Intertek Group plc (ITRK) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Intertek 2023 Results. [Operator Instructions] I would like to remind all participants that this call is being recorded. [Operator Instructions] I will now hand over to Andre Lacroix to start the presentation.

Good morning, and welcome to you all. In 2023, we have delivered a strong performance in revenue, margin, EPS, cash and ROIC. And I would like to start our call today recognizing all of my colleagues around the world of Intertek for their incredible support. Indeed, 2023 marks another year of consistent delivery with earnings slightly ahead of market expectations. Here are the key takeaways for our call today. First, we have delivered the highest like-for-like performance in the last 10 years, something that we are tremendously proud of. Profit conversion was strong with a margin improvement of 60 basis points at constant currency. We have delivered the highest ever cash from operation. We are on track to deliver our medium-term margin target of 17.5% plus. Given our confidence in the significant value growth opportunity ahead, we are increasing our dividend payout to circa 65%, and importantly, we expect to deliver a robust financial performance in 2024. So let's start with our performance highlights. As I just said, we've delivered a strong financial performance in '23. Our group revenue was up 7.1% at constant rate and 4.3% at actual rate. Like-for-like revenue growth was 6.2% at constant rate. Operating profit was up 11% at constant rate and 6% at actual rate. Operating margin was robust at 16.6%, 60 basis points up on last year. Our EPS growth were double digit 11% at constant rate. We've delivered a very strong ROIC of 20.5%, up 250 bps. We've announced a full year dividend of 111.7p, up year-on-year by 5.6%. And our balance sheet remains very strong. Our net debt-to-EBITDA ratio is 0.8. Our like-for-like revenue growth of 6.2% at constant rate was the best like-for-like performance in the last 10 years. The demand for ATIC solutions is accelerating around the world across all of our business lines. And our like-for-like revenue growth was broad-based driven by both volume and price. Our like-for-like revenue growth, excluding the Consumer Product division, was up 8.2%. The recent SAI, JLA and CEA acquisitions we've made to scale up our portfolio and attractive growth and margin sectors are performing very well. The integration of the recent acquisition we made in 2023 with Controle Analítico in Brazil and PlayerLync in North America are on track. Yesterday, we've announced the acquisition of leading providers of metallurgical testing services in minerals based in North America. The consolidation opportunities in our industry are significant and we'll continue to invest in organic growth. From a geographic standpoint, the revenue growth was also broad-based with Americas, EMA and APAC up by 7.6%, 7.1% and 6.4% at constant currency. And now I would like to give you an update on the performance of our China business. In China, 75% of our business is linked to the export sector. The Chinese export activities are up 35% compared to 2019, and as we know, down 6% compared to 2022. We grew our like-for-like by 4.6% in '23, outperforming the overall exports sector and our like-for-like performance was in line and consistent with a 4.9% CAGR we report in China between 2015 and 2022. We have a very strong business in China and we remain very confident about the growth opportunities ahead given the manufacturing excellence that China provides to all Western brands and, of course, the untapped opportunity in the domestic market. We provide our clients with total quality assurance powered by our unique systemic ATIC approach to quality, safety and sustainability. Our ATIC offering is well diversified with assurance, testing, inspection and certification representing respectively, 21%, 46%, 25% and 8% of our total revenue. Between 2015 and 2023, assurance and testing, that represent 2/3 of our revenues have grown double digits. Margin of 16.6% was robust and up 60 basis points at constant rates, and up 160 basis points if we exclude our Consumer Product division. How did we deliver such a strong performance? We benefited from fixed cost leverage linked to growth. The faster growth, the more operating leverage. Productivity improvements, we never stop working hard on productivity opportunities. Our restructuring program, which I'll talk about in a second. Our M&A was accretive in 2023. We had a one-off benefit from the property sales of circa GBP 5 million. These positive margin drivers were partially offset by the negative portfolio mix effect we saw, the cost of inflation and, of course, our investments in capability to accelerate growth. Margin equity revenue growth is central to the way we deliver value. And this time last year, we announced a cost reduction program to target productivity opportunities on -- based on streamlining some of our operational costs and making some technology upgrades. We've done better than we thought and our restructuring program has delivered GBP 30 million of savings in 2023, and we are expecting GBP 10 million of savings in 2024. Looking at our performance by division. We've made good progress, improving margin by more than 100 bps in 3 of our 5 divisions. Cash conversion was excellent. We've delivered the highest ever cash from operation, GBP 749 million with a cash conversion of 122%. That enables us to invest in growth, and we invested both in organic CapEx with GBP 117 million and acquisitions with GBP 40 million. Net debt declined by GBP 127 million to GBP 611 million. And as I said earlier, our net debt-to-EBITDA ratio improved to 0.8. Sustainability is an exciting growth driver, which we'll discuss later. Internally, we are focused on sustainability excellence in every operation. We have a net 0 plan and we are targeting net 0 by 2050. And we have reduced our CO2 emissions by 11% in 2023 and by 37% since 2019. Sustainability is, of course, much more than achieving net 0. We continue to make progress on customer satisfaction, diversity and inclusion, health and safety, compliance and engagement. I will now hand over to Colm to discuss our full year financial details.

