Intertek Group plc (ITRK) Earnings Call Transcript

Hello, and welcome to the Intertek November 2020 Trading Update. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] And I will now hand you over to your host, André Lacroix, Chief Executive, to begin today's conference. Thank you.

Good morning to you all, and thanks for joining us on our call. Ross McCluskey and Denis Moreau are both with me on the call. There are essentially 3 key takeaways in our presentation today. First, we saw a strong ATIC rebound in the last 4 months. Indeed, in the last 4 months of the semester, in the second half of this year, we benefit from a strong rebound of Assurance, Testing, Inspection and Certification activities as we are supporting our clients to resume their operations within our leading TQA solutions. Despite the unprecedented global pandemic, the resilience of our financial performance demonstrate the strength of our high-quality and highly cash-generative earnings model. And the third key takeaway, we are strongly positioned for growth moving forward. COVID-19 has made the need for risk-based quality assurance, safety and sustainability assurance greater and clearer inside corporations. We've been championing Total Quality Assurance for more than 5 years, and we are strongly positioned moving forward for growth. Right from the start of the pandemic, being agile was paramount for all of us. We've adapted fast, enabling us to respond decisively to an unprecedented situation. As you know, we have refocused early on in the organization on 5 priorities, and we remain laser-focused throughout the year on health and safety, superior customer service, margin discipline, cash discipline and purpose-driven engagement. COVID-19 is probably the biggest global crisis of our lifetime. Indeed, we are living in extraordinary times. And I'm very proud of the incredible energy, passion and innovation that our TQA experts have demonstrated in 2020. I would like to thank and recognize all of my colleagues inside Intertek for the 24/7 customer service that they have delivered to our clients with a very, very strong passion for being the best. 2020 has been a very challenging time for our clients, and I have highly appreciated the help from all of our experts as they resumed their operation. As you all know, closing operations on a temporary basis is manageable. However, it is much more difficult to restart a local or a global supply chain safely. In the May-June period, we saw many governments around the world lifting some of their lockdown restrictions. That has increased global mobility in most economies, driving strong progress in manufacturing sector and a rebound in export activities, resulting in an improved global economy in the third quarter. In most of our markets, our clients were able to resume their operations and benefited from strong revenue rebound in Q3. Our employees have gone beyond their normal call of duty to support our clients with innovative ATIC solutions to resume operations safely. And here are a few examples of what we have done. We've ensured supply continuity with our remote video inspection and audit solutions. On May 1, we've launched Protek, the world's first health, safety and well-being assurance program for people, workplace and public spaces. And at the end of July, we further strengthened our ATIC stability offering with the launch of CarbonClear, the world's first verification program that independently verifies the upstream carbon intensity per barrel of oil. These 3 major global innovations are in addition to all the service we've developed rapidly: priority testing service for life-saving medical equipment like ventilators; end-to-end testing and certification capacity increase for PPE equipment; increased testing capacity and express service for sanitizers and disinfectants; of course, support of the pharma industry for vaccine development; and cybersecurity audit related for home working conditions. You will have seen our trading update this morning. In the July-October period, we have benefited from a rebound in Assurance, Testing, Inspection and Certification activities in all regions. In the last 4 months, we saw a strong improvement of our revenue momentum in our Product and Trade divisions, which represent 93% of the group earnings while trading conditions remained challenging in the Resource sector. In the last 4 months, our Product business delivered a like-for-like revenue decline of 4% at constant rates, which was a strong improvement compared to the like-for-like revenue decline of 12.4% in the May-June period. This was driven by rebound in ATIC in most of our business lines, Softlines, Hardlines, Electrical & Connected World, Business Assurance, Food & Chemical and Pharma. The last 4 months saw a like-for-like revenue decline of 10.1% at constant rates in the Trade business, which was a strong improvement compared to the like-for-like revenue decline of 18.1% in the May-June period. This was driven by a rebound in ATIC activities in July-October period compared to May-June for Caleb Brett and AgriWorld. Looking at our results now in more detail. In the last 4 months, the group revenues were GBP 941 million, a decrease of 6.2% at constant rate and 9.9% at actual currency. Like-for-like revenue at constant currency was down 6.3% year-on-year. Like-for-like for our Product division declined by 4%. Our Trade division declined by 10.1%. And our Resources division delivered a revenue decline of 9.6%. Year-to-date in the January to October period, group revenues were GBP 2.272 billion, minus 7.2% at constant currency and minus 8.7% year-on-year at actual currency. Like-for-like, our Product