waiting for a resumption. Look, I mean, if you if you put yourself in the shoes of our clients in in China, the main focus is to go back to to business and and back to where they want it to be, you know, after Chinese New Year, because, you know, they had to worry about, you know, where are the employees you know, are they gonna be able to come back? Are some of them gonna be in town 10? And then, obviously, the next, you know, education is how much of that is gonna be all the books that they produce, you know, where are the accounts, you know, really depending in patients and how do they deal with it? And, obviously, as I talked about, you know, consumer and supply sense that management is important. Look, if any of our clients, wants to think of attractive locations, because they have a fast way to get to market, you know, moving the production from China to Bangladesh from Vietnam or India. Of course, we are there. That's what we are trying to do to make sure that we have our clients, 247, you know, in their supply chain activities. It's fair to say, Tom, that still today, the focus has been very much on, you know, trying to give us, you know, reality in China. The discussions on warehouse to produce where, obviously, already in the pipeline as you remember last year. So these continue, but it's been a quite an unprecedented time for for everyone in China, and they just want to be back to be just, and and to, personality, and that's where they want to to go. Sorry, just one final short question. If you have a resumption and activity and it's quite strong, is there anything you're being told by the authorities, which would prevent you from pricing, say, the overnight shift appropriately or in line with your historical great card if you needed to bring on that route quickly at all? It's a great point. If you look at, the Hong Kong, basically, situations where we had to shut the other operation for 2 weeks, as we said earlier, and as you know, in operations, in terms of turnaround time, we offer an express service and and what we have done is basically we basically offer the next per service as preferential terms to help our clients. So the way I'm thinking about it is, you know, helping our clients, you know, in in very difficult times like this, a partnership to demonstrate in this really, really in a tough moment, it's gonna go a long way and and and, yes, we want to, you know, to drive margin and revenue growth. We all want to do that And what really matters most at the moment is helping our clients to resume the the the the the operations and, and and we we we will do whatever is required. The next question comes from the line of Paul Mackenzie from UBS. Please go ahead. Good morning. Well, I wanted to ask, a couple of questions about the business assurance version within products. Can you clarify whether growth to accelerate into year end as you hit your comps? And also how much will you hoping for it to accelerate in 2020 on a pre Sorry. The the the connection is not too good. Can can you repeat your question, please? Sure. I that better? I want to ask about the Yeah. Yeah. That's better. Yeah. Thank you. And I wanted to, you could clarify whether growth to accelerate into year end. I think you had easier comps. And how much we're hoping for it to accelerate in 2020 on a pre COVID-nineteen basis for the you started last year hoping for robust growth and ended up with it. And then you're also investing a lot there both organically and without them coming in. No. Uh-uh. You you you're right. You know, we had a a big life effect in, in 19 for our business assurance, given the hydro standard change. At the end of 18. And and, yes, it's for for sure. We saw, some good progress as expected in in the second half and and prior to the coronavirus. You know, we were targeting, the group to continue its progress on business assurance. And and as we rightly said, we now have Alcibi also part of our assurance business. So we continue to be very excited about the prospects in our assurance business. So it's still good. Can you share any numbers with us about the interest or the headcount growth the sustainability assurance services that you launched through through last year. And again, anything to talk about the areas of the market, you're seeing more Yeah. Maybe interest in clients, you know, sectors, soft funds, or anything like that, what will speak up the most? No. It's a great question. And, as you can imagine, you know, we've been, quite active, meeting with our clients over the last, you know, few months. I do regular customer meeting myself and and and And what's really, really interesting is that, you know, the, the interest has been really broad based, as you as you would expect, but we're particularly interested in the, in the energy sector, which is very encouraging given, you know, some of, the pressure accounts are under in terms of environmental data and and and and sharing the accessibility, you know, strategy. So we've seen quite a lot of interest there. Of course, in in the software industry, lots of interest there, given all what we've been hearing in terms of their global supply chain management. And, you know, as I mentioned, in in one of our core, you know, we've also been seeing some quite interest from the financial sectors. And and that's quite interesting. Also, green financing is a big thing, and and and our model applies there. So what's been really, really, really impressive is is the way of trying to get it finally. You know, we have a framework. We have the set of standards. We understand we understand the accessibility stuff and and finish. And it's really it's really global. I had the opportunity between January to to launch a TSA in in Delian, the amount of interest we bought, from everyone across all sectors was was very, very significant. And, I'm going to, to be at least in a few weeks, and the interest is very strong then. Of course, Europe and and and and US boats, It's been a really, really good reaction wherever you pay them. If you would recall from our presentation, it's not only the certification, which is our new, you know, approach sustainability. It's also the operational solutions, that the companies use to do a very, very deep in monitoring the emissions, you know, looking at their, you know, social, you know, standards, etcetera. So it's been very positive. And and frankly speaking, you know, it are part of our active discussion with our clients, and there is no one for notation where our clients don't want to hear about our bills and facilitator. Yeah. Really interesting. I I just started tracking if, say, you do win a contract, let's say, you know, apparel supply chain certification, Did that go into softlines or into this disassurance division? I think this question, if it's a certification, which is about, you know, another certification of the software processes that will be done by all business assurance teams. In terms of the operational sustainable solutions, we have solutions that I industry have not sit down by health insurance and some that business line specific and done by our soft line teams. Because we do, as