Bureau Veritas SA

PAR:BVI

Earnings Call Transcript 2022-Q2

[Operator]

Hello, and welcome to Bureau Veritas H1 2022 results. My name is Suzanne, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]

I will now hand over to your host, Didier Michaud-Daniel, CEO of Bureau Veritas, to begin today's conference. Thank you.

[Didier Michaud-Daniel, Chief Executive Officer]

Thank you for the introduction. Good morning, good afternoon, and good evening to everyone. Thank you for joining Bureau Veritas Half Year '22 Results on the webcast and on the call. As well, François Chabas, our group CFO, is here with me to present our results, along with Laurent and Colin.

In the first half of the year, the environment remained volatile with the consequences of the war in Ukraine and the new wave of lockdowns in China. So we continue to take measures to ensure the health and safety of all our employees. Employee safety is paramount for the management team. I would like to take the opportunity to thank all our teams who remain highly mobilized and ensure efficient solutions and support for all our clients.

Let's move now to the results. We have delivered a very solid set of results for the first half. The strong growth in revenue illustrates our excellent operational performance across the whole of the group's portfolio. Revenue totaled €2.7 billion, up 11.4% year-on-year and 6.5% organically. This has been achieved despite the impact of the lockdowns in China and the war in Ukraine. Adjusted operating profit increased by 8.7% year-on-year to €411 million with a margin of 15.3%. Our adjusted net profit is up 15.8%.

Free cash flow. Free cash flow totaled €130 million. This was held back by the increase in working capital in China, where the lockdowns resulted in delays in invoice settlement. The group's leverage ratio was further reduced to 1.1x from 1.3.

In H1 2022, we delivered very steady revenue growth across the board, illustrating our portfolio diversity and our numerous growth opportunities, notably in sustainability. In the pie chart, you see that, first, 1/5 of the portfolio industry delivered double-digit organic revenue growth, up 10.8% in H1, including 9.8% growth in Q2. It clearly benefited from both strong business activity for the Power & Utilities segment and for Oil & Gas markets, which were supported by the rise in oil prices.

Second, a further 1/5 of the portfolio, Agri-Food & Commodities delivered high single-digit organic revenue growth, up 8.6%. The growth was led by continuing buoyant market conditions in Metals & Minerals and improving trends in the Oil & Petrochemicals segment.

Third, more than 1/2 of the portfolio grew at 4.3% organically on average. Here, we are talking about Marine & Offshore, Buildings & Infrastructure, Certification and Consumer Products. Our diversified portfolio drove the delivery of 5.2% organic revenue growth in the second quarter, and this despite the lockdown measures in China.

Let's take a look now at what happened in China. China represents 15% of total group revenue at the end of H1 2022. The lockdowns impacted revenue, margins and cash in the second quarter. We have been able to manage the situation and continue to support our clients.

First, in Consumer Product activities, which makes up 1/2 of the group Chinese revenue, our teams were highly proactive and executed our contingency plan effectively. We were able to limit the impact in Q2 by diverting samples from one location to another across the country or out of China to the group's South Asia testing capabilities, Vietnam, Bangladesh, India. Bureau Veritas' continuous effort to diversify geographical footprint outside of China over the last years bore its fruits. All of the group's labs have reopened, and we are fully back to normal by end of June 2022.

Second point on the Buildings & Infrastructure, which represents 30% of China revenue. I'm talking about the Chinese Building & Infrastructure means for revenue. Construction sites were completely stopped for as much as 8 weeks in areas where lockdowns have been imposed such as Shanghai and Shenzhen. Once the mobility restrictions were removed, the group had to operate on a stop-and-go basis. Sites are required to shut down as soon as there is any suspicion of a COVID case. Since mid-June, the construction sites have gradually restarted, and the group expects to recover from Q3 2022 onwards.

So we have seen over recent quarters how the group's geographical and business diversification has enabled us to post overall growth. Our strategy to grow the portfolio with bolt-on acquisitions to deliver consistent performance has continued. The acquisition of PreScience that we announced in January 2022 to reinforce our B&I platform in the U.S. aims to increase our footprint in the infrastructure sector. PreScience is one of California's leading players in project management and construction services for government transportation infrastructure projects. It has an expertise on highways, bridges and rail and realized $25 million of revenue.

Similarly to B&I, our diversification strategy in Consumer Goods continues with 2 acquisitions to expand our offering and footprint: ATL, scientific sourcing services for the North American consumer health care and cosmetics markets. With €31 million revenue and 500 employees, it expands our footprint in North America; AMSfashion, experts in sustainability, conformity and quality services for the fashion industry, including organic, vegan content verification and durability testing. With €3 million revenue and 50 people, it strengthens our presence in Spain and Portugal, supporting the continued growth in new offering from South Europe and Africa.

In the current inflationary environment, as a service company, the pressure for us concerns mainly wage inflation. We need to remain competitive with our compensation plan to retain our workforce. So we have to address wage inflation. The group has good traction in pricing even if there are variations across sectors and geographies. Price discipline execution is key in this environment. It is more favorable in the mass market and on highly regulated activities than it is for multiyear and large contracts, where there is a delay between price negotiation and the impact on our P&L.