division declined by 6.8%. Our Trade division declined by 10.2%. And our Resources division delivered a revenue decline of 5.2%. Turning now to margin. We are making progress on margin in the second half based on productivity gains from sequential revenue increase and our disciplined performance management. Our strict controls and pricing costs remained fully in place throughout the year. As communicated earlier, we have delayed the 2020 salary increase for the organization from April 1 to October 1. Operating discipline on cash is delivering strong free cash flow, strengthening our robust balance sheet further. We've continued to take a disciplined capital allocation approach, investing in high-growth and high-margin sectors. We're implementing a progressive dividend policy, and in 2020, we have rewarded our shareholders with a total dividend payment of GBP 115 million for the final payment for 2019 and GBP 55 million for the half year of 2020. Now turning to our full year outlook for 2020. We are on track to deliver a resilient full year 2020 performance. At the group level, we expect to deliver mid-single-digit like-for-like revenue decline at constant rate with mid-single-digit like-for-like revenue decline in our Product division, a high single-digit like-for-like revenue decline in our Trade division and a mid-single-digit like-for-like revenue decline in our Resource division. From a profitability standpoint, despite the H2 sequential margin improvement, we expect a lower margin for the year at constant rate. We're investing in growth with disciplined investments in the high-growth, high-margin sectors and we continue to expect our full year CapEx investment to be circa GBP 90 million to GBP 100 million. Our cash conversion is strong and we are targeting a year-end net debt lower than 2019 of circa GBP 570 million to GBP 590 million before any M&A and any significant movement in currencies. Just like to give you an update on ForEx. Based on the actual figures for the first 10 months of the year and the current spot rate, for the remainder of the year, the average selling rate applied to the full year results of 2019 would provide circa 150 basis point reduction both at the revenue and operating profit level. Let's now discuss the performance of each division. In the last 4 months, our Product business delivered a like-for-like revenue decline of 4% at constant rate, which was a strong improvement compared to like-for-like revenue decline of 12.4% in the May-June period, resulting in a year-to-date like-for-like revenue decline of 6.8%. The strong revenue improvement in our Product business was driven by rebound in ATIC activities in the July-October period compared to May-June in most of our business lines: Softlines, Hardlines, Electrical & Connected World, Business Assurance, Food and Chemicals & Pharma. In the July-October period, our Softlines business delivered a mid-single-digit negative like-for-like revenue, resulting in double-digit negative like-for-like revenue on a year-to-date basis. In the last 4 months, our global Softlines business benefited from continuous growth in e-commerce, increased demand for testing PPE and the easing of lockdown restrictions in some of our markets while closures of some stores in Western Europe and North America continued and some retailers are delaying the launch of new products due to the disruption of their supply chain in the first half of the year. Our Hardlines business saw improved momentum in the July-October period with a low single-digit decline in like-for-like revenue, resulting in a high single-digit decline in like-for-like revenue on a year-to-date basis. In the last 4 months, our Hardlines business benefited from continuous growth in e-commerce, increased consumer demand for home furniture and toys and the easing of lockdown restrictions in some of our markets while closures of stores in Western Europe and North America continued. Our Electrical & Connected World business delivered a good like-for-like revenue growth in July-October period, resulting in a stable like-for-like revenue performance on a year-to-date basis. In the last 4 months, our Electrical & Connected World business saw an increased level of ATIC activities, driven by increased demand for higher regulatory standards in energy efficiency, the strong growth in testing and certification of medical device, the increased testing requirements for 5G and a greater corporate focus on cybersecurity. Our Business Assurance business delivered a stable like-for-like revenue performance in the July-October period, resulting in a mid-single-digit like-for-like negative revenue performance on a year-to-date basis. The easing of lockdown restrictions in the last 4 months have driven a rebound in number of ISO audits in some of our operations, while we continued to benefit from the attractive growth in supply chain assurance, the continuous focus on ethical supply, the increased needs of corporation for sustainability assurance and the strong growth we are seeing in our People Assurance business. Our Building & Construction business delivered a mid-single-digit like-for-like revenue decline in the last 4 months, resulting in a low single-digit like-for-like revenue decline on a year-to-date basis. We've continued to benefit from the growing demand for more environmental-friendly and high-quality building as well as a strong investment in large infrastructure projects while the temporary reduction of building and construction activities we saw in Q2 due to lockdown restriction in some of our North American market continued in July-October period. Our Transportation Technologies business delivered a double-digit