Intertek Group plc (ITRK) Earnings Call Transcript & Summary

Hello, and welcome to the Intertek May 2022 Trading Update. My name is Jess, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand over to your host, Andre Lacroix, to begin today's call. Thank you.

Good morning to you all, and thanks for joining us on our call following the release of our trading statement earlier today. I have with me, Jonathan Timmis, our CFO; and Denis Moreau, our VP, Investor Relations. There are essentially 3 takeaways in our call today. One, we had a good start to the year. In the first 4 months of the year, our revenue increased by 9.1% at constant currency as we benefited to a mid-single-digit like-for-like revenue growth in each of our divisions and from the strong contribution of our SAI and JLA acquisitions. Two, we have delivered 6.8% like-for-like revenue growth at constant currency outside of China, which demonstrates the strengths of our science-based customer excellence USP, giving our clients the ATIC Advantage. And three, we are reiterating our full year target. In 2022, we expect robust like-for-like revenue growth with margin progression at constant currency and a strong free cash flow. I would like to start our call today, giving you our take on the geopolitical and macroeconomic developments that we've seen in 2022. And let's start with a few remarks on the conflict in Ukraine. Intertek's exposure to Russia and Ukraine is very small, less than 1% of the group revenue. The war, however, will impact the global energy supply chain and the global food supply chain. As we know, Russia is a major producer of oil and gas and the export activities represent around 7% of the world's consumption. Following the sanctions being implemented and being discussed, we expect the following challenges in the global energy market: The amount of oil and gas exports from Russia in Europe will, of course, reduce, the amount of oil and gas exports from Russia into Asia will increase, and the overall amount of oil and gas export by Russia will reduce over time, the production of oil and gas in the U.S. and Europe will increase, the amount of LNG imported into Europe will increase, and investments in renewables in Europe will accelerate. For Intertek, the change in energy trade flows I just described as well as the increased investments in renewables will be a net positive for Caleb Brett and industry service operations over time. The war has also impacted the global food market as the conflict has disrupted the trade flows in the Black Sea in several categories: Grains, oilseeds, petrols and fertilizers. In the short term, these disruptions will of course, increase pressure on food prices. And over time, will be offset by an increase in production from major exporters like the EU, Argentina, Canada, U.S.A. and Morocco. These change in Agris trade flows will also be a net positive for AgriWorld operations. Let me now cover inflation. You will remember that to provide our clients with a superior customer service, as they resume their operations post the lockdowns in 2020 and 2021, we maintain our ATIC capabilities throughout. In 2021, our Trade and Resources businesses were operating at a level below 2019, while product had recovered to 2019 levels. Inflation pressure in the labor market was not an issue for Intertek through 2021. In 2022, inflation varies by region. And so far, we've seen a high inflation in the U.K., Europe, North America and Australia. The cost of doing business and increase in these regions for our business lines, which are now operating ahead of 2019 and in which we are building additional capability to seize the exciting growth opportunities we see in the market. As you would expect, we are adjusting our pricing in these markets to offset for these higher costs. Overall, in the first 4 months of 2022, like we've seen in 2021, we are seeing a well-balanced revenue performance benefiting from both volume and pricing. I would like now to cover the COVID-19 situation in China. China represents 20% of our group revenues. The lockdown restrictions introduced by the Chinese government since March caused a temporary disruption to our business on a regional basis. In Shenzhen as well as some other cities, operations representing about 20% of our channel revenues were closed for 1 week in the second half of March. Our Shanghai operation accounting for 25% of our revenue has been closed since the beginning of April and are not expected to reopen before June. We expect a greater ramp-up of our operations. And based on our experience, our Shanghai operation will lose about half of their revenues in June. We are planning to the China business to be back to normal on July 1 and for trading to be in line with a good like-for-like revenue growth we saw in China in the January, February period. I would like now to discuss our performance in each of our divisions, starting with Products. Revenue in our Product businesses benefited from a continuing increase in customer demand for ATIC solutions and from our acquisitions, which enable us to deliver at constant currency a revenue growth of 11.5%. For the period, our like-for-like revenue growth globally was 4.5% at constant currency. Outside of China, we delivered a 7% like-for-like revenue growth at constant currency, driven by double-digit like-for-like revenue growth in Softlines and Business Assurance, high single-digit like-for-like revenue growth in