Intertek Group plc (ITRK) Earnings Call Transcript & Summary

Hello, and welcome to the Intertek May 2020 Trading Update. My name is Caris, and I will be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, André Lacroix, to begin today's conference. Thank you.

Good morning, everyone, and thanks for joining us. Today, I plan to speak for a little longer than usual. I'll discuss how we have reacted to COVID-19, responding quickly to the needs of our employees and customers. I will cover trading in the first 4 months of the year, which has demonstrated, the defensive characteristic of our earnings, and I will explain why we believe we are well positioned to navigate an unprecedented dynamic and benefit from attractive growth opportunities post COVID-19. In a few short weeks, COVID-19 has had a big impact in our lives and in our communities, and on behalf of everyone at Intertek, I salute health care and frontline workers around the world for their magnificent response. As you know, I lead the business that, at its core, is about bringing quality, safety and sustainability to life. Our role at Intertek has never been more relevant in making the world a better, safer and more sustainable place. In short, COVID-19 has magnified the great importance of Intertek's role in society. We have remained open 24/7 since day 1 of the pandemic to make sure the supply chains of our clients operate safely. We are, of course, not immune to the impact of COVID-19 on the global economy. However, I am confident in our ability to navigate what will be a challenging 2020 for the world. And let me explain to you why. First, we are a strong company with a track record of consistent value creation. We are a global leader in an attractive quality assurance market, we have a global network of well-invested state-of-the-art operations in 100-plus countries run by innovative subject matter experts, a significant pool of intellectual capital. We benefit from diversified revenue streams both geographically and across several end market verticals where we operate at scale with market leadership positions. We provide our clients with the real depth and breadth of ATIC Quality Assurance Solutions. We run a high-performance and passionate organization with engaged talent, leading with an ever better mindset, and we operate a high margin, strongly cash-generative earnings model with a disciplined capital allocation policy. We've entered 2020 with a strong momentum and a track record of consistent value creation over the last 5 years. Indeed, between 2014 and 2019, our revenues has grown by 43%. Operating margin has increased from 15.5% to 17.2% and our adjusted EPS has grown by 60%, our cash generation has more than doubled ROIC has progressed from 16.3% to 22.8%, and our employee productivity has increased by 21%. Importantly, Intertek has long operated with a strong balance sheet based on the financial policy of keeping leverage within a range of 1.5 to 2x net to EBITDA on IAS 17 basis. At the end of '19 our net debt was GBP 629 million, just 1x net debt to EBITDA down from 1.4x at the end of the prior year, reflecting our strong continued cash generation. This debt has a long duration maturity profile. The company has refinanced in 2020, and we have extended our revolving credit facility to $850 million with a syndicate of 8 banks for a 5-year term. At the end of 2019, we had an undrawn committed borrowing facility of circa GBP 325 million. In addition, we have confirmed that we are in a position to draw down on the Bank of England's CFF facility should we need to do so. The group operates a progressive dividend policy with a targeted payout ratio of circa 50%. Intertek ranks second highest in the FTSE100 in terms of dividend progression since the IPO in 2002, the 2019 dividend of 105.8p is up year-on-year by 6.8%. And as you would expect, we will pay our final dividend of 71.6p or GBP 150 million on June 11 this year. Our sustainable performance inspired by our purpose of bringing quality, safety and sustainability to life demonstrates the core strength of the company, our total quality assurance value proposition, our powerful portfolio, our high-quality compounder earnings models, our passionate customer-centric organization and, of course, our disciplined performance organization. Being agile and fast is paramount in today's environment. Now I would like to explain how fast we've adapted, enabling us to respond decisively to an unprecedented situation. Cast your minds back a few short weeks. When we all go back to Christmas, none of us could foresee what was going to happen in 2020. On the 16th and 17th of January, I was in China myself, in Guangzhou and Shanghai precisely, meeting with our top clients to thank them for their business and present our 2020 innovation. COVID-19 at this time was already in the news, but it wasn't yet on the agenda of every company, but that changed just a week later. The City of Wuhan and Hubei [ province ] went into lockdown on January 23, just as the Chinese New Year celebration was ready to start. I was then back in London, and on 26th of January on Sunday, I called our China team to discuss the immediate action and priorities. We set up a daily call to ensure efficient communication. We start preparing our health and safety approach for when our people will return to work. And we agreed that the senior team from China would not join our global conference early in February. We were right to get organized because the very next day, the Chinese New Year holiday was deferred on to the 3rd of February. And then it was announced that the return to work would be on the 10th. So from the 10th of February, we had two main priorities: first, to make sure that all the right processes were in place to protect the health and safety of our employees. To do this, we implemented the specific COVID-19 health and safety policy to protect all of our colleagues. Our second priority was to ensure we could give our clients all the help they needed to resume their operations. And I'm sure you've noticed that since February 3, we've been updating the progress on these two initiatives on our website to keep all stakeholders informed. Then things took another step up. On the 22nd of, February [indiscernible] , China MD told me about the risk of a pandemic in Italy. We immediately put in place the same health and safety policy we had in China. When I gave you an update on March 3, this is what I said at Intertek, "We are not immune to the impact of coronavirus, and our 2020 performance will be affected by the temporary disruption to supply chains of our clients in China and any impact it might have on our global trading activities." Since then, of course, and particularly since the 9th or March, the situation has evolved very rapidly. First, the pandemic was declared in Europe and then worldwide. As a result, lockdown initiatives have created significant disruptions for just about every citizen and every company around the world. At Intertek, we rapidly implemented globally the health and safety policy we developed for China, we've asked everybody who work from home to do so and importantly, we followed the business continuity planning procedures to remain open for clients given the mission critical importance of our services that ensure