Intertek Group PLC
LSE:ITRK
Intertek Group PLC
Intertek Group PLC, woven into the fabric of global quality assurance, traces its roots back to the late 19th century when entrepreneur Caleb Brett founded a marine surveying business in the bustling trade lanes of the British ports. Today, Intertek stands as a multinational titan specialized in testing, inspection, and certification services, a niche it has expertly honed to cater to countless industries ranging from textiles to technology. Behind its vast network of over a thousand laboratories and offices spread across a hundred countries lies a key driving force: the relentless drive for consumer safety and quality standardization. As global trade intensified, so did the demand for third-party validators to ensure that products meet stringent international regulations. Intertek found its sweet spot by acting as a trusted guardian of quality, wielding expertise that manufacturers and retailers rely upon to bring goods to market with confidence.
The company meticulously crafts its revenue streams by providing tailored solutions to a wide array of sectors. Clients, ranging from small enterprises to global conglomerates, seek Intertek's expertise to navigate the complex web of regulatory compliance and market entry requirements. By doing so, Intertek is able to offer not just a service but a partnership in enhancing the value and safety of a product. With services such as product safety testing, laboratory analysis, and supply chain audits, it monetizes the rising necessity for accountability and adherence to ever-evolving standards. Thus, Intertek doesn't merely conduct tests and inspections; it assures the integrity of industries, one certificate at a time, translating quality and confidence into commercial success.
Earnings Calls
Intertek Group showcased a strong half-year financial performance, reporting group revenues up by 8.3% (constant rate) and 9.9% (actual rate), and like-for-like revenue growth of 7.1% at constant rate, hailed as the best in a decade. Operating profit increased by 13.3% at constant rate, with a solid operating margin of 15%, up 70 basis points year-over-year. The company also saw a significant Return on Invested Capital (ROIC) at 19.3%, cash generated from operations at GBP 270.5 million - an increase of 13.6%, and free cash flow at approximately GBP 80 million. In addition, Intertek announced a 10.1% increase in interim dividend and maintained a strong balance sheet, indicated by a net debt-to-EBITDA ratio of 1.1. Future savings are projected through cost reduction programs, with the expectation of annual savings around GBP 19 million.
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And ladies and gentlemen, thank you for standing by, and welcome to the Intertek 2023 Half Year Results Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, today's conference is being recorded.
And I would now like to turn the conference over to your host, Mr. Andre Lacroix. Please go ahead, sir.
Good morning to you all, and thanks for joining us on our call. I have with me Colm Deasy, our CFO; and Denis Moreau, our VP of Investor Relations. I would like to start our call today recognizing all of my colleagues at Intertek for having delivered a robust financial performance with revenue growth acceleration, margin progression and a higher ROIC. Some of you got to meet my senior team at the Capital Markets event in May when we presented our AAA growth strategy, and I would like to give them a special thanks.
There are a few takeaways in our presentation today. Our AAA growth strategy is in place to capitalize on the faster ATIC growth opportunities ahead. Our like-for-like revenue growth momentum is accelerating, and we have delivered our highest like-for-like revenue growth in the last 10 years. We have made very good progress on margin as we benefited from our pricing and productivity initiatives. ROIC is much higher than last year. We've delivered a strong free cash flow. And last but not least, we are extremely pleased to announce this morning a double-digit increase in the interim dividend.
So let's start with our performance highlights. We have indeed delivered a robust financial performance in the first half. Group revenues up 8.3% at constant rate and 9.9% at actual rate. Like-for-like revenue growth of 7.1% at constant rate. Operating profit was up 13.3% at constant rate and 12.9% at actual rates. We saw a robust operating margin of 15%, up 70 basis points at constant rate year-on-year. EPS growth was 10.6% at constant rate and 10.1% at actual rate.
ROIC of 19.3% was up 120 basis points at constant rate and 260 basis points at actual rates. Our cash generated from operations was super strong, GBP270.5 million, up 13.6%. Our free cash flow was robust at circa GBP80 million. We are investing in growth, and as you can see, our CapEx and M&A investments are up year-on-year. And as I just said, our interim dividend of 37.7p is up 10.1% year-on-year. And last but not least, we continue to operate with a very strong balance sheet, with a net debt-to-EBITDA ratio of 1.1.
Let's now discuss our like-for-like revenue growth, which as I just said, at 7.1% at constant rate, was the best performance in the last 10 years. We are indeed seeing an increased demand for ATIC solutions, and like-for-like revenue growth was driven by both progress on both volume and price. Given the change we've made in terms of disclosures on the slide here, we are showing our like-for-like performance using the previous and the new disclosures.
So looking at the results through the previous disclosures, our Product and Trade division delivered mid-single-digit like-for-like, while our Resource business delivered double-digit like-for-like. Looking at the like-for-like revenue growth performance based on the new segmentations, we delivered double-digit like-for-like in Corporate Assurance as well as in Industry & Infrastructure. We saw a high single-digit like-for-like in the World of Energy. Health and Safety recorded mid-single-digit like-for-like. And Consumer Product delivered as expected, a low single-digit like-for-like.
Our China business rebounded strongly after Chinese New Year, following the relaxation of the covered restrictions in January, and we've delivered a like-for-like revenue growth of 7.3% at constant rate. Outside of China, our like-for-like revenue growth was 7%. Our geographical portfolio is strong, and we have the right exposure to the right growth opportunities in the global economy. Our revenue growth was broad-based, as you can see on the slide from a geographic standpoint, with Americas, EMEA and APAC growing respectively at constant currency by 7.8%, 7.6% and 9.4%.
We are really proud of the margin we delivered at 15%, up year-on-year by 70 basis points at constant rate and 40 basis points at actual rate. As you know, margin equity revenue growth is central to the way we deliver value. We have a superior ATIC customer service, which we discussed in May, and that gives us a strong pricing power and high retention rates. We allocate capital targeting the attractive growth and margin segments, we are laser focused on that. And our performance management discipline is, of course, well embedded in the organization with the data advantage we have side by side.
