Hello, welcome to the Intertek May 2023 trading update conference call. Please note this call is being recorded. For the duration of the call, 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. I will now hand you over to André Lacroix, CEO, to begin today's conference. Please go ahead.
Good morning to you all and thanks for joining us on our call. Hi, with me, Colm Deasy, our CFO, and Denis Moreau, our VP of Investor Relations. There are three takeaways from our call today. First, our strong portfolio is delivering faster like-for-like revenue growth, benefiting from an increased demand for our AT solutions. Second, our China business rebounded strongly after Chinese New Year, following the relaxation of the COVID restrictions in January. Third, we are making good progress on revenue margin cash. We are confirming our 2023 guidance of mid-single digit like-for-like revenue growth at constant currency, with margin accretion in H1 and H2 and strong cash. Let's discuss the performance by business line.
Our products businesses benefited from a continuing increase in customer demand. We reported a revenue of GBP 658 million, up 9.2% at actual rate and 5.5% at constant currency. We delivered a like-for-like revenue growth of 5.5%, with double-digit like-for-like revenue growth in Business Assurance, mid-single digit like-for-like revenue growth in food, and building construction, low single digit like-for-like revenue growth in the other business lines. Our trade division benefited from increased demand for energy and agri products, enabling us to report a revenue of GBP 212.5 million, up 8.9% at actual rate and 5.2% at constant currency.
Our like-for-like revenue growth of 5.2% was driven by high single digit like-for-like revenue growth in Caleb Brett, low single digit like-for-like revenue growth in AgriWorld, and double-digit like-for-like negative revenue in GTS. Our resources division is benefiting from increased CapEx investments as our energy clients are building additional production capacity. The demand for testing in minerals remains very strong. We delivered revenue of GBP 189 million, up 23.3% actual rate and 18.9% at constant currency. Our like-for-like revenue growth was 12.5% in the resource division, with double-digit like-for-like revenue growth in all business lines. I would like now to discuss our performance in China.
The reopening of the economy in January was welcomed by all of our clients, both in the export and domestic markets, and post-Chinese New Year, we saw a rebound in manufacturing and trading activities that provided real benefit to our local operations. This is reflected in the performance of our China business. In January, February, revenue was broadly flat, and it accelerated in March, April period to double-digit like-for-like revenue growth, which was broad-based as all business lines benefited from the reopening of the economy. Overall, in the first four months of the year, our China business delivered like-for-like revenue growth of 7.5% at constant currency. This is a good start to the year for our China business, which will be a significant contributor to the group performance in 2023, given the baseline effect caused by the COVID disruptions in Q2 and Q4 last year.
Turning now to the performance at the group level. For the first months of the year, we delivered revenue growth of 7.6% at constant currency, at 11.4% at actual rate. Like-for-like revenue growth was broad-based, which was also the highest like-for-like revenue growth since we started reporting our performance in product, trade, and resources in 2016. Like-for-like revenue growth of 6.5% benefited from both increased volume and pricing. As previously discussed, we took pricing in the second half of 2022 in the regions where inflation was higher than expected, and we have taken further global price increases, as you would expect in Q1 in our global businesses. The SAI, GLA, and SEA acquisitions that we've made recently to scale up our portfolio in attractive growth and margin sectors are performing well, in line with our expectations.
As you would have noted, we've announced last month the acquisition of Controle Analítico, a leading provider of environmental analysis with a focus on water testing based in Brazil. We continue to make progress on productivity, targeting operational improvement in our variable costs and maintaining strong controls on fixed costs, which combined with the benefits of operating leverage, has delivered good margin performance in the first four months of the year. The cost restructuring program we announced in March is on track. As a reminder, it targets productivity opportunities based on operational streamlining and technology upgrade initiatives to deliver GBP 6 million-7 million cost reduction in 2023, with an annual saving of GBP 15 million when the program is complete. Our day-to-day cash performance discipline has delivered a strong free cash flow.