Our world-leading position in sustainability services is spread group-wide. The BV Green Line continues to be a strong growth driver across the entire group, and the momentum builds across all sectors. The examples are diverse and wide ranging, covering all types of sector and services as illustrated by the many logos on this chart. We bring our expertise in the sustainability field to more than 200,000 clients.

In the resources and production sector, it goes from nuclear facility shop inspection to offshore wind project certification in North Sea. In the consumption and traceability area, we performed supply chain audits for a large e-commerce company. We also support the pioneer in salmon fishing in Norway in their responsible salmon aquaculture.

In Buildings & Infrastructure, we provide urban NO2 quality monitoring for the environment agency in the U.K. In new mobility now, we have signed a long-term contract with a battery producer for electric vehicles to perform the sustainability assessment of its supply chain and ensure full traceability along the value chain. This project will be conducted in collaboration with our partner, OPTEL, to track and trace the products along the entire chain for the use of digital tools. As regards social, ethics and governance, it ranges from CSR audit for a large furniture company to nonfinancial verification report for a leading express delivery company.

BV Green Line services and solutions are now well underway to representing a bold 55% of our sales at the end of H1 2022. Buildings & Infrastructure remains the biggest contributor driven by green building and energy efficiency programs. The sales pipeline related to EU Green Deal and the French government's recovery action plan is now increasing. Resources and production represent 1/4 of the Green Line, where renewable energy makes up the largest part. Social, ethics and governance amounts to 16% and is a key driver for sustainability assurance. Bureau Veritas' unique worldwide position in sustainability services ensures that we benefit from the tremendous growth opportunity.

Before handing over to Francois for the financial and business review, let me say a word on our CSR commitment. Our commitment is to act responsibly in order to shape a better world. This commitment was again recognized by nonfinancial rating agencies during the first half of 2022. This is a great achievement for the constant efforts regarding sustainability. Bureau Veritas entered in the Vérité 40 index produced by Axylia with an A rating. We have been also awarded Gold Class in the latest global sustainability assessment by S&P.

I would like to highlight the 5 key CSR KPIs. For a better workplace, health and safety is an absolute. Diversity is key. They start at the top, and today we have 4 female members of our Executive Committee out of 13. The proportion of women in leadership positions has increased to 29.2% in H1 2022, up 3 points year-over-year, towards our 35% target by 2025. As far as environment is concerned, we are committed to reducing our CO2 emissions. Regarding better business practices, ethics is an absolute.

So now I would like to hand over to Francois for the financial and business reviews. Francois?

[François Chabas, Executive Vice-President, Finance]

Thank you, Didier. So hello, everybody. A quick sum up on our half year results. As Didier said, we have continued to grow and deliver in the context of a volatile environment from an economical and geopolitical standpoint. Organic revenue is 6.5% higher than in H1 '21 with a steady organic growth throughout the semester despite the lockdown measures, which negatively impacted the activity in China in the second quarter. Our margin achieved a [recent] 15.3% despite those external events, and our 15% EPS growth is led by a solid operating and financial performance. So in short, the momentum continues.

Moving to the revenue bridge first on Page 15. We delivered €2.7 billion in half year 2022 with an overall increase of 11.4%. Broad-based organic growth reached 6.5%, including a solid 5.2% growth in the second quarter. It benefited from a strong commercial momentum. ForEx had a positive impact of 5 -- or 4.5%, of which 5.6 in the second quarter. This was mainly due to the depreciation of the euro against the U.S. dollar and the renminbi in particular.

So how did each of the businesses perform in H1? As you see on the page, Marine & Offshore confirmed its steady growth, up 6%. Certification was up 4.1%, benefiting from strong demand for sustainability-driven solutions. Consumer products was up 4.1%. I would highlight to here that we have maintained 4% in the division in Q2 despite the lockdown in China, showing the benefit of our diversification strategy.

Similarly, Building & Infrastructure delivered 3.8% with our Americas platform compensating for the difficulties in China. When it comes to the top-performing businesses, Industry is up 10.8%, benefiting from both strong business activity in Power & Utilities, including renewables, and from Oil & Gas markets; the second one being Agri-Food & Commodities, which grew at 8.6%, led by favorable market conditions in Metals & Minerals and improving trend in the Oil & Petrochemicals segment.

Moving to the margin bridge. We delivered a healthy 15.3% margin in the first half despite the impact from the Chinese lockdown on the operations. Organically, we limited the drop to 44 basis points, thanks to the good execution of our contingency plans, while scope added 2 basis points and FX, 4.

Within the portfolio, the revenue improvement and operating leverage drove organic margin higher in Marine & Offshore and in Agri-Food & Commodities. Industry margin remained stable due to mobilization costs for a large contract recently won. As you can see, the strong resiliency of our consumer good margin north of 22% demonstrated the strong operating synergies between our Chinese and South Asian platform, as Didier mentioned previously. B&I dropped to 13.4%, largely due to the lockdown across many cities in China, with the suspension of construction sites and the stop-and-go operation for the foreseeable future. Our Certification business finally maintained a record high margin above 19%, thanks to enhanced operational efficiency.