Thank you, André. In summary, in 2023, group delivered a strong financial performance. Total revenue growth was 7.1% at constant currency and 4.3% at actual rates. Sterling strengthened compared to major currencies and has impacted our revenues by 280 basis points. Operating profit at constant rates was up 10.9% to GBP 551.1 million, delivering a margin of 16.6%, up year-on-year by 60 basis points at constant currency and 30 basis points at actual rates. Diluted earnings per share were 223p, growth of 11% at constant rates and 5.6% at actual rates. The group delivered record adjusted cash from operations of GBP 749 million, up year-on-year by 3.7%. Adjusted free cash flow of GBP 378.4 million was down year-on-year by GBP 7.9 million as the growth in operating cash flow was offset by higher tax payouts and financing costs. We finished 2023 with financial net debt of GBP 610.6 million, down year-on-year by GBP 127 million, and represents a financial net debt to adjusted EBITDA ratio of 0.8x. Turning to our financial guidance for '24. We expect net finance costs to be in the range of GBP 41 million to GBP 43 million, excluding FX. We expect our effective tax rate to be between 25% and 26%. Our minority interest to be between GBP 23 million and GBP 24 million and CapEx investment to be in the range of GBP 135 million to GBP 145 million. Our financial net debt guidance excluding any major changes in FX rates or M&A is GBP 510 million to GBP 560 million. I will now hand back to Andre.

