Intertek Group plc (ITRK) Earnings Call Transcript & Summary

Hello, and welcome to the Intertek 2020 Full Year Results Conference Call. My name is Rosy, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to André Lacroix to begin today's conference. Thank you.

Good morning to you all, and thanks for joining us on the call. Ross McCluskey, our CFO; and Denis Moreau, our VP of Investor Relations are with me. This morning, we have announced a resilient financial performance in 2020 with earnings and cash ahead of expectations. We are extremely pleased with the consistent performance of the group they bring value for all of our stakeholders. And indeed, 2020 is the sixth consecutive year of an EPS delivery ahead or in line with expectation. Today, there are essentially 5 takeaways in our call. First, the agility and energy of a high-performance organization has made a huge difference, enabling us to navigate an unprecedented global crisis. Second, we have benefited from a broad-based strong recovery in H2 with improved revenue, a record operating margin and truly excellent cash performance. Third, moving forward, which is very important, we are really well positioned to benefit from the exciting growth opportunities that will be driven by the COVID-19 recovery, of course, increased corporate needs for TQA and M&A growth opportunities. Fourth, we'll capitalize on our high-quality earnings model to seize these exciting growth opportunities and deliver sustainable value creation. And fifth, really important to me, Intertek is a force for good in society. We are helping our clients deliver the sustainability agenda, and we are leading by example internally with sustainability excellence. So this is our agenda for today, let's start with our performance highlights. All the comments I will make will be at constancy. So right from the start of the pandemic, being agile was paramount. We have adapted fast, enabling us to respond decisively with laser focus on employee health and safety, superior customer service, margin discipline, cash discipline, purpose-driven engagement. Making the world ever better and ever safer is what we stand for at Intertek in all of our operations. COVID-19 is the biggest crisis of our lifetime, and our colleagues went way beyond their normal call of duty to provide tremendous support to their communities. We have recognized our Intertek heroes every week, and their story made us very proud. 2020 has been a very challenging time for all of our clients, and they've highly appreciated the help and the 24/7 customer service of all of TQA experts. As you can see on the screen, we've launched 15 global innovations in 2020. And let me just talk about a few examples. Of course, we have ensured supply chain continuity with our Remote Video Inspection and audit solutions from day 1. We've launched Protek, the world's first health, safety and well-being assurance program for people, workplaces and public spaces. We've also introduced CarbonClear, the world's first certification program that verifies the upstream carbon intensity per barrel of oil, so important in the resource sector. These are in addition to new services that we've developed rapidly: priority testing services for live setting medical equipment like ventilators; end-to-end testing and certification capacity increase for PPE equipment; increased testing capacity and express service for sanitizers and disinfectants; support to the pharma industry for vaccine development; and cyber security audit-related activities for home-working conditions. Our resilient financial performance in 2020 demonstrates the strength of our business model; its geographic and business line diversity; our disciplined approach to performance management; and importantly, our strongly cash-generative earnings model. Group revenues was GBP 2.742 billion, down 6.7%. Like-for-like revenue was down 6.8%. Operating profit at GBP 428 million was down 17%. Our operating margin was robust at 15.6%, down 190 basis points year-on-year. Our free cash flow was truly excellent at GBP 436 million, up year-on-year by 10.2%. And we've delivered a super strong ROIC of 21.6%, only down 190 bps versus last year. Given the strength of our earnings model, we are confident in the future growth opportunities for the group, and we have announced a final dividend of 71.6p in line with the prior year, making the full year dividend payment for 2020 unchanged compared to 2019. Let's look more closely at our performance in the second half of 2020. In H2, we've benefited from strong revenue recovery, up 8% versus H1 and excellent profitability recovery with OP up 56% versus H1 and a record margin of 18.4%, up 60 basis points year-on-year. The good news is our recovery was broad-based. Our Product division delivered a strong recovery in H2 with revenue plus 12% versus H1 and excellent profitability recovery with operating profit up 61% compared to H1. In H2, our operating profit was up 1.7% year-on-year in a declining market, and we've delivered a record margin of 24.5%, up year-on-year by 110 basis points. Our Trade business delivered a robust recovery in H2, with a 4% revenue increase compared to H1 and operating profit increase of 40% versus H1, delivering a 9.1% margin, up 240 basis points compared to the first half. Our Resource division delivered a stable revenue versus H1 and an operating profit that was up 28% compared to H1, resulting in an H2 operating margin that was 60 basis points year-on-year in H2. Our free cash flow at GBP 436 million was truly excellent, as I said, up 10.2% year-on-year. This excellent cash generation was driven by a reduction of GBP 42 million in net CapEx and GBP 103 million in working capital. Our cash conversion at 149% was a record. And we have made further progress on working capital, which is now negative at Intertek, a major milestone after multiyears of working capital reduction. I'm so proud of our finance team. We have closed 2020 with a financial net debt of GBP 420 million, down year-on-year by GBP 210 million. And with a net debt-to-EBITDA ratio of 0.7x, we've got a tremendously strong balance sheet. I will now hand over to Ross, who will take you through our results in detail.