Moving now to other financial metrics in the first half, EPS, cash and the balance sheet. Starting with EPS, we delivered an adjusted EPS of €0.55, up 15.2% year-on-year. This reflects strong operating performance, organic and FX-led, but also lower financial charges and minority interest.

Moving to the cash flow statement on Slide 22. Free cash is down but remains solid at €130 million. In more detail, the main drivers are, first, we find that with the second quarter top line growth of 11% in aggregate, it is not surprising to see a working capital requirement outflow of €177 million. This said, we had a temporary impact from the invoice settlement delays triggered by the Chinese lockdowns that we expect to recover in Q3. We remain very disciplined when it comes to investments. CapEx stood at 1.9% of revenue compared to 2.2% in the first half of '21, and we now expect this to be in the range of 2% to 2.5% for the full year 2022.

So we closed the first semester with a strong financial structure. The adjusted net debt stood at €1.09 billion, up 3.6% from December '21. Our profile reflects, first, a solid free cash flow generation of €130 million, a disciplined M&A strategy with €46.9 million of spend net of divestment, lease payments related to IFRS 16 presentation of €61 million, a limited dividend outflow of €9.8 million in H1 and a share buyback program of €50.8 million in the semester. Our leverage ratio was further reduced, as it is indicated on the chart on the right, to 1.10x from 1.30x at the end of June '21.

So to sum up, this solid financial performance has been delivered, thanks to a lot of hard work from all the teams of BV around the world in a still complex environment, sadly.

Moving to the business review. Let me share with you the highlights of the first half for each of our 6 businesses. First, marine & Offshore. The business delivered a very solid 6% organic revenue growth in the semester and 5.2% in the quarter. It was equally led by both in-service and new construction activities. It is worth noting that we grew high single digit for services as a result of strong commercial development for non-classification services and increased demand for our services in the offshore Oil & Gas market. As regards new construction activity, our new orders totaled 4.8 million gross tons in H1. The order book at 18 million gross tons end of June is up 10.4% compared to the end of previous year '21. It also remained very well diversified.

Moving to Agri-Food & Commodities. The business remained strong in the second quarter and recorded an organic growth of 8.6% in H1. Within this division, it is worth noting that our Metals & Minerals business achieved double-digit organic performance overall. It benefited from a strong exploration market across the group's key -- and all the major commodities with gold, copper and iron ore leading the way. The Oil & Petrochemicals segment continued to improve, thanks to increased activity with higher fuel consumption. We continue our diversification into nontrade-related activities and value-added segments such as biofuels, liquefied natural gas, oil condition monitoring.

Our agri-food business delivered positive organic revenue growth. Growth was primarily fueled by agricultural products and food testing in the U.S. in spite of the impact of the changes in trading routes triggered by the war in Ukraine. And lastly, the governmental services achieved double-digit organic growth, led by the strong development of Verification of Conformity contracts in several African countries.

Moving to Industry now. Revenue increased by 10.8% organically in the first half across the board. The strategy of diversification towards OpEx and Power & Utilities markets continue to bear fruit. Power & Utilities remain a key growth driver of the portfolio with double-digit organic performance achieved in the first semester. Growth came mainly from Latin America and Europe in particular. In renewables, opportunities remain significant, backed by a strong sales pipeline. In Oil & Gas, the performance improved. We benefited from the restart of many projects in the Middle East and in the U.S. notably. As of today, the share of Oil & Gas CapEx in the group revenue has reduced to 2%.

For Building & Infrastructure, I will not detail again the impact of lockdown in China, but overall revenue growth achieved 3.8% in the first half. The group is well positioned, thanks to its 3 growth platforms across different geographies: Europe, Asia Pacific and North America. Americas were the best performing region, supported by numerous growth drivers in the U.S. And construction-related activities grew faster than building in-service activities, benefiting from strong dynamics for a new project in the Americas and Middle East.

Moving now to Certification. Overall, the business achieved a solid organic growth against changing comparables supported by strong sales development and robust price increases. During the first semester, Bureau Veritas Sustainability services grew above 16%, driven notably by a strong demand for greenhouse gas emission verification solutions. The activity continues to benefit from the overall rising client demand for more brand protection, traceability and social responsibility commitments all along the supply chain.

Finally, Consumer Products, as mentioned, delivered healthy revenue growth, up 4.3% organically, including a 4% increase in the second semester -- second quarter. This was driven by our South Asian platform, which offset the disruption caused by the lockdown in China. This demonstrated the strong resilient energy of the group to operate in a complicated environment. We achieved the strong organic growth performance in other countries and regions, especially South Asia and South America.

I hand back now to Didier for the outlook for the rest of the year.

