Intertek Group plc (ITRK) Earnings Call Transcript & Summary

Hello, and welcome to the Intertek November 2022 Trading Update Call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Andre Lacroix, to begin today's conference. Thank you.

Good morning to you all, and thanks for joining us on our call this morning. I have with me Jonathan Timmis, our CFO; and Denis Moreau, our VP of Investor Relations. There are essentially 3 main points on our call today. In the last 4 months, we've delivered a robust trading performance at constant currency with a broad-based good like-for-like revenue growth in products and a like-for-like revenue growth acceleration in our trade and resource businesses. For the full year, we are confident that the group will deliver robust like-for-like revenue growth with good earnings growth at constant currency and at actual rate, strong earnings growth and a strong free cash flow. Looking beyond 2022, we'll continue to deliver sustainable growth and value for all stakeholders, seizing the exciting organic and inorganic epic opportunities ahead. I'll start our call today answering the most frequently asked questions regarding Intertek. The first question we get these days is how is inflation affecting your performance? And how strong is your pricing power to offset inflation? You will recall that we didn't cut cost in 2020. We wanted to keep our ATIC capability intact for our clients and help them resolve the COVID-19 disruptions they were facing in their supply chains. Based on the growth acceleration we saw in the second half of 2021 and in 2022, we are, of course, investing in OpEx capability. But given the higher-than-expected inflation in several markets like North America, U.K., Europe and Australia, this is impacting our margin in the current year. Our superiority customer service gives us a strong pricing power. And notwithstanding the good pricing performance we saw this year, we have taken additional pricing in H2 in this market which will be beneficial in 2023. The second question we get this is how resilient is your business model in an economic recession. As you know, we are very fortunate at Intertek. We operate a high-quality growth business with excellent fundamentals and intrinsic defensive characteristics. Intertek solution, we offer a mission-critical for our clients to make sure they can continue to operate safely. Our revenue streams are highly diversified, and we offer a broad range of ATIC solution in 17 industries across more than 100 countries. Importantly, we have built over the years strong and excellent lasting relationship with our clients, benefiting from very high retention rates. I'd like to take a step back and compare Intertek today versus Intertek in 2009. In 2009, the company delivered a resilient performance with 3.5% like-for-like revenue growth, 16.9% margin and a 26.5% ROIC. Since then, of course, our portfolio has evolved and became stronger given the compounding effect of the organic growth we've delivered across our business lines and the investments we've made. Specifically, our high-margin product business was 63% of the group revenues in 2021. That compares to 55% in 2010. This position us well to benefit from the high ATIC investments of our clients moving forward in innovation, assurance and sustainability. Our trade business was 21% of the group revenue in 2021 compared to 32% in 2010. Our Resource business is now 16% of the group revenue compared to 13% in 2010, and our strong ATIC portfolio in a world of energy will enable us to benefit from the increased CapEx investment of our clients in the oil and gas and renewable sectors. The third question we get is how are your Chinese operations performing? We have excellent businesses in China with leading scale positions. The lockdown restrictions had, of course, a significant impact in our China business between March and June, with Shanghai being the most impacted. It has been operating as normal from July onwards. And as expected, our business has rebounded quickly, delivering a good like-for-like revenue growth at constant currency in the July-October period. However, we expect the revenue momentum in our Softlines and Hardlines business to slow in Q4 as a sum of our North American and European retailers have postponed the launch of new products as currently they're focused on reducing their inventory levels. The fourth question we get is what is Intertek's M&A strategy and how is our pipeline looking? Our M&A strategy targets investments in attractive growth and margin sectors to augment our organic performance. Since 2014, we have invested circa GBP 1 billion and have acquired businesses that brought new solutions that we have scaled up through our global network or that have expanded our geographic coverage. We've integrated and operationalized investments successfully as evidenced by our excellent ROIC. The recently acquired businesses, SAI Global, GA Brazil and Clean Energy, have delivered GBP 120 million of revenue in the first 10 months of 2022. Over the years, we have built a superior operating platform to deliver attractive returns from acquisitions and M&A is critical to our value creation approach moving forward. Our pipeline is very healthy. What is the outlook for operating margin? And is there any risk of deterioration, is the other question we get these days. Given the impact of China in H1, the expected divisional mix and the impact of inflation on OpEx capability investments we are making in North America, U.K., Europe and Australia, our margin at constant currency in 2022 will be below 2021. As you know, in 2021, we benefited from GBP 10.5 million of additional government subsidies, which means that our margin in 2022 will be slightly below 2021 adjusted for those subsidies. Margin equity revenue growth is the way we run Intertek and is central to the way we deliver value in each part of our portfolio. We are confident we'll deliver progress on margin moving forward. Let's now discuss our trading performance. The group has delivered a robust like-for-like trading performance in the period at constant currency. Our product business delivered a good like-for-like revenue growth, which was slightly below our expectations. Recently, we saw a slowdown in new product development from our Softlines and Hardlines clients as they focus on short-term reduction of higher-than-expected inventory before year-end. Also, we have not seen automotive clients increase the R&D investment in H2 given the challenges