Bureau Veritas: 2015 first half results Strong performance in overall challenging market conditions

01.September 2015 at 07:30:00 CET

Bureau Veritas: 2015 first half results
Strong performance in overall challenging market conditions
2015 outlook confirmed

Chief Executive Officer, Didier Michaud-Daniel, commented:

"Bureau Veritas achieved a strong performance in the first semester of 2015, in overall challenging market conditions. The Group delivered solid revenue growth with robust margins, driven by the rebound in Europe and the excellent performance of the Marine & Offshore business. Thanks to targeted acquisitions, our growing activity in China has been reinforced. In parallel, we have pursued initiatives to accelerate growth and drive operational excellence within the Group.

Taking into account the global economic slowdown and the more pronounced drop in oil prices, the growth in the second half of 2015 should be less dynamic than in the first half. For the full year 2015, we expect a slight improvement in organic growth over 2014 and an improvement in the operating margin thanks to ongoing operational excellence initiatives. The Group will continue to generate strong cash-flow. Targeted acquisitions in attractive markets will also contribute to overall growth."

The Board of Directors of Bureau Veritas met yesterday and approved the financial statements for the first half of 2015 (H1 2015). The main consolidated financial items are presented below:

 (millions of euros) H1 2015  H1 2014    Var.   At constant currencies
Revenue 2,318.7 1,967.4 +17.9% +9.0%
Adjusted operating profit(a) 370.3

 
310.0 +19.5% +7.1%
as a % of revenue 16.0%

 
15.8% +20 bp (30) bp
Operating profit 335.9

 
278.5 +20.6% +7.8%
Attributable net profit 175.1

 
154.0 +13.7% (3.8)%
Attributable adjusted net profit (a) 200.3

 
177.5 +12.8% (3.5)%
Operating cash flow(a) 216.4 176.1 +22.9% +14.1%
Adjusted net financial debt (a) 2,110.6 1,985.5 +6.3%  

(a) Financial indicators not defined by IFRS accounting rules presented in Appendix 4

H1 2015 Highlights

1 - Acquisitions in China

Since the beginning of the year, the Group has carried out four acquisitions, strategically positioned in the Chinese market for Construction, Industry and Consumer Products. Three contributed to the acquisition growth of H1 2015, namely Ningbo Hengxin (Industry), Shandong Chengxin (Construction) and CTS (Consumer Products).

On July 9, 2015, Bureau Veritas also finalized the acquisition of Shanghai Xietong. This is another step in the strategy of building a national platform in construction project supervision for industrial assets in China.

The acquisitions carried out in China in 2015 represent EUR 65 million in annualized revenues, adding more than 1,500 people to the local workforce. At end June, 2015 China represented 14.7% of the total Group revenues (vs 12.4% in H1 2014), with more than 12,000 employees. 

Despite a lower growth rate of the Chinese GDP, the country remains one of the most dynamic in the world and generates important needs in infrastructure, transport and energy production. Structural growth drivers, such as the development of the middle class, the increased environmental awareness, and the continuous improvement in local quality standards are powerful catalysts for TIC activities. The development in China is strategic for Bureau Veritas and the market liberalization opens up many opportunities for the Group.

2 - Lower oil price environment and impact on Group activities

H1 2015 was characterized by continued low oil price and its consequences, with Capex delays and price pressure progressively materializing.

The Industry and IVS businesses are seeing the biggest impact, as they are exposed to the reduction in US drilling activities, projects delays (in North America, Latin America and Australia) as well as pricing pressure from O&G customers.

The Commodities business is benefitting from the current environment for refining and trade related activities, and only drill core related testing activities are negatively impacted.

As anticipated, the lower oil price environment had an impact of (1.7) point on H1 2015 organic growth. The impact on H1 2015 Group adjusted operating margin was (40) basis points.

3 - Further deployment of initiatives to accelerate organic growth

Amongst other growth initiatives, the Group has further implemented the global key account strategy to reinforce its penetration with large corporations.

The strategy is built on 3 pillars: i) define and select strategic accounts ii) structure the "professional family"  of account managers iii) address market sectors specific needs to provide additional value-added services to existing and new customers.