Thank you, Colm, and I'll now take you through our performance by division. All the comments I will make in this section are at constant rates. Our Consumer Products-related business delivered a revenue of GBP 936 million, up year-on-year by 1.3% -- or 1.3% like-for-like performance was driven by low single-digit like-for-like in Softlines, stable like-for-like and Hardlines, mid-single-digit like-for-like in Electrical & Connected World, double-digit negative like-for-like in GTS due to the nonrenewal of 2 contracts in 2022. Operating profit was GBP 247 million with a margin of 26.4%, down 100 basis points due to the revenue decline in GTS and the low single-digit like-for-like performance in Softlines and Hardlines. In 2024, we expect our Consumer Products division to deliver low single-digit to mid-single-digit like-for-like revenue growth. We grew revenue in our Corporate Assurance related business by 9.5% to GBP 477.5 million, a 9% like-for-like performance was driven by double-digit like-for-like in Business Assurance, and stable like-for-like in Assurance. Operating profit of GBP 109 million was up year-on-year by 19% with a margin of 22.9%, an improvement of 190 bps as we benefit from strong operating leverage and productivity gains. In 2024, we expect our Corporate Assurance division to deliver high single-digit like-for-like revenue growth. Our Health & Safety-related business delivered revenues of GBP 326 million, an increase of 9%. Our 7% like-for-like revenue growth performance was driven by mid-single-digit like-for-like in AgriWorld and high single-digit like-for-like in Food, Chemical and Pharma. Operating profit rose 9% to GBP 43 million with a stable margin at 13.2% due to the country mix effect in AgriWorld and investments in capability in Chemical and Pharma. In 2024, we expect our Health & Safety division to deliver mid-single-digit like-for-like revenue growth. Our Industry & Infrastructure-related business reported revenues of GBP 860.5 million, an increase of 8%, a 7.9% like-for-like revenue growth performance was driven by double-digit like-for-like in Industry Services, high single-digit like-for-like in Minerals, mid-single-digit like-for-like in Building & Constructions. Operating profit of GBP 86 million was up 22% year-on-year. We delivered a margin of 10%, 110 bps higher than last year as we benefited from both operating leverage and productivity gains. In 2024, we expect our Industry & Infrastructure-related businesses to deliver high single-digit like-for-like revenue growth. Revenue in our World Of Energy-related business were GBP 729 million, 12% higher [ year-on-year ]. Our like-for-like performance was 9% driven by high single-digit like-for-like with Caleb Brett, mid-single-digit like-for-like in our TT business and double-digit like-for-like in our CEA business. Operating profit was GBP 66 million, up 57% year-on-year. Our margin rose to 9%, up 260 bps year-on-year, reflecting operating leverage, productivity gains and portfolio mix. In 2024, we expect our World of Energy division to deliver high single-digit like-for-like revenue growth. At our Capital Markets event last year, we shared our differentiated Intertek AAA growth strategy to unlock the significant value growth opportunity ahead. Today, I would like to focus on the 3 main drivers of value creation moving forward: first, the faster growth expected for ATIC solutions; second, the significant margin accretion potential; and third, our proven high-quality earnings model. The ATIC growth opportunities are very attractive. We know that. Companies have increased their investment in risk-based quality assurance in the last 2 decades. And importantly, based on the growing challenge they face in their supply chain and more and more demanding stakeholders, our clients will have to invest more. That's why we expect our like-for-like revenue growth to accelerate and to deliver over time mid-single digit. Our customer research shows that the structural ATIC growth drivers will be augmented indeed by high investment in safer supply, high investments in innovation, a step change in sustainability, higher growth in the World of Energy and an increase in a number of new clients. COVID-19 has been a catalyst for many corporations to strengthen the resilience of their supply chain. We are seeing important challenges within our clients. There is a high appetite for more data to understand what's happening in all parts of their supply chain. There is definitely a tighter scrutiny on their business continuity plans. Companies are trying to diversify their Tier 1, Tier 2, Tier 3 suppliers, creating opportunities for more audit and inspections. Companies are conducting strategic reviews of their manufacturing footprints to reduce the dependencies on through countries and also to evaluate near-shoring opportunities. And companies are increasing their investment in processes, technology, training and, of course, independent assurance. We all know the importance of continuous innovation to accelerate growth. Having made recently significant price increases, many, many brands and all of our clients have realized that they need to invest more in innovation. A recent survey by Capgemini showed that 63% of business leaders plan to increase investments in R&D and innovation. This is good news. These investments in innovation means a high number of SKUs and, of course, a higher number of tests per SKU. Another major area of investment in the corporate world is, of course, sustainability. We've discussed at our Capital Market event, how we are supporting our clients with our operational sustainable solutions to reduce the risk inside the value chain and with our ESG Assurance solutions to audit their nonfinancial disclosure. Currently, only the EU and California require mandatory third-party assurance for nonfinancial disclosures, and we expect many countries to follow suit. This is excellent news for our ESG Assurance solutions. The growth opportunities in the World of Energy are exciting for Caleb Brett, Moody and CEA businesses. The energy companies know that energy security is as important as decarbonization, given the growing demand in energy and the fact that renewables represent less than 10% of the global supplier. Moving forward, we'll benefit from 2 major growth drivers in the World of Energy: one, the increased investment in traditional oil and gas upstream infrastructure to provide energy security to the world; and two, a scale-up of investments in renewables of [ $105 ] trillion have already been pledged and a further $60 trillion is needed to get to net 0 by 2050. We see a significant growth in a number of companies globally given the low barriers to entry for any brand with e-commerce capability. The lack of quality assurance for this fast-growing young companies is excellent news for our Global Market Access solutions. Unfortunately, we continue to witness significant recalls, and these are wake-up calls for all stakeholders. This is a good reminder of the increased complexity and