We announced a cost reduction program in March that targets productivity opportunities based on operational streamlining and technology upgrade initiatives. The execution of the cost reduction program is on track, and we saw 10 basis points of margin improvement in H1 due to that. In H1, we've also identified additional restructuring opportunities. We should deliver annualized savings of GBP4 million and circa GBP1 million benefit in 2023. So when you bring the two programs together, 2022 and 2023, our cost reduction program should deliver an annual savings of GBP19 million, with an expected GBP7 million to GBP8 million savings on an annual basis, and of which -- sorry, in 2023, of which GBP1.7 million has been delivered in H1.
Looking at our margin performance through the PTR disclosures, our margin increase of 70 basis points was driven by margin progress in Products and Resources, while Trade was down. The margin performance based on the new divisional disclosures show that we've made good progress year-on-year in three of our five divisions, and I will give you more details later on the call. The recent SAI, JLA and CEA acquisitions that we've made to scale up our portfolio in attractive growth and margin sectors are performing well, in line with our expectations. Later in the presentation, you'll see how these three acquisitions have contributed to our growth performance in H1. The integration of the recently announced acquisition we made in Brazil, Controle Analitico, is on track.
I will now hand over to Colm to discuss our H1 results in detail.
Thank you, Andre. In summary, in H1 '23, group has delivered a robust financial performance. Total revenue growth was 8.3% at constant currency and 9.9% at actual rates as beneficial movements in FX rates impacted our revenues by 160 basis points. Operating profit at constant rates was up 13.3% to GBP245.5 million, delivering a margin of 15%, up year-on-year by 70 basis points. Diluted earnings per share were 95.2%, growth of 10.6% at constant rates and 10.1% at actual rates.
The group delivered adjusted cash from operations of GBP270.5 million, up year-on-year by 13.6%, and adjusted free cash flow of GBP79.6 million was down year-on-year by GBP16.2 million as growth in operating cash flows was offset by higher CapEx investments and higher net financing costs. We finished H1 '23 with financial net debt of GBP791.3 million, which is down year-on-year and represents financial debt to adjusted EBITDA ratio of 1.1 times.
Now turning to financial guidance for '23. We expect net finance costs to be in the range of GBP40 million to GBP42 million. We expect our effective tax rate to be in the range of 25.5% to 26.5%, our minority interest fee between GBP22 million and GBP23 million and CapEx investment to be in the range of GBP115 million to GBP125 million.
I will now hand back to Andre.
Thank you, Colm. I'll now summarize our performance by division. But clearly, there is much more detail in the RNS, and all comments I will make in this section will be at constant currency. Our Consumer Products delivered revenue which was in line with our expectation of circa GBP468 million, up year-on-year by 1.1%. Although single-use like-for-like performance was driven by low single-digit like-for-like in Softlines and Hardlines, mid-single-digit like-for-like in Electrical & Connected World and double-digit like-for-like in GTS which was due, as you know, to the non-renewal of two contracts last year.
Operating profit was circa GBP117 million with a margin of 25%, which was down year-on-year by 140 bps due, of course, to the revenue decline within GTS and the low single-digit like-for-like performance in Softlines and Hardlines. In 2023, we expect the Consumer Product division to deliver low single-digit like-for-like revenue growth.
Our Corporate Assurance delivered a stellar performance with a revenue of GBP232 million, up year-on-year by 12.5%. Our double-digit like-for-like revenue growth performance was driven by double-digit like-for-like in Business Assurance and mid-single-digit like-for-like in Assuris. We are really pleased with the operating profit of GBP48.2 million, up year-on-year by 31.7%, resulting in a margin of 20.8%, 300 bps up year-on-year. Indeed, we benefited from both strong operating leverage and productivity gains, including, of course, the benefit of the cost synergy post the SAI acquisitions. In 2023, we expect our Corporate Assurance division to deliver high single-digit like-for-like revenue growth.
Our Health & Safety business delivered revenue of circa GBP157 million, up year-on-year by 7.9%. Our mid-single-digit like-for-like revenue growth performance was driven by mid-single-digit like-for-like in AgriWorld, high single-digit like-for-like in Food and mid-single-digit like-for-like in Chemical & Pharma. We delivered an operating profit of GBP16.5 million with a margin of 10.5%, which was down year-on-year by 70 bps, essentially due to the country mix effect within AgriWorld and the investments in capability we are seeing in Chemical & Pharma, and we expect accelerated growth there. In 2023, we expect our Health & Safety division to deliver mid-single-digit like-for-like revenue growth.
Our Industry & Infrastructure business delivered a revenue of GBP427 million, up year-on-year by 10.5%. Our double-digit like-for-like revenue growth performance was driven by double-digit like-for-like in Industry Services, double-digit like-for-like in Minerals and mid-single-digit like-for-like in Building Construction. We are really pleased with the operating profit of GBP37.3 million, up year-on-year by 36.1%., which gave us a margin of 8.7%, up 160 bps year-on-year. We benefited indeed from operating leverage and productivity gains. In 2023, we expect our Industry & Infrastructure division to deliver high single-digit like-for-like revenue growth.
Our World of Energy business delivered a revenue of GBP356.6 million, up 13.5%, another stellar performance in that division. Our high single-digit like-for-like revenue growth performance was driven by high single-digit like-for-like for Caleb Brett and mid-single-digit like-for-like for TT business.
Our CEA business delivered an excellent H1, benefiting from an increased investment in solar panels worldwide. We delivered an operating profit of 26.6%, and we're extremely pleased with the 87.3% year-on-year growth, resulting in a margin of 7.5%, up 300 bps year-on-year. In that division, we benefited from operating leverage, productivity gains and, of course, portfolio mix given the high-margin nature of our CEA business. In 2023, we expect our World of Energy division to deliver high single-digit like-for-like revenue growth.