Of course, we continue to invest in OPEX capability, innovation, and capacity expansion to seize the exciting growth opportunities ahead. Let's now discuss the guidance for the full year in 2023. We continue to expect that the group will deliver mid-single digit like-for-like revenue growth at constant currency, driven by mid-single digit like-for-like revenue growth in product and trade, while we expect high single digit like-for-like revenue growth in our resources businesses. We are targeting margin progression in both H1 and H2. Our cash performance will be strong. We'll invest in growth with CapEx of circa GBP 115 million-GBP 125 million. We expect our financial net debt to be in the range of GBP 630 million-GBP 680 million. A quick update on currencies for your model.
Sterling, as you know, has strengthened in the last few months, and we are updating our Forex guidance for the year. The last four months average sterling rate at the end of April applied to the full year results would reduce our revenue by 50 basis points and our earnings by 150 basis points. We are improving our segmental disclosures to better reflect the growth drivers in our business. Starting from the H1 results in 2023, we'll report revenue, operating profit and margin in 5 divisions, Consumer Products, Corporate Assurance, Health and Safety, Industry and Infrastructure, and World of Energy. As you know, a few weeks ago, we hosted a capital markets event, which gave our leadership team the opportunity to present our 2030 AAA growth strategy to unlock the significant value growth opportunities ahead.
Our clients are increasing their focus on risk-based quality assurance to operate with higher standards on quality, safety and sustainability in each part of their value chain, which is triggering a higher demand for ATIC Solutions. We have made a lot of progress in our portfolio, which is poised for faster growth, both at the global and the local level. We are laser-focused on margin accretive revenue growth, and we have the plans in place to take our margin back to a peak of 17.5% over time and go beyond from there. We've made great progress over the years on cash generation, and we expect higher cash generation to support investment in growth and deliver strong returns. We now have a more agile operating structure which combined with our high-performance capability will unlock significant value.
In summary, we had a good start. By revenue growth as well as continued progress on cost and cash. We are on track to deliver our full year targets for 2023. Our Intertek 30 AAA growth strategy is in place to deliver the significant value growth opportunity ahead. Thank you for your time. We'll take now any questions you might have.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. That is star one for your questions. Our first question today comes from Harry Martin of Bernstein. Please go ahead.
Hi. Good morning, everyone. I'll ask 3 questions, please. The first one is on the resources business and how that looks for the rest of the year. 12.5% like-for-like growth is quite the acceleration from Q4, even on a harder comp. Is there anything one-off in there? The guidance really implies a slowdown. Any color you can give on how that develops through the year would be useful. Secondly, on China, double digits for March and April is quite a broad range for us. I wondered if you could give any more color on where that business is now versus normal or versus 2019. Was April better than March on that basis?
The final question on the margin guidance, expecting expansion in H1 and for the full year. I'm interested to know what would have to happen from, you know, from where we are today for you not to be able to expand margin in H1 or for the full year. Any color you have on the flex to that guidance would be interesting. Thank you very much.
Sorry, Harry. Good morning. I'm not sure I understood the last question. What do you mean?
I'm just interested, I guess, particularly for the first half, you know, we're most of the way through that, you know, is there any flex, what would have to happen to the world and to your various business lines for the margin target not to be hit?
Okay. Look, on your question on the like-for-like performance of resources, of course it's, you know, pure like-for-like. There is no one-off. We have, as you know, three businesses, of course, two bigger than the other one. We are seeing, you know, a very, very strong demand across the board. As you know, our energy clients have underinvested for many years in terms of, you know, expanding their production assets and distribution assets. It is a surprise to no one that now the demand in terms of oil is back to the level it was pre COVID-19. We of course have, you know, very tight, you know, capacity globally.
Everybody knows that renewables are great and very important for the future, but they represent less than 10% of the world energy supply. To meet the growing demand for energy, companies have to invest both in traditional oil and gas and renewable. That's what's happening, we are benefiting from that. As you know, we are the global leader in engineering-based inspections with our Moody International business that covers all aspects of the production, you know, ecosystems in the energy sector, including renewables and of course, solar with the recent acquisition that we've made, which is not of course in like-for-like. The other point that is important is that, you know, minerals continues to see some very strong demand. As you know, the investment in infrastructures are building around the world.
