Hello, 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 event. 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. This can be done by pressing star one on your telephone keypad to register your question at any time. There will also be a video running shortly. To view this, can you please connect to the webcast via the link on the Intertek website. If you need assistance, please press star zero and you'll be connected to an operator. I will now hand you over to André Lacroix to begin today's conference. Thank you.
Good morning to you all. Thanks for joining our conference call. Apologies again for the slight delay this morning. Your patience is highly appreciated, and I know it's a busy day for all of you. Ross McCluskey, our CFO, and Denis Moreau, our VP of Investor Relations, are with me on the call. This morning, as you saw at 10 o'clock, we announced a very strong set of results for 2019, with revenue acceleration, progression in terms of market at constant currency, robust EPS growth, strong cash generation, and a higher return on invested capital. 2019 marks the fifth 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 five years, delivering value for all of our stakeholders, inspired by our purpose of bringing quality, safety, and sustainability to life.
Today, I will start with our performance highlights, then Ross will take you through the financial details and results. I will provide an update on strategy, and then we'll discuss the outlook for 2020. Before we start, just want to give you an update on the approach we are taking in relation to the changes in accounting standards. For reporting consistency purposes, the numbers we'll discuss in our presentation today are based on the IAS 17 standards. Given that we now have the 2019 full year numbers in our RNS this morning available on both standards, moving forward, we will be guiding under IFRS 16. Let me start with our performance highlights in 2019. In '19, we continued to make progress on revenue, EPS, cash, and dividends.
The group generated revenues of GBP 3 billion, up year-over-year by 6.6% 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 GBP 513 million, up 6.5% actual currency and 5.2% at constant currency. We delivered operating margin of 17.2%, stable at actual rates and up 10 basis points at constant currency. A full year adjusted EPS of GBP 2.117 was up 6.8% actual currency and 5.2% at constant currency.
In line with our dividend policy, the payout ratio of circa 50% of earnings, we've announced a proposed final dividend of GBP 0.716, taking the full year dividend to GBP 1.058, an increase year-over-year of 6.8%. Our cash conversion was strong, with a free cash flow of GBP 380 million, up 8% year-over-year. We are pleased with consistent performance delivery of the group underpinned by a strong earnings model and our disciplined performance approach. In the last five years, on CAGR basis, we have grown our revenue by 7.4%, operating profit by 9.6%, our free cash flow by 15.5%, and our dividend by 16.6%. During that period, our margin improved by 170 basis points.
In 2019, we benefit from a broad-based organic revenue growth of 3.3% at constant currency, with a run rate improvement of 60 basis points in the second half. We've delivered an organic growth performance of 2.3% in our Products, 4.1% in our GTS division, and 5.7% in our Resource division. 2019 marks the fifth consecutive year of margin progression at constant rate, and we've delivered last year a margin improvement of 10 basis points at constant currency. We believe there is scope for further margin improvement and will remain very focused on margin-accretive revenue growth. Our cash performance was strong, with a cash conversion of 127%. Our financial net debt to EBITDA ratio was one time. I will now hand over to Ross, who will take you through our financial results in detail.
Thank you, André, and good morning, everyone. As André has described, we have accelerated our revenue growth with robust EPS growth and a strong cash performance. I will now take you through some of the detail underlying our results. In summary, the group has delivered good revenue growth in 2019, with 3.3% organic revenue growth at constant currencies. Further progress on margin with an EPS growth of 5.2%. Free cash flow generation remains strong with a cash conversion of 127%. A 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 £513.3 million. Our margin was up by 10 basis points. Our operating profit was up 6.5% at actual rates.
Overall, fully diluted EPS grew GBP 0.134 to GBP 2.117, being up 6.8% at actual rates and 5.2% at constant rates. I'll now take you through the high-level margin performance by division. As André said, the group recorded an operating margin in 2019 of 17.2%, stable year-over-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, while FX had a negative 10 basis points impact on the group margin. Turning to group cash flow and net debt. Our disciplined focus on cash management continued throughout the period.
Cash flow from operations was GBP 652 million, up 8.1% year on year, with working capital down 8% year on year, reducing to 3.4% of revenue. We invested GBP 116.8 million in CapEx, in line with 2018, to expand our market coverage and develop innovative basic solutions. Adjusted free cash flow in the period was GBP 395.3 million, and the acquisition that we made in 2019 led to an outflow of GBP 16.9 million. Financial net debt stood at GBP 629.4 million, and including the IFRS 16 lease liability, total net debt of GBP 875.4 million. Now turning to our financial guidance for 2020. On an IFRS 16 basis, the expected net finance costs will be in the range of GBP 35 million-GBP 38 million. The effective tax rate is expected to be in the 25.5%-26.0% range, and minority interest between 21% and 23%.
