Bureau Veritas Sa

Good morning, good afternoon and good evening to everyone. I'm pleased to welcome you to the full year 2023 results on the webcast and on the call. I'm joined by François Chabat, our group CFO. We delivered excellent results in 2023, reflecting our robust business fundamentals, our consistent execution and our customer centricity around the globe. I would like to warmly thank all our colleagues around the world for their dedication and hard work to deliver this outstanding performance. Looking at our financial highlights of the year, revenue totalled €5.9 billion, up 9.1% at constant currency and up 8.5% organically, of which 9.4% in the last quarter. This is a combination of strong volumes with the conversion of our healthy backlog and a pricing impact as expected. This included more than a third of our portfolio producing strong double-digit growth, with all business lines delivering positive organic growth in Q4. Adjusted operating profit increased to €930 million, up 10.5% year-on-year at constant currency, with a margin at 15.9%. Organically, our margin increased by 20 basis points to 16.2%. Our adjusted earnings per share rose 7.4% to 1.27 euros, a record high. At constant exchange rates, the growth was 17.4%. Free cash flow rose 5.5% at constant currency to 659 million euros. This reflects a strong operating performance and good working capital management. Consequently, a dividend of 83 cents per share will be proposed up 7.8% year on year and corresponding to a payout ratio of 65%. In 2023, we have continued our efforts to be exemplary in terms of sustainability around all environmental, social and governance practices. Our greenhouse gas emissions targets has been approved by the Science-Based Targets Initiative, SBTI. As a consequence, Bureau Veritas joined the CAC 40 SBT 1.5 degree index. We are very proud of the external recognition received. In fact, Bureau Veritas ranked first in the S&P Global Corporate Sustainability Assessment for the professional services industry category. I would also like to share with you the progress in our CSR performance. In health and safety, our ongoing prevention programs further reduced our accident rate in the year. On gender diversity, we continued to improve the proportion of women in leadership positions, which increased to above 29%. Multiple programs have been rolled out last year to make sure we reach our long-term ambition. Last year, we implemented a number of important organizational and governance changes. First, we have strengthened our management structure to support our future growth ambitions. Three new executive committees position were created to sharpen our focus to improve execution and drive strategic priorities around innovation and growth. Second, a number of changes were made to our Board of Directors. Laurent Mignon, Chair of the Vendel Managing Board, was appointed Chair of Bureau Veritas. Pascal Lobard has been appointed Lead Independent Director and Vice Chair of the Board, in addition to his role as Chair of the Nomination and Compensation Committee. Third, the Board created a CSR Committee to support the execution of the Group CSR Strategy. Three out of four leading committees are now shared by independent women directors. I am pleased to report that we have exceeded all the objectives we set for 2023, showing predictability in our execution and resilience of our business model within a complex macro and geopolitical environment. 8.5% organic revenue growth in 2023 at the top end of our revised guidance range from July of mid to high single digit. This is the second year where we have delivered high single digit organic revenue growth. a record revenue. A margin up 20 basis points year-on-year organically versus stable adjusted operating margin target set in July. A strong cash flow with cash conversion above 90%. Looking now at our revenue mix, these results have been driven by all business lines and regions and included high growth from sustainability, decarbonisation and energy transition solutions. Over 80% of the portfolio delivered at least mid to high single digit or double digit organic revenue growth derived from a growing sales pipeline. Looking at the mix, marine and offshore industry and certification delivered consistent strong double digit growth across all quarters. Robust mid single digit organic revenue performance was also achieved in BNI and agri-food and commodities. Following the challenging first half in consumer products, our activity improved as expected in the second half and closed the year up 4% organically in Q4. From a geographical standpoint, the Americas, Middle East and Africa are leading the pack, alongside a strong performance in Europe and robust growth in Asia-Pacific. I'm encouraged by the momentum of growth in Q4 across all our businesses. Turning to CPS, revenue growth for 2023 was positive at constant currency with organic back to 4% growth in Q4. We also continue to execute our diversification strategy, which is built around three pillars, and I would like to share our progress. First, from a sector expansion perspective, we have completed the two acquisitions in North America in 2022 to be able to build new revenue streams. As announced previously, these acquisitions in health, beauty and household sector have delivered strong growth in 2023. Second, we are further diversifying our services in sustainability and other upstream solutions. The recent acquisition of Impactiva is a good example. And third, we are expanding our geographical footprint beyond our traditional strongholds in Asia. The ANSI acquisition announced this morning establishes our leadership position in Mexico. These two acquisitions reflect our continued focus on strengthening our CPS business. The Impactiva acquisition completes our portfolio and positions us as an upstream leader in the leather footwear value chain. Today, we announced the acquisition of ANSI, a leader in testing and certification services for electrical and electronic products in Mexico. This allows us to enter a new market and could serve as a springboard for expansion into North America. Mexico is clearly one of the fastest growing exporters to the USA. We are planning to leverage BV client relationship with retailers and brands to expand our business. Together, this adds circa 30 million of annualized revenue, and we expect the Bureau Veritas CPS platform to accelerate growth. In line with our focus strategy to diversify CPS and regain our growth momentum, there are a number of other targets currently under discussion. Earlier today, we signed a small new deal allowing us to enter the Indian consumer tech market, which is a new geographical diversification. I will pass it now to Francois.