Based on their 3-year revenue potential, 170+ strategic accounts have been selected, that are all to be managed at the Group or Operating Group level of the organization. In H1 2015, the group began to benefit from this commercial initiative, particularly in Europe.

The other growth initiatives will be presented during Bureau Veritas' Investor Days on October 6 and 7, 2015.

Analysis of the Group's results and financial position

1 - Revenue up 9% on a constant currency basis

Revenue in H1 2015 totaled EUR 2,318.7 million, an increase of 17.9% compared with H1 2014.

By geography, activities in the Europe Middle East Africa region (43% of H1 2015 revenue; 5.3% organic growth) have benefited both from the commercial initiatives launched in 2014 and the improvement in the economic environment. Activities in the Americas (28% of revenue; 1.4% organic growth) have started to slow down due the lower oil price environment. Business in Asia Pacific (29% of revenue; 2.9% organic growth) was mixed with a strong performance in Asia, partially offset by a reduction in Australia due to the weakness in the Mining and Oil & Gas end-markets.

Organic growth was particularly strong in the following businesses:

As expected, activities related to Oil & Gas have started to experience the impact of a low price environment, mainly for the Industry (+3.6% organic growth) and IVS (+1.8%) businesses. In both cases, activities outside Oil & Gas performed well, especially in Europe.

The Consumer Products business (+3.4% organic growth) has been slightly impacted by some delays in product launches from key customers in Electricals & Electronics. 

Construction was able to grow organically by +1.0%, despite France weighing on the performance, and thanks to an increasingly diversified geographical footprint.

The Government Services & International Trade (GSIT) business declined 2.9% organically, due to the high basis of comparison in verification of conformity contract in Iraq and some delays in new contract launches.

2 - Adjusted operating margin up 20 basis points to 16.0%

Adjusted operating profit was EUR 370.3 million in H1 2015, up 19.5% compared to H1 2014, and up 7.1% at constant currencies. The adjusted operating margin reached 16.0% in H1 2015.

Margins increased in all businesses, except Industry and IVS, due to their exposure to the Oil & Gas sector and GSIT, which was impacted by lower volumes in Iraq and the fact that many contracts were in ramp-up phase. The drop in profitability of our Oil & Gas-related activities had a negative impact of 40 basis points on the Group's margin, but was more than compensated by operational excellence initiatives and the positive currency impact.

On the upper end of the range, the margin of the Marine & Offshore business benefited from the surge of equipment testing in Asia, while the Consumer Products margin improvement was driven by the continuous implementation of Lean management initiatives.

In other businesses, margins grew thanks to improved portfolio mix (Construction) and the benefits of restructuring actions taken in 2014 (Commodities).

Other operating expenses slightly increased to EUR 34.7 million in H1 2015 vs. EUR 31.5 million in H1 2014. These include primarily EUR 34.3 million of amortization of acquisition intangibles (compared with EUR 30.2 million in 2014).

After taking into account other operating expenses and share of profit of associates, operating profit came to EUR 335.9 million, up 20.6% versus the H1 2014.

3 - Adjusted net profit up 12.8%

Net financial expense stood at EUR 47.6 million compared with EUR 40.5 million in H1 2014. This increase stemmed from an increase in net financial cost to EUR 39.3 million (vs EUR 37.6 million in H1 2014), due to the higher level of debt and foreign exchange losses of EUR 3.7 million following the strengthening of the  USD vs some emerging countries' currencies.

Income tax expense stood at EUR 106.1 million in H1 2015, compared with EUR 77.1 million in H1 2014. The effective tax rate (ETR) was 36.8% for the period, compared with 32.4% in H1 2014. The adjusted ETR was 35.8%, versus 31.6% last year. The increase is attributable to unfavorable seasonality of taxes in the first half. 2015 full-year adjusted tax rate should be around last year level (34%).

The Group's attributable net profit for the period was EUR 175.1 million, versus EUR 154.0 million in H1 2014. Earnings Per Share (EPS) stood at EUR 0.40, compared with EUR 0.35.

Adjusted attributable net profit totaled EUR 200.3 million, versus EUR 177.5 million in H1 2014. Adjusted EPS reached EUR 0.46 in H1 2015, vs EUR 0.41 in H1 2014.

4 - Operating cash flow up 22.9%

Cash generation was strong in the first half of 2015. Operating cash flow rose by 22.9% to
EUR 216.4 million.