For your models, I've set out the number of shares for the EPS calculation, and we're currently expecting full-year CapEx to be in the range of GBP 130 million to GBP 140 million. For financial net debt, we expect to close the year at GBP 520 million to GBP 550 million, although noting this guidance is stated before any M&A, any material movements in FX, and of course, the impact of coronavirus. I'd now like to hand you back to André.
Thank you, Ross, for a comprehensive review of our 2019 results. Today, I would like to give you an update on where we are on our good to great journey. You will remember that five years ago, this is what we said we will do when we presented our 5x5 differentiated strategy for growth. The last five years, we have made continuous progress on strategy and performance, and I would like to start with a short video that will show you how we have operationalized our strategy inside the group. The operationalization of our strategy, as you know, has delivered strong results over the years.
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, now it's GBP 318 million, our return on invested capital has progressed from 16.3% - 22.8%. We've improved our employee productivity. 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 every single day. As you've seen in our video, we've made disciplined investment in our attractive growth and margin sectors. We've invested GBP 560 million in CapEx over the last five years to better serve our clients with additional market coverage, capacity expansion, and importantly, innovative solutions.
We've also invested in M&A selectively, GBP 710 million through the period, making acquisitions in attractive sectors, connected world, sustainability, people assurance, food and hospitality. We've invested both organically and inorganically in breakthrough innovative SaaS platforms like Alchemy and Inlight that provide a tremendous level of service to our customers. A few words on Alchemy. 2019 was the first full year of Alchemy at Intertek, and we are really pleased to have welcomed Alchemy inside the group. We have inherited this passionate organization, working with leading-edge technology in the food sector, both factories and multi-sites. I'm pleased to 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 Alchemy SaaS platforms.
Our 5-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 5x5 differentiated strategy for growth that you know so well. Our mid to long-term strategic goals remain unchanged, focusing on our employees and superior customer service to deliver margin accretive revenue growth. Strong cash conversion remains a core 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 billion, yet only 20% of this market is currently outsourced. The global operations of corporations 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 risk.
This untapped market potential is really exciting as this is all about what companies do not do today and will start doing to improve the quality, safety, and sustainability of their operations. Based on the attractive structural growth drivers in the global quality assurance market, we expect the group to deliver GDP plus organic revenue growth in real terms. We expect our Products division, which represents 17% of the group's earnings, to grow ahead of global GDP. We expect our Trade division, which represents 16% of the group's earnings, to grow at a rate broadly similar to GDP through the cycle. The growth prospects in our Resource divisions, which represent 6% of our earnings, are improving with increased investment in oil and gas exploration and production activities, as well as in renewable energy. We are extremely well-positioned to seize these exciting growth opportunities ahead, capitalizing on our core strengths.
Our strength number one is our Total Quality Assurance superior customer service. Our second strength is our 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 and margin sectors is an integral part of our strategy, helping our clients resolve the increased complexity they face in their global operations, and deliver their product and services with the highest quality, 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 in 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. We believe in the value of disciplined capital allocation. Our first priority is to support organic growth with capital expenditures and investment in working capital by offering new services and developing our clients' relationships. Typically, we target circa 5% of revenue in CapEx. Our second priority is to deliver sustainable returns for our shareholders through the payment of progressive dividends.
In recognition of our highly cash-generative business model, our strong financial position, with both confidence in the attractive long-term growth prospects for the group and its ability to fund continued growth investments, our targeted dividend payout ratio is circa 50%. Our third priority is, of course, to pursue M&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 Intertek is our performance management discipline. As we talked about over the years, our performance approach is based on leading and lagging indicators for every single team in the world of Intertek, from every single site upwards in the organization. The insights we get from our NPS surveys, more than 7,000 interviews a month, are tremendous, and they enable us to drive a superior customer service with a 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 our leading global learning platform, 10X Way!. Sustainability is central to our side-by-side differential strategy for growth. We believe that doing business the right way with a systematic approach is the only way to deliver our corporate goals and create sustainable value creation for all stakeholders. To do that, we follow precise processes and standard operating procedures in 10 areas of our sustainability approach. It starts with quality and safety, risk management, enterprise security, compliance, environment, people and culture, communities, governance, financial, and disclosures.