In addition, we've talked quite a bit about that at the capital market event, the importance of lithium and cobalt regarding the energy, you know, the battery demand. Then it's a smaller, it's a smaller business, but it all compounds. Of course, you know, with these tight production capacity, the existing production assets need to sweat harder, if I can say it like this. Of course, you know, oil and gas companies are investing in maintenance and it's benefiting our OPEX business. Look, we had, as you know, a very strong second half and therefore, you know, I would suggest that, you know, we keep that in mind while looking at the full year.
Double-digit is obviously fantastic. We had a much stronger second half than first half in resource. There is a bit of a baseline effect in our outlook for the year. As far as China is concerned, look, you know, really, really pleased with the strong rebound that, you know, we've seen in March, April. I gave you January, February and March, April because they are two distinct periods. The first two months of the Chinese New Year period, which was, you know, broadly flat and it took quite a bit of time for companies to start all over again. Both March and April were very, very strong.
I'm not gonna give you much more than what I've given in terms of numbers, but I can say that, you know, we had, you know, double digits, you know, growth on all of our, you know, business lines. If your question is, you know, is the level of revenue compared to, you know, 2021 higher and lower, you know, the rate of growth in January, April for 2023 is higher than the rate of decline in January, April 2022. Here you have it, you know, doing very well. You would remember that we disclosed the performance at the capital market events on the performance of China, you know, pre-COVID, pre-COVID-19, and after COVID-19. The business is in a really, you know, good place.
I think, that's it in terms of margin. Look, we are very focused on margin equity revenue growth. We've made good progress in the first four months. There is still some work to be done. The, you know, annualizations of our restructuring program, you know, will, you know, take time. It takes time to implement pricing. Look, we are targeting progress in H1 and H2, and we'll report H1 in a very, you know, short period of time.
Great, thank you very much.
Thank you. Our next question comes from European Business Services Stanley. Please go ahead.
Hi. Good morning, André Lacroix. Three questions, please. Firstly on the first two are on China. Given the rebound in growth and the performance, I'm slightly surprised that that hasn't translated into a better margin guide for this year, given the operational leverage in that division. Is it a case of it's too early to make that call? Or is there anything else going on in terms of why we're not seeing more of a margin drop through from that China recovery? Secondly, I suppose it's a related question. You said that all the business lines benefited from the recovery in China.
Again, I'm curious as to which divisions and sub-segments in particular have driven the growth recovery and perhaps where you're still seeing some weakness, if any. Just lastly, you helpfully gave the growth in January and February, March, April for, you know, for China. Can you give any color on the growth progression at the group level and particularly for the Products division? I'm most interested in how that trended particularly in April. That would be helpful. Thank you.
Okay, look, I think we are reporting revenues this time around. I think it's too early to take a view on the, you know, potential, you know, upside to a margin guidance based on the strong China recovery. I would also say that, you know, fully, a guidance we had expected a strong China recovery. This is something that we all need to keep in mind. As far as, you know, the business lines, so it is really broad-based. You know, it was, you know, very pleasing to see the same pattern that you see at the global level, right.
Assurance was a very strong performer in China, as you would expect. You know, the resource business is also, you know, doing very well there. Same trend on trade. You know, the only thing I would say to give you a bit more color, the Softlines, you know, performance was really good in the first four months of the year which for us is really important. We look forward to the start of the new season to really confirm and capitalize on this, you know, very, you know, strong trend.
I mean, look, we give, you know, as much color as we can in terms of, you know, disclosures. I wouldn't say much more than what I've said on the group, you know, business line performance. I mean, there was some, you know, significant difference between January and February and March, April. I would of course, you know, tell you, but, you know, we are in a good place overall. You know, certainly, very, very pleased to be broad-based.
Okay. Thank you.
Thank you. Up next, we have Simona Sarli of Bank of America. Please go ahead.
Yes, good morning, and thanks for taking my questions. The first one is a follow-up on China. If you could please remind us what is the split between domestic and exports, and also if there's a strong growth momentum, if you could please comment again in on domestic, if that was driven mostly by that? Also, you have mentioned that the price increases are accelerating, so if you could, please comment on how much they're contributing to growth and if there is also any substantial difference across the different segments? Thank you.
