Bureau Veritas Sa

Hello and welcome to the Bureau Veritas H1 2024 results presentation. My name is Caroline and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be on listen-only mode. However, you will have an opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star 0 and you'll be connected to an operator. Today's call we have Hinda Garbi, the CEO, and Francois Chabat, CFO and Executive VP. I will now hand over to your host to begin today's conference. Thank you.

Thank you, Caroline. Good afternoon and good evening to everyone. Thank you for joining Bureau Veritas today on the webcast and on the call. Francois Chabat, our group CFO, is here with me to present our first half 2024 results and answer your questions. In the first half of the year, Bureau Veritas continued to deliver on its commitments with a strong performance for supply, margins, earnings per share, and cash. This is fully in line with our LEAP 28 strategy goals and shows the excellent execution pedigree of our company. I take this opportunity to warmly thank our colleagues around the world for all their contributions. Starting with the financial highlights for this record first half, Revenue reached €3 billion with an organic growth of 9.2% and was 9.3% at constant currency. This performance demonstrates the excellent execution of our business plan. In the second quarter, we delivered double-digit organic growth of 10.4%. Growth was driven by high volumes and pricing. On a reported basis, growth was at 4%. Adjusted operating profit increased by 4.1% year-on-year to 451.9 million euros, generating a margin of 15%, up 33 basis points at constant currency. Our adjusted net EPS is up 4.5% to 64%, and is up 6% at constant currency. Free cash flow totaled 189.9 million euros, up 44% year-on-year, reflecting our disciplined capital allocation and demonstrating our rigorous working capital management. Strong performance in Health 1, coupled with a healthy backlog, allow us to revise upwards our revenue growth outlook for this year. In terms of mix, all business lines and regions delivered a strong performance with high growth from sustainability services and energy transition projects. Specifically, marine and offshore industry and certification continued their strong growth momentum up high double digits organically in line with previous quarters. The consumer products business continued its recovery with an organic growth of 7.3% in half one, driven mainly by an increase in new product launches. Buildings and infrastructure and agri-food and commodities achieved solid mid-single-digit organic revenue performance. From a geographical perspective, all regions performed well with the fastest growth recorded in the Middle East and Africa. Turning now to our CSR commitments. We continue to deploy our new CSR plan and start the execution of its different associated programs to meet our new LEAP 28 strategy targets. In June 24, for the first time, we presented the group's climate strategy at our annual general shareholders meeting. It defines our decarbonization priorities and objectives. These objectives have been approved by the science-based target initiative for our near-term target. In this first half of the year, our CSR indicators progressed mostly in line with our plans and are supported by well-defined and granular programs at all levels of the organization. I'm pleased to also report that our performance is recognized by a number of non-financial rating agencies. I would like now to share with you the key events of this first half. We have started the execution of our Leap 28 strategy, which was launched at the end of Q1. We have completed our 200 million share buyback program that we announced in March 24 and executed it in two steps. Additionally, in May, we benefited from favorable market conditions and issued a 500 million euros bond. This follows the assignment by Moody's of our first long-term A3 credit rating with a stable outlook. I will now give you an update on our strategy progress. Our LEAP28 strategy intends to make a step change in growth and performance and is built around three pillars, a focused portfolio, a performance led execution and an evolved people model. I'm going to cover today the progress of the first two pillars. First, we are actively managing our portfolio and we have acquired four companies to create new strongholds. As a reminder, the new strongholds are markets of high growth, where we are accelerating our development and scaling to reach a top three market position. In cybersecurity, this month, we signed an agreement to acquire Security Innovation, a US-based innovator specialized in software security services focused on software testing, secure software development lifecycle advisory, and training. It realized the revenues of €21 million in 2023. In consumer technology testing, we have signed a definitive agreement to acquire three players in Asia, They will extend our position in testing and certification services for the electrical and electronics consumer products in the leading R&D market of South Korea. We're also building a new position in the growing technology manufacturing hub of India. The acquired company's revenue was a combined 20 million in 2023. Generally, we continue to develop our pipeline of opportunities and we expect M&A to play a key role in Bureau Veritas' growth strategies. Second, we are working to expand leadership in our existing strongholds in BNI and in line with our goals for this market-leading business, our strategy is to expand geographically in new critical countries and to fill in gaps in our portfolio. The intention is to ensure a comprehensive range of offering for our customers and to adapt to an evolving market. This will be done both organically and through M&A. The sector portfolio management is unfolding in the following manner. First, we have identified specific M&A targets and we expect to announce some acquisitions before year-end. Second, we are actively working on improving our mix. We recognize that market conditions have changed for the construction market in China and we are taking action to reposition the portfolio. We have just signed an agreement for the divestment of a non-strategic construction supervision business there. This business represented less than 30 million euros in annualized revenue. Defective portfolio management, we believe, will support our results going forward in BNRI. Turning to performance, the second pillar of our strategy. Our aim is to consistently improve our margins through performance programs designed to deliver meaningful efficiency and productivity benefits. One of the two performance streams is operational leverage. This encompasses the performance management central to our efforts to improve profitability across the group, but particularly in those areas where we are not satisfied with the current margin. When it comes to process improvements, there are a number of programs intending to modernize our operational systems and to re-engineer our processes. Let me share with you two such projects. In our certification business line, we are developing a new production system that improves efficiency and streamlines processes. We are currently piloting the first phase in key geography, and the solution will be deployed by year end globally. In marine and offshore, we have launched our operational platform MOVE, a collaboration hub that groups all applications, including a smart asset management solution. Successful pilots have been completed with ship owners. We expect to deploy the solution widely in half two. I now hand over to Francois for the financial review.