Thank you, Linda. Before we deep dive into the numbers, a few words on the key financial achievements of 2023. We have continued to prove our ability to navigate through a volatile environment with a strong organic growth throughout the year. This is the second year in a row where we closed with an organic revenue growth of plus 8%. We improved our margins organically by 20 basis points. And in particular, this shows a 47 basis point organic improvement over the second semester of 2023. We reported an adjusted GDPS growth at high single digits at constant currency. The growth achieved was 15.7%. This was led by strong operating and financial performance. And it contributed to a further decrease in our leverage ratio, which is now down to 0.92 times. In terms of dividends, as Inda previously said, Bureau Veritas Board of Directors is recommending a dividend of 83 cents per share for 2023, up 7.6% compared to the previous year. This corresponds to a payout of 65% of the adjusted net profit. Looking now at the revenue bridge, we delivered 5.9 billion euros in the full year with a significant organic growth of 8.5%. It shows a strong execution capacity combined to the good momentum of our secular growth trends. Acquisitions added 0.6% on a net scope basis, reflecting the impact of the Bolton acquisition realized in the past few quarters. As always, we continue to actively manage our portfolio, and in July, we sold our non-core automotive inspection business in the US, which represents less than €20 million of annualized revenue. On the acquisition side, as Inda mentioned, we added two new deals in the last few weeks of 2023, and even a smaller one today, and our pipeline is promising. Forex impact represents a drag of 5.3%, leading to a total growth of 3.8% on a net reported basis. And I would like to give you some more color on this situation. As you may know, we operate in more than 90 9-0 currencies. The vast majority of our businesses is not exposed to transactional ethics as we invoice in the same currency as our cost base. We recorded a negative translational ethics in 23, mainly attributed to the strength of the euro against most currencies. Half of the 300 million euro impact come from the US dollar, the Chinese yuan and LATAM currencies. When it comes to foreign exchange, Buraita's strategy is twofold. First, on the tiny part that is transactional, we hedge. Second, capital allocation remains in countries where currencies are stable. This is what we have done in the last four years. And to put this a bit in perspective, since 2022, the foreign exchange impact is limited to 1% overall on the group numbers. Taking a further look at the fourth quarter, Strong revenue growth, 9.4% organically. External growth contributed to minus 0.4% on a scope basis. This is the impact of the recent disposal as part of our portfolio management strategy. NFX had a 0.6% negative impact. Overall, it is a total growth of 2.6% in the quarter on a reported basis. When it comes now to the performance of different businesses in the year, including the last quarter. You see on the left, the full year, on the right, the last quarter. Three activities led the growth, namely marine offshore, industry and certification. They all delivered double-digit organic growth in the year and in Q4, on the back of continued momentum in sustainability services, including marine decarbonisation and renewable energy projects. Agri-food and commodities and building infrastructure both delivered mid-single digit organic revenue growth in the year. BNI was led by both in-service and new-built activity and recovered as expected in Q4, up 4.4% in the quarter. Agri-food and commodities growth was driven in particular by the strong demand for agri-food and government services and grew 7.5% in the last quarter. Finally, consumer product services delivered as planned. After a negative H1, their recovery in the second half led to a stable performance overall in the year. Now, looking more specifically at the last quarter, I'd like to remind you this is the sixth quarter of organic revenue growth above 8% in the last two years. And all businesses that we've just seen delivered good growth. Now, on the margin bridge on this slide, so despite cost inflation, we delivered a healthy 15.9% margin in the year. Organically, our margin increased by 20 basis points to 16.2%, as I mentioned. After a broadly stable first half, we delivered a 47 basis point improvement over H2. This illustrates good progress in operational excellence and execution of our pricing programs. Scope added a modest 1 BP and Forex added 32 BPs negative impact to the group margin, explained by the currency mix. Within the portfolio, the revenue growth and the operating leverage drove organic margins higher in four out of our six businesses. Industry is up 250 basis points organically to 14%, which is somewhat of a more normative level, benefiting from more contract selectivity, as we said earlier in the year, and some operational leverage. Marine offshore was up 94 basis points to 23.8%. Agri-food and communities up 70 basis points to 14.9%. And this was led by the operational leverage and a positive business mix. Certification up 26 basis points to a very healthy 18.9% margin. On the other hand, two businesses recorded margin decline, namely consumer products and building infrastructure, as they were impacted by lower consumer demand for the first one and mixed FX. As a conclusion, we managed to offset the FX impact on the margin by the solid execution of operational leverage. Moving now to the other financial metrics in the full year, EPS and cash in particular. Starting with EPS, we delivered a record adjusted EPS of 1.27 euros, up 7.4% year-on-year and up 17% at constant currency. This reflects strong operating performance, but also lower financial charges and effective tax rate. Putting that a bit in perspective, our earnings are now 25% ahead of the 2019 levels, up over 9% each and every year, as a result of a constant execution, regular and focused attention to EPS growth. Growing the earnings is a key objective for the company, and we are confident to maintain a positive EPS momentum moving forward, as we did over the last four years. Moving to the cash flow statement, free cash is up 5.5% year on year at constant currency to a strong 659 million euros, representing more than 11% of our revenue in terms of cash conversion. Despite the strong revenue performance in the fourth quarter, our working capital requirement outflow was contained at 53 million euros. Our working cap ratio over revenue is kept at a low level of 6.5%. We remain obviously very disciplined when it comes to investment. Cap exude at 2.4% of revenue, up 20 bps, to finance the development of our lab activities. And we expect this to be in the range of 2.5% to 3% for the full year 24. So to sum up, a very strong financial performance delivered by the group in 23, thanks to a lot of hard work from all the teams across BV. I now hand back to Linda for the business review.