like-for-like revenue decline in the last 4-months period to October, resulting in a double-digit negative like-for-like revenue on a year-to-date basis. The lower demand for testing activities we saw in Western Europe and North America in Q2 continued in the July-October period, which was partially offset by the continued investment of our clients in new powertrain to lower CO2/NOx emissions and increase fuel efficiency. Our Food business delivered a good like-for-like revenue performance in the last 4 months, resulting in a stable like-for-like revenue performance on a year-to-date basis. In the last 4 months, we've benefited from the resumption of supply operations of most of our clients in most markets, from sustained demand for food safety testing activities and the increased demand for hygiene and safety audit in factories, hospitality and retail operations. In the last 4 months, we saw a high single-digit like-for-like revenue decline in our Chemical & Pharma business, resulting in double-digit like-for-like revenue on a year-to-date basis. In the last 4 months, we saw an improved demand for regulatory assurance and chemical testing in some of our operations in North America and western Europe while, given the importance of COVID-19, the pharma industry continues to reprioritize their investments, delaying other research and development projects. In 2020, we expect to deliver mid-single-digit decline in like-for-like revenue at constant currency in our Product division. Moving now to our Trade division. In the last 4 months, our trade business delivered a like-for-like revenue of 10.1% at constant rate. It was a decline, of course, which was a strong improvement compared to like-for-like revenue decline of 18.1% in the May-June period, resulting on a year-to-date basis with a like-for-like reduction of 10.2%. This strong revenue momentum improvement in the last 4 months was driven by a rebound in ATIC activities in the July-October period compared to May-June for Caleb Brett and AgriWorld. Our Caleb Brett business saw improved momentum in the 4-month period, July to October, compared to May-June with a high single-digit decline in like-for-like revenue, resulting in a high single-digit like-for-like revenue decline on a year-to-date basis. In the last 4 months, our Caleb Brett business benefited from an improvement of global mobility and a rebound of the global economy in Q3. As we all know, Caleb Brett is the global leader in a crude oil and refined product goal trading activities with 7,600 employees around the world and 275 operations. Our Government & Trade Services provide certification services to government in the Middle East and Africa to facilitate the import of goods in their markets based on high-quality and safety standards. We saw a double-digit negative revenue decline both in the 4-month period to October and on a year-to-date basis due to the disruption of manufacturing in China in Q1 and the lockdown restrictions in the Middle East and Africa impacting cross-border trade flows in Q2 and Q3. Our AgriWorld business provides inspection activities to make sure that the global food supply chain operates fully and safely. AgriWorld delivered a robust like-for-like revenue growth in the last 4 months, resulting in a solid like-for-like revenue growth on a year-to-date basis. Following a stable performance in H1, we saw increased demand for inspection activities driven by an easing of the lockdown restrictions in most of our markets. In 2020, we expect our Trade division to deliver a high single-digit decline in revenue at constant currency. In the last 4 months, our Resource business delivered a like-for-like revenue decline of 9.6% at constant rate, which was broadly in line with the like-for-like revenue decline of 10.7% in the May-June period, resulting in a year-to-date like-for-like revenue decline of 5.2%. Indeed, in the last 4 months, we saw a reduction of exploration and production investments by our clients in some of the markets. And consequently, our Capex Inspection business delivered a high single-digit negative like-for-like revenue performance, resulting in a low single-digit like-for-like revenue decline on a year-to-date basis. We saw double-digit revenue decline in Opex Maintenance services in the July-October period as well as in H1. The lockdown restrictions and the cost savings initiatives of our clients has impacted the demand for Inspection services. We delivered robust revenue growth in our Mineral business in the 4-month period to October and on a year-to-date basis as we saw increased demand for testing and inspection activities. In 2020, we expect our Resources division to deliver a mid-single-digit decline in revenue at constant currency. Moving forward, during the second wave of COVID-19, our operational focus will remain unchanged on our 5 priorities. Every time, health and safety come first. Our COVID-19 health and safety policy is very comprehensive and has been updated on a regular basis on our website. Our second priority is superior customer service. We are a passionate organization providing our customers with the best possible service. The lockdown measures have created huge operational challenges for all of our customers. Since day 1, we have increased the frequency of communication with our clients to make sure we understand their needs quickly. Our third arriving priority is margin discipline. Over the years, we have built a very disciplined approach to margin management. Our strict controls on pricing and costs remain firmly in place. We've also taken a number of additional steps to protect our margin. We believe that our clients have been facing temporary