Now that we've reviewed where we are from a strategic standpoint, I'd just like to spend some time now on the outlook for 2020. Let's start with an update on the coronavirus. We've made regular updates to our website since February 3rd, and let me recap where we are. We operate more than 80 sites in China with the following business lines: electrical, softlines, hardlines, food, Business Assurance, supply management, Transportation Technologies, Caleb Brett, AgriWorld, minerals, and industry services. We have almost 12,000 employees in mainland China and Hong Kong. In Wuhan, which is obviously the area where the Hubei province is locked down, we only have one site, a branch office with 30 employees working for TT, food, DA, and supply management. The actions we have taken in China include health alerts and guidance to our colleagues, including a detailed coronavirus control and prevention manual.
In accordance with this manual, we put in place hygiene and other protection measures in the workplace and at customer locations for field-based colleagues, including the use of face masks and the use of hand sanitizers and gloves. When conducting field-based audits and inspections for factories, vendors, or customer sites, we are asking our partners to first confirm that they have no suspected case of coronavirus, and that they have taken the precautionary measures before we deploy our people. We've put a complete restriction on international travel from and to China and Hong Kong. We've 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 five years of consecutive progress on revenue, EPS, and cash exiting 2019 with an improved organic growth momentum. We are well positioned to continue to deliver sustained value creation for all stakeholders. Prior to the outbreak of the coronavirus, we were targeting the group to deliver continuous progress in 2020 with broad-based good organic growth across the group at constant currency, based on good organic growth in Products and Trade with 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, and we'll provide an update at a later stage in the year once we have more visibility on the full resumption of the supply chain of our clients. We will remain, of course, very disciplined on cash conversion. We continue to invest in growth, and we expect our full-year CapEx investments to be circa £130 million-£140 million. A quick update on currencies for your model. The average sterling rate in the last three months applied to the full-year results of 2019 would reduce our revenue and earnings by circa 250 basis. Let's now discuss our divisions, and given the difficulty in quantifying the impact of coronavirus, we are not providing business line guidance for 2020 at this time. In 2019, our Products business delivered a robust performance with continuous margin accretive revenue growth.
Our revenue growth at constant rate was 4.6%, and our organic revenue growth was 2.3%, driven by broad-based revenue growth across business lines and geographies. We delivered robust operating profit of GBP 398.6 million, up 5.7% at constant currency, enabling us to deliver a margin of 22.2%, up 20 basis points compared to last year, as we benefited from positive operating leverage and disciplined cost management. Our Softlines business reported operating cost performance slightly below last year. We benefit from the investment we made to supporting Expansion of our customers into new markets, seizing the exciting growth opportunities in the footwear sectors, and continuing to leverage the strong demand from our customers for chemical testing. As discussed in November, the lack of visibility around the outcome of negotiation on tariffs has resulted in a delay in the launch of new products in the second half.
Our Hardline and Products businesses continue 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. We delivered solid organic revenue growth performance across our main markets of Greater China, India, and Vietnam. We delivered good organic revenue growth in our electrical and Connected World business, driven by higher regulatory standards in energy efficiencies and by the increased demand for wireless devices and cybersecurity. Our Business Assurance business delivered good organic revenue growth as we continue to benefit from the increased focus of corporations on risk management, resulting in strong growth in supply chain audit and increased consumer and government focus on ethical and sustainable supply. Driven by the growing demand for more environmental friendly and high-quality buildings and infrastructure in the U.S. market, our Building and Construction business recorded good organic revenue growth.
Our transportation technology business delivered robust organic revenue growth, benefiting from our client investment in new powertrains to lower emissions and increase 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. We delivered an organic revenue performance slightly below last year in our chemical and pharma business due to the baseline effect driven by the 2019 REACH registration deadline. In the mid to long term, our Products division will continue to benefit from exciting structural growth drivers, including product variety, brand and supply chain expansion, product innovation and regulation, the growing demand for quality and sustainability from developed and emerging markets, the acceleration of e-commerce as a new sales channel, and the increased corporate focus on risk. Let's now move to trade.
Our trade-related businesses benefit from acceleration of its revenue momentum with 4.5% growth and 4.1% organic revenue growth at constant rate, driven by broad-based revenue growth across business lines and geographies. We delivered a stable operating profit of GBP 83.5 million, enabling us to deliver an operating margin of 12.3%, down 60 basis points versus last year, driven by a portfolio mix effect within GTS and challenging trading conditions within Caleb Brett in North America and Northern Europe. Our Caleb Brett business reported good organic revenue growth, reflecting the structural growth drivers in the crude oil and refined product global trade markets. Our Government and Trade Services business delivered double-digit organic revenue growth, driven by growth from existing contracts and new contracts. Our AgriWorld business delivered good organic revenue growth, driven by a broad-based growth performance across our global inspection businesses.
