Intertek Group plc (ITRK) Earnings Call Transcript & Summary

Hello, and welcome to the Intertek November 2021 Trading Update Call. [Operator Instructions] I'd now like to hand over to our host, Andre Lacroix, to begin the call. Thank you.

Good morning to you all, and thanks for joining us on our call following the release of our trading statement a few minutes ago. I have with me, Jonathan Timmis, our CFO; and Denis Moreau, our VP of Investor Relations. There are essentially 3 takeaways in our call today. First, we've made strong progress in H2. In the July-October period, we've delivered a revenue growth of 6.7% at constant currency driven by robust like-for-like revenue growth and our 2 recent acquisitions. We've also benefited from positive momentum in margin and cash. Second, we are on track to deliver our full year target of robust like-for-like revenue growth, year-on-year margin progression and a strong free cash flow. And third, COVID-19 has been much more than a tragic pandemic for the entire world. COVID-19 has made the case for total quality assurance stronger. Our clients have realized that they will need to increase their investments in quality assurance to operate with higher quality, safety and sustainability standards. Post COVID, we expect the global quality assurance industry to grow faster. I would like to start our call today with a few comments on what's happening in the supply chains of our clients. COVID-19 will be remembered as the greatest dislocation of the global supply chain since 1970s, creating significant challenges across the world and this includes the lack of PPE and medical devices during the Phase 1 of the pandemic, shortage of components and raw materials in multiple industries in multiple markets, containers not being available for the global trade rebound resulting in empty shelves in supermarkets and out-of-stock notices in e-commerce across many product categories. Of course, shortage of labor in many sectors of the economy putting inflationary pressure on wages. And finally, lack of synchronization between demand and supply in the world energy market, creating a shortage of electricity in several countries and putting inflationary pressure on energy costs. Essentially, the disruption we are seeing in the global supply chain of our clients is a compounding effect of 3 factors: the rapid fall, of course, of global demand in Q2 2020 triggering cost reductions in major sectors, resulting in lower stock levels and a smaller workforce; a rapid rebound of the global demand in Q4 '20 and H1 2021 for many product categories running well ahead of lowered expectations; and a lack of business intelligence inside corporations to read the global trade rebound early and start ordering and hiring on time. At Intertek, we are supporting on a daily basis of 400,000 customers as they try to synchronize their sourcing, production and logistic activities to get their supply chain back to normal and service their clients. Supply chain disruptions within the ecosystem of our clients is highly complex. And although everybody is working hard, it will take time before the global supply chain is back to normal. And there is a major learning for our clients from this significant global supply chain disruptions: they have been operating with substantial intrinsic risks in their supply chains without the right data. And this is why we expect our clients to increase their investments in their supply chain in 3 areas. Safer supply chain is the #1 investment area -- priority. COVID-19 is indeed proving a catalyst for many corporations to improve the resilience of their supply chain. We expect major corrective actions and this will include better data on what's happening in all parts of the supply chain; tighter risk management with razor-sharp business continuity planning; a more diversified portfolio of Tier 1, 2 and 3 suppliers; a more diversified portfolio of factories, including on-shoring to both enhance supply chain resilience and reduce the carbon footprint of their operations; and investments in processes, technology and training to step up their supply chain capabilities. We're also seeing our clients realize that in addition to their supply chain challenges, they need to invest more in product and service innovation to meet the changing needs of their consumers. As you would expect, during a major global crisis like COVID-19, consumers' expectations are changing given their desire to live in a much better world. Building back better is on everybody's minds. Indeed, corporations need to step up their game in quality, safety, sustainability, convenience and value for money to enhance their products and services. The third major area of investment inside corporations is, of course, sustainability. The sprint to net zero emissions is real, and corporations are having to reinvent the way they reduce their carbon footprint across the entirety of their operations and the way they communicate the progress they are making on their 0 with carbon emission plan independently verified. In summary, our clients are seeing a strong yet uneven global recovery with 2 major challenges. First, they need to resolve immediately the disruptions in their global supply chain to meet the needs of their clients. And second, they need to invest in safer and more resilient supply chain innovation to make their products and services better, and of course, sustainability. These additional investments of our clients and their quality assurance activities will provide Intertek with additional growth opportunities. I would like now to discuss our performance in each of our business lines over the last 4 months, starting with Products. Notwithstanding some supply chain issues, our Softline plants continued