that supply chains operate safely in every country. I'm very proud of the speed at which we've adapted, we've been very responsive to a fast-changing environment. To make sure we communicate fast and make the right decisions, I also call every single day with all regional leaders. In these daily calls, my direct report, we discussed 5 operational priorities: health and safety, customer service and revenue management, margin management, cash management and internal communication. Every time, health and safety come first. Our COVID-19 in-house and safety policy covers the following areas globally: the use of personal protection equipment, including face masks; hygiene, control and prevention measures; social distancing and restrictions on gatherings; the sanitization of our facilities; guidance for visitors to our facilities; guidance for employees who work at client premises; restriction on international travel; guidance on what to do if you feel unwell; working from home for non-billable employees; and health monitoring for employees who are not feeling well. Our second priority is customer service. We are a passionate and customer-centric organization, providing our customers with the best possible service. What we do every day to make sure the supply chains of our clients operate safely in all countries is indeed mission-critical. And the COVID-19 lockdown measures have created huge operational challenges for our clients. Maintaining operations open 24/7 was, therefore, vital for our customers. We've kept all of our operations open with the exception of China, Hong Kong and India for a few weeks. Since day 1, we've increased the frequency of communication with our clients to make sure we understand their needs quickly, and I can say that our clients are truly valuing Intertek's commitment to providing uninterrupted customer service. In addition to that, we've brought rapidly to the market, a range of innovation to support the emerging needs of our clients. And let me share with you some of these new services where we've quickly seen an increased demand. As you can see on this slide, we brought innovative solutions across many industries to help our clients address the immediate operation and supply chain challenges. Remote video inspection and audit to enable inspectors and auditors to do their job remotely. Priority testing for life saving medical equipment like ventilators, capitalizing on our global leadership in medical devices. End-to-end testing and certifications for protective clothing and other PPE equipment. Increased testing capacity and express service for hand sanitizers and surface disinfectants, of course, support to the pharma industry where we are present. Of course, support to the oil and gas industry addressing the COVID-19 related challenges. Cybersecurity audit related to home working conditions. We've seen an increased number of cyber attacks around the world since people are working from home. Support, of course, to all governments around the world if they need our help to fight against COVID-19. As I'm sure you've seen and read, on May 1, we've launched a truly pioneering innovation. Health, safety and well-being in the workplace, in public places, on public transport and at home is now the #1 concern for the entire world. Indeed, our research found that over 70% of employees do not want to return to work once restrictions are lifted, unless independently verified health and safety practices are in place. 91% of responders agree that their employers should take extra measures to protect employees. Yet over half of senior managers believe that they will struggle to provide an acceptable health and safety standard for employees when they return to work. Across the consumer industry landscape, only 24% of respondents feel confident about visiting a bar or a restaurant when restrictions are lifted, and only 27% feel confident about visiting hotels. 56% do not track cinema and theater operators to have sufficient health and safety practices in place to prevent the spread of the virus. And that figure rises to 57% for airlines and 59% for public transport. That is why we've launched Protek. The world's first industry-agnostic end-to-end health, safety and well-being audit, inspection, testing and certification assurance program for people at work, in public spaces and at home. Protek is based on a systemic approach to quality assurance. It's a comprehensive offering, covering people, systems and processes, facilities, materials and surfaces and products. Let me give you a bit more detail on the Protek offering. Protek People Assurance provides an on-demand e-Learning certification program to help our clients deliver essential employee training on health and safety topics. Of course, from a world-leading platforms within Alchemy. Our Protek Business Assurance solutions provide an end-to-end audit of operating procedures and systems, enabling our clients to demonstrate their commitment to the well-being of their employees and customers. And we deliver that through our global business assurance organizations. Protek Facilities Assurance offers health and safety audit and inspection solutions for all type facilities from hotels, restaurants, retail outlets, schools, transportation hubs, manufacturing sites, where consumers and employees look for visible safety verification. Protek Materials & Surfaces provide complete testing solution to ensure spaces materials and surfaces are safe for employees and customers in the workplace and public space. The reaction of our as clients we launched Protek a few weeks ago has been tremendous. Protek is very much in line with what the world needs right now. You can read more about these and how we are supporting our clients with COVID-19-related innovations on our website. I am tremendously proud of our teams. In addition to the development and launch of all these innovations, our teams have taken the time to support their communities in Wuhan and around the world. At Intertek, we really believe that we are going to make the world ever better. Our third overriding priority is margin management. Over the years, we've built a very disciplined approach to margin management. Our strict controls on pricing and costs remain, of course, in place. We have also taken a number of additional steps to protect our margin. This includes a pause in our recruitment, a delay of 6 months of the 2020 annual salary increase and furlough activities in the U.K., France and Italy based on existing government schemes. We believe that our clients are facing temporary disruptions in their operations, and all of our margin initiatives ensure that we have the ability to service our clients fully when their operations are back to normal. We want to be positioned extremely well when our clients go back to normal. Our fourth priority is cash management. Disciplined cash collection remains in place. We have also conducted a CapEx review, we're using our planned expenditures this year by around 1/3. We are running a voluntary salary-deferral scheme from March to October. That involves a 50% salary deferrals for our Board members, Ross and I, our Executive Vice Presidents, 30% for Senior Vice Presidents and 20% for the management. I'm extremely impressed by the willingness of circa 1,200 individuals