Thank you, Linda. Good afternoon to everyone. So on the key financial achievements of the first semester, organic growth first remained very strong at 9.2%. It showcased the ability to deliver a broad-based growth that we will see in most of these operations. On the profitability front, we delivered a margin of 15%, up near 33 basis points at constant currency. On the bottom line, our adjusted earnings per share increased by 4.5%, driven by the company's solid operating and financial execution. When adjusted from currency effect, the increase in adjusted EPS was even more substantial, reaching plus 16.3%. And lastly, when it comes to the financial structure of the company, our financial leverage, our net debt to EBITDA ratio was maintained at a low level of 1.06 times at the end of June 2024. Starting on the revenue front, revenue bridge, we delivered above 3 billion euros in the semester with a strong organic growth of 9.2%. This is the eighth quarter of organic revenue growth at or above 8% over the last 10 quarters. Acquisition added 0.1 on a net scope basis. It reflects the impact of Bolton acquisition realized in the past few quarters. and some offsets by the disposal of our non-core automotive inspection business in the US last year in July. As presented in our Capital Market Day, we will continue to actively manage our portfolio in the coming quarters. Forex impact represents a drag of 5.3%, leading to a total growth of 4% on the net reported basis. This is mainly attributed to the strength of the Euro versus several emerging market currencies. From H2 onwards, we expect easing negative impact due to easier comparables on several of such currencies. When it comes to the performance of the different businesses in the first half, including Q2, so what you can see on the slide that all businesses delivered good growth, and I would say relatively regular growth between Q1 and H1, you see not many differences. Three activities led the growth, marine offshore, industry and certification, all delivered double-digit growth in H1 and in Q2 on the back of continued momentum in sustainability services, including decarbonization for mine offshore, renewable energy for industry, and certification scheme for certification. Agri-fluent committees and BNI both delivered mid-single digital organic revenue growth in the semester. BNI was led by both in-service and new-built activity and improved sequentially in Q2 up 4.9%. Agri-food and commodities growth was driven in particular by the strong demand for agri-food and oil and petro-economical and grew 6% in the quarter. Finally, we are pleased to report that the recovery of the consumer product services has been achieved, 8% growth in the second quarter, which led to a 7.3% growth performance in the first half altogether. Now on the margin bridge on this page, organically we improved margin by 29 basis points to 15.3. Scope had a slightly positive impact of roughly four basis points. And then as a consequence at constant currency, we delivered a 33 basis points improvement year on year. This is fully aligned with our commitment to deliver consistent margin improvement at constant currency. Forex was a drag of 33 bps to the gross margin due to the strength of the Euro. So on a reported basis, we delivered a stable margin of 15% in the semester. Within the portfolio, the revenue growth and operating leverage drove organic margins higher in marine offshore, up 88 basis points, in certification, up 150 basis points, and in consumer products, up 134 basis points organically. In addition, we were forced to be more commercially selective by focusing on profitable contracts in industry, have continued to bear fruit. And as you see on the page, the organic improvement is 92 basis points to reach 12.7% on H1 basis. Elsewhere, agro-food committee margin declined by 90 basis points organically. It reflects a negative mix from the metals and minerals segment. And BNI margin eroded by 53 basis points organically, reflecting a strong recovery of the US operations on the one hand, but not fully compensating the soft performance in China. Overall, we've managed to keep the margin at 15% in the first half, despite the forex exchange impact that we've just discussed about. Moving now to other financial metrics in the half year, EPS, cash, and the balance sheet. Starting with the bottom line elements, our net financial expenses slightly increased compared to last year, to $25.6 million. While our cost of debt remains stable, we recorded higher unfavorable exchange rate effects compared to the previous year. On the income tax front, our adjusted effective tax rate was reduced by 1.7 percentage points compared to the first half of 2023. The decrease is mainly due to reduction in the amount of withholding taxes incurred over the period. For the full year, we expect the adjusted ETR to be in the range of 30 to 31%. On the next slide, we see the growth of earning per share. We delivered a solid adjusted EPS of 64 cents, up 4.5% year-on-year. Solidary pricing performance, but also lower tax rate, as we've just seen. As constant currency, the increase is 16.3%, demonstrating our commitment to deliver a double-digit shorter return based on dividend yields and EPS CAGR over the period at constant currency. So we remain overall confident to maintain a positive EPS momentum moving forward. Moving to the cash flow statement, free cash continues to be very strong. and is up 44% year-on-year to almost €190 million. Despite the strong revenue performance in the second quarter, as we've just seen, our working capital requirements also was kept under control at €168 million, compared to €196 million outflow the previous year. Our working capital level at 9% of revenue is a good achievement, given the strong level of activity in H1, and we're expecting the usual seasonality when it comes to H2 in terms of working capital reduction. On the investment front, capex, so we see that we decrease the capex level to 2% of the revenue. Two reasons. First, most of the growth, as you've seen, is driven by asset-light businesses within the portfolio. And second, we have some kind of a seasonality, so we'll catch up in H2 on some projects that will be delivered in H2 in terms of investments. So we expect this overall to be in the range of 2.5% to 3%. for the full year 2024. As a conclusion, so we close this one with a very robust financial structure. Our net debt to that approximately 1 billion Euro at the end of June, we have completed our 200 million share buyback program that we announced in March. It's been executed in two steps. First, the acquisition of 100 million, which is roughly 0.8% of the group's own share in April. under the Vendel Group placement and the remaining 100% was purchased directly on the market throughout the rest of the quarter. So the operation has been completed by mid-June in its totality. Following this operation, the leverage ratio remained at a low level of 1.1 times. This demonstrates the strength and resilience of Bureau Veritas' balance sheet. The company has no major refinancing requirements before 2026 and 100% of its debt is at fixed interest rate. Regarding the 500 million euro bond issued in – which is due in January 25, it has been already refinanced, as mentioned by Hinda in the introduction, for our successful 500 million debt issuance completed in May. So, in summary, DOETA delivered, once again, another set of strong financial results in H1, and I would like to thank all the team across the organization for their commitment in achieving this performance quarter after quarter. So I now hand over to Inda to provide you with a more in-depth business review.