to benefit from the reopening of the global economy with the demand for online shopping and sustainable products being the strongest. This has enabled us to deliver mid-single-digit like-for-like revenue growth. In addition to these trends, our Hardline clients are also benefiting from increased consumer spending on home products and furniture. Like-for-like revenue growth was high single digit in Hards. In Electrical & Connected World, our clients are seeing increased demand for high efficiency in electrical products as well as for 5G connected devices. We delivered a mid-single-digit like-for-like revenue growth. Companies continued to invest in risk assurance as well as sustainability, enabling us to report high single-digit like-for-like revenue growth in the period for our Business Assurance business. Within North America, the demand for greener buildings remains solid while large construction projects are still below last year. We delivered a stable like-for-like revenue. As expected, our TT clients started to resume R&D investments in greener powertrains, and we delivered a high single-digit like-for-like revenue growth. Consumer demand for safety and healthier food remained strong and helping us to produce high single-digit like-for-like revenue growth. Our Chemical & Pharma business reported double-digit like-for-like revenue growth. Our clients continued to invest in regulatory assurance and our pharma clients increased their R&D testing. Moving now to Trade, where the expected improvements in global mobility have been beneficial for Caleb Brett, which delivered a mid-single-digit like-for-like revenue growth. The shortage of containers continued to impact the trade flows in the Middle East and Africa. Our GTS business delivered stable like-for-like revenue. The demand for agri products remained strong, driven by the strong growth in the global food industry. And we delivered double-digit like-for-like revenue growth within this business line. Our clients are starting to benefit from the global economic recovery within the Resource sector. We saw an acceleration of demand for Minerals, enabling us to report double-digit like-for-like revenue growth. Within the energy sector, companies increased maintenance activities in their operations, leading to mid-single-digit like-for-like revenue growth within Opex inspection. And as expected, our clients are starting to increase their investment in exploration and production, enabling us to deliver a stable like-for-like revenue in Capex Inspection. Having discussed what's happening in the world of our clients and how we've performed within each of our business lines, let me summarize the highlights of our performance at the group level in the period. Revenue growth of 6.7% at constant currency with revenue accelerating during the period: July-August, 4.8%; September-October, 8.5%. We delivered like-for-like revenue growth of 5%, notwithstanding the loss of 1 working day. Our trading debt adjusted like-for-like revenue growth was 6.2%. All divisions delivered like-for-like revenue growth: Products, 5.5%; Trade, 3.7%; Resource, 4.7%. Our SAI and JLA acquisitions are performing well in revenue, margin and cash. Our disciplined cost and productivity management has enabled us to deliver an improved margin versus H1. And our disciplined cash performance management continues to drive a strong cash performance. Based on a strong performance we delivered in H1 in revenue, margin, cash and ROIC and given the July-October trading performance we have just discussed, we are on track to deliver our full year 2021 target. We continue to expect that the group will deliver robust like-for-like revenue growth at constant currency notwithstanding the lockdown restrictions in the few markets and the supply chain challenges that our clients are facing. We continue to expect the Product division will deliver robust like-for-like revenue growth with Trade and Resources both expected to report good like-for-like revenue growth. We continue to expect margin progression year-on-year and a strong free cash flow performance. Our guidance regarding net finance costs, tax rate and minority interest remains unchanged. Regarding currency, we continue to expect that the average ForEx rate applied for the full year results would reduce our revenue and earnings by circa 500 bps. And before any material change in ForEx rates or M&A, we continue to expect our financial net debt to be between GBP 835 million and GBP 885 million at year-end. Looking beyond 2021, we expect the industry growth drivers to be stronger post COVID-19. The global crisis that we're emerging from has demonstrated there were major risks in the world that were not properly identified and mitigated pre COVID-19. Moving forward, all stakeholders in society expect governments and corporations to build back a better world with sharper focus on end-to-end quality assurance. The supply chain disruption being experienced by corporations across multiple industries has made the need for comprehensive risk-based quality, safety and sustainability assurance more critical than ever. We are well positioned to benefit from the increased investment of quality assurance from our clients. We are the global leader in risk-based quality assurance with the depth and breadth of our unique ATIC solutions. And given our high-margin, capital-light, carbon-light and strongly cash-generative earnings model, we'll continue to deliver sustained value for all stakeholders moving forward. In summary, we've made strong progress in H2. We are on track to deliver our full year target. And post-COVID, we expect strong investment of our clients in quality assurance. Thanks for your attention, and we'll now take any questions you might have.