The amount spent on the purchase of property, plant and equipment and intangible assets, net of disposals (Net Capex), was EUR 85 million in H1 2015, vs EUR 63.2 million in H1 in 2014. The Group's capex-to-revenue ratio stood at 3.7%, slightly higher than the FY 2014 level (3.4%).

Free cash flow (cash flow available after tax, interest expenses and capex) totaled EUR 73.6 million, versus EUR 71.2 million H1 2014.  

At June 30, 2015, adjusted net financial debt was EUR 2,110.6 million, i.e. 2.31x last-twelve-month EBITDA as defined in the calculation of banking covenants, compared with 2.16x at December 31, 2014. More than 95% of the Group's financing matures between 2017 and 2022.

The increase in adjusted net financial debt of EUR 230.7 million versus December 31, 2014 (EUR 1,879.9 million) stemmed from:   

Outlook

Taking into account the global economic slowdown and the more pronounced drop in oil prices, the growth in the second half of 2015 should be less dynamic than in the first half. In 2015, Bureau Veritas expects a slight improvement in organic growth over 2014. The operating margin should also improve thanks to ongoing operational excellence initiatives. The Group will continue to generate strong cash flow. Targeted acquisitions in attractive markets will contribute to overall growth.

Conference call

Tuesday, September 1st, 2015 at 2:00 p.m. CET

The conference call in English will be broadcast live and after the event on the Group's website: http://finance.bureauveritas.com. The presentation document will also be available on the website.

2015 half-year financial report

The 2015 half-year financial report is to be filed with the French Financial Markets Authority (AMF) today and can be consulted on the Bureau Veritas website at the following address: http://finance.bureauveritas.com.

2015 financial calendar

October 6, 7, 2015: Investor Days
November 4, 2015: Q3 2015 information

Contacts

Analysts/Investors Press
Claire Plais +33 (0)1 55 24 76 09
Mark Reinhard +33 (0)1 55 24 77 80
Véronique Gielec +33 (0)1 55 24 76 01
Finance.investors@bureauveritas.com Veronique.gielec@bureauveritas.com

 

About Bureau Veritas

Bureau Veritas is a world-leading provider in testing, inspection and certification. Created in 1828, the Group has more than 66,500 employees in around 1,400 offices and laboratories all across the world. Bureau Veritas helps its clients to improve their performance by offering services and innovative solutions in order to ensure that their assets, products, infrastructure and processes meet standards and regulations in terms of quality, health and safety, environmental protection and social responsibility.

Bureau Veritas is listed on Euronext Paris and belongs to the Next 20 index.
Compartment A, code ISIN FR 0006174348, stock symbol: BVI.

For more information, visit www.bureauveritas.com

This press release (including the appendices) contains forward-looking statements, which are based on current plans and forecasts of Bureau Veritas' management. Such forward-looking statements are by their nature subject to a number of important risk and uncertainty factors such as those described in the registration document filed by Bureau Veritas with the French Financial Markets Authority that could cause actual results to differ from the plans, objectives and expectations expressed in such forward-looking statements. These forward-looking statements speak only as of the date on which they are made, and Bureau Veritas undertakes no obligation to update or revise any of them, whether as a result of new information, future events or otherwise, according to applicable regulations


Appendix 1: Q2 and H1 Revenue by business

(in millions of euros) 2015 2014  Var.   Organic  Acquisitions  Currency
Marine & Offshore 103.3 78.0 32.4% 9.9% 15.2% 7.3%
Industry 275.5 240.6 14.5% 2.6% 2.8% 9.1%
In-Service Inspection & Verification 146.7 136.0 7.9% 2.5% 0.2% 5.2%
Construction 142.3 108.3 31.4% 1.4% 22.1% 7.9%
Certification 94.2 86.5 8.9% 4.4% - 4.5%
Commodities 201.2 171.7 17.2% 4.9% 2.5% 9.8%
Consumer Products 181.5 149.0 21.8% 2.1% 0.6% 19.1%
Government Services & International Trade 67.6 68.3 (1.0)% (4.8)% - 3.8%
Total Q2 revenue 1,212.3 1,038.4 16.7% 3.0% 4.6% 9.1%
Marine & Offshore 202.2 150.4 34.4% 11.7% 15.0% 7.7%
Industry 534.3 460.6 16.0% 3.6% 3.2% 9.2%
In-Service Inspection & Verification 287.5 265.6 8.2% 1.8% 1.7% 4.7%
Construction 274.3 213.6 28.4% 1.0% 20.1% 7.3%
Certification 174.9 160.4 9.0% 4.4% - 4.6%
Commodities 391.0 328.7 19.0% 5.5% 4.0% 9.5%
Consumer Products 322.3 261.9 23.1% 3.4% 1.3% 18.4%
Government Services & International Trade 132.2 126.2 4.8% (2.9)% 3.5% 4.2%
Total H1 revenue 2,318.7 1,967.4 17.9% 3.6% 5.4% 8.9%