Thank you, Francois. Let me share with you the highlights of the first half for each of our six businesses. Another strong performance in marine and offshore, of course, with a 14.7% organic progression. We continue to benefit from a multi-year growth momentum as the maritime industry decarbonizes, renews its fleet, and becomes more energy efficient. We have secured... 7.4 million gross tons in sales in H1, bringing our backlog to 26 million gross tons, up 27 and a half year on year. This is driven by LNG fuel chips and specialized vessels and gives us good visibility on future ship construction activity. Pleased also to report that growth was achieved in all sub-segments. We grew a strong double digit in the new construction activity, continuing the acceleration we've seen in the first quarter into the second one. We grew double digits in the core in-service business. This is driven by, of course, the increased number of class vessels, disciplined pricing, and by addressing contract leakages. Looking ahead, we expect that shipyard capacity would be fully utilized, slowing down the conversion of the backlog. When it comes to innovation, we have issued an approval in principle to China Ship Design and Research Center for its latest ammonia-fueled chemical tanker design. This project is one of the key ones to address increasingly stringent environmental standards. Our Agri-Food and Commodities Division delivered a 4.6% organic revenue growth with different dynamics amongst the sub-segments. Oil and petrochemicals recorded high single-digit growth. It benefited from strong business development with key accounts in critical markets. We also maintained a strong momentum in Europe with market share gains. Following a stable performance in Q1, the metals and minerals segments recovered in the second quarter with low single digit organic growth. We continue to execute our onsite laboratory development strategy where we are growing double digits in the first half. Trade activities showed also a good traction, especially in China and India. Agri-food achieved high single-digit organic progression. The agri subsegment was boosted by growth in both upstream and trade activities. The Americas benefited from excellent crop yields offsetting the impact from floods in Brazil. The food business growth was led by the sustained recovery of Australia activities and good traction throughout Asia. On government services, unfavorable comparables and contract cycle resulted in a stable year-on-year organic growth. We are continuing, of course, our sales efforts with promising new opportunities. Looking now at industry, the organic growth was 17.5 during the first half and was broad-based across most subsegments and geographies. Customer spending remains strong in all energy sectors, driven by energy security and transition needs. Overall, all industrial sectors show a good growth momentum. Looking by sub-segment, the activity in oil and gas remained buoyant with a double-digit organic growth in half one. Both CapEx and OPEX services increased substantially as we benefit from a favorable investment cycle and leveraging our recognized expertise and global capabilities. In power and utilities, growth was stable considering contracts arbitrage executed last year compared to last year, renewables within PNU recorded strong double digit organic performance in most geographies. The growth was led by the US where we expanded with new solar projects. We continue to see sustained investment in renewables in China driving our growth there. In the second quarter, Bureau Veritas was awarded contracts to work on renewable energy projects that, when completed, will amount to an installed capacity of 35 gigawatts and produce 96 terawatt hours of renewable energy annually. The industry product certification subsegment continues to grow double-digit organically in line with previous quarters. On the sustainability front in industry, we have secured a green object contract in California, delivering project management services for the decommissioning of wind turbine generators and the installation of new ones. We have also secured a contract for a large rail manufacturer as a third party to evaluate two hydrogen locomotive projects. Now, looking at B&I. We achieved an organic growth of 4.3% in half one, including 4.9% in the second quarter. We are recording sequential organic growth since the beginning of the year. During the period, the CapEx business grew faster than the OPEX activities, primarily led by the infrastructure project. Geographically, in the Americas, we delivered a solid performance in Q2, lifting half one results. The U.S. platform delivered mid-single-digit organic revenue growth, capitalizing on its diversified portfolio of activities. Amongst the best performers, the data center commissioning business continues to perform very well, driven by the buildup of data centers to respond to needs from cloud computing and AI development. Double-digit growth was achieved also in both OPEX-related services and CAPEX infrastructure business. Growth in Europe was robust in half one, driven by most countries. France continues to grow through its CAPEX-related activities from infrastructure and public works. Double-digit growth was achieved in Asia Pacific, Middle East, and Africa, led by India, Australia, and Saudi Arabia. China had a stable performance, driven by energy-related construction activity. Weak public spending, however, is still constraining market growth in transport infrastructure there. We continue to develop sustainability solutions for buildings. In the first half, we signed an exclusive contract with the French National Housing Agency. Services will cover energy performance and efficiency checks on projects financed under the French Energy Management Subsidy Scheme. We were also selected for a multi-year program by the California Olympics Committee to provide project management services for the rollout of electrical vehicle plus charging stations. On the certification front, the business continues to deliver a strong performance over the first half of 24, recording a 16% growth on an organic basis. This performance was led by strong volumes and robust price increases. This year's recertification cycle enabled a double-digit organic revenue performance in few HSE solutions. In Europe, growth was achieved thanks to Bureau Veritas' leading market position, new contract, and broad set of services. The certification business benefits from a dynamic of innovation to develop customized and voluntary schemes for customers as they address their consumers' needs. As an example, Bureau Veritas recently delivered the Origin France Guaranty label to two car models produced by the French car manufacturer Renault, making them the first full electric vehicles to obtain this certification. Sustainability-related solutions and digital certification activities representing a third of our divisional revenue grew a strong double-digit organically. They benefited from an excellent momentum around carbon services, forestry-related services, food sustainability, and cybersecurity assurance. During the first half, Bureau Veritas continued to grow its assurance of sustainability reporting activities. In France, as an example, we helped an IT services provider to comply with the CSRD reporting. We were also awarded a contract by a global dairy product company to carry out ethical trade and responsible sourcing audits in 125 sites in Mexico. Finally, for consumer product services, we delivered a 7.3% organic revenue performance in HealthONE, with a growth of 8.3% in the second quarter, confirming recent improving trends. By geography, Asia showed good improvement, led by China and Southeast and South Asian countries. Our diversification strategy is paying off, as our Americas operations benefited from the growth from businesses acquired in the last two years. Looking by subsegments, Softlines, Hardlines, and Toys delivered a double-digit organic growth driven by volumes recovery from destocking. The Hardline business was particularly strong with a notable increase in SKUs. Our healthcare subsegment, including Beauty and Household Proact, delivered double-digit organic growth in HealthONE. Recent acquisitions in North America are driving growth through synergies on global accounts, improving prices, and extended scope of services. For supply chain and sustainability services, we delivered a strong double-digit performance led by CSR audits and transition services. This is due to high demand from customers around social audits and green claim verification. Technology contracted in the first half, it is still affected by low demand for electronics, wireless products, and electrical vehicles equipment. Electrical appliances performed well, however, and benefited from improved consumer spending. Looking at sustainability achievements in consumer products, in the first half, we secured a contract with a large DIY company in Portugal to help guide their suppliers to obtain sustainable claims certification services. We also secured contracts with two major luxury groups to test their products for chemicals over and above regulatory requirements. Looking now at the outlook, I'd like to share our upgraded outlook. We now expect to deliver for full year 24 high single-digit organic revenue growth. This is to compare to mid to high single digits previously. This reflects our strong half one and our confidence in our business execution in the second half. An improvement in adjusted operating margin at constant currency, strong cash flow with a cash conversion above 90%. We expect half to organic revenue growth to be broadly similar to half one. Before getting to questions with Francois, I would like to close by saying, first, customer proximity and strong operational execution coupled with a strong backlog allowed us to outperform in this first half of the year. Second, following our LEAP28 strategy launch, we have embarked on a globally orchestrated execution plan and we are monitoring closely the progress of our different strategic streams. Finally, we continue to monitor market development and believe that the key secular trends supporting our strategy are robust, confirming our assumptions. We are confident in the strength of our LEAP 28 strategy, and we continue to report on our progress over the coming quarters. Thank you all for your attention. Francois and I are now ready to take your questions on the call or on the webcast.