[Operator Instructions] First question this morning comes from the line of Suhasini Varanasi from Goldman Sachs.

I'm going to try my luck again this morning. In your press release, you mentioned that margins have improved versus the first half this year. Can you please provide some color on whether they have -- how they have evolved versus 2019? Have they also gone back above 2019 levels? And secondly, you mentioned in your comments that wage inflation is something that you are seeing -- that your clients are seeing in many markets. Is that something that you are also seeing? And therefore, have you increased prices, maybe higher than historical levels, pushing that through, maybe that has also helped margins? And then, lastly, just on the Building & Construction, it's a longer-term question. In U.S. infrastructure bill, is that something that can help you medium to long term?

Thanks. Look, this is a trading statement. We are talking about the revenue performance between July and October. We've given high-level commentary on the progress we are making on margin, but we're not going to give any more details. We are very focused on margin equity revenue growth with strong cash generation, disciplined capital allocation. This is the way we run the company, as you know so well, and we continue to make progress. And we'll get a chance to discuss the results in March, but let's just get there and we'll discuss it then. As far as wage inflation, look, this is a very important question that you're asking. If you remember, when we got into 2020, we assumed that COVID-19 was going to be a temporary disruption in the supply chain of our clients. Now the matter what we defined as temporary, but we believe that it will be very important for us to be ready when our clients would resume their activities. And as we've seen, not every sector of the global economy has recovered at the same pace. So for us, we kept our capability intact. We didn't do any major cost restructuring, like many corporations did in 2020, which means when the rebound happens in sectors around the world, we didn't have to rush and hire people back because we had kept our capability intact. So we are not seeing the wage inflation that companies are talking about because some of these companies had to hire back on the back of stronger demand, we are really well positioned on that front. As far as our pricing policy, as you know, we operate as a premium operator. We take pricing on a regular basis when we negotiate contracts with our clients. But contract is not the only way to take pricing in our views. We are obviously very focused on margin equity renovation. ATIC, which is obviously expanding the services we sell to our clients, provide also higher margin opportunities for us. And let's not forget, up-sell. So we are in a good place when it comes to inflation and wage management in this world. As far as B&C is concerned, look, we are super excited about the bill that finally passed and we believe that it's going to be very, very positive for Intertek. As you would know, we are a leader in testing and inspections in building and construction in North America. And all the investments that are going to be made in infrastructure will benefit our business PSI for many, many years. So look, it's going to take some time for all of this to get organized and becomes real, but we are very, very excited about it.

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

I have 2 questions. The first one is you've given July-August and September-October constant currency revenue growth. I was wondering if you could help us with the comp from last year and whether there's also been an improvement versus 2019. And then I guess useful as well if you could talk about exit rates by division? That's the first question. And then the second question is just kind of a follow-up on Suhasini's on inflation. In the past, you've talked about passing through maybe half and the other 50% offsetting that with operational efficiencies. I was wondering if there's an environment where there's maybe higher inflation -- higher cost inflation. Could that 50-50 change?

Yes. Thanks, Oscar. Let me just start with the inflation question so we close the loop on the previous question. Look, of course, I was giving an answer at the global level to the question I had in the previous conversation. We do operate around the world in countries with high inflation than others. We've always had. And we have a clear policy in place. And 50-50 is the pro forma growth we take around the world. Now it's not magic formula. It can change a little bit. But based on our experience, this is the way we've dealt with high inflationary environment in the past, and this is the way we are dealing with it today. So it has not changed. As far as your question on July-August and September-October, I mean, a couple of things I would say. There is quite a lot of details in the trading statement. But if you look at the organic or like-for-like performance of the group in July-August and September-October, it's more or less the same, but adjusted for 1 trading day less in the September-October. Obviously, you've got a slightly higher exit rate, that's why I made the point of communicating the trading adjusted like-for-like revenue. As far as the run rate of the business lines, so we are in a good place. I'm not going to go through every single one, it will be too lengthy for everyone. We've got everything in the RNS. But you can see that all business lines are growing or making progress. So we are really, really pleased with the progress we are making. It's in line with what we expected, and we're getting into 2022 with a very good momentum. Thank you.

