Intertek Group plc

Andre Lacroix - Chief Executive Officer Ed Leigh - Chief Financial Officer

Robert Plant - JPMorgan Cazenove Toby Reeks - Morgan Stanley Suhasini Varanasi - Goldman Sachs Paul Sullivan - Barclays Edward Stanley - Redburn George Gregory - Exane BNP Paribas Rajesh Kumar - HSBC

Good morning to you all and thanks for joining us on the call following the release of our H1 results a few minutes ago. I have with me Ed Leigh, our CFO and Josh from our Investor Relations team.

We are pleased with the performance in the first six months of the year. We have delivered strong earnings growth with strong cash generation.

These results reflect the performance management approach focused on margin equity revenue growth with cash discipline and accretive capital allocation. We are well-positioned to deliver solid organic revenue growth with robust margin progression at constant currency in 2017.

Today in our call, we will start with our performance highlights for the first half; Ed will then take you through the detailed financial presentations, I will then provide you with an update on the progress we’re making with our 5X5 differentiated strategy for growth; and finally, we’ll discuss the outlook by division for 2017. Let’s start with our performance highlights for the first six months of the year.

The Group generated revenues of £1.372 billion up year-on-year by 13.9% at actual currency and 2.7% at constant currency. Our revenue performance at constant currency was driven by solid organic growth of 1.7% and by the contribution of recent acquisitions.

The Group delivered an operating profit of £224 million, up 20.4% at actual currency and 10.1% at constant currency. We are pleased with our margin accretion as we have delivered an operating margin of 16.3%, up 90 basis points year-on-year at actual rate and 110 basis points at constant currency.

We have delivered an adjusted EPS of 90.4p, up 21.3% at actual currency and 11.4% at constant rates. We continue to make progress with our disciplined approach to working capital management; our cash flow from operation was £226 million, up year-on-year by 45%, driven by strong cash conversion.

Importantly, we have announced an interim dividend of 23.5p, up 21.1% compared to 2016. In line with our 5X5 differentiated strategy for growth, the centre of gravity of the Group is moving towards a high growth and high margin sectors in our industry.

Products and trade combined now represent 82% of the Group revenue and 94% of the Group operating profit. Let’s now discuss our organic revenue growth performance by division at constant currency.

As expected, trading conditions remained challenging in the resource division with an organic revenue decline of 12.3%. We have delivered GDP plus organic growth in 94% of our earnings with a 5.5% organic revenue growth in our combined product and trade divisions.

We benefited from broad based organic revenue growth in our products and trade divisions, growing respectively at plus 5.8% and plus 4.6%. In addition to our focus on revenue and portfolio, margin management is an important priority for us.

In H1 our organic operating margin improved by 100 basis point at constant currency, driven by our cost productivity and portfolio initiatives and I would like to give you a sense of the programs we have in place to drive margin accretion in our business lines, countries and sites. First, we are very disciplined in terms of cost control.

Second, we’re pursuing a rigorous monthly performance management approach focused on both leading and lagging indicators, financial and operational indicators. Third, we’re executing our growth and margin accretive portfolio strategy that was presented to you in March 2016.

You would recall that we’ve completed the review 20 business units in our portfolio where we had question marks, these review has led to the close of nine business units last year and the restructuring of 11 business units. In the first half of this year we have focused on improving the performance of these 11 business units.

As you would expect, we’ll continue to review areas that needs special attention from a portfolio strategic standpoint. I will now handover to Ed, who will take you through our results in greater details.

Thank you Andre and good morning everyone. In the first half we delivered strong earnings growth and cash generation and I’ll now take you through some of the details underlining our results.

In summary, we delivered double-digit profit and EPS growth. Margin improved year-on-year at both actual and constant currency and our cash flow performance was strong.

Organic revenue was 1.7% at constant currency and 12.8% at actual rates as FX added 11.1%, driven by the depreciation of sterling as we continue to see the translation benefits since June last year. At constant rates operating profit progress was up 10.1% to £224 million and margin was up 110 basis points.

