Intertek Group plc (ITRK) Earnings Call Transcript & Summary

Hello, and welcome to the Intertek 2021 Half Year Results Call. My name is Rosie, 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 Andre Lacroix to begin today's conference. Thank you.

Good morning to you all, and thanks for joining us on the call following the release of our H1 results a few moments ago. I have with me Jonathan Timmis, our CFO; and Denis Moreau, our VP of Investor Relations. I'd like to start the call today by recognizing all of our colleagues in all of our countries around the world for a very commendable performance in H1 with strong revenue, earnings, cash and ROIC metrics, as you've seen already. We are on track to deliver a strong 2021 with robust like-for-like revenue growth, year-on-year margin progression and strong free cash flow, notwithstanding, of course, the lockdown restrictions in several of the markets, impacting supply chain and mobility in our various operation. There are essentially 5 key messages for all of us today. First, we are a global industry leader with scale position in a very exciting industry that is expected to grow faster post-COVID-19. We are very customer-centric as Intertek and our superior customer service gives our Intertek clients really an advantage as they operate around the world. We are investing in global and local innovations as well as acquisitions to see the attractive growth opportunities in high-margin segments. We continue to be laser-focused on operational excellence that drive consistent margin-accretive revenue growth over the year with strong cash generation and disciplined capital allocation to deliver, of course, a superior return on invested capital. And as you know, we operate a high-quality earnings model, which has a track record of delivering sustainable value creation for all of our stakeholder. So let's start with our performance highlights. I'm really pleased with our results. We delivered a strong performance in revenue, earning, cash and ROIC. This demonstrates the strength of our business model, our geographic and business line diversity, our disciplined approach to performance management and, of course, our strongly cash-generative earnings model. Specifically, in the first 6 months of the year, group revenue was GBP 1.3176 billion, up 4.8% at constant currency. Like-for-like revenue was up 5.8%. Operating profit was GBP 201.7 million, up 26%. And operating margin of 15.3% was up 260 basis points year-on-year at constant currency. Our highly cash-generative business model delivered a very strong cash conversion of 135%, benefiting from a continuous reduction in working capital. And as I said, our return on invested capital was very strong at 23.4%, up year-on-year by 360 basis point. And we have announced an unchanged interim dividend of 34.2p. So let's now look at our performance at a high level by division. Our Products and Trade divisions combined delivered together a like-for-like revenue growth of 7.4% and operating profit growth of 26% and margin accretion of 260 basis points. Our high-quality product portfolio had a really strong performance with like-for-like revenue up 9.7% and a margin of 20.9%, up 390 basis points year-on-year. Our Trade business delivered a solid like-for-like revenue performance of 1.1%, a margin of 7.2%, up 50 basis points year-on-year. And as expected, our Resources business delivered resilient performance with a like-for-like revenue slightly down year-on-year, minus 1.6%, and a margin of 4.9%, slightly down year-on-year by 60 basis point. We continue to invest in growth. And recently, we've announced 2 acquisitions in attractive markets for Intertek. First, we are really excited about the acquisition of SAI Global Assurance. The ATIC industry is expected to grow faster moving forward. Assurance is a capital-light, high-growth and high-margin service and is mission-critical for clients when they try to address their increased risks in their operations. These acquisitions will scale up our global assurance offering with a high-quality business run by a highly respected management team. And the acquisition is expected to deliver attractive financial returns to our shareholders. Specifically, the strategic fit of SAI Global Assurance with our Intertek portfolio is excellent from a geographic standpoint as we will strengthen our scale position in attractive growth markets, especially for sustainability. Specifically, post-acquisition, we'll have a stronger market position in Australia, the U.S., Canada, the U.K. and China. The strategic fit of SAI Global Assurance from a service standpoint is also excellent. And we're going to get access to additional services in high-growth sectors like food, agriculture, quick-service restaurant, sustainability and global market access. Last week, we announced the acquisition of GLA to enter the fast-growing food market in Brazil. GLA was established in 1990 and in the food, agri and environmental testing business with an excellent track record of organic expansion. As you know, the demand for food and beverage testing solutions has accelerated in recent years. As global supply chains become more complex, the importance of hygiene and safety increases and consumers demand more sustainable and healthier products. The acquisition of GLA expands our food and agri capability, and we're entering the food testing market in Brazil. And you know that Brazil is one of the largest exporter of agri food products in a world with tremendous growth opportunities moving forward. Cash management remains a high priority for us, and we continue to make progress on working capital. If you had asked me a few years ago, could we take a working capital as low as this, I would have said probably not. But this is the power of the Intertek team in action and operating process. If you look at our percentage of revenue in terms of working capital, incredible. Our cash conversion was 135%. Our cash generated from operation was GBP 253 million. And our adjusted free cash flow was GBP 122 million. Our balance sheet is super strong with a financial net debt of GBP 435 million and a net debt-to-EBITDA ratio of 0.7. I will now hand over to Jonathan, who will take us through our detailed H1 result. Over to you, Jonathan.