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

Sorry to be pedantic. Can you just -- I may have just missed that sort of split between sort of July or October -- or in July-August and October, November on the trading day adjustment. Could you just sort of reclarify because I think the split you've given over the 2, 2-month periods is pre-trading day adjustment. And also, any variation by division in terms of that trading day adjustment? And then sort of maybe sort of bigger picture. When you gaze into next year, the IMF is forecasting GDP growth of about 5%. Do you think your GDP-plus sort of organic sort of mantra is achievable against that? And then just coming back on the margin points. In July, you did express comfort with consensus, which at the time was about 4 80. It since shifted down close to 4 70. Are you still comfortable with what you said in July? If not, what's changed? Any sort of color there? It doesn't feel like anything's changed looking at your guidance. So I just want to be just clear that, that messaging is still exactly as it was back in July.

Thanks, Paul. Look, as I said in July, we were broadly comfortable with the consensus. We still are. We're not changing our targets. So there is really nothing different for us as we exit 2021. As far as your question on like-for-like revenue growth, let me do it again slowly. So July-October revenue growth like-for-like, 5%. What I was saying that the July-August and September-October is broadly similar in terms of like-for-like revenue growth not adjusted for any trading days. When you adjust the period for an additional trading day, you go to 6.2%. And this is pretty good in terms of exit rate. That's basically what I was saying. And as far as 2022 is concerned, look, we will deal with guidance on 2022 when we announce our results, which is always the way we do it. As I said, I expect the growth drivers to be strong moving forward in the industry. So we are very, very excited about 2022 and beyond.

Next question comes from the line of George Gregory from BNP Paribas.

Two from me, please. Firstly, I just wondered within Products, is it fair to say your sort of broader consumer testing activities, and particularly, Hardlines are improving. I just wondered if you could elaborate on what sort of momentum you're seeing there because it does look like it's improved sequentially. And if I could just go back to the group organic trend, would you mind clarifying where revenues are now tracking organically versus 2019 on -- perhaps on an exit rate basis, please?

Yes. Look, maybe we'll answer the 2 questions with the same analysis. So if you look at our July-October period, which is what you're referring to, it was 6.2% adjusted for 1 less trading day. If you look at the like-for-like performance of the group in July-October last year, it was minus 6.3%. So at the face of it, we are broadly in line on trading day adjusted with 2019. You would recall that the gap was obviously slightly bigger in the first half. The first half was 5.8% like-for-like revenue growth in 2021 and the first half 2020 was minus 8%. On Product, you're absolutely right. We are seeing some strong momentum. And the Product business, as you would recall, was well positioned against all 2019 performance in H1 and continues to be ahead. So yes, we are seeing very, very strong performance of our Product divisions. The business lines are all in growth territory or stable. So definitely.

And if I could just follow up on that, Andre. I think you mentioned in response to an earlier comment that the exit rate was slightly higher than the quarter overall. Is that relative to the 6.2%?

Yes. But I mean if you -- okay, let me just repeat again. July-October like-for-like revenue growth 5% without any trading day adjustment. And I was saying that July-August and September-October were pretty much the same level, so you can guess. The trading day adjusted like-for-like revenue growth is 6.2%. And if you look at the calendar, you will see that the trading day adjustment is in the latter part of the period. Therefore, it's a slightly better exit rate in the September-October period adjusted for trading days. Makes sense?

Understood.

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

Just 2 from me, please. Two actually, both on Business Assurance within Products. Can you say how much growth was caused by the rebound in ISO audit this year, and so what the trends are excluding that? And then longer term, just thinking about the potential for growth acceleration, given all your investments here, you're clearly launching and offering many new interesting services. I'm just wondering if these -- just how long the sales cycles are. I imagine you're seeing lots of interest in this area at the moment. But can you talk about just the reality of when new contracts could be signed, how they might ramp up in this new era of these contracts and whether this is kind of a further out acceleration rather than anything immediate. I guess we're all hearing lots about it at the moment. But I just wonder if within this division, excluding the ISO rebounds, whether we've really seen much of the acceleration yet.