Sure. Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the first question from line Annalise Vermaloon from Morgan Stanley. The line is open now. Please go ahead. Okay.

and subgrade, you know, clearly there's operational leverage in this business.

Annalise, we lost a big chunk of your question there. If you could please repeat. We didn't hear that.

Okay. Can you hear me? Yes.

Go ahead. Okay.

Hi. All right, sorry about that. So, given your – I wanted to ask about the guidance upgrade. So, you know, given you've got operational leverage in the business from higher organic growth, I'm just wondering why there's been no sort of change to your margin guidance specifically. And, you know, you've also talked about the initiatives – into year end to increase the operational leverage. So was there any reason for keeping that margin guidance unchanged at this stage? And if you could also perhaps quantify exactly how much you mean by an improvement in the margin, is that 10, 20, 50 basis points? That's the first one. And then secondly, just on buildings and infrastructure, as you say, the growth has sequentially improved, despite, I think, the fact you had a tougher comp in the second quarter. Is it fair to say that you think you've passed the worst of the growth in this business and that should continue to improve further? from here based on your pipeline and your conversations with customers. Thank you.

Thank you, Annelies. Thanks for the question. Look, on the first question there, we have maintained our guidance on the margin. We are very clear that we will deliver improvements at constant currency. And the reason we are doing that because Why we generate improvements, we also have to invest to enable these performance programs. And we consider at this time that we are committing to the improvements, but we have to enable them. And therefore, at this point, this is still reasonable guidance for us to allow us to progress on our program. I'll let Francois take the second question on the quantification.

Yes, good afternoon, Lise. On the quantification, you know, we try to do things in a simple manner for you guys as well, meaning delivering on a regular basis based on what we said before. So no change compared to the capital market day. We are making efficiency gains. We reinvest a bit, as indicated by Inda, into the operation for a reason, not just for spending, but to make sure that this is a continued performance. You can keep the same ideas and numbers as the one you got on the capital market day. We say it has to be a continuous improvement in terms of margins, sequentially, 10, 20, 25, around that basket. It hasn't changed.

