Intertek Group Plc Ord

Good day, ladies and gentlemen, and welcome to Intertech November 2024 Trading Update. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. If you have dialed in, please select star nine to raise your hand and star six to unmute. Instructions will also follow at the time of Q&A. We would like to remind all participants that this call is being recorded. Questions will follow after the presentation. I will now hand over to Andre Lacroix, Chief Executive Officer, to start the presentation.

Good morning to you all, and thanks for joining us on our call. I'm with me, Cam Dizio, CFO and Denny Moreau, VP of Investor Relations. There are five key takeaways in our call today. In the July to October period, we have benefited from a strong demand in consumer products, corporate assurance and health and safety, where we delivered 9.5% like-for-like revenue growth on a combined basis. Trading was in line with our guidance in industry infrastructure as well as At the end of October, we've delivered a strong margin progression and an excellent free cash flow performance. We are on track to deliver a strong performance in 2024, and we are well positioned to deliver another strong performance in 2025. I want to start our call today by answering the most frequently asked questions in our investor meetings. And the first question we get is how strong was the demand for your ethics solution within consumer product in H2? We've seen, indeed, a sequential demand acceleration with like-for-like revenue growth of 9.4% in the last four months compared to 6% in H1. This acceleration was driven by a strong double-digit like-for-like performance in soft lines, benefiting from our clients investing in new product development and sustainability solutions. Momentum in our electrical business remained robust with high single-digit like-for-like growth, while our hotline business grew at mid-single-digit. GTS has benefits for an improvement in reporting mid-single-digit like-for-like revenue growth. As a result, we are upgrading the fully outlook in consumer products to high single-digit like-for-like revenue growth. The other question we get very often is how is your China business performing in H2 and how confident are you about the growth opportunities in China moving forward? Following a 5.6% lack-for-lack revenue growth in H1, we saw an acceleration of momentum in China, which delivered a lack-for-lack revenue growth of 7.4% in the last four months. That acceleration was driven by higher demand for softline, electrical, hardline, and assurance businesses, as our clients increased their investments in new products and in sustainability solutions. The Chinese export economy is very strong, up 5.2% on a year-to-date basis and up 43.5% compared to where it was in 2019. China has a track record of manufacturing excellence and strong customer service, with fast times and highly efficient. That's why China's share of the global export economy has increased consistently in the last 20 years. with 18% global share today compared to 7% in 2000. Importantly, China's consistent investments in new end markets have resulted in strong diversification of export revenue streams, with APAC being the largest export partner, growing at a double-digit rate and now two times bigger than the U.S., which is only 15% of the total China export. That strong global export performance from China over the years has continued recently, and since 2017, Chinese exports have increased at a CAGR of 8.4% per annum overall, 6% for North America, 9% for Europe, 11% for the APAC region, and 11% for the rest of the world. We are confident about the short, medium, and long-term growth opportunities in China, given the manufacturing excellence that China offers to Western brands and, of course, the untapped opportunity in the domestic market. The question we also get is, should we be concerned about potential tariff increase after the election of Donald Trump in the US? And why did it happen last time? Let's take a step back. The tariff imposed in 2018 didn't have any impact on Intertech. Our China revenue has grown at mid-single digit between 2015 and 2023. We delivered mid-single-digit life-for-life revenue growth in the 17-19 period and in the 19-23 period. What matters to our consumer product business is the number of SKUs we test and not the quantities of goods that are produced and exported. As we talked about several times in the past, changing production location is a high risk for any business, and we've seen only a handful of companies leaving China. What we have seen, however, is more and more companies pursuing the China Plus One strategy, which consists in building the supply chain for new businesses in a new country to operate a more diversified footprint. The China Plus One strategy of our clients is an exciting growth opportunity for Intertech because it simply makes our ethnic market bigger. When a client expands its footprint in new countries, it increases the number of SKUs that we have to test and certify. as well as a number of factories and tier one, tier two, tier three suppliers that we have to audit and inspect. We talked about that during our H1 presentation. We've made significant investments in our network to support the channel plus one strategy of our