Appendix 2: Adjusted operating profit by business


(in millions of euros)  Adjusted operating profit   Adjusted operating margin 
2015 2014  Var.
(%)
 2015  2014  Var. (bp) 
Marine & Offshore 54.7 40.2 +36.1% 27.1% 26.7% +40
Industry 74.6 68.5 +8.9% 14.0% 14.9% (90)
In-Service Inspection & Verification 31.0 30.3 +2.3% 10.8% 11.4% (60)
Construction 38.8 27.8 +39.6% 14.1% 13.0% +110
Certification 29.3 26.6 +10.2% 16.8% 16.6% +20
Commodities 44.9 36.3 +23.7% 11.5% 11.0% +50
Consumer Products 76.7 59.9 +28.0% 23.8% 22.9% +90
Government Services & International Trade 20.3 20.4 (0.5)% 15.4% 16.2% (80)
Total H1 Group 370.3 310.0 +19.5% 16.0% 15.8% +20

Appendix 3: Extracts from the full-year consolidated financial statements

Extracts from the half-year consolidated financial statements audited and closed on August 31, 2015, by the Board of Directors. The limited review procedures for the half-year accounts have been undertaken and the Statutory Auditor's report is published.

CONSOLIDATED INCOME STATEMENT

(in millions of euros) H1 2015 H1 2014
Revenue 2,318.7 1,967.4
Purchases and external charges (652.6) (553.1)
Personnel costs (1,209.7) (1,030.4)
Taxes other than on income (24.0) (27.4)
Net (additions to)/reversals of provisions (7.6) 0.3
Depreciation and amortization (96.8) (84.7)
Other operating income and expense, net 7.6 6.4
Operating profit 335.6 278.5
Share of profit of associates 0.3 -
Operating profit after share of profit of associates 335.9 278.5
Income from cash and cash equivalents 2.5 0.7
Finance costs, gross (41.8) (38.3)
Finance costs, net (39.3) (37.6)
Other financial income and expense, net (8.3) (2.9)
Net financial expense (47.6) (40.5)
Profit before income tax 288.3 238.0
Income tax expense (106.1) (77.1)
Net profit 182.2 160.9
Non-controlling interests 7.1 6.9
Attributable net profit 175.1 154.0
Basic earnings per share (in euros):    
Net profit 0.40 0.35
Diluted earnings per share 0.40 0.35


 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(in millions of euros) June 2015 Dec. 2014
Goodwill 1,926.0 1,814.2
Intangible assets 671.9 650.5
Property, plant and equipment 520.8 475.6
Investments in associates 5.1 5.1
Deferred income tax assets 138.7 129.9
Investments in non-consolidated companies 1.3 1.1
Derivative financial instruments 10.3 1.3
Other non-current financial assets 58.4 50.6
Total non-current assets 3,332.5 3,128.4
Trade and other receivables 1,462.2 1,325.0
Current income tax assets 40.1 63.2
Current financial assets 60.6 35.6
Derivative financial instruments 15.6 7.5
Cash and cash equivalents 198.2 220.1
Total current assets 1,776.7 1,651.4
TOTAL ASSETS 5,109.2 4,779.8
     