In the medium to long term, our trade division will continue to benefit from regional and global trade flow as well as increased customer focus on quality, 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 have recorded a robust organic revenue growth up year-on-year of 5.7% at constant rate, and we've delivered an operating profit of GBP 31.2 million, which was up year-on-year by 16%, enabling us 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 increasing investment of our customers in exploration and production activities, as well as the win of new clients in several geographies. The demand for OpEx maintenance services remained stable.
We benefit from robust organic revenue growth in our mineral business, driven by stronger demand for testing and inspections across most geographies. In the medium to long term, our resource division will continue to benefit from investment in exploration and production of oil, investment in renewable energies and minerals to meet the demand of the growing populations around the world. To summarize, we are pleased with the progress we've made both on strategy and performance for the last five years, and this is a real tribute to the quality of our organization. The opportunities for growth ahead are exciting, and we are well positioned to seize these with our superior total quality assurance customer service. We remain very focused on delivering sustainable value for all stakeholders, executing our 5x5 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 a question, please press star one on your telephone keypad. To withdraw your question, please press star two. You will be advised when to go ahead. Our first question comes from the line of Suhasini Varanasi from Goldman Sachs. Please go ahead.
Hi. Good morning. Thank you for taking my questions. I know that you 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 many employees have actually come back to work as at the end of February? That would be helpful. Thank you. Regarding the virus impact, can you talk about what kind of leverage you have on the cost base to mitigate any impact to margins? Are you thinking about taking any cost-saving measures? Thank you.
Okay. Thank you very much for your question. I guess we're going to have quite a few questions on the coronavirus, so maybe let me just give you a bit of color on how we are handling the situation. As you can imagine, we are very close to our Chinese colleagues and I personally chair a daily session to track the progress of all of our activities in Greater China, given the fact that China and Hong Kong represent 19% of our group revenues, based on the 2018 annual report data. As I said 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 the main point here. As I said, trying to be helpful as much as we can, it is not possible to quantify precisely the impact.
I will give you a few data points. As you know, the Chinese New Year holiday was postponed. The weekend was postponed, I should say, to February 10th, and we basically resumed operations from February 10th onwards in Mainland China. Hong Kong operates with a different calendar, and we resumed operation on January 29th, as expected. Unfortunately, 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 reopened in Hong Kong on the 26th of February, and Hong Kong is now, like Mainland China, fully operational. Our Taiwan operations has resumed operation on January 30th, as expected.
What's really important for all of us to consider on how to think about the next steps is twofold. One is, it's a function of how many employees do we have inside of our operations back to resume work. This is if you want our own capacity, and I will give you some data points on that. This also applies to our clients. There is another important factor for clients is, 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. If you visualize our operations in China, as I said, we have close to 12,000 colleagues. We operate in more than 80 sites. Just to give you a sense, we work for close to 130,000, 140,000 clients in Greater China.
It's not only a question of how much capacity does Intertek have, and I'll come back to this point, but it's how much of the capacity our clients can basically resume. For them, it's a function of two dimensions. How many of their employees are back to work, and do they have the parts from the tier 1, tier 2, tier 3 suppliers? That's why it's very difficult to quantify how long it's going to take and what it means. Having said that, I can assure you that everybody in China is focused on being back at work, 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 got more visibility. What does it mean for Intertek?
We've seen a gradual progress of capacity build-up in our operations, and we've also seen a gradual progress of the supply chain resumptions from all of our clients. Just to give you a sense, we restarted operations on February 10th. In the first week after the Chinese New Year, we basically had about 20%-30% of our employees back to work. 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 quarantine for two weeks. That was basically mandatory. That was what created the delay in the capacity build-up. In the week of February 17, we saw some further progress, and we had about 35%-45% of our capacity back. Last week, which was the week of February 24th, we had about 55%-65%.
That gives you an idea of how much capacity we have rebuilt step by step. What I want to really stress here, this is the Intertek capacity, i.e., how much can we produce for our clients. It's not an indication of our revenues, because as I explained before, our clients also need to rebuild their supply chain. 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 we have the utmost hygiene and safety standards inside our operations and when we go and visit our clients. We are obviously available 24/7 to help them resume their work when they need to start testing for their export activities. We basically cannot really quantify and determine when all of our suppliers, customers are going to be back to 100% capacity.