[Didier Michaud-Daniel, Chief Executive Officer]

Thank you, Francois. So the outlook now for the rest of the year based on the current environment and assuming there are no new severe lockdowns in our main countries of operation. We still expect to achieve mid-single-digit organic revenue growth, improve the adjusted operating margin and generate sustained strong cash flow with a cash conversion above 90%.

We live in a volatile and uncertain world. In this environment, we delivered strong operating and financial performance in H1, thanks to our agile and resilient business model. The growth platform is in place. We are uniquely positioned to benefit from the key imperatives of sustainability and energy transition. With the '25 strategy, we will capitalize on our strength and continue our successful journey of creating value for BV and its stakeholders.

Thank you very much for your attention. Francois and I are now ready to answer your questions on the call or on the webcast.

[Operator]

[Operator Instructions] The first question comes from the line of Paul Sullivan from Barclays.

[Paul Sullivan, Barclays]

Three for me. Firstly, can you quantify the organic drag from China in the second quarter and how much of that comes back versus lost? And it feels like organic in June was high single digit. Is that about right and also a sensible indicator for Q3?

Secondly, Europe continues to be kind of weak spot and slowed further in the second quarter. What was the drag from Russia-Ukraine in the region? And given recessionary concerns, should we expect growth to slow further from here?

And then finally, sort of bigger picture, how should we think about sustainability of growth as commodity prices roll over given the direct and indirect impact we're seeing across the group?

[Didier Michaud-Daniel, Chief Executive Officer]

Okay. Thank you, Paul, for your questions. The first one, so on the organic drag from China, we had, as you could see on our results, a very limited impact for CPS overall. In fact, this is due to our contingency plan, as I said. And I take the opportunity also of thanking our team in China. They did a superb job. It was extremely well mobilized and very proactive to adapt to the new constraints by moving some samples from labs to labs in China but also by moving samples to our locations or lab in Vietnam, in Bangladesh or in India. By doing so, in fact, we did very well with CPS. And as you could see, we are -- we delivered quite a good organic growth in these difficult circumstances.

The second impact, which was a little bit more material, was on B&I. And in fact, our B&I business declined by approximately 30% in Q2 because the construction sites were fully stopped. We can see and we expect a gradual recovery of our B&I business in China. Still some stop-and-go -- there is still some stop-and-go situation because, as you may know, they are testing the people systematically. And when they find a case, of course, they stop the site. So I think that it's going to be a gradual recovery. But overall, when you look at the impact on our organic growth, it was very -- at the company level, I would say, very insignificant.

On Europe, we disclosed it. Ukraine and Russia represents approximately 1% of our revenue. So it's a very low part of our revenue. So it's difficult to say that because, of course, we are not -- we just can -- of the people and what is happening there. But in fact, today, for Bureau Veritas, we can see more opportunities than issues because of the war.

And I'm going to give you 2 simple ones because they are easy to understand. The first one is the fact that there will be much more imports from countries like the Middle East countries or even the U.S. of gas and, of course, for Bureau Veritas, it's an opportunity because we have a leadership position, as you know, in LNG ship construction.

And the second obvious, of course, impact, the one on the price of the oil per barrel. And in this case, there will be, of course, more CapEx. We don't want to be what we were in the past, too much exposed to oil and gas CapEx, but we can see already certain opportunities. And we kept our expertise, thanks to the fact that we decided to accelerate our OpEx positioning. So we can now, for sure, transfer some of our people from the OpEx to the CapEx as needed. But we will be very selective regarding the project. Yes, Paul?

[Paul Sullivan, Barclays]

I was going to say any color on June and indications for Q3.

[Didier Michaud-Daniel, Chief Executive Officer]

For Q3, it's a little bit too early to talk about it. Again, you can see our guidance. I could see that in some notes, probably yours, but I'm maybe a little bit conservative. Knowing the conditions and knowing the fact that we don't know exactly what's going to happen with China, will it be another lockdown, what's going to be the impact on the consumer and the fact also that the inflation is getting high, of course, 17% for Q3 and Q4. So I cannot give you more details on that.

On the sustainability part, this market, whatever happens, and we can see it, is just growing fast. And again, it's important because I'm visiting as you know, Paul, a lot of clients. It's not just about ESG assurance who are doing very well in this sector. But it's also about renewables. The projects of wind farms, solar farms or hydrogen is the opposite. They are accelerating. So the projects regarding nuclear industry are accelerating, and we are very well placed on these projects. The building which are big today or the infrastructure are greener. So -- and we, of course, can sell our expertise.

And you could see through the last acquisition we made in Spain, there is more and more demand in organic product testing, in vegan product testing. So -- and on top, the ESG assurance, of course, which is a new market ramping up rapidly. So on the sustainability, I do not see any slowdown in the third quarter. In fact, it's the opposite. I foresee acceleration in the demand.

[Operator]

The next question comes from Simon LeChipre from Stifel.

[Simon LeChipre, Stifel]

Three questions, please. First one, on the margin outlook. So you left your guidance unchanged, which basically guides something like 50 bps improvement in H2. Could you maybe comment on the different drivers behind this?