to support the business during this period. We are also benefiting from local authorities' tax payment deferrals were available. Our fifth priority is employee engagement with [ 20% ] of our people working remotely, it has never been more important to stay connected every day. Our world-class digital communication platform has made it possible for us to reach out frequently to everybody in the organization. We use what's in our internal social media channel to recognize Intertek colleagues every day who have gone beyond normal expectations to help their customers and colleagues. I post the personal audio message on WhatsIn to the entire organization every week. And as I mentioned earlier, I'm having daily calls with our regional teams around the world. Turning now to trading. We have delivered a resilient trading performance in the first 4 months of 2020. This demonstrates the strength of our business model, its geographic and business line diversity and our disciplined approach to performance management. As usual, there is a lot of detail in today's release, so I will now summarize [indiscernible] the period's trading highlights. But before I do so, I want to emphasize the speed at which the global pandemic has unfolded and the broad-based nature of the lockdown initiatives in every country. This makes it difficult to attempt any precise guidance, and it is too early to quantify the impact of COVID-19 for 2020. We'll provide an update on our full year guidance once we have more visibility on when and how lockdown restrictions will be lifted around the world. Group revenues in the first 4 months was GBP 882 million, down 4.6% year-on-year at constant currency and actual rate with a resilient like-for-like revenue performance of minus 4.9%. Our disciplined approach to cost and margin management remains firmly in place. We continue to be very focused on cash conversion and disciplined capital allocation. Our product-related businesses delivered a resilient revenue performance of GBP 520 million, down 6.1% at constant currency, with a like-for-like revenue performance of 6.6% below last year. We operate a diversified global portfolio of several end market verticals with leadership market positions. Clearly, some businesses performed better than others, for example, electrical, transportation technology, building and construction, business assurance, while understandably, some were impacted more significantly, like Softlines and Hardlines. In our trade business, we've delivered a resilient revenue of GBP 201 million, with like-for-like revenue performance of minus 5.9% at constant currency. Our business line remain open for business during the pandemic to make sure that the essential global trade activities are functioning safely and fully. And I would like to highlight the strong resilience of our Agri business in the first 4 months of the year. Turning to our resources-related business, where we have delivered a revenue of GBP 161 million with good like-for-like revenue growth of 2.4% at constant currency. We are pleased with the robust revenue growth with saw in Minerals and a good like-for-like growth in CapEx Inspections. Now let me take you through the key components of our financial guidance at constant currency. On IFRS 16 basis, we expect the net finance cost to be around GBP 37 million to GBP 40 million. We expect the effective tax rate to be in the 25.5%, 26% range, and minority interest between GBP 19 million and GBP 20 million. We're investing in growth, but as I mentioned, we've reviewed our CapEx plans, and we now expect a full year CapEx investment to be circa GBP 90 million to GBP 100 million. In terms of financial debt, we expect to close the year between GBP 650 million and GBP 700 million before any M&A and any material movement in ForEx. A quick update on currency for your model. Based on the year-to-date performance and the average ForEx in the last 3 months applied for the remainder of the year, ForEx will be broadly neutral at the revenue and at the earnings level. So moving to our summary. We are well positioned to navigate an unprecedented pandemic in 2020, we are confident moving forward. Quite simply, overall bringing quality, safety and sustainability to life has never been more important. We are mission-critical to making the world ever safer. The global pandemic is demonstrating that the world needs Intertek more than ever, our insights, our innovation, our expertise and our passion. And by staying open for business, we've enabled companies to operate safely wherever they are. Of course, we don't know how long it will take for all lockdown measures to be lifted and how long we'll have to wait for a cure or vaccine. But just consider for a minute, how the pandemic will continue to affect the way people lead their lives every day. How will we know if the home delivery is clean? If we will be safe in a restaurant, if our children are risk-free at school and even if it's safe to have a family reunion. Health, safety and well-being issues are now the #1 concern for the entire world, and this is not going to go away anytime soon. So what does it mean for us at Intertek? This is the first pandemic to take place in a highly connected global world. And that make the case for quality assurance even stronger. It is clear that the need for solutions that make the world a better and safer of place is much greater than anybody had previously imagined. We are more confident than ever about the future growth prospect of Intertek as the exciting structural growth drivers pre-COVID-19 have now been joined by a wide array of new quality assurance opportunities in many areas: health, safety and wellbeing quality assurance in the workplace, in public spaces, at home, growing demand in the health care sector for PPE, for new medical devices, for stronger health care infrastructure, an increasing need for risk management and supply chain to diversify the approach to sourcing, a changing corporate environment where working remotely will create new operational risks, the changing retail landscape where the growth of e-commerce will create supply challenges for retailers and a changing approach to investment and research globally in the health sector. That world will need us more than ever. We are truly mission-critical for the whole society in a post-COVID-19 world. And we will benefit from all these opportunities and more. In conclusion, Intertek has been an industry leader for more than 130 years. And we have demonstrated many times that we can successfully navigate challenging external environments. We work with more than 300,000 companies across 17 industries and 100-plus countries. Our heritage of delivering uninterrupted quality assurance to our clients during such times has created incredible loyalty. This trust means a lot to our clients. They know they can count and Intertek to keep their supply chains operating safely during these challenging times. We are confident moving forward. This is the simple way of putting it. Intertek is a strong, agile, responsive, resilient and responsible company. We are well positioned to navigate a unprecedented pandemic and we'll benefit from additional growth opportunities post-COVID-19. So thanks for being on the call today, and we'll take any questions you might have.

