Earnings Call: H1 2019

Aug 1, 2019

Hello, and welcome to the Intertek 2019 Half Year Results Call. My name is Rosie, and I'll be your coordinator for today's conference. For the duration of the call, you will be on listen only. However, at the end of the presentation, you'll have the opportunity to ask questions. I will now hand you over to Andrew Placare. CEO of Intertek to begin today's conference. Thank you. Good morning to you all and thanks for joining us on the call. Following the release of our H1 results a few moments ago. I'm with Russ McCluskey, our CFO and Denis Mogo from our Investor Relations team. This morning, we've announced a strong set of results with broad based revenue growth and margin accretion, strong cash generation and continuous progress on dividends. We are extremely pleased with the consistent performance delivery of the group year after year, and we are on track to deliver a full year 2019 targets. As you know, I spent quite a bit of my time visiting operations, traveling around the world, and of course, meeting with our clients. In addition to the strong financial performance of the group, I'm really energized with the progress our teams are making, offering our differentiated over quality assurance, valuable positions to our clients. Our customers are more focused today than they have been on mitigating the increased operational risks in their operations. There is no question that our risk based quality assurance approach is addressing their needs to improve the quality, safety and sustainability of their operations. Today, we'll start with the formal highlights in the first half of twenty nineteen. Ross will then take you through the detailed financial results I'll discuss the progress we are making with our clients. And finally, we'll talk about the outlook for 2019 by division. Before we start, I'd just like to give an update on the approach Intertek is 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 IAS 17. The IFRS 16 figures are detailed in our press release of this morning. We'll continue to guide under IS 17 until the end of 2019, when we start 2020, you will have a full year of numbers under both standards. And it's only then we'll stop guiding on the IFRS 16. Let's start with our H1 performance highlights. In the first half, we continue to make progress on revenue margin and cash The group generated revenues of 1,443,000,000, up year on year by 4.9% at constant currency and 7% at actual currency. Our revenue performance at constant currency was driven by good organic growth of 3% in line with expectations, and by the contribution of recent acquisitions. The group delivered an operating profit of 1,000,000, up 6.8% at constant and 7.9 in actual currency. We have delivered an operating margin of 16.9 percent, up 30 bps at constant currency and 10 bps at actual rates. Or EPS for H1 was 97.8p, up 6% at constant currency and 7.2% at actual currency. We continue to make significant progress on cash with a 12% increase year on year operating cash flow underpinned by our disciplined approach to working capital, which was down year on year by 12%. In line with our dividend policy, the target percent, we've announced an interim dividend of 34.2p up 7.2% compared to last year. We are pleased with the system performance delivery of the group underpinned by a strong earnings model and of disciplined performance approach on daily basis. In the first half, in the last five years, we have grown our revenue on CAGI by 7% per year, operating profit by 10%, operating cash flow by 9% and our dividend by 16%. Last but not least, we have improved the margin of the group is now 200 bps higher than it was 5 years ago. We have reported broad based organic growth in margin accretion each of our divisions made progress on both organic revenue growth and margin. Our prorated businesses delivered a robust strength performance with a revenue growth of 4.9% constant currency, driven by good organic revenue of 2.1% and by the benefit of acquisitions made recently. Product operating profit increased by 6% at constant currency and the margin was led by 20 bps. We benefited from an acceleration of gross momentum in our trade related businesses, as we delivered a revenue increase of 5.8 percent constant currency, driven by robust organic growth of 5.1 percent and the benefit of acquisition operating profit in trade was up 6.8 percent at constant currency and a margin improved by 10 basis points. Saw improved revenue momentum in our resource rated businesses delivering a good organic revenue growth of 3.5% at constant currency operating profit was up 16.9 percent at constant currency and our margin expanded by 70 bps. Our M and A strategy is focused on the acquisitions of leading and innovative solutions that we can scale through the internet network. The acquisition that we've made since January 2018 in attractive growth in margin sectors. As you know, we are very selective where we invest are performing well and have added 1.9 sense to our revenue in the first half. I'm particularly pleased with the progress Alchemy is making offering on leading people assurance services to our clients in North America. As always, we'll continue to actively pursue expansion opportunities in attractive growth and margin areas with value enhancing acquisitions. Margin is an important priority for the group. We have delivered an operating margin improvement of 30 bps at constant currency, benefiting from operating leverage linked to growth for activity gains and from our margin accretive portfolio strategy. We are pleased with the continuous progress