This performance combined with the FX translation gain for the half year resulted in operating profit up 20.4% at actual rates. Net finance costs of £13.6 million were in line with last year with a weaker pound impact on our dollar financing costs being offset by lower debt.

So overall, fully diluted EPS grew double-digit to 90.4p, being up 21.3% at actual rates and 11.4% at constant rates. We also delivered a strong performance in the year with our focus on working capital leading to an increase in free cash flow of £75 million to £124 million.

I’ll now take you through the high-level margin performance by division. The Group recorded a 90 basis point improvement in total operating margin in the first half, increasing to 16.3%.

Organic margin improved by 100 basis points at constant rates, driven by margin accretion in products and trade and also by the benefits of the stronger portfolio mix which contributed 40 basis points. Our disciplined focus on cost and capacity management also resulted in a stable resources margin despite a revenue decline of 12.3%.

M&A added positively to the organic margin by 10 bps from the full transactions carried out over the last 18 months. Finally and as expected, FX has had a slightly negative impact on the Group margin.

Now turning to the Group cash flow and net debt. Free cash flow at £124 million was up strongly in the first half, increasing by £75 million, this was driven by the improved profitability of the Group as well as our day-to-day focus on cash management and we invested £44 million in both CapEx and M&A.

The overall strong performance in cash flow resulted in a reduction in net debt to £696 million being 6% lower than last year end and 22% down versus June last year. This is equivalent to 1.3 times net debt to EBITDA ratio on an LTM basis.

Now turning to our financial guidance for 2017. The expected net finance costs will be around £25 million to £28 million.

The effective tax rate is expected to be in the 25.5% to 26% range and our minority interests will be circa £17 million. If your model got set out the number of shares for the EPS calculations, we are currently expecting the full year CapEx to be in the £120 million to £130 million range.

Based on our strong performance in earning and cash and the benefit of an FX upside in the first half, we expect the net debt to close the year at between £600 million and £650 million, and this guidance is right before any M&A completions and any material movements in FX. And I’ll just hand you now to Andre.

Thank you Ed for a very comprehensive review of our results. I’d just like to give you an update on where we are with the execution of our 5X5 differentiated strategy for growth.

As you know, we are on the good-to-great journey, leveraging the intrinsic strengths of Intertek and one of our core strengths is on high-quality earnings models. Our high margin and stronger cash generative earnings model is underpinned by the delivery of our total quality assurance value propositions.

We offer assurance, testing, inspection, certification solutions that we call etiquette to our customers, operating in three sectors of the economy, product, trade and resources. Importantly we operate a capital light business model which combined with our entrepreneurial culture, enables us to react quickly to new growth opportunities by following the supply chains of our customers in new geographies.

Our medium-to-long term organic revenue growth guidance for the company is global GDP plus in real terms. We are very focused on cash conversion and pursue an accretive discipline approach to capital allocation to invest in high-growth and high margin areas.

The growth opportunities in a quality assurance market are very attractive. The total quality assurance market is worth about $250 billion, yet only 20% of this market is currently outsourced.

We are well-positioned to see this opportunities with our total quality assurance value proposition. We see strong growth opportunity with existing in new customers through increasing the account penetrations with their key cross-selling and also with the acquisition of new contracts.

We also see attractive growth opportunities to get access to the quality assurance work that corporations currently do in-house. In the medium to long-term we believe that the industry will benefit from global GDP plus organic growth rate in real terms.

We expect our products business to continue to grow ahead of global GDP, our prospectors represent 58% of the Group revenue and 73% of the Group’s profit. Our product business will benefit from brand and SKU expansion, increased regulation, as well as improvement in safety, performance quality, and sustainability.

We expect our trade business to grow at a rate broadly similar to GDP through the cycle. The trade represents 24% of our Group revenue and 21% of our Group profit.

Our trade business will benefit from the development of regional and global trade rules, as well as from increased focus on traceability and sustainability in the entire supply chain. Investments in exploration and production for essential resource like oil and minerals will grow in the medium to long term to meet the demand of the growing populations around the world.

We also expect structural growth in the renewable energy sector. The resources sector today represent 18% of the Group revenue and 6% of the Group profit.