associated risks in the supply chains of all corporations. And our clients fully understand that the only way to operate with high quality, safety and sustainability standards is to increase their investments in risk-based quality assurance. Against this very exciting backdrop of faster growth, we operate high-quality portfolio capable of delivering that faster growth. The depth and breadth of our ATIC solution position us well to seize the increased corporate needs for risk-based quality assurance. All of our global business lines will benefit from exciting growth opportunities moving forward. At the local level, our country mix is strong with 56% of revenues exposed to fast-growing segments. And geographically, we have the right exposure to the right growth opportunities in the global economy. Let's now spend a few minutes on the second main driver of value creation moving forward: the significant margin accretion potential. Between 2014 and 2019, we were the only global trade company to deliver 200 bps plus of margin accretion. Recently, our margin performance was impacted by the disruptions driven by COVID and inflation in 2021 and 2022. Today, we have reported 60 basis points margin improvement and we are on track to deliver our medium-term margin target of 17.5% plus. When driving margin equity revenue growth, we focus on 5 priorities: first, the portfolio effect linked to volume price mix management, very important; second, the fixed cost leverage linked to revenue growth, the high growth, the better leverage; third, the variable cost productivity improvement, we never stop challenging ourselves on how to be more productive; fourth targeted fixed cost reduction, there is always a way to reduce fixed costs; and fifth, the investment that are margin accretive that we are doing in innovation, technology and growth capability. You are very familiar with the enablers we have in place listed on the right side of the slide, including our end-to-end incentive scheme that targets margin equity revenue growth as well as ROIC and ESG for everyone inside the company. I'll now give you concrete examples on how these 5 margin drivers are making a difference at Intertek. We have selected 6 sites on this slide that basically show how these 5 drivers have enabled us to drive margin equity revenue growth in 2023. You can see how the contribution from each drivers varies by site, reflecting the local opportunities that our teams are leveraging in their business. I will, of course, not get into the 6-site example one by one, but I will give you some insights on the 190 bps margin accretion that we saw at one of our Caleb Brett sites in the Americas. Our local management did a great job executing on the 5 key margin drivers we just talked about, adding 47 bps with price increases, higher volume contributed 32 bps increase through leverage. Cutting fixed cost boost our margin by 42 bps. Productivity improvement drove a 35 bps benefit, and the investment in growth we made had added 31 bps. We've done the same analysis for 6 of our global business lines, and let's discuss the impressive performance of our global minerals business. The team improved margin by 150 bps on a global basis, benefiting from investments in our labs driving a gain of 23 bps, a 10 bps gain on fixed cost reduction, a 17 bps gain from productivity improvement, while driving our mix towards high-margin activities resulting in a gain of 45 bps from portfolio management. And of course, leveraging the tremendous volume growth they saw with a gain of 55 bps linked to operating leverage. Our high-quality earnings model is an important driver of value creation. We provide our customers with leading ATIC solutions in each of our business lines to give our clients the peace of mind they need to focus on their growth agenda. We deliver sustainable growth and value based on the compounding effect year-after-year of margin-accretive like-for-like revenue growth, strong cash generation and disciplined investments in growth. Notwithstanding the exciting ATIC growth opportunities we just discussed, our earnings model has strong intrinsic defensive characteristics. The ATIC solution we offer are mission critical for our clients. We operate a highly diversified set of revenue streams and we enjoy strong and long-lasting relationships with our 400,000-plus clients. Our high-quality earnings model has proven its ability over the years to create growth and value for our shareholders. Indeed, between 2014 and 2023, we have grown revenue by 59% and an increased EBITDA by 81%. Our margin has increased by 110 bps and EPS has grown by over 2/3. Our cash from operations has grown by close to GBP 350 million in ROIC, has improved by 400 bps to more than 20%. Before taking any questions, I just like to spend a few moments on guidance and dividend. Given the like-for-like acceleration we saw in 2023 and the good momentum we benefited from in Q4 despite 1 less working day, we are entering 2024 with confidence. We expect the group will deliver mid-single-digit like-for-like revenue growth at constant currency driven by low single digit to mid-single digit in Consumer Products, high single digit in Corporate Assurance and Industry & Infrastructure, mid-single-digit in Health & Safety and the World Of Energy. We are targeting further margin progression. Our cash discipline will remain in place to deliver strong free cash flow. We'll invest in growth with a CapEx investment of circa GBP 135 million to GBP 145 million. We expect, as Colm said, our financial net debt to be in the range of GBP 510 million to GBP 560 million before any M&A or ForEx movements. A quick update on currency full year model. The average turning rate in the last 3 months applied to the full year results of 2023 would reduce our full year revenue and operating profit by circa 150 bps. We believe in the value of accretive disciplined capital allocation, and during our Capital Market events, we discussed the approach we have in place. We are very excited about the organic and inorganic investment opportunities. Our investments will continue to be made with the same disciplined ROIC-driven approach. But today, I would like to announce an important change to our dividend policy moving forward. In recognition of our highly cash-generative earnings models, our strong financial position, the Board's confidence in attractive long-term growth prospects of the group and our ability to fund investments in growth, we are increasing our targeted dividend payout ratio to circa 65% of earnings from 2024. In summary, the value growth opportunities ahead is significant. We are seeing higher demand for ATIC solutions. We have a strong global and local portfolio poised for faster growth. We are on track to deliver our medium term margin target of 17.5% plus. Our cash generation is excellent to support our investment in growth, and we have a highly skilled and passionate organization to take Intertek to greater highs. Thank you for your attention. I will now take any questions you might have.