Thanks. Look, the split, as you would recall from the capital market event, is about, you know, 75%-25%. I think both domestic and export market did extremely well in the first 4 months. If I had to give you some more nuances, you know, domestic was slightly better, but it's really on the margin, right? It was, you know, excellent on both segments. You know, pricing remains of course very important for us. It was about 1/3 of the revenue performance in January, April, and it was broad-based.
Thank you.
Thank you. Up next, we're moving on to Will Kirkness of Societe Generale. Please go ahead.
Thanks very much. three questions please. firstly, just wondered if there was any working day impact to call out, and particularly from a revenue perspective. secondly, within products, just looking at Business Assurance. Now you've given us a bit more information, I guess we can kind of have a bit of a guess at the growth rate. Looks like it might have been in terms of double-digit, maybe more like 15%. I just wondered if you can comment at all if that's accurate, and then how much is kind of cross-selling and self-delivered, and how much is sort of market growth for Business Assurance. Lastly, just on Caleb Brett, I think maybe for a few years pricing had been difficult there. I just wondered if you could talk about the volume and pricing dynamics now.
Thanks so much.
Okay. Yeah. Thanks. Look, for us, pricing for Caleb Brett has never been difficult. I don't know where this is coming from. We've always been able to take prices where we wanted to. We are the global market leader. We've got, you know, tremendous reputation in quality and fantastic contracts. Pricing has never been an issue for us. We continue to see some good, you know, pricing performance there. I think in terms of working day, there is no real difference here. I wouldn't, you know, worry, you know, too much about that. I mean, your point of assurance, it's correct. I mean, it's been a stellar performance when you look at the numbers. It's, you know, broad-based geographically.
We talk a lot about assurance in the capital market events. You would recall the presentation from Colleen, where we talked about ISO, non-ISO, you know, technology risk-based quality assurance with our Inlight p latform, you know, people assurance, and of course, you know, sustainability. What you're seeing is, you know, the compounding effect of all the investments that we made in each of these segments. You know, we are, of course, the ATIC leader in the industry. Our clients really understand that when it comes to risk-based quality assurance, Intertek is the partner of choice. I think this is fantastic performance for from the team, I would say again. You know, we are very pleased.
Perfect. Thanks very much.
Thank you. Our next question comes from Oscar Val of J.P. Morgan. Please go ahead.
Yes. Good morning, André. Two questions.
Morning.
The first one, I think, just going back on Consumer Products. Over the last six months, and at the capital markets today, we've talked a lot about destocking in the U.S. retailers. Could you give us an update on what you're seeing on the ground in terms of demand for the next few months? Are we seeing some sort of green shoots, or is the market still difficult on the Consumer Product side across all three divisions? All three end markets. The second question is, I guess, on, in the trade, you've talked a bit about Caleb Brett, but could you give us a sense of are we back to normal in terms of demand, or should we still see some recovery in terms of volumes around mobility or air travel? Thank you.
Yeah, thanks. Thanks, Oscar. I mean, on Softlines and hard lines, right? The first thing I would say is, you know, if you look at the performance we had in the first four months of the year last year, you remember the beginning of 2022 was on the back of a huge surge of consumer demand for products in 2021. Companies were rebuilding their supply chain, you know, it was really strong momentum everywhere. We had, as you would recall, mid-single digit Softlines performance and low single digit hard line performance. With that in mind, I think, you know, the performance in the first, you know, four months of the year for both Softlines and hard lines is I would say a commendable performance.
I've talked about, you know, China, which is a very major contributor and, you know, it has been, you know, doing very well in the January, April periods. To your question about what's happening within the retail environment in North America and Europe. To remind everyone what we saw, and we call it in the October trading statement. We saw, of course, retailers being careful with their inventory as they were, you know, getting into H2. Why? Because they had stocked and developed a lot of new products to meet the demand I was talking about. Of course, with the discussion on interest rate and inflation, they were concerned about consumer-led recession in North America or here in Europe, which as we know, has not happened.