Yeah, thanks, Paswa. And on the third question, the short answer is yes, we expect ourselves to see BNI improving, but it's important to mention that we have been actually improving since the trough of Q3 last year, and we are executing our strategy on BNI to ensure that we expand both geographically and in services, and that's allowing us to address some of the softness, for example, in China, that platform, We are working on shaping that. We continue our plans to diversify our services in the US, and that's provided resilience so far. And of course, our European platform is critical to BNI, and there as well, we are working on organic development as well as expansion of services.

Understood. Just as a follow-up to that, so in BNI, it sounds like it's a combination of your own initiatives and your positioning of the portfolio and services, et cetera, as well as sort of stability or slight improvement in some of the end markets. Is that fair?

Yeah, I think it's fair to say that structurally the BNI market is still buoyant. And, you know, the urbanization we talked about is happening. Infrastructure spend is increasing. In fact, As I mentioned, the infrastructure was leading the growth on the CapEx side, and the OPEX is resilient by nature anyway. So there is no change for us in terms of market dynamic in that fund.

Perfect. Thank you very much. Thank you, Anneli.

Thank you. We will take the next question from line Sylvia from JP Morgan. The line is open now. Please go ahead.

Hi, good afternoon. Hi, Anneli. Two questions, please. Firstly, on the second half guidance on organic growth, could you maybe discuss the shape of that growth? Will we finally see any slowdown in marine or is that continuing to grow very strongly? Or indeed, you know, any other divisional comments will be helpful. Secondly, now that you've had some time to look at positions in the space, Could you maybe talk a little bit about the pipeline? I guess from the outside, it looks like making smaller acquisitions is possible at very attractive prices, and you've clearly had an acceleration in that momentum, but anything bigger possibly is still PE territory and maybe a little bit more expensive. Maybe can you comment around that as well? And then finally, as always, Could you just comment on the price versus volume in H1 and then into the second half? Thank you.

All right. Thank you for the question. Look, I think the marine, first of all, of course, we don't guide specifically by H1 for second half, but just a word on marine. Marine is going through what I would call a super cycle here because What is structural around the marine market is that there is a demand for a certain number of ships and that will end very quickly. This is a profound transformation of the shipping industry because there is a need to decarbonize and the timeline for that is very, very close. So the renewal of the fleet is real. It is taking place, and it will continue to progress that way. So it's not reversible, if you will, because you have to decarbonize your fleet, and there is so much you can do in improving a bit of the performance. So the decarbonization is structurally requiring new ships, new types of propulsion. So having said all that, it means that there is really momentum to build these ships. And we are, you can see it in our sales. Our sales have improved 27 and a half percent. Our accumulated sales wins, accumulated 27 and a half year and year. So that is really a direct translation of that. Now, the reality though, is to convert those wins into actual construction you need to have access to shipyards. The shipyards today are busy. And in fact, the capacity is full until end of 2026. So we are gradually converting our winds but at some point we're gonna run out of shipyard capacity. And that's really the caution sometimes we have around marine and offshore because we don't control the dynamic of the shipyards. And so we still could think that M&O generally would have a robust performance this year. In the coming years, it all depends on shipyard capacity. In terms of pipeline of M&A, you're absolutely right. We are growing our pipeline. And in fact, if you look from December to now, we have completed six transactions to the tune of circa between 60 and 70 million. So we are progressing and we're building our pipeline. It's an effort orchestrated globally, coming from our regions, coming centrally from our business lines, and we continue to work on that. What is very clear, is that the criteria with which we're looking at this pipeline are very well defined for our teams. It's about strategic fit, and it's about the parameters in terms of performance of these businesses, and of course, the parameters in terms of what we are prepared to pay for these targets. So that effort is progressing. I don't think we've ever we will ever pursue something just because it's big. We will pursue a target because it meets a strategic fit. And then we will adjust, of course, depending on the scale of that particular target and see what we can do there. So as I mentioned, we have a number of deals in the pipeline that we should be able to announce from now until year end. I'll let François comment on the price volume.

Go ahead. Yeah. Well, Sylvia, on the price volume mix, From an economical point of view, at the end of H1, we could say that the growth is first and foremost volume-driven, represents two-thirds of the growth, and one-third would be price-driven. Looking ahead over H2, we don't expect this to change materially. I think we pay a lot of attention to ensure that the pricing discipline, which has been perhaps reinstalled in some of our regions over the last two years is maintained, especially at a time where in some geographies and many thinking of US and Europe, the inflation pressure is kind of coming down. I think we are very strict with our team when it comes to pricing mechanism and how they are fully applied. So that's one element of focus. But as well, I think there is a very, very strong momentum in terms of gaining market share, gaining new clients, getting new brands, because ultimately that's the way you develop a company. So short, two-thirds volume, one-third price, and we don't expect this to change materially over H2.

Thank you very much. Thank you, Sylvia.

Thank you. We will take the next question from line Suhashini Varanani from Goldman Sachs. The line is open now. Please go ahead. Hi, good evening. Thank you for taking my questions. Three from me, please. Can you perhaps discuss trends in energy transition and green projects in the U.S.? Clearly, it's seen very strong double-digit growth in the first half. But given elections this year, are you seeing any hesitation around launch new projects, please? The second question is around the BNI in China, which has been a bit weak. And I think I heard you mention a divestment of about 30 million revenues. What were the margins here and what benefit will it have on margins once this disposal is done? And the third question is on FX, in fact, on EBIT margins. It's been about 30 basis points in first half, but given current spot rates, how should we think about second half FX, in fact? Please, thank you.