Secondly, on the economic environment, let's say, broadly as part of your discussion with clients, do you see, let's say, some specific area with, let's say, more cautiousness or any change in behavior from clients due to the economic uncertainties?

And lastly, on Marine & Offshore, you had quite a nice margin performance in the first half. Is there any sort of one-off in it? If you could just maybe give us a bit of details on the dynamics so we can, let's say, better assess the margin outlook for the division.

[Didier Michaud-Daniel, Chief Executive Officer]

Okay. I missed a little bit your second question. If you can repeat it, please.

[Simon LeChipre, Stifel]

Just on the economic environment, if you noticed any, let's say, change in behavior from clients or any, let's say, cautiousness due to the economic concern.

[Didier Michaud-Daniel, Chief Executive Officer]

Okay. Okay. Okay. I'm going to start with Marine & Offshore, move to economic environment. And Francois will cover the margin question. On the Marine & Offshore, there was no one-off. In fact, I'm sure that you may remember that last year, we had a very good -- we had very good sales, probably top level. If I remember well, the last time we achieved the level of sale we achieved last year was in 2013, so a long time ago.

And in fact, we booked a lot of LNG ships, container ships. And these ships have started to be built. There was a little bit, in fact, you can see, of slowdown in Q2 for a simple reason. It's because the shipyard in China were closed. But we are very optimistic regarding Marine & Offshore because we can see a continuing trend in wins regarding your LNG ships and container ships.

So at the end -- I can be very transparent with you. At the end of the first semester, we already recorded 4.8 million gross tons. So -- and last year, more than 8 million gross tons, which is, again, if you think about the history of Bureau Veritas, since I took over in 2012, probably a record at the end of the first semester. So it's good news. And our backlog has never been at that level because if I'm right, you correct me, Laurent, 17 million, 18 million gross tons, so it's a very high level of backlog. I'm talking about new equipment.

The second point here, which is important, is, as you know, the IMO now is, of course, driving the shipowners to start thinking about scrapping old ships because they are not compliant, of course, anymore. They decided to reduce the speed of their ships to optimize the consumption, but there is a limit. You can imagine. It's easy to understand. So we can see now more and more ships which are going to be scrapped, which means that we will have more new construction in the future.

And on top, the Marine division has started to sell sustainability solutions, social audits. Or we talk about scrubbers in the past, this type of sustainability solutions. You know that we all are a class society, which is capable to certify dual propulsion fuel and gas. And we're also working with some shipowners on biofuel or even hydrogen. So clearly, this activity is doing well, and I can foresee a good future this year and the years to come for the Marine division. On the other hand, offshore has stabilized at a low level. It's not decreasing anymore. So if you combine both, of course, we are growing at a good margin.

On the economic environment, we all read the newspaper. We all see what the inflation impact is already for people. Honestly, when I visit clients, I cannot say today that they are putting pressure on us because of the economic environment. What I can foresee is probably an impact on one of our business, which could be B&I residential.

But I think that thanks to the good job we did in the past, by focusing our efforts on infrastructure and energy instead of residential, in France, for instance, if you think about the B&I business, it is just 5%. 5% of the B&I business now is residential. So it's nothing compared to what it was. The rest is mostly OpEx, and the OpEx is not going to be impacted. So it's good news. And for the rest, we are still again pushed by, of course, markets which are resuming, I'm thinking about the oil and gas market, but also by what we discussed before, sustainability.

On the margin side, Francois?

[François Chabas, Executive Vice-President, Finance]

Yes. Simon, I would be very happy to answer your question, but the line here was not very great at the beginning. So would you mind repeating your question? And then I would be delighted to answer it.

[Simon LeChipre, Stifel]

Yes, sure. So just on the margin outlook, so you left your guidance unchanged. So it implies something like 50 bps improvement in the second half. So just asking as to the driver for --

[François Chabas, Executive Vice-President, Finance]

You have 2 ways to look at it, the complex way or the simple way. So let me start with the simple one, and then I go into the more complex. The simple way to look at it is to achieve our guidance, we, by and large, need to deliver 17.2% in H2, which is exactly what we've delivered in H2 2019. So that's the simple way to answer.

The more complex way is to try and explain where we see those improvements compared to H1. And without going too much into detail, you have 2 elements here. A first element, which is a recovery in the B&I segment for obvious reasons. As Didier mentioned, our outlook is based on a progressive reopening of our B&I activities in China over Q3 and consuming activity in Q4. So that's an obvious subside we expect in term of margin in H2 compared to H1.

The second element, which is, I would say, sequential, is the improvement in the Agri-Food & Commodities segment. You may remember that for now almost 2, 3 years, we have commented around the oil and petroleum segment of the Agri-Food & Commodities division, which represents 30% of the division, as being a complicated segment with price pressure and reduction of volumes in 2021. And this has stopped at the end of last year. I think we mentioned it in our yearly publication in February.