they face in their supply chain. In the last 4 months, our product like-for-like revenue growth was 4%, driven by double-digit like-for-like revenue growth in Business Assurance, high single-digit like-for-like revenue growth in building construction and food, mid-single-digit like-for-like revenue growth in Softlines, low single-digit like-for-like revenue growth in Hardlines, electrical and chemical and pharma, double-digit negative like-for-like revenue within Transportation Technology. In our Trade division, the increased demand for energy and agri products has enabled us to deliver a robust like-for-like revenue growth of 7.1%. In the resource sector, we've delivered a strong trading performance with a 9.7% like-for-like revenue growth. The momentum acceleration in H2 was driven by increased CapEx investments from our clients in traditional oil and gas and renewable sectors as well as new contract wins. Turning now to the performance of the group on the year-to-date basis. We've delivered a revenue growth of 9% at constant currency and 15.5% at actual rate. Like-for-like growth was robust and broad-based at 5.2% at constant currency, benefiting from both volume and pricing. As I've already mentioned, we have taken additional pricing in H2 to address the higher expected inflation in North America, U.K., Europe and Australia, and that will be beneficial to the group in 2023. The SAI GLA and CA acquisitions we recently made to scale up our portfolio in attractive growth and margin sectors are performing well and have delivered 3.8% revenue growth for the group. We continue, of course, to make progress on cost and productivity. Our day-to-day cash performance disciplines continue to drive a strong free cash flow. And as you would expect, we continue to invest in growth in OpEx capability, innovation and capacity expansion. Let's now discuss the financial guidance for 2022. We expect to deliver robust like-for-like revenue growth at the group level at constant currency with good like-for-like revenue growth in products and robust like-for-like revenue growth in trade and resources. Given the impact of China in H1, we expect divisional mix and the impact of inflation on the OpEx capability investments we are making in North America, U.K., Europe and Australia, our margin at constant currency would be below 2021 and slightly below our 2021 underlying margin if we exclude the GBP 10.5 million additional government subsidies we received last year. We expect the net finance cost to be in the range of GBP 34 million to GBP 36 million. Our guidance regarding tax is unchanged between 26.5% and 27%. Our minority interest guidance is between GBP 19 million and GBP 20 million, and our CapEx investment guidance is in the range of GBP 120 million to GBP 125 million. A brief update on currency, the average selling rate since the beginning of the year applied to the full year results of 2021 would provide an uplift of 600 to 650 bps at the revenue at earnings levels. Our financial net debt, excluding future change in ForEx rate, our M&A is between GBP 750 million and GBP 800 million. Overall, in 2022, we expect the group to deliver good earnings growth at constant currency and a strong earnings growth and free cash flow at actual rates. Looking beyond 2022, we are well positioned to continue to deliver sustainable growth and value for all stakeholders. Our approach to value creation is based on the compounding effect year-after-year of margin equity revenue growth, strong cash generation and disciplined investment in growth. That approach has delivered 13% annual TSR in the last decade. We are a high-quality growth business, delivering value for all stakeholders with excellent fundamentals in customer service, epic structural demand, margin management, capital allocation discipline and operating culture. Let me explain you what I mean. We provide a superior customer service with our ATIC solutions and size-based customer excellence is our competitive advantage. We measure our customer service with circa 6,000 interviews a month, and we're continuously becoming ever better with both process improvements and industry-leading innovations. That's why we operate with a very high customer retention. From an ATIC's structural demand standpoint, stakeholders' expectations in the post-COVID-19 world in terms of quality, safety and sustainability are higher, making the case for our risk-based quality assurance solutions stronger. That's why we expect the high demand for ATIC solutions to drive a higher organic growth post COVID-19. Margin equity revenue growth is central to the way we deliver value. It starts with our creative portfolio approach, targeting organic and inorganic investments and attractive growth and margin sectors. We've established over the years the continuous improvement performance approach at every layer in the organization to control cost and right productivity improvements. That's why we expect margin progress moving forward. Our strong focus on cash management has stepped up, as you know, our free cash flow performance over the years, enabling us to invest 4% to 5% of our revenues in CapEx, reward our shareholders with a progressive dividend policy targeting 50% payout and operate with a strong balance sheet, giving us the firepower to invest in M&A. That's what we mean with disciplined capital allocation. At Intertek, we are a purpose-led company. We are all passionate about making the world a better place, bringing quality, safety and sustainability. We have growth oriented to the company, attracting, developing and retaining the best talent in the industry. We operate a high-energy, people-centric and innovative culture, focusing on delivering the value that is sustainable for all doing business the right way. In summary, in the last 4 months, we've delivered robust trading performance at constant currency with a broad-based good like-for-like revenue growth in products and like-for-like revenue growth acceleration in trade and resources. For the full year, we are confident that the group will deliver robust like-for-like revenue growth with good earnings growth at constant currency and at actual rate strong earning growth and a strong free cash flow. Looking beyond 2022, we'll deliver sustainable growth and value for all stakeholders, leveraging our excellent fundamentals and seizing the exciting ATIC growth opportunities I just talked about. Thank you for your attention, and we'll now take any questions you might have.