Thank you, André, and good morning, everyone. In summary, the group has delivered a resilient revenue performance in 2020 with a like-for-like revenue change of minus 6.8% at constant rates. Operating costs were tightly controlled, resulting in operating profit of GBP 427.7 million. Operating margin was robust at 15.6%, being down 190 basis points year-on-year. The FX impact on revenue was minus 150 bps for the year, and FX was slightly less negative on profit, with a minus 140 bps difference between actual and constant rates operating profit growth. Overall, fully diluted EPS of 170.9p was down 19.6% at actual rates and 18.1% at constant rates. Looking more closely at the group operating margin bridge. Products delivered a robust operating profit margin of 20.9%, albeit still accounting for nearly half of the net movement in group margin. The reduction in trade margin to 7.9% contributed 100 bps to the year-on-year change. While operating margin in Resources at 6.2% was flat year-on-year, leading to no change in group margin. Divisional mix had a positive 10 bps contribution given the relative growth of Trade and Resources. And finally, M&A had a negative 10 bps impact on the group margin in 2020. Turning to cash flow and net debt. Our disciplined focus on cash management continued throughout 2020. This enabled the group to deliver a strong cash results in the year with adjusted free cash flow of GBP 435.6 million, being up GBP 40.3 million or 10.2% year-on-year, and that is despite the 18% reduction year-on-year in absolute operating profit. Our continued focus on working capital was evident in 2020 with a record cash inflow from working capital of GBP 89 million, and as already said, that enabled us to achieve a significant milestone of negative working capital in the year. This was driven by strong collections in the period as well as our cash preservation activities, including the impact of certain government-facilitated cash tax payment delays. In the year, we invested GBP 72 million in net CapEx, down GBP 42 million versus prior year, as we focused on essential projects and core maintenance CapEx. We finished 2020 with financial net debt, that is excluding IFRS 16 lease liabilities of GBP 420 million, which is down 33% year-on-year and significantly lower than our November guidance. In terms of financial guidance for 2021, we expect our net finance cost outlook for the year to be between GBP 29 million and GBP 33 million, reflecting our strong cash performance in 2020. We expect our full year effective tax rate to be in the 26.5% to 27% range. We expect minority interest to be between GBP 17 million and GBP 19 million, while CapEx should be in the GBP 110 million to GBP 120 million range. Finally, our financial net debt guidance for the year is for a range of GBP 350 million to GBP 400 million, and this guidance is, of course, before any acquisitions or any changes in FX rates. And I would now like to hand you back to André.