[Operator Instructions] Our first question today comes from Rory McKenzie at UBS.

Andre. It's Rory here. Just two questions, please. Firstly, it looks like headline organic growth improved slightly for the November, December period. I think that included a pretty reasonable headwind from fewer working days. So the underlying organic growth in Consumer Products, for example, I think, improved to maybe plus 3% to 4%. So how should we interpret that exit rate on the growth? And what have you been seeing about the latest volume trends from clients? And then secondly, on the 5 margin drivers you highlight, thanks for the examples in the business lines. Could you maybe say what that looks like at a group level for 2023 and what you see in 2024? It feels like you've had good progress on fixed cost reduction and productivity. But again, those weak volumes in consumer means you've still got a sustained negative from portfolio and fixed cost leverage. So is that fair? And where do you think the overall picture lands for this year?

Okay. Thanks, Rory. Look, indeed, Q4 was very, very good. We had 1 less working day, and of course, if you do the underlying analysis it was much better than the 5.6% constant currency like-for-like growth that we saw in November, December which gives us, of course, a good acceleration as we get into 2024. We are confident about '24. I'm not going to basically talk about January and February, it's a bit early in the year and we never do that at this time in a year. We'll update everyone when we do our May trading statement in a few weeks from now. But the group is in a good position. We are seeing acceleration across all business lines. And Consumer Products, which has been a worry for us last year, is turning the corner. And I'm very, very pleased with the November, December Consumer Product like-for-like revenue growth, which adjusted for 1 less day, indeed, is very, very positive. As far as the drivers of margin at the group level, look, what I would say is on the positive side, the faster growth you get, the better operating leverage you have. It's mathematical, right, provided you're disciplined, of course, in controlling your costs. But fixed cost leverage was positive for us at the group level. We never stop working on productivity. And if you have time, you can run the ratios on, our revenue per head count and profit per head count. And you will see that not only we are ahead of what we delivered in 2019, which is our big profitability, but we are industry leading in terms of productivity metrics. Look, the restructuring program did a bit better than we thought. It's not that we found surprises. Basically, we executed the plan faster. And as you know, this is a multiyear program and we've continued to invest in this program, and there will be some benefits in 2023 -- '24, sorry. M&A is very important to be -- doing margin-accretive M&A makes a difference, and this is what we focus on, and M&A was accretive to the group. Now all of this -- and I talked about the small property profit of GBP 5 million, which was a one-off. But all of these were offset by 3 things, right? One, inflation remain important. Let's not forget that in 2023. We're also investing in growth, but we had a negative portfolio effect given the 100 bps reduction that we had in our Consumer Products. So look, all in all, we were pleased. 160 bps margin improvement at Consumer Product with that kind of organic growth is, in my view, a very, very good performance, and it shows the size of the opportunity. If the group delivered mid-single-digit like-for-like revenue growth, there is no reason for not continuing to improve margin.

Our next question comes from Carl Raynsford at Berenberg.

Hi. Just 3 for me, I think following on from Rory's there. Just on the CPI side of things, so my calculations, the Q4 exit rate within Softlines in particular look to be kind of mid-single digit, if not slightly higher than that. So to confirm if that's the case, it would be great, please. This is the first question. The second, very much appreciate the margin analysis you've done is very valuable. But just looking to that 17.5% midterm target. How much of that is based on Caleb Brett in particular, because this was an area you pointed to obviously previously. It looks like you've done a lot of work on the portfolio, but maybe you could sort of give us some color on the volumes you're seeing there versus 2019. And if it's safe to assume there's still operating leverage to come through? And then the last question, just around your SDIs really in the interest line in the P&L. I see there's a big increase in contingent consideration due because of the CEA performance, which is positive. So another GBP 20 million due, I think, there. So perhaps you could talk a little about just how you generally structure deals, and if that's something we should expect into the future to be at a slightly elevated level?

Okay. Thank you. Look, let's take the simple question first, the last one on CEA. Look, there are instances where we believe it's important to retain the management and we put an earnout in place and that's the case here. And CEA has exceeded expectations, you saw the numbers. I wouldn't say that's the only way of doing M&A, it's one way. And we do that from time to time. As far as Consumer Products and Softlines and Hardlines, maybe -- I mean, you're right. We had a really good exit run rate in Softlines. Let me maybe take the opportunity to give you a sense of what's happening around the world. We know that softlines and Hardlines were impacted by retailers being nervous at the end of 2022 given potential slowdown in the global economy and cost of capital. And of course, they had 2 aggressive forecasts in 2022 and they were worried about inventory. So now that has been a leading indicator for us to understand where the -- if you want, retailers are. Now the good news is that the general retailers in the U.S., which are important for Hardline business, now have an inventory level that is really, really, really decent. So there is no inventory issue there. As far as the fashion retailers in Europe, the progress has been very significant. In the U.S., there has been some progress, but there are some brands -- doing better than others. When we did our November trading statement, I was talking about the fact that we were finishing the -- essentially the Spring/Summer collection, which basically finishes around this period of the year. And I was expecting, if you want, a mixed performance, some of the value brands doing better than others. And essentially, that's what has been driving the acceleration because the confidence has generally improved, not with every single retailer but with essentially the retailers they've got the inventory under control and the right value proposition. So look, we are turning the corner, as I said, to our Agri, which is really, really good news. As you know, we are an important player in the industry and we expect '24 to be better for our Consumer Products division starting, of course, with Softlines and Hardlines. As far as our 17.5% medium-term margin target. Look, there is no question that we have productivity opportunities everywhere. And despite the fact that Caleb Brett has made some really, really good progress we still have some opportunities to do better there. So we are in a very, very good place. And I know that it's difficult to look at the existing divisional split to compare the performance to 2019. But if you look at the old segmentation of disclosures, looking at products, trade and resources. I mean, you will see that at 16.6%, products at 21.6% was lower than what we achieved in 2019. And this is largely due to the slowdown that we saw in Softlines and Hardlines. And we have the opportunity here to basically capitalize on the accelerated the growth that we expect and get to this level over time. Trade is still showing a gap versus the peak of 12.7%, which is due to Caleb Brett, GTS, not so much to Agri. Caleb Brett has made some progress, but Agri still some operating leverage. And I would say the area that we are all counting on is resources. Resources is now at 9%. Remember, we always talked about getting to 10%, which is much higher than the 6.3%. So if I look at the old divisional split, if you want, we have definitely opportunities in product and trade, and resource will not stop at 9%. I would also say that our belief that we can go to 17.5% plus over time is just not about the business line, if you want, gaps versus previous peak. It's also the opportunities that we see in productivity, the opportunity we see in terms of span of performance around the world. Because as you know, we look at margin at the site, country, region, global level at the same time.