disruptions in their operations and all of our margin initiatives ensure that we have the ability to service our clients fully when their operations are back to normal. Our operational discipline on cash management is robust, and we expect our year-end net debt to be lower than 2019. Our fifth priority is purpose-led employee engagement. With many of our colleagues working remotely, it has never been more important to stay connected every year. We fulfill a vital role in society to make sure that the supply chain of the world operates safely and fully. Bringing quality and safety and sustainability to life is our purpose. Making sure that all of our engagement activities are purpose-led is central to our day-to-day communication strategy. Our Total Quality Assurance value proposition is more relevant than ever. We offer testing, inspection and certification solutions in critical areas of our clients' operation and our Assurance solutions provide end-to-end assessment of their operating processes. Said differently, we provide mission-critical services to our clients to make sure that their supply chain operate fully and safely 24/7. Pre-COVID-19 we've been emphasizing the need for our clients to increase their focus on risk management in their supply chain to make sure that they provide the highest quality, safety and sustainability products and services to their customers. The global crisis we are living has demonstrated there are major risks in the world that are not properly identified nor mitigated. Moving forward, all stakeholders in society expect governments and corporations to build back a better world with a sharper focus on end-to-end quality assurance. 2020 will indeed be remembered at the year where we're all forced to rethink on how we operate to make the world a safer place. We expect the theme of build back ever better to guide the actions of governments, companies, institutions, regulators and consumers in 3 areas. Management, Boards and shareholders will want to see their companies operate with a safer supply chain. Consumers, governments and corporations will want to offer better personal safety. And the way the world will operate and invest will be at a lower carbon society. 2020 in our view has made the need for risk-based quality assurance clearer for all stakeholders in society. The world needs Intertek in the short, medium and long term more than ever. We are very excited about the growth opportunities moving forward. We'll benefit from attractive TQA growth drivers and the growth outlook for quality assurance in the medium to long term is GDP+ organic revenue growth in real term. We expect our Product division that represents 81% of the group's earnings to grow ahead of global GDP, benefiting from brand and SKU expansion, fast innovation cycles, increased demand for smart products and increased focus of corporations on safety, quality and sustainability. We expect our Trade division that represents 12% of the group earnings to grow at a rate broadly similar to GDP through the cycle, benefiting from the development of regional and global trade, an increased focus on traceability, and of course, an increased focus on sustainability. The growth prospect in our Resource division, which represents 7% of the group earnings are linked to growth drivers in the energy sector. Investment in exploration and production for essential resources like oil and minerals will grow to meet the demand of the growing population. Our Resources business will also benefit from the portfolio diversification of our clients as they manage their transition from pure oil and gas to total energy, increasing their focus on lower-carbon source of energy. We expect our Corporate Assurance activities, which are industry agnostic to get even stronger. Given the increased importance of risk-based quality assurance; the increased regulation; the increase importance of health, safety and well-being; the growth in people assurance; and the investment in supply intelligence, sustainability, and cybersecurity. Importantly, the case for more outsourcing has never been stronger than today. Companies are reassessing what is core to their business and what they should outsource to improve the efficiency and their return on capital employed. Intertek has been an industry leader for more than 130 years. We are well positioned to seize these exciting growth opportunities, capitalizing on our strength of Total Quality Assurance customer service, our powerful portfolio, our high-quality compounder earnings model, our passionate customer-centric organization and our disciplined performance management. Building on our track record, we are well positioned to deliver sustained value for all stakeholders moving forward. We operate in an attractive $250 billion-plus ATIC market with increased need for quality insurance. We've got scale positions in our verticals and provide a superior Total Quality Assurance customer service. And our innovative culture and operational discipline are making Intertek ever better, ever stronger every single day. In summary, there are 3 takeaways from our call today. In the second half of the year, we've benefited from a strong rebound of our ATIC activities supporting our clients resume their operations with our leading innovations. The resilience of our financial performance demonstrate the strength of our high-quality and highly cash-generative earnings model. And we believe we are strongly positioned for growth as COVID-19 has made the need for risk-based quality assurance stronger and clearer inside corporations and governments. Thank you for your attention today, and we'll take any questions you might have.