The key strategic objective of our 5X5 differentiated strategy for growth is to move the centre of gravity of the Group toward the high-growth and high margin sectors in the industry. We plan to seize the exciting growth opportunities I just talked about with our total quality assurance value proposition that addresses the current and emerging needs of our clients with a systemic end-to-end assurance solution.

We are pursuing five medium to long-term corporate goals; our first goal, we want our employees to be fully engaged in a safe working environment. Secondly, we want to deliver a superior customer service; our third target is to deliver margin accretive organic revenue growth based on GDP plus organic growth.

Fourth, we aim to deliver strong cash conversion from operations; and fifth, we will pursue an accretive disciplined capital allocation policy for both CapEx and M&A investments. Innovation, as you would understand is an important area to continuously strengthen our total quality assurance value proposition and deliver a superior customer service.

Intertek has been a pioneer in the quality assurance industry in the last 130 years, always anticipating the needs of the clients with industry leading innovation. Today I would like to share with you some of the innovations we’ve launched recently in our product, trade, and resource divisions, leveraging the incredible customer insights we get on monthly basis with our 6,000 NPS surveys.

Our approach to innovation is a stage gate process that they engage our Intertek subject matter experts to develop new solutions for clients driven by scientific research and product ingredients and raw materials. Technology, as you would expect, plays an important role to develop new IT and processes for Intertek as we develop new IDs for our clients.

Let’s just start with some of the most recent innovation in our product divisions. Recently Intertek partnered with Nespresso to develop a unique assurance solution for their global capsule recycling process.

This gives Nespresso confidence regarding the sustainability of their supply chains while customers are reassured that the recycling efforts at Nespresso are affected. To improve the safety of toys we’ve developed a simulator of how an eight year old child will use whistles.

This property apparatus is designed to determine how small parts could dislodge from this type of products and therefore helps protect children safety. Given the importance of sustainability life cycle assessment for clients to determine the carbon footprint of their products, process and business operations, we’ve invested in a cloud based assurance sustainability solution.

This innovative cloud solution allows our clients to benefit from the expertise of all our colleagues in terms of sustainability through our global ATIC network. Let’s now discuss a few innovations in our trade, horticultural lights are subject to complex environmental conditions such as high temperature and the high humidity and these are currently not covered by any safety and performance standards specific to these products.

Leveraging our lighting and agricultural expertise, we have developed an horticultural lighting certification program to improve safety in this fast-growing industry. Mercury contamination increase the risk of corrosion for all infrastructure assets.

Our analytical assessment and industry services experts have developed an advanced technology to detect mercury particles up to the [indiscernible] level as in oil & gas products or in the atmosphere. Our experts in analytical assessment transportation technology have worked together with alternative fuel manufacturers and regulatory authorities to develop new standards that provides clear safety solutions for alternative fuel components.

Let’s now discuss industry-leading innovations in our resource sector. Customers need assurance that critical concrete infrastructures such as road, rail, tunnels and bridge remain robust over their entire lives.

Our experts have developed sensor based technology embedded into the concrete to allow customers to meet all their assessing operation 24/7 with reliable data. We’ve monitored over the years how start-stop cycles management impact the life of equipment and running costs.

Using big data analytics we’ve developed a proprietary software called Costcom that captured customer sensitive data and helps our clients optimize their operating cycle for all their plans. We came to the conclusion that our clients need better insights to meet the ageing of their equipment in aerospace, oil & gas, power plants and automotive plants.

We use 3D Metrology technology to detect any deviation versus the original specs of equipment in use to make sure that products do not deviate from the intent design and performance. Let’s now discuss the outlook for the Group in 2017.

We are pleased with the progress we’re making on both short-term performance and with the execution of our 5X5 differentiated strategy for growth. In 2017, we expect to deliver solid organic revenue growth at constant currency.

We expect robust organic growth momentum in our products business and good organic in our trade business, whilst trading commission and resources will remain challenging. From a profitability standpoint, we expect to deliver robust margin progression at constant currency, leveraging our portfolio strength and disciplined performance management approach.