At our Capital Markets event in May, we presented our Intertek AAA growth strategy to unlock the significant value growth opportunities ahead. All of us at Intertek are laser-focused on taking the company to greater heights, putting our AAA growth strategy in action. We made strong progress, as you know, between 2014 and 2022, delivering value for all stakeholders, and our good to great journey continues, capitalizing on our competitive advantage of science-based customer excellence ATIC advantage. Our clients understand the mission-critical of risk-based quality assurance to operate with higher quality, safety and sustainability standards, and make their brands and businesses stronger. We are experiencing faster growth for ATIC solutions, and we expect that to continue.
Our AAA growth strategies is simply about being the best for every single stakeholder every day. To do that, we are focused on the following goals. We want to be the most trusted TQA partner with every single customer. We want to be the employees of choice with every single employee. We want to deliver sustainable excellence everywhere in our communities. And importantly, we want to deliver sustainable growth and values for our shareholders. Today, with these goals, we have developed with our teams three simple highly focused and compelling strategic priorities and strategic enablers to simply get better where are already very strong, but of course, address the areas where we can improve true to our ever-better culture. The critical drivers of our faster growth moving forward is, of course, our high-quality portfolio. The depth and breadth of our ATIC solutions position us really well to seize the increased corporate needs for risk-based quality assurance.
All of our global business lines will benefit from exciting growth opportunities. We discussed that in detail in May. At the local level, our country business mix is strong, with 55% of our revenue exposed to the fast-growing segment. Geographically, as I said earlier, we have the right exposure to the right growth opportunities in the global economy. In summary, our high-quality portfolio is poised for faster growth.
Medium to long term, we are targeting mid-single-digit like-for-like revenue growth at constant currency, with low to mid-single single digit in Consumer Products, high single digit to double digit in Corporate assurance, mid to high single digit in Health & Safety, mid to high single digit in Industry Infrastructure and low to mid-single digit in the World of Energy.
As I said earlier, margin accretive revenue growth is central to the way we deliver value. And our target is, over time, to return to a 17.5% peak margin that we achieved in 2019 and go beyond from there. Our confidence is simply based on three reasons. We have the proven tools and processes in place. We've demonstrated that in H1. We, of course, operate with a span of performance, which shows the opportunities we have. And we have a very disciplined accretive portfolio strategy.
To continue to deliver sustainable growth and value for our shareholders, we'll stay focused on our Intertek virtuous economics. Our Intertek virtuous economics are based on the compounding effect year after year of mid-single-digit like-for-like revenue growth, margin accretion, strong free cash flow and disciplined investments in high-growth and high-margin sectors. Importantly, we believe in the value of accretive disciplined capital allocation.
Here are our capital allocation priorities. Our first priority is always to support organic growth through capital expenditures and investment in working capital. The second priority is to deliver sustainable returns for our shareholders through the payment of a progressive dividend, and we are targeting a payout ratio of circa 50%. The third priority is to pursue M&A activities that will strengthen our portfolio in attractive growth and margin areas, provided, of course, we can deliver good returns. And our fourth priority is to maintain an efficient balance sheet with the flexibility to invest in growth.
Our leverage target is 1.3 to 1.8 net debt-to-EBITDA with a potential to return excess cash to shareholders, subject to our future requirements of prevailing macros. We expect to deliver robust financial performance in 2023, and let's now discuss our guidance for the year.
We expect the group to deliver mid-single-digit like-for-like revenue growth at constant currency, based on low single-digit like-for-like in Consumer Products, mid-single-digit like-for-like in Health & Safety and a high single-digit like-for-like in Corporate Assurance, Industry Infrastructure and in the World of Energy. We are targeting, of course, margin progression year-on-year. Our cash discipline will remain in place to deliver strong free cash flow. We plan to invest circa GBP115 million to GBP125 million in CapEx, and financial net will be in the range of GBP630 million to GBP680 million.
A quick update on currencies for your model. Sterling, as you know, has continued to strengthen in Q2 and we are, therefore, updating our ForEx guidance. The average selling rates in the last three months applied to the full year results of 2022 would reduce our revenue by 250 bps and our earnings by 400 bps.
In conclusion, the value growth opportunity ahead is significant. These are exciting times for all of us at Intertek. We are entering the next phase of our good to great journey with a high-quality growth portfolio. Our portfolio provides our customers with leading ATIC solutions in each of our global business lines. Intertek has the track record of consistent growth and value delivery based on a compounding effect of margin-accretive like-for-like revenue growth, strong cash generation and disciplined investment in organic and inorganic growth. In addition to the exciting growth opportunities ahead, our portfolio has strong intrinsic defensive characteristics, the ATIC solutions we offer are mission-critical for our clients. Our clients need to operate safely on the global -- in the global market. We operate a highly diversified set of revenue streams, and we enjoy strong and lasting relationship with our clients.
Thank you for your time this morning, and we'll take any questions you might have.
[Operator Instructions] And our first question comes from the line of Annelies Vermeulen from Morgan Stanley. Please go ahead.
Hi, good morning, Andre. I thank you for the presentation.
Good morning.
Good morning. I have a couple of questions. So first of all, you said you identified additional opportunities for restructuring in the first half. Could you comment a little bit on what those are, which divisions and what you're seeing, and whether you expect to identify more as you move to second half of the year?
And then secondly, I wanted to ask about Consumer Products and the potential to the margin recovery given the dip in the margin year-over-year. Is this a case of waiting for some of your restructuring and cost-cutting initiatives to reap benefits or do we just need to see operational leverage from volumes improving? And over what sort of time frame do you think that, that margin in Consumer Products could recover to historical levels? Thank you.
Thanks for your question. Look, let's just start with our restructuring program. As we explained a few months ago, we had not looked at our fixed cost for quite a long time at Intertek. Our previous restructuring programs was back in '15 and '16. And when you do a review of your fixed cost, you cannot look at every single part of the portfolio in one go. So we've done quite a bit of work in 2022, and that's what we announced in March. But this is an iterative process that's going to continue for a few years.