we are making on margin with 5 consecutive years of market accretion in H1s at constant currency, as you can see on the slide. A daily focus on cash management is also a very important priority for the group. We continue to reduce working capital with David. The operating cash flow increased of 12 with a strong cash progression of 126 percent. I'll hand over to Ross who will take the full financial results in details. Thank you, Andre, and good morning, everyone. I will now take you through our results in detail. So in summary, in the first half, we delivered robust revenue profit and EPS growth at constant currency. Margin improved year on year at both actual and constant currency and our cash flow performance per share. The half year 'nineteen results are the first reported under the new lease accounting standards of IFRS 16, as you know, And for compatibility purposes, we've also presented results on IAS 17 basis. And the comments that I will make on the year on year developments will be in a consistent IAS 17 basis. Total revenue growth was 4.9 percent at constant currency and 7% at actual rates as FX translation increased our revenues by 210 bps, driven by the depreciation of sterling. Organic revenue growth at constant currency was up 3%, and operating profit at constant rates was up 6.8percentto243.6000000 and margin was up 30 basis points. The FX effect for the half year resulted in operating profit up 7.9% in actual rates. The overall fully diluted EPS grew to 87.8p, being up 7.2% at actual rates and 6.0% at constant rates. I'll now take you through the high level margin performance by division. The group recorded a 10 basis points improvement in operating margin in the first half. It actual rates increasing to 16.9% on an IAS 17 basis. Margin improved by 30 basis points at constant rates, driven by margin accretion in each of the divisions. And this was partly offset by FX, which had a negative 20 bps impact on the group margin. Now turning to group cash flow and net debt. Our disciplined focus on cash management continued throughout the period. Cash flow from operations was 1,000,000, up 12% year on year with working capital down 12% year on year and further reducing as a percentage of revenue. We invested 1,000,000 in CapEx in line with 2018, to expand our market coverage and develop innovative ATIC solutions. Free cash flow in the period was 1000000. Net debts stood at 1,000,000 on an IAS 17 basis and 1082,000,000 on an IFRS 16 basis. Now turning to our financial guidance for FY 'nineteen. And as Andre said, comparability purposes, our guidance remains an IAS 17 basis. Expected net finance costs will be around 1,000,000 to 1,000,000. The effective tax rate is still expected to be in the 24.5% to 25.5% range, A minority interest will be circa 1,000,000 to 1,000,000. We're expecting full year CapEx to be 1,000,000 and we continue to expect the net debt to close the year of between 1000000 and 1000000. And of course, this net debt guidance that stated on an IAS 17 basis before any further M and A and before any future material movements in FX. I would now like to hand you back to Andre. Thanks, Ross. In the last 8 to 10 minutes with cover of financial performance, I would like to do now is to give you an update on the progress we are making with our clients. As you know, at SYMPATech, we put customer first. We work with more than 300,000 corporations around the world, and we enjoy deep and trusted relationships with each of them. These long lasting relationships are based on a superior customer service. We provide independent quality assurance services that are mission critical for our clients. We have a strong technical parties in all sectors we operate in and when combined with our passionate and entrepreneurial culture, that enables us to support the growth agenda of our clients in an ever changing and more complex operating environment. At Intertek, we truly value the long lasting relationship with our client, and each of us is deeply committed to the delivery of our total quality assurance. Customer promise. We see very attractive growth opportunities in the quality assurance market. The market is worse share cap $250,000,000,000, yet only 20% of this market is outsourced. You see, of course, strong growth opportunity with existing and new customers We saw we see also attractive growth opportunities to get access to quality assurance work that corporations currently do in house, I. E. Outsourcing. But the opportunities go beyond outsourcing and existing clients. It's all about the untapped potential in our exciting industry. The global operations of our corporations around the world are increasingly more complex, which drive more demand for end to end quality assurance services corporations increase their focus on systemic operational risks. Vedanta potential is really exciting as this is all about what companies do not do today in terms of quality assurance and are starting today to do today or tomorrow to improve the quality, safety and sustainability of their operation. We are seizing these exciting growth opportunities that have differentiated total quality assurance value proposition globally, across all of our businesses, we support the existing and emerging quality assurance needs of our customers in each area of their operations, R and D, material sourcing, component suppliers, manufacturing, transportation, distribution and channel management, and of course, consumer management Due to our customer first approach innovations is truly important to help our clients mitigate the increased quality safety and sustainability