[Operator Instructions] The first question we have in the queue comes from the line of David Roux from Bank of America.

Thank you very much for the comprehensive update. I've just got 3 questions from my side. The first one, on aggregates, what proportion of the revenue lost this year or in the first half due to COVID do you believe can be recovered at some stage? So i.e., in addition to your sort of usual budgeted revenue, how much of the lost revenue or volumes this year can be recovered? My second question relates to the oil and gas CapEx Inspection business and perhaps even OpEx. In recent weeks, in your discussions with clients, have you seen the tone change and perhaps any postponements or cancellations of projects due to the oil price? And then lastly, just on group overall revenue growth, could you perhaps give us the March and April like-for-like revenue growth numbers?

Thanks for your question. And I'll start with the last question, which, obviously, was to be expected. Look, we do not break down the disclosure by months when we do our trading statements. I understand the question. What I can say that, obviously, we are pleased with the first 4 months of the year, but I expect Q2 to be more challenging than Q1 given the fact that the broad-based impact of lockdown restrictions will be really across the world. So that's what I would say on this question. As far as oil and gas, look, we've done very well in the first 4 months in Capex Inspection, which is our main business. We have won quite a lot of new projects in the last few years, as we've talked about previously. And of course, we have seen the announcements from our oil and gas clients in terms of future CapEx. What's not clear at this stage is when will these CapEx reductions take effect. Because think of a refinery or platform being built, it's like when you build a house, right? Although you want to protect your short-term cash, you've got to finish the project. So I think we will have to take it a step at a time. We are in contact with our clients. And there will be, of course, some impact, but it's very difficult at this stage to quantify until we know precisely from them where they want to make this CapEx reduction because it could be very difficult for them to stop existing projects going on. As far as how much of the revenue lost due to COVID-19 can be created or recuperated in the rest of the year? It's a very difficult question. I'm going to try to help you a bit. I think in the trade businesses, this is really very much a function of global supply and demand. And it's going to depend on how the demand for energy, oil and gas pick up in the rest of the year. But essentially, if you have not driven a car for the first 4 months of the year, you're not going to drive it much more in the rest of the year. So I don't think there will be much in global trade. As far as projections is concerned, this is obviously a bit different because a lot of our activities are project-based or SKU-based. And we know that clients want to go back on the offensive. And we know, for instance, Business Assurance that some of the audits that were canceled that -- had not been canceled or postponed. So I hope it helps. It will be a bit different between product and trade.

The next question comes from the line of Suhasini Varanasi from Goldman Sachs.

Just two, please. You mentioned in your earlier statement that you expect Q2 to be worse than Q1. I'm guessing you mean the April to June period to be worse than Jan to March. Given April is already in your numbers, in the reported numbers, can you give us a sense of whether you think you are now past the worst in terms of revenue declines?