Food, mid-single-digit like-for-like revenue growth in Hardlines, Building Construction, Transportation Technologies, Chemical & Pharma and low single-digit revenue growth in Electrical & Connected World. Within trade, the high demand for energy and agri products has enabled us to deliver like-for-like revenue growth of 5.2% at constant currency globally and 6.4% outside of China. In resources, our clients are benefiting from the global recovery in the oil and gas sectors and increased investment in exploration and production activities, which enabled us to deliver 5.2% like-for-like revenue growth globally and 6.6% outside of China. Let's now recap the highlights of our performance at the group level in the period. We had a good start to the year with a revenue growth of 9.1% at constant currency and 11.2% at actual rate. We delivered a broad-based like-for-like revenue growth of 4.8% at constant currency; product, 4.5%; trade, 5.2%; and resources, 5.2%. We've delivered a 6.8% like-for-like revenue growth at constant currency outside of China, product, 7%; trade, 6.4%; resource, 6.6%. Our SAI and JLA acquisitions have been successfully integrated and are performing well, delivering circa GBP 39 million at constant currency in the first 4 months of the year. Our pricing and productivity initiatives as well as our cost controls remain in place to drive margin-accretive revenue growth. And our day-to-day cash performance management discipline is delivering a strong free cash flow. For the full year, we are on track to deliver our target, notwithstanding the fact that the COVID-19 lockdown in China will impact our group H1 revenue growth rate and margin performance. Given the increase in demand we are seeing for ATIC solutions, the strength of our earnings models and our strong performance management discipline, the group is well positioned to deliver in 2022 robust like-for-like revenue growth with margin progression at constant currency and strong free cash flow. We expect our Products, Trade and Resources division to deliver robust like-for-like revenue growth at constant currency. Our guidance regarding net finance cost is GBP 34 million to GBP 38 million, while our guidance for tax rate, CapEx and minority interest remain unchanged. Regarding currency, we expect that the average ForEx rate applied for the full year to our results in 2021 would increase our revenue and earnings by circa 200 bps. Before any material change in ForEx or M&A, we expect our financial net debt to be between GBP 680 million and GBP 730 million at year-end. In the short, medium and long term, we remain truly excited about the attractive ATIC growth opportunities. The supply chain disruptions being experienced in the last 2 years by corporations across multiple industries has made the need for comprehensive risk-based quality, safety and sustainability assurance more critical than ever. Companies are investing in quality assurance to build greater resilience and safety whilst innovating to deliver a higher product in terms of quality and services. The sprint to net zero emissions also means that corporations are reinventing the way they reduce their carbon footprint across their operations, adopting a comprehensive approach to sustainability with independently verified disclosures. We are investing organically and inorganically to seize the sustained long-term growth opportunities in our industry through a disciplined approach to capital allocation. I'm very pleased with how well our recent acquisitions are performing. SAI Global and JLA are complementary businesses and excellent examples of how we continue to invest through M&A, targeting high-growth and high-margin consolidation opportunities. Science-based customer excellence is our unique selling proposition at Intertek. And in our statement today, we have shared some of our latest leading-edge innovations: Intertek EcoCheck to enable sustainable tourism, Intertek TOXCLEAR, offering an end-to-end traceability of chemicals in the supply chain of our cars; Intertek Green R&D to make sure that sustainability planning starts at the R&D stage, a partnership with the Rice Exchange blockchain platform; and Intertek Hydrogen to help our clients manage a transition into hydrogen safety. In summary, we had a good start to 2022 with 9.1% revenue growth at constant currency driven by mid-single-digit like-for-like revenue growth in Product, Trade and Resources and by the strong contribution from our acquisition. We've delivered 6.8% like-for-like revenue growth at constant currency outside of China. Our performance demonstrates the strength of our science-based customer excellence, USP, giving our clients the ATIC Advantage as they increase their investments in quality, safety and sustainability to make their businesses and brands stronger. We are on track to deliver our 2022 guidance of robust like-for-like revenue growth with margin progression at constant currency and a strong free cash flow. Our track record of value creation is based on the compounding effect year-after-year of margin-accretive revenue growth with strong cash generation and disciplined investments, delivering sustainable growth in dividends and excellent ROIC. The growth in our end market is accelerating, and we are well positioned to seize the exciting growth opportunities and deliver sustainable growth for all stakeholders. Thank you for your attention, and we'll now take any questions you might have.