We are taking our time to look at parts of our portfolio that we benefit from these initiatives. And you remember there are essentially three type of initiatives, right? Can we streamline the nonproductive side of the organizations by basically consolidating operations and reducing the number of nonproductive headcount? Can we consolidate certain sites that would benefit from additional scale if we bring these together? And three, do we have opportunities from a technology standpoint to upgrade operating systems essentially and make us more productive? So what we did in the first half, I would say, is more of the same. We've identified three additional sites, and we've identified quite a few non-productive headcount in the organization.
There was not much in technology in the first half. I would say it's a continuous implementation of these programs. And we believe that it's going to take us, if you want, a while to complete this review because you want to do it step by step. And every decision you make is really, really important, and you want to have the right decision in your process. But it's part of our margin accretive revenue growth strategy that we talked about during the year.
As far as Consumer Product is concerned, maybe let me use your question to explain what we are seeing in this segment, right? I think the team has done a good job in the first half in Softlines and Hardlines, considering the fact that retailers in North America and the US continue to be careful with inventory management. I mean you see the stats like I do, we are not in the situation where the inventory is much lower than it used to be. So the demand is basically okay, and we're going to have to wait for the inventories to normalize to see an acceleration of demand in Softlines and Hardlines.
When it comes to business in terms of Softlines and Hardlines, and I'll come to your point on margin. We are the market leader. We operate with the highest quality. And as I always said, when there is a slowdown in the market, you need to protect your IP, you need to protect your customer service capabilities. So don't expect us to do any restructuring from an operational standpoint, Softlines and Hardlines, because we operate with a high margin. We are a market leader. And yes, yes, the revenue growth at the moment is a bit below the inflation rate in these businesses, but it is temporary. We know that our customers are investing in sustainability, and we know that once the inventory are normalized, we'll see some innovations, investments from our clients.
The second business that is in our Consumer Products is our Electrical & Connected business. which is -- and we don't talk much about the business because we talk a lot about other divisions where we meet. But this is a legacy business, it’s in the Thomas Edison heritage. As you all know, we didn't see a reduction in revenue during COVID. So this business has been consistently delivering margin equity revenue growth year after year. Every month is a new record. So here, I'm not going to think of cost restructuring here. Here, we are thinking of investing in growth to make sure that we can seize the ESG opportunities where we've got obviously synergies with our TT business. And of course, you know about the exciting medical device market. Of course, we talked about functional safety in the capital market. So here, we are investing in growth because the business is really poised for faster growth.
GTS is really the biggest challenge we have in this new division. So it used to be in trade. And of course, now it's in Customer Product because it is customer product related. I'm not concerned about GTS because it's a really well-run business. We've got huge disciplines. But we have to go through a negative operating leverage effect having lost two contracts. So to your question, what's going to happen to the margin in this division? Look, it will be progression through operating leverage and the implied productivity benefits we're going to get from there, but we are not planning any restructuring.
Thank you very much.
And our next question comes from the line of Rory McKenzie with UBS. Please go ahead.
Good morning. Two questions, please. Firstly, on the guidance. Despite the strong growth at 7% in H1, you've obviously kept your quoted guidance unchanged, the mid-single-digit growth for this year. And that could imply a slowdown anywhere to plus 6% organic in H2. So I wanted just to ask about that kind of outlook. Is it just the comparators you want us to be aware of? Or are there any specific parts of the business do you think are maybe sequentially declining?
And then secondly, following up on Consumer Products. Can you say how long the double-digit negative drag in GTS is due to last? I can't remember when the contract ending kind of comps out. And then more broadly, what's your view of the customer base and the destocking cycle? It sounds like from your guidance, you don't expect it to get any better for you for all the rest of this year and for the winter season, and it's more about 2024 new cycle perhaps.
The last question, Rory, was about Software and Hardlines, right?
Yes.
Yes. Okay. Look, I think you're absolutely right to ask the question on guidance. Why aren't we changing our guidance given the best like-for-like revenue growth with even in the last 10 years of 7.1%. Look, when we give guidance -- as you know, I always give guidance within the range, and mid-single digit doesn't mean 5%. And if you read carefully my script, you will see how I've used mid-single digit for certain like-for-like revenue growth. So there is a range, and I'm not worried about like-for-like revenue growth. But as you know, we are always very considerate and disciplined in terms of guiding.
In terms of the base last year, look, if you look at the group, we had the same organic growth in H1 versus H2. Having said that, if you look at -- and I will come to Consumer Products in a second in Softlines and Hardlines. If you look at the fastest-growing business that we are seeing in the first half, there will be a bit of a base effect because Corporate Assurance did extremely well last year, the same for Industry & Infrastructure and Caleb Brett. So yes, there is a bit of a base effect, but I don't want you to worry too much about it.
Look, in terms of Softlines and Hardlines, and I'll come to GTS in a second, well, my sense is I don't call a change of trend in any market until I see it. So I'm going to be very honest with all of you guys. At the moment, I'm not seeing a reduction of innovation activities from our clients, sequentially Q2 versus Q1. But I'm not seeing any uptick yet in the demand in Hardlines and Softlines around the world. Now having said all of that, certain brands are doing better than others. And you know like I do that with inflation being where it is, consumers are starting to look at price points. And the retailers that are focused on SKUs at a lower price point will benefit from the fact that certain brands are priced too high.
So for us, this is the message I'm giving to my team that says, look, yes, I understand the inventory globally where they are, as I just said to analysts, but certain brands will do better than others. So for instance, to give you some color, if I were to tell you that we saw incredible growth in India and Bangladesh in the last few months, why? Because the brands producing there are the brands that are really focused on lower price points, and I think that's going to be the situation for a little while. And we know that inflation has peaked and things will move step by step back to normal base CapEx some time.