[Operator Instructions] We'll now take our first question. It comes from Suhasini Varanasi from Goldman Sachs.

A couple for me, please. Can you give us some color on how the headcount investments are going, please? How many have you hired? And has it been completed? Or is there more hiring needed? And secondly, when we talk about inflation on cost, thank you for the color there, but is it possible for you to give some color on as it stabilized sequentially? Or is the inflation still picking wages? And if not, then do you need to basically be a little bit more aggressive on pricing and therefore, margin implications going into next year?

Okay. Thanks for your questions. I mean, let me start with the second one. Look, what we described in terms of inflation when we announce our H1 results is basically what we see today. So we've not seen any change. That's why we took additional pricing in these markets in H2, which will obviously benefit 2023. So that's the situation we are seeing today. Of course, I'm watching the news like you every single day, and we'll see our installation unfold in the next few months, but no change from our perspective. As far as investment in capability, it's essentially investments in our productive heads, essentially colleagues in the labs, in the inspection teams, in the audit teams that basically needs to be ready for additional growth in the sectors where we're seeing growth were above 2019. Equally, we are very focused on productivity improvement. So it's not a simple adding air headcount because we've got double-digit growth in Business Assurance, for instance, is making sure if you take business insurance, sure that we look at our audit utilizations by program, by country based on the order book we have. So that's what we do. And this is something we've always done because we are a growth company. And you always have in this business to invest in capability, if you want to deliver growth because we have people business. What's different this time around is, of course, the higher-than-expected inflation in this market. That's why we are talking about it.

So just to be clear, it's all done, the headcount investments that you planned?

Sorry, the connection is really poor. I couldn't hear the last part of your question.

So I just want to confirm that all the headcount investments have now been completed to the most extent?

I mean, look, the investment in capability is something we do all the time. If you look at our headcount over the years, it has basically grown in line with our revenue. We have basically invested in this market based on the growth that we are seeing for the next 6 to 12 months, but we'll continue to invest if there is a need to do so. I mean that's the heart of our value proposition, right? We have people based in the service organization, right?

We'll now take our next question from Sylvia Barker of JPMorgan.

Three quick questions, please. Firstly, can you please just confirm the pricing impact in the 4 months or where it's running now for the second half? I think you said around 1.5, 1.6 in the first half. Secondly, on the progression of growth during the quarter, it sounds like Q3 was okay, but maybe some of the weakness, especially on the product side was more pronounced in October. Can you maybe just comment around the growth rates in the group and also products? And then finally, on the Resources contract wins, can you discuss the kind of customers and how's pricing on these contracts?