Thanks. It's a very, obviously, important question when it comes to our Assurance business and Assurance strategy. You would recall when we basically launched ATIC a few years ago that we explained that the world of our clients was changing and there was an increased focus on risk-based quality assurance. And we did that based on the portfolio of 2 type of Assurance activities, what you call the ISO certifications, which is the question you're asking; as well as Supply Chain Assurance. We are very strong in both, and the performance that we are reporting in BA is covering both. We do not obviously split the performance externally for these 2 types of solutions, for obvious reasons. But we are seeing this year a catch-up in ISO certifications in the first half of 2021, which is basically what we said when we announced the H1 results. And now the catch-up is done. We are basically back in terms of normal growth, but we are seeing some growth in ISO certifications as well, of course, in Supply Chain assurance, which is of the 2, obviously, the one which is slightly higher margin. And when -- where we offer innovations to our customers like in light, like working commission assessments, like sustainability, like source clear, for instance. As far as the way the contracts work with our clients, look, Assurance is very simple to understand. Typically, the cycle is about 3 years. When the clients sign up for an ISO certification, it's about 3 years. And the time it takes to get a contract is no different in any other business. It depends on the agenda of your clients and how fast you are negotiating a good agreement. And all the new contracts we are winning, we start seeing an impact immediately now. When we get a new contract, we also need to obviously prepare the manpower scheduling so that we got the auditors in the right place around the world. So to your question, there is a bit of a lag between the moment you get the contract and when you execute, but it's not more than a few months if it makes sense.

That's very helpful. And I guess just 1 follow-up, if I can. I guess, with these new larger contracts, there's probably more potential -- or it seems like there's more potential to kind of cross-sell once you've landed an initial contract. Can you maybe talk about the range of contract sizes in this new area? I mean thinking about a whole global supply chain that the number of sites, locations you might need to expand to feels maybe bigger than the work you've done in the past. Is that true? And so could you see more almost within client growth in this area?

No. I mean, absolutely, you're spot on. I mean, if you look at an analysis of what's happening in the supply chain of our clients, right, it's relatively simple. Number one is clients are going to need to improve the visibility they have in their Tier 1, Tier 2, Tier 3 activities. And we have solution that is a SaaS-based platform called InLight that has been in the market for several years. It's one of the hottest solution that we have and gives our current that visibility in terms of understanding where their risks are and therefore what they can do to mitigate this, which is all what risk-based quality assurance is. And unless you've got the data and you've got the visibility, it's not going to happen. I always take a very basic example. Let's just say you're selling drinks in Santiago, Chile and you have account supply issues and your factories are always like delivering your clients, you need to make sure that you talk to this can suppliers or let just say you've got a sugar consistency issue with your 7UP formula in the Philippines, well, if you don't have the data, you cannot basically address this and basically ensure continued supplies. And what we've seen in the last few months is basically the example on a grand scale of companies not knowing really what's happening in their supply chains and getting really surprised. So data availability, risk monitoring, risk mitigations with spot audits in the factories of your Tier 1, Tier 2, Tier 3 suppliers not doing their job for us is obviously an opportunity that we see coming our way. The other thing that I think is going to be quite interesting, and I don't make too much of a point this morning but there is so much we can say. But there is also a big question on just-in-time and the reliance on few suppliers. So we expect companies to basically improve their resilience by approving more suppliers. And this is good for Intertek because when you approve a supplier, it creates another audit certification opportunity for us for quality assurance and this is going to help us. And lastly, training. As you know, we are very involved in the People Assurance business and providing the right training to very decentralized operations around the world is something that is very, very true to us. And finally, sustainability. The companies needs to work first on their supply chain reduction -- supply chain issues now, but also work on their sustainability agenda. And this is going to create some opportunities for us with our sustainability solutions. So yes, this is really beneficial to our ATIC approach, which we call risk-based quality assurance.

We now have a question from the line of Arthur Truslove from Citi.

Arthur Truslove from Citi. First question on Caleb Brett. Is it reasonable to assume with that one -- with that part of the business that the exit rate is materially quicker than what you've seen through the 4 months on the basis of sort of data accelerating in terms of trade volumes? Second question, you mentioned in your release and indeed in your comments that you are seeing progress in the Capex Inspection business within Resources. Are you seeing this -- are you expecting this to accelerate further in a material way? And indeed, linked to that, what is the opportunity from renewable energy Capex inspection as you see it?