clients, including near-shoring and on-shoring. And we are continuing to expand opportunities globally for our clients, anticipating their need and leveraging our capital light business model. It's very easy for us to open new labs around the world. Importantly, our geographical diversification is strong, with 35% of our revenues in APAC, of which 50% is outside China. The U.S. is a strong market for Intertech, accounting for 31% of our group revenues, and we are well-positioned to benefit from any onshore activities, thanks to our presence across all business lines, building construction, electrical, connected world, Hard lines, soft lines, business assurance, sustainability, cadet breadth, transportation technology, and Moody. Net-net, we are not concerned about increased protectionism. China plus one will make the ATIC market bigger for Intertech. China will not run out of growth. Acceleration in the diversification of supply chain of our clients is a growth opportunity for our ATIC solutions. What really matters for us is the number of SKUs in the global market that need to be tested and certified. And second, the number of factories and tier one, two and three suppliers that we need to audit and inspect. The other question we get is how sustainable is the like for like growth acceleration that you've delivered since 2022? And are you confident to deliver mid single digit like for like revenue growth in 2025? We are very excited about the organic growth prospects for the group. Companies have increased their investments over the years in risk-based quality assurance, given the growing challenge they face in the supply chain, but also given the higher consumer expectation in quality, safety, and sustainability. Our customer research shows that these well-known structural 80 growth drivers are being augmented by the need for companies to operate with safer and more resilient supply chain. Continued investment by corporations in new products and services, a step change in how companies manage sustainability, Increased investments in traditional oil and gas and renewables, and of course, an increased number in terms of new clients. Our clients will continue to invest more in risk-based quality assurance moving forward, and we are well positioned to deliver faster growth, capitalizing on our strong market position. We have seen a sustainable mid-single digit lag for ag revenue growth over the years, 4.9% in 2022, 6.2% in 2023, and 6.3% year-to-date in 2024. We expect to deliver mid-single digit lag for ag revenue growth in 2025. The other question we get is regarding pricing. How will our pricing policy evolve in the next few years, given a lower inflationary environment? In the last three years of higher-than-usual inflation, around one-third of our like-for-like revenue growth was driven by pricing. As discussed, in 2022 and 2023, the increase in our prices have lagged a bit the rise in wages, impacting our margin performance. We plan, therefore, to continue to take price increases to close that gap in the next few years. We are focused on delivering a superior customer service and will continue to strengthen our pricing position through 80 price increases increasing the average number of tests per report through upselling and, of course, scaling up our margin-accretive innovations. Let's now talk about the trading performance in the period by business line. In the last four months, the group has delivered a 6.6% lack-for-lack revenue growth at constant currency, which is in line with our expectations, and a 50 bps higher than H1. We've seen a sequential lack-for-lack revenue growth acceleration in consumer products and corporate assurance. Health and safety revenue growth was in line with H1, Our lack-for-lack revenue performance was in line with guidance in industry and infrastructure in the world of energy, despite severe weather conditions in the U.S. that impacted our building construction, calibrate, and industry services. Our consumer product division delivered a lack-for-lack revenue growth of 9.4%, which was an acceleration of 340 bps compared to H1, driven by a strong acceleration in softline and GTS, while both electrical and outlines delivered a lack-for-lack revenue performance in line with H1. Our corporate assurance division delivers a lack-for-lack revenue growth of 9.9%, an acceleration of 160 bps compared to H1, driven by an increased force to save these solutions inside business assurance and assurances. Our health and safety division delivers a lack-for-lack revenue growth of 9.1% at constant currency, in line with H1, with double-digit lack-for-lack revenue growth in food and agri-world and mid-single-digit growth in chemical and pharma. Industry and infrastructure report a 1.1% lack for lack revenue growth in line with our guidance, slightly lower than H1 due to a baseline effect in industry services and minerals, continuing weak demand in the building construction in the U.S. and the impact of several weather events in the U.S. on building construction and industry services. The world of energy delivered a 6.3% lack for lack revenue growth in line with expectations and slightly lower than H1. Transport technology accelerated significantly to double-digit lack-for-lack revenue growth. Caledbret reported mid-single-digit