Thank you, Andre, and good morning, everybody. In summary, in the first half of 2021, the group delivered robust revenue growth and double-digit profit and EPS growth. Total revenue growth was 4.8% at constant currency, but down 1% at actual rates as FX translation negatively impacted our revenue by 580 basis points, driven by depreciation of sterling. Like-for-like revenue grew 5.8% at constant rates. Operating profit at constant rates was 26.2% to GBP 201.7 million, delivering a year-on-year margin improvement of 260 basis points. Overall, fully diluted EPS grew 31% to 78.2p at constant rate. Looking more closely at the operating margin bridge. The group operating margin grew 260 basis points at constant rates. Products delivered a strong operating profit margin of 20.9% and accounted for 220 basis points of group growth. Trade margin grew 7.2% and contributed 10 basis points to the year-on-year change while a decline in operating profit in Resources of 4.9% had a negative 10 basis points year-on-year effect. Divisional mix had a positive 40 basis points contribution given the strong growth in Products. Finally, FX had a positive 10 basis points impact on the group margin. Our disciplined focus on cash management continued during the first half of the year. The group delivered adjusted free cash flow of GBP 122.6 million, representing a cash conversion of 135% on an annualized basis. While cash generation was down year-on-year in the first half of 2020, the group benefited from some government subsidies and cash preservation initiatives to offset the impact of COVID-19. During the first half of this year, we invested GBP 40 million in CapEx, up 18% versus prior year. We finished the first half with financial net debt of GBP 435 million, which is down 1/3 year-over-year. Now turning to our financial guidance for 2021. Assuming the group's acquisition of SAI Global Assurance closes on the 1st of September 2021, we expect net finance costs for the full year to be in the range of GBP 29 million to GBP 33 million. We continue to expect our full year effective tax rate to be between 26.5% and 27%, our minority interest to be between GBP 17 million and GBP 19 million and CapEx investment to be in the range of GBP 110 million to GBP 120 million. Our financial net debt guidance before any material change in FX rates or M&A remains GBP 350 million to GBP 400 million. Including the impact of the SAI Global Assurance acquisition, we expect net debt at the year-end to be between GBP 835 million and GBP 885 million. I'll now hand back to Andre.