Thank you, François. Let me share with you now highlights of the full year 23 for each of our six businesses. Starting with marine and offshore, 2023 was another strong year for our business with a 14.4% organic progression. It ranks among the best performing divisions within our portfolio. It was driven by growth across all sub-segments. We are in a multi-year growth dynamic as the maritime industry decarbonizes and becomes more energy efficient. We grew double-digit in the new construction part, reflecting the solid backlog and acceleration of new orders conversion over the year. We grew double-digit in the core in-service activity. This came from solid pricing and an exceptional number of occasional surveys. We have a healthy backlog, growing 11.4% year-on-year, driven by LNG fuel chips and specialised vessels. This provides us good visibility on future revenue. Bureau Veritas continues to differentiate itself in the market and is now the first class company to be recognized and approved to class ships under the Chinese flag authority. In recognition of our innovation capability, we have also been selected to class the world's largest ammonia carriers in China. It will support the adoption of carbon neutral fuels by the shipping industry and the development of supply chains for green hydrogen. Now, moving to agri-food and commodity. Our diverse agri-food and commodities division recorded a robust 5.7% organic revenue growth with different dynamics among the sub-segments. Oil and petrochemicals recorded mid-single-digit growth. O&P benefited from market share gains in Europe and from the global sustained demand for biofuels and oil condition monitoring. Metals and minerals, on the other hand, saw a low single-digit organic growth. On-site laboratory strategy remains a strong growth driver for us, with important wins in Asia and Australia. Trade activities recorded a high single-digit organic revenue growth, led by sustained strong volumes from Asia. Agri-food delivered high single-digit organic progression. Agri-activities reaped the benefits of exceptionally good harvests for different food commodities in South America and for corn overall. Lastly, government services achieved high single-digit organic growth, led by the solid ramp-up of new verification of conformity contracts in the Middle East and customs outsourcing contracts in Africa and the Caspian area. In terms of sustainability achievements, in the last quarter, we were selected to deliver carbon-related services for a large crop science company in Germany in order to improve its agricultural practices. On the industry front, our highest growing business in 2023, up 16.5% organically. Our growth was broad-based across sub-segments and most geographies, with the Americas, Middle East and Africa outperforming other regions. Government energy security and transition needs and customers' decarbonisation agendas are driving investments across the energy sector. Specifically, we continue to see an increase in clean energy investments that are driving our growth momentum. By market, we deliver double-digit organic performance for CapEx activities and power and utilities. For renewables specifically, the momentum remains strong during the year in solar, onshore wind, and high-voltage transmission projects in the U.S. In OPEC, growth was moderated by our decision to be more selective on contracts. In Europe, the nuclear power generation segment is seeing a revival with new projects in the UK and the EDF power plant renovation programs in France. In oil and gas, new global projects, including startups' gas projects, drove double-digit organic revenue growth. The non-energy activities performed also well in both OPEX and CAPEX services. These activities benefited from a number of drivers, including aging assets, tightening regulations, and the adoption of more sustainable and decarbonized asset management practices in different industries. In terms of sustainability achievements here, in addition to launching two certification schemes dedicated to renewable hydrogen and ammonia in 2023, we were selected for the engineering and quality assessment support on Woodside Energy's H2OK in Oklahoma, a hydrogen plant. For BNI, we achieved an organic growth of 6.3% in 2023, Against challenging comparables, this brought the Q4 organic revenue growth to 4.4%. Overall, we continue to benefit from secular drivers around green buildings, energy efficiency, and an increase in infrastructure spend to support population and expansion and urbanization, especially in emerging markets. During the period, the building in-service activity outperformed the construction-related activities. If we look at our three key platforms, in the Americas, we grew low single digit, led by Latin America. In the US, in addition to stronger 2022 comparables, we made the decision to improve revenue mix through contract selection. A number of businesses within our North America diversified portfolio continue to deliver high growth, such as data center commissioning and code compliance services. In Europe, we recorded broad growth. In France specifically, we grew mid-single digit, led by OPEX, thanks to continued price increases and productivity gains. In Asia Pacific, Middle East and Africa, we grew organically double digit in 2023, led by India, Australia and Saudi Arabia. Despite the difficult financing backdrop in China, growth recovered, driven mostly by the civil works on energy projects. In the last quarter of the year, the group was awarded several contracts in the field of energy audit and sustainability solutions. This includes energy audits for schools in Michigan states and the US, and green building audit campaigns for a leading retail real estate owner in Europe. I'm extremely pleased with the performance of our certification division, as it recorded high organic growth of 12.4% in the full year of 2023, including 15.1% in the fourth quarter. This performance is the result of both volume increase and price escalations. The growth was broad-based for accredited and voluntary schemes across the geographies, showing strong business development and continuous innovation. During the year, increased client demand for more brand protection, traceability and social responsibility services along the supply chain also drove growth. QHSE schemes, supply chain and food safety recorded double-digit growth. As an example in France, we're seeing the outsourcing of public services where we secured a large contract providing food safety audits. Our sustainability solution increased double-digit fuel by high demand for verification of greenhouse gas emissions and ESG-related supply chain audits. Cybersecurity is another key growth driver. We posted stellar performance in the year, led by rising demand for improved cybersecurity frameworks and regulation compliance. During the year, we won numerous contracts in the sustainability field. We have been selected by Mondelez International for sustainability data assurance and social audits. We were also awarded a contract by a European power company for the measurement of its enterprise level carbon footprint and verification of SBTI commitments. And lastly, for consumer product services, we delivered a broadly stable performance in the year with a positive second half. During the year 2023, Asia growth was limited by weak consumer spending in developed economies and fewer technology product launches. The Americas and the Middle East and Africa continue to benefit from our diversification strategy implemented over the last two years. For soft line, hard lines and toys, we grew low single digit organically. Soft lines showed good resilience throughout the year and benefited in the fourth quarter from a restart of goods production as stocks depleted. China improved every quarter. Southern Asia maintained strong momentum led by the structural sourcing shifts. Health, beauty, and household recorded solid double-digit organic growth in 23, led by the US and Asia. For technology, as expected, our revenue continued to contract, as it is still affected by the global decrease in demand for electrical and wireless equipment, as well as fewer new product launches. By contrast, in the new mobility subsegment, driven by connected and electrical vehicles production, we delivered double-digit growth. Finally, we maintained a strong momentum for sustainability services over the course of 2023 with 17% organic growth. This includes organic products, testing, recycling, social audits and green claim verification solutions. In the last quarter of the year, we executed a contract with one of the world's leading sportswear and footwear brands to help them measure science-based targets and help reduce supply chain greenhouse gas emissions from the strategic Tier 1 and Tier 2 suppliers. As we have reported throughout the year, we continue to develop new solutions to address our customers' needs as they transition their supply chains to a more sustainable state. The BV Green line of solutions and services is a good proxy for us for our development and sustainability and energy transition. It represents today 56% of the last 12 months' sales. Two examples to highlight for Q4. We signed a cooperation with Advanced Labs on hydrogen certification. This strategic partnership is a collaborative effort to set industry benchmarks in international hydrogen trade. We also partnered with Kairos, a leading environmental digital intelligence services company, and Optel, one of the world's leading suppliers of digital traceability systems to provide food companies with non-deforestation compliance solutions. Moving on to the outlook for 2024, we're making two changes today. First, we now expect mid to high single digit organic revenue growth. This reflects our confidence in the healthy sales pipeline, high customer demands for new economy services and a strong underlying market growth, which allows us to navigate the current economic and geopolitical environment. Second, we're guiding to an improvement in adjusted operating margins at constant currency. As for cash conversion, our expectation remains unchanged at above 90%. Reflecting our comparable base, we also expect half to 24% organic revenue growth to be above that of H1-24%. Before taking your questions with François, I would like to close by saying that our performance for the full year 2023 was excellent. These results reflect a robust business model underpinned by our agility, consistent execution, customer centricity and innovation around customers' existing and new needs. I am convinced that we can take Bureau Veritas to higher levels of performance and achievement. Our portfolio of leading global business lines, strong execution track record and exposure to positive secular trends are key contributors to our current performance and a great foundation for our future outperformance. Looking ahead, we see robust demand for services supporting transition to sustainable development models, evolving building integrity needs, growing infrastructure investment and increased spending and low carbon energy development. Our existing pipeline of opportunities in these business areas is a testament to this durable growth dynamic. Specifically for 2024, we expect Bureau Veritas to deliver another strong year of growth. A capital market day will be held on the 20th of March 2024 in person in Paris, where we will provide you with an update on our strategy and plans. Thank you all for your attention. Francois and I are now ready to take your questions on the call or on the webcast.