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

Three questions, if I may. First, on operating leverage on the lost Chinese revenues. I guess, operating leverage is quite high, especially in the Products division. So if we think about how that progresses during the year, I guess, what we've done is taken the margin down in the first half and still have kind of a flattish margin in products for the full year. But could you maybe just talk about kind of how you see that? And how much of that demand will just be delayed until kind of July and onwards rather than being lost altogether? Secondly, on Building & Construction and CapEx inspection, they have both picked up sequentially versus the previous period. And given you've got order books in both of those businesses, could you maybe comment on what the trajectory might be for the next few months? And then finally, on the new hydrogen solutions. It seems like it's mainly on the advisory side and kind of design. Do you plan to or do you have already any more traditional kind of inspection capabilities there? Or is that something that will come later on? And that actually becomes more practical and you actually have assets to inspect?

Thanks, Sylvia. Look, as you know, we have an excellent business in China. We are the first to get into China as far as interesting companies many, many years ago. We are the market leader in many, many categories. We have an excellent team that has an incredible track record of delivering consistent performance. The way China business performed, you would recall in 2020, was incredible. It was a true V-shaped recovery. And I have the utmost confidence in my teams to do several things, number one, making sure that they stay connected with their clients in these incredible times. Frankly speaking, what's happening in Shanghai, you see it in the news every single day is super difficult. And this connectivity is really, really, very important. Look, we have the connections, we have the experience, and we have, of course, the operations to do 2 things, right, to help our clients catch up very, very rapidly in Shanghai and outside of Shanghai and to make sure that we catch up as much as possible what we've lost in terms of revenue. It's very difficult at this stage, Sylvia, to really give you a precise answer. Are we going to catch up 100% or part of it? My experience it will be part of it. But our team is very, very careful in terms of cost management. And the good news from an inflation standpoint, we know that the China environment is not a high inflation environment. So our cost is really, really well contained. So we are planning for China to be back to normal July 1. And we are in touch every single day with our teams. We've just -- we look at our forecast and the confidence is very, very, very high. Because, look, we had a good start of the year. as I said, in January, February. March got a bit impacted by this week of disruption ,I talked about, obviously, April and May are what they are. But the business is in great shape and the morale is high, and the teams are really, really going to do a great job for us. No question about it. As far as your question on Building & Construction and CapEx inspections were 2 different, obviously, end markets. Look, there is no question that the level of underinvestments in oil and gas over the last almost 8 to 10 years is biting, right? You can see today with worrying signs on supply continuity from China, and you might have seen yesterday or the day before, the CEO of Aramco saying there is not a lot of slack in the production systems in the oil and gas market -- traditional oil and gas markets. Everybody knows that renewables are there for the future. We'll talk about hydrogen, but it's going to take time for renewables to scale up. So the world has no choice. But ensuring energy, if you want security by investing in exploration production activities in oil and gas, traditional oil and gas, as well as deploying as much capital as we can in renewables. So look, we are very, very positive about what I call the world of energy. Moody's, as you know, is the global leader in terms of engineering-based inspections. We have the capability across all end markets, offshore, onshore in terms of production and pipelines as well as refineries in renewables. We are obviously very, very strong in all end markets, solar panels, hydrogen, I will talk about in a second, wind farm, energy storage, grid management. So yes, I think the backlog looks good, and we expect an acceleration moving forward. As far as B&C, it's a North American business, as you know. And there is no question that the investment in infrastructure, right, retail and large project is gaining some momentum. We are seeing it in our numbers. It's as expected. And there is no doubt that the infrastructure bill that has been obviously discussed in Washington is going to be very, very helpful. And don't underestimate also the investments that the United States are planning to make in energy renewables, but also carbon capture, which, as you probably know, is one of the key solutions to get to net zero. As far as hydrogen is concerned, look, I'm super, super excited about the hydrogen. You know that I've spent many years in the automotive industry, looking at all alternative powertrains from obviously diesel to electricals, to hybrid and hydrogen and having spent many, many, many days of discussions with the Toyota engineers. I know that hydrogen is the solution for the long term for the planet. And we have an incredible capability, the subject matter expertise we have covers all areas from production, storage, distribution, end user applications. And it probably will take a bit of time to explain all what we are doing. But I can assure you that we are end-to-end both in terms of assurance, data management but also inspection. So I'm very excited. It's obviously a nascent market at the moment, but it's the future.