revenue growth despite a baseline effect and severe weather events in the U.S. And CEA lack-for-lack revenue growth was negative due to a baseline effect. Turning now to the performance at the group level on a year-to-date basis, revenue for the 10 months to the end of October was $2.8 billion, a growth of 6.6% at constant currency and 1.8% at actual rate. Life-for-life revenue growth was broad-based at 6.3% at constant currency, benefiting from both volume and pricing. Acquisitions contributed 13.4 million revenue on a year-to-date basis, and the recent acquisitions of Control Analytico, Paralink, and Basement Labs to scale up our portfolio in attractive growth and margin sectors are performing very well. Margin progression was strong, as we benefited from our divisional mix, pricing initiatives, good operating leverage, disciplined cost controls, and productivity improvement. We delivered an excellent free cash flow performance, enabling us to operate with a strong balance sheet. We continued to invest in organic and inorganic growth opportunities, and our RIC performance was excellent. Let's now discuss our financial guidance for the full year 2024. We continue to expect the group will deliver mid-single-digit like-for-like revenue growth at constant currency. In terms of businesses, we are raising our full-year guidance for consumer products to high single-digit. We are keeping our full-year guidance unchanged at high single-digit for corporate assurance, health and safety in the world of energy, and at low single-digit for industry and infrastructure. Given a strong H1 and an excellent poetry of earnings in July-October period, we are targeting a strong margin progression. Our cash discipline will remain in place to deliver an excellent free cash flow. We'll invest in gross this year of circa 125 to 135 million in capex. And we expect our financial net debt to be in the range of 500 to 550 million pounds before any M&A or forex movement. A quick update on currency for your model. Currencies have remained volatile, as we know, and we are updating our full year forex guidance. The average selling rate since the beginning of the year applied to a full year 23 results would reduce a full year revenue by 450 bps and full year earnings by 600 bps. Net-net We expect to deliver a strong performance in 2024 with mid-single-digit revenue growth at constant currency and a strong performance in margin, EPS, free cash flow, and ROIC. A few words on strategy. All of us at Intertech are super energized about the exciting growth opportunities ahead, and I'm pleased to report that the execution of AAA strategy that we presented last year is on track. Our clients understand the mission-critical nature of risk-based quality assurance to operate with high-quality safety and sustainability standards and make their businesses stronger. We are indeed experiencing a faster growth for ATIC solution. Marginal accretive revenue growth is central to the way we deliver value and we are confident that we'll return to a 17.5% peak margin performance and go beyond. To deliver sustainable growth and value for shareholders, we will stay very focused on our virtuous economics, based on the compelling effect year after year of mid-single-digit like-for-like revenue growth, margin accretion, strong free cash flow, and disciplined investments in high growth and high margin sectors. We truly believe in the value of a creative, disciplined capital allocation, which combines consistent margin equity revenue growth and strong cash generation is the only way to deliver superior ROIC and consistent basis. To do so, we pursue the following priorities in terms of capital allocation. Our first priority is to support organic growth, strengthening capital expenditures and investment in working capital. Our second priority is to deliver sustainable returns for our shareholders through the payment of progressive dividends. We target a payout ratio of 65%. Our third priority is to pursue M&A activities that strengthen our portfolio in attractive growth and margin areas provided we can deliver good returns. Our fourth priority is to maintain an efficient balance sheet with the flexibility to invest in growth. Our leverage target is 1.3 to 1.8 net debt to EBITDA, with, of course, the potential to return excess capital to shareholders subject to our future requirements and prevailing macros. Our good-to-great journey at Inditech continues to unlock this significant value growth opportunity ahead. So let me summarize the highlights of our statement today before taking your questions. The demand for ATX solutions in the last four months was strong, with 9.5% like-for-like revenue growth in the three divisions combined that represent 74% of our earnings, consumer products, corporate assurance, and health and safety. The performance of our two other divisions, industry and infrastructure, and the world of energy, was in line with our guidance. We are converting our 6.6% revenue growth at constant currency on a year-to-date basis into strong margin progression and excellent free cash flow. IN24 will deliver strong performance in line with our targets, and we are well positioned to deliver another strong performance in 2025. Thank you for joining our call today, and we'll now answer your questions.