Thank you very much, Ms. De Garbi. Ladies and gentlemen, if you wish to ask a question, please press star one on your tablet keypad. Please also ensure your mute function is not activated until I send it to you. So once again, please press star one to signal to put yourself in the queue. Our first question today is coming from Annalise Van Milden calling from Morgan Stanley. Please go ahead.

Hi, good afternoon. I have three questions, please. So, the first two are on consumer products. So, clearly, you saw a nice recovery into the fourth quarter, and you mentioned Asia having improved somewhat, particularly in soft lines. I was wondering if you could disaggregate that between growth in China, if any, and the other Asian geographies, and also globally in consumer products, as a lot of the data coming out of China still looks very weak So I'm wondering how that's performing relative to the rest of Asia. Then secondly, clearly your margins in CPS are down significantly year on year. That's consistent with your peer group as well. In terms of looking ahead, is that a case of waiting for volumes to recover and benefiting from operational leverage? Or is there anything else? structural going on there? Do you think that you can comfortably get back to a mid-20s operating profit margin in that business going forward? And then lastly, just one on certification. Clearly, there's a lot of ESG-driven regulation coming through in Europe with CSRD and CS3D, etc. So, I think it would make sense to expect higher volumes in certification going forward. But is this also an area where you think you have pricing power? To what extent do you think you can price more for those services going forward, given the expected uptick in demand and the fact that so many corporates in Europe will have to comply with this regulation over the next 12 to 18 months? Thank you.