We’ve continued to invest in growth and we expect our full year CapEx to be circa £120 million to £130 million. We expect Forex translations benefit based on recent trends we’ve seen in currency, the average selling rates in the last three months apply to the full-year results of 2016 would provide a 450 bps uplift at the revenue level and a 350 bps uplift at the operating profit level.

Let’s now discuss all division to cover both our H1 performance at constant currency and the 2017 outlook starting with products. In H1 our product business delivered an excellent performance with strong margin equity revenue growth.

We delivered 5.8% organic revenue growth, driven by broad based revenue growth across business line and geographies. We’ve delivered a strong operating profit of £164 million, up by 11.9% enabling us to deliver a margin of 20.5%, up 100 bps compared to last year.

Our softline business delivered robust organic revenue growth across all markets, driven by an increase in number of SKU and brands, supply chain expansion of our customers in new market and an increased demand in chemical testing. Our hardline business report a robust organic revenue growth across the main markets of China, Hong Kong, India and Vietnam, driven by innovation from our customers leveraging wireless technology, increased demand for chemical testing and innovative inspection technology.

We delivered robust organic revenue growth in electrical and network assurance, as we benefit from electrical appliances innovation to provide better efficiency and connectivity. We also benefited from increased demand from IoT assurance services including cyber security.

Our business assurance business delivered double-digit organic revenue growth in our three regions, the North America, Europe and Asia, driven by the ISO standard upgrades, increased focus of corporations on supply chain and risk management, increased consumer and government focus on ethical and sustainable supply. Our building and construction business delivered good organic revenue growth, driven by the growing demand for greener, safer and high-quality commercial building, increased investment in large infrastructure projects.

In our transportation technology we delivered solid organic revenue growth, driven by continued investment of our clients in new models and new fuel-efficient engines, growth in the hybrid/electrical engine segment and increased scrutiny on emissions. We generated good organic revenue growth in our food business, driven by continuous food innovation, increased focus on the safety of supply chains and growth in the food service assurance business.

We saw solid organic revenue growth in our chemical and pharma business, driven by broader SKUs, expansion of supply base in emerging markets and increased concern on product safety and traceability. For the full year we expect our cargo related business which represents 72% of our earnings to deliver robust organic revenue growth.

Our trade business delivered an improved performance with an organic revenue growth of 4.6%, driven by a broad based revenue growth across business lines and geographies. We delivered an operating profit of £46 million up year-on-year by 12.5%, enabling us to deliver an operating margin of 14.1% at 60 basis points compared to last year.

Our Cargo/AA business reported solid organic revenue growth as we benefit from the global and regional trade, structural growth drivers, while normalization of the crude oil and refined product global supply situation continues. Our government and trade services benefited from the award of new contracts and delivered robust organic revenue growth.

Our AgriWorld business delivered an robust organic revenue growth, driven by the expansion of our clients’ supply chain in fast growing market and new customer wins. For the full year we expect our trade related business, which represents 21% of our earnings to deliver a good organic revenue growth.

Turning to our resource division, our resource related business faced, as expected, continuous challenging trading conditions and we are reporting an organic revenue decline of 12.3% with a stable operating margin. The revenue from CapEx inspection services was down from last year, driven by low-level of investment in exploration activities for all clients and price pressure in the industry.

The demand for OpEx maintenance services remains stable in the competitive environment. Considering the trends seen in 2016, we saw a stable level of demand for testing activities in the mineral business.

We do not believe that we have reached the trough in the resource division and we expect trading conditions to remain challenging in the second half. Given this challenging trading conditions, we’ll stay focused on cost and capacity management, leveraging our flexible cost base for inspection related work.

Our guidance for the resource related business which represents 6% of our earnings is for an organic revenue growth reductions between minus 10% and 12% for the full year. In the last 18 months we have made four acquisitions in attractive growth and margin sectors, FIT-Italia, EWA Canada, ABC Analitic, KJ Tech.

As always we’ll continue to actively pursue expansion opportunities with M&As in high-growth and high-margin areas that will be value enhancing for the Group. In summary, we are on track on a good-to-great journey, making progress both on performance and strategy.