Share capital 53.1 53.2
Retained earnings and other reserves 1,094.0 1,054.8
Equity attributable to owners of the Company 1,147.1 1,108.0
Non-controlling interests 35.8 32.7
Total equity 1,182.9 1,140.7
Bank borrowings 2,104.5 1,944.8
Derivative financial instruments 39.9 13.9
Other non-current financial liabilities 37.1 49.6
Deferred income tax liabilities 167.5 166.9
Pension plans and other long-term employee benefits 157.2 158.3
Provisions for other liabilities and charges 112.4 115.1
Total non-current liabilities 2,618.5 2,448.6
Trade and other payables 907.2 899.1
Current income tax liabilities 68.0 71.7
Bank borrowings 211.8 153.9
Derivative financial instruments 11.9 23.3
Other current financial liabilities 108.8 42.5
Total current liabilities 1,307.8 1,190.5
TOTAL EQUITY AND LIABILITIES 5,109.2 4,779.8

Consolidated statement of cash flows

(in millions of euros)  H1 2015 H1 2014
Profit before income tax 288.3 238.0
Elimination of cash flows from financing and investing activities 34.5 37.7
Provisions and other non-cash items 14.7 11.3
Depreciation, amortization and impairment 95.0 86.2
Movements in working capital requirement attributable to operations (109.9) (95.0)
Income tax paid (106.2) (102.1)
Net cash generated from operating activities 216.4 176.1
Acquisitions of subsidiaries (64.7) (477.9)
Purchases of property, plant and equipment and intangible assets (86.4) (64.4)
Proceeds from sales of property, plant and equipment and intangible assets 1.4 1.2
Purchases of non-current financial assets (6.2) (9.0)
Proceeds from sales of non-current financial assets 3.5 3.3
Variation in loans and advances 8.3 -
Net cash used in investing activities (144.1) (546.8)
Capital increase 4.4 2.2
Purchases/sales of treasury shares (23.2) (25.3)
Dividends paid (214.4) (213.6)
Increase in borrowings and other debt 232.9 693.5
Repayment of borrowings and other debt (68.8) (52.1)
Interest paid (57.8) (41.7)
Net cash generated from (used in) financing activities (126.9) 363.0
Impact of currency translation differences 5.6 (3.7)
Impact of changes in methodology - (0.8)
Net increase (decrease) in cash and cash equivalents (49.0) (12.2)
Cash and cash equivalents at beginning of period 210.3 157.7
Net cash and cash equivalents at end of period 161.3 145.5
o/w cash and cash equivalents 198.2 176.8
o/w bank overdrafts (36.9) (31.3)


Appendix 4: Financial indicators not defined by IFRS accounting rules

Adjusted operating profit is defined as Group operating profit before income and expenses relative to acquisitions and other non-recurring items.

(in millions of euros) H1 2015  H1 2014 
Operating profit before share of profit of associates 335.6 278.5
Amortization of acquisition intangibles 34.3 30.2
Disposals and restructuring 0.1 (0.3)
Other acquisition-related expenses 0.3 0.1
Goodwill impairment - 1.5
Total other operating expenses 34.7 31.5
Adjusted operating profit 370.3 310.0

Attributable adjusted net profit is defined as attributable net profit adjusted for other operating expense after tax.

(in millions of euros) H1 2015  H1 2014 
Attributable net profit 175.1 154.0
EPS(a) (EUR per share) 0.40 0.35
Other operating expenses 34.7 31.5
Tax effect on other operating expenses (9.5) (8.0)
Attributable adjusted net profit 200.3 177.5
Adjusted EPS(a) (EUR per share) 0.46 0.41

(a) Calculated using the weighted average number of shares of 437,529,823  in H1 2015 and 437,061,389 shares in H1 2014

Free cash flow is defined as follows:

(in millions of euros) H1 2015  H1 2014 
Cash flow generated from operating activities (operating cash flow) 216.4 176.1
Purchases of property, plant and equipment and intangible assets net of disposals (85.0) (63.2)
Interest paid (57.8) (41.7)
Free cash flow 73.6 71.2

Adjusted net financial debt is defined as net financial debt after currency hedging instruments as defined in the calculation of banking covenants.

(in millions of euros) Jun. 2015  Dec. 2014 
Gross financial debt 2,316.4 2,098.7
Cash and cash equivalents 198.2 220.1
Consolidated net financial debt 2,118.2 1,878.6
Currency hedging instruments (7.6) 1.3
Adjusted net financial debt 2,110.6 1,879.9

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