One thing that I would like to stress is we are a B2B business. We are not a B2C business. What matters for us is the resumption of the supply chains of our clients. You know that so well, if you are in 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 going to have two dinners the next night. In our business, we have an order book, and it is usual in our industry to make sure that we add extra shifts to serve our clients and meet the demand in the order book we have. There will be some catch-up down the road in China.
Obviously, I cannot say more than that. The last question you asked in terms of what type of cost-saving could we pursue if we want to reduce the impact of the lost revenue. Our view is that we have had a very good year last year in China. We had targeted our China businesses to continue to grow at a very healthy rate, and all our costs, fixed and variable, are geared to deliver that growth. It's not possible to save cost during what's going to be a temporary reduction of the supply chain, because we want to be there when our clients need us to resume production of testing activities for them. Thanks for asking that question. I use this opportunity to give you a broader perspective on where we are, and I'll take any additional questions from anyone.
Can I just ask one follow-up, please? You mentioned that at the end of February, you've got 55%-60% capacity with your businesses in China. Would it be fair to say that, in your customer base, the business has not been very strong, and therefore you have not been able to use your existing employee capacity to service all your clients, that basically your customers are still ramping up, so your employees, obviously some of them are sitting idle? Is that fair to say?
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 how to look at your model. As I said, this is Intertek capacity. I'm not making any statement on our revenue in January, February. We'll do that in due time when we announce our results for the first four months in May. I'm not trying to be difficult, I just want to be precise. This is our own capacity numbers, which I think give you a sense of where we are. I would also ask you to think through that there are different level of business resumptions in the supply chains of our clients in China. There is a bit of data out there. We have to be all very careful with the data being published.
It's crazy sometimes, and we have to be patient, and I think the best way is to 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 thanks for the color, André.
Morning.
Just following up on that. Good morning. Can you hear me?
Yeah.
Yeah? Okay, great. Outside of China, are you seeing any impact in other parts of Southeast Asia at this stage?
I think that's a great question, Paul. Thanks for asking it. As you can imagine, there are less import and export activities in China. That is, of course, having an impact on some of the global trade activities. You would have heard that some of the factories in Europe or in the U.S. are not getting the supply of components they need to produce, and that's basically a reflection of that because it's more difficult to get in and get out of ports in China. Yes, I expect some impact on global trade. It's very difficult to quantify, Paul, but we are monitoring it very carefully because it's part of the global supply chain points I mentioned earlier. Yeah.
Just following on from that, and if we can, wishful thinking, maybe to put it aside for one second, the impact from the trade war that became a little bit more evident in the second half, how are you seeing that wash through? Finally, changing tact slightly, on the balance sheet, the cash flow is good. You're being unlevered now. Were you tempted to think about a cash return this year, but has the uncertainty put sort of that into the long grass?
Look, I think, the news at the end of the year, certainly confirmed early January on the tariff discussions between the U.S. and China, have been very welcome by the entire business community. What it really has done, Paul, it has reduced the level of uncertainties in terms of future issues. Unfortunately, with the Chinese New Year holidays in January and what's happening in February, we've not been able to see any benefit from that, as you can imagine. Certainly, this is positive news in terms of reducing the uncertainties moving forward for all of our clients. As far as our balance sheet and the strength of our balance sheet, look, we believe in disciplined capital allocations. We have tremendous opportunities, organic, inorganic. As you probably have seen, we've made a small acquisition at the end of December.
We continue to look at acquisition opportunities around the world in a very disciplined fashion. We've been at one time net debtor/creditor in the past. We are happy to be there if this is what we need to find the right acquisitions. We've never made any commitments to any return to shareholders in terms of cash, because we never had to do that in the past. As you can imagine, this is a decision for our board. We want to do the right thing for the business for the long term. The good news is we are extremely strong financially. We've got a tremendous balance sheet. We've got a lot of opportunities. We are very disciplined. We will 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. Following up on Paul's question on the impact from the trade war, can you give us a feeling for 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 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. The operational gearing in products was perhaps not as great as I might have had in my model.
On the third point, during the year, you said you lost some food share or market share in the food business. Do you have a long-term plan for how you get that market share back in food and where you expect that division to grow over the medium to long term?