Thank you, Jonathan. And let's now discuss our divisional performance. As always, and unless stated otherwise, all my comments will be at constant currency. Our Products division delivered a strong performance, as I said earlier, with revenue of GBP 820 million and the like-for-like performance of 9.7%. We delivered an adjusted operating profit of GBP 171 million, up year-on-year by 32.5%. Our margin was 20.9%, up 390 basis point. If you look at all the individual businesses, we delivered double-digit like-for-like revenue growth in 6 of our 8 businesses. Our Softlines and Hardlines business benefited from the improved trading conditions for retailers in North America and Europe as well as from the continued growth in e-commerce and higher demand for sustainable product. Electrical & Connected World saw increased demand for higher regulatory standard in energy efficiency, strong growth in testing and certification of medical devices, with increased testing requirements for 5G, greater corporate focus on cybersecurity and tremendous growth with protect-related medical device. In Business Assurance, we benefited from a catch-up of our cloud in ISO audit and increase in investment in supply chain resilience. Also, we see continued strong demand in our operations for all of our sustainability solutions, ESG, audit, operational, sustainable solutions and, of course, corporate certification. Growth in our Food business reflected the high level of food safety testing and a stronger demand for hygiene and safety audits in factories, hospitals and retail locations. Our Chemical and Pharma business benefited from greater focus on regulatory assurance and clinical testing as well as from higher R&D investments by the pharma industry. Two of our businesses, Building & Construction and Transportation Technology, reported revenue decline, reflecting the negative impact of the weather event in Texas earlier this year and a low level of testing activities from OEMs in the automotive industry. Looking ahead for 2021, we expect our Products division to deliver robust like-for-like revenue growth. Turning now to Trade, which delivered solid performance in H1. Revenue was GBP 278 million, up 1.1%. Adjusted operating profit increased by 8.6%. And operating margin was 10.2%, up 50 basis points year-on-year. Caleb Brett as expected was down low single digit. We are seeing a gradual recovery of global mobility, although we are still below the pre-COVID-19 level. Well, of course, our North American business was affected by the weather event in Texas. Our GTS and AgriWorld businesses delivered a robust like-for-like performance. GTS benefits from the growth in trade flow in both Africa and the Middle East. And AgriWorld continued to see increased demand for inspection activity. We are upgrading our expectations for our Trade divisions, which represents circa 10% of our earning, and we expect to deliver good like-for-like revenue in 2021. Our Resources division benefited from the strength of our business model and helping us to deliver a resilient performance. Our reported revenue was GBP 220 million, slightly down year-on-year by 1.6%. Adjusted operating profit was GBP 11 million, down 13%. And our margin at 4.9% was down 60 basis point. CapEx Inspection revenue declined low single digit, although we saw an improvement in momentum in the first half compared to the second half of 2020. OpEx Inspection revenues were stable. The impact of lockdown restriction in the first 4 months of the year as well as the savings of our clients were offset by a strong catch-up in inspections in the May and June period. We delivered a good revenue performance in our Minerals business, reflecting the increased demand for testing and inspection services in all of our Minerals operations. We are upgrading our expectations for our Resource division, which represents 5% of our earning, and we expect to deliver good like-for-like revenue growth in 2021. I'd like to now move forward and talk about the industry and how we see the exciting growth opportunities moving forward for all of us. As you know, the total value of the global product assurance market is $250 billion. Only $50 billion of this is outsourced. Given the increased complexity in global corporations, we expect companies to continue to invest in new quality assurance areas to mitigate emerging risk in the supply chain. These are what we call untapped quality assurance opportunities. And indeed, COVID-19 has demonstrated there were major risks in the operations of our clients, which were not properly mitigated. And we expect the increased focus on quality assurance essentially in 3 areas moving forward: safer supply chain, better personnel safety and sustainability. And this is why the industry is expected to grow faster post-COVID-19. As you know, over the years, we've seen clients increase their focus on risk management of their supply chains, trying to provide higher quality safety and sustainability standards to their clients. We have evolved our value proposition from TIC to ATIC to offer an end-to-end risk-based quality assurance with our ATIC solution. COVID-19, from our perspective, has made the case for total quality assurance clearer. And moving forward, all stakeholders expect governments, corporations to go back to a much better world with a sharper focus on end-to-end quality assurance. And the ATIC solution we offer to our clients are mission-critical to help corporations and our client build stronger supply chain. We are uniquely positioned to benefit from the expected growth acceleration in the industry. An important point, we are very customer-centric at Intertek. And our colleagues operate with an industry-leading technical expertise in their fields. Based on the feedback we get from clients, we never stop reinventing ourselves to make sure we deliver our customer promise every day ever better. That's how we deliver superior customer service, which gives our clients an advantage when they operate around the world. And our clients have learned a lot during COVID-19. And based on a recent government survey that I mentioned last time we talked, 87% of companies will invest over the next 2 years to strengthen their supply chain. Since our last call, we've talked to about 1,500 of our clients to better understand what they mean with these investments. And here is what they told us. They need to make their supply chain more resilient 24/7. As we know, we are still seeing some shortage in supply all over the world at the moment. They need to meet higher operational and corporate sustainability expectations from all. We know that sustainability is the movement of our time. They must operate with risk-based gradations powered by big data. This is what ATIC is all about, giving our client the end-to-end analytics to understand where the risk and the operations are and what they need to do for testing, inspection, certification. They need to ensure health, safety and well-being for employees and consumers. COVID-19 has raised the bar for health and safety in public and factories and workplaces