We will now start the Q&A. If you are dialed into the call and wish to ask a question, please use the raise hand function at the bottom of your Zoom screen. If you have dialed in via phone, please select star nine to raise your hand and star six to unmute. We'll take our first question from Rory McKenzie of UBS. Please go ahead.

Good morning. Good morning, it's Sir Rory here from UBS. Two questions, please, about consumer products. Firstly, on the acceleration to double-digit growth in softlines. Just wondering about the sustainability of those growth rates. It's good to see client activities picking up strongly this year after a weaker period. But can you comment on where volumes are now within those labs and how much further do you think they can recover? And perhaps comment on the spread of clients and whether there are some that are still relatively low levels? And then secondly, wanted to ask about consumer products in North America. Am I right that it's about a quarter of the division? And can you comment on the growth rates that you're seeing there? Just given the history of ETL that you talked about back at your capital markets days, I guess that's all quite weighted to electrical, which of course is a focused growth area for the economy. And can you talk about your expansion plans within North America? Thank you.

Thanks, Rory. We are pleased with the strong double-jit performance of soft lines. Of course, let's not forget we have also a favorable baseline effect. Last year, we know that, you know, retailers were just not investing as much in new product as they would have done. So essentially, the acceleration we are seeing is, you know, of course, More SKUs, more testing, more number of tests per certificate. And this is really good news for us. There is confidence in the global economy, both in the US and here in UK and Europe, and retailers are investing in new products to improve their performance. And you're right to say that this performance among retailers is not consistent. There are still some brands lagging their competitors. But one thing we know is that innovation is super important. And if a brand doesn't innovate, they're not going to be able to gain market share. So I can tell you that in the discussions we have with our clients, they're all focusing on what they can do to basically gain market share through better offering, which is innovation and, of course, value. So while the double-digit revenue growth is not consistent with every single client, I can tell you that our clients are working on innovations and new product developments. The other thing that is very, very important is that our clients are investing in operational sustainability solutions. We've talked about sustainability on these calls very, very often. We have two types of solutions. The corporate sustainability solutions, essentially doing an audit of the non-financial metrics and, of course, helping our clients with their CO2 plans and validation and audits. But the core of our sustainability solutions has always been in the operation of sustainable solutions. What do we do for clients to improve their, obviously, waste performance, reducing waste? What do we do with our clients in terms of chemical management? I've talked about ToxClear several times. What do we do with our clients in terms of helping them verify the content of recycled fiber or eventually green cottons. And of course, moving forward, clients are starting to invest in what we call digital passport, where they want to be able to tell their consumers that this is where their products are coming from, hence traceability. So this is driving the growth in soft lines, increasing new products, and increasing investment sincerity. The other thing that I would say, it's broad-based. As you know, we are very strong in soft lines globally, but we are seeing strong growth everywhere. And it shows that the industry is in good shape from our perspective, and we don't see any reason to believe that the industry is not going to have a good year next year. As far as consumer product in North America, essentially you know we have you know an industry agnostic you know business called business assurance and assurance in terms of assurance which targets all type of you know corporations including consumer product company they want to work on their csr performance but also you know the the sustainability performance but as far as you know testing and and certifications you're right to say that our largest business is electrical, which is a fantastic business and doing extremely well. Our growth in electrical in North America is double-digit, so we are really doing extremely well there. And this is all driven by the electrification of society, which means there is more demand for efficient electrical appliances. There is a lot of investment in HVAC, which is about air quality and air conditioning. You know what's happening with the Inflation Reduction Act in the U.S. and investment that we're seeing in semiconductor plants, but also in battery and energy storage. And this is a business that is also thriving in a space called medical devices where we are very, very strong. And as you know, this is a fabulous growth market. In addition to electrical, we do have a hardline and softline business, which essentially focuses on the R&D needs of our clients locally. And this is a good business because you are at the source of product developments. And in terms of partnership, it means you've got the trust of your clients. So it's a good business that we have.

Thank you.

We'll take our next question from Anne-Lise Vermeulen of Morgan Stanley. Please go ahead.

Hello, can you hear me?

Yeah, morning, Mellie.

Hello. Hi. Sorry, couldn't unmute. Good morning. I have two questions, please. So firstly, just on the margins, it sounds like you're relatively constructive on your growth outlook for next year and also in the near term on consumer. So with regards to your margin expectations for next year, particularly with regards to progressing towards your 17.5% target, do you think that this could be reached in 2025, assuming no significant drag from FX? And then secondly, I just wanted to ask about China. Thank you for the detail on exports and share and so on. In your business, specifically in China, from memory, that's around 75% export and 25% domestic. Of that 75% export, could you tell me what percentage is exports to the US versus to Europe or to other Asian countries? Thank you.