[Operator Instructions] Our next question is from Pablo Cuadrado at Kepler Cheuvreux.

Hi. Yes. A couple of questions, please. The first one is on the Chinese performance that we work on the insights that you were giving from the presentations. But the question will be more on that exposure to the export activities, let's say, whether you can tell us if you keep be happening with -- happy, sorry, with that exposure or do you think all this onshoring activity that we are seeing in some business and end markets, if you think that you may need probably to think about that exposure going forward? Second question will be on the leverage. I recall that when you made the Capital Market Day last year, you were giving this range of 1.3, 1.8. I think that was including IFRS. You will run the numbers and we look at the guidance that you are giving for this year, very likely you are going to be -- going below that. Clearly, you can still make M&A. But the question will be a little bit more on, which are the sources that you think you will prefer to use in order not to go, let's say, below the bottom side of that range. Looking on M&A dividends, clearly, you have increased this year or even [ IFRS ] we talk about the share buybacks. And the last question quickly on the adjusted EBIT guidance for this year. Clearly, talking about progression on constant currency. Last year, we saw 60 basis points. I think consensus right now is just -- assuming 10 basis points look into the full year results now that has been released. So probably if you can help us to see what kind of progression, 10 basis points you think it could be too low. You saw something in the middle when you take 60 basis points you recorded last year should be more adequate. Anything of that, that would be helpful.

Okay. Thank you. Look, on the margin, Pablo, we have a clear target of 17.5% plus over time. We never give quantitative target when we do the full year guidance. For us, margin progression has, of course, a range. And I know what's in the consensus and I'm comfortable with that the year just started, and then we will continue to focus on margin equity revenue growth. But sorry, we don't give any conservative margin guidance for the coming year. As far as your question on capital allocation, look, to have a highly cash-generative earnings model is a good program to have because you've got plenty of options, right? The first use of cash for us is, of course, to support the organic growth. And our target is to invest between 4% to 5% of our revenue in CapEx. Given the growth acceleration, you will see us increase our CapEx investment. That's the guidance that we are obviously giving this year. Because to basically capture the growth, you need to invest in additional capability as well as, of course, in innovation, right? We talked about the increased dividend payout, which is our second use of cash. And the third one is, of course, M&A. We have a very, very strong approach to selecting good M&A from a growth and margin standpoint. We know where the quality assets are. We believe that the market is poised for consolidations. And that's our third, if you want, preferred use of the cash. All of that to basically stay within 1.3 to 1.8 net debt EBITDA ratio. So that's, if you want, how we look at using our cash moving forward. As far as China is concerned, I would say a few things, right? And I know that companies are looking at diversifying the supply chain and near-shoring opportunities. As you know, supply chains are quite complex to move, when you have a very well-functioning supply chain in a given country, to take some of the production away from one country and move it to the other -- to another one is not risk-free. So essentially, what we are seeing, we are seeing companies that are really successful in China and understand how to get manufacturing experience in China are staying in China. But equally, when they want to invest in new segments, they will try to diversify away from China for all the reasons that we know. Near-shoring is, of course, an important trend, I would say, much more in the energy sector than in the Hardlines and Softline sector. And that's what we are seeing in the United States, for instance, with the Inflation Reduction Act or the infrastructure bill. The point I just want to make is despite all what people have been saying over the years that people are living in China, it's not true. Essentially, the export value is up 35% compared to '19. This is real. Softlines up 11%, Hardline up 22%, Electrical 25%, then the rest other is 50%. And when you are an existing retail and you've been relying on the manufacturing and customer excellence in China for several years, to change your strategy is not risk-free. And for new brands coming into the market, there is no better capability at the moment end-to-end in China. Let's also not forget that in addition to Hardlines, Softlines and Electrical and computers, China continued to invest. And today, China is now becoming a major player in terms of electric vehicles. And you saw the announcement this morning, where they're going to continue to invest in high-tech industries and of course, AI. So for us, to be a market leader in China is a good thing because we are strong is one of the key manufacturing center in the world. And that's how we think about it. And China, for us, is not running out of growth, as you saw, right? 4.6% is a pretty good growth in 2023.

Our next question is from James Rose at Barclays.

It's Afonso here, not James. I have three questions, if I may. Number one on the price volume, splits. I'm going to ask. Can you provide a bit more color on how pricing contributed to your 6.2 in the full year? And in Q4, in particular, you mentioned the 5.6. How much was pricing versus volumes in that number? And also on that topic, what kind of wage inflation are you seeing at the moment? And how that evolved over the last -- like last year in 2023? So that's the first question. Number two, on GTS. I believe we have seen organic declines pretty much in all quarters since FY '21. Just wondering if you are currently expecting a turnaround here in 2024. And of course, I appreciate you lost 2 meaningful contracts there at the beginning of the second half of 2022. So can you just perhaps provide a bit more color on the performance, excluding the impact of those 2 contracts? And then finally, I mean, I appreciate you touched on the 17.5% margin target you have in great detail in the slides as well, and thank you for that. But can you -- I was just wondering if you can provide a bit more color on the divisions that you think would benefit the most from the enablers you described in the slides in the medium term. So just looking at the kind of a division that has the most upside in your view in the medium to long-term in order to achieve that 17.5% target you have in the medium term?