forever. And they face, as we all know, higher operational complexity, which is driven by the explosion of e-commerce and, of course, the ever faster innovation cycle. That's why we are so focused at Intertek on innovation to meet these emerging needs of our clients. And we invest essentially in 3 type of innovation. First, we always build on the strength of existing services, which we call innovation from the core. Then we look at new product and services in adjacent, fast-growing high-margin market. And of course, we look at breakthrough product and services to enter new markets. In the last few years, we've shared with you some of our new ATIC solutions like PSA, Protek, Inlight, CarbonClear. These are what we call the 1-100 innovations, which after having proved their potential in a few markets are now being scaled up around the world with our commercial teams. I'm very pleased with the progress we are making with the scale-up of these activities every day. But we don't stop here. We constantly look at opportunities to invest in new growth opportunities and high-margin sector. The world will never stop changing, never stop moving. We can see on the slide some of the recent innovations that we've launched in our key market and business line. These are very exciting growth opportunities for us. To drive sustainable value creation for all of our shareholders and stakeholders, we remain very focused on operational excellence. Our track record of consistent performance delivery is enabled by industry-leading processes and tools that are available to all of our employees. Just to name a few, our performance management approach is based on leading and lagging indicators. The insights we get from our 6,000-plus NPS survey every month are incredible. This is what helps us to get ever better in terms of superior customer service. Our incentive system is aligned with the interest of our shareholders. We offer the opportunity to our people to grow within Intertek and use our global learning platform. I don't know if you know that, but our nickname in the industry is ITS, the international training school. Our engagement activities are purpose-led. And we focus on sustainability excellence throughout the organization. We want, of course, to lead by example in the terms of sustainability. Another very important part of our approach to value creation is, of course, how we look at capital allocation. And we believe in accretive, disciplined capital allocation. To do that, we focus on 4 priorities. First is support to the organic growth of our business with capital expenditures and investment in working capital, offering new services and developing client relationship. The second is to deliver sustainable returns for our shareholders through payment of a progressive dividend policy. The third is to pursue M&A activities to strengthen the portfolio in attractive growth and margin areas, provided, of course, we can deliver superior return. And our fourth priority is to maintain an efficient balance sheet to give us the flexibility to invest in growth. We are very proud of our high-quality earnings model. Our high-quality earnings model, combined with our customer-centric culture, enable us to react quickly to new growth opportunities by following the supply chain of our customers in new markets. Intertek's approach to value creation is based on the compounding effect year after year of margin-accretive revenue growth, strong cash generation and disciplined investment in growth. Let's now discuss the outlook. On this slide, we are showing the like-for-like revenue progression of the group and our 3 divisions in the last 12 months. In the last 12 months, we have benefited from a broad-based like-for-like revenue acceleration, as you can see. In May and June, our like-for-like revenue was up 12%, Products was up 13.9%, Trade was up 8.5% and Resources was up 9.5%. For the full year, we are confident that the group will deliver robust like-for-like revenue growth, notwithstanding the continued lockdown restrictions in several markets, impacting the supply chains of our clients and mobility. We expect the Product divisions to deliver robust like-for-like revenue growth, with Trade and Resources both expected to report good like-for-like revenue growth. We expect margin progression year-on-year and a strong free cash flow. An update on currencies for your model. Based on the year-to-date performance and the average rates in the last 3 months, the average rate applied to the full year results would reduce our revenue and earnings by circa [ 500 bps ] Let's look at the mid- to long-term potential of the industry. We operate in a very exciting industry. The like-for-like revenue growth for quality assurance is GDP-plus. We expect Products, that represent 85% of the group's earnings, to grow ahead on GDP, benefiting from branded SKU expansion, fast innovation cycle, increased demand for smart products, and increased focus, of course, of corporations on safety, quality and sustainability. We expect our Trade division, that represent 10% of the group earnings, to grow at a rate broadly similar to GDP through the cycle, benefiting from a development of regional and global trade as well as from the increased focus, of course, on flexibility and sustainability. The growth prospects in our Resource division, that present 5% of the group earning, are really exciting given the growth drivers in the energy sector. Investment in exploration and production for substantial resources like oil and mineral will continue to grow to meet the demand of the growing population. In addition, our Resource business will benefit from the portfolio diversification of our clients as they focus on renewables and invest also in sustainability. Finally, we expect our Corporate Assurance activities, which are industry-agnostic, to remain our fastest-growing service given the growing importance of risk-based projection, the increased regulation, the increased importance of health and safety, the growth in people assurance, and of course, the corporate investment in supply intelligence, cybersecurity and last but not least, sustainability. So in conclusion, and moving forward, we are well positioned to benefit from the growth acceleration in our industry. We are seeing emerging risk in the supply chain of our clients, which will have to be mitigated and that's why the industry will accelerate. We are a global industry leader with scale position in our portfolio and our ATIC superior customer service gives our clients the total [ checks ] advantage they need. We're investing in innovation and acquisitions, targeting the high-growth and high-margin segment. We remain laser-focused on operational excellence to drive consistent margin-accretive revenue growth with strong cash generation and disciplined capital allocations to deliver superior return investment. We operate a high-quality earning model, which has, as you know, the track record of delivering sustainable value creation for all. So thanks for your attention today, and we're ready to take any questions you have.