Thanks, Emily. Look, you know, we are tremendously pleased with the progress we're making on margin. As you know, margin accretive revenue growth with strong cash and disciplined investments is how we deliver value at Intertech. We, of course, you know, tell you about how we finish the year. And after that, we'll talk about, you know, guidance, you know, for next year. But, you know, you're spot on. We are very close to our peak margin. As far as China is concerned, look, with all due respect, I think the question you're asking, if I may, is not the right question. And I want to explain why, right? Of testing and certification that we do in China and consumer product has got nothing to do with... the amount of products being produced and exported. It's all based on the number of SKUs that we test. That's really, really what matters. And that's why, despite the 20% tariff increase that the Trump administration put in place in a previous cycle, we had no impact on our Chinese business because we've continued to test more SKUs and increase the number of tests per SKUs, which has been basically driving the mid-single-digit like-for-like revenue growth. But to be more specific, to put a number on the percentage of testing linked to the U.S. is not the right question because when we test the product, it doesn't matter if it's soft lines and hard lines or electrical lines, We test products that are basically produced in China and exported around the world. And some of these products will be tested, of course, for the U.S., but the same product will be tested at the same time for LATAM, for Canada, for Europe. And when we do a test or certificate, we do that for all these destinations. That's what we call the beauty of our global market access. So even if an SKU doesn't get exported to the U.S., we still test this SKU. That's why putting a number is the wrong way to think about it. What you really need to really understand is that the number of SKUs, the number of tests we do is really where our volume is coming from. And when we do tests or certify an SKU, it's just not for one destination. It's for multiple destinations. And if that retailer decides not to produce that SKU in China, And I said several times and I said again today that very few brands are doing so in terms of removing the production away from China because China is a high quality, basically, destination in terms of production. We'll still do the SKU testing and certification.

OK, understood. Thank you.

Thank you, Emily.

We will take our next question from Sue Hassini, Varanasi of Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my questions. Good morning. Just a couple from me, please. The acceleration that you saw in consumer products, did you get a sense from your customers about any pull forward of demand ahead of the Republicans taking office next year? And second one, on the margin guidance, if you're talking about strong margin expansion, You delivered in the first half 90 basis points of expansion on a reported basis. And given the acceleration that we saw in consumer products so far and the margins in that division, do you think that you can deliver similar margin expansion in second half of this year as well? Thank you.

Thanks. Look, on the consumer product, there is no pool of demand because of the outcome of elections. This is not the way the industry works. When we test and certify SKUs for soft vinyl hard lines or electrical, these are essentially decisions that were made a year or a year and a half ago by the brands because it takes time to get the supply chain ready for new SKUs. Even if they wanted to do so, they wouldn't basically launch additional new products because there is a change in the White House and tariff might increase. That's absolutely not happening at all. As far as the margin performance is concerned, you're right. I talked about the strong margin performance in H1. And of course, we expect a strong margin performance in H2. given the, you know, federal quality of earnings that I just talked about with the acceleration in our three highest margin divisions that represent 74% of our earnings. So yes, you should expect, you know, strong margin in H2.

Thank you very much.

We'll take our next question from Carl Rainsford of Barenburg. Please go ahead.

Morning, Will. Can you hear me? Of course, yeah. Good morning. Yeah, perfect. Sorry. Thank you. I've just got one left, Andrew. Thanks. Just on the oil and gas OPEX and CAPEX services, would you be able to call out any particular regions which are perhaps anomalies, you know, those performing particularly well or maybe slowing down a bit would be very useful. Thank you.