Thanks, Ross, and let's now discuss our performance by division, starting with Products. In H2, our Products-related business benefited from a strong rebound in demand and delivered a revenue performance of GBP 881.3 million, up 12% on H1, as I said earlier. Operating profit was strong at GBP 216.1 million, up 61% on H1. And operating margin of 24.5% was up 760 basis points on H1, a major recovery in terms of margin for Products businesses. Let's discuss each of our business line one at the time. In H2, our Softlines business delivered a mid-single-digit decline in like-for-like revenue, resulting in a double-digit decline in like-for-like revenue on a full year basis. In the last 6 months, our global Softlines business benefited from continuous growth in e-commerce, increased demand for testing of protective equipment and the reduction of the lockdown restrictions in some of our markets. However, our performance was impacted by continued store closures in Western Europe and North America and some retailers delaying the launch of new products due to the disruption of the supply chain in the first half. Our Hardlines business saw improved momentum in the second half, with a low single-digit decline in like-for-like revenue, resulting in a mid-single-digit decline in like-for-like revenue for the full year. In H2, our Hardlines business benefited from continuous growth in e-commerce, increased consumer demand for home furniture and toys and the easing of lockdown restrictions in some of our markets, while closures of stores in Western Europe and North America, of course, continued. Our Electrical & Connected World business delivered robust like-for-like revenue growth in H2, resulting in a solid like-for-like revenue growth in 2020. In the last 6 months, we saw an increased demand for higher regulatory standards in energy efficiency, strong growth in testing and certification of medical devices, increased testing requirements for 5G and a greater corporate focus on cyber security. Business Assurance delivered a solid like-for-like revenue growth in H2, resulting in a mid-single-digit decline in like-for-like revenue on a full year basis. The easing of lockdown restrictions in the second half has driven the rebound in the number of ISO audits in some of operations, while we continue to benefit from attractive growth in supply chain assurance, the continuous focus on ethical supply, the increased needs of corporations for sustainability assurance and, of course, the strong growth in our People Assurance segment. Our Building & Construction business delivered a mid-single-digit like-for-like revenue decline in the last 6 months, resulting in a low single-digit like-for-like revenue decline for the full year. While we continue to benefit from the growing demand for more environmental-friendly and higher-quality buildings as well as strong investments in large infrastructure projects, the temporary reduction of building and construction activities we saw in Q2 due to the lockdown restrictions in some of our North American markets continued in the second half. Our Transportation Technologies business recorded double-digit like-for-like revenue decline for the full year. The lower demand for testing activities we saw in Western Europe and North America in Q2 continued in H2, which was partially offset by the continued investments of our clients in new powertrains to lower CO2 and NOx emissions and, of course, increase fuel efficiency. Our Food business delivered a good like-for-like revenue growth performance in H2, resulting in a solid like-for-like revenue growth on a full year basis. In H2, we benefited from the resumption of the supply operations of our clients in most markets from sustained demand for food safety testing activities and an increased demand for hygiene and safety audits in factories, hospitalities and retail locations that we capture with our Protek solutions. In H2, we saw mid-single-digit like-for-like revenue in our Chemical & Pharma business, resulting in a high single-digit like-for-like decline in revenue on a full year basis. In the last 6 months, we saw an improvement in demand for regulatory assurance and chemical testing in some of our operations in America and Western Europe, while given the importance of COVID-19, the pharma industry continues to reprioritize their R&D investments, delaying testing projects for all laboratories. Moving forward in 2021, we expect all of our Product business lines, with the exception of Transportation Technologies, to deliver year-on-year revenue growth. Turning now to Trade. In H2, our Trade-related business benefited from a sequential improvement in demand, resulting in a revenue of GBP 297.9 million, up 4% on H1. Operating profit in H2 was GBP 27 million, up 40% on H1. And operating margin was 9.1%, up 240 bps on H1. Our Caleb Brett business saw continued momentum in H2, resulting in a high single-digit like-for-like revenue decline on a full year basis. In the second half, our Caleb Brett business benefited from an improvement of global mobility and the rebound of the global economy. Within our GTS business, we saw double-digit decline in like-for-like revenue on a full year basis due to the disruption of manufacturing in China in Q1, the lockdown activities in the Middle East and Africa impacting cross-border trade flows in both Q2 and H2. Our AgriWorld business delivered robust like-for-like revenue growth in H2, resulting in a solid like-for-like revenue growth on a full year basis. Following a stable performance in H1, we saw an increase in demand for inspection activities driven by an easing of lockdown restrictions in most of our markets. In 2021, we expect our Trade divisions' revenue to be broadly flat. In H2, our Resources business delivered a stable revenue performance compared to H1 with an operating profit of GBP 16.4 million, up 28% on H1; and an operating margin of 7.1%, up 160 basis points on H1. In H2, we saw a reduction in exploration and production investments by our clients in some of our markets. And our Capex Inspection business delivered a high single-digit negative like-for-like revenue performance, resulting in a low single-digit like-for-like revenue decline in 2020. We saw a double-digit negative revenue performance in Opex Maintenance throughout 2020. The lockdown restrictions and the cost-saving initiatives of our clients have impacted demand for inspection services. And we've delivered a robust revenue growth in our Minerals business throughout 2020, benefiting from increased demand for testing and inspection activities. In 2021, we expect revenue in Resources divisions to be below last year. Let's now discuss the exciting growth opportunities ahead. Intertek, as I said earlier, is a force for good, making the world ever better and ever safer. The global pandemic has demonstrated that what we do in society is truly mission-critical, and a role of bringing quality, safety and sustainability to life has never been more important. Pre COVID-19, we saw many clients increased their focus on risk management, their supply chain to make sure that they provide the highest quality, safety and sustainability products and services to their customer. COVID-19 has demonstrated that there were major risk not properly mitigated in the supply chains of our clients. And moving forward, all stakeholders expect governments and corporations to build back a better world with a sharper focus on end-to-end Quality Assurance. 2020 will indeed be remembered as the year when we are forced to rethink how we operate to make the world a safer place. And we expect the theme of Build Back Ever Better to guide the actions of governments, companies, institutions, regulators and consumers in essentially 3 areas: managements, Boards and shareholders will want to see their companies operate with a safer supply chain; consumers, governments and corporations will want to offer better personal safety to everyone; and the way the world will operate and invest will build a low-carbon society. 2020 has made the need for risk-based Quality Assurance clear and stronger for everyone. And this is evidenced by Gartner's recent survey on the Future of Supply Chain. 87% interviewed -- 87% of companies interviewed, sorry, said they will invest within 2 years to make their supply chain more resilient. And it was a global survey with slightly 500 companies around the world, a tremendous evidence that risk-based Quality Assurance is here to grow and to be very, very important moving forward. That's why post COVID-19, we expect the Total Quality Assurance market to grow faster than pre COVID. In this Build Back Ever Better will make the attractiveness of the GBP 250 billion-plus total quality insurance market greater. And as far as we are concerned at Intertek, we'll be focused on 5 growth opportunities: of course, customer retention; customer penetration; ATIC cross-selling; new customer wins; and getting access to the Quality Assurance work that corporations currently do in-house, which has become a bigger opportunity as many corporations had to reduce their cost base in 2020. We are extremely well positioned to benefit from these growth opportunities. Intertek has led the Quality Assurance Industry for over 130 years, and we have built a powerful operational platform in more than 100 countries. The depth and breadth of ATIC solutions we offer to our clients is simply world-leading, and we have the TQA solutions at our clients need now. The growth outlook for Quality Assurance in the medium to long term is GDP+ like-for-like revenue growth in real terms. We expect our Products divisions, which represent 82% of the group's earnings, to grow ahead of global GDP, benefiting from brand SKU expansions, fast innovation cycles, increased demand for smart products and an increased focus of corporation in safety, quality and sustainability. We expect our Trade division that represents 11% of the group earnings to grow at a rate broadly similar to GDP throughout the cycle, benefiting from the development of regional and global trade and an increased focus on traceability and sustainability. The growth prospect in our Resources division, which represents 7% of the group earnings, are linked to the growth drivers in the energy sector. Investment in exploration and production for essential resources like oil and minerals will grow to meet the demand of the growing population worldwide. Our Resource business will also benefit from the portfolio diversification of our clients, as they focus on renewables and invest in sustainability. We expect our Corporate Assurance activities, which are industry agnostic, to get stronger and stronger, given the increased importance of risk-based Quality Assurance that we just talked about; increased regulation; the importance of health, safety and well-being; the growth in People Assurance; and the investment in supply chain, sustainability and cyber security. We will capitalize on high-quality earnings model to seize these growth opportunities. And our high-quality earnings model has multiple strengths, as you know: strong pricing power, high margin, highly cash generative, capital-light and also carbon-light. Our approach to value creation is based on the compounding effect year-after-year of margin accretive revenue growth from cash generation, disciplined investment in capital allocation in terms of growth and returns to our shareholders. As we've talked in the past, sustainability is the movement of our time, creating tremendous growth opportunities for all of us at Intertek. We provide end-to-end sustainability assurance with industry-leading operational sustainability solutions, global audits to verify our current sustainability disclosures and, of course, our corporate sustainability certification program. Sustainability is central to our 5x5 strategy internally. And we are very focused on sustainability excellence in every operation. We believe that doing business the right way with a systemic approach is the only way to deliver our corporate goals and create sustainable value. To do that, we follow precise processes in 10 areas: quality and safety, risk management, enterprise security, compliance, environment, people and culture, communities, governance, financials and, of course, communications and disclosure. We've continued to make progress on our sustainability agenda in 2020, and we have achieved a carbon-neutral position for the first time. We are targeting net zero emission by 2050 and have joined the UN Race to Zero campaign. So we believe that there is much more that we can do moving forward beyond net zero. And we have set ourselves beyond net zero targets in the area of customer satisfaction, diversity and inclusion, health and safety, compliance, employee turnover and engagement. Let's now discuss the outlook for 2021, starting with our 2020 exit trajectory. In H2, we have seen a strong rebound across most of our business and geographies. Following the strong progress we've made between the July-October period, we've made further progress in the last 2 months of the year with a like-for-like revenues of minus 4.6% in November-December compared to minus 6.3% in July-October. Within November-December, December like-for-like revenue for the group was minus 3.5% with Products, flat; Trade at minus 5%; and Resource, down 10%. In the May-June period, we saw many governments around the world lifting some of their lockdown restrictions. That has increased global mobility in most economies, driving strong progress in the manufacturing sector and the rebound in export activities, resulting in an improved global economy in Q3. The third wave of COVID-19 in several countries has triggered additional disruptions in the supply chain of our clients and has reduced global mobility, as you can see on the slide, which makes trading conditions challenging in some of our operations. Given our well-diversified revenue streams across industries and geographies and our progress in H2, in 2021, we will continue to benefit from the post-COVID-19 recovery and the attractive TQA growth opportunities I just described. We are confident that the group will deliver good like-for-like revenue growth at constant currency with margin progression and a strong free cash flow performance. We've continued to invest in growth, and we expect our full year CapEx investment to be circa GBP 110 million to GBP 120 million. We expect our financial net debt to be in the range of GBP 350 million to GBP 400 million, as Ross explained to us. A quick update on currency for your model. The average sterling rate since the beginning of the year applied to the full year results of 2020 would reduce our revenue and earnings by circa 350 basis points. An important point for the phasing of your model, we expect the recovery in H1 to be less strong than originally expected, given the impact of the third wave in several countries and the challenges that governments are still facing to roll out the vaccine. In conclusion, here are the 5 takeaways of today's presentation. The agility and energy of a high-performance organization has made a huge difference, enabling us to deliver a resilient financial performance with earnings and cash ahead of expectations in 2020. We have benefited from a broad-based strong recovery in H2 with improved revenue, record operating margin and a truly excellent cash performance. Importantly, moving forward, we are well positioned to benefit from exciting growth opportunities driven by the COVID-19 recovery, of course, increased corporate needs for TQA and M&A growth opportunities. We'll capitalize on our high-quality earnings model to seize these growth opportunities and deliver sustainable value for all. Intertek is a force for good in society, helping our clients to deliver the sustainably agenda and focus internally on sustainability excellence. Thank you for your time this morning, and we'll now answer any questions you might have.