[Operator Instructions] And the first question comes from the line of Simon LeChipre from Stifel.

Three questions, please. First of all, looking to Products, could you come back on the different moving parts of your margin performance in H1, please? I see the material year-on-year improvement, but I'm still a bit surprised to see you are 80 bps below H1 '19 despite a positive mix within the division. And secondly, still on Products, the robust guidance implies basically no acceleration in H2 on the 2-year view. Does that reflect some conservatism given the uncertainties? And if you could help us understand the key moving parts in revenue for H2? And lastly, on margins at the group level, how should we think about H2? If you could give us some details on the drivers that we need to have in mind when we think about profitability for the next semester.

Okay. Well, look -- thanks for your questions, and appreciate the time you spend on our result. Look, in terms of product, look, we are really pleased with the progress we've made. I talked about the various business lines. There is a lot of detail in the RNS. We are not giving any specific on margin by business line. That's not something that we do at Intertek. I can tell you that we wouldn't be able to deliver that kind of margin without progression on all of the important business lines of Intertek. And you're right, Products is from a like-for-like revenue growth back in line with 2019 and the margin is slightly below. I think what you have to factor into your model, of course, is that there is a bit of inflation, not a lot. But the compounding effect over 2 years create a little delta in margin. But I'm not really worried about it. And as far the H2 margin, it's a great question. If you look at the history of the group, we typically have a stronger H2 than H1 in terms of margin because we have a higher revenue level and therefore higher operating leverage. The second thing I would say, when you look at it, we've disclosed last year the incremental government subsidies that the group got in H1 and H2, so please have that in mind when you look at your model. But as I said, we expect margin progression year-on-year. Thank you.

The next question comes from the line of Oscar Val from JPMorgan.

I have 3 questions. The first one on organic growth. You've upgraded your guidance, in particular for Trade and Resources. First of all, in Trade, could you comment what has gotten better compared to when you gave the guidance in May? And how much forward visibility you have into this recovery? And then similarly, in Resources, could you help us understand if the impact in H1 was more from mobility restrictions or if it was more from lower CapEx and OpEx spending? When do you think we'll see a trough in this CapEx spending in oil and gas? That's the first question. And then secondly, coming back on margin. I appreciate you don't give H2 guidance, but could you help us understand if there's any one-off impact in H1 from things like the U.S. weather? And then kind of a different way to think about it is if Trade and Resources is back to 2019 level, is there any reason why the margin can be back to 2019 level? And then the third question is around wage inflation and pricing. You touched on it in the first question, but could you comment on how you tend to offset wage inflation in the business?

Okay. So I'll just try to work your questions one by one. Let me just first start with the last question on inflation. So when you think about the Intertek business, we are essentially a people business, as you know. So for us, inflation on cost is essentially driven by wage inflations. Of course, we have our own policy, and we increase our wage every year according to what's required in the market to be a very good employer. And you can imagine that this is a bit different by country, but this is something we do every single year. The way we look at inflation in our business in terms of cost and how we pass it to our customers is very simple. We try to basically pass 50% of the inflation to our clients and 50% through productivities. This is how we offset it. We basically have experience, as you know, in a high inflationary environment because we've been operating in all of this market for many years. So this is something that we do regularly. One thing that I would say, and this is why you're not seeing much inflation in our cost base and that's why if you look at margin ex the government subsidies in the first half of last year, the incremental progress is significant. As you will remember, when we dealt with COVID-19 last year, I was reluctant to do a blanket restructuring and reduce the cost base because I always thought that COVID-19 was temporary. So we have kept all capabilities broadly intact in terms of delivery for our client. And therefore we have not had to go into the market, if you want, and have to hire a lot of people at potentially higher wage would there be any wage inflationary pressures in this market. So that's the way I would answer your question on inflation. I hope it's okay. As far as the organic growth in Trade and Resources, look, as you know, COVID-19 is still affecting the supply chain and the mobility around the world. Evidently, we are making great progress in many parts of the world. And we've seen an acceleration in terms of performance in the second part of H1 in all of our Trade businesses. And that's why we are more confident in the second half than we were a few months ago given the progress that COVID-19 is making. Now as far as the bigger of the 3 businesses, which is Caleb Brett, we are essentially the global leaders in oil and gas and refined products inspection and testing, and we are very much linked to the global mobility. So what we're seeing at the moment is increased mobility; not everywhere, but in many parts of the world, and we expect to benefit from that in the second half. At the moment, we are still pre-COVID-19 and you know that the global demand for oil is around 5% below what it was pre-COVID-19, and this is Q2. Q1 obviously was lower than that. But the outlook is favorable. As far as Resource is concerned, we are pleased with the May and June performance. We continued to see some really good demand in Mineral and a bit of acceleration, if I could say. And the business that did better in the second part of H1 was our OpEx inspection. As you know, this is a relatively small business for Intertek. But we benefited from a lot from turnaround operations, which means our clients had to invest in operational inspection. As far as the main business within Resource, which is our Moody business, which is CapEx inspection, there is no question that we saw a reduction of investment in exploration and production from our clients given what happened to their cash flow last year. But as you know, the financials of our oil and gas clients have improved significantly with the oil price and they are obviously starting to plan ahead. And we expect an increase of investments moving forward in exploration and production. That's why we expect a better second half. The oil price progression had a major impact, of course, on the P&L and cash flow of oil and gas as compared in the first half of this year, as you've seen. As far as your question on margin, look, as you know, we do not give any quantitative guidance in terms of margin. There is no question that we are very focused on margin-accretive revenue growth with strong cash generation. We try to strike the right balance. Like everyone, we won't go back to '19 and beyond. But this is obviously something that we're going to manage step at a time and we will monitor and communicate accordingly. Look, we have tremendous operating systems in terms of margin management. You would recall the margin progression that we have benefited from between '15 and '19. And I have not worried at all on our ability to continue to make progress. But sorry for that, we don't give quantitative guidance as a policy. Thank you.