Thanks. Look, as you know, we are, you know, largely involved in the CapEx side of the world of energy with our Moody division. We are growing a double digit. And I have to say that if you look at the quality of the earnings of our clients, the energy companies, They've had, you know, some very, very strong years, you know, given the, you know, sustained high price of oil. And they know that they need to invest in, you know, greener energy, either, you know, greener fuels, but also in renewables. And you see, you know, the level of CapEx investment is also, you know, double digit. And our double digit, you know, multi-performance is really broad based. You know, we are seeing... very strong investments in UK and Europe. Of course, Middle East is investing in new type of energy. We know that very well. Asia, given growth there, is doing very well. LATAM is in good place. And in North America, we are starting to see, of course, the benefit from the Inflation Reduction Act, where a significant amount of investments have been put towards a greener US. So it's really broad-based investment. I wouldn't want to single out any region because all of my colleagues around the world are doing a good job. And the good news is it's sustainable because we know that much more needs to be done in terms of investments in both traditional oil and gas to increase supply and energy security and renewables. So we are in a good place there.

Okay, thank you.

We will take our next question from Alan Wells of Jefferies. Please press star six to unmute.

Hey, Andre. A couple of questions from me, please. Firstly, just on the language around margins for the full year that increased to strong improvement. Could you maybe just talk a little bit about the building blocks behind that and specifically just how much of that is supported by the mix improvement with consumer stronger versus versus other areas. And then second question, I noticed that the CapEx guidance had been trimmed slightly, 10 million or so. I guess given the stronger or strong growth outlook that we've got here, what's the rationale for some slightly reduced investment this year? Is that phasing or is there specific projects or an idea behind that? Thank you.

Yeah, thank you. Of course, on question number two, it's purely phasing. I mean, some of these CapEx projects take time and there is a bit of delays here and there. On the margin, Look, we had a very strong performance in H1. And you remember what I talked about, you know, pricing, operating leverage, cost controlling, productivity improvement. better news in h2 compared to what i said in h in h1 is of course the divisional makes the quality of earnings which frankly speaking is needed because uh you know we had a very very strong uh margin performance in h2 and as you know forex has got a bit adverse you know to us so you know we need a a strong margin in h2 to deliver of full year goals and and that's what's happening so

it's more of the same on all the other levels and you remember that at the full year presentation i gave some business case on how we're looking at margin improvement side by side the obviously acceleration is the divisional mix of course and then maybe one quick follow-up just um we've heard from one of your competitors recently and actually if you go back to the capital markets days of any of your peers earlier in the year as well around uh i guess increased focus on on north america um I wonder if you just talk about how you see the competitive landscape in your key markets in North America and how well you see Intertech as positioned and to what extent you can both protect your position and or expand any leadership there. Thank you.

Yeah, that's a fair question. So I think we will, you know, take this, you know, question business line by business lines, right? As I said, in the past, In the opening remarks, you know, U.S. is one of our strongholds, right? We've always been basically strong there. It's about, you know, one third of our revenue. It's, you know, really well diversified. We are in the world of energy and in consumer product and industry agnostic, you know, space like assurance and business assurance. we are you know very strong in each of our markets and we either number one or number two right um so if we were to say to take a few examples for instance electrical uh you know we we have a obviously a competitor called ul uh but we are very very you know strong number two there uh and and that's been a stronghold of intertech and and it's doing extremely well uh if you look at you know calibrate you know we are the the the second player in the market the first player is another company which is not listed that you might have heard of called i'm spec but you know we are really really really strong there Moody, which is in the CapEx inspection business for the world of energy, is a clear leader in North America. We've been established for so many years in that market. It's a semi-national system. So we have scale. We've got tremendous teams. We've got, obviously, the depth and breadth of solution there. And clearly, any investments in North America from our clients, we're ready. And let's not forget BNC, where we are one of the top three operators in the country. So we do have a scale quality portfolio and tremendous teams to take the business forward. And of course, we welcome any unshoring opportunities there because we can scale up, right? So we are very strong. Thank you.

We will take our next question from Arthur Trueslove of Citi. Please go ahead.