And what was your second question?

Sorry. And second question is on the working capital and the net debt guidance, is there a degree of caution on the working capital that has gone into the net debt guidance for the year? And are you actually seeing any weakness in terms of longer payment terms from customers or shorter payment cycles from suppliers, for example?

Yes. I mean on debt and working capital guidance, we are always very prudent, and it's true that this guidance looked at the various components, EBITDA, interest, minority interest, CapEx and working capital. And I think it is prudent to expect there could be some working capital increase during the year. Obviously, we'll report on that when we announce our results in June. Look, I think it's very difficult to answer your first question. Having run companies in multiple sectors all my life and having to deal with external events, maybe not of that nature, but similar in terms of the impact it has on the business, I've learned a very simple lesson. Don't call the bottom until you've seen it. And then you remember, we had discretions in the oil and gas sector for several years. And until I've seen the bottom, I'm not going to call it -- sorry, to not give you the answer maybe you want to hear. But I think this is an unprecedented year. There are multiple trends in our business, as I explained, and I will call the bottom when we see it.

The next question comes from the line of Paul Sullivan from Barclays.

Just firstly for me, the 10% reduction in minority interest guidance is relatively modest. What does that tell us about the profitability of, I would imagine, the Chinese operations, can we read anything into that? Secondly, more broadly, can you give us any sort of regional color? And where are we in the sort of return to work across Asia and improving activity levels there? And then finally, how concerned are you about retail bankruptcies? And what are customers telling you about sort of product innovation and launches as we go into the second half? Obviously, people are starting to think about or plan for the sort of pre-Christmas season. And I know SKUs are very important to you.

Okay. Thanks, Paul. I'll take the last three, and Ross will be happy to answer the first one. Look, I think what are we hearing from our clients, look, what we are all feeling in this incredible time in our life applies to everyone around the world. I mean there is a strong need for everyone to go back to normal. Obviously, when the pandemic became a worldwide issue, you had people under shock and dealing with themselves internally in their businesses. But we are seeing quite a lot of interest from our clients wanting to go back into action. Because I think everybody has realized that there might be a second wave, but we're going to be living with the COVID-19 virus in the air, if I could say it like this, for quite a while. And we are seeing clients to start planning again for offensive activities, which is what you would expect. So look, I think this is the mood of our clients around the world. Of course, they're all careful with cost and cash for the obvious reasons, but there is a strong willingness to go back to normal starting with planning new launch activities. And certainly, a lot of companies are using these periods like us to innovate and make sure that improve their value proposition to customers. As far as retail bankruptcies, look, the financial difficulties of retailers did start, as you recall, before COVID-19. So -- and what we basically see is not necessarily retail brands getting out of the high street. I mean it's about restructuring, it's about cutting their costs, rethinking their strategy. And typically, we keep our relationships because they will want to reinvent themselves, and new product will be interesting to them, and our approach to quality assurance is also very interesting to them to take a risk-based approach. As far as regions are concerned, look, if you look in the chronology, China has been back to normal in terms of capacity for Intertek. Beginning of April, our clients were slightly later because the supply chain is much more complex than ours. It doesn't mean that we are back to the revenue we were level in China because what's happening obviously in China is they have the impact of less exports toward the western world given the shutdown in North America and in Europe. I think the rest of Asia is not back to [ 100% ] than normal but the restrictions have been lifted to the small Asian economies, as you've seen, have been quite good at mitigating the impact of coronavirus. And you can see that there is light at the end of the tunnel. Obviously, you know what's happening in our part of the world in Europe, so we have different speed in different economy. Italy, which has been the first one to get into the pandemic is definitely now going back to normal, and it's good news. It's not the case, obviously, in the U.K., it's not the case in France. Germany has been quite good at having the right lockdown measures, but not totally stopped the economy. So I think Germany as an economy is going to do much better. And North America, you've seen it in the news, every state wants to go back to normal, although it's very complicated to read what they're doing individually in their states. But clearly, North America wants to go back to business. The market that remains difficult is India. The government of India took late decisions to go into lockdown, but it's very, very drastic decisions like in Bangladesh, and they basically shut down the economy for several weeks. So I would say of all places, the one where we've got less visibility is India. The Middle East has done a great job. I don't know if you've seen the stat, but UAE has got the highest [number] of test per citizens, so they are doing quite well. There are obviously some concerns in Latin America, but it's essentially limited to Brazil at this stage. So I hope it provides you some color. Ross, do you want to answer the 10% on minority?

Yes, sure. So Paul, look, I think it's -- I wouldn't read too much into that from a China perspective. I think as you know, we've got a large number of entities, we have minority interests and over 30, which cover various different geographies in various different business lines, including, for instance, minerals in Australia or Indonesia. So I think you need to look at it on a broader basis rather than just reading it through from China.