Okay. And maybe if I just -- based on the comments that you made on kind of B&C and CapEx and China taken together. I suppose if you think about that guidance staying that robust for the group, while increasing in resources, I mean, is there any comment to make on the shape of that robust for the group? Obviously, we've not changed organic today, and I think that's fair. But is there anything to comment on that?

No, I understand. I mean, a couple of things. I think 4.8% like-for-like revenue growth year-to-date despite the situation in China, I would say it's pretty close to robust in my own lexicon. Obviously, out of China is well above the threshold of robust. Look, from my perspective, we could have done without the COVID-19 situation in China, no question about it. But if you look at beyond the short terms, look, the performance of our Product business, right? 7% like-for-like revenue growth outside of China is an incredible performance. If you look at what we did in January, April in 2021, we are well above the 2019 levels. And frankly speaking, we are doing that with good revenue growth, right? We don't discount at Intertek. We have a market leadership position. We have the strong pricing power. And we are getting both volume and pricing and obviously a mix effect. So product is as strong as have been. I mean look at the double-digit performance of Business Assurance. I mean we've talked about investments in supply chain, et cetera. It's happening. I mean look at Softlines. I mean, so I could go on and on and on. As far as trade is concerned, there is no question that the world will need more agri products. And the context I've provided on the call to say outside of Russia and Ukraine, we are very strong. We are very weak in Ukraine and Russia in terms of agri and Caleb Brett, which means that the redeployment of supply chain is going to be a net positive for us, and the business is doing well. As far as Caleb Brett is concerned, look, mobility is back. The demand is still 4% to 5% away from the peak we saw at the end of 2019. So there is more opportunities to grow here. And again, the redeployment of the supply chain outside of Ukraine and Russia, I should say, Russia in terms of oil and gas export, is good for Caleb Brett because we are small in Russia, and we are very big where the market is elsewhere. So I'm very, very confident about the guidance for trade. As far as resource is concerned, we just talked about it, right? Minerals is having a very, very strong year. Again, the demand for steels, given the infrastructure projects, is huge. As you know, we are investing in growth in these markets. We've got a niche marketed position in certain end markets. And we just talked about resources. So -- and if anything, the performance in the first 4 months of the year is a bit on resources, right? I have upgraded my resources outlook, as you would have noted.

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

Just 2 for me. Firstly, just kind of picking up on something you've mentioned just now. Business Assurance looks -- the growth rate looks to have accelerated versus the second half of last year. Can you just talk about what's changing from a client perspective and kind of a product service perspective within that key market? Secondly, your net debt guidance has gone up. Can you just talk through the moving parts and to the extent to which that's just FX? And kind of related to that, your interest expectations both near term and assumably there's some puts and calls within that and what the longer-term interest charge looks like it's going to be given what we know now?