[Operator Instructions] So our first question comes from the line of Sylvia Barker from JPMorgan.

Two questions, please. Firstly, on Products, a very strong H2 margin given Softlines and Hardlines were actually still down. Presumably, the mix wasn't actually that positive. Could you maybe talk about kind of the Products' margin going into 2021 and especially relative to that second half of 2020 performance? Secondly, your net debt assumption -- sorry, your net debt guidance seems to imply quite a big kind of working capital reversal or maybe there's another moving part within that. Could you maybe just comment on that? And then finally, there were no acquisitions in 2020, obviously, quite a difficult year, but the balance sheet is very, very healthy. Could you maybe comment if you participated in some auctions or competitive processes but the prices were too high? Or was it a deliberate decision? And what does the pipeline look like?

Thanks. Look, tremendous performance indeed in H2 from our Products division. As you know, our Products business is a leading portfolio around the world with #1, #2 positions in most of our markets and a very, very strong operational excellence from, obviously, customer service quality, productivity, margin and cash management. And what you're seeing here is the effects of our end-to-end operational excellence at work. And I have to say that we expect, obviously, to make progress in margin in 2021. It wouldn't be possible without Products making progress. So look, we are very, very pleased about where we are. One thing that we have done, which is very important for everyone on the call, is that we have been disciplined on cost, but we have not reduced our cost base and undermine our capability moving forward. Because we believe that COVID-19, although it's been a tremendous challenge for the world, is a temporary disruption in the supply chain of our clients, and we want to be ready for our clients when they need us. So although we've been, of course, focused on financial performance with productivity metrics, we have retained our entire capabilities. So we are ready, if you want, for our clients, and this is a tremendous business with high margin. And growth, combined with operational excellence, does wonders, as you've seen. As far as the net debt, I will let Ross comment on that, and I'll come back on M&A.

Yes. So I mean, there are a few things to obviously mention when looking at the cash flow movements year-on-year. Firstly, we're expecting CapEx to return to a more typical level. So we've guided GBP 110 million, GBP 120 million. Dividends, obviously, we've announced today that we're holding that in line with prior year, so there'll be an impact there. And then thirdly, on working capital, clearly, in 2020, we benefited from a number of government initiatives with a working capital and cash by around about GBP 20 million over the course of the full year, which we expect to unwind during the course of the first half of next year. And in addition, we're factoring in some receivable pressure as we move back to top line growth during the course of 2021. And then finally, on tax, you've seen we've given an update in terms of our guidance on tax for the year, with an increase in the rate to 26.5% to 27%, which will also have an impact on the cash flow on a go-forward basis as well. So look, I think when you factor those points together, it gets you to the range that we've talked about today in terms of the guidance for next year of GBP 350 million to GBP 400 million.