risks in their operations. I'd like to share some of the innovation that we've launched recently. As you know, we do NPS as a feedback with our clients and we do about 7000 monthly surveys. That gives you tremendous customer insight when it comes to innovation. Let's start with some of the most recent innovations in our product divisions. We have developed virtual audit solution through which our CQ experts are able to audit remotely. This allows us to deliver our audits and with a wider audience of subject matter experts. Same toys are increasingly being marketed to young children These are toys that they've in deal times, technology engineering and mathematics functionality. There is an increased demand from school, social stories for learning that are both genuinely stems and assays. We've developed a unique stem toy mark to verify that our customer stories meet stringent quality and safety standards. Let's now discuss a few innovations in our trade related businesses. Turnaround time is a key factor for all trading customers. It's critical for our clients with offshore operations to have their samples tested in a fast, efficient and flexible way. Our cattlebread business has developed a very unique service proposition called Ocean Lab Quality Testing Laboratory, and we've partnered with the clients installing these labs on their ships. Another innovation to reduce turnaround time for our clients in our Agree World business, we have recently launched a rapid protein analysis leveraging leading technology for Soya exports. A few innovation examples in our resource sector are offshore drilling, exploration and production customer face the challenge of maintaining aging or increasingly complex new equipment in an even more stringent regulatory environment. We've developed deep-three d immune inspection methodology that combines 3 d lasers scanning and precise metrology data with advanced non destructive testing. That gives an accurate representation of current commissions and mechanical integrity of critical assets. This allows our customers to take a smarter approach to maintenance reducing expensive operational downtime. Important safety innovations for oil and gas clients, as you know, helicopter generators can present risk when staff work on offshore rigs. Our extensive development helicopter on the water escape simulation program, which is essentially a training program. Let's now discuss the outlook for the group in We are on track to deliver our full year 2019 targets. We expect to deliver good organic revenue growth at constant currency with good organic revenue growth in each of 3 divisions, product trade and resources. From a profitability standpoint, we expect to deliver moderate margin progression we'll continue to invest in growth with full year CapEx being circa GBP 130,000,000 to GBP 140,000,000. A quick update on currency for your models. Based on the actual figures of the 1st 6 months of the year and the last three months average rate for the remainder of the year, the average selling rate applied to full year results of 2018 would provide 150 bps uplift at the revenue level and 100 bps at the operating profit level. Let's now discuss our division, starting with products, all the numbers I will discuss in this section are at constant rate. In the first half, our Product business delivered consistent margin accretive revenue growth, delivered 4.9 percent revenue growth, driven by a good organic revenue growth of 2.1% and by the benefit of acquisitions made recently. We delivered a robust operating profit of GBP 185,000,000, up 6%, enabling us to deliver a margin of 21.3%, twenty bps ahead of last year, driven by the benefits of operating leverage, cost discipline and our pricing power. Softline business delivered solid organic revenue growth, benefiting like an expansion of our clients in your market, the rapid expansion in the footwear sector and the increased demand for chemical testing. I'm pleased the commercial progress we are making with our Softline clients, our full year guidance of solid organic growth for Softlines remains unchanged. Our headline business reported solid organic revenue growth, driven by innovation from our customers leveraging wireless technology, increased demand for chemical festing and our innovative inspection technology, I2Q. We are making good progress on business development activities, our clients, full year guidance of good organic revenue growth for hotlines remains unchanged. We've delivered robust organic revenue growth in the electric coil and connected world we continue to benefit from electrical appliances innovations that provide better efficiency and connectivity and of course, increased demand for IoT including cybersecurity assurance services. Our full year guidance of robust organic growth for electrical and connected world remains unchanged. Our business assurance delivered good organic revenue growth. We are comping versus a high base last year, as you know, when we benefited from the increased iron ore audit demand for our clients, to meet the Q3 2018 deadline for standard upgrade. Our full year guidance of robust quarterly growth for business assurance remains unchanged. We are seeing a strong demand for non ISO Solutions as we benefit from increased focus of corporations on risk management and obviously supply chain, processes, increased consumer and government focus on ethical and sustainable supplies. In our Building And Construction business, we are also comping against a high base in 2018, have delivered solid organic revenue growth as expected. You'll recall that the inspection