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

I mean just to belabor the point on margin, can you tell us sort of what happened to the drop-through rate in the first half as the recovery margin so it looks like light across the board versus sort of consensus and my expectations? Is there a message on phasing or investments that we should be aware of? And then for the full year, forgive me, the difference between accretion and progression, is there a subtle change in margin guidance there? And are you willing to provide the June organic exit rate?

Yes. I mean Paul, first of all, I have to say that I have a lot of sympathy for you and your colleague because it's super difficult to build the model when a like company Intertek doesn't give quantitative guidance. And I really appreciate all of that. So I feel how difficult it is for you and what you have to deal with your card. So I just wanted to say that upfront. As you know, I have the highest respect for what you do in the industry. Look, in terms of margin, we disclosed what we disclosed. We are really pleased, as I said, with the performance that we have made. If you look at the Products and Trade, results have been a bit down. I don't know how you did your model splitting H1 and H2. You certainly didn't get any information from me. So I can tell you that from our own internal model at Intertek, we are on track versus our own internal expectation. And there is no difference in terms of guidance between progression and accretion. And sorry for that, we'll have to check, of course, moving forward. And I have to say that -- that's what I'm going to say. Sorry, I can't be more helpful than that. But you're a pro and you know the industry very well, so I'm sure you will figure it out. And you know that we have had investments in the business over the years. We continue to do so. So there is no difference here. And we had the subsidies in H1 and H2 last year.

Okay. That's very clear. And do you -- are you prepared to provide June exit rate because the others have.

Yes. We're going to be different here. I don't think it's that important. Sorry to frustrate you. Look -- I mean, look, I've given more disclosures on May and June this time around. So I hope you appreciate the effort.

Sorry to be pedantic. But working days was a slight drag in sort of January to April. Was that -- did that reverse out in May, June at all?

I mean if you look at the number of working days for H1 versus last year, indeed it's [ a story ] for us, right?

The next question comes from the line of Annelies Vermeulen from Morgan Stanley.

Just 2 questions from me, please. So firstly, I know you've talked a little bit about cost inflation, specifically on labor. I understand your ability to pass on the wage inflation on to your customers, but are you seeing any issues in any market with labor shortages or difficulty in rehiring people in areas that were weaker last year? Any comments on that? And how you are managing that, if that's the case? And how do you expect that to develop over the second half? And then just secondly, you talked a lot today about the growth in Assurance and how you expect that to grow relative to the rest of your business. Are you able to quantify that all in terms of how -- to what extent the growth level that you expect from that business and how you expect that to accelerate over this year and next year and so on? Any color on that would be helpful.

Yes. Thanks. And look, really, really good questions. I mean the answer to labor shortage and preventing us to hire the colleagues that we need, is it an issue at Intertek, the answer is no. And why is because last year, as I was trying to explain a few moments ago, we made the decisions to keep our capability intact because we recognized COVID-19 was a temporary issue and we didn't want to lose any capability. As you know, people-based business, very specialized workforce, Ph.D., scientists. And to basically reduce our capability and then start hiring again was going to be very costly and not right thing from a customer service standpoint. So look, we are not seeing any issue with shortage of labor because we have to hire. We do it all the time, but we don't have a huge gap in our capability issue given where the market is. And as far as Assurance is concerned, look, if you look at the track record of the company, Assurance has always been the fastest service in terms of growth at Intertek. We've disclosed it from time to time. And we will do it, of course, in the future. We do that every few years. And maybe to help you think about it, if you think about GDP-plus being the growth outlook mid to long-term for the group, I think of Assurance as GDP-plus, if you want.