Thanks, Ross. And Sylvia, as you know, this is the beginning of the year, so this is our first guidance. And we'll continue to obviously comment on where we are. And we are always very considerate, as you know, as we guide our financial colleagues in the market. And as far as M&A is concerned, look, we are very selective in M&A. We are interested in a high-quality assets, which provide a high growth, high margin and a sustainable basis. And we're not going into markets that are commoditized, and we are obviously very disciplined. Now how did 2020 look like from an M&A standpoint? I mean, as you can imagine, who would want to sell high-quality assets in 2020? It's not a good time for any seller to basically monetize the business because with the trajectory like the one we had in 2020, it makes a huge difference to your model because the entry point is lower. So it's no surprise that we didn't do any M&A in 2020 because high-quality assets were not for sale in 2020 from our perspective. It doesn't mean that as we move in 2021, that's not going to change. We're going to remain disciplined. We've got a tremendous balance sheet. We know where the quality assets are. We are in contact with these owners, and we'll take it a step at a time. But essentially, we are very well positioned, provided that we remain very selective and focused on high quality, high growth, high margin and sustainable businesses that basically added to our TQA value proposition. So the year is young. It just started, so we'll see.

The next question comes from the line of Edward Stanley from Morgan Stanley.

I've got three as well. On your guidance, I guess, we have to ask what good means because most people are assuming around 4%. Some of your peers are talking around maybe 6% is possible, therefore, something is wrong at Intertek. Can you just give a response to nervous investors who might be thinking that on your good growth guidance? On the second point, I guess, following on a bit from Sylvia, conscious of your comments on transport technology. Is there any reason why the Products division couldn't return to 2019 margin levels in 2021? And finally, again, following on from an answer you just gave. You say that you've been cost-focused but not taken out any capabilities that would allow you to recover and provide normal services. Can you explain what those costs are or were and whether any of those will be coming back in 2021, please?

Yes. I mean, look, starting with the last question on cost, we've been very transparent. Ed, if you go back to the statement that we made in May, we clearly explained what we did to protect our cost base on a temporary basis. So I will refer to this presentation without repeating everything we said. And obviously, we've been very careful in terms of hiring additional colleagues. So -- because in a downturn market like we've seen, there is no point in adding capability. So that's what we've done. All of the cost activities that we have been through have been on a temporary basis, and I would refer you to this presentation which is quite detailed, so there would be a long explanation at this stage. As far as the margin outlook, look, as you know, we are too respectful for our shareholders and our colleagues in the analyst industry to give quantitative guidance. We never do that. We believe that this is not the right way moving forward. Today, we've given our high-level guidance as we always do at the beginning of the year. We'll update that during the year as we go. And look, we want to make progress. And as you can imagine, we are a winning organization. And of course, we can't wait to go back to our previous peak, and we can't wait to go back there and beyond. But we're not going to give you any time there. I think it's for you and your modeling skills to determine how fast we can get there, and then we'll see at the end what happens. We don't give quantitative guidance. And as far as your question on good, look, it's the same point. We've used objectives for many, many years at Intertek. They are quite well calibrated. It's the beginning of the year, and we will see how it goes. But good is the guidance we are giving at this stage, and then let's take it a step at a time. And as I said during the call, we should not forget that there is a third wave that is disrupting supply chains and mobility around the world that needs to be taken into consideration as you do your model bottom-up, right?

The next question comes from the line of David Roux from Bank of America.

I've got three from my side, perhaps following on from Ed's question around costs. Can you please confirm what the change was in full-time equivalent headcounts in 2020 versus 2019? My second question is on the Resources business. I mean, growth for this business looks to have sequentially declined a bit into the year-end over the last 2 months. Has this business perhaps displayed any signs of stabilization or recovery in January and February this year? Or are you seeing a similar trend? And then lastly, on remote solutions, is it possible to put a number on how big the revenue contribution was from remote solutions in 2020?

Look, as far as remote solutions or any solution that we bring to our customers, we do not disclose financial numbers because it's commercially sensitive. And we only disclose numbers, as you know, at the group level P&L and cash and balance sheet and Products, Trade and Resources from a revenue and margin. So we are very selective in terms of what we say. And we are also very disciplined, true to our sustainability standards in terms of being consistent with what we said. So we never disclose any numbers on any solution. As far as Resource is concerned, look, I believe that our team has done a tremendous job. If you look at the CapEx invested by oil and gas companies in 2020, it was significantly down given the pressure they had on their financials and balance sheet. And the numbers are very, very, very negative, and I think we clearly have outperformed. We're not going to give any data at this stage in terms of the outlook for January and February, of course. We will report back in May for the January to April period, and we're going to have to wait until then. And as far as the question on cost, I'll let Ross answer that.

Yes, sure. So the headcount at the end of the year was about 43,800 versus 45,500 previous year, so about 4% decline, and that's come through natural attrition.

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

Just 2 for me, please. Firstly, in Softlines, you still list increased number of brands and SKUs as a driver. And -- but do you think that parts of the volume reductions you've had here could be structural? Do you know, for example, how many of your customers are closing permanently or maybe even reducing SKUs due to financial or could even be sustainability constraints, as there's a bit of a pushback in a fast fashion in that part of the world? And then secondly, I wanted to ask you about some of the new innovations that you've launched or accelerated this year. Could you talk about Protek, for example? You said you won't give any numbers on the kind of take-up of it so far. But could you talk about how widely that could be applied to your customer base? And do you have any kind of targets internally you can talk about, or similarly for things like a SourceClear or FastTek? Just interested to think about how you're setting kind of plans and objectives for these new initiatives.