Thank you, Annelies. Good morning. Good afternoon to you. So I'm going to answer this question on the CPS recovery in Q4, and I'll ask Francois to comment on the margins. So CPS, first of all, we have been very clear about our expectations for CPS throughout the year. We expected, first of all, we've been watching very carefully inventories in developed economies, the US being really the most important amongst those. And we have seen those stocks coming down. As these stocks started depleting, we have seen restart of, particularly in soft lines, we've seen a restart of this dynamic of testing of new products. So that was the first one. And we've seen that across both China, but also Southeast Asia and South Asia. And South Asia, and I did mention that in my prepared remarks, South Asia also benefited from the sourcing shifts that are starting. They're not at full speed, but there is some sourcing shift there moving from China. So all in all, if you take all that region, we've seen recovery in Q4. The second point on the recovery of consumer in Q4 is around the health, beauty and household business. Those are A couple of acquisitions we made in 2022 that actually we started seeing the organic impact late in the year. And there were very. In fact, I am very pleased with the execution of our business plans and the synergies around that. And we've been very careful all year to make sure that we protect key contracts and protect our share in most of the region. So those are the key reasons we recovered in Q4. I'll ask François to comment on the margins.

So on the margin of CPS... Just putting your question a bit on the perspective, I think we've tried and give you guys a bit of guidance on where this division was going. We knew that 2023 would be kind of a transition year. Hind has been very clear on the top-line recovery, sequentially speaking. On the margin side, we said in July that we expect to close the year above 20%, which is what we did. Now, what is true and... I would say the exit rate of the last quarter is encouraging. So we plan for a sequential recovery of the CPS margin, the speed of which will be clearly depending on the volume and the speed at which volume are coming back. But we've done the work this year in terms of, A, a bit of restructuring, B, a lot of repositioning. I think we've mentioned in the first part of this call And if you've been listening carefully, most of the acquisition we've done over the last 16 months are consumer product rated acquisition to either reposition geographically to near shoring markets. Inda mentioned Mexico recently. In the previous publication, you have heard about South Europe. We reposition and we go up in the value creation chain with Impactiva and more at the design of the product phase. So I would say restructuring, M&A and I should not forget CapEx have been spent in 2023 to allow for a sequential recovery of margin.

Thank you, Francois. On the last question there on CSRD and the CS3D, we've been watching this space for a while, Annelies, and preparing ourselves, and many of our people are involved in understanding really what these regulations mean and how does it get implemented. Now, if you recall from my prepared remarks, I talked about the EURD, which is the non-deforestation regulation there. We have built a partnership specifically with Kairos, who is a digital environmental kind of intelligence company, and another one specialized in supply chain traceability to support food companies to be able to actually trace the sources of their products and make sure that they weren't contributing to deforestation. That's one example. But if I come back to the CSRD specifically, this is a major, major regulation that is going to require quite a bit of work from companies to adapt to that and get the information. So we expect that there is quite a lot of preparation work from companies. And we expect that volume to start coming rather towards later part this year and perhaps more next year. But we do expect because it's a novel service, because it requires skills that are not necessarily available everywhere, that whoever is able to get the right resources at the right time in front of customers preparing to get this done, that there will be pricing power.

Thank you. That's very clear. Francois, just to follow up on your point around the repositioning of the business for CPS, is it also fair to assume that M&A and CPS will continue? I think you mentioned it in the presentation as well, but this sort of ongoing repositioning of the portfolio with M&A, we can expect that to continue?

Absolutely, absolutely. And we'll be able to hopefully talk about that soon.

And then, Louise, just as Inda mentioned, we just closed another deal this morning in Raiti. Not material, that's why there is no yet a public announcement, but this deal in India is again on consumer product tech space, so to further reposition the business. So that will continue indeed.

Yeah, absolutely. Great. Thank you very much.

Thank you very much, Pam. Our next question is coming from Suhasini Varanasi of Goldman Sachs. Please go ahead.

Hi. Good afternoon. Thank you for taking my questions. I had a few, please. One on operating margin expansion target that you have at constant currency. Can you maybe provide some color on the quantum of the increase that you're expecting? You obviously did 20 basis points at constant currency in 2023. Can we expect a bit more in 2024, especially if we are expecting, let's say, consumer products to show some improvement in margins? And which divisions do you expect will drive the expansion at group level? And on weighting as well, first half versus second half, should we expect margin expansion in both the halves of this year? That's the first question. Thank you.

Thank you, Suhasini. Good afternoon to you. Look, I think we made a change in our guidance because we think it's important for us to consistently and directionally be pursuing margin improvements. So I'm not going to be able to give you a range, but consistency is the key word. And that's why we really guided this year. We don't also really guide on divisions numbers and nor do we guide on different halves. But what I would say is this year we were able to deliver margin improvements and that required work on our own productivity, on our own utilization of our resources. We have very solid programs led by Francois around management of underperforming units. We also look at optimizing our procurement. So we have a number of programs that we are working on to ensure that we can indeed make these claims and this guidance on margin improvement. But I'll ask François if you would like to add anything.