So to say it in simple terms, I'm not forecasting any change of trends in Softlines and Hardlines for the second half. If it -- globally, if it happens, it's going to be a positive news. But our focus is to make sure that we support the needs of our clients that are seeing good growth, and we keep providing a superior customer service to our clients that are resolving our inventory challenge. And there are a few -- I mean, it's public information. On GTS, look, it's going to take us until next year to start growing again. It's not a huge business. We have won a significant contract in Mozambique, which will help in 2024. Is the second half going to be double-digit negative? I hope not, and I don't think so. But I think we're going to have to wait until 2024 to be back in growth. That will be my view at this stage. I hope it helps.
That's very helpful. Thank you, Andre.
And our next question comes from the line of Oscar Val Mas with JPMorgan. Please go ahead.
Yes. Good morning, Andre and Colm. Three questions from my side. The first one, going back on, I guess, the guidance for the full year, very strong H1 margin, only 10 basis points on restructuring. I was wondering if you could give us some color on your thoughts for the second half around the moving parts. Could we expect a similar amount of constant currency margin improvement in the second half? That's the first question. The second question is on Building & Construction in -- I guess, in the US growing mid-single digit. Is it fair to say that some of the benefits from the IRA haven't really kicked through yet? And could you give us some color when you expect growth to improve or to accelerate in B&C? And then the final question is just a smaller one on kind of the free cash flow was impacted by higher maybe one-off cash interest and tax. Could you give us some guidance for the full year around that number? Thank you.
Okay. Thanks, Oscar. Look, your question on margin is important. Let me just use this opportunity to reassure everyone that margin accretive revenue growth from a P&L management is a way of working everywhere inside Intertek, right? We always try to make sure that we get the right volume and price/mix in our revenue line. We are very focused on productivity metrics in existing businesses. Obviously, you've talked about the restructuring that we talked about. No matter what we say about our performance, we can always be better. And the span of performance is the best evidence that we are not at all maximum everywhere, and you heard it from us at the Capital Markets event.
As far as H2 is concerned, look, it is obvious that inflation is speaking. And therefore, the drag effect of inflationary pressure on cost, on our margin should become less. I'm not saying that moving out of a sustained inflation environment, but there is a positive trend here. So that's good. We are not running out of growth because we expect, as we said, the performance in like-for-like that I just talked about in the previous questions. We'll have a greater benefit in the second half from the restructuring. I said in the call, we'll benefit from around slightly GBP1.3 million, GBP1.5 million in H1, but we expect more in the full year. So that's important.
On the flip side to it, is that we had a very strong second half last year in terms of margin. As you know, we were at 17.9%. And we have to be mindful of the base. But all in all, we expect to continue to make progress on margin in the second half to deliver the targets that we have for the full year. I'm going to refrain, as you know, from giving you any targets or guidance in terms of the quantum of progress we're making. But I can tell you that everybody at Intertek truly believe in the central value of margin equity revenue growth to deliver value for our shareholders, right? It's important.
As far as B&C is concerned, look, we are pleased with the development. That's true that the incentives that the government has put in place to attract additional infrastructure investments and certainly moving into the greener side of the economy are going to accelerate growth in the United States. And it's true that we've not seen the full effect of that because, as you know, in the Building & Construction business, people need first to make the investment decisions, need to go through the planning to get the authorizations to build the power plant or the solar power infrastructure, whatever they want to build, or new refinery of carbon capture, and we are in Phase II. So I would hope that B&C will continue to perform very, very well.
As far as the free cash flow is concerned, well, the important point for me is operating cash flow, right? This is the cash conversion, how the team are basically converting the strong profit growth in cash, and this is doing very well. It's true that in our free cash flow, we had a few negatives. And we believe that we'll have a strong year in terms of free cash flow. So we are confident that we're not going to give an H2 free cash flow performance, we are giving a guidance for the full year net debt, and I'm not worried about free cash flow.
Great. Thanks a lot, Andre.
Thank you.
And our next question comes from the line of Neil Tyler with Redburn. Please go ahead.
Hey, good morning. Thank you.
Good morning.
Two questions, please. Andre, good morning. Firstly, the Assurance activities. You said previously that you tend to have quite a good line of sight on the sort of project pipeline, the demand there. So I wonder if you could sort of share your perspectives on that and the growth opportunities. And any challenges that might be in the offering in terms of staffing that business to meet that pipeline? That's the first question. And secondly, and back to Hardlines and Softlines, I'm afraid. But I wanted to ask about, so the -- you mentioned the regional disparities in demand or variances in demand. Does that regional mix impact margins in either direction? Because one of your competitors noted quite recently that price pressure and slower volumes in China has meant that their hardlines and softlines activities elsewhere generated higher margins than those in China these days. And so I wonder if you're prepared to share any thoughts on that. Thank you.
Look, I'll start with the second one. Look, we are the global leader in terms of softlines and hardlines. And as we talked about at the Capital Markets event, when we talked about supply chain moving here from here, there is no margin accretion or dilution really effect on a global basis when volume moves around because we have very, very strong margin in China, which is the envy of many companies, including our competitors, and we have very strong margin in Vietnam, in Bangladesh, in India. So I'm not that concerned, but I respect, obviously, what our competitors see in their own portfolio, but it doesn't apply to us.
Look, I'm really, really proud of what the team is doing on Assurance. I mean just to remind everyone, we had double-digit like-for-like last year. We've had another double-digit performance this semester. This is obviously with SAI now being part of our base in terms of like-for-like. Where are we seeing the growth opportunities? Well, the simple answer is that companies have increased their focus on risk. There is no question about it. And it's as much as the functionality, if you want, of the supply chain, right, end-to-end. But of course, they need to get access to better data points. We know the pressure they are under in terms of sustainability and traceability. So no, it is doing very well.
The path sign or the backlog, as we call it, inside the company is strong. Is it a challenge to recruit people? It's no different than it was a year ago or two years ago. I mean when you run a business like Intertek and -- you've got to basically work on being the best company in terms of attracting talent, recruiting them, giving them the opportunity to grow and excel and develop inside Intertek. And this is part of the business, because to do it -- the double-digit like-for-like revenue growth in '22 in terms of Assurance, and to do it again in the first semester you need to focus both on sales and talent and the -- our team wouldn't have delivered 2022 without having worked on recruiting the right people.