We’ve delivered 5.5% organic revenue growth in our product and trade related businesses which represent 94% of our earnings. We are pleased with our continued margin progression and we’ve delivered strong earnings growth, our cash generation was strong with our cash flow from operation up year-on-year by 45%, and importantly we’ve announced an interim dividend up 21%.

We’re well-positioned to benefit from the attractive growth opportunities in $250 billion global quality assurance market. Our differentiated growth strategy is moving the center of gravity of the company towards the attractive growth and margin areas in the industry.

We are pursuing of course a disciplined approach to performance management and capital allocations and our high quality earnings model will continue to drive sustainable returns for our shareholders. Thanks for being on the call today and we’ll take any questions you might have.

Good morning Andre, Ed and Josh. You mentioned some acquisitions and there was one acquisition in the first half, KJ, do you think there’ll be more acquisitions in the second half, how does the pipeline look?

Thanks.

Look, I think we never give any guidance on the acquisition going forward. I can tell you that we have an incredible M&A team led by Julia Thomas who used to be with JPMorgan by the way, so a high-quality house and just it’s a Sunday, it’s a Sunday mornings, I’m just making a joke here, but she’s very good and we are very plugged-in in the market and we continue to look at opportunities.

So, it’s not because we have not done anything in the first half that we should role anything in the second half. We are very disciplined as we get – as you can imagine, lots of leads from all over the world, but we follow a process and we’ll move if we see a asset that is important for us.

What’s really important for us in terms of acquisition is, first is, we look at, is the acquisition strategic? Are these end markets where we believe we want to scale up if we are not there or we want to strengthen our position if we are there.

We look at obviously the growth profile, the margin profile and what’s really important for us in terms of capital allocations is, we look at the sustainability of this margin, this is really, really important when you look at the economic profile of the acquisitions. As you can imagine, we have a very disciplined financial approach where we run three scenarios, upsides, base case and downsides, and we try to make sure that on the base case and the upside we deliver strong earn out [ph] for our shareholders well above the work [ph], but on the downside case, we try to make sure that we cover our cost of capitals.

Importantly, what’s really important for us is, when we look at acquisitions, and this is, whether it went very well for us with PSI, and KJ Tech or ABC is the cultural fit. Are these companies going to fit well with Intertek?

Do we have the management to basically integrate these businesses? So as you can imagine, it doesn’t matter of the size of the acquisition, everything the acquisition goes through the strategic, financial and obviously cultural, people, screening approach.

So that’s where we are and this is part of our strategy, as you know revenue growth for us is organic, quality organic growth, so quality acquisitions.

Thanks Andre.

Hi there, I’ve got a couple if I can. Could I start with one for Ed, I’m looking at the details on the cost reduction on Slide 8, where I think in 2015, 2016 and first half 2017 you took out 200, 550 and 300 of heads, and savings of £4 million – I’m sorry, sorry for wrong numbers here, but that followed restructuring in 2014 of over 20, 2015 was 10 and 2016 was over 20.

So, so far this year we’ve seen £6.9 million, should we expect that to be doubling on an annual basis and would that be number of heads of 600? And then the second part of that question is, the return on that in terms of headcount or saving per headcount is falling – it’s fallen from £200,000 in 2015, £180,000 in 2016 to £133,000 in the first half 2017.

Does that reflect a sort of diminishing returns on restructuring because you sort of done the bets which were a bit easier, how should we see that going forward? And then could you also talk about that £8 million impairment of IT assets and where the restructuring occurred within the different divisions that £6.9 million and I’ll leave it there, thank you?

So, okay, Good morning Toby. So, yes, the restructuring opens back to our differentiated growth strategy that we announced in March last year, and so we’ve completed I mean in the first half of this year, as you say, the reviews continue, but certainly we’ll update on anything as we go in the second half.

On the second point on headcount and savings per head, I mean, there is whole range of savings that go into that, it could be – things other than headcount basically, it doesn’t mean the mix changes as we go through the restructuring program, there isn’t a straight forward headcount versus savings piece of math that we do, so I wouldn’t say returns are diminishing in that space. And bear in mind as well that the 2017 impairment includes the second year of the PSI, the PSI restructuring work as well.