activities of large new projects in United States in 2017 where some following the presidential election. And that in 2018, we benefited from a fast ramp up of several new projects that were delayed in 2017. We are seeing good traction with our business development activities and our full year guidance of good organic growth for BNC remained unchanged. Cross Prevention Technology business will be able to robust organic revenue growth, driven by continuous continued investment of our clients in new models and new fuel efficient engines and increase scrutiny on emissions. Our full year guidance of robust organic growth for our transportation business in 2019 remains also unchanged. We generated good organic revenue growth in our food business, driven by continuous re innovation and increased focus on the safety of supply chain. We expect our food business to deliver good organic growth in 2019. We saw as expected, organic revenue below last year in our chemical and pharma business in the first half as we benefited last year from robust growth ahead of the June 1st reach deadlines, which created obviously a very strong business for us. We are maintaining a full year guidance of solid organic growth for CMP business or partner activities is strong for the second half. Overall, for the full year, we expect our power connected business to deliver good organic revenue growth. Our trade business benefits from acceleration in revenue momentum and delivered a robust performance with a revenue growth of 5.8% and an organic growth of 5.1%. Delivered an operating profit of GBP 44,000,000, up year on year by 6.8% and an operating margin of 13 point 3%, up year on year by 10 basis points. Our Canada business reported good revenue performance. We continue to benefit from the global and regional trade growth drivers in all regions. And our full year guidance of good organic revenue growth for Calibrate is on incentives. Our government and trade service businesses delivered double digit organic revenue growth, driven by volume growth from existing contracts as well as from new contracts around the world. We continue to expect CTS business to deliver strong organic growth for the full year. Our Agri World business reported good organic revenue growth, and we expect these trends to continue for the full year. And for the full year, we expect our trade related businesses to deliver good organic revenue growth. Our revenue momentum has improved in our resources related businesses, and we've delivered a good organic growth of 3.5%. We've delivered a strong operating profit of $14,500,000, up by 16.9% year on year, with a margin of 6% up 70 basis on year on year at constant rate. Our CapEx inspection business reported good organic revenue growth as we start to benefit from the increased investment of our in exploration and productions around the world, and we expect our CapEx inspection business to deliver good organic growth in 2019. Demand for OpEx Midland Services remains stable in a competitive environment, and we expect that trend to continue for the remainder of the year. We continue to see an improved level of demand for testing activities in the mineral business as we deliver the robust organic growth performance in the first half, and our full year guidance of good organic growth for Meural in 2019 remains unchanged. For the full year, we expect our Resources businesses to deliver a good organic revenue growth performance. Before we take any questions, you might have a few concluding remarks from my side. We operate a high quality earnings model that intersects. And our approach to value creation from mid to long term is based on global GDP plus organic growth in real terms. Plus margin accretion plus strong cash conversion and plus disciplined capital allocations in organic inorganic investments targeting the attractive growth and margin sectors in our industry. Compounding effect of virtuous economics of our earnings model year after year will continue to deliver shareholder value creation. Our future growth outlook is global GDP plus organic growth in real terms, We expect our product division to represent 76 percent of the group's earnings to grow ahead of global GDP, benefiting from brand SKU expansion, regulatory development as well as increased focus of corporations and safety, quality and sustainability. We expect the Trade Division that represents 18 percent of the group earnings to grow at the right broadly similar to GDP through the cycle or trade business will benefit from the development of regional and global trade routes as well as from increased focus on traceability. The growth prospect of our Resource division, which represents percent of group earnings are linked to global growth drivers in the energy sector. Investment in exploration and production potential resource like oil and minerals will grow to meet the demand of the growing populations around the world. We also expect structural growth in the renewal sector from an energy standpoint. Intertek is going from strength to strength with scale positions in attractive end markets in 100 plus countries We offer our clients a superior customer service with a unique total quality assurance value proposition We operate a high quality component annex models, and I have a better operational discipline is making us have a stronger every single day. Thank you you. The first question comes from the line of Edward Stanley from Morgan Stanley. Please go ahead. Good morning all. Thank you for taking the questions. 