So look, it's part of the way we do business. Is it more difficult than it used to be? No. Is it easy to recruit talents? Never. But it's what we're here to do, because if our clients need to help, we need to develop and prepare the right colleagues. So now it's -- I mean, look, as you know, we did a major play strategically on ATIC back in '16. And we are being proven right that this is the most exciting part of the industry, if you ask me.
Great. And just if I could ask a follow-up, just more broadly on sort of talent acquisition. How -- within your plans, obviously, growth is very impressive in the first six months. How do you see sort of headcount broadly on average compared to last year over the 2023 period?
Yes. So it's a really important question. As you know, we disclose our headcount on a yearly basis. And in terms of -- which I think the question behind your question is what is your staffing policy? So we had to -- and I assume that your question is assure -- it’s total Intertek not just Assurance, right?
It is, yeah.
Yeah. So you have to think about headcount, proactive headcount, either in a lab-based business or in the field-based business, right? So in a lab-based business, where we have quite a lot of equipment and lots of tools and automation, we have productivity opportunities in every single site. I'm not saying at our site, I'm not profitable. But when you look at the metrics individually, we see opportunities. We also spend a lot of time reinventing our processes to become more efficient.
So here, we've got a clear process on how we approve additional headcount for an existing lab. It's simply based on where we believe the productivity thresholds are, i.e., above which you need to recruit and then we do so. But it's always with the same approach, which is ever better, right? There is always a way to get better at productivity management. So it's not like -- to make it simple for you, if your volume increased by 10% in the lab A, you're going to increase your proactive staff by 10%. It's not the way it works. So that's on the lab-based business.
As far as the field-based business is concerned, it's different. Because essentially, if you look at an audit workforce, right, and it's no different than the big four, a good workforce needs to be at 85%, 87% utilizations because you've got to travel, the admin work, et cetera and so forth. And then when we plan for our insurance or inspector headcount investments, this is the model we pursue. So as I said, at the Capital Market event, you have less, if you want a fixed cost leverage in Assurance and the lab-based business. But equally, as we all know, it is a high-margin business and very, very, very predictable.
That's very helpful. Thank you.
And our next question comes from the line of Arthur Truslove with Citi. Please go ahead.
Hi, Andre. Thank you so much for taking my questions. So first question was -- hello, can you hear me?
Yeah. I can hear you, Arthur. Good morning. Welcome.
Perfect. Thank you. First question was just on what sort of level of pricing and wage growth have you actually seen, and are you able to give us an idea of sort of how that compares with what you might have expected at the full year. Second question, I'm not -- I may have misunderstood your previous comments. But in your previous guidance, you said that you expected adjusted EBIT margins to increase in both the first and second halves, and obviously, the guidance wording has slightly changed. Just to be clear, are you expecting the EBIT margin to increase in absolute terms in the second half or not? And then the third question was just on the Minerals business. I guess, clearly, very strong in H1, but I think one of your competitors said that maybe things slowing a little bit as we move through the year. I’m just wondering what you were seeing? Thank you.
Okay. Thanks, Arthur. Look, on the margin, well spotted. I mean the reason why I didn't say H1 and H2 because we gave a margin accretion in H1. And if we want to give the guidance that we are giving, we have to deliver margin accretion in H2. So the answer is, yes, of course, we are not changing our guidance on that. On price and wages, so as I said earlier, the good news is that inflation is -- seems to have peaked. I'm not obviously predicting the global economy, but based on my indicators, it seems to be the case. And you saw the results of the oil and gas companies this week, and of course, the reduction in energy price will trickle down in the economy.
We know that a lot of companies, including our clients, of course, have increased their prices significantly during the last two years. And now they are seeing the negative effect of that and losing market share to private labels and having a volume problem is public. I mean, you've seen all the FMCGs in London or Switzerland talking about it. So -- and of course, the policymakers are very, very, very focused on that. So the wage growth is in line with what we had in our budget. So we are, I think, bang in line with what we expected. So there is no surprise there. And I think that, moving forward, the pressure would be incrementally less on wage inflation.
As far as price is concerned, we take a balanced approach. It's not one or the other. I think when you are a high-quality operator like Intertek, where you've got the best customer service which we demonstrated the Capital Market event, you command a premium price. So our staffing position is very good. But equally, we want to get rewarded for the work we do, and we are passing, as you know, 50% the wage cost to our clients. And in the first half, the balance was consistent with what we saw earlier one-third, two-third. So I'm pleased with that because saying just focus on volume and not price, it's a very dangerous strategy. Because people in the organization says, okay. Yes, boss, it's just volume, right? I'm just going to focus on volume and forget price. This is the wrong message to give. To say you just focus on price and not volume is also the wrong message. So we believe in both price and volume, and what I said internally is what I said externally. So -- and this is what the numbers are showing.
Look, on Minerals, I'm aware, of course, of some of the concerns that are in certain disclosures of certain companies involved in the sector. Look, as you know, Minerals for us is a really good business, but not a massive business, right? We tend to be focused on certain end markets. So we are really strong in Australia. We are very strong in Indonesia, in the Philippines. We are very strong in Africa, especially in Ghana. Our team is focused -- has been focused for many, many years on diversification, i.e., the base minerals that it really knows, but we are very focused on green and minerals for the reasons that we all know and we discussed at Capital Market event. We are, of course, investing in technology.
If I were to just look at the numbers, there is no question that we had an incredible 2022, with double-digit revenue growth in 2022. And of course, we had double-digit again this time around. So do I expect Minerals to grow at double digit forever? No. Is this business running out of growth? No. What's really important for me is for the team to recognize, as we talked about at Capital Markets event that portfolio management is very important. It's about selecting the high-growth, high-margin sectors and the team is doing a really, really good job. And if you happen one day to be in Australia, I would invite you to visit our operations in Perth, so that you could see firsthand how we're using our portfolio activities and technology to not only deliver a great revenue growth, but also margin accretion. So hope that answers your questions.