Thank you. I'll do question 1 and Jonathan will take question 2. So look, if you step back and think about what has happened over the last few years, there is no questions that boards, CEOs, CFOs, risk heads in companies have been surprised by the lack of resilience in their operations, the lack of data, the customer service issues they had. They went into COVID-19 thinking they were totally in control of the supply chain. My view, I've been talking about it for now quite a while, I believe that the complexity inside corporations has gone really, really so big that it's very difficult for companies to just do TIC and just get their way in terms of quality, safety and sustainability. So if anything, right, we've been talking about risk-based quality assurance through our ATIC solutions for now quite a while with our clients. And we've done, as you know, a lot of marketing and selling with ATIC since 2016. I think all these investments that we have made are resonating with our clients. And the number of calls we get in terms of looking at the Assurance solution, we can help them in a way is significant, and it's showing in our numbers. So let me just -- and that's why we made the acquisitions in SAI. So maybe if I were to step back and give you a sense of how we're leading the market from a value proposition in terms of Assurance because we are the one that created the ATIC market, as you know, in the industry, and we are leading the market with our innovations and end-to-end Assurance value proposition. So number one, we are very strong in ISO certifications. And you know what it is. These are very well-known quality management systems, which are required for companies to underpin their risk statements when they look at risk in the business. And this continues to grow, of course. And there are some really, really interesting segments that are accelerating like health and safety, of course, energy, management and forestry, for instance. The other area, which is important for us is what I call non-ISO, which are basically all the solutions that we offer that go beyond the ISO standards that basically help our clients get a high level of resilience and safety and data advantage in the supply chain. And I could talk about lots of examples, but one of the biggest growth that we are seeing is with our InLight solutions, which we launched many years ago, that basically helps companies to track the Tier 1, Tier 2, Tier 3 suppliers data. And why it's important in terms of quality and safety data is customer service, it's also paramount in terms of sustainability. Because if they don't do the mapping, I was just talking about, and we've done that with our clients for a long, long time, they cannot do their net zero analysis, looking at Scope 1, Scope 2, Scope 3 because if you don't have your Tier 1, Tier 2, Tier 3 data, you cannot do Scope 3. So this is continuing to grow extremely well. There is a business that you might recall we acquired a few years ago, which obviously didn't do too well during COVID-19 but is really growing at incredible rate, is CSF, it's the business that's providing risk-based quality assurance in the tourism industry, and I talked about the simulations that they are doing. The other area that is doing extremely is people assurance, especially with remote working, hindsight is a wonderful thing. I mean to have made the acquisition of Alchemy, before working-from-home was going to become a trend was something that worked for us very well because if you are doing people assurance, working-from-home is a constraint and our technology helps our colleagues to do so inside our customers' organization. So people assurance is doing extremely well, Alchemy in terms of manufacturing and retail. And then lastly, sustainability. I think we've talked about sustainability quite a lot over the years. As you know, we have an end-to-end solution that is second to none. There is no company that offers the choice of solution that Intertek offers in sustainability. We are the market leader. And we start with what we call operational sustainable solutions, unless you basically start mapping out your sustainability risks and understand the challenges at the operational level, you cannot have ESG, if you want, annual report that makes sense, then we're, of course, involved in the corporate process certifications. And finally, disclosures is a big focus for all corporations. Although the regulator is lagging, companies know that having independently verified disclosures is super important. And let's not forget that despite all the work that's been done in multiple corporations, the net zero action plans are not yet in place in many companies. I mean we have it at Intertek because we've been focusing on it for many, many, many years. But the level of -- or the lack of granularity inside corporations in terms of understanding Scope 1, Scope 2, Scope 3, how do you work with science-based targets. I mean this is an area where with our Assurance business, we are leading here. So these are essentially the drivers of our Assurance performance, Andy.

Yes. Andy, and on your question around net debt, the majority of our debt is in U.S. dollars. So the move we've made in the guidance is purely just the strengthening of the U.S. dollar and that reflecting through into the guidance. On the net finance costs, again, we've made a small adjustment. We've got higher interest expense because of the debt in dollars, but that's more than offset by year-to-date FX gains on some of the revaluation of the monetary assets and liabilities. In terms of long-term view on net finance costs, a good proportion of our debt is at fixed rates. So that certainly gives some protection in the medium term.