The next question comes from the line of Will Kirkness from Jefferies.

Firstly, this is clearly not an update on margins here, but just wondered if you could talk a bit about how you've been able to protect the EBIT and whether that sort of get our fears around the drop-through from revenue declines to EBIT and maybe not as bad. Clearly, there are some countries that are offering quite good support there. And then secondly, you spoke quite a lot about bringing new initiatives and extra testing and inspections you would expect to see. I just wondered so far, whether that's actually been noticeable to the growth rates in the businesses.

Thanks, Will, and thanks for asking the question on margin. Look, let me just give you the full year perspective. When we went into 2020, we were expecting continuous organic growth as you remember. And therefore, we basically budgeted for continuous growth in our business. And what we are trying to do, if you want, is strike the right balance between, number one, protecting our margin as much as we can with the initiative available to us. So I've talked about several in the call. But in addition to that, there are other opportunities, travel expenses, energy bills, consumables, marketing, all the time costs in peak periods. But I also want to strike the other side of the equation, right, which is I don't want to undermine the quality of customer service that we are providing to our clients. And also, we are a highly-skilled workforce with a lot of PhD scientists, tremendous IP in all parts of the world. And we believe that it's a temporary disruption in a global economy from a supply chain, quality assurance standpoint, and we have B2B, as you know, we are not B2C. So what's really important for me is do the right thing tactically in a short term, but not undermine our ability to deliver our superior customer service. Today, [indiscernible] also to be ready when our clients start increasing their spendings again in supply chain quality assurance because I want us to be well positioned for the upturn in the market. So I hope that helps understanding that we are obviously very disciplined, as you know, in terms of margin management. And we're very careful in terms of pricing, and there is also the mix management, which is quite important. As far as the new initiatives are concerned, look, we've been quite quick at coming up with the relevant innovations. I believe that when you manage such an external event. You got to play both defense and offense and defense, we all understand is health and safety. It's obviously, cost and cash management, but offense is custom service innovations and revenue management. And I have to say that our remote audit solutions has done very, very well in our Business Assurance operations, as you've seen in the numbers. It has also done very, very well in our Capex Inspections activities. If you look at some of the innovations that we are doing in terms of medical devices, we have a strong presence globally with our electrical business. We are a global leader in terms of certifications for all medical devices, OEMs around the world. So you can imagine the demand in ventilators and other [devices] for the emergency rooms in hospitals. And we basically have changed the way we prioritize and basically have offered express solutions. Protek, I have to say, is really, really, really strong. We've just launched it a few weeks ago, and therefore, it's not the numbers. But clearly, we are seeing very strong demand across the board. I mean you've seen probably in the news yesterday on BBC that all countries in Europe are now getting ready to go back in terms of tourism activities. It's an important part of the economy in Southern Europe and obviously, North Africa and the Middle East. And the Posi-Check, which is basically our hotel solutions has done tremendous [indiscernible]. And with People Assurance, we are seeing some really good traction in North America facility inspections. So now I think it's very important in these difficult periods for any companies to play both defense and offense. And I think we've played the offense card quite well so far.

The next question comes from the line of Andy Grobler from Crédit Suisse.

Just a couple from me, if I may. Firstly, on Alchemy. I just wondered if you could update us on how that's been trading through this year in broad terms. And then secondly, just going back to the net debt guidance with the expectation that it goes up a bit. Am I missing something? Or is that implying that cash from operations roughly halves from last year given the CapEx guidance and ongoing dividend payments?

Look, on Alchemy, we had a really, really strong start to the year. As you know, our contracts are multiyear, and we've had good wins last year. So we are really pleased with Alchemy. And the Alchemy platform we have has given us the ability to go very fast with the People Assurance offering within Protek because we have, if you want a subject matter expertise, and we can offer this training and certifications for people in factories and in retail outlets very, very, very easily. So it's doing well. As far as the debt, obviously, we're not going to go into a lot of details. I would suggest that you walk through the cash flow and you take an assumption on EBITDA, and you've got some guidance on the various other lines, CapEx, minorities, finance. And then if you take a view on working capital, you will see that our guidance is quite there. Obviously, we are always very prudent, as you know, but I'm not going to make any statements on any metrics moving forward. As you know, we don't do that.

[Operator Instructions] The next question comes from the line of Tom Sykes from Deutsche Bank.