The last, I would say, quarter, half year was better. And it seems to be confirmed in the first semester. We expect this to continue with good activity in terms of oil and petroleum tests. We are talking here about the testing of products, not the exploration part. So -- and we expect this to continue for H2, and these are a laboratory-based business where if the top line is here, as good as me, it is driving the operating profit.

So these are the 2, I would say, sequential change. And then in a more global manner, we have a seasonality in our margin at Bureau Veritas, where typically businesses like Certification and CPS have a larger, bigger margin in H2 than in H1. Certification for -- it's a question of seasonality of audits. We have peak season in October and November, December, and CPS because Chinese New Year is in H1. So all this together, again, 2 options, the complex ones that I have gone through or the easy one, 17.2%, which is a copy-paste of 2019.

[Operator]

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

[Kate Carpenter, Bank of America]

Just a quick one on China. Just to clarify, did you make any headcount reductions in the country during the lockdowns in order to manage margins, particularly in the Consumer Products division? And then looking forward, how are you thinking about hiring and headcount just given -- in light of current macro conditions, particularly in the more cyclical divisions?

And then final question is just how much pricing -- or how much did pricing contribute to organic growth during the quarter? And then you mentioned a potential lag effect from your larger contracts. Just if you could elaborate a bit more on that.

[Didier Michaud-Daniel, Chief Executive Officer]

Okay. So first question is very simple answer. In China, we did not reduce any headcount, and I think we were right to do it because, again, we are back to a full speed type of activity, in particular with CPS. So we decided to keep all our headcounts in China.

On the hiring side, again, when you think about the model of Bureau Veritas today, we are a lot less cyclical than what we was in the past. And today, our OpEx business represent probably something like 60% of our revenue, probably even more, so meaning that we have no intention today in hiring more people in what you could call cyclical activities except for those that we know that the market will continue to boom. I'm thinking, for instance, about the wind farm and solar farms, which are going to, in fact, accelerate. I say that because you could consider CapEx as cyclical. For the rest, we manage the situation very well. We know now how to work. We're subcontracting compared to what it was in the past. But whatever the resiliency of Bureau Veritas compared to what it was, no comparison.

On the pricing side, it's difficult to answer your question for, let's say, S1, for the first semester. What we believe with Francois is that at the end of the year, the adjustment for the full year will be 1.5%, approximately around 1.5%.

[Operator]

The next question comes from Neil Tyler from Redburn.

[Neil Tyler, Redburn]

Three from me as well, please. Firstly, your statement mentioned that Oil & Gas CapEx -- or rather the renewables CapEx is now larger than the 2% component derived from Oil & Gas. The question related to that is, when you think about the sort of follow-through OpEx-related business that stems from those customers for whom you've provided CapEx services, how do you think the sort of ratio of OpEx value relative to CapEx in the Renewables segment might match up? That's the first question.

Second question, a little bit more specifically. You mentioned the recovery in B&I in China, but presumably, much of that inspection work is just postponed. And so will there be some catch-up as well as sort of recovery to normalized levels over the remainder of the year, so actually, a bit of a backlog effect?

And finally, your statement talks in Consumer Products services of some government subsidies. I wondered whether you could just clarify whether this was at all meaningful in terms of its contribution to margin, whether you expect to -- or whether you're obliged to repay any of those amounts?

[Didier Michaud-Daniel, Chief Executive Officer]

Thank you, Neil. So I'm going to ask Francois to cover your second and third question. I will take your first one. Francois?

[François Chabas, Executive Vice-President, Finance]

Yes, Neil. So on the second one, the recovery of B&I in China, I think we -- what we aim here to say is the recovery of the activity, the level of activity we had prior to the lockdown. I think our view here is, as Didier mentioned, we are cautious. We are still, in many area, have stop-and-go situation. You only need 2 guys to get COVID tested positive and then the whole thing is stopped for a week. So what we are thinking of so far is, in your word, you would create postponement. What has been -- what has not been delivered in the previous 8 weeks is getting delivered, but not a V-shape recovery as we may have gone through back in 2020. So we are cautious. We more expect that the activity will resume than any strong catch-up effect. It's too early to say at that stage, I believe.

On the governmental subsidies, so it's very easy. We are talking here about an incentive fund created in Hong Kong for some companies there. It is not material in terms of margin impact for the group, and it is not even material for our Consumer Product division. And it is not refundable. I mean it's a one-off. And it was done, by the way, in 2020 in that part of the world.

[Didier Michaud-Daniel, Chief Executive Officer]

Neil, regarding your first question, so I have probably 3 comments. The first one, of course, we want to continue to capture any potential CapEx opportunity in Oil & Gas, of course, because we have the expertise.

The second comment, which is very interesting, we continue to increase our OpEx presence with the oil and gas companies. And in fact, I can see a trend today which is very obvious, where some of our clients are moving to Bureau Veritas instead of local, small companies. It's probably coming from the fact that there is inflation now and they prefer being with a company of the size of Bureau Veritas has to be sure that we will continue to deliver the service through this new normal.