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

It's Rory here from UBS, just 2 from me, please. I thought I'd follow-up on the towering disruption and the potential for recovering the lost work you mentioned. Traditionally, I thought it was hard for a lab-based business to see much kind of catch-up after downtime. So can you remind us how any catch-up evolved through maybe 2020 in China after the first lockdowns? And then more detail on what you could budget for H2 this year? And then second, you commented on rising inflation, of course. And are you changing how you price contracts or structure agreements with the clients at all? Perhaps anticipating inflation could be more of a structural issue for the next few years? And could you sort of quantify the kind of pricing element of your growth and how that's changed this year?

Yes. Look, thanks. I mean, on your first question, in our business in Shanghai is just not only lab-based, right? We have, of course, lab-based activities, Hardlines, Softlines, electrical, but we also have inspection activities. We also have Business Assurance. Of course, we are very strong in Business Assurance. So if you want to look at the catch-up, if you want, profile, it's going to basically depend on where you are. There is no question that the audits that were not -- they were not done or inspections were not done during April, May will be done later on because companies have to do that. If you look at electrical, which is a very strong business of ours, we are, as you know, market leader in China. Typically, the work we do with our cars on electrical is at the R&D stage, right, where we help them develop the specification. We certify the product, the large projects. And it's work in progress, right? The work has been basically stopped for quite a while and will resume. And as far as Softline and Hardline is concerned, it's going to be basically a function of what has been basically put on hold because they had work in progress as a lot of them happen. And if they're going to need to resume their export, what has that been produced and how the client is going to look at it, some of our clients in the fast fashion, for instance, will be able to catch up faster because they've got faster supply chain. So it's going to be depending on which industry you are. As far as inflation is concerned, look, we've been managing inflation forever at Intertek. We've always had inflationary pressure in certain markets we operate in. Our view is that we are always either premium priced or price priority. We've got strong pricing power. Our customers understand the value in terms of customer service that Intertek provides. As you know, we have a tremendous reputation in terms of technical knowledge and customer service in the industry. And we basically tend to pass 50% of the pricing -- of the inflation we see in price increase. And the rest, we fund it through productivity. There is nothing we need to change structurally to the way we deal in terms of price because we are experienced and we've got the tremendous track record that you know in terms of margin management. And as I said in the opening remarks, right, we are getting a well-balanced volume price revenue performance in the first 4 months of the year versus what we had in 2021. The reason why I mentioned that in my remarks is because I wanted to be transparent. I mean you see it in the news, and I wanted to give you a sense of what's happening in the business of Intertek, but I'm not worried.

Next question comes from the line of Paul Sullivan from Barclays.

Sorry to ask you about margins on a revenue call. Can you help us isolate the margin drag from China that you talked about? Your thoughts on first half, second half phasing? And are you broadly comfortable with the consensus expectations of about 17.6% for the year? Secondly, how are you thinking and how should we think about sort of macro deterioration, risk of U.S. euro recession as we go into the second half of next year? And how do you think about that in terms of the impact on your business? And then sort of longer-term bigger picture, I mean, there have been lots of chat around deglobalization. I'd love your thoughts on that.