Hence, you know, the careful approach to new products for the winter and the spring, you know, collection, and that's basically the slowdown in new product development that we saw in the fourth quarter of 2022, and to a, you know, certain extent in the first 4 months of the year. The reality as you know, is that, you know, retailers have done at large better than they thought. We are sensing confidence, you know, is back and certainly the pivot for us will be, you know, when we start producing the, you know, fall and winter collections, which will be from the second half.
Look, I would say the mood music, if I were to use that, you know, metaphor is better, within the, the retailers than it was, you know, six months ago. Having said that, there are always a span of performance. Some brands are doing better than others. You will have seen, you know, Walmart announcement, you know, last week, which obviously demonstrates the, the power of retailers with, which got a good value, positioning in the market. As far as. Hence, you know, we are optimistic for the second half on Consumer Products.
As far as Caleb Brett is concerned, look, if you look at the global supply and demand, in terms of pure barrels of oils, in the fourth quarter, it was around 101, right. With, you know, with supply matching demand, you know, very, very, very, very well. That's, you know, speaking to the point I was making earlier, there is not a lot of, you know, capacity in the systems. Having said that, when you look at the data, the mobility, as I was trying to explain at the capital market day, the mobility on the ground is back to where it was, in 2019 and slightly higher. In the air, it's not situations. As you know, airlines have got several challenges. Number one, they've lost a lot of pilots and crew.
I mean, they've divested quite a lot of airplanes. I think it's gonna take some time for the airline, you know, capacity to go back to the pre-COVID-19. Interestingly, you know, a lot of airlines boost their cargo capacity to address the supply chain issues. The cargo capacity from an airline standpoint is higher than it was pre-COVID-19. It's the commercial capacity that is low. I don't know if you travel much, but try to book some flights and you will see the choices is much less than it used to be, and certainly the prices are crazy. That's where it is, which means that, you know, for a pure volume standpoint, there is still more opportunities for us as far as category.
As we talked about at the capital market events, we are very excited about of course, the move towards sustainable fuels, which means, you know, higher testing protocols for us.
Thanks. Thanks, André.
Thank you. I'm gonna move on to a question from Arthur Truslove, Citiban k. Please go ahead.
Hi, André. Thanks so much for taking my question. Three from me, if I may. First question, just on the margin headwind arriving from foreign exchange. I was just wondering whether you could explain, you know, just how that comes about really. Second question, obviously one reason for sort of margin challenges last year, was obviously very strong demand for labor, and that being a margin pressure. Are the labor markets loosening now, in terms of what you're seeing, and is it still becoming incrementally easier to hold on to workers? Then third question, just on the transport tech side. I think at the Capital Markets Day, you were quite bullish on that within the Consumer Products division, I think you might say it only grew low single-digit.
Are you expecting that to accelerate through the year? Sort of can you confirm that if it does, that that's an operational leverage opportunity as well? Thank you.
Yeah. Thanks, Arthur. Look, I think when we do our Forex guidance, right? We take, I would say, a pure quantitative approach. We take the average rate in the last 4 months, which is January to April. We apply that to our revenue and our mix, and that gives you, obviously, the numbers that I shared. I think what's important for your model is that if you look at, you know, the sterling versus all currency, especially the dollar, you will see that H1 is not going to look like H2. We are seeing a strengthening of the sterling against the dollar. You know, the mix effect is basically explaining what's happening to, you know, our margin. There is nothing more than that.
As you know, it's a very volatile environment, and I think we have to a step at a time. For us, we run the business on organic constant currency basis. This is the way to look at it. Don't expect the headwind I talk about at H1. It's gonna be a different H1, H2 phasing if the rate stays as is in the next months. As far as your question on labor, look, my sense is that we've done a good job at keeping our retention very high. You remember the presentation Tony George made, and he talked about turnover, which was quite low at 14%.
Incidentally, I was talking yesterday to our auditors here in the UK, and, you know, they've seen much higher, you know, Get offers from the outside and try to, you know, to see if they can improve their, you know, their career and quality of life. I think to your point, I think it's getting on that very precise point. It's getting incrementally easier. I wouldn't say that, you know, inflation and pressure on wages has disappeared because out of 2022, 2023, sorry, was okay. There is more fuel in the tank, if I could use this metaphor for these business lines. You're absolutely right. This is a lab-based business and there should be some operating leverage.