you probably, recall, sell assurance testing, inspection certifications in every of our business line, initial business line. Yeah. Great. Thank you very much. Welcome. The next question comes from the line of David Ruth from Bank of America. Please go ahead. Good morning, guys. Just a couple from, from from me. Under in terms of Intertek's investments in extensions over the year. Could you perhaps elaborate on how these investments were allocated by by region? And then just sticking with capital allocation, on on M And A, you mentioned the, the various inorganic opportunities out there. The the reality is I don't think we've seen a, a sort of sizable transaction since Alchemy. I'm just I'm just wondering what is holding into tech back in this case, is this just a function of, high asset prices and, you guys being prudent on on that And then, lastly, on China, can you perhaps give us a breakdown of your China business by main segments, IE products, resources, and trade. Thanks very much. Okay. Thanks. Just, you know, I'll go in, in reverse order. On on China, as you know, we do not disclose, you know, by, by geography. But it's it's it's, you know, fantasy that, you know, product is a very strong part of our business in in in in in China, as as you can as you can imagine, given me the strength we have in this market. In terms of M and A, look, this is a very important question. You know, for us, M and A has got to be selective, you know, to augment, you know, the financial trajectory of of of the group moving forward to basically provide additional services and it's got to make sense from all aspects. So we are very disciplined. It's not only about, you know, is the business attractive, but is the business gonna continue before a stable basis from from a revenue and margin standpoint. It's also about, you know, do we believe that, you know, we can add value to this business? Do we have, you know, commercial, you know, IP, innovation, you know, synergies? It's obviously, of course, about, you know, the financials. And, you know, if if we don't keep all the boxes, we just don't do it, because we don't need it. I mean, we we have a very strong business where the growth opportunities from organic standpoint are very, very attractive and you want to be in the main selective. And, that's true that we've not done any last transaction since Alchemy, but This is fine. I mean, we we we have lots of opportunities. And we are always looking at, all transactions out there, and we say, no more. No. We say, yes, that's team is all about. And the opportunities remain there. I wouldn't take anything, you know, from what I said that, you know, we are not percent. We're very focused on it. We want to see the right one at the right time. I thought as a lab extension, it's good question, as you can imagine, you know, we have invested to either increase our capacity or technology, technical feasibility, in in certain sectors. So we've invested a lot, you know, electrical, labs around the world in terms of energy efficiencies, for instance, We've obviously made an adjustment that, you know, in terms of connected world cyber security in in the US and and also in Asia. We tend to expand, where the supply chain of accounts go. So as you can imagine over the years, we've expanded the food in Vietnam, to expel our footprint in, in in Bangladesh. We have expanded, you know, our footprint, in India. We've seen some some some good you know, opportunities in Africa and also in the US. You know, we we have seen some really interesting you know, cycle. So it is, you know, opportunity based, and and this is where we want to take our customer service. To either create capacity where accounts are going with a supply chain or improve the level of customer service. So this is how we think about it. Thank you. That's very helpful. You. And our next question comes from the line of Ed Steele from Citi. Please go ahead. Good good morning. All is Ed here in Sydney. Hi, Ed. Yeah. Morning. Morning. Morning. A couple of questions on trades, please. Obviously, you had banked closed in government and trade services, double digit in the year. Part of that with the the the the new contract component. Could you remind us of how that flows into next year 2020, please? That's the first question. And secondly, on Calibrates, obviously, you just you you do strike competitive pressures as your competitors have have done or you think these kids have done for a couple of years. I think your approach has been to stick to price discipline in the past. I think maybe sacrifice a bit of share, but you you talk about good organic growth in in 2019, but negative margins. So have you change your approach? Are are you now maybe continuing a bit of price to to keep keep share? Thanks, Ed. On on GTS, you know, you're right. You know, the double gs growth is going back up to the contract I mean, these new contracts, you know, you know, have been almost from from from months 1 in in in in 2019. So I would expect too much from, from this in in in 2020. Having said that, our team is always active, you know, to get new your contract. So the year just start so I wouldn't be too worried about about GTS. And on calibrated, I mean, you're right. You know, we are very disciplined in terms of price. And and what's happening directively, simple, if, if I may say, let me just explain it in simple terms for you. Obviously, in the second half, we had the baseline effect. It was the second half of been was was very strong. We saw, a slowdown in the market in in the 7th half in in in North America and in Europe. And for us, when there is this parking in the supply chain of our clients, with Sky Breadth, this is a slowdown for us. Because, obviously, they sell, you know, refined products that we've already tested, you know, from stock and and the same in terms of crude. Now what's happening in these situations is, you know, this is a competitive market. So our our computers will, lower their price to basically, you know, gain some market share. And while we are, commercial and we want to make sure that we stay, you know, competitive in the market, or pipelines, is is to not lower our prices because if you stop where do you stop? And, you know, the negative margin impact in the sort of half has been a function of slower growth in in an environment where you have to recognize your your inflation, your cost, and and and and that's what it is. But it's not a change of pricing discipline. That's a good question. Thanks for asking. Thank you. Thank you, Andre. We have no further questions in queue. So I'll now hand the conference back to Andre for any concluding remarks. Oh, thank you very much, to all of you for joining on the call again. Thanks for your patience this this morning. We had a technical issue with our webcast operating platform that was resolved by our providers relatively quickly. So really appreciate your patience and if you have any questions, obviously, we are, you know, available, and, Jenny is is obviously on standby for for you at any time. Thank you very much. Have a good day. Thank you for joining today's conference. You may now disconnect