Sure. Thank you, Suhasini. Good to hear you. Look, I think the, you know, if we step back, that is, you know, a commitment made recently and last year in particular, where 130 countries committed to triple the renewable capacity. And so that is driving many countries' policies around that. And the US is one of them. Of course, there is a large expectation that the US will spend a few hundred billions on that. For us, what we see today, and we are very active on the solar side in the U.S., also on wind, but solar is really taking off. There is a real momentum around that. We haven't seen fully the impact of the IRA, but we haven't seen a delay in projects in general when it comes to solar. Our business there in the U.S., and we have this acquisition, Bradley Construction, that we acquired a few years ago has been ramping up, but we see really a pipeline of projects there. So at this point, the elections haven't, didn't yet impact the projects we are working on or the pipeline we are considering in terms of opportunities. Of course, that is, you know, everyone is watching what the new administration, whichever one it ends up to be, will do. But at this time, this is not a concern yet. On BNI China, François, you want to comment on that?

Yeah. So especially on BNI China, I think we need to put that back into context. The first context is the one of the capital market day where we indicated clearly we were revisiting some of the portfolio we have and, you know, assessing the value of each asset based on a number of parameters. And obviously, this activity was not meeting the threshold neither in terms of trading growth or current trading growth or growth potential, neither in terms of margin. So the activity is derivative to the BNI segments without question. So for sure, having this activity exiting the portfolio, that will drive mechanical improvements in the margin of the divisions. I don't, you know, we don't guide much further, but this will have a relative impact. And again, we believe that some segments of the Chinese market, even though we are not exposed to the direct real estate companies, is softening. And I think the trajectory of the group has been laid very clear by Hinda that the type of growth we are looking for is well above what at least these assets could provide to us in the new temperature. On ethics impact, you know, this is my favorite subject, especially when it comes to predict the future of 90 currencies in 140 countries. But to make it short, so from what we see from, you know, we are running several very detailed models in terms of current spot rate, exchange rate, and forwards. So I think currently, and be careful, but we are relatively confident that we are in for a softening in H2. of the negative impacts or an improvement in that case, especially due to the Australian currency, the Chinese renminbi, which are both of them reaching the level of summer last year. So we will be making quite the change considering our size in Australia and in China. The impact on margin, I think we are pretty much looking to reduce the 33 basis points you see in H1. At that stage, I have Laurent looking at me saying, I can't say much more, so it could be better.

Of course, no, thank you very much.

All right, thank you, Sir Atheni.

We will take the next question from Lion Rory McKenzie from UBS. The line is open now. Please go ahead.

Good evening. It's Rory here. Two questions, please. Hi, Laurent. The first question is on your group headcount. Can you say how that's changed at UBS? at the end of H1, I think from the 81,000 you had at the end of December. And then the second question is diving into the margin improvement in consumer in a bit more detail, where I think you saw about a 40% organic drop-through rate in H1. Can you talk about the level of spare capacity or underutilized capacity that you have in that business today and what you're seeing in terms of any customer trends over the summer so far? Thank you.

Yeah, look, on the consumer side, you know, last year we, considering the activity and the difficulties we had last year, we worked on a number of restructuring and consolidation of labs. And this year, our results in the first half, we've seen recovery on the soft line, hard line, and healthcare sites. while the technology continued to contract. So the impact of that restructuring and all the cost management programs resulted in this improvement of margins. Now, in terms of market, two things. If you look at half one this year, we have seen the first quarter, and I mentioned that earlier this year, we had an early Chinese New Year, which is always important because it allows the production to proceed earlier in the year. It doesn't get pushed down to Q2 and then to later on in the first half. And we also have seen a restart of product launches. or in general we have seen the impact of destocking on production in the producing markets. I mentioned earlier that we have seen a pickup in China, we've seen a pickup in Southeast Asia, we've seen a pickup in South Asia. That's mostly on the soft line, hard line has performed very, very well as well. And then the healthcare is really a direct – all the business we have around healthcare personal care and household products, there we are executing our integration plans, which allowed us to capture, in a way, a very strong growth, mostly because we are expanding on different global accounts. We are able to offer more comprehensive services to customers. So this is a dynamic that is not a surprise for us. because we have been working on our diversification strategy, and we were able to see the impact. So the healthcare grew a high double digit actually in this quarter, in this first half, and double digits we've seen on the softline headline. So my point here is this is not a complete surprise in a sense that we have started our diversification strategy for a while for CPS and it's paying off. Paying off on the growth and it's paying off on the margins as well. In term of the first questions, you want to, you have that?

Yeah, yeah. Rory, on the headcount questions, I think, I know we've published the results relatively early on, so you may have not time to go through everything. But we've seen or considering a statement that the personal challenges are relatively stable year on year. In terms of headcount, it translates into between 2% and 3% increase. And you will realize, I'm sure as well, that the external charges, which are more contractors' charges, are expending. So several areas of fast growth, we are using subcontractors, as we used to do in many places. And usually the normal rhythm is when the growth is considered fast. stable enough, geography by geography, then those contractors are replaced by own staff. So we are typically in the usual cycle of accelerated growth, where we focus on gaining new clients. We were discussing volumes a few minutes ago. It's a highly volume-driven growth, and we manage to keep it, from a cost point of view, very flexible. because the bulk of the growth, the additional volume of growth is delivered through contractors. Again, we could go in many details because it's not everywhere the case, but again, looking at the P&M point of view, that's very transparent.