2, please, in the products division, when we think about the 20 basis points of constant currency margin expansion, Can you give us a bit more detail about where that underlying organic margin improvements coming from given there are clearly some weaker segments within the mix year on year in products? And secondly, it feels like you're now comfortably past the trough in resources. So where do you think you can get the underlying margin in that division back up to relative to the previous peak margin in resources? Thank you. Look, I think, we are tremendously proud of where the product business is. If you look at what we've done, over the last 5 years. And I would say even beyond that, when it was a different disclosure format, I mean, this is a see the core of the group and we have obviously the highest margin target division. As you know, we do not disclose individual numbers by business lines for essentially commercial reasons because we are competing against several companies in the industry. As you know, But I can tell you that the organic growth in our division is broad based. There was only one division that was new last year, which is CNP. And from a margin standpoint, we're also making progress in most of the divisions. And as you know, my approach to organic revenue growth is all about good organic revenue growth, right? We focus our operations on volume price. And we say no to a client that just wants price reduction because we believe that we are a superior quality operator in the industry with our customer service approach. We are the market leader in most of the business side in our product business. Of trade or resources is the way we operate our portfolio. And having a strong pricing power is very important. So when you think of operating leverage, don't only think about revenue growth, think about pricing power, mix innovation, and that's how we get, obviously, the margin that Look, well, I'm tremendously pleased indeed to see some light in the resource sector. We had been expecting that moment and it is now here for us to seize. There is no question that this business has been under a lot of pressure for many years. It's been one of the longest, all prices in terms of price. And the oil and gas companies have been under a lot of pressure. As you know, The good news is our clients have rebuilt their balance sheets. They have realized that they need to invest in exploration productions And look, if you look at the peak to trough, I mean, from 2013 to 2018, on full year basis, our Resource Division lost about 27% to 28% revenue and 60% profit. Our margin at the peak was around 10.5%. So we have a lot of room for improvement here. We're going to take it a step at a time. But I really believe that all the work that we have done in terms of volume pricing, quality of earnings, productivity, the downturn, we should be able to show some steady progress in terms of margin. But the opportunities is absolutely significant as we just spotted. Thank you. The next question comes from the line of Alexander Mayes from JP Morgan. Please go ahead. Good morning. Thanks very much for taking my questions. A couple please. Just firstly, within the Products Division, I noticed that the outlook for food, I think, was previously described as robust is now good. I just wonder if there's been any change in the market dynamics? And if you can give any color there And secondly, on the working capital improvement, I just wonder if you could explain what measures you've actually taken to improve the working capital. Should we consider this improvement sustainable and can you go further? Thank you. Thanks, Alex. Look, on food, as you know, food for us is a relatively small business around the world. It's essentially a regional business in several markets. And we've seen in a couple of markets, what about competitor? And I'm not going to say who it is, starting to redraw prices definitely some challenges. And we decided to move away from these contracts because as I just said to add, we believe in volume pricemix and pricing power. So I'm not too worried about it. It's just a commercial, I would say, in the management of this two markets where one competitor is aggressive than usual. Working capital, we still have a lot of opportunities and I think Ralph will answer your question directly. Yes, Alex, I mean, on working capital, we've basically bought the same disciplined approach to to margin discipline that we have, into working capital, we continue to make progress both on the receivable side and the payable side. And in terms of a further opportunity, absolutely. We still see a span of performance across the group. And as we said at the year end, for 2018, we continue to see opportunities to take this down more. The next question comes from the line of Rory McKenzie from UBS. Please go ahead. Good morning, all 2 for me, please. Firstly, I hate to focus on the really short term, but the implied organic growth seemed to slow in May, June compared to the 1st 4 months, especially in products. Can you just help us estimate how much of that was maybe due to the fewer working days year over year? And secondly, on the kind of margins in product side, Can you talk about Alkami a year on when you first bought it? What are your thoughts about the margin investment you want to make in growth there? If it will be dilutive for this year overall and the thoughts the year after and the after that would be very helpful. Yes. Look, I think the point about Vazhu and it's essentially working there. As a matter of fact, if you do the math and you normalize the implied organic growth product in May June with additional working days, you will see that you are