As far as pricing is concerned is what we said in H1 is still we see it's about 1/3, 2/3 in terms of the benefit that we get in our revenue mix. And this is for us the right balance and the right approach. As far as your question on growth, look, no question, that we have a high base to come again in product. As you remember, we had a really robust July-October period. And it's no surprise to anyone that the automotive industry is facing significant supply issues, which is impacting, obviously, their cash flow to start with as well as a profitability. And basically, we've seen our automotive clients put a bit of a break, if you want, so we have to use automotive metaphor on the R&D investments. We've not seen the increase we expected I don't think this is going to be like this fiber because we all know that the automotive industry needs to invest in green powertrain. As far as the other area in our product portfolio, where we've seen a bit of softness recently, is Hardlines and Softlines. I've tried to explain it. What's happening is very simple. As you know, retailers basically order collections for certain period during the year. At the moment, they are very focused on Thanksgiving in the U.S. and Christmas shopping around the world. They've seen inventory buildup. And basically, they are very, very mindful that they need to deliver a strong cash flow for their shareholders at the end of the year. And they are basically putting a bit of a slowdown in terms of new product development to basically clear the inventory. My sense, it's what they are doing now because they've got this challenge. But if you look at our Softlines and Hardlines like-for-like performance in the period year-to-date, it's a very commendable performance, and I'm really pleased with the work that our teams are doing around the world. So yes, there are these 2, obviously, dynamics I just disclosed or described, but I'm not worried about products. I mean, product is the start of Intertek in terms of margin, and this is obviously the lion's share of earnings. So we are really, really pleased with the direction of travel. And I would just to talk about assurance. If you look at the performance in our business assurance unit is delivering organically. And at the same time, we are integrating SAI, it's just a really stellar performance and clearly outperforming what I'm seeing in the industry. The other thing that I would say is sustainability continues to be center stage in discussions with our clients. I mean you heard about CSR, which is obviously taking a really, really good direction of travel for us, and they are being companies like us to be the approved OIT for nonfinancial data, which is going to be mandatory across all European countries very soon. This is a significant opportunity. And we know that the U.K. is going to follow suit. We know that the U.S. is going to follow suit and even small -- some small countries like Singapore are making some really, really strong progress on their regulatory drivers. So look, innovation sustainability and assurance in making supply chain resilience continue to be significant drivers in our product business. As far as your question on energy, look, we are very, very focused with our Moody organization, which is the market leader in terms of engineering-based inspections for any energy assets that is being produced by our clients and our clients are essentially the world of energy companies, and we provide the quality assurance at the point of production for these energy assets. And the investments, as you know, are increasing. There's been underinvestment in treasury oil and gas which is now being obviously a focus for all the oil and gas companies. And of course, everybody understands the importance of scaling up renewables. And these new contracts are linked to new investments that the energy companies are making or new big projects. We should not underestimate the impact that the new legislations under the Biden administration is going to have on the big project market in the United States. Obviously, we operate there with multiple business lines with our PSI business. You've seen the numbers, we are extremely well positioned because we are nationwide, and we are in the infrastructure inspection business and material testing. And of course, with our Moody business, we can provide the projections on the energy assets. And you know there is a huge investment in the United States. So it's very exciting.

We'll now take our next question from Arthur Truslove at Citi.

Can you hear me okay?

Yes, of course, yes.

Arthur Truslove from Citi. So firstly, on pricing. I just wanted to confirm, is it typically annual contracts that you signed from a pricing perspective? Or are they slightly shorter term? And is there any reason why you shouldn't see pricing go up similarly to inflation for next year? Secondly, are you able to give us some idea as to how competitive you are in things like 5G and anything beyond that in terms of testing on that kind of thing. Yes, I'll leave it there.