No, just one thing, Suezini. We're still early in the year, so you know we have this level of... of cautiousness that you know well. You know, if you need something for your model, you know, 10, 20 basis points as we have achieved this year is a start. And then we'll see later on down the year. We will keep you posted in June or in July.

And Martin, for first half and second half?

We don't guide on this, unfortunately.

Thank you. Second one, if you don't mind. is on the margins again. In marine, margins fell in the second half, which I think was because of some one-off effects the previous year. Are there any effects in other divisions in terms of one-off benefits in 2023 that are going to unwind in 2024, please?

Swasini, would you mind repeating? I did not get which segment you were mentioning at the beginning.

Oh, sorry. I was mentioning marine. I think marine margins fell in the second half of 2023. And I think that was because you had some one-off benefits in second half of 2022. So I was just wondering, going into 2024.

Got you. Well, I think I can have a long answer or a short one. So I'll go for the short one. No material, you know, comparable effect on margin between 2024 and 2023. Okay.

Thank you. Last one on capital allocation, please. Leverage is below one times the debitor. Appreciate you've increased your dividends. And this leverage is despite doing bolt-on M&A. Would you consider additional capital returns to shareholders?

You know, Suhasini, if you look back from a 2019 basis, we have increased our dividend by 54%. So returning to our shareholders is very important to us. So that's what you have seen with the 65% from 50% increase last year. And on that basis, from a 2019 basis, it's 54%. At this point, we have an ambitious M&A program, and we want to allocate capital to that program this year. But we, of course, will continue to look at opportunities to return when possible.

Thank you very much.

Thank you, ma'am. Our next question is coming from Himanshu Agarwal, Coins and Bank of America. Please go ahead.

Hi, good afternoon. Himanshu from Bank of America. Thank you for taking my questions. The first one I have is around the sourcing shift outside of China that you mentioned earlier. Is it possible for you to, based on your interaction with your customers, to talk about the pace of this shift? And also, how are you thinking about your exposure to the Chinese exports in that context? That's my first. And then second question, in terms of pricing versus cost inflation in 2024, I know it's becoming less topical now, but if you can comment on the pricing in 2024. And the last question I have is on the M&A activity that you just mentioned. Can you talk about the valuation expectation, and would you continue to look at bolt-ons going forward, or you would even consider a more transformational, bigger deal as well? Thank you.

Thank you. Thank you for the questions. So first of all, on the sourcing shifts outside of China, I mean, it's very important. And I have said this in the past, is that the depth of the Chinese capabilities is very, very important. There is a real expertise and sophistication in the production complex there. of China. So these sourcing shifts we talk about, they are starting. They're not at full speed. And I think they will take many, many years. And it's very difficult to project on that. But we have seen some. We have seen some in the past to Southeast Asia. Vietnam has benefited greatly from that for the last five, six years. We're seeing some now to South Asia specifically. But again, the pace is not really that high, but it's starting. And then, of course, we announced this morning, for example, the acquisition of ANSI in Mexico, because we consider Mexico, for example, as a near-shoring sweet spot market, if you like, for North America. So we are seeing these sourcing shifts, but they're not at their fullest potential, if you will, and it will take some time. But we are... anticipating where we see some movement and we are making sure we're positioning to benefit from growth there. I'll let François answer the pricing.

So on the pricing question, so it may be a bit less topical, as you said, for, you know, for journalists. But for us, it is very important. I think over the last 18 months, several of our operations, mainly situated in the US and Europe, have gone through the hard medicine of navigating an environment, a business environment where inflation was back. which hasn't been without challenges. But at the end of the day, we end up with commercial teams and a business at large, which is more astute in terms of pricing than it has ever been before. So we have a strong pricing program in place for 2024, so that the pricing muscle is kept well alive in those geographies which have been used to no inflation for the last 20-ish years. We don't guide on pricing for next year. What I can tell you is on 2023, you got roughly a third of the growth, of the organic growth, which is price-driven. And I think we'd like to maintain this momentum to be able to really have this additional growth pillar to our top line, as we did over the last two years.

Thank you. Thank you, François. On the M&A and evaluations, first of all, from a principle perspective, what we are looking for is to continue to target MNAs that have a strategic fit for us. The attributes of these MNAs, the targets themselves, and the markets we are trying to get into need to respond to criteria of growth momentum, criteria of capacity to generate earnings to the levels we're expecting or we can actually make them get to that level. And of course, we're looking at the financial transaction itself and the valuation levels need to be within our own framework. And that's a very disciplined approach to us. So these are very, very important principles we're working on. As we look at the market and as we look at the opportunities, we consider the M&A in two stratas, if you like. One is bolt-on to address very specific gaps that could be service gaps or geographical gaps. that we will continue to do, and that's a very healthy way for a company with the kind of portfolio we have to continue. And then where there are opportunities that might be slightly larger, we will consider on, again, those attributes I described and within the valuation numbers that we would like to have. And do you want to comment on the specific valuation numbers?

No, just something you may know, but I think what we start to see now for the last three to four months we see the, I don't dare to say that the multiples have started to become more reasonable, but kind of, meaning we used to bump into cases where, or situations where, you know, some non-industrial actors were ready to propose 16-time restricted future EBITDA, which was not in the parameters that Hinda just mentioned, clearly not. And we see those multiples becoming more reasonable those days. So...