[Operator Instructions] And our first question comes in from the line of Edward Stanley calling from Morgan Stanley.

I got 3, please. You say on PPE testing, which has obviously been very helpful offsetting factor to some of the more negative movements, are you seeing the demand for that testing ease as people slow their stockpiling and vaccines get announced? Or have you won enough long-term contracts in PPE testing that you think that shouldn't roll off next year? The second question. In your Assurance business, your peers seem to have shown quite a strong bounce back, so it's relatively surprising to see a more stable growth in Q3 in the Assurance business. Is there anything holding that segment back in Products? Or was it a function that your Assurance didn't -- your Assurance business didn't sort of collapse to the same degree as theirs did and therefore the recovery in Q3 is less pronounced? And finally, I'm interested on CarbonClear. The world's clearly taking ESG more seriously, and I'm sure your clients are committing to net carbon zero. So we haven't heard a huge amount since the Lundin Energy update. Are you seeing an accelerated demand for that product? Or is it relatively slow progress with occasional big wins?

Okay. Thanks, Ed. Look, on PPE, as you know, PPE is much more than masks, right? It's masks, goggles, gowns, gloves. And within the PPE market, you've got multiple segments. And we focus, if you want, on the high-quality, high added value testing, which primarily is targeted to the medical operators and the medical world. I'm not saying that we are not doing testing for consumer purchases. So our view is that this is a growth market moving forward. As I said, everybody has realized that the protection of medical workers and people around the world was not where it should be because of the lack of focus simply on quality PPEs. I mean you've seen all the scandals where people have been buying the wrong PPEs and destroying everything. So we believe that there is a strong market for superior quality PPEs. That's what we are focusing on, and of course, this is continuing to grow because the medical world will need to improve their infrastructure to make sure that all medical workers are protected for future pandemics and diseases. So this is a growth market. And although the vaccine has been announced in the last few days, we are not seeing a reduction in demand in PPEs. As far as Assurance is concerned, this is a great question. Look, our Assurance business is quite unique. As you know, we are very, very focused on ISO and non-ISO audit solutions and a non-ISO is really the high-margin bit, which is basically the high-quality supply assurance solutions that we offer. And you would have noticed that our Business Assurance business in the first half was very resilient. So we have not seen the same cyclicality than others because our mix is very different and we are very, very focused on making sure that the non-ISO solutions continue to perform very well. And what we've seen, of course, in Q3, as I said in the previous conversation is that the ISO audits have obviously started to rebound. As far as CarbonClear and net zero, look, we are very excited about CarbonClear. I've never seen such a market reaction to an innovation that we've launched over the last few years. The amount of traction that we are getting is just amazing. You might have seen that we were invited as a major speaker at Carbonomics, which was a Goldman Sachs conference with more than 5,000 investors a few days ago, and the level of interest for the solution is huge. So this is a really, really good timing for us because, as you've seen, all the oil and gas companies are under tremendous pressure to accelerate their sustainability investment efforts. They have, obviously, to continue to manage their typical oil and gas exploration activities while investing in renewables. And the lion's share of the emissions, as you know, is in traditional oil and gas so that's why CarbonClear is playing a major role. So no, we are very pleased with the progress we are seeing.

The next question comes in from the line of Paul Sullivan calling from Barclays.

Just another 3 for me. Can you give us any color on the exit rate? I think your guidance implies further improvement in November, December. So any color there would be very helpful. Secondly, likewise, on second half margin progression. Any color there or your thinking around for your profit expectations? And then, finally, it's just over a year since your -- since the Corporate Sustainability announcement. If you can provide an update on progress there and takeup? And any color on in terms of the number of certificates issued, for example?