Okay. So look, Paul, as you know, this is a trading statement, and we are talking about revenue today. We'll report on margin at H1. I've tried to be precise in the statement on how to think about your models. I don't think I have more to add on that. I think it's pretty clear for everyone. As far as the -- your question about the worries in terms of growth moving forward in the global economy, of course, we are seeing the news like you do. What I would suggest is that you look at the performance of the company in 2009, and you will see how well the business did in a very, very tough global recession. And as you know, what we do is mission-critical for our clients around the world. The price we charge is premium, but in the scheme of things, it's not huge. And that's the insurance policy that companies need to have to operate in the short, medium and long term. And as you know, the lion's share of our revenues is in products and profit is the same. And in Product, our volume of activity is a function of number of SKUs and tests we do. It's not a function of number of t-shirts being sold. I talked about how excited I am about the trade business because there is still some opportunities for growth in Caleb Brett. And if anything, the Russian situation is adding some excitement to our Caleb Brett business for the reasons I talked about and I talk about agri and resources. Look, the world cannot not invest in energy because there is a big question of energy security, which is on all the headlines, and it's going to have to be through trade for oil and gas and renewables. And as far as the global picture, in terms of where is the supply chain of our client is going to evolve. Look, as you know, it always moves. It's a function of where companies want to invest. I think onshoring is going to happen in certain strategic categories. Shorter distance, offshoring will continue to be a trend. I can see businesses like Turkey or Morocco or North Africa because of Egypt doing very well. So -- and if there is a reshoring of supply chains, we can help with our clients. So look, we have a very, very strong business model that has proven over the years that we do well in good and tough times.

The next question comes from the line of Arthur Truslove from Citi.

My first question is on resources. So you mentioned that the energy CapEx was -- growth CapEx was up but sort of not double digit like some of your peers. I'm just wondering sort of what the sort of difference was there. Question two, in terms of Caleb Brett. I'm just wondering whether you'd sort of had to take on any people to -- or any significant number of people in order to fuel the recovery that you're starting to see? And thirdly, just in terms of China, just wondering how far down that business has been year-over-year? And also, have you seen a shift of activity outside of China from China as a result of what's been going on there? So is there an element of the sort of ex-China growth maybe at the expense of China?

Yes. Thanks. Look, as you know, I never comment on the performance of my competitors or peers. The one thing I would say, when you look at the Intertek business model, we are different in terms of CapEx inspection. With Moody's, we are the absolute market leader in terms of engineering-based inspections in both traditional oil and gas and renewables. And there is no question that the oil and gas investments are starting to become material for the industry. And I'm not worried at all because we know the backlog that we have. As far as Caleb Brett is concerned, it's a great question. As I said, we are not back to the peak that we saw in 2019 with Caleb Brett. So we still have some slack in terms of capability and the revenue growth we are seeing is very good in terms of flow-through because we are not having to invest. This is the global picture. There are certain markets, of course, where it's not the situation. But I'm trying to give you the global business. As far as China is concerned, look, I've tried to be very precise in giving you like-for-like for the group and outside of China. I think, I will leave it to that. I mean you will get a sense of the numbers. And then how much of activities have been directed at sort of China? Look, as you know, supply chain is very complex, right? And it's not like if you're producing collection A or collection B, you can move your production and testing from one country to the other. And are some of the companies putting orders in other markets to derisk the rest of the year moving forward? Of course. Have they done that in the month of April, May? I don't think so, it takes a bit of time. But equally, everybody is watching how fast the business is going to start. And let's also not forget that Shanghai is 25% of China, but the rest is operating as normal, right?

The next question comes from the line of Anvesh Agrawal from Morgan Stanley.

Most of questions have been answered. Just one question on the deglobalization theme that you were discussing before. I mean, more than the volume, how should we think about the margin profile in case that is more onshoring? I mean the cost of running a lab in China is probably quite different from what you probably did in Europe. Or you are able to price up your contract if indeed there is more onshore testing than offshore testing.

Yes. I mean, look, this is obviously an important topic. As you know, there will be a different approach by industry and within industry on what could be onshore, right? To give you an example, right? There is no question that battery technology is going to be onshore and we are seeing it already, right? There is no question that some of the pharma players are doing the same. In items that are slightly lower value in terms of consumer price, there is no question that China of these worlds will continue to have a significant advantage. So yes, there will be some movement. It's going to be gradual. It's going to be category and depending on the value added that people put in their products. As far as our own pricing is concerned, Look, we always price our global contract based on the cost of doing business in the regions where we produce the testing for our clients. right? So that's one thing that I would want you to bear in mind, and I wouldn't assume that Softline testing out of China is not attractive in terms of margin, for instance.