Hi there. Can you hear me okay? Of course. Hi. Good morning, Arthur. Good morning. Thank you for taking my question. So two from me, if I may. So the first one was industry and infrastructure. So clearly you've been doing a bit of contract pruning within the OPEX element there. Can you just give us an idea of of what the organic growth in that division would have been in the four months had you not pruned those contracts? And at the same time, could you just sort of say, were those contracts actually loss-making or were they just not as profitable as you would have liked them to be? Second question is on working days. So my understanding is there's two additional working days in the four months. which, you know, I guess you could argue is a couple of percent, you know, on the number of working days. If you sort of do the maths, that would suggest that organic growth on an underlying basis was obviously near a sort of 5%. But I suspect I must have missed something there because clearly, you know, you don't seem to be guiding to a deceleration in November and December in any meaningful way. So I just wondered if you could comment on, you know, how you see the underlying trend and,

working days within that thank you yeah look uh when you have a four months period or six months period we don't look at working days because you know the workload of our clients gets you know basically planned accordingly it becomes an issue when you have a shorter period uh like we mentioned so i wouldn't worry you know too much about that the the performance we delivered in July or October is a performance that we believe is sustainable for the rest of the year. So we are in a good position from our perspective. As far as the OPEX question, look, as you know, we are not strategically focused on OPEX. We focus on CAPEX. which is a higher added value business, you know, with better margins. OPEX for us has been an adjacency to help our clients if they ask us because we want to provide a superior customer service. And we decided to basically, you know, disengage from certain contracts that were going to be even less attractive in terms of financial terms. They were not going to be profitable moving forward. And that's why we exited these. And so, If you take these out, we would have had potentially mid-single digit in our OPEX business. But OPEX for us is not really core. It's an adjacency that we have just to help our clients if they need to. But we're not strategically focused on that. We believe it's low tech, it's low margin, and it's not something that we believe is worth investing our science-based expertise in.

So just to understand that, it sounds like if you had not got rid of those contracts, you might have been talking mid-single-digit organic growth for the division as a whole? Is that about right?

I mean, Moody is the largest part of the division, right? It's double-digit. So it would have been much more than that because the mixed effect favors Moody, right?

Sure. Okay. Thank you very much. You're welcome.

We'll take our next question from Tom Carlton of BNP Paribas. Please go ahead.

Hi, thanks. Good morning, everyone. I just wanted to ask a question, if I can, on the campus allocation policy, please. Morning, Andre. And the statement references, obviously, the guidance or the sort of longer term target of leverage of 1.3 to 1.8 times based on the net debt guidance you've issued today. And if I look at kind of where EBITDA is likely to shake out for the year, it looks like you're going to be well below that sort of near one times or even below. So leaving you with half a ton or more of headroom. Can you just give us an update about how you're thinking about that kind of flexibility? I mean, particularly with where the shares are trading now, Intertech doesn't have the biggest history of share buybacks, but there is the comment about potential to return excess capital to shareholders. I know you're not going to commit to anything today, but just give us a framework for how you're thinking about that, please.

Yeah, thanks. And of course, that point has not escaped us, nor you, nor anybody else in the financial markets. Look, we are... very strong in terms of free cash flow generation. And when you've got strong revenue and operating profit growth, it does compound your strength. So that is, of course, a fact. I've explained in my opening remarks how we think about a creative capital allocation. Our priority is always to invest in organic and finding the right M&A opportunities But we want to be selective because we want to bring acquisitions that are truly augmenting the value of what we offer to our clients, i.e. a new type of IP in an exciting growth market, provided we can deliver a good margin, good returns, and we can execute. we have increased our payout ratio in terms of 65%. Having said that, I take the point that our balance sheet will be very strong at the end of 2024. We never had as Intertech to make the decision to return cash to our shareholders. But as I said, consistently several times on these calls, and again, this morning, we're not opposed to it. And this is something that the board, you know, has to decide and, and I would suggest that we let we let these discussions to the board.

As a reminder, If you are dialed into the call and wish to ask a question, please use the raise hand function at the bottom of your Zoom screen. Alternatively, if you have dialed in via phone, please select star nine to raise your hand and star six to unmute. We will take our next question from James Rose of Barclays. Please go ahead.

Hi there, can you hear me okay?

Of course, yeah, good morning.

Great, thanks. I've got two questions on assurance, please, if I may. The first is on your training, Alchemy and recently purchased PlayerLink. How are training services doing within the mix of assurance? And then secondly, on cybersecurity, your peers have recently brought this business more into focus, I'd say, and been talking it up. Could you give us some details on your business here, perhaps your particular strengths, positioning, and the relative importance of that business within insurance growth for you in the medium term?