And the other thing perhaps to add on this is we are, as we look at our capital allocation and part of our discipline is to have, we are very blessed actually right now because our balance sheet is in a very healthy state. So that gives us capacity and room to pursue these targets. But at the same time, we want to make sure that From a leverage perspective, we're looking to stay between one and two. That for us is a level we consider comfortable and we will work with.

Thank you. Just one question left. In terms of this sourcing shift, in my opinion, because I think you have got high single digit exposure as a percentage of group revenue to exports from China, So in that case, how are you thinking about that capacity? Are you reallocating it to fulfilling the domestic demand, or how should we think about it?

I mean, if you look today, we you know, if you look at our business in China, China, just to give you an idea, is a circa 14, 15 percent of our revenue. And it has a mix between business that is internal, domestic and business that is for export. And that business for export is also quite diversified. You're looking at 50 50 between the two. So our exposure is not very dramatic when we look at it from a global perspective. What is interesting for us is this is a market, the consumer business, that we consider that we are differentiated and that we have a capacity to serve our customers and to deliver financials that are accretive to the company. And that's why we continue to... to be in this business. So the exposure is not dramatic, but we are anticipating some of these changes and we are acting ahead of that.

Thank you. And thank you very much, sir. Our next question is coming from Jeffrey Michelet of Adobe HF. Please go ahead.

Hello, and thank you for taking my question. I have two. The first one relates to the Marine and Offshore Division. If you could share with us your vision of the growth pattern for the year to come, because you have always overachieved, even on the back of high comps with occasional surveys. So maybe if you could give us a bit of color on that. The second question is, As you see with China on building infrastructure currently, what are you observing in the market and what kind of future do you foresee for that division in China? Thank you.

Thank you. Thank you for the question. On MNO, I think we, as I said, I think we have a strong backlog that gave us a very good foundation for growth. That backlog comes also from the fact that the market continues to transform. The maritime world is decarbonizing, so it needs to renew its fleet. And as it renews its fleet, it has to build a new boat. So that is the foundation of this business. And then on top of that, you have an existing fleet that as it ages, it has more needs. And then, you know, you put on top of that that there were a number of years where many needs were not addressed. We had therefore quite a volume coming from some of these occasional surveys that you wouldn't expect in a normalized year, if you will. So that is the picture of last year. As you move to this year, we continue to see a need to renew the fleet. But what we know now is that the shipyards are actually very, very much at capacity. They're full. And as they work through their own backlog, there are some bottlenecks that we could expect to delay the conversion of existing backlogs. So for us, there's been a very strong year, excellent performance for MNO, but we expect that as we move forward, that some of these other, if you like, upstream of us, some of these bottlenecks and shipyards could act actually as a bit of a moderation on the growth. But from our end, of course, we continue to focus on very specialized vessels. We have put a lot of effort in innovating around LNG, around dual propulsion ships. So we are we are we are not we're trying to expand as well what we can do in this space. That's the first question. The second question is on China. Look, in China, I think it's absolutely clear to everyone that there is still a major issue of financing around projects and infrastructure and local governments. who usually are the engines behind these investments, are in a cash crunch, if you will. So we have seen that firsthand, and we've seen that delaying investments or reducing investments. At this point, it's very hard to predict how that will move. However, when you look at energy infrastructure and when you look at energy transition projects, those are actually continuing to be financed by the government.

Just to add on the Chinese landscape, one element we pay special attention to is the solvability of our client base. So as you may know, we've said a few times, we are not exposed to you know, the real estate names you may see in the press, which are mainly active in the residential field. We are mainly in the infrastructure. So our clients are more public, public-rated bodies. And so we've been blessed by, you know, having very strong collection in November, December, even just ahead of Chinese New Year 2024. So we were... monitoring those numbers in January, and they remain very, very good. So I think to us, it's an element of attention that we don't get into, you know, kind of a cash trap type of business.

Thank you very much.

Thank you very much, sir. We'll now move to Neil Tyler of Redburn Atlantic. Please go ahead, sir.

Yeah, thanks. Good afternoon. two questions please uh remaining um one point of clarification sorry back to cps on the margin um just want to understand um the the sort of operating leverage dynamics because it looks as if there's there's quite a significant either mix or currency effect in the second half of the year um i suspect it's a bit of both but you know given the sequential improvement in growth the sequential deterioration in margin year on year feels as if um it's probably more mixed and is that is it the right conclusion to draw that that's probably to do with the connectivity business um you know still being quite weak that's the first question um and then the second one within the industry division. You make a couple of mentions of your focus on profitable contracts and having been quite selective about those. Can you talk a little bit about perhaps there and anywhere else in the portfolio where is there a necessity to become more selective? Is competition sort of becoming more Are they more aggressive or is there anything behind that or is that just relative to your history that you're being more selective?