Okay. There was a bit of an echo. On pricing, your question about contract is very important. We operate several types of contracts, right? We've got long-term contracts, 3 to 5 years contracts with some of our global customers where we do have indexes closes in these to adjust pricing. We have obviously shorter contracts. If you look at the assurance work, for instance, we do typically the audit is for 3 years. Again, here, we've got indexes in the agreement. And then we've got, obviously, contracts that are on 1-year basis or project basis, right? And when I give, obviously, the direction of pricing, it's obviously trying to give you the data for the group augmenting all these various contracts, right? So that's how we operate. In terms of pricing, our view is that we really believe in long-lasting relationship with our clients, and we try in high inflation environment to basically focus on 50% of the pricing managed to productivity and 50% of the inflation [indiscernible] to productivity and 50% through pricing. As far as the connected devices and 5G, look, we are really well positioned because essentially, the big opportunity in 5G is how 5G is going to power all smart devices. And with our global electrical footprint, as you know, we are #1 outside United States and #2 in the United States. We've got the infrastructure, the connections across all industries. And what's really exciting about 5G is, of course, we all think as users about our tablets and our smartphones, of course, this is a big opportunity. But 5G in terms of manufacturing equipment in terms of network inside companies is going to be very, very significant, right? There are lots of views out there that says, once you got 5G in your producting -- producing units, you might not need Wi-Fi from BT for instance. So look, we are really well positioned, and it's all about smart devices, which goes from smartphones, tablets to obviously, intelligent fridges, intelligent cals, obviously, very, very strong robotics in the production units and warehousing. So very, really exciting for us.

We'll now move on to the next question from Kate Carpenter at Bank of America.

So 2 for me. So your CapEx guidance, it looks like it's been lowered quite a bit, particularly when you factor in for FX dynamics. Could you just clarify what the reason is behind this? And then could you also remind us which divisions and geographies, the CapEx is being allocated to as well as the split between maintenance growth and technology investments? And how that CapEx -- those CapEx costs are being impacted by inflation? And then my second question on Softlines and Hardlines, could you just clarify how much the organic growth during the July-October period was supported by a backlog of samples from the lockdowns in China?

Look, on the last question, Hardlines and Softlines, look, the Softlines and Hardlines industry are very fast-moving industry. So there was, of course, a bit of catch-up in the month of July, August, but it goes ever, very fast. So I would say it's minimal. As far as CapEx is concerned, look, when we give CapEx guidance is really an envelope, right? And if we don't need to spend it, we don't spend it. We are very disciplined. Look, the reason why we've lowered the guidance a bit is because some projects are being moved into the new year. I mean the components and semi-conductors supply chain issue that you hear is also impacting the equipment that we buy around the world. And there is nothing much to read into that. We really, really want to continue to invest in growth. And our CapEx is essentially targeting, as you would expect, maintenance CapEx, when we need to do the right things to keep our units operating. We invest, of course, in technology, as you can imagine, both to support our day-to-day business, but also to support the innovation activities that we have throughout the world. And then we invest in new equipment and capacity expansion. So these are -- and frankly speaking, the investments are targeted to the business lines that got the biggest growth opportunities and the highest returns for us. So it's really broad-based.

[Operator Instructions] We'll now move on to our next question from Paul Sullivan at Barclays.

A few for me. Firstly, just on the margin shortfall. How much of it is mix versus an absolute shortfall of product? And then secondly, on transport and the deterioration we're seeing in Softlines and Hardlines, it sounds like we should view that as somewhat transitory? Or do you think it is a consideration that we need to factor into our thinking when it comes to sort of margin expectations into next year or certainly the first half of next year? And then sort of optically or from a headline basis, your organic growth is coming under both SGS and BVI. I know the portfolio is clearly -- aren't exactly the same, but how do you charge sort of market share? And how important is it to you?