Thanks, Rory. I mean, look, as far as target-setting is concerned, we've got targets for every part of our business, so I wouldn't want you to worry about that. We are very disciplined in terms of monthly, weekly financial performance. And of course, when our teams develop a business case for any innovation, there is a business case with clear volume price, revenue, cost, CapEx, operating profit, cash flow and, of course, even with our investment CapEx. So on that front, I wouldn't want anyone to worry about it. We've got targets. Obviously, that's the only way to be disciplined financially. As far as your question on Protek, look, health, safety and well-being is a trend that we had obviously identified many years ago. We had started to do quite a bit of work on that. And obviously, COVID-19 accelerated the launch of our branded proposition Protek. This is end-to-end. It's looking at, obviously, industrial retail office facilities in terms of the health and safety protocol in these operations, cleanliness, the hygiene of the place. We do audits, as you can imagine, as well as training. And it's really industry agnostic, and we are seeing tremendous success because everyone is recognizing that health, safety and well-being in public and working spaces is a concern rightly so. So no, this is going very well, and I'm so pleased that we've launched the brand. And as far as your question on Softlines, look, the Softlines industry is a fabulous industry from our perspective. We are very well positioned there. And we have to differentiate the general high-street retailers from the e-commerce players and all the new brands. And what has happened in the industry is that the industry had a huge period of growth until the end of 2018 and start basically being a bit of pressure in 2019, obviously, 2020. Why? Because the general retailers, the brick and mortars, had to recognize that the competitive set has changed and they had to adapt their footprint to reduce their costs and, of course, to reduce their SKUs. And in addition to these structural trends that were very negative for the general retailers, we had a tariff issue that we talked about quite a bit between the U.S. and China in '19, obviously, in 2020, COVID-19. Having said all of that, if you look at the world populations, the apparels industry, if there is one thing that remains very clear is that consumers want choice, want better quality, want to know where the apparels that they buy are coming from. So the focus on quality, safety and sustainability has never been so strong because consumers are very demanding. There are more brands. And the smaller the brands are coming into the market, I mean, you will see, I'm sure, yourself with your family, you will see that people are shopping with local regional brands in addition to global brands. And these smaller entities don't have the QA resources. So we are very, very excited about the prospect of Softlines going forward. It's true that the last years have been difficult for the industry for COVID and the restructuring that I just talked about in general retailers. But I think there is light at the end of the tunnel in this industry.

The next question comes from the line of Neil Tyler from Redburn.

Three questions from me, please. Firstly, within the Products division, you mentioned PPE and medical device testing in various segments there. And can you give us any figures around the growth for in those areas? And is it accurate to think of both as margin accretive? And how you expect the cadence of those -- of that demand to develop? Second question on the CarbonClear offering. Have you already begun to book any meaningful revenues from that offering? And can you perhaps help me understand how to frame the value offering and whether the revenue model is, to an extent, volume-reliant? And then finally, on the Alchemy business, there are some mentions of the innovation, the Playbook app in the release. But could you talk more broadly about the Alchemy business and whether that is still, I suppose, on the flight path that you've envisaged for it at this stage and hitting the financial targets that you've set?

Thanks for your questions. Look, PPE, personal protective equipment, is a very good category in terms of growth and margin. And there's been obviously huge demand in 2020 for masks and gowns as we all have seen in the news and we've always seen in our life. Moving forward, the focus will be on quality PPEs, which is really, really good for us because consumers and governments know that not every mask has got the same quality. And there is a really, really, really strong market out there. We've got capability in multiple parts of the world. We've got capability in, of course, Greater China. We've got capability in India. We've got capability in Southeast Asia and in Europe. And this is very, very good margin for us. I'm not going to say much more than that because I don't want our competitors to get too excited about the way we deliver success with this PPE, but it's really, really good. As far as CarbonClear is concerned, look, this is a certification program that applies to the oil and gas exploration productions. So -- and for instance, not every client has been public. But I'm just going to talk about one that is public, and you can look at it online, look at Lundin. We've got our Norway operations. And we've basically done an end-to-end assessments of the carbon intensity of their operations to produce every barrel of oil, and that's basically certified. So it is an audit of field operated by our customers, and it's done field-by-field because every field of operation is different. So it's a very interesting revenue stream, and to certify, you need to do it obviously every year. So that's recurring, and that's the advantage of certification audit-based applications. As far as Alchemy is concerned, look, we are very pleased with the progress we've made over the last few years. The demand for People Assurance continues to be very, very strong. We've seen also some really good uptake linked to the Protek activity here. We have health and safety in the workplace, as you can imagine, is very, very important. We are on track regarding the goals we've given ourselves. If anything, we are better than I thought because you might recall that we had given ourselves goals over 5 years, and we've already achieved our year 5 margin in EBITDA and EBIT in year 2. So not bad business, I would say. It's an excellent business. So that's just really, really exciting.

The next question comes from the line of Nicolas Tabor from Stifel.

The first question would be not just the very short term of 2021 but beyond COVID-19. I wanted to understand with this difficult year, how do you see the margin evolving beyond 2021? And how far could it go above the 2019 levels, depending on how product is expecting to perform compared to Trade and Resources? And what you're seeing in terms of change of long-term trends at the moment and how we should think about that? Then you've talked in the Products' outlook about the transport subsegment. Could you remind us what's the actual exposure to the auto industry and how the chip shortage is actually impacting you at the moment?

