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.