Okay, thanks. Ed. 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 China, and you know that the tariffs are going to increase across lots of categories, and you know that potentially there will be some solution to these negotiations, why would you invest in tooling and equipment to start producing new products? What we saw is across several customers, these decisions to be delaying investments, nothing more than that. As far as the situations in soft line and hard lines, look, we operate in a global market. We have, as you know, competitors. There is always price competition out there.
We do not use price to deliver revenue goals. We believe that good revenue is based on volume and strong pricing power. The operating leverage point that you've mentioned is just a function of a portfolio of multiple business lines. It's true that in our soft line business, we saw slower revenue in 2019. 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. I wouldn't say that the pricing environment has changed significantly. It's been more or less the same for many years. We know which companies use price more than others, and good luck to them. As far as the food point, yes, you're right. I mentioned that during the year.
As I said at the time, it was really local issues in a few sites. As a matter of fact, I was there a few weeks ago and some of the customers that went for the lower price have decided to come back to us because they've got a better customer service. Sometimes it takes a few months to stick to your guns and say, You know what? We are the superior operator here. If our competition wants the lower price and our clients want to try it, they can do that. This is the best compliment we can get when our clients say, "You know what? We're back.
Thank you.
The next question comes from the line of Tom Sykes from Deutsche Bank. Please go ahead.
Thanks very much. Morning, everybody. Morning. Just going back to, sorry, COVID again. Are you able to say which sort of supply chains have been most affected, be soft lines or electronics at all? Perhaps, is there any way you can kind of give us a typical walkthrough of H1 in terms of the seasonality and kind of what months are really important i.e., if April comes back and is quite strong, is that disproportionate for you in the first half in industries that may be disproportionately large for you, please? Just on the cash flow, I think the payable is pushed out a bit. Obviously, you brought working capital down again, do you still see some improvement in that working capital, and where might that come from, please? Finally, just on the tax rate, what's the reason for the tax rate increase, please?
You've got still a number of large geographies which are not at that level of tax, please.
Thanks Tom. Let me just start with your question on the profile of resumption across industries and the seasonality in China. Look, on the first question, Tom, as you can imagine, this is something that we are looking at in details with our colleagues. Just to give you, because I want us to get the full picture. There is a difference in terms of resumptions between the testing that we do in our own labs and the inspections and audit activities that we do in our factories, the factories of our clients, as you can imagine, because going out to a factory, there is an additional complexity. Is the factory ready for us to get there? I just wanted to mention that because I didn't do that upfront, and it's important.
Obviously, inspection and audit is not majority of our activities in China, but it's important to understand that. You're absolutely right. There is a difference in terms of the profile of supply chain resumptions between clients. I wouldn't say necessarily between industries, Tom, because every client has got their own supply chain and where they source their components. This is something that we are monitoring. Very complex, though, because it's also a function of how many stock companies operate there. This is going to be the difficulties because supply chains are super intertwined, super connected, and we have to do it a step at a time. The differences we are seeing at time is by client, not necessarily by industry. As far as your question in terms of seasonality, not all of our businesses have got seasonality in China.
It's fair to say that supply in the peak season tend to be slightly in the year. That's a fair point. I will let Ross handle the tax rate and the working capital questions.
Sure. Thanks, André. Tom, thanks for your questions. On working capital, as you saw in 2019, we continued to make good progress reducing working capital intensity down to 3.4% of sales, down from 3.9% in 2018. That's been driven both by improvements in the receivables side and the payables side. 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 this better by driving down the standard performance across our global operations. In terms of tax, as you saw, the guidance was 25.5% - 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 Group is using its tax attributes over a period of time. It's no more than that.
Okay, thank you. Just in terms of behaviors of people around the virus, is there any, or what effects of switching of sourcing, sending products to different labs at all? Is there any counterbalance? I know you mentioned to Paul that you would expect world trade to be affected, is there any counterbalancing that you're actually seeing some unexpected increases everywhere, or is it all bad, and then we're waiting for a resumption?
If you put yourself in the shoes of our clients in China, their main focus is to go back to business and back to where they wanted to be after Chinese New Year, because they had to worry about where are their employees, are they going to be able to come back, are some of them going to be in quarantine? Obviously the next implication is how much do they have in their order book that they need to produce? Where are their clients really becoming impatient, and how do they deal with it? Obviously, as I talked about, component supply chains, stock management is important. If any of our clients wants to think of alternative locations because they have a faster way to get to market, moving the production from China to Bangladesh or Vietnam or India, of course, we are there.