And of course -- so your question regarding renewable is very good. Today, there is no real OpEx business because we are at the beginning of it. What I can see is the number of projects is absolutely incredible, and it's everywhere in the world. It can be in Europe. It is clearly in Asia and accelerating in Asia. It is -- as you know, we decide to buy Bradley in North America. So now we have a good view on this business. It is in North America and even in Latin America. So you have a lot of projects, and we want to be a leader in this activity. What we did in terms of growth is just impressive. But what I can see in terms of pipeline of opportunities is just incredible.

The OpEx will follow. It will be a different type of OpEx. I'm very transparent with you. We are working on finding solutions. It will be different solutions because we are talking here about wind farms, so meaning that in this case, we will have probably to remotely control or remotely, let's say, support the control. This is something we are working on. But again, the CapEx market is so big today that we are focusing on getting as much as we can in terms of projects.

[Operator]

The next question comes from Karl Green from RBC.

[Karl Green, RBC]

Just a couple of questions. Didier, first question for you. If we think about that implied second half margin recovery for the group to get to the full year guidance, within that, there's clearly an assumption that the Buildings & Infrastructure margin gets back closer to the longer-run average. But just thinking about moving in the situation from China from lockdowns to a sort of broader economic and specifically construction slowdown given the residential property bubble is deflating quite heavily there, could you just talk a little bit more about your exposure to sort of broader municipal and infrastructure-related projects, which might be a knock-on effect from that residential construction slowdown and how that might affect your ability to drive that H2 margin performance?

And my second question, Francois, is much, much simpler. It's just whether it would be a reasonable assumption to double the first half noncontrolling interest charge, the minority interest line for the second half, please.

[Didier Michaud-Daniel, Chief Executive Officer]

So on your first question, as you know, Karl, we decided -- when we decided to be an actor in the B&I business in China, at that time, I knew the market in China very well. I decided not to be in residential. By the way, it was a good decision. And today, we are in a leading position on infrastructure and energy. I do not foresee any slowdown in energy. In fact, it's going to be the opposite. The energy might be a little bit different, and we're already working on the certification on wind field -- or in wind farm field, of course, as you can imagine, or solar field and even on hydrogen because the Chinese people are really working on hydrogen solutions. So I can still foresee good opportunities.

On top of it, I know the backlog today. So the backlog is at the level it is. It has not changed, and we will have to go to the end of the contract that we have in our backlog. We know we have 86 sites where we are working, big one. Just to give you an idea, 82 were closed during 8 weeks, but now they are restarting progressively. So I'm confident that we will improve our margin in the second part of the year. Clearly, there is no doubt about it.

Regarding the second question, Francois?

[François Chabas, Executive Vice-President, Finance]

Yes. So Karl, here as well, there are 2 ways to answer it. And for this time, I would choose the long one, if you don't mind. Those minority interests are a consequence of the Bureau Veritas strategy when it comes to M&A. As you know, we favor a very much bolt-on view with a strong engagement of the minority shareholders, which in 95% of the cases are the previous owner-manager. So -- and this is the way we do M&A, which we believe is bringing to the company, I think, the best value in terms of return and for the shareholders. So we don't intend to change this approach because that's proven efficient.

And I think we've mentioned, Didier and myself, the fact that in this complex H1 situation, the driver behind the still growth of our B&I segment despite the Chinese difficulties has been North America, which is a perfect example of the successful bolt-on strategy with committed managers. So those are the guys getting this minority interest. And to answer your question in short, we will not change gear, and you can count that H2 would be kind of the same as H1 around south of €10 million. So you had a long version for this time.

[Operator]

The next question comes from Arthur Truslove from Citi.

[Arthur Truslove, Citi]

Yes, just a couple from me, if you don't mind. I think in your opening remarks, Didier, you mentioned that there had been a big ramp-up cost in industry or something and that has held back the margin. I was just wondering whether you could elaborate as to roughly how much that was and how much it impacted the margin in the division in the first half.

And then the second question I had was around the Consumer Products division. Clearly, you did very well to keep it going as you did given the headwinds in China. But I just wondered, are you expecting a reasonable acceleration in the second half? Is sort of mid- to high single digits a reasonable assumption there? Or are there reasons why that might not be the case?

[Didier Michaud-Daniel, Chief Executive Officer]

Thank you, Arthur. So I'm going to take your second question, and Francois will cover the first one. No, I do not see any real acceleration in H2 for CPS. I expect the same type and probably the same level of organic growth for the second part of the year. And as Francois explained to you before, clearly, an improvement in the margin because of the seasonality.

But in terms of organic growth, again -- and as you said, we manage the situation very well because we manage the situation proactively. So we could foresee things coming. And we decided, thanks to our diversification -- geographical diversification, to move the samples around. It's the reason why we achieved it. We were quite at the level we were expecting, in fact. And we expect the same for the second part of the year. There is no real catch-up.

On the first question, Francois, you would cover it?