Yes. Thanks. Look, obviously, you would have heard me said it a couple of times on the call, we never give long-term targets, quantitative targets. We do that out of respect for all of our shareholders and analysts. But what we can say is that we are very, very focused on margin equity revenue growth year-after-year, strong cash conversion, investment in high-growth, high-margin areas both organically, inorganically to basically drive further revenue growth and margin accretion and strong ROIC. That's the virtuous economic model that Intertek is operating on. And this is something, if you look at our 5-year trajectory between '15 and '19, you can have a real demonstration of what we've been able to do over a long period of time. Obviously, 2020 is a disruption in our long-term trajectory. But there is no question that the growth prospects, as I said, remain very exciting. It is my view that the industry will grow faster moving forward because the awareness of all stakeholders on the lack of Quality Assurance end-to-end in society is, in our clearance, stronger. Of course, we all see the opportunity in terms of sustainability as a major growth driver moving forward. But just like safety, for instance, how is it possible in the world that within the same weekend, you had 2 or 3 aircraft with the same engine manufacturers having issues and severe issues? I mean, you saw the video of this flight 777 in Denver on their way to Hawaii, how is it possible? And these questions are popping up everywhere. And I think the pressure on shareholders, on regulators, on governments, on companies and employees to take risk mitigations, and it's hard, very, very seriously, is only going to increase. I mean, we've been on this for a long, long, long time. We know how much progress companies have made in terms of risk mitigation, but we also know how much role there is to be made. And there is no industry out there that doesn't have major gaps in terms of Quality Assurance end-to-end. And this is the opportunity we have because we have the depth and breadth of ATIC solutions, looking at quality, safety, sustainability, end-to-end, and we are providing the end-to-end visibility to our clients. And we've talked about Alchemy as a SaaS, but we have another SaaS platform called InLight, which is the best visibility that our clients get in end-to-end on their supply chain. SourceClear is the same. So look, we are very, very, very excited about the opportunities moving forward. And we're going to continue to make progress step-by-step on revenue, margin, cash, ROIC. This is the performance management approach we pursue, and you've seen it in action for so many years. As far as TT is concerned, obviously, a more detailed question. Look, we are not a big global player in terms of Transportation Technologies. This is one of the business lines where we are focused on being #1, #2 on a local basis in a few markets. So we have a very, I would say, good business in North America. We have a very good business in the U.K., very good business in Germany and in China. And we are essentially working with OEMs on R&D development. And the reason why I'm being cautious on TT for 2021 is because I know how tough the automotive industry has been, not in 2020, but also in 2019. And as a matter of fact, the global automotive industry started declining in the second half of 2018, and their balance sheet has been really, really, really under a lot of pressure, and they are basically delaying the R&D investments for new products, new powertrain. It's a shame because they're going to have to accelerate down the road, but it's understandable given the pressure in the automotive industry, P&L and cash flow. But at the end of the day, here again, in terms of trend, am I worried? No, because everybody knows that moving towards hybrid electrical vehicles and maybe tomorrow, hydrogen is the only way forward because to get to net zero, we're all going to have to stop using diesel and the engine businesses that we use today.

The next question comes from the line of George Gregory from Exane.

Just a couple for me, please. Firstly, just on Trade, André, your guidance of broadly flat, I'd just be keen to understand how that sits against an improvement, one would assume an improvement in mobility as we move through 2021. Is there anything holding that back? And my second question relates to the broader opportunity in carbon assessments, environmental impact assessments. Where do you see, André, the greatest opportunity outside of oil and gas for carbon footprint assessments or environmental footprint assessments, and that could be either B2B or B2C? Clearly, there are lots of potential use cases there.

Yes. Look, thanks, George, for your questions. Look, there are several factors impacting Trade. Number one, as I mentioned earlier today, the third wave has had an impact on mobility. And our global Trade business, which is made of Agri, GTS and Caleb Brett, is very sensitive to global mobility, not so much in Agri because Agri is driven by food consumption. But as you can imagine, the supply chain in mobility is not back to where it used to be in the Middle East and Africa. And certainly, trading in the oil and gas industry is not where it was pre-COVID-19. I'm sure you've seen this in the news. It's everywhere. The shortage in containers is also impacting global Trade. If you go shopping, you will see that lots and lots of other retailers have got stock issues. So that's one thing. So it's going to take some time for global mobility to come back to pre-COVID-19 levels, and it will going to take some time for us to benefit from that. The other thing I would say, Gregory, and I don't know if you look at the oil and gas industry like I do, but there's been quite a lot of overproduction in the oil and gas industry for, believe or not, many, many years. It didn't start in 2020. There was over production also in 2019, which results still in excess storage around the world, right? And our Caleb Brett business is very driven to trading, which is basically producing, storing and obviously delivering. And when there is storage in the past, it tends to impact our global Caleb Brett business. As far as -- hence, my statement on global Trade for the full year. As far as the carbon intensity, look, I've never seen so much awareness on the need to basically be clear as a company on what is your carbon intensity and how do you calculate it. Do you have accountability inside your business at every single line of accountability i.e. every operation? And importantly, do you have the plans to drive to net zero science-based targets, obviously, if you are truly committed? So where are the opportunities? It's essentially for every single corporation in this world to be truly rigorous about capturing the right data, Scope 1, Scope 2, Scope 3, making sure that this data is well organized, that this data is well understood, that this data is well performance-managed in every single business, that there is accountability to reduce the carbon intensity, and importantly, to have a plan moving forward to get to net zero if, as a company, you get there. And to get to net zero, it's just not about saying I want to be getting net zero. You need to have a science-based target approval, and you need to have a plan for that. So look, this is where the opportunity is. And I don't know if you saw that, but I had the opportunity to speak at Carbonomics a few months ago, and we talked about that. And in the U.K., we are well positioned with COP26. I mean, there is so much more that needs to be done. And hopefully, the governments and the regulators will basically increase the focus on what type of disclosures, what type of definitions, how people are basically tracing this data, verifying this data. And this is a space where we are so well positioned to play.

And just one follow-up, please. Do you see that translating yet to your Products business in terms of Products' carbon assessments? Or do you think it's still too early to be [ seeing ] an uptick?