Yes. So just following on from your comments, please, on the planning of people for the second half of this year. Could you -- is there any more detail that you can give on to the Hardline, Softlines? Is there a -- there has been a bit of a narrowing of SKUs across consumer, perhaps? And do you think you're going still going to get the same breadth of testing? Or do you expect sort of the volume of testing coming back maybe not with the same breadth, please? And maybe sort of related to that, the overnight tests and the rapid turnaround tests where you tend to get quite high margin, are you seeing a return of those? And does that suggest that there is quite high appetite and quite a high level of innovation taking place now? I wondered if you can -- if there are any comments you can make about competitive capacity, not necessarily the ones that we may cover, but a view of capacity in any areas of your business where you think people have particularly pulled out or seen any difficulty. And then I guess just finally, on China and your headcount, you alluded before to wanting to retain the capacity, but have you -- are there any structural changes that you were going to make to the way your cost base is perhaps in China or elsewhere because of this pandemic that you've taken the chance to actually make some longer-term changes to the cost base at all? And would that indeed be in any way, letting go of anybody in China, please?

Okay. Thanks, Tom, is it your last Intertek call? Are we going to say farewell to you on this call? Or are you going to come for the next?

It is my last call, full stop, actually.

Okay. Then before I answer all these questions, I just want to thank you on behalf of all your colleagues for your tremendous support through the years. And I know that a lot of people in the analyst communities have learned a lot from you over the years directly and indirectly. So it's been a pleasure to work with you. Now go back to business. I think on the express service, yes, I mean we have seen an increased demand, as I said, in several sectors. No question that medical device is high in demand. No questions that you have companies wanting to go back into the innovation agenda. And it's good news. So yes, we are seeing it's good margin for us because we charge the right price for it. As far as competitors are concerned, there will be indeed a few instances where competitors will have difficulties in terms of cash if they don't have a quality business model. And you're right, that will make some of the consolidations may be easier in the market. Obviously, we keep monitoring that. I think I'll take the first and last questions together on head count planning and restructuring activities. Look, we -- on the restructuring front, as you know, we started a 5-year program going through our portfolio, and we are running into the last year of this program. And of course, we are looking at the various metrics to see how we bring this program to a close at the end of the year. So yes, we are looking at restructuring some of the businesses that have been underperforming, and we believe it's the right thing to do. I would label anyone at this stage, and I wouldn't want you to think it's targeted to China. As far as China is concerned and our planning in terms of people, look, we expected 2020 to be slightly more challenging in Softlines. Hardlines, I have to say, is a different situation because we are seeing good demand in terms of transitional Hardline testing inspections. E-commerce is booming, and we are seeing a lot of good demand for control testing. Obviously, Softline is slightly more difficult. Softline got into 2020 with some structural issues. And we are looking into it. We have to be careful because we were with lots, lots, lots of brands around the world. And I don't have any brand that has stopped ordering testing activities for us. The volume has obviously been impacted given the shutdown. So we're going to monitor it, Tom. It's a good question. The only thing I would say is that Softline is a broad-based category for us in terms of testing. We've got traditional [indiscernible] testing, we've got chemical testing. We are obviously seeing a lot of demand for PPEs, gowns, masks, gloves, as you can imagine. And also, we are seeing a lot of interest from a lot of brands for sustainability. So although the traditional testing for the High Street brands that we know might not be the same, I think some of the brand, they want to stay very fit moving forward, are also investing and we see a lot of demand in sustainability.

The next question comes from the line of Rory McKenzie from UBS.

It's Rory here. Just trying to think ahead to the post-COVID world. I wanted to ask about the risks that this disruption accelerates global protectionism or re-onshoring of manufacturing. Obviously, it's a trend we already discussed a lot last year. So could you share your latest thoughts, whether you do see it accelerating that and how Intertek is positioned? And then secondly, I want just to attempt to follow up on Alchemy. Could you at all quantify the boost that it gave to the products' like-for-like growth rate in this IMS?

Okay. So thanks. I'll start with the second one. Unfortunately, not. Sorry to be frustrating you. We don't disclose more than what's being publicly disclosed. Look, I think a question about post-COVID-19 is very good. And I don't know if you saw it, but the Minister of Commerce in Germany did a very interesting speech recently. And what the world has basically come to realize is that the speed component of supply chain management, which means fuels suppliers to go faster. While, it's good, it's an impediment when you've got a supply chain issue like we have today. So there is no question that there will be some activities inside corporations to think through how they de-risk their supply chain. Medical devices and PPEs, I mean, it's on us every single day. Having said that, I thank everybody knows that the global trade is a reality. It's the trade flow are very intertwined. And it's going to be difficult to change that. So my sense, it's going to be evolution more than anything else. Obviously, we can [indiscernible] for clients if they want to rethink their supply chain risk. This is part of what we do with BA, but I wouldn't expect a big bang move on that. It's going to be step by step.

If I may, just follow-up. So I guess it's this trend of moving from just-in-time to just in case supply chains, can you talk about the world of -- within the world of products and where, obviously, at the moment today, you gain the revenue from the clients is large -- has quite a lot to do with your fast turnaround, you need to get your products to shelves quickly. Would more elongated supply chains change the pricing power of you in the industry there? Or should -- that would be unaffected?