But that slide, we shouldn’t see that slide as £4 million savings relating directly to that 200 headcount as it seems to suggest?

It’s the cost and there is also some other things, if we close the site we might have released savings for example, so it’s other savings that you might get. It’s predominantly headcount, but it is not the only part of the story in that.

And finally the IT question, yes, that’s also part of our differentiated strategy, the growth in the 5X5, you will see that the superior technology part of the strategy we are going to unfold a few of our asset base to make sure we have a consistent asset base which is what we are looking out with strategy and that’s resulted in an £8 million write down of our IT assets.

And should we assume that you’ll be investing more money into that sort of IT backbone? I mean all the sort of new strategic announcements where you think to – all initiatives we seem to get out of testing companies will point towards big data managing that, which I assume required some sort of refresh of your IT platforms, is that the right way to think about it?

Yes, I mean you are actually right, Toby, I think technology is very important for us on three levels, a customer differentiation operational deliver and back office. As we have talked about in the past, we are taking our time to really take a view on what we need to do from a technology standpoint.

We’ve got very good systems in place, we continue to invest with our CapEx activities in innovative base technology where we see it fit, but we are still doing some work and I think what Ed talked about was conclusions, we had to basically look at the assets when we are moving forward, but there is obviously more work going on. As I said earlier, I’m always very careful about what we say publicly on technology, given the hallucinative nature of the information and the fact that we operate with competition in our market.

Okay and then sorry just one more, the product division of yours with a big margin expansion and where specifically – I mean which end market did that already – was already driven by, was it in softline, hardlines, business assurance, could you talk a little bit about that what you think the operating leverage?

Sure, I mean, look, I mean, first of all, what really is important to know on how we manage margin, there is no business inside the world of Intertek that doesn’t have margin equity [indiscernible] expectation, that’s from our perspective, that is very important when you said the tone from a performance management, because we believe that margin accretion is critical when you operate a premium business earnings models given the importance of margin cash and reinvestments, you know all of that. So I think the first thing is, when we basically work with our businesses we basically say it’s business A in country A, site B, business line C, what is your mix in terms of volume price per services that you sell to your customers, that’s where the rigorous margin management really starts and we basically say we want to obviously grow faster than the market, so we gain market share in markets where we are in.

But we always make sure we don’t do that at the expense of our pricing power, because we are premium operators, we want to make sure that we stay very strong in terms of pricing power and then when we do innovations we get some margin uplift with it. So that’s if you want the first discipline that we applied no matter where we are around the world.

Now, as you rightly said, not every business will be growing at a same rate and therefore you could assume that not every business has got same operating leverage. Well, this is a bit more complicated than that because you got mix effect, you’ve got obviously services with margin in countries, but the net of it is, is that our very strong performance in product is that, first of all the revenue growth is broad based.

So we are making good progress and you’ve seen the user objectives that I’m sure you are getting used to, which gives you a degree of growth inside each of the business lines, but softlines robust, hardlines robust, electrical robust, business assurance double digit, good organic growth in building, transportation technology; solid food, good and chemical pharma and they are very solid. And frankly speaking, we are seeing good operating leverage across the board.

So it is part of performance management, it is a strategic goal for the reason I explained and it’s working well for us.

Okay, but there is no – like for the softlines I’ve been thinking where you get the more leverage around the lab space rather than – ?

Look, I think, the operating leverage works when you are lab or when you are obviously inspection base or assurance base. And obviously as you know the softlines and hardlines are very high margin, as we make good progress there too.

Okay. Thanks very much.

You are welcome.

Hello, good morning everyone. A couple for me, please.

One the resources, it appears as 30 clients in the last two months of the half have probably improved. Now I realize you have been very clear on the outlook, but I’m just wondering if you could comment on whether you are seeing any signs of improvement in the end market?

And second one is on leverage, now that it’s below you medium term objectives, do you feel any urgency to spend this cash or are you just happy to wait for the right M&A to come along? Thank you.

The second question, the answer is no, we will just not spend it all. As people say, we will invest wisely on behalf of our shareholders if it make sense, so we don’t have an open check book for anyone who wants to sell a business, but we are very disciplined in terms of capital allocations and we have plenty of opportunities from an acquisition standpoint and taking our time is really important.