Okay. Just to follow up, just to be clear, your comments on margin were actual rates not constant currency rates, right, in the first question? I've understood that right, haven't I?
You never miss a beat, right? Okay. What's the next question?
And our next question comes from the line of Harry Martin with Bernstein. Please go ahead.
Hi. Good morning, Andre. Morning, everyone. First question I have is on the China business. Obviously, the growth today is really reflecting the snapback from the lockdowns, but we will hear about wider worries about macro weakness to come in China. So I wonder if you could just comment on what you're seeing there and how resilient the Intertek portfolio is to any sort of domestic downturn. The second question on CapEx. You talked about the increase in CapEx in H1. But even at the top end of the full year CapEx guide, it still looks flat to down year-on-year in H2 and quite a way from the 5% ambition. So I wondered if you could talk about the levels of spending that aren't being done this year that might take you up to 5%, and where we could see that CapEx come in the coming years. And then the final question, just a longer-term question on industry pricing power. As you said, it's an industry, historically, that's had a lot of organic growth from volume growth. I wondered if, in the last year or so, you've learned anything about pricing power and price elasticity for your services, and if there might be any change to the way that Intertek users price longer term? Thank you very much.
Okay. Thanks. Three important questions. So what are we seeing in China? I talked about the like-for-like revenue growth, so -- and you heard what we say in the January-April period. So you will have seen that the momentum in May and June was really, really commendable. Look, the reality is that we have a portfolio, as John explained during the Capital Market event, that targets both the export economy and the domestic economy.
What I can say is that in the first half, we saw faster growth and higher demand for the domestic market than the export market, both segments grew. But despite what we hear that there is an issue in terms of the domestic economy, with consumer confidence being low, we didn't see that in our numbers. Now we are not the proxy for the Chinese economy, but this is important to know. We saw growth in both segments, which is good. And as we know, we've got opportunities in both segments, and of course, greater opportunities in the domestic market.
Within our portfolio in China, we've got Softlines and Hardlines, we've got Electrical & Connectivity, we've got Business Assurance, we've got C&P. And I've talked about Hardlines and Softlines, which was very, very positive for us in China in the first half. Of course, we benefited from the rebound given the COVID situation last year. If you take Softlines and Hardlines out, benefiting from a strong rebound because we are very strong in Shanghai in Hardlines and Softlines. Our Electrical business continues to motor ahead. Our Assurance business continues to motor ahead. Our C&P business, continue to motor ahead. The same for Caleb Brett. The same for all businesses that we have.
And if you look at some of the macro stats, if you look at the production data that I have, there is still growth in China. So am I listening to some of the concerns that people have -- of course, I always do. I look at all type of data. Am I concerned? No. We have a really good team and China is well positioned as we talked about at Capital Market event, but I hear the concern, but I'm not seeing any of this.
On CapEx is spot on. Look, we've always said 4% to 5%. It's -- when we give guidance, like this is a range, and we will be very happy at 5%, 5.5% or 6%, if it makes sense, but we are also happy at 4%. You don't want to push the team to spend on CapEx just because we said 5%. I think what we do is we look at every single opportunity individually with the right approach in terms of [indiscernible] and ROIC. We've increased our investment in the first half, and I'm pleased to see that our events -- we're investing in some of the fastest-growing regions. So we had a good increase of investments in APAC as a whole in Africa and the Middle East, which are good growth markets. And also in Europe, which for us is doing very, very well. You saw our numbers, I mean, our European business is very, very strong given what our competitors have said.
As far as the second half, we're going to continue to invest, and we talked about the segments we are interested in. So -- but if we don't do 5%, that's okay, because 4% to 5% is the range. And the key is to invest in the right growth opportunities that are going to deliver sustainable growth and volume and pricing, and of course, margin. As far as the pricing power of the industry. Look, from our perspective, we've always believed in being a premium price operator because we believe that we are the quality leader in the industry. I've demonstrated that at the Capital Market event. So we've always started with a higher price point. And that's why we've always had a very strong margin in the industry because we wouldn't have the margin we had without a strong price point.
Have we learned new lessons in the last few years in terms of price elasticity? Of course. I mean we never stop learning. Would I say that in a high customer-centric organization, our people are always careful to increase price? Of course, because we have a long-lasting relationship with our customers and we want to make sure that this last. And when we pass on wage inflation, we've always had this view of putting 50% to our customers and the rest through our productivity, because we believe in both partnership. Have our team being surprised on the elasticity and certain solutions? Absolutely. Absolutely. And you ask me which one, and I'm not going to tell you because it's commercially sensitive.
Thanks very much.
And our next question comes from the line of Suhasini Varanasi from Goldman Sachs. Please go ahead.
Hi. Good morning. Thank you for taking my questions. Just a couple for me please.
Good morning.
Good morning. M&A, I just want to understand, given your pipeline, are you seeing for larger transactions, any sign of valuation multiples compressing at all? And then second one is on leverage. I appreciate it's not the full year results, but I suppose it's an anticipation of the full year results next year. Your leverage is 1.1, target is 1.3 to 1.8. If M&A does not materialize, would you be considering additional share buybacks, other capital return opportunities? Thank you.
Thanks. From an M&A standpoint, I would say it's a good question that the pipeline is getting currently more interesting. I think as you know, a lot of companies were concerned about some of the debt capacity in the market last year. Of course, we are getting out of COVID. And when all this is happening, it's not the best time to put your business into the market. So yes, I think we've, of course, announced Controle Analitico a few weeks ago. The pipeline is getting more and more interesting. That would be my statement. I'm not going to say that we're going to announce anything next week, but I'm just saying this is what I'm seeing because this is what your question is all about.