Thanks, Arthur. I mean spot on, on Caleb Brett and you're watching the trend in global mobility, and this is a business where global mobility matters a lot. And indeed, the exit rate is stronger in the period because global mobility is improving relatively quickly. We are still, as you know, about 5% to 6% below the peak that we were pre-COVID-19 in terms of the number of barrels of oil being produced and traded every single day. So there is more to go, but we're pleased with the progress we are making. As far as the Capex Inspection opportunity. Look, this is a very well-covered industry, as you know, because our major clients are the oil and gas energy companies around the world. And as you know, their P&L in 2021 is looking very, very good. I mean they are doing extremely well in revenue and margin. And as you know, the world is now operating at a perfect match between demand and supply in terms of oil, which is creating a bit of pressure on price. But this is very beneficial to our current cash flow and balance sheet after what was a very difficult 2020. Now all of our clients are basically more confident about resuming investments in exploration and productions because they now have more visibility on demand and also margin. And I don't know if you've seen the data, but it's public, but all the oil and gas companies have announced increased CapEx compared to 2020 in 2021 and they're going to increase it further in 2022. So this is what we were expecting. But this is, of course, very, very good news and will be very beneficial to our Moody operations. Now your question about renewables is very important because our clients need to do 2 things. They need to continue to invest in exploration and production of traditional oil and gas resources because they've been under-investing for many, many, many years. And if they don't do so, we will have some supply issues in a few years. And this is obviously where traditionally Moody has been the leader with our engineering base inspections for all big infrastructure projects being refineries, pipelines, offshore platforms, et cetera, and so forth. Now you might recall that we've been talking about the importance of addressing the total energy sector within our Moody business for several years. And we do have the technical capability and certainly the resources to provide the same type of engineering-based inspections for all renewable projects being power plant, being nuclear, being solar plants, being carbon storage, being wind farms, hydrogen. So we are very excited about what was announced a few weeks ago in Glasgow, where everybody has realized we need to do much more to get to net zero, and we'll see 2 type of investments in traditional oil and gas activities because there is a gap in terms of capacity for many, many years if you don't do so. But the rest in net zero everyone wants to step up in renewables, and we are very well positioned there. So absolutely.

Andre, one follow-up, if I may. Just on the Caleb Brett side. You mentioned in your comments that you haven't taken any capability out of your business. So is it reasonable to assume that if oil trade volumes at Caleb Brett go back to 2019 levels, the amount of cost that you will need to put into that business is very limited relative to...

Yes. That's the approach we took in 2020. We didn't want to take any capability away because we didn't know how long the disruption will last and when our clients would basically go back to normal. As you can imagine, across 100 countries and 1,000 sites, it depends quite a bit and it's true on even recovery. And therefore, you're right, we have operated with a lower utilization of our capability for quite a few months now. And we're excited about the rebound in the market because we've got the manpower in place. Now it doesn't mean that in certain areas, we don't need to hire more because demand is higher than we thought. But globally, you're absolutely right. I mean we've been operating at a low utilization of our capability for quite a while now, and it's great to see the rebound.

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

Two questions, please. Firstly, in your introductory comments around supply chain reshaping, you mentioned that, obviously, the opportunities that derive from that. But can you offer any perspective on whether the -- just in the testing sphere, the lab footprint remains appropriate given the changes you've seen, and more importantly, those that you anticipate? Or are there -- is there lab capacity that's significantly underutilized? That's the first question. And secondly, around the Supply Chain Assurance work that you conducted a bit more short-term perspective, was this at all impacted by the rolling lockdowns we've seen in Asia over the previous 4 months? And I guess around that, is that sort of revenue derived from Supply Chain Assurance work still below 2019 levels?

Okay. Great. Thanks for your question. Look, what's really important to recognize in the way we look at, if you want, our global customer base is that you've got 2 types of customers, right, the global customers that obviously are needing to diversify their supply base as per the discussion we just had this morning and would basically approve additional suppliers, Tier 1, Tier 2, Tier 3, will obviously go into new countries, et cetera, and so forth and that's the opportunity that we are talking about. As far as the other customers, which are basically the local customers or the new customers, this is a world where we are seeing a lot of new companies starting their operations. As you know, e-commerce has lowered the barriers of entries for any corporations to trade. And I can reassure you that the utilization of our labs is very, very high. And even if global customers move from Vietnam to Turkey or to Portugal, we still have opportunities in local markets to grow with local customers. And this is the twin-track approach we take, if you want, because the local customer base is growing very, very fast. We're seeing it in China. We're seeing it in Turkey. We're seeing it in India. We're seeing it in many places and you see it yourself in the news. So -- and as far as the recent disruptions in supply chain of our clients because of recent COVID-19 restrictions. Yes, of course, we've seen a bit of impact in certain areas. Vietnam was in the news and there was a bit of slowdown, of course, indeed, in the last few months, rebounding very, very quickly. You saw obviously some of the local restrictions in China on a regional basis, electricity outage, power outage. But I didn't mention that in the call today because it's not meaningful and it doesn't change the trends we are talking about, but you always have with COVID still being an issue up and down around the world. But net-net, we are in a good position, okay?