slightly ahead of your run rate in January to April. So there is nothing new, explain, the baseline effect in our maturing statement in greater details. And this is working there, and I'm not concerned about Look, Alkami thanks for asking, it's going to be a very soon 12 months anniversary of our acquisitions. This is, look, this is something that, is really going to make a huge difference to our clients around the world. There is no question that corporations have invested a lot in setting inspection certification, which is all all definition of the industry, we believe that the industry is moving to ATIC where you have to add assurance because setting inspection certification is just a physical quality control and today to get quality assurance and to end this is necessary and not sufficient and you need to add assurance and assurance. It's always been for us noted our operating procedures and management system. And I was always of the view that one day we'll go into skills and behaviors. And if you think about people, in a driven industry, it doesn't matter if it's high street restaurants or hotels or factories. After having streamlined processes, sharpen your investments in terms of equipment, done all the work on formulations and quality control, people assurance is really an excellent year for cooperation. And I'm saying it because, we have been presenting our people with insurance solutions to a lot of clients and have done lots of clients meeting myself in North America, but also around the world. And when I explain what we can do for them, either for factory owners or for multi site owners, the eyes are just wide open, wow. We didn't know that technology could enable that to do that. And so this is very energizing. So we are making a lot of progress on the commercial agenda. Today, we are essentially focused on setting up in North America with clients that are based in North America, but also have operations around the world. And we are going to be very careful about what we disclosed because obviously there is some competitive sensitivity. I think we are taking a step ahead of many companies in the world of quality assurance with our approach with Alchemy, but I can tell you that, if you look at all SaaS models, when we scale it up, the margin is just fantastic. So from our perspective, we are on track both commercially and on track in terms of margin. As far as investments and developments, look, innovation is part of the group's strategy and we continue to invest in innovations and of course, there are innovation opportunities in Alchemy. I host the full day of innovation workshops with our teams in Austin, which just a fabulous team. And the opportunity is very significant. So we'll share some of these as we go, but I'm so pleased we have helped him in our part of the intake family. Great. Thank you. The next question comes from the line of George Gregory from Exane. Please go ahead. Good morning. I have 3 questions, please. Firstly, just in terms of the hardline, hardlines performance. I wondered if you could, elaborate on the the solid growth in the first half and the expected improvement, to good for the full year, please. Secondly, I noted you've accelerated your looks you look to have accelerated some of your restructuring activities with the SDIs up a bit. I just wondered if you could give us some more color as to where that work is taking place. And then finally, just on guidance, your tax rate guidance is unchanged. Despite you being, I think, at 24.5 percent in the first half, I just wondered if there's any particular reason to expect that to increase in the second half And similarly on the interest guidance, the first half run rate looks a bit higher than the full year expectation does currency have any output impact on that interest? Or are there any offsetting factors on an IS917 basis, please? Thanks. Okay, thanks, George. I'll do the first 2 and Ross will do the last two questions on tax and defense costs. Look, hotline is pretty straightforward, as you recall, the bankruptcy of Toys R Us really materialized at the end of the first half last year. And that the is simply a baseline effect, as I explained in the main trading statement. And as you know, Toys R Us is an important player in the global product industry or was, I should say, an important player in the industry. As far as, as the eyes look, we we have, you might recall, when we announced our strategy in 2016, we said that we would take our time to do this forensics on certain parts of our portfolio, because we won't take the time to make the right decision, taking a restructuring charge really the last result. There are many things that you can do to improve performance of certain business lines. And we are going at our own pace and I wouldn't see the year on year increase in the first half as a signal of acceleration is just the way the math and and the review, as played out, and we are being very, very selective. And where is it happening? I mean, it's happening in businesses around the world. We typically don't go into too many details because it will be really true details, that we have very, very selective and it is really only the last resort, but we believe that we have explored all options. We decide okay, we need to take some costs out here because that's the only way to improve the performance of this business. So I'll hand over to Ross for tax and that's Hi, George. For tax, I mean, as you saw, the range is 24.5to25.5. And as you know, when we did the half year results, we use our estimate for the full year, tax rate for the group, which is 24.5 