Okay. Thanks. Look, as far as margin accretive revenue growth, this is central to the way we run the company. Just to give you a sense, right? Our incentive schemes, I talked a bit briefly in the call. It is basically touching everyone in the company and everyone in the company that's got a bonus is basically measured on revenue growth and margin progression with a higher weight on margin to make sure you get the margin equity revenue growth, in addition to return on invested capital, which is important, covering investments as well as working capital efficiencies and CO2 reduction. So there is no one inside Intertek, no site, no country, no region, no business lines that doesn't have the opportunity to drive margin equity revenue growth. I mean, when you operate a business model like ours in the ATIC industry, if you manage your volume price mix, the productivity, your fixed cost, your investment and you are delivering good growth, you should be able to get some margin accretion. So for me, I wouldn't want to single out any division because I have a lot of my colleagues from around the world at Intertek listening to these calls. And inside the company, everybody has the opportunity to do better in terms of margin accretion. Of course. This year, we saw a reduction in Consumer Products linked to the revenue decline. And of course, here, there is potential to catch up. But I don't want you to take 1 or 2 business lines and say, this is going to be the driver of margin accretion. Moving forward, it's going to be broad-based. We're going to get every single site, every single country, every business line, every division right in terms of margin equity revenue growth every single quarter? Probably not, but we're going to work very hard at it, and then the results will demonstrate that it is possible. Because when you have good revenue management with volume, price, mix, you get the benefits I just talked about. And of course, the faster organic growth, the more leverage you get provided you're disciplined. As far as GTS is concerned, look, I know that the results are what they are. It was a conscious decision to get out of these contracts, right? We are very strict in our customer relations. And when the customer is asking us to do something, we believe it's not right to do because we'll not be able to deliver superior customer service, we believe, we just walk away because there is no way that Intertek is going to commit to a scope in a contract being either standards or price or whatever that is not living up to our values and our standards. So look, GTS will have a better year this year. So I think the effect of the contract will -- is now off the base. So I'm not too wary about that. And as far as your question on pricing, let me use your question to reaffirm our approach. We work with 200,000 companies around the world. We have B2B. We've got long-lasting relationships and -- with these clients. And we believe that the best way to deal with wage inflation is to pass 50% of the wage increase through pricing and cover the rest through productivity, which means that when you have periods of high inflation, like we saw in 2021 or '22 and '23, it takes a bit of time to catch up. And that's the way we run the company. Our price, volume, mix management is very carefully structured. And if you look at our revenue growth in 2023, 1/3 was price and 2/3 was volume. And today, we're seeing it at all times that have basically been very, very, very racy in terms of price increases. And now you're seeing it every day in the news when they announced their results, they're all struggling with volume because they are losing market share. And we believe that our approach is fair with our clients, but also it's fair to our shareholders to create sustainable growth and value for all. So that's the approach we'll continue to pursue.

Very Clear.

Our next question is from Geoffroy Michalet at ODDO BHF.

Is it working?

Yes, we can hear you.

Is it working now? Yes, I'm sorry. Yes. Another question on capital allocation. Just wanted to know if you had in mind a sort of calendar before returning additional cash to shareholders, or said differently, is there a minimum leverage that if you go under, that would trigger also an additional return to shareholders?

Yes. Thanks. So the dividend increase to 65% payout ratio is from 2024, which means that we'll pay the final dividend as per the previous policy. And then when we go into the summer and we pay our interim dividend, we'll start with 65%. So it's going to be obviously phased like this. We believe that 1.3 to 1.8 is the right net debt-to-EBITDA range to operate within. We are happy to be slightly below for a period of time. If that's the case, we will be also happy to be slightly above 1.8, if there would be an acquisition that will require us to take some additional leverage. But that's if you want the range that we have in mind, okay?

We have one further question from Sylvia Barker at JPMorgan.

Just one question for me, please. I'm just wondering, on the Consumer business, could you -- I appreciate you have thousands of clients. What we have heard from other businesses is that there has been a lot of kind of refunding activity now that the post-COVID kind of period has -- like you've had some normalization. So could you maybe talk about -- if we think about your growth in Consumer Products, have you won new clients? Have you increased or decreased activity with larger or smaller clients? Is there any color that you can give us around the client book within Consumer Products would be interesting.