Yeah. And I think, Rory, the other point to make on headcount is our performance programs look at aspects of utilization and efficiency, right? So that is important for us as we ramp up growth and as our growth is volumes-led at this point. I hope that answers your question.

Yeah, it's been really helpful. Thank you both very much.

Thank you.

We will take the next question from line from CIC Market Solution. The line is open now. Please go ahead.

Yes, thank you. Good evening. I just have one remaining question. Can you be a bit more specific about the very strong growth you had in Middle East and Africa? Is it explained by some big capex project in oil and gas or commodities or is it more a a day-to-day business?

No, look, the Middle East and Africa market is a resource play, right? It's energy-driven business. Oil and gas remains a major activity for us there and is growing double digit. It's a super cycle in the oil and gas, no secret there. We're very well positioned. We have very long track record in the region. We have very good capabilities on the ground and technical centers and very strong brand name with our customers. So that's contributing to very strong double digit growth in there. And the other thing we have been doing here in the Middle East is to diversify from the oil and gas, and we have been building a good position in the BNI sector. We talked many times about our projects throughout Saudi Arabia in particular. The NEOM project is the flagship one, and there again we are growing. We're also seeing growth actually in terms of certification, and we are also growing in some of the lab testing activities as well. So all in all, very strong performance. And the mix, of course, is a bit different between the Middle East proper and the rest of Africa. But directionally, that's the kind of dynamic you have there.

Okay. Thank you.

Thank you.

Thank you. We will take the next question from line Emmanuel Agarwal from Bank of America. The line is open now. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. I've got two, please. The first one is on the organic growth guidance. At the beginning of the year when you gave us the organic growth guidance, H2 greater than H1, the argument was the H2 comps are easier and hence we should expect a slightly better organic growth. Now H1 has clearly surprised positively and it has been quite strong. why don't we expect that momentum to continue into the second half and expect higher growth in the second half versus first half? That's the first one. And second one, on the U.S. elections, if we go by the polls and assume Mr. Trump wins the election, given his policies around trade and tariffs, can you discuss the potential impact on the testing business overall. And maybe if you want, you can probably discuss the impact you saw last time during his tenure from 2017 to 21. Thank you.

Yes, thank you, thank you. Look, on the guidance, we had a good performance in H1 above what we have expected initially, driven by our certification activities, our consumer activities. We also had a robust activity in the industry. Looking at H2, we consider that we will be in line with what we are seeing in H1, and we believe that upgrading our guidance to high single digits is a good step for us. We like to be reliable in our predictions. We looked at our risks and the opportunities, and on balance, this makes sense to us at this point. Now, for the great question, the second one on the tariffs, it's a really important question and it's something we look at. This is not – while that is the trigger of a new administration, reality is it's an aspect we look at all the time, and we talked about it in the past. We know that there is a movement of supply chains. And those movements are done for two reasons. One is there is a de-risking of, I would say, eastern production platforms, particularly China. And then the second one now is the risk of tariffs and the likelihood, and actually more the likelihood is there is the severity of how bad these tariffs are going to be, which means that a lot of the organizations, the buyers, and the producers have been actually thinking about this de-risking of these both events, and we have seen movements over time. So for us, it's not new, and that's why our diversification strategy is very clear. It intends to diversify geographically. Mostly, it allows us to de-risk the China element. And that diversification is also sectoral, and that's why we made some acquisitions on the healthcare and VC side of things, and also in upstream services, something new to us. And, of course, on services, and we're looking very closely on all aspects of sustainability. We're very clear this will take place for one reason or the other. The tariffs might accelerate the move. In fact, today, if you look at Mexico, it is overtaking China as the major trading partner of the U.S., and there is a production base that is moving there, and that's why in December we actually completed the acquisition of a technology company company there in Mexico. And I would say Central America becomes extremely important for us to de-risk this phenomena. So something to continue to watch, and certainly we are working on mitigating it.

Thank you.

Thank you.

Thank you. We will take the next question from line James Rose from Bacchus. The line is open now. Please go ahead.

Hi there. Thank you. I've got two, please. The first is on margins and a bit more broader picture. So if we think we've got 29 bits of organic margin increase from 9% organic with a lot of that coming from consumer marine and certification, are you happy with that? Are you satisfied with that? Or would you have hoped that it would have dropped through a bit more? Is there anything sort of holding it back, that margin coming through a bit more? And then secondly, is on Net financial expense is stepping up. I noticed there's an other line of 12.8 million, which is a lot higher year-on-year. Could you help us understand what that is? And perhaps give us an idea of what to model for the fall year on net financial expense.

Thank you. All right. Thank you, James, for the questions. I'll let Francois cover the second one. Look, as I mentioned, I think there was an earlier question on the margins. For us, we are pursuing margin improves. We're very clear when we initiated and launched the strategy. There is a dynamic around performance programs. Some are more established and others are new and require investment, and we will continue to invest. We have a vision of really evolving our ways of working, and that requires investment. Of course, longer term, we want to continue to increment to continuously improve the margins at Concentrate. That's our commitment, and we will deliver on that. But we have to enable that. And that's really the way we're guiding our margin efforts. But let's be very clear. Performance-driven approach to the business is very clear in the organization, and that performance is very granular the way we look at it today. That's right, you want to take that?