Are there multiples changing in the industry? I wouldn't say so, because it's a high-quality industry. There are not too many industry like ours, where the acceleration of revenue growth, margin opportunities, strong return on invested capital and the owners of quality business know that they've got a quality investment proposition here. And I wouldn't bank on that if I were you.
What matters is for us is that -- of course, the multiple are important, but what's important is the quality of the IP we bring in, the scalability and how we can drive synergies. As far as leverage, you're absolutely right, I mean, we are below the 1.3, 1.8. We've always said in one-on-one conversations and meetings, and we kind of put it in the capital allocation disclosures that we'd, of course, always be open to returning cash to shareholders in one way or the other if we believe we don't have the right usage for cash, and if we believe the macros are the right matter moving forward.
I will also say that there are big lessons around the world, where certain countries and companies operate with inefficient balance sheet for a long, long, long time. But there are also lessons for companies having done a lot of buyback to incite EPS in the short term and have not invested in the business. So our priority will always support cash to work and deliver the type of ROIC we deliver for clients. And if you run the numbers on Intertek share price, yes, you can get EPS accretion, but is it really value creation I think it's a difficult debate. Look at the numbers from an ROIC standpoint. So hopefully, you understand the approach we are taking on that. We are, of course, open but our priority is to put cash to work because this is how we can create the ROIC we like to create, which is what we've demonstrated this semester.
That's very clear. Thank you very much.
And our next question comes from the line of Karl Green with RBC. Please go ahead.
Yeah. Thanks very much. My questions have pretty much all been answered. Just one small technical question for Colm, probably nothing. But I just noticed the net finance cost guidance in the slide deck on Slide 13, you talked about it being pre-FX. Is there any kind of big unhedged FX movement we should be aware of that's going to impact the net finance cost line versus the specific numbers you've given?
Yes. Look -- thank you. Look, the net finance cost guidance is just that we don't build in FX, it's simply uncertain. I would say the primary part of our net finance costs are -- is interest. And as we move through the year, those fixed interest costs on our PPEs is pretty well known, of course, translated, we'll move with our expectations on dollar. But, I think the simple answer is we don't forecast unhedged FX going forward, and we have fairly good clarity on what our interest costs will be for the second half.
Super. Thanks.
Our next question comes from the line of James Rose, please go ahead -- I’m sorry, James Rose with Barclays. Please go ahead.
Yeah. Hi. Good morning. I've got 3 on Corporate Assurance, please. Firstly, within Business Assurance, the double-digit growth. Could you give us a sort of range of the growth of the different business units within that, please? I mean Alchemy come to mind, for example. Secondly, on Assuris doing mid-single digits, could you say why that business isn't doing double-digit growth as well? And then lastly, on SAI Global, could you just give us an update on progress there and when it does come into organic scope? Is it likely to be accretive or dilutive to the division?
Okay. So look, our Business Assurance, as you heard from Calin at the Capital Market event is obviously broad-based. We've got ISO, non-ISO. We've got sustainability assurance. We've got our SaaS solution. And I'm going to be very careful with what I say. But the growth is broad-based, I don't want to give too much information to our competitors. So the business is doing very, very well broad-based. And it's definitely across the segment I just talked about, but it's also across geographies. So we are really well placed and wouldn't be able to deliver the type of growth we are delivering if it was not broad-based.
And we continue to be really, really excited about the growth opportunity in people assurance, which you know is so important for companies to reduce their operational span of performance in the front line of the operations. I think the SAI acquisition, which we made quite a while ago, our focus has been integration in terms of bringing the tool -- teams together. Making sure that we go to market with one set of solutions. Making sure that, of course, we bring the Intertek processes into the SAI businesses. As you remember, there were a lot of complementarity in terms of geographic portfolio, SAI adding some scale in Asia Pacific, largely in Australia, but also in China and in some small Asian markets.
And of course, in the food retail segments and sustainability. And as I said earlier in the call, we're really pleased with like-for-like performance of SAI, but also with the fact that the benefits of the acquisitions and bringing these two businesses together on a global basis from a cost standpoint is happening. We've taken quite a lot of cost out and as expected non-profit cost out, and you've seen it in the margin. So now it's doing very well.
Thank you.
Okay.
And we have a last question from the line of Simon Lechipre with Stifel. Please go ahead.
Yes. Good morning. Just one from me, coming back on margin. Basically, looking to the past, you were benefiting from very nice margin momentum. And I mean, ultimately reaching 17.5%, at the peak in ‘19. Now you're telling us you are looking at your fixed costs, implementing restructuring to basically help you to bring margin back to the peak. And has something changed in the business? Is it related to the industry facing some issues? Is it mainly the new inflationary backdrop? I mean we can see your peers are also struggling to really make margin progressing. So just wondering what could be the negative factors play out -- playing out across the industry, if any? Thank you.
Okay. First of all, for us -- going back to our peak margin of 17.5% is a goal that we are committed to and it's going to take a few years to get there. There is no question that what has changed between 2019 and now is two things, right? One is the portfolios of companies is not exactly the same because market change. And when you have a disruption of the nature we saw with COVID on global scale, you've got lots of moving parts. So I think everybody has got to deal with that. And every portfolio is different, and I'm not going to talk about my competitors.
But also, we all have been obviously surprised by the pace at which inflation has obviously materialized. And we talked quite about it in 2022, but we know that it started in certain countries in the second half of 2021. And the reality is that everybody in the corporate world in 2020, 2021 and, to a lesser extent, in the first half of '22, was busy with last part of other activities. And I think there is a catch-up that the companies and the industry will do in terms of inflation because it's a secret for no one. The growth that we've seen in cost through inflation has been obviously in lots of places higher than the growth we've seen in revenues, and there is a catch-up to do here.
Thank you.
[Operator Instructions] And at this time, it does appear there are no further questions from the phone lines. Please continue.
Okay. Well, thank you very much for your time today on the call. I know it's a busy schedule for everyone. If you have any questions, feel free to call Denis and we'll be happy to help. Thank you very much, and have a good day.
And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T TeleConference Services. You may now disconnect.