Thanks, Paul. Look, I wouldn't talk about a margin shortfall. What we're trying to basically explain is the constituencies of our margin. And the reason for the margin being lower in 2022 than 2021 is because of the GBP 10.5 million additional subsidy we got, which is a significant amount of money. And as you know, in terms of bps, it's quite important. And then we are saying we're going to be slightly below the underlying margin. And the reasons I've tried to explain them, right? There is, of course, a divisional mix with trade and resources growing faster than product. Mechanically, you've got a divisional mix. We cannot obviously forget the impact of China. And as you know, China is very important for us and very important for our product hands your question about product, of course, the margin for the full year within product going to be impacted by the China lockdown effect in H1. And then I talked about the investment we are making in operational capability. And as you know, inflation is higher than expected in several markets. And when we hire proactive capability to cope with the growth, we have to pay a slightly higher level of wages and it's impacting obviously our margin. So that's basically where we are not concerned at all about the margin performance of the group. As you know, we've always delivered a very stellar performance in terms of margin equity revenue growth and free cash flow. This is obviously the algorithm that we use to deliver value for our shareholders, and this is continuing. And you will see that there is plenty of opportunities moving forward to continue to progress on margin. As far as your point about what's happening in transportation technology and Softlines, look, as you know, companies are very financially astute and very focused on profit and cash. And I understand why the automotive industry has to put the breaks in the short-term R&D investments because what they're facing is very significant. Is it changing the structural growth drivers in transportation technology? Of course, not. And we are, as you know, investing in new powertrains being hybrid or electrical. So I'm not worried about transportation technology. And also, I'm not worried about Softlines and Hardlines either that just have a bit more inventory than they thought in their balance sheet and they need to deal with it. But our clients are very, very, very active in terms of developing new collections moving forward. Of course, they talk a lot about sustainability and how they basically get all their vendors to operate with the right stable -- so there is a lot of opportunities there. So I'm not worried at all. And therefore, I'm not worried at all for our product business moving forward. As far as your question about portfolio differences and nuances between us and our peers, of course, we've talked about it in the past. At the global level, it makes sense to compare these companies. At the local level, we do not always compete versus our 2 peers globally. There are businesses where we do, but we have a lot of local and regional and other global competitors. Your point about market share is important, Paul, and this is the way we run the company. And basically, we measure our performance at the local level in terms of relative performance. How are you doing versus your competitors? And the approach we take is we want to be the best partner for our local customers. And it's always easy, as you know, to grow volume by reducing price. But we are very disciplined in terms of pricing power. We never do that. But I can tell you that based on the discussions I'm having with my teams, I couldn't worry about businesses where we're losing market share. As a matter of fact, we are gaining market share. And if you do a careful, which I'm sure you will, side-by-side table looking at our July, August performance compared to what's been disclosed by others. You will see that in the areas where we compete, we are outperforming. I mean, look at our business assurance performance, for instance, and food performance. So this is essential, Paul, to basically track your relative performance versus the competition. But at the local level, whoever your competitor is.

That's very helpful, Andre. Can I just follow up on are you seeing peers or some of your competitors being more aggressive on price and trying to buy market share?

I tried to be very disciplined. I never comment on the activities and the performance of my peers. So look, the industry is an excellent industry in terms of price discipline. Are some of the players in the broader industry perspective, commercial at times, of course, you would expect so. But I'm not going to say much more than that.

Okay. That's great. Can I just also be greedy and just ask you what your thoughts are on share buybacks?

Well, I'll try to explain what our disciplined capital allocation policy is all about. And to my knowledge, I have not talked about it, so is the answer for you, Paul.

We'll now take our next question from Neil Tyler at Redburn.

I'd like to start off with a question about your sustainability assurance, your total sustainability insurance. And you split that into 3 categories. Of those, can you help us understand from a revenue perspective, which is the largest currently and perhaps rank them in terms of relative growth rates currently and then in which you see as the greater opportunity over the longer term. Then related to that, I suppose, in your E&P operations and resources, can you give us a rough idea of how relevant the activity, the work you're doing on renewables is currently relative to traditional oil and gas? And then finally, a short one on the operations in Government & Trade, the contract termination. Is that now largely annualized? And any other business -- I mean there's a fewer instances in the -- in your prepared remarks where you talk about exiting contracts deliberately. Is there any meaningful business that still needs to be either improved from a profitability perspective or exited?