percent to within the range. And clearly, as we go into the 2nd half, the final number will be a function of the overall mix of the business and the geographies to contribute, hence the reason we've continued to guide to a range of 24.5to25.5. On interest, again, the range, and we've reiterated, from the free results. It's at this point of March, of 31 to 33. And that guidance is maintained, on the basis of no further material movements in FX. Given obviously the U. S. Dollar drum that we've got, and it's very much based upon the view of the group's cash generation, over the course of the second half. The next question comes from the line of Rajesh Kumar from HSBC. Please go ahead. Hi, good morning, gents. Just following up on the working capital comments earlier, What are your medium term aspirations for working capital? What is the level you think Intertek can achieve in, say, 18 to 24 months time? And the second question is looking at the overall tariff debate, I appreciate it's quite difficult to quantify what the impact could be. But how are your discussions with suppliers, customers shaping up in terms of preparation for various scenarios of outcome, have you seen any adverse effect or benefit from the inventory buildup we are seeing in the U. S. In response to the tariff? And finally, on the pricing dynamics with your customers, can you give us some color on what sort of pricing discussion you're seeing in the product and the resource segment, please? Thanks. Look, on working capital, as you know, we do not give any quantitative targets at Intertek for for medium to long term. Our view is that there is more fuel in the tank or there is more juice, lemon. And the answer is ever better and we're going to continue to make some improvement and every bit for me makes a huge difference because it's about the consistency of performance delivery. So, we've made tremendous progress, but there is more progress to be made as Ross said in terms of product performance. As a global trade, frankly speaking, the situation has not changed since our recent May trading statement, you know, that the discussions are going on between the U. S. And China. A few important points, I think we have not seen any impact of the trade discussions on the sustained good performance of our business in China across all business lines. And we are really pleased with our Chinese performance. I just came back from trips, I was 2 weeks in Asia trying to talk to clients and talk to our colleagues. And what's happening because nothing has changed, there is no need for companies to make any decision. And as I explained, in our previous discussions, it is a very complex decision for a given brand to move factory from China to another country. Obviously, they've done it in the past, and we've followed the activities of re locating supply. But it's costly and not risk free because they've got to rethink all production standards training of the factories. They've got to rethink that Tier 1, Tier 2, Tier 3 supply base. They've got to retain logistics. So you can imagine, this is not a life decisions to take. What I can say is that obviously companies are evaluating the options as you would expect them to do. So that's really, the main point, no change in our business momentum in our Chinese business. And companies are, looking at what could happen and what could be the best solutions for them. The only thing I would say is we should not underestimate the high quality of manufacturing in China. China is just not a low cost manufacturing hub or house for the world. It's much more than that, right? There is a lot of investment in leading technology and the quality of processes, the discipline of the workforce, all of that contributes to the outputs of what companies get out of China. So the I think, we are monitoring it. I'm very close to it. I've got, as I said, in our previous call, task force that basically is staying close to the heat of our plant, because frankly speaking, growing the supply chain of our plant, wherever they want to go in the world is something that we do every single day at Intertek. And and you've got clients want to move from A to B, we'll be very happy to help. And I just want to make sure we provide that customer service. In terms of pricing, look, as I said earlier, we are a premium operator We believe in superior customer service. We invest in innovation that add value, we track our customer service. And I wouldn't say that there is any change of dynamic in terms of pricing in the market. We've got clients that want to negotiate as you always have that has always been part of the day to day commercial activities but there is nothing that's telling me pricing trends are changing one way or the other. So we continue to focus on our own pricing power strategy and that's the way we run the business. The next question comes from the line of Tom Sykes from Deutsche Bank. Please go ahead. Good morning, everybody. Firstly, just on a rather boring question on the depreciation, because I think your EBITDA number or margin on a pre IFRS 16 basis is up by quite a bit more than the 10 basis points So therefore, and I think that might be the first time in quite a few years. Is there anything particular about increased depreciation levels for this year that we should think about depressing the EBITA a little. So you suggest the underlying profitability is perhaps a little bit stronger. And then just on the CapEx guidance, the degree to which should we really expect you coming into the 130, 140 and what areas is the CapEx actually going into? Or is that a very conservative