Look, I think on the resource business, let me just give you a couple of data points here. As you know, the resource section for Intertek is basically, largely CapEx inspection related, right, so we’re basically doing inspections of equipment being used to build, refineries, pipelines, power plants around the world.

And the key leading indicators for us to understand by the market is, is the amount of CapEx investments that the oil and gas are doing and we talked about that in the past, and the reason why we believe that we had not reached a trough, I’m just going to give you two numbers. The oil and gas companies in Q1 of this year decreased their CapEx investment in Q1 2017 against Q1 2016 by 23.6%.

Right.

And in the second quarter, the oil and gas companies that have disclosed, not everybody have disclosed, but the majority have discloses have decreased their CapEx investment by 17.9%. So, we are not at the trough yet, and that’s why I keep repeating, we only are going to call the trough when we see the leading indicators to see where the market is, is the amount of CapEx investments that oil and gas companies are putting into their infrastructure now.

You will have noticed like we have all noticed that there is obviously a kind of new floor in terms of oil price, so I just if it stay like this because there is still too much supply in the market. You will have remembered that there was a lot of over supplies in 2014 and 2015 and it’s only in the last three quarter of 2016 that we saw a perfect match globally between the level of supply and demand, but there is still – over supplies are there.

So that’s why we need to watch the oil price to see what happens, but it looks like it is within the range that we are watching every single day. But the important point is that we have not seen an increase of CapEx investments from our clients, nor stabilizations against last year.

Now, some of our clients are making progress in terms of margin and in terms of cash generations, but they are very far from the level they uses to generate in 2014 and 2015. So that’s why we are not calling the trough and I have been consistently saying we will call the trough when we’ve seen a few quarters of stable demands from our clients.

As you with Moody, we are the global market leader on that. As far as your questions about the major number compared to the April, the January and April, indeed there was a better two months of revenue performance i.e.

less of a decline than in the first four months of year in May and June. We have recognized that in our guidance because now we are saying between minus 10% and minus 12%, these slight and percentage – no, I’m not telling the full story because the absolute numbers are very important, it’s a slight improvement in revenue which was driven by one-off projects and several shutdowns that we saw from our clients around the world in terms of refinery and plants.

So I wouldn’t too excite about it. We recognized that in the forecast because we are basically saying minus 10% to minus 12%, but these were one-off, the key point is, we have not seen the oil and gas companies stopping their reduction in investments, nor starting to invest on a global basis.

Thank you. That’s very clear.

Yes, good morning everyone. Just following up on margin again.

Can you talk about the – or your expectation for restructuring in the second half of the year, in terms of the below the line cost that we can expect there? And then just sort of keep it simple, in terms of adding some color around your sort of – your robust expectations in margin improvement, is there any reason why second half margin improvement organically should be any less or even more than the 100 bps you’ve achieved in the first half.

What are the moving parts in terms of margins that we should be aware of in the second half of the year?

Great. Well, thanks Paul for your question.

Look, as I’ve said, our portfolio review is strategic in a process that we do precisely with Ed and the team and we are taking our time to review the areas of our portfolio I was – just a bit of [ph] time. We are not giving any color or guidance on additional restructuring activities, obviously we have not done the work, so we can’t tell you, but we continue to look at our portfolio as you can imagine we have 100 countries, multiple business lines and multiple services.

So we do have a portfolio that needs some careful analysis step-by-step. The question on your margin, look, several things that I would say at a high level to make it simple, first of all, the 7.5% margin performance last year was better than the first half.

So if you look at the margin progression last year in both constant and actual currency you will see that it was a step up in the second half. And therefore, we are basically comparing ourselves to a higher base.

And the second things is, as you know Forex will become more challenging in the second half, given the fact that we are now getting closer to the anniversary of the pound depreciation.

So are you prepared to sort of give any guidance or color around the language for the second half in terms of the organic excluding FX?

No, I mean look, we basically said that we expect a robust margin progression and we’ve moved the guidance from moderate to robust. Robust doesn’t mean the level that we achieved in the first half, but it is better than moderate.