Yes, so on the financial cost, so I've said it rapidly, but just to go into more detail. Two things in there. You have the net financial cost, which are the usual cost of a debt minus the interest we get from our excess cash being positioned in some accounts. This hasn't changed at all. The only change compared to each one last year is the impact of revaluation of balance sheet due to foreign exchange. There is a bit of seasonality, H1, H2. So to make it simple perhaps for you, basically we expect our financial costs on a full year basis to be very close to the one of last year. So I hope it helps you model this properly. It does. Thank you. It's very clear.

Thank you. Thank you. We will take the next question from line Carl Ryan Potts from Barenburg. The line is open now. Please go ahead.

Good evening. Carl Ryan today from Barenburg. Just three from me, please.

Would you be able to give us an idea of how much of the 18.2% organic growth in industry was FX-induced pricing, please? Because I note that FX was negative 14%, so obviously a big number there. Second question is, it's probably fair to say that leverage has been pretty low now for a number of quarters. Can you perhaps comment on the possibility of what you plan to do with that headroom in the short term? Perhaps another share buyback or anything else, please? And the last question, you know, read a fair bit of news recently around the NEON project being reined in quite substantially in the longer term. So just wondering how impactful that will be for you, if possible, please. And that's it. Thank you.

Yeah. Thank you, Carl, for the questions. I'll take question two and three, and then I'll let Francois take question one. Look, on the leverage, as I mentioned earlier for responding to a question on the pipeline, We are executing an accelerated program of M&A, but, again, with the discipline I mentioned earlier. So we are working on multiple fronts, and we want to have the flexibility within our finances to execute these programs and to be opportunistic. So the share buyback is one of the tools that is in our toolbox that we will use when the time is right. At this point, we are focused on ensuring that we execute our M&A pipeline program. So, and as we mentioned in our guidance in the strategy, we will be keeping our leverage between one and two, and that's not on the lower end. It's all the way. So, there is no, I guess, we're not going to sit on that leverage on the lower end is the point. On NEOM, the NEOM project is going to go through phases. It's been a huge project to start with and it's true it is being restricted. Not impactful at group level at this point. It's a great, great benchmark for us in the Kingdom. It allows us to work very closely with one of the most iconic projects. Saudi Arabia is growing very healthily for us. It's an area we are focusing on, so it's a rather positive story, and we will continue to grow there and invest in the country. So NEOM is actually a good springboard for us for that. François, you want to cover the industry point?

So industry, 17, 18% growth. Here, I think, coming back to what Inda mentioned in her introduction, three elements to keep in mind, strong growth, oil and gas, segment of the industry division from growth into the renewable by a lot of new projects one element we haven't discussed but you may remember from previous call history as well this is where we've decided summer last year to discontinue several large contracts which were not having the level of margin that we were pleased with so the combination of those three things so two very strong organic growth contract discontinuation bring us to this 17%. A chunk of it is done in geographies where I think FX is not very favorable. Again, I've mentioned here, we have Canada, we have Australia, we have a few countries in Latin America, we have China. So what we could expect for second half, most probably the FX components will reduce while the organic growth components will be maintained. So net of everything, we will have an even better profile over H2.

That's very helpful. Thank you, though.

Thank you.

Thank you. We will take the next question from line under Truslow Farm City. The line is open now. Please go ahead.

Thank you very much for taking my question. Really good set of results today. Well done. First question from me. So just going back to Rory's question on consumer products. So You delivered an organic margin up to 134 basis points. I just wondered how much of that you can sort of put down to operational leverage on strong growth in particular the soft lines, hard lines and toys. Second question, as we look to the second half, obviously you've done very strong organic growth in the first half. Can you just tell us which divisions you expect the growth rates to be markedly different to what you saw in the first half, if indeed any? And then third question, you mentioned that you were going to do a disposal in building an infrastructure. You may already have mentioned it, but I wasn't sure if that had already gone through or whether you hadn't signed it yet. So I just wondered if you could confirm that. Thank you very much indeed.

Yeah, thank you. So on the disposal, yes, that has been completed. It's not, it will reflect in the second half of the year, but that was completed at the end of June. So that's done. On the growth rate, we don't guide by division, but I think it's fair to say that I expect that our activity around certification around Marina North Shore and BNI will continue to be buoyant. We will also expect that some of our activity around the commodities also will remain robust. I don't really foresee major disruptions, and as I said, our H2 is broadly in line with our H1, but I wanted to highlight the strength in these particular segments. On the CPS question specifically on the details of that, do you want to cover that?

Yeah, sure. So on the CPS1, to refresh perhaps everyone's memory, you know, during the period that was a bit more difficult, meaning H2, let me think, was like many last year. We've conducted in H2 some restructuring in terms of overheads, in terms of lab rationalization. So this has been now fully delivered. And if you want to take a bit of a rule of thumb, the operational leverage, the pure operational leverage is two-thirds of the performance. getting more view volume and and so the growth it will bring two-thirds of the performance at the bottom and one-third comes from uh the the measure we took uh end of last year uh to prepare this rebound and ensure we are back on on marching levels that that are more historical level uh one should not remember this activity when went down last year quite heavily so we're on a recovery mode i think which is Sol is on the top line. Martin, we are getting the fruit of the work done, but two-thirds top line, one-third from our previous restructuring programs.

That's very helpful. Thank you very much.

Thank you. There's no further questions at this time. I will hand it back over to your host for closing remarks.

All right. Thank you very much, Caroline. Thank you, everyone, for your questions, and have a good day, good evening. Bye-bye.