Let me just start with your last question. Look, we're now there comping with the data which these contracts were stopped. So we are still a few months away. But in 2023, it should be dealt with. As far as renewables are concerned, as you know, renewables are the future. That's why we have invested in the solar energy Assurance business with CA. It's only 7% to 8% of the global energy supply. So the opportunity we have, as I was talking about, is both to take advantage of the expected increased investments in traditional line gas and renewables. As far as renewable is concerned, where do we play? We essentially are involved in all the major sectors. There is no question that CA gives us huge advantage in the solar energy world, both in terms of doing the quality assurance in the factories being in China or in Eastern -- Southeast Asia, but also helping our clients with solid project assurance management. What people don't know is that the solar panel industry is not very regulated and companies are basically making significant investments and not knowing exactly where to buy, what to buy and how to think about safety. As you know, the battery technology is still relatively new technology and the risks in terms of safety are not insignificant. There have been some reporting recently in the U.S. of major corporations having issues. So that's a big move we have made and where we're very pleased and the growth opportunities are very significant. And as I said, both quality assurance and the factory project assurance management in the customers' operations. As far as wind is concerned, this is obviously another nascent growing market. We are really, really well positioned with our Moody inspection expertise, and we take part in many projects around the world. We are quite well positioned also. It's a very small market. In hydrogen, I talked about it last time around. Happy to spend time, if you want, outside of this call to explain to you what we do on hydrogen. But we are really the pioneer here, and the conversation we are having with some of the oil and gas companies are reenergizing because everybody knows that it's going to be the big solutions in the medium to long term. One area that we should not underestimate is energy storage. As you know, when we move to a more diversified source of energy, grid management is going to work provided there is a good mix management, but also there is a strong energy storage. And there is no question here that battery remains a big opportunity. We are, of course, involved a little bit in hydro energy and which is quite small and nuclear. But we are really, really, really broad-based. And as you would also expect, we are pioneering carbon capture, which is starting the CO2 on the ground. We've got really, really exciting projects at the moment in the United States where we are helping the energy companies, they want to invest in carbon storage to make sure they've got the reservoirs to store the CO2 that are going to do the job because it's one thing to say you capture the CO2 from the Atmos where you put it on the ground, but is it going to stay in the right place. So we are really, really broad-based there. As far as -- and the growth are significant, opportunities are significant. As far as sustainability is concerned, that's a very valid question. If you go back to what we said when we talk about the purpose of Intertek, we always say we are providing quite safety and sustainability solutions to our clients, right? We've always have been involved on operational sustainable solutions management. What it is, is helping a given industry to basically address their operational risk in that industry. And this is where the core of our Intertek sustainable solutions are today. This is Industry-agnostic, industry specific, that's why there are a lot of solutions that we offer through our business assurance teams like energy management as well as life cycle audit and process management, you can imagine. And then we've got a loss of industry-specific solutions like chemical management in the Softlines business, CO2 and emission management in automotive industry. And, of course, energy efficiencies in the entire electrical world. And then in terms of who you can imagine, we're also involved there. The opportunity here remains significant because for companies to really make an impact on their sustainability scorecard, it's got to start at the heart of their operations in their value chain. And there are lots of operational risk inside corporations that are not being addressed. I mean we just launched, for instance, a SaaS platform called Talks Clear, which enables our brand in Softlines, for instance, to track the real compositions of chemicals being used in the factories to produce the garments for them, which they didn't have before because, as you know, our supply chain in Softlines is quite decentralized. So this is 1 example. I've talked about Textile Exchange in the past, where some companies have committed to disclosing the amount of recycled fibers in the supply chain, organic cotton origin. So you can imagine because consumers are very demanding. Traceability is driving the agenda here. And we've not talked about carbon labeling, but carbon labeling is also going to be a game changer moving forward. So they are all, if you want, the operational sustainable solutions. In addition to that, you've got 2 additional activities, which are investment activities. One is the corporate sustainability solutions, helping corporations, making sure they've got the right processes and procedures in place. And this is what we do with our TSA programs inside large companies. And then the other opportunity is the independent verification of nonfinancial disclosure, which is what I was talking about earlier today in the previous questions on CSRB, where the EU is the front runner here by putting regulation, which can make it mandatory for companies to disclose the nonfinancial information over the next few years, independently audited. And this is a big opportunity. Companies are doing a good job at improving their disclosures in terms of sustainable performance. But until companies have got independently verified claims in their report, they're not going to have the respect and the credibility from all stakeholders. And the world is going to be obviously expecting company to have financial audits for the financial metrics and independent audits for the nonfinancial metrics, and that's where the opportunity is, and it plays really, really well in what we do with business insurance because essentially, it's an audit of operating procedures, management performance and claims, and we do that all the time. The other important area in that space is, of course, how companies are dealing with net 0 lots, lots, lots of debate inside the company between Scope 1, 2 and 3 in direct and indirect. And here, we see a lot of work through our business assurance business, but also our Assurance business in the U.S., which is the leading authority in terms of carbon footprint, scoping and monitoring. So the opportunity is very significant. But to make it simple, the heart of Intertek today is our operations sustainable solution, which is growing double digit and going to continue to do so. But then we have these 2 other segments I just talked about.