We now have a question from the line of Rajesh Kumar from HSBC.

Two, if I may. The first question is around you talked about spare capacity within the business in a broader sense. But if you look across your business lines, are there any units that are operating added capacity where you would need to add either head count or labs? And can you -- given what you've learned during the pandemic, can you think of some remote inspection digital solutions that might allow you not to do that? And if there are businesses that are operating significantly below capacity, so the 2 extremes, if we could get some more color around that and the kind of investment you might need to support that growth? That's my first question. And the second question is slightly more of a housekeeping boring one. Just when we -- you very kindly gave us the trading days adjustment details. If we are looking at other technical factors, are there any others we need to consider, for example, the change in [indiscernible] in your revenue or disposals when we are comparing the growth?

Thanks. Look, on the last question, obviously, when we make a statement like this morning, we go through quality of earnings and we basically talk about the meaningful trends. And basically, what you heard from us is really what's happening. So I wouldn't try to overcomplicate the quality of earnings or quality of trading analysis until October. The main factor is the trading day. But you're right to ask the question. As far as spare capacity, look, it's obviously much more complicated topic when you look at it country by country, side-by-side, business line by business line. And we've talked about where we are as a company against 2019, where July-October was broadly there and product is ahead of '19. As you can imagine, it's a not even global recovery and we have businesses that are way above their 2019 performance and there are businesses that are still below for reasons we talked about. And if we are in a situation where demand is well ahead of what we had in 2019, of course, we invest in manpower, we invest in equipment, we invest in additional lab capacity. And this is great news because we can -- you can build for future growth. So rest assured that from a day-to-day performance management, we have built over the years an incredible database. I really believe that we do have a data advantage on what's happening in our operations around the world and we are very focused on demand, volume/price/mix, inflation management, cash management. But of course, capacity utilizations and adding capacity when you need it. But if you don't need it, you don't add it. All of that with having your customer in mind, making sure that you deliver a very strong customer service. And you heard me talk about it in the past, we measure customer service every month with 1,000 interviews and our NPS scores improved in 2020 because we didn't take any capability out of the business and continued to improve in 2021. So -- but it will be very, very granular and maybe difficult to do line-by-line discussions over the phone, but you have an uneven global recovery and an uneven business line recovery with some business lines way above their 2019 performance, of course.

Understood. That's super helpful. So basically, the thing we were trying to get to the bottom of was that if you look at the 2021 drop-through margin that obviously will, for understandable reasons, will be quite high. But if we are thinking of '22 onwards, is it reasonable to expect the same level of incremental margin you generated before the pandemic? Or could it be structurally different going forward is what we are trying to understand?

No. Look, I think it's a great question. Thanks for asking that. I'm not going to give any guidance on 2022. As you know, we always do that when we announce our results in March in a few months from now. But the performance that the company has delivered between '14 and '19 in terms of superior value creation with margin equity revenue growth, we're ahead of many companies in the high-quality compounder sector is the way we run the business, and nothing is going to change moving forward. We are here to create sustainable value for our shareholders. It's about delivering good revenue growth, good volume, good price, good margin, good cash and reinvesting that. And yes, I mean margin equity revenue grows with strong cash generation and disciplined capital allocation to drive strong ROIC and reinvest in the high-margin, high-growth sectors is the way we run the company. So nothing is going to change moving forward, and we look forward to it.

Thank you very much for all your questions, everybody. All questions have now been answered. So I'd like to hand back to our host, Andre Lacroix, for any final remarks.

Thanks, everyone, for being on the call this morning. Thanks for your time. And Denis is available if you have any other questions during the day or in the next few days. Have a good day. Thank you.

Thank you very much, everybody, for joining today's Intertek conference call. You may now disconnect your lines. Speakers, please stay connected.