estimate? And then finally on the Kemms And Farmer And Building And Construction parts of products. Is there been any sort of is there a basis points drag on the margin that you'd pick out from Kem's and Farmer that might reverse in H2. And what's the forward like on the Building And Construction business given that you have tougher comps up until Q4, I think? Thank you. Thanks. I'll take 2, 3, 4, and then Ross will do one. Look, in terms of CapEx. I mean, typically, we tend to spend less in H1 than H2. That's the nature of CapEx approval inside any global company, you improve your CapEx at the beginning of the year and it takes a bit of time, where we invest and the guidance is, I would say, not too concerted. We might not stay at all, but we want to be fair and feel it when we give you some numbers for your model. I think where we are investing, it's very simple. It's maintenance CapEx, as you would imagine, we invest obviously in IT, continue to develop our IT functionality. We invest in a lab expansion, in terms of capacity, lab equipment, but also, one of the big area of focus is innovation. So we try to bring new equipment let me talk about these for quite a while, or we try to basically invest in the development of new solutions. So this is basically, what we do. I think the allocation is the same that we set up discipline in the same approach that we take to M and A. We only invest in areas where we believe that we'll get the right returns. Look, as far as C and P is concerned, as I said, we don't, earlier, we don't talk about margins, by business line inside the street. Divisions. And look, this is, again, for us, it's a ratably regional business. We are not a global player in C And P. I think what happened is essentially the June 1st deadline for which last year, which obviously had a great revenue momentum. And of course, when you are negative in terms of growth, it has an impact on your operating leverage. I'll leave it to that. And that's why as BNC, that's true that we had a good momentum last year, but equally, the lousy investment projects, where it really concentrated in Q1, Q2 and Q3. So the comp should be slightly easier in Q4. I will hand over to Ross on the Thank you. Tom, I mean, as you say, if you look at the cash flow, you can see the combination, depreciation, amortization was $51,000,000 in the first half of this year. And that simply reflects the CapEx spend over the last few years because we've been spending brought it between $100,000,000 $113,000,000 in the last 3 years. So it's simply a timing impact of that. Times 2 in H2 as the underlying depreciation number is or sorry, sorry, replicated again in H2 is about fair then. Yes, John. Thank you very much. We have no further questions coming through. So I'll now hand the call back to Andre for any concluding remarks. Apologies. We have actually just had another question. Are you happy to take that? Of course. So this question comes from the line of David Ru from Bank of America. Please go ahead. Hi, good morning guys. Just three questions from my side. I think firstly, going back to your comments around more competitive price behavior in food. I was just wondering whether you've seen more aggressive price behavior from your competitors any of your other segments. My second question relates to the sort of hypothetical shift in manufacturing basis I'll be interested to know if your labs in Southeast Asia are running at full utilization Or if there was a a shift of the manufacturing base, to Southeast Asia, would you need to roll out further capacity in labs. And then lastly, just going back to restructuring of the business. I just wanted to know whether you've seen a net increase or decrease in employee headcount since year end 2018? Thank you. Yes. So on the price, as I said, the price comment I made is really targeted to two markets inside our food business, as I said, to the previous question from our we see, we're not seeing any change in terms of price activities globally from our major competitors. Look, as far as the, the capacity utilization point, it's a good question, of course, and it's not an easy one to answer precisely, because every situation is different broadly speaking, for us, there is quite a lot of headroom in terms of capacity utilization because it's a function of the number of shifts that you run. You can run 1, 1a half, 1.2, 1.3. And typically, we don't have operations running at 3 shifts a day. Capacity is also a function of storage and obviously logistics because we get samples in. So when we look at our capacity, we take these two factors in consideration. So to give you an example, we were one of the first mover into Vietnam many years ago. And last year, we've we expanded our lab in Vietnam because of these two considerations. So look, we have capacity in our labs. And if we need to treat it, we would do that. It's not that complicated, because at the end of the day, our IP is about our as combined with our people and equipment. And you can move that rapidly easily, which we do all the time. Of course, in terms of headcount, we'll report it at the full year, but we continue obviously to invest in growth. I mean, we are growing business So we are people business, so I can't continue to progress, of course. We have no further questions. So I'll hand back to Andre now. Thank you. Hello, it's a busy morning for everyone today. So thank you very much. For being on the Intertek call this morning. Obviously, Denis is going to be available for any question you might have after this call, and have a good day. Thank you for joining today's conference.