So it's a great question. So there, if you want, in our sustainability approach, 3, if you want, big different areas. One is the corporate sustainability program where we certify the processes in place to make sure that the Board and the CEO and the shareholders of these companies have got the assurance that this company is doing the right thing in terms of sustainability management. That's corporate certification program. What I just talked about is the simple need for companies to be super rigorous in terms of ESG disclosures and carbon intensity. Now the third area where we do a lot is on the operational sustainable solutions, where we provide lots of different solutions. And end-to-end carbon intensity by brand or by product, like we are doing with CarbonClear at the moment for every barrel of oil, is an opportunity. But it's going to be linked, if you want, to the previous point. Unless companies have got the data to underpin the capital intensity metrics, they're not going to be able to do it by product. So I think it's possible down the road. It's going to be easier for companies that are mono brands, but they will have to do it because at the end of the day, consumers will want to know, is this appliances carbon intensity X or Y? This is going in the direction of questionable. You're absolutely right.

[Operator Instructions] And our next question comes from the line of Suhasini Varanasi from Goldman Sachs.

Just a couple from me, please. Can you comment on how the trends have improved in the last 2 months of the year? And maybe any commentary around January, February this year? Obviously, this time last year, you had China in lockdown, so any color here would be very helpful. And the second one is just a housekeeping one. Going into 1Q, 2Q this year, should we be aware of any trading day impact?

Okay. So look, thanks for your question. Starting with the second one, yes, there would be a working day impact in January. April will be 1 less than last year. Look, as far as January, February trends, as I said to one of your colleagues, we're not going to make any comment at this stage. There is no question that Greater China is back in good form. And there is no question that there is a lot of activities in the domestic and international export markets. It's very, very public. So you can imagine that our Greater China business is doing very well.

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

Questions -- yes. So the first one is on working capital. I appreciate you have provided some color on the kind of outflow we should expect in '21. Just in terms of the collection process or the payable process, do you see any structural improvement potential? Or did you identify that during the course of pandemic, as you looked at your credit levels, you were extending to customers or the way you're saying to your suppliers? And then clearly, there are -- the payable side seems to be down. And if you adjust balance sheet versus income statement, currency difference, then it seems down a bit more. So are some of those changes structural and can be sustained? Or should we just model them going back to the previous levels? That is the first one. And on the second question, just appreciate you don't wish to give a guidance on any of the numbers. But when you look at your cost base in 2020, can you please identify what are the one-off through the P&L in terms of revenue as well, et cetera? But also, what are the structural digitization opportunities you identified which can reduce the cost base on an ongoing basis?

Look, thanks for your question. Look, I'm going to answer the question -- the two questions with the same answer because I think it's important that we are all on the same page. We do not believe at Intertek in the value of the single metric, and you know that. When we introduced our 5x5 strategy back in 2015, I said it's volume, price, mix and revenue. It's fixed, variable total cost. It's productivity. It's obviously margin. It's receivable. It's payables. It's obviously equity income and, therefore, working capital and cash. Its CapEx. It's return on investment, and it's the capital allocation in M&A and return on invested capital. That's a virtuous economics that I just talked about earlier. There is no one single metric in this approach where we don't have targets and where our targets are based on last year budget but the potential. There is no single metric where we don't believe we can make improvement. You've talked about -- I've talked about in the past about our ever better performance management approach. So if you look at our tremendous performance in working capital in 2020, Ross has talked about the one-off. We take that aside, we made progress on payables and receivables. We have a tremendous business around the world with 100-plus countries, multiple business lines, 1,000-plus sites. And span of performance is the opportunity for us in terms of moving a needle step-by-step from a continuous improvement standpoint. So look, this is the structural opportunity in terms of performance management at Intertek, recognize that we have a diversified business. And if you have a very well organized engineered data capture systems, like we do it digitally, if you have professional daily weekly, monthly, quarterly performance management and you've got the visibility and you know how to drive continuous improvement, you get there. And this applies to working capital and to cost. So that's basically the answer I will give, of course, to your question on digitalization. We use technology every time we can to improve productivity. But we've been doing it for many, many, many years. If you look at all of our labs, we are high-tech because we believe in using technology when it's appropriate to drive continuous improvement. So ever better in everything we do is what underpins our virtuous economics model. And this is what you should expect from Intertek moving forward, continuous progress on volume, price, mix, revenue, fixed, variable cost, productivity, margin, working capital investment and ROIC, okay?

So I appreciate that. So effectively, what you're telling us is that because you have done this total performance management over the years, the pandemic did not make you identify one single large opportunity, but it will be more of a continuous trend as it was before, unlike your peers who have identified a large, single few opportunities which they can capitalize on?

Yes. I mean, look, if you remember what we said back in '16, I said, look, we have a portfolio that is of great quality. We're going to do a few changes here and there, but we didn't change our portfolio much. All the progress that Intertek has done between '15 and '19, and 2020 is an interruption on this trajectory, is all organic and inorganic management of the opportunities. And when it comes to organic, it's performance management. I mean, we -- I mean, I cannot show that to you because you're not part of Intertek. But if you were part of Intertek, you would be amazed by the level of data that we have on daily, weekly, monthly basis. I mean, in this company, when it comes to data transparency, there is nowhere to hide. Everything is transparent. And by the way, this is our culture. We have never better culture. We are very proud of what we've done in 2020, but our focus is on 2021, and there is much more we can do. We never stop looking at the continuous improvement opportunity. And that's the right approach given the quality of our business, right? This is a high-quality company. So continuous improvement is the only way with, obviously, investment in growth, organic, inorganic, okay?

Understood.

We have no further questions coming through, so I will now hand back to André for any closing remarks.

Well, thanks, everyone, for your time today, and thanks also for the time you took to ask us the important questions. And we look forward to staying in touch. And any questions you have, please reach out to Denis, and wish you a great day. Thank you.

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