You know, we are very excited about TT moving forward.
Thank you very much.
Thank you. Up next from Redburn, we have Neil Tyler. Please go ahead.
Thank you. Good morning, André. Just a couple of questions, please. Just circling back to consumer product testing and Softlines particularly, the assurance activities within that, was there much sort of Difference in momentum there, both through the quarter and relative to the lab-based testing? That's the first question, please.
Okay. The answer is Assurance, as you know, remains our fastest growing business globally and also within our businesses. No, it was slightly better in Assurance than testing.
Thank you. Secondly, just a very quick follow-up, I suppose, to Arthur's question around wage inflation. Can you remind us what you're assuming with, presumably you've got reasonably good visibility over wage inflation and, you know, what wage increases over this year? Can you remind us what % increase you're assuming for the year?
Yeah. Look, I understand your question. We don't, we don't disclose it. What we do as you know, we look at... The reason for that is because, you know, a global number is not really meaningful, when it comes to that, especially, you know, when you are people-based. People will be watching it and will say, "Okay, mine is different." The way, you know, to think about it is that, you know, we have, of course, an inflation basket, that is slightly different than the global headlines that you see, you know, for the world.
What we do is we look at it, you know, country by country and we compare over time, you know, the inflation to the component wage increases that we've made and we try to maintain, you know, purchasing power, you know, in every jurisdiction and that's how we do it. We're not disclosing it for the reason I explained, but, you know, we have a pretty good view market by market on what to expect versus what we budget.
Okay. Fair enough. Linked to that, could you give us some color on the sort of headcount planning through this year? Presumably you were pretty well staffed to be able to accommodate the like-for-like growth you anticipate. Should growth, you know, continue to get bigger than that, you know, I would argue it's sort of shaping up potentially to be after the first quarter, you know, is the current headcount frank provision to accommodate that? Or would you need to sort of, you know, go out into the market and therefore, you know, going again to the earlier question, do battle with the tighter labor markets at the moment?
Yeah. Look, it's a, it's an important question. As we talked about at Capital Market event, I tried to explain the concept of capacity utilizations within our business. You've got to think about two type of businesses, right? The field-based businesses, which is the inspection and the audit business, where, you know, there is a very strong, obviously correlation between the growth you expect and the headcounts that you need, because if you have thousands of audit days, you need to make sure that, you know, with utilizations of 85%-90%, you get the number of auditors that you need. Of course, here we are investing in colleagues, to basically make sure that in colleagues' headcounts to make sure that we have the capacity we need.
When it comes to lab based testing, it's a different concept because as you know, we have quite a big fixed cost and also our variable cost depends on the number of shifts that we put in. What we do is we budget, you know, the year based on what we expect the volume to be, and therefore we recruit accordingly. As you remember from Ross' presentation, you know, we are very focused on productivity management, volume per headcount, revenue per headcount, and profit per headcount. Of course, you know, we only add headcounts when we believe that we've achieved the volume per headcount threshold that you know, is basically maxing out in that business at that time of the year. Of course, you've got some seasonality.
It's quite a complex scheduling model. To make it simple, of course, it's a more linear relationship on the field base than a lab base. We make the investment that we need, based on our metrics, you know, tracking.
That's really helpful.
Thank you. Up next, we have Suhasini Varanasi of Goldman Sachs. Please go ahead.
Hi. Good morning. Thank you for taking my questions. Just two for me, please. There's a minor change in the wording of your outlook by division, the products and trade moving to mid-single digit growth versus good previously, resources going to high single digit versus robust. Is it fair to say that there may be some small movement upward in your mid-single digit guidance range for the group level as a result of this? The second question is on tax rate, please. The change lower downwards, is there any particular country that's driving this? Thank you.