Yeah, of course. I think on Alcuin and Playlink, it's about people assurance. It is essentially... doing an audit of the gaps between expected skills and behaviors and delivered skills and behaviors in manufacturing environment, but also in multi-site environment. And once you've done this, you basically do some training to close the gap and improve, of course, the executional excellence or operational excellence in these businesses. Look, this is a great business. It has space, high margin, and it's doing extremely well because companies know that one of the key issues in terms of consistency of performance is a lack of operational consistency. And largely, it's not driven because they don't have the process or the equipment. It's because people are just not basically operating with the right skills. So it's a good business growing very well for us. As far as cyber is concerned, we are essentially – operating a business called Connected World that we have built over the years. It's a good business. Essentially, we do two types of activities in terms of cybersecurity. We do an audit of the enterprise securities of our clients, and we have a company called NTA that is based here, but also EWA in Canada that does that. And the other thing, too, is we will do, of course, some, you know, testing in terms of cybersecurity defense in the networks of our clients and also look at how well the devices are protected. So this is a business that, you know, we've built over the years, largely, you know, focused in security. north america and here in europe but we're expanding and and you know we've seen you know increased demand in asia pacific and because we have the ip so it's very easy to to expand within our electrical you know uh you know division and indeed the the growth is positive there all right thank you very much we will take our next question from sylvia barker of jp morkan please go ahead

Hi, good morning, everyone.

Morning.

Three from me, please. First on consumer again, could you maybe just remind us where we are on the relative profitability of soft lines, hard lines, and I guess electricals more broadly. Second one on transportation technologies, very strong growth in this period. Could you maybe just comment where are are your clients based? Are these specific projects, you know, are they European kind of companies or maybe some of the growth is coming from Asia? And then finally, just a boring one on pricing, but where is pricing running today where you do have, I guess, annual price negotiations? Could you comment around the run rates of pricing when you're sitting down with customers at the moment? Thank you.

Sure. I mean, on consumer, Of course, soft lines and hard lines remain within consumer, the two highest margin divisions, and are doing very well, as we just talked about. Electrical is an amazing business for us, and I think we talked about it in the past. Electrical didn't have any revenue decline in 2020. So I'm not saying that electrical is getting close, but electrical is making some really, really good progress in terms of margin. And it's a very, very significant contributor to the group. As far as TT is concerned, I mean, the growth is essentially coming from, you know, two type of R&D activities that our clients are pursuing. One is they have to make the fuel greener and operate, obviously, greener lubricants. And there are some new standards in terms of greener fuels, if I could say it like this. This is the existing, if you want, powertrains. But the other important development is what our clients are doing in hybrid and electrical. And we know that the automotive industry has had a few good years recently and they've got more financial capacity to invest in greener fuels and hybrid electrical power trains. That's essentially what we're seeing. And we're seeing it in the UK business here and in North America and also in Asia. As far as pricing is concerned, the way we look at pricing is, number one, we are very focused on Customer service. And as you know, I've shared it at the capital market event last year. Intertech is positioned as the quality leader in terms of customer service. And that means that, you know, we have a very strong price position in the market and we are very disciplined on price because we believe that when you are the quality leaders, you've got to be disciplined on price to keep obviously driving margin accretive revenue growth. How we basically increase prices is, you know, there are some contracts indeed that got, you know, inflation, you know, is close to increase the price on a regular basis. But we review our price to our clients on a regular basis for the other contracts. But this is not the only way to take pricing, right? Increasing the number of test pay SKUs, where I mentioned in the opening remarks in terms of upselling. adds obviously to your price point. And lastly, when you innovate, trying to innovate in segments that are gross accretive but marginal accretive is also helping because you target a higher price point. So that's basically how we manage price. And as I said on the call, we will continue to pursue our price strategy as I just described.

Thank you. But could I just ask also about the Just simply the split of pricing and volume this period.

Oh, sure, sure. Yeah, sorry. I didn't realise. Yeah, it was, you know, in line with the past, about one third, two thirds.

Super. Thank you very much.

You're welcome. For other questions on the webinar, I will now hand over to management for closing remarks.

Well, thank you very much for being on the call today. We appreciate your time and your interest. And in a second, Denise, of course, available if you have any follow-up questions. Thank you very much.

Thank you for joining today's call. We are no longer live. Have a nice day.