Yes. Okay. Look, the best in my view, if it's okay, is to focus on the main business lines within Consumer Products. Otherwise, it's going to be very generic, what I'm going to say. So we're talking about GTS, so I'll call the Softlines, Hardline, Electrical. Look, in Softlines and Hardline, we are the -- we invented the industry with lab test in 1973. We have a very strong global footprint. As you know, we are not only the quality but also the market leader in that space. So we have a very high share, right? And where are the developments in terms of growth with existing clients? Of course. We are seeing quite a lot of investments of our clients in sustainable solution, and I'm talking about the operational sustainable solutions, talking about Softlines and Hardlines that we talked about at the Capital Market event, because these brands have got, of course, tremendous catch-up to do in terms of sustainability performance but also disclosures, right? So that's a big, of course, growth opportunity. There is no question that CSR and the audit of the factories of these brands continue to be an important focus area. And another adjacent market to the CSRs is textile exchange, which we've talked about in the past, where companies -- retailers have committed to certain disclosures of organic cotton and recycled fibers in their portfolio. So that, if you want, with existing clients, what I would say, the most attractive growth opportunity, recognizing that we've got a very high share. There is very, very few large brands we don't work with. There are some new brands within Softlines, and this is really interesting. I mean, you've seen some of the recent developments in -- successes of brands exporting digitally from China. And there are lots of interesting concept being created around the world. And that is very interesting for us because these young companies don't have any global market access, and we can provide them with all the quality assurance they need and, frankly, speed they were to market. As far as Hardlines is concerned, the same applies, by the way, for the Hardline retailers when it comes to sustainability and auditing of their factories. The interesting piece in Hardlines is there is more and more technology. In toys, as you know, and some of the equipment that basically we test in our line. Think of medical equipment, for instance, I don't know if you had the opportunity to visit hospitals recently, but technology is very, very, very impressive. And there are also some interesting new brands coming up. And let's not forget that our retailers are also doing quite a lot of investments in what I call private labels to basically improve their margin. When it comes to Electrical, we are #2 in the United States. As you know, we are #1 outside of the United States. This is an incredible business for us. By the way, this is one of the few business lines that didn't see any revenue decline in 2020, right? It's been delivering good organic growth every single year. Here, the electrification of the world is the way I would suggest you think about it. There is nothing that we touch today, which is not going to get electrified one way or the other in our house, in our cars, in our factories, in our offices. And here, this is not only about the performance from an efficiency standpoint, but also the sustainability scorecard of these products. There is an awful, awful lot of exciting developments. Take battery, for instance. The world of batteries is changing because energy storage due to electrification is becoming really, really important. And I know we all think of batteries for the device that we have, But think of energy storage, think of what's going into cars and think of what it means in terms of grid management, right? Another interesting development within Electrical is, of course, medical devices. I was talking about medical device from a technology standpoint. But if you look at the growth of medical devices, it's overwhelming. So look, we are very, very fortunate because in the 3 main business lines of Consumer Product, we are not running out of growth.

Our next question is from Suhasini Varanasi of Goldman Sachs.

Can you hear me?

Yes. Hi. We can hear you. Of course, yes.

I just have one question, please. If I think about your revenue outlook for 2024, which is for mid-single-digit like-for-like revenue growth, and compare that to where the other testers are who are basically guiding for mid- to high single digit like-for-like revenue growth this year. And if you look at what you've actually delivered in 2023 where growth has been very strong outside of Consumer Products and even Consumer Products was seeing an improvement in Q4. Could we just read your guidance as just -- being cautious given it's the beginning of the year? Or is there anything that we're missing from a demand perspective?

No. I mean you're right, beginning of the year. Thanks. You're right, it's the beginning of the year and I'm always considered, right, in what I said. The other thing I would say is, for us, mid-single digit as a range, right? So giving a range to a range is a bit complicated. So I'm trying to keep it simple.

And our final question is from Arthur Truslove at Citi.

Just a couple for me, if I may. Arthur from Citi. So first question was in the Consumer Products division. Obviously, Electrical's outperformed from an organic growth perspective. My understanding is that Electrical's are lower margin than Softlines and Hardlines. So can you talk to any mix effect that was negative there? And the second question, in the Consumer Products division, separately disclosed items went up, while D&A fell in the second half. Are you able to explain why both of those two things happened?

Sorry, we couldn't hear the second part of your question. Can you repeat it? There was a problem with the microphone here.

Yes, of course. So second question, the separately disclosed items within the Consumer Products division were up year-over-year in the second half of the year, and at the same time, depreciation and amortization fell within Consumer Products. I just wondered if you could explain both of those two things.

Yes. On the second question, if it's okay, I mean Denis will come back to you because we want to make sure that we provide you with the precise answer to your question, but well spotted. On Electrical, that's true that the margin for Electrical is lower than Softlines or Hardlines. So that's true that there is a mix effect here. So absolutely. Okay?

And ladies and gentlemen -- there are no further questions on the webinar. I will now hand that back to Andre Lacroix for closing remarks.

Okay. Thank you very much for being on the call with us. I know it's a very, very busy day and busy week for all of you. We really appreciate your time. And then any questions, any follow-up discussions, obviously, Denis is available. So thank you very much. Bye-bye.