Yes. Thanks, Paul. Look, in terms of exit rate, what I can say, obviously, we have announced in the July-October period is that the September-October run rate was better than the July-August. We've tried to provide enough guidance for the full year, and I think it's not that complicated to come up with an estimate for the November-December revenue that we expect to see. As far as the H2 margin is concerned, look, we are pleased with the margin progress we're making in H2. As you know, H2 is always our strongest semester in terms of margin. And we were expecting the progress from H1 to H2, but we are really, really pleased with the progress we are seeing. And then in terms of expectation management, we are broadly comfortable with the consensus EPS after the ForEx adjustment that we've just talked about. So look, this is a good semester for us in terms of margin. As far as sustainability is concerned, while we announced last year our Corporate Sustainability Certification solutions, our strategy is both corporate certification as well as operational sustainable solutions. And we are making progress on both. Going back to the question that Ed has read, it doesn't matter which sector you look at, sustainability is at the forefront of every Board or CEO's agenda. And the view that we have is that ESG is important, but not sufficient. Sustainability has to be at the heart of every company's strategy and we need to go beyond the ESG. So we are seeing great demand for operational sustainable solutions as well as corporate certification. Thanks, Paul.

The next question comes in from the line of Suhasini Varanasi calling from Goldman Sachs.

Just a couple for me, please. The leverage improvement that you're guiding for about GBP 70 million at the midpoint for FY '20, can you comment on what is changing -- what has changed since the previous guidance? Is it just an improvement in cash generation? Or has your margin profile basically improved better than expected in the second half? And the second one, obviously, the focus on sustainability is very clear in your conversations with customers. So should we basically expect a strong acceleration in your Assurance division going into '21 and '22 on the back of this?

Yes. Look, let me just take the second one first. Look, Assurance has been the fastest-growing service of Intertek for many years and we continue to expect Assurance to be the fastest-growing service given all the opportunities I just talked about including sustainability. So absolutely. As far as the net debt guidance, which is obviously lower than what we talked about at the end of H1, I think there are 2 things. We are pleased with the margin progress we are making. And as I've just said to Paul, we are comfortable with the consensus EPS notwithstanding the ForEx update that we've given. So there is obviously good news, good progress on margin. And really importantly, we are making great progress, again, on cash flow management. As you know, it's been very high on our priority list for many, many years and I'm so pleased and so proud to see the progress our teams are making in a very difficult economic environment. So this is really attributed to the connectivity we have with our clients, but also the discipline we have. So it's both margin and cash.

The next question comes in from the line of Rajesh Kumar calling from HSBC.

So the first one is you pointed out that PPE has been a support to the growth. But obviously, there are other businesses, which are under pressure. So if we assume that the vaccine comes in -- at some point next year and the demand for PPE eases a bit, what are the other things that could grow -- that can offset some of the weakness in PPE that one might expect in a recovery situation? I mean are there revenues, which are cyclically down that can recover and -- within the Softlines and Hardlines businesses? The second one is on the vaccine supply chain. Do you have any exposure in that supply chain in terms of testing or assurance or any other type of service you're providing? And finally, on the ESG thing, can you just remind us how you're placed versus your competition in terms of winning more contracts or driving further revenue going forward as the focus on ESG increases?