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

The first question is on the Products margin. Basically, appreciate that revenues are back to '19 levels. But clearly, looking through the details of some segments like softline, hardline, toys, the mix is likely to be different now compared to what it was in '19. So could you help us with some idea of how much the mix impacted the margin, positively or negatively. That would help us understand one of the moving parts. The second question. Reflecting on the comment you made earlier about wage inflation, I appreciate that you held on to your cost base and staff at a difficult time and it's potentially giving you some dividends now in terms of lower cost inflation, but as the markets open, you would imagine that the churn goes up because greater opportunities come in the market. So sooner or later, some of the wage inflation is likely to seep through your and your peers' businesses. So how are you thinking in terms of your pricing power in the market at the moment? Can you go to the client and argue for a higher price point? Or is that some -- as you said, you can only increase 50% of the prices and the 50% you'll have to find in productivity. Can that equation change now given that wage inflation is much higher? The third one is on basically, when you talk about the restart activities like helping the hospitality sector and some of those, clearly some of that growth is shorter durations. But then you are also talking about growth from reviving of supply chain, carbon ratings and things like that. So that's longer duration. So can you give us a sense of how much of your first half growth was a flush of backed-up demand and how much of it you see as a recurring growth in the medium term?

Sorry, the line got cut off a bit from my side for your last question. Do you mind repeating it?

How much of your growth is a flush of backed-up demand in the first half versus long-term recurring revenue potential?

Okay. Great. So look, in terms of your first question on Product, look, as I said to your colleague asking a similar question, Product is back to the '19 level. The margin is slightly below. It's not a mix effect. It's essentially, when you look at 2-year compounded in aggregate, you've got a bit of cost inflation, and to deliver margin accretion you need to basically deliver growth ahead of the '19 revenue level. So that's as simple as that. And all the businesses that has grown double digits in the first half, as I mentioned earlier, did really well in terms of margin. And I appreciate your question on the mix, but I don't think there is a mix factor or worry here to have in mind. As far as the inflation is concerned, and I understand your point about it could change. And your question on pricing power is really good. How do we think about pricing power? Well, first of all, we are very disciplined from a pricing standpoint. We've always been. It's nothing new. And as I said, when I got the question in the past, I would rather have good revenue growth, which is volume with a good price, than slightly better revenue growth with lower price and higher volume. I'm not saying that we're not commercial and sometimes we don't negotiate. Of course, we do because we are a scale operation. But the way we track our pricing, I can assure you that we've got very strong pricing power, and the revenue growth that we delivered is both volume and price. And on your question, how do you drive price in our industry. Well, it's essentially through upsell. And when you sell higher services, you basically increase the ticket price for the client and you obviously get a higher margin from your operating base. Of course, when you negotiate new services, you take into consideration all factors. And one of the key area of pricing is innovation. And that's why we are so focused on margin-accretive innovation because at the end of the day, there are new risks in supply chain of our clients. They need new solutions. And if you got a good innovation, they're willing to pay for it, then it's got to be margin accretive. So we are very disciplined in terms of innovation. And we talk internally about margin-accretive innovation, of course. As far as your question on the revenue growth, we are seeing catch-up versus structural demand. Look, I mean the only real catch-up area that we have seen so far has been on ISO audit because some of our clients had the opportunity to do ISO a bit later, which they didn't do in 2020. And as I said in our OpEx business, otherwise, all of the growth that we are seeing is structural -- based on structural growth drivers. And as I said, the outlook for the industry is looking very, very good.

And on the mix point, clearly, if I look at the commentary on transportation, you had double-digit decline. It's still mid-single digit over 1.5 years now whereas electrical, good, robust double digit. So you clearly have more electrical versus transportation. So are you telling us that the margins for the 2 businesses are pretty similar, so the mix has had no impact on the margins?

I thought your question was about 2019. Of course, if a business that is high margin declines, we have a mix effect. In the case of Transportation Technology, the margin is not the highest margin we have in the Product business. Electrical would be better. So if anything, if it declines, it's having a positive margin effect to Product. Okay?

Okay. Understood. And do you think all the restart activities for hospitality, that is also likely to sustain in the medium term?

Yes. Look, as I said, health and safety in the workplace, in public places is, in my view, going to be a very, very important solution going forward. Because it's just not only about COVID-19, there are other factors. And we've been investing quite a bit in in-house and safety over the years and we are very, very optimistic about the outlook.