Just a follow up on the last point you made on the independent verification work. Is the -- are the competitors against which you're, I suppose, bidding on for a better term, and those sorts of work, the same competitors that you see elsewhere in your business? Or is it a different competitive set?

No, it's a great question. And as you probably remember from our last call, within the industry, I'm sharing the sustainability working group and I just had a meeting yesterday with our teams. And of course, our competitors in terms of auditing the nonfinancial data is broader because the big 4s want to obviously play in that space. We have been lobbying the EU successfully and our advocacy campaign has created a breakthrough where now the EU has agreed to not let the big 4 be the sole auditors or nonfinancial reports in corporate EU. It's a measure. It's a major breakthrough for us because it was not a given. And it's going to open the market for our business -- Assurance Business. So yes, the company's safety is broader. But because we do so much in the supply chain, we have a huge advantage in doing so.

[Operator Instructions] Our next question from analyst Annelies Vermeulen at Morgan Stanley.

I just have a couple of questions left. So firstly, just again coming back to this, the timing of the recovery in Softlines in particular. You've said that you expect it to be a bit slower in Q4 with that overstocking of inventory and so on. How much visibility do you have going into next year? Do you think this is a theme that will unwind mostly in Q1? Or will it be something that may continue through 2023 in terms of those inventory levels of your customers? And then secondly, could you give an update on the situation on the ground in China? You mentioned that it's been basically normal since July. I read this morning actually that cases are upped to sort of backward levels again. So how concerned are you that you got a situation where you returned to what you had in the first half in terms of lockdowns? That's all.

Okay. Great. Look, I just -- I don't want to be dogmatic here. But I've not talked about timing of recovery, right? Just for everybody on the call, our Softlines business, in the July-October period, delivered mid-single-digit like-for-like revenue growth. So we are not talking about recovery. We are talking a bit of a softness in Q4. So -- and as I explained, companies have to deal with their short-term inventory issues, and I'm not worried about the growth opportunities of Softlines moving forward. This is a great industry, and we all know what the drivers are. As far as China is concerned, we are monitoring the situation, as you can imagine. As a matter of fact, I'm monitoring it on a daily basis. Every morning, I get an update about where we are in terms of cases in China by region, what it does on our operations. And I can say that, yes, we were impacted massively in Shanghai for the reason that we all know. But the lockdowns we've seen in the second half and the lockdowns we are seeing at the moment are not impacting our operations, but we are monitoring it.

We'll now take our last question from Karl Green at RBC.

Just 1 remaining question from me. Just on the M&A contribution. You've cited GBP 120 million of revenues in the year. If I just do some quick back of the envelope math and back out the first time contribution from CEA, it suggests that the SIA global business delivered about GBP 115 million of revenues in the first 10 months. And then grossing that up and not allowing necessarily for any seasonality, it suggests that revenues there are tracking somewhere in the region of about GBP 138 million. Just again, working through the math and working through the Australian dollar exchange rate, it looks like SIA Global isn't necessarily delivering much, if any, organic growth. So could you perhaps clarify just what is happening to SIA in terms of the organic growth picture and also possibly any margin commentary would be helpful, too.

Thanks, Karl, and good to have you on the call. SAI for us is on track. The first year is about the integration in terms of processes and people and policies and of course -- and of course, the synergies in terms of getting our teams ready to sell the Intertek solutions to the SAI clients and doing the reverse with into the clients, and last but not least, the cost. So based on our business plan, we are on track. As you know, SAI is not part of organic growth definition for 2020 so far. It will be moving forward. So I would not comment on that because we don't disclose it. But it's a great business. The integration is doing very, very well and where we're very, very pleased. And in terms of margin, the margin is in line with what we expect. And as you know, it's accretive to the group.

There are no further questions. At this time, I will now hand it back to Andre Lacroix for any additional or closing remarks. Thank you.

Thanks for your time and your questions. We appreciate you taking the time to raise all the topics that weren't raised this morning. If you have any more questions, feel free. We're here to help. Have a good day. Thank you.