The next question comes from the line of Kate Carpenter from Bank of America.

Could you just remind us how much flexibility you have within your operations in China? So to the extent that you're able to shift samples between labs and potentially offset some of the revenue headwinds in Shanghai over the past few months. That would be quite helpful. And then in terms of the July reopening, just to clarify, does that assume that your clients are back to normal as well? Or is that essentially when you feel that you can kind of fully restaff your operations and get your own activities back up to speed? I'll leave it there.

Yes. I mean, look, on your first question, really, we are very, very connected to our clients. As you know, the Shanghai lockdown has meant that everything was paralyzed, right, production, transportation, testing services. So if one of our clients has been able to produce and wants to basically test samples outside of Shanghai, of course, we will do that. That's part of who we are. But the situation in Shanghai is very, very challenging, as you know. So I wouldn't think that there's been a huge uplift outside of the Shanghai operation. As far as the reopening is concerned, look, I tried to share our planning assumptions. I don't have a crystal ball. I'm working based on the intelligence that I'm getting from our teams based on the data we have. It is our view that they will gradually reopen in the month of June and that we should be back to normal in the 1st of July, certainly from an Intertek perspective. For our clients, it will basically depend on the industries. They've got some supply chain issues themselves. I don't expect that to be a big issue for Softlines and Hardlines, nor electrical because we work at the R&D stage, but it will depend on our clients, of course, right? It's a very complex supply chain ecosystem.

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

A couple left for me, please. Firstly, I'd like to return to the comments you made around pricing and ask for sort of clarification around those. The -- you said that there's a good balance between price and volume in the trading performance so far. So my interpretation of that is that prices on average have increased by a couple of hundred basis points, perhaps slightly more. And presumably, because you also said that you were actively raising prices through the quarter that the exit rate was somewhat above that. So around that, are those interpretations broadly correct? And at the exit rate, are you covering the current wage inflation as it stands? That's the first question. And then secondly, more specifically on your Electrical & Connected World activities. It feels to me in the statement that the actual low single-digit growth is slightly advance with your much more positive qualitative comments. And I wonder if you can either help me understand where the pressure points are or whether that's just really some impact of the China restrictions as well.

Thanks. Look, on pricing, right? So I mean it's just regroup. We've got pricing power in the market. We always try to deliver good revenue, which is a function of volume, price and mix. We have taken prices up in 2021, which has been talked about when I talked about the yearly results about the volume and price/mix in 2021. As we got into obviously 2022, we have been benefiting from this price increase. And if you want the exit or entry rate, in terms of price in 2022 compared to 2021 it's, of course, higher than 2021. And as I said, in the first 4 months, there is a good balance between revenue and price. I'm not trying to quantify it, but you're not fine in your analysis. The point I just tried to make is that we went into 2022 with certain assumptions if you want pricing strategy. And because we've seen like you've done, we've seen higher inflation than expected in certain jurisdictions, U.K., U.S. and Australia, we are going to be offsetting this with additional pricing, which we are starting to take now and will obviously benefit the rest of the year and try to, of course, offset the cost of doing business that is increasing a bit. As I said in the previous question, right, because we are starting from a very strong pricing power in the market and then we want to be fair to our clients, we typically pass 50% of the wage inflation or the inflation of our cost base to our clients. And the rest, we offset that through productivity because, as you know, we've got leverage as we grow to the top line. As far as electrical is concerned, look well supported. The only thing I would say is look at the history in terms of data. I mean, electrical was one of our best performing business line in 2020, and we are double-digit in 2021 in the first half. And you got a baseline effect here. I'm not worried about electrical at all. The backlog is very strong. As you know, we are the market leader outside the United States, good pricing power. So we're in a good shape there.

We currently have no questions in the queue. [Operator Instructions] We have no further questions in the queue. So I'll hand the call back to your host for some closing remarks.

Thank you, everyone, for being on the call today. I really appreciate it. And if you've got any additional questions, obviously, Denis is available to take any calls. So have a good day. Thank you.