Look, I don't think it will affect our pricing power. Because at the end of the day, we tend to price our subject matter expertise based on our cost base and the added value we bring for our clients and our offering is global. So of course, the price is not exactly the same in every country, depending on the consulting business. So it's very difficult to be precise. But I don't think it will change our pricing power. What I think it will do, it will reinforce the approach we take with companies, which is we talk about risk-based quality assurance support, which is basically looking at supply chain end to end, not just in time, as you said, but with the right quality and the right supply all the time. So I think it's going to be interesting.

The next question comes from the line of Rajesh Kumar from HSBC.

First is when you look at -- you've very helpfully provided capacity utilization numbers at the full year presentation for China. We've gone into lockdown in many other geographies. So just in terms of where we are when it comes to some of the key high-margin product businesses in terms of capacity utilization or capacity back online and operating, could we get some color on that? And would it be fair to say that your comments earlier about being prepared for the recovery meant that you're not doing mass capacity reductions across different businesses? The second question is on your March and April trading trends, totally appreciate you don't want to be about monthly trading patterns. Some of your peers have indicated, and a lot of people in your supply chain have given April and May trading updates, which sort of suggests that the step down has been quite sharp and meaningful. Just when we read the release, it says double-digit in Softline. That could be in teens, that could be 25%. Just an order of magnitude for Softlines, Hardline where you have said double digit. Does it mean double digit 25%, double digit 15%? Some order of magnitude that could really help. And finally, it's a follow-up from an earlier question. So when we look at your net debt for the full year, GBP 650 million to GBP 700 million. You've very clearly given that number in the release. If we assume what you have done for dividend and what you've done -- what you're saying for CapEx, it implies an operating cash flow between GBP 330 million to GBP 370 million, which is down quite a lot. You've made some comments about working capital. So should we assume that, that step down is because you're keeping capacity and you will bear some negative operational gearing? Or is working capital a bigger part of that?

Okay. Thanks. I'll try to answer all your questions, starting maybe with the last one. Look, what I said to previous question is what we can say at this stage. I think if you work your way through from the EBITDA assumptions that you will make for the business and you take line by line and you take an assumption that expect working capital to increase, you will see that you come to these numbers. So as I said, we always [indiscernible] but want to be helpful by giving you a net debt range so that you get a sense when you reverse engineer the numbers of what the outlook could be. As far as people are concerned, we are not doing a capacity reduction across the board. As I said during the call, it's very important for us to make sure we continue to put -- to provide superior customer service to our clients. And we are ready when the supply chain activities resume fully. So we want to benefit from that, and we don't want to undermine our quality today. And as far as capacity availability around the world, I think we are open for business. So our businesses are fully operational around the world with exception, as I said on the call, of India, which is still quite difficult. Okay?

And the decline in rates?

Sorry, I cannot say more than what we said today. Look we try to be helpful...

Double-digit is 25%, is it 15%? Order of magnitude, they are different numbers, very different.

Yes, of course. If it was not easy to read or to understand, we'll say it differently. So I will leave it to that. Sorry, we're not giving any more color on that, I'm sorry.

The next question comes from the line of Ed Steele from Citi.

Just one question really, please. You've given a pretty tight net debt guidance for end of 2020, just GBP 50 million range. That's the sort of tightness of guidance one would expect in a more normal year. It obviously, this year, there's going to be really quite a variety of profit performance depending on how COVID-19 lockdown ease or the second spike, et cetera. So profit guidance is very difficult as you've acknowledged. CapEx guidance is tight. Minority guidance is tight. The working capital is not necessarily fully in your control. So I'm just trying to understand what the flex is within your control to ensure your delivery of net debt within that guidance range. The one missing component, of course, is the interim dividend for 2020. Is that something you consider a flex item to ensure you deliver net debt within the range given that profit could fall short by a material amount, please?

So look, the answer on the interim divi, obviously, is not for now. And this is, as you've seen today, we are going to pay our final dividend for 2019, and this is something that is a Board decision. Look, I reckon your point about the range being a bit on the narrow side. Look, Ross and I have run multiple scenarios, as you can imagine, at this moment of time, we believe that's the right guidance to be helpful to you and your colleagues. And what can we do to manage the businesses is obviously we can influence revenue, we can influence margin. We can influence working capital. We can influence CapEx. So we've got quite a few levels. And all in all, we believe it's the right guidance. Obviously, it's only the end of April. So I will remember your questions at the end of the year, and we can check our books.

Thank you. There are no further questions in the queue. [Operator Instructions]. Okay, as no questions are coming through on the call back to you, André.

Well, thank you very much, everyone, for being on the call today. I really appreciate your time. We know it's a busy time. Obviously, Denis is available, if you have any question. And on behalf of all of us, I'm sure [indiscernible] we're wishing Tom a fantastic future in his next career opportunities at Deutsche Bank. And thanks, Tom again for all your support over the years. Have a good day, everyone. Bye-bye.

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