So it think we have given you a range, but I think what’s important for everyone to understand that we are very focused on margin and accretive revenue growth as I explained before in the previous questions, but on guidance is based on further margin improvement in the second half against previous year.

Okay that’s clear. Thank you very much.

You are welcome.

Hi, my other questions have been answered, but I have one on the construction part of the products. The guidance have been downgraded slightly from robust to good, I think.

And I was just wondering does that generally apply to the whole of construction or is that specifically more relating to PSI?

Yes, I mean thanks for asking the question. As you know our B&C business globally is essentially U.S.

business, right. So, let’s just frame it, we are obviously very strong in the U.S.

on back of ATI and PSI and MT and our product certification business. So basically we are really pleased with performance of B&C and PSI.

We had really strong performance last year both from revenue and margin standpoint. We continue to make progress on the revenue and margin, so there is nothing to worry here.

The reason why we have changed the objective a bit and good cash, thanks for your attention to details, it’s for simple reason that I think is worth explaining. As you know, in our B&C business in the U.S., we have basically three type of businesses.

We got product certifications. We have regional, local activities with PSI and MTs, and we go across special projects, which are large projects that are typically funded by regional or national government authorities.

And basically that’s the area where we’ve seen a bit of slowdown. And let me explain you why?

I think, when there’s a change of administration in the U.S. and we’ve seen it with the last two previous administration changes, the special projects, i.e., this last infrastructure project slows down a bit, because there is a bit of a wait-and-see, will the government change the incentives to drive down the infrastructure project?

What’s going to happen to the people running these government agencies? And therefore there is always a bit of wait-and-see, and special project is about 20% of all revenue inside of PSI.

So, that’s basically what’s driving the change of objective or guidance if you want [ph], but we’re not worried, this is something that has happened in the past and we’re in good place.

Thank you.

You’re welcome.

Good morning, everyone. Just one for me, previous question answered the slowdown on building and construction.

Obviously, you talk about 350 basis points profit growth versus 450 revenue growth due to FX and some margin dilution similar to H1 on mix. Is there any impact – is there any transactional impact in the first-half from currency moves positive or negative, please?

I think, a great question. All of our translations – Forex is essentially translation.

Okay, thanks.

Hi, good morning.

Good morning.

I appreciate your comment on the pricing and margins earlier, but you remain very price disciplined, we’re seeing that in the performance. How much of the consumer growth in your opinion comes from pricing versus volume?

What’s the broad split? Is it equal?

Is it more volume driven? What’s the shape of that?

And the second one is, in the business assurance, you said that ISO standard upgrades was a tailwind, we’ve seen that come up in some of your competitors results. Is that something we should take into consideration when looking at next year in terms of comps, or are there some – is there something in the pipeline that should offset that?

Thanks, Rajesh. Two very good questions.

I think on the pricing volume trend, as you can imagine, we are in a very competitive market, and I wouldn’t be wise to call any trend publicly here. I think, what’s important for shareholders is to know that, we are very disciplined on volume and price.

And we talked about in the past, I think, it’s very difficult in high inflationary markets to pass the fuel inflation to our customers. But we try to obviously account for that in our pricing, the rest is coming through productivity.

But I think, what’s really important for everyone to know is, we are and I’m very focused on that, as you would expect. I think, your question on the standards upgrades in assurance is very well pointed, because I think, there are multiple ISO upgrades.

So 9001, quality; 14001, environment; 13485, medical devices; AS 9001, aerospace; and ISO/TS 16949, automotive. I think what’s important is that, all of our clients have got a deadline if you want to make the switch and move to the upgraded standards and some of these lines are still in 2018.

So most of the standards upgrade I talked about, the deadline, the cutoff i.e. at which companies need to move up in terms of September 2018, so it is a very good structural growth underpinning our momentum in business assurance.

Thank you.

You’re welcome. Thank you, Rajesh.

There are no further questions in the queue. So I’ll hand back to your host to conclude today’s conference.

Well, thank you very much for being on the call this morning. Obviously Ed, Josh and I are here to answer any question you might have after the call, so thank you very much and have a good day everyone.