Thanks. Let me just try to answer these 3 questions. Let's just start with Softlines and Hardlines. Look, as I said, in the previous Q&A, our focus on PPE is on high-quality, high added value testing and certification, which is largely targeted to the medical world, if you want. And that market will continue to perform very, very strongly given the huge gaps in quality PPEs that we've seen, unfortunately, in so many jurisdictions around the world and our home market, the U.K. is no different and the EU is also no different and we are seeing every day new issues and scandals. What are the other growth opportunities that we are pursuing within our Hardlines and Softlines business? Look, there are plenty of innovations that Intertek continues to bring to its clients. And just to name a few, we are very obviously focused on how e-commerce is challenging the quality assurance agenda of our clients, either brick-and-mortar retailers or pure-play e-commerce, which need some dedicated focus. So we are very focused on that. Obviously, I talked about sustainability from an operational sustainable solutions. It's a huge agenda for all of our clients, especially in the apparel sector. And you would have seen some of the leading retailers making some really clear commitment to their sustainability goals because consumers are very focused on that, rightly so. So this is a huge area for us both at the corporate and operational certification level. And then the other thing I would say is supply assurance, which is one of the big, I would say, wake-up call for lots of Board and companies that realized that during the heart of the COVID-19 crisis they didn't have all the information they wanted on their Tier 1, Tier 2, Tier 3 suppliers. They realized they didn't have the business continuity plans in place. They realized that they maybe were dependent on too many or too few suppliers. So the -- our supply assurance business continues to grow. We have a well-leading digital platform called Inlight, which is exactly what corporates need. And let's not forget all the service innovations that we have around the world. As far as the vaccine supply chain is concerned, look, our CMP business is very small. As you know, we are only in few markets and the country where we have exposure to the R&D development from a vaccine standpoint is the U.K. and you know exactly what's happening in the U.K. And as far as ESG is concerned, look, we are uniquely positioned because our offering is both looking at the operational sustainable solutions as well as the corporate certification. And our competitors, which could be the big 4, do not have the operational understanding, the depth and breadth of solution, which is where sustainability has got to start. If you don't start at the heart of your quality and safety operations, how can you make your operations sustainable. So we are extremely well positioned because we get both the corporate certification program, verification of claims as well as the operational understanding of what's happening in every industry. And as you know, every industry is different. So this is, again, where the depth and breadth of Intertek verticals makes a huge difference because no matter which industry, we know what to offer and I talked about CarbonClear for instance in the oil and gas industry.

Understood. And just one follow-up on the net debt guidance you've given. Is there an element of receivables being better than what you were anticipating at H1, which has led you to increase the cash flow -- implied cash flow for second half? Or is it lower M&A spend?

No. Look, I think we had given our net debt guidance at the end of H1 with a certain CapEx expectation, which has not changed. We typically do not guide for M&A. How could we? And basically, the free cash flow improvement that is basically driving our net debt guidance, which is better than H1, is a function, as I said, of better cash collection because we are doing a great job at that, which is obviously receivables and a bit of margin progress.

The next question comes in from the line of Sylvia Barker calling from JPMorgan.

Just coming back -- I've got 3 as well. Firstly, coming back to the organic, the guidance implies positive growth in November-December. Could you maybe just touch on the working day impact within the July-October period and the November-December period as well? Secondly, just looking at the Building & Construction business in the U.S., I guess it seems to be relatively normal that, that would slow down in the run-up to an election. Could you maybe comment on how big that impact was for your business and any thoughts into next year? And then, finally, M&A and capital allocation. Clearly, very strong cash flow performance. The M&A market seem to have been largely shut in H1. Could you comment on the activity levels there and your thoughts around the capital allocation as well?

Yes. Look, I think in terms of your first question, working days. Look, the information is obviously available to everyone in terms of working days. Obviously, very difficult to give precise answers because we do have different calendars around the world. But there is no question that in the July-October period there was a difference versus last year, so there was obviously 1 less working day. And we expect the November-December period to benefit from one more working day. And this is basically the question that you were asking. As far as your question on B&C in the U.S., look, we have a very well-diversified business that is present across all region in the United States. And the numbers that I've talked about today were largely influenced by the disruptions in building construction due to lockdown restrictions. As you know, it's quite complex when you look at lockdown restriction state by state. We believe that the investments moving forward to make the infrastructure greener and more sustainable is also going to apply to United States. So although we have not seen the content of the President-elect's agenda in terms of investments, we would assume that there will be some positive tailwind there, but there's still a bit of time. And from an M&A standpoint, look, we remain very active in the market. Obviously, this is not the easiest year for any seller to monetize an asset, given the exit point that we all know is going to be unfavorable. But nonetheless, we are in contact with all the quality targets that we have and this is part of our strategy. But as we've always said, we are very selective. We only want to invest in high-growth, high-margin opportunities with multiple that makes sense so we can deliver shareholder value. So no change from an M&A standpoint.

The next question comes in from the line of Rory McKenzie calling from UBS.