That's what we are trying to do, to make sure that we are for our clients 24 seven in their supply chain activities. It's fair to say, Tom, that till today, the focus has been very much on trying to go back to normality in China. The discussions on where else to produce were obviously already in the pipeline, as you remember last year. These continue, but it's been quite an unprecedented time for everyone in China, and they just want to be back to business and back to normality, and that's where they want to go.
Okay. Sorry, just one final short question. If you have a resumption in 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 rate cards if you needed to bring on that activity quickly at all?
It's a great point. If you look at the Hong Kong situations where we had to shut down our operation for two weeks, as I said earlier, as you know, in our operations, in terms of turnaround time, we offer an express service. What we have done is we've offered an express service at preferential terms to help our clients. The way I'm thinking about it is helping our clients. In very difficult times like this, partnership we demonstrate in these really, really tough moments is going to go a long way. Yes, we want to drive margin and revenue growth. We all want to do that. What really matters most at this moment is helping our clients to resume their operations. We will do whatever is required.
Okay. Thank you very much indeed.
The next question comes from the line of Rory McKenzie from UBS. Please go ahead.
Morning all. I wanted to ask a couple questions about the Business Assurance division within Products. Can you clarify whether growth did accelerate into year-end as you hit easy comps? Also how much were you hoping for it to accelerate in 2020 on a pre-
Sorry, the connection is not too good. Can you repeat your question, please?
Sure. Is that better? I wanted to ask about the-
Yeah, much better. Thank you.
I wanted you to clarify whether growth can accelerate into year-end. I think you had easier comps. How much are you hoping for it to accelerate in 2020 on a pre-COVID-19 basis? Probably, you started last year hoping for robust growth and ended up with this, and you're also investing a lot there, both organically and with Alchemy coming in.
No, you're right. We had a baseline effect in 2019 for our Business Assurance, given the ISO standard change at the end of 2018, and yes, that's for sure. We saw some good progress as expected in the second half. Prior to coronavirus, we were targeting the group to continue its progress on Business Assurance, and as you rightly said, we now have Intertek Alchemy also part of our assurance business. We continue to be very excited about the prospects in our assurance business, so it's all good.
Can you share any numbers with us about the interest or the headcount growth and the sustainability assurance services that you launched through last year? Again, anything you can talk about the areas of the market you're seeing?
Yeah
Maybe interest in from clients, sectors, like soft lines or anything like that? What's picking up the most?
It's a great question. As you can imagine, we've been quite active meeting with our clients over the last few months. I do regular customer meeting myself and what's really interesting is that the interest has been really broad-based, as you would expect, but with particular interest in the energy sector, which is very encouraging given some of the pressure our clients are under in terms of environmental data and sharing their sustainability strategy. We've seen quite a lot of interest there, of course, in the softline industry, lot of interest there given all what we've been hearing in terms of their global supply chain management. As I mentioned in one of our call, we've also been seeing some quite interest from other financial sectors. That's quite interesting. Also, green financing is a big thing, and our model applies there.
What's been really impressive is the way our clients have said, finally we have the framework, we have the set of standards, we understand where sustainability starts and finish, and it's really global. I had the opportunity at beginning of January to launch TSA in Delhi, the amount of interest we got from everyone across all sectors was very significant. I'm going to Middle East in a few weeks, and the interest is very strong there, of course, Europe and U.S. It's been a really good reaction. We are really pleased. If you would recall from our presentation, it's not only the certification, which is our new approach to sustainability. It's also the operational solutions that companies use to go very deep in monitoring their emissions, looking at their social standards, et cetera, and so forth. It's been very positive.
Frankly speaking it's now part of our ethics discussion with our clients. There is no one presentation where our clients don't want to hear about us and sustainability.
Yeah, really interesting. Just how I was tracking, if, say, you do win a contract for, say, apparel supply chain certification, does that go into soft lines or into this Business Assurance division?
It's a good question. If it's a certification, which is about an audit certification of the corporate processes, that will be done by our Business Assurance teams. In terms of the operational sustainable solutions, we have solutions that are industry agnostic, done by Business Assurance, and some that are business line specific and done by our soft line teams. We do as you probably recall, sell assurance testing, inspection, certifications in each of our business line.
Yeah, great. Thank you very much.
You're welcome.
The next question comes from the line of David Roux from Bank of America. Please go ahead.
Morning, guys. Just a couple from me. André, in terms of Intertek's investments into lab expansions over the year, could you perhaps elaborate on how these investments were allocated by region? Then just sticking with capital allocation, on M&A, you mentioned the various inorganic opportunities out there. The reality is, I don't think we've seen a sort of sizable transaction since Alchemy. I'm just wondering what is holding Intertek back in this case. Is this just a function of high asset prices and you guys being prudent on that? Then, lastly, on China, can you perhaps give us a breakdown of your China business by main segments, i.e., Products, Resources, and Trade? Thanks very much.