Thank you. Thanks, Neil. I'll start with the second one on industry. I think the way we look at it is completely the opposite. We can be selective or if I put that back into context, when this company was growing at 2% in terms of growth, then you are rarely selective. As soon as we've achieved a level where we were very confident that we could grow, in a material manner, you know, with these 8%-ish type of numbers, then you can be selective. And it's clearly a company decision. It's not focused or not influenced by the market or competition or whatever. We deliberately chosen to be selective. And, you know, having talked with many of you guys over the last six, seven months, I think these decisions sometimes were even on the analyst side, you know, sometimes not really understood why we should be selective. And to me, it's a sign of strength of the company. We know we can grow in more profitable markets. So why to stay on contract, which are not exactly the type of margin we want to be into? So it's clearly a company decision. Geographically speaking, this is mainly Europe, U.S., Latin America. Those three geographies where we've made those choices. And those choices, as I've said a few times, are really choices made at the top of the company. It's very important to understand that there is no message sent through the organization saying you can discontinue contract the way you want. This is a clearly monitored and centrally decided policy on a very limited number of contracts which do not have the characteristic in terms of margin we want. In terms of CPS margin, I hardly dare to answer the question because you gave the answer yourself. So it's indeed a mix. Connectivity is going really bad in Q3, getting a bit better in Q4, but still negative, as Inda mentioned. But Q3 was tough. And we have a catch-up over that period of time on the Chinese consumer business, the traditional Chinese consumer test business. Hardline, softline, those went very well. while we had a takeoff of our health, beauty and household business that is really now getting much stronger in Q4. So the twist was Q3. Q3 was very bad in tech and the rest was only starting to take off. So I hope we can leave 2023 behind us in terms of sequence and so on. And As I said, we have a reassuring exit rate for Q4 that we don't disclose, but rest assured that when we say reassuring, it is reassuring. And that's why we feel comfortable. I don't say to guide on the margin on CPS as we don't guide by division, but we know we'll have a sequential recovery in the year to come.

And perhaps to add just to that for CPS overall, we just started the year, so it's very, very early to say much yet. But I would say that last year, it was a challenging year, but we used that year to prepare ourselves for recovery. And I'm expecting this year not only that we'll build on the sales momentum that we really built last year, but also on commercialization of new solutions around sustainability, other services. expand implementing synergies around the new businesses we are acquiring so our strategy around diversification and and really top quartile execution and cps is very very important so reassuring exit rate but we have a lot of things to do that we expect to help us this year really helpful thank you very much thank you we'll now go to rory mckenzie of ubs please go ahead

Good afternoon.

Two questions, please. Firstly, can you tell us how your group headcount changed this year, especially through H2, and how you're finding labor availability, especially in some of the new export markets you've referenced in Asia? And then secondly, can you talk about, and is it meaningful to talk about, your growth in terms of customer volumes versus average revenue per customer at a group level, but I guess specifically within certifications?

Okay, thank you for the question. So look, and just to give you an idea, in 2023, we hired roughly 13,000 people, right? So we are, and we were able to actually improve our attrition from around 12% to around 10, 10 and a half percent. So we've been able to manage the labor challenges. There is no doubt there are labor challenges in some developed economies, the US remains for technical talent, for very specific skills, remains a hot market, I'm going to say. Some parts of Europe as well. So our ability to retain staff and our ability to develop skills in the areas that we want to grow in is very important. I have to say, in 2023, we were actually able to continue to deliver our business. We didn't suffer from the lack of access to staff. So yes, it's challenging, but we were able to execute our business plan. On the growth of volumes, I think François said it in his remarks, and I might have said something as well. What is strong about our performance in 2023, and this is a record year, is our volumes have grown. And we have had very robust pricing, disciplined pricing in key relevant markets. But we also had growth of volume. And that is a good foundation for us to to continue to grow. And when I look at our healthy sales pipeline, I think that will help us to grow this year and supports our guidance. The reality is in 2023, the larger part of our growth is coming from volume. Now, we don't normally guide specifically on one business line and on a granularity of volume, but I would say that certification is actually more in a multi-year business development effort. As we've mentioned earlier, a number of the schemes are growing double digits. Sustainability is growing double digits. And as it was asked by some of the callers earlier, there are a number of regulations that should help really with that momentum of growth in certification. So I expect certification to continue to be robust.

I was thinking about the growth within existing customers or with new customers, I guess. Lots of the contract examples that you highlighted sound like they can be quite significant in size, in revenue, that is. But thinking about some of the long-term impacts of CSRD and other regulations, it feels like there's going to be a really big opportunity to win new clients, given how fragmented the industry is and the leading players' position within it. So I guess, are you thinking about evolving your sales channels to target... greater number of clients or is it still important to prioritize growth with your leading clients today?

At the end, it's both, right? Our existing clients are a great platform to, as their needs grow, we are able to serve that. But we also see a number of other clients who maybe today they're not working with us who need help. And we have, again, unique footprint. We have been preparing ourselves for some of these sustainability needs. We have the expertise. And if we move fast, then we'll be able to acquire new clients.

That's great. Thank you very much. Thank you, Mr. McKenzie. Ladies and gentlemen, due to time restrictions and constraints, I would like to call back over to Ms. Garvey for any additional or closing remarks. Thank you. Thank you very much.

I think that was the right question, the last question. No, thank you all. I think this was an excellent performance in 2023, and we're looking forward to deliver on our guidance 2024. Thank you. And then, of course, the CMD, just a reminder on the CMD on March 20th. Looking forward to meet many of you there. Thank you very much.