[François Chabas, Executive Vice-President, Finance]

Yes, sure. So your point is on the margin of industry and the ramp-up cost. I think, here, we are a victim of our success, meaning this division is growing the fastest with stable margin. And you were right, we had even internally intention to be able to raise the margin. But our own target were not as high in terms of growth. We have been a bit surprised by the speed of growth there. That's why we grew almost 11% on Industry and energy, and the margin is the same in H1 as it was last year. So no -- on the face of it, no operating leverage, as you would put it.

I will give you a practical example on the why. We are here expanding very fast in what we call OpEx industry services. So we survey sites, network of -- electrical networks, pipelines. And when you gain -- when you win one of those contracts, we're talking about 200, 250 personnel to find, recruit, train, equip, put on the job. And so there is an amount of mobilization costs, which is not insignificant. We have, as per own procedures, a very strict accounting view to it, meaning that we take in the P&L the costs when they arrive, so meaning we are not storing somewhere in the balance sheet mobilization cost that would then further down the road erode the margin. We take them straight.

So that's why the -- I would say, as an industry, the growth stays, I would say, above the 10% mark. The margin will not move, margin in terms of percentage. Of course, in terms of million of euros, that will follow down but not without improvement. So again, here, it's all depending how fast we grow there. You will understand, for sure, we are not putting the break on growth just for the sake of the percentage of margin, provided that we deliver more operating profit at the end of the day and that we do not drop the margin, which is important to us, indeed.

[Didier Michaud-Daniel, Chief Executive Officer]

Knowing that after this mobilization cost, Francois, we will, of course, improve the margin along the way.

[François Chabas, Executive Vice-President, Finance]

Exactly.

[Arthur Truslove, Citi]

Just quickly following up on that, sorry. Just on that -- it's kind of what I would have thought. But is there any idea of how much those mobilization costs cost you in that first half, as in what would the margin have been had maybe you've grown at 6% or 7% or something like that?

[François Chabas, Executive Vice-President, Finance]

We do not report on it, Arthur.

[Operator]

Last question comes from Sylvia Barker from JPMorgan.

[Sylvia Barker, JPMorgan]

First question, please. Can I go back to CPS and just check, I guess, what would the margin have been or what would your profit have been excluding China? Because you have offset the revenue declines very well, but presumably, that came at some extra cost. So just thinking about how much of that might come back in the second half.

Then secondly, on the renewables business, how is that accounted for? So does the cost of the equipment goes through the top line and passed through kind of low margin? Or do you have any CapEx element related to it?

And then finally, on recertification. You flagged previously that there was a confluence of recertification last year with a deadline at the end of Q3. So should we expect a bit more of a slowdown in the Certification business in Q3? And could that have an impact on the margin as well? That's just on the ISO side.

[Didier Michaud-Daniel, Chief Executive Officer]

Yes. So Francois is going to take your first question. I want to cover the renewables first. There is no CapEx, 0. So it's a very simple answer. There is no CapEx. In fact, this is clearly our expertise in terms of inspection and procurement. So what we did, in fact, and we still do in CapEx, it's very easy for us to go and move on these projects because we have the expertise. So there is 0 CapEx.

On the recertification side, it's very important for you to understand that now we could call it assurance. Some of our colleagues call it assurance, by the way. We are not obsessed by the ISO certification anymore. We're obsessed by developing, pushing, increasing our ESG certification, our ESG assurance, sustainability commitment from clients, supply chain traceability.

And when you look at the organic growth of this activity now, in fact, on the sustainability part, we are moving at double digit. So clearly -- and this is the future, so meaning that it's not because there is rectification in 1 year and not the other one that we will slow down because, again, we are pushing very hard for new schemes, in particular, these schemes of ESG certification, these schemes of traceability. And we can see already a strong demand coming from our clients. On the first -- so in certification, if you think about it, compared to what it was some years ago, when it was more or less exclusively ISO, there is just no comparison.

The first point, Francois?

[François Chabas, Executive Vice-President, Finance]

Yes. On the CPS margin, I think we have -- the first comparison which we'll all make is the margin that we've achieved this year, which is 22.3%, and the margin we had achieved end of H1 2020 when the operation had to face extreme type of lockdown. And I think it answers already a good chunk of the question. Now if nothing really had happened at all, sorry to say, but frankly, the margin would have been perhaps a bit better. But the best -- the most important information we have today is even with lockdown in China, we managed to keep the business above 22.5%. So if it had not happened, it would have been higher, for sure, perhaps. How much, we haven't computed it.

And I would dare to say this is not really the point to be for the management team here. The point and what we try and reflect is we built a company that is very much resilient. And of course, if there was no China, no Ukraine, not Russia, no Fed hikes in interest rate, I'm sure we'll do great. But I'm not sure that -- I'm not sure the investors are really interested to know what happens if everything good happens. I think you guys are interested by what happens when things happen.

[Operator]

I will now hand back to your host to conclude today's conference. Thank you.

[Didier Michaud-Daniel, Chief Executive Officer]

Okay. Thank you very much again for your attention. And for those who are going to be on vacation, good vacations. I wish you good morning, good afternoon, good evening. Bye.

[Operator]

Thank you for joining today's call. You may now disconnect.