Okay. Thanks. I'll go in reverse order. On China, as you know, we do not disclose by geography. It is fair to say that Products is a very strong part of our business in China, as you can imagine, given the strength we have in this market. In terms of M&A, this is a very important question. For us, M&A has got to be selective to augment the financial trajectory of the group moving forward to basically provide additional services, and it's got to make sense from all aspects. We are very disciplined. It's not only about is the business attractive, but is the business going to continue to perform on a sustainable basis from a revenue and margin standpoint? It's also about, do we believe that we can add value to this business? Do we have commercial IP innovation synergies?
It's obviously, of course, about the financials. If we don't tick all the boxes, we just don't do it, because we don't need it. We have a very strong business where the growth opportunities from organic standpoint are very attractive, and we want to be and remain selective. That's true that we've not done any large transactions since Alchemy, but this is fine. We have lots of opportunities, and we are always looking at all transactions out there, and we say no more often than we say yes. That's what discipline is all about. The opportunities remain there. I wouldn't take anything from what I said, that we are not focused on it. We are very focused on it. We want to seize the right one at the right time. As far as our lab expansion, it's a good question.
As you can imagine, we have invested to either increase our capacity or technology, technical feasibility, in certain sectors. We've invested a lot in our electrical labs around the world in terms of energy efficiencies, for instance. We've obviously made investments, as you know, in terms of connected world, cybersecurity in the U.S. and also in Asia. We tend to expand where the supply chain of our clients goes. As you can imagine, over the years, we've expanded our footprint in Vietnam, we've expanded our footprint in Bangladesh, we have expanded our footprint in India. We've seen some good opportunities in Africa and also in the U.S. We have seen some really interesting segments.
It is opportunity-based, and this is where we want to take our customer service to either create capacity where our clients are going with their supply chain or improve the level of customer service. This is how we think about it.
Thank you. That was very helpful.
Before we continue with our questions, please be reminded that if you do have a question you would like to ask, you can press star one on your telephone keypads now. Our next question comes from the line of Ed Steele from Citi. You can go ahead.
Good morning, all. It's Ed here from Citi.
Hi, Ed.
Yeah, morning. A couple questions on trade, please. Obviously, you had very good growth in Government and Trade Services, GTS in the year. Part of that was the new contract component. Could you remind us of how that flows into next year, 2020, please? That's the first question. Secondly, on Caleb Brett, obviously, you cite competitive pressures as your competitors have done, or your peers have done for a couple of years. I think your approach has been to stick to price discipline in the past, and maybe sacrifice a bit of share. You talked about good organic growth in 2019, but maybe cut margins. Have you changed your approach? Are you now maybe conceding a bit of price to keep share?
Thanks, Ed. On GTS, you're right. The double-digit growth is on the back of new contracts. These new contracts have been almost from month 1 in 2019. I would not expect too much from these in 2020. Having said that, our team is always active to get new contracts. The year just started, so I wouldn't be too worried about GTS. On Caleb Brett, you're right. We are very disciplined in terms of price. What's happening is relatively simple, if I may say. Let me just explain it in simple terms for you. Obviously, in the second half, we had the baseline effect because the Q2 of 2018 was very strong. We saw a slowdown of the market in the second half in North America and in Europe.
For us, when there is destocking in the supply chain of our clients with Caleb Brett, this is a slowdown for us because obviously they sell refined products that we've already tested from stock, and the same in terms of crude. What's happening in these situations is, this is a competitive market, so our competitors will lower their price to basically gain some market share. While we are commercial and we want to make sure that we stay competitive in the market, our preference is to not lower our prices, because if you start, where do you stop? The negative margin impact in the second half has been a function of slower growth, in an environment where you have to recognize your inflation, your cost, and that's what it is. It's not a change of pricing discipline. That's a good question, Ed. Thanks for asking.
Thank you. Thank you, André.
We have no further questions in the queue, so I'll now hand the conference back to André for any concluding remarks.
Thank you very much to all of you for joining the call. Again, thanks for all your patience this morning. We had a technical issue with our webcast operating platform that was resolved by our providers relatively quickly. Really appreciate your patience. If you have any questions, obviously, we are available, and Denis is obviously on standby for you at any time. Thank you very much. Have a good day.
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