Thanks. Hi. Look, what we're trying to do is trying to make it simple for everyone. We've moved away from all the adjectives, we're now in mid-single digit, high single digit everybody understands. You're right. If you run the model, you end up with a slightly higher numbers than what you had, you know, before. As you would expect, mid-single digit is a range. We had a good start with, you know, you know, the like-for-like revenue growth that we talked about, you know, today at 6.5%. From a tax rate standpoint, it's purely, you know, tax planning, you know, with Colm, you know, taking the responsibility of the group finance activities and experience in tax and treasury.
You know, he and the team believe that there are some, you know, planning opportunities which we want to see. That's good news.
Thank you. Now we're moving on to James Rowland Clark of Barclays. Please go ahead.
Hi there. Good morning. I've got two please. First, circling back to consumer, I mean, you mentioned it's been, you know, it's been a good start to the year over the comp base you have, sensing confidence back in retailers, China activities improving. Could the second half growth be more mid-single digit than low single digit? Secondly, on Caleb Brett, do you disclose the size of the biofuels testing business within that? Is it big enough to contribute meaningfully to the growth of that business? Thank you.
Yeah. Look, let's just start with your last question. If you step back and that's, you know, the reality of things, you know, renewables is less than 10% of the global energy supply, right? This is, you know, the reality, and it's gonna take time indeed before, you know, it becomes significant in our mix. Having said that, you know, every activity that we do in making fuels more sustainable, which is of course lower, you know, CO2 emissions, fuel efficiencies, and of course biofuels across all fuels compound. To us, what's really interesting is not the volume mix.
It's also the impact on margin because this is obviously a higher testing protocol, as you would recall Ian explained at the capital market events, which is very, you know, beneficial for our business. You will have noticed that, you know, the narrative on sustainable fuels is basically much stronger than it used to be because every single, you know, company realized that it could be a major, you know, solutions for the race to net zero.
I don't know if you've ever looked at the company, but there is a company that is certainly leading the world on that, you know, powering, you know, sector, is Neste. I don't know if you've seen at the airport, they're starting to advertise, and I would really encourage you to look at their website. They are really a very strong, you know, pioneer there. Look, as far as the guidance for product. Look, you know, we are talking about mid-single digits, you know, like for like, you know, revenue growth for product. That's our guidance, you know, for the year.
As I said to the previous colleague asking question, there is a bit of a range here. Look, we'll take it a step at a time, but, you know, so far, so good.
Very much.
Thank you. As a brief reminder, to ask a question today, please signal by pressing star 1. We'll now take a question from Thomas Burlton of BNP. Please go ahead.
Thanks. Yeah, Morning, André.
Morning.
Most of my questions have already been asked at this point, I wonder if I could just ask two slightly bigger picture questions. The first is on the lead story the FT is running this morning around the chip wars between China and U.S. and some of the export controls around semiconductors. Just thinking if you could maybe map out whether you have any exposure there. Just thinking about the China business and your electrical and connected world business. Secondly, on the sort of hot topic of recent weeks and months, which is AI, if you could give any comments or high level view on kind of where you're seeing opportunities to leverage AI across your business, please.
Yeah. Thanks. Look, on the semiconductor story, of course, we will not comment on any, you know, geopolitical developments. This is not an area where we are hugely involved in China, so I think I'm pretty relaxed about the story this morning. As far as AI is concerned, of course, this is a tremendous opportunity. You've seen, you know, the example that Julia was giving at the capital market events in terms of what you can do in terms of customer service. Of course, we use AI internally, as you can imagine, in terms of data mining and data science. The business that is closest to the short-term opportunity with AI is, of course, our electrical business.
You can remember from Sunny's presentation, we are, you know, really involved in robotics in, what we call functional safety, which of course is linking, you know, the performance of, you know, the software enables an equipment, which is not only software, it's also data, right? Look, you know, very exciting. The even more exciting opportunity for AI is how is the regulator gonna find a way to make sense of the risk within that world. That's probably for later in the decade.
Thank you. As there are no further questions in the queue, I would now like to hand the call back to André Lacroix for any additional or closing remarks.
Okay. Well, thanks everyone for being on the call this morning. Appreciate your time and your interest with your questions, and of course Denny is available if you have any additional follow-up questions. Have a good day. Thank you.