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

This is George speaking. Andre, if I could just go back to the consensus expectations, please, just interested to get your sense of whether you think the market expectation is achievable, should we say, particularly bearing in mind the second half implied margin would be slightly above, I think, or in line with the second half of last year, taking onboard the comments you made around the subsidies and inflation.

Yes. Look, as I said earlier today, we understand the way the consensus has been built and it's difficult to look at H1/H2 from your perspective. But for the full year, broadly speaking, I'm comfortable with where the consensus is.

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

It's Rory here. Just 2 from me, please. Firstly, just to kind of tie together 2 themes you've talked about. We can see you have kept capabilities intact as restructuring charges have been low, in your case; literally fell to 0 in H1. But just help us understand what that means for the future. Does that mean there are no real cost to go back in business as the recovery continues? Maybe you could comment on your plans we will need to add head count or capacity through H2? And then secondly, moving to a longer-term outlook question. You said -- you spoke to, I think, 1,500 clients [ for ] supply chain solutions since our last results call. How and when should we think about that converting into new contracts? What's the sales and delivery time line like for these newer services, maybe bigger services that you're launching? And is this kind of a later-cycle portfolio than maybe what we're used to?

Look, on the first question, keeping our capability intact because temporary disruption of COVID-19 were impacting revenue and productivity in 2020 has been our strategy, which means that indeed we have opportunity to go back to our pre-COVID-19 productivity level without increasing the head count. That's the other way of looking at it, absolutely spot on. Equally, we operate in 100-plus countries, in multiple industries. And it might not be like this in every single vertical, in every single location. So of course, we'll, of course, have to hire colleagues. And I talked about the way we think about it, in the earlier questions. Look, when it comes to the sales agenda of Intertek, regarding the opportunities that we have mentioned in the call earlier, we work with more than 400,000 customers around the world. We have long-lasting relationships with these customers. These discussions we had were basically if you are trying to make sure we understand where the expectations are in terms of service solutions for Intertek moving forward given the disruption of the supply chain, the learnings when there is a global disruption like the one we have seen, there are always new things evolving. And of course, some will take time to materialize because when you do B2B sales development, it's not like immediate. Having said that, it does make the point that the structural growth drivers post-COVID-19 for our industry are more exciting than pre-COVID-19. But it will take time; you're absolutely right.

[Operator Instructions] And the next question comes from the line of Neil Tyler from Redburn.

Coming back to the -- I'll ask a question on cost saving, please. Firstly, can you remind us of the absolute amount of government support? You've mentioned -- you referred to them a couple of times that you received last year first -- second half. What, if anything, you've received in the first 6 months of this year. And then similarly, were there any abnormal sort of mobilization-type costs over the last 6 months that you feel are worth highlighting as activity accelerated? Or equally any cost lines, for example T&E cost that might still be below normal levels and might reinflate in the second half of the year. So that's sort of the first question in few parts. And then the second question, just very specifically, on the previous call, you talked enthusiastically about the PPE testing that you're undertaking and the sort of margin accretion that we're likely to see from that. Can you just give us a quick update on activity levels in that particular activity?

Okay. Perfect. Look, starting with PPE, we are focused, as I mentioned the other day, on high-quality PPEs, and we had a really strong H1 and that's what is beneficial to our margin because it's a higher-margin business for softline and hardline business. So PPE was very, very helpful. As far as mobilization cost or cost one-off because of the acceleration of the business, look, unfortunately, travel is not back to where it was. So T&E costs remained very, very low. It doesn't mean it's not going to increase moving forward. There are certain parts around the world where we started doing face-to-face client meetings like, of course, Greater China or the Americas. But I wouldn't worry too much about that. Then to your question on subsidies. I mean we disclosed our numbers at the full year. But essentially, the way to think about it, if you think about the incremental subsidies that we got in 2020 versus what we get on a recurring basis, it was about GBP 17.5 million, with GBP 7 million in H1 and slightly more in the second half. It's fully disclosed. And if you want some more details, then we can give this to you. And of course, we got some subsidy, as we always do, in the first half, but it's not dissimilar to what we got in 2019 and before. Okay?

We have no further questions coming through. So I will now hand back to Andre for any closing remarks.

Okay. Well, thank you very much for your time today. I know it's a busy week and a busy Friday for everyone. We appreciate your time. And if you have any questions, Denis is obviously on standby to answer any of these. So have a good day. Thank you.

Thank you, everyone, for joining today's conference. You may now disconnect your lines.