Applus Services SA

MAD:APPS

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Applus Q3 2019 Results Presentation. [Operator Instructions]. I must advise you that the conference is being recorded today, Wednesday, 30th of October 2019.And I would now like to hand the conference over to your first speaker today, Fernando Basabe, CEO. Please go ahead, sir.

[Fernando Basabe Armijo, CEO & Executive Director]

Good afternoon all, and thank you for joining the call today for our third quarter 2019 results presentation. I am Fernando Basabe, CEO. With me here is Joan Amigo, our CFO.As usual, I will run through the highlights, then Joan will present the financials, and I will present the business review and outlook. For the third quarter results, like for the first quarter, we show an abbreviated profit and loss account down to profit before taxes only. And for the divisions, we just show revenue. At the end, we will open the telephone line to take your questions.So starting with the highlights, we had a good performance with all 4 divisions continuing to contribute to this. We had good revenue growth, margin improvement and strong cash generation. For the first 9 months, 2 of the divisions, IDIADA and Labs, continued to deliver in double-digit organic revenue growth, whereas Energy & Industry and Auto divisions are at mid-single digits.This morning we also announced that we have made another small acquisition of a company that will going the Energy & Industry division. It has around EUR 8 million of revenue at the margin higher than the Group. And we have a good pipeline of 4 other acquisition opportunities and a strong balance sheet to finance these.For the financial highlights, as we did for the last 2 quarterly results, we are showing this using the current accounting standards in force, which includes the new standard on leases, IFRS 16. And like before, we have restated the prior year numbers to show the underlying comparison and growth rates.Reported revenue was over EUR 1.3 billion for the 9 months, up almost 7% of which organic was 6.0%. Joan will go through the bridge in a minute, including the third quarter growth.Adjusted operating profit was EUR 148 million, up 11%, and gaining a profit margin of 11.2%, which is comparably higher than last year on a like-for-like basis, and this is still higher than our guidance for the full year. The organic adjusted operating profit increase was over 9%.The Q3 margin was also up, and again, Joan will go through this in a bit more detail in a minute.Cash generation was very strong with adjusted free cash flow of EUR 117 million, up 23%.And with that, I hand it over to Joan.

[Joan Amigó I. Casas, CFO & Executive Director]

Okay. Thanks, Fernando, and good afternoon, everyone. Let me start with the year-to-date Q3 revenue bridge.Good year-to-date Q3 2019 revenue with a 6.8% increase. We had organic revenue growth of 6.0% with double-digit organic revenue growth in IDIADA and Labs and near mid-single digit in Energy & Industry and Auto divisions.We also have a positive FX impact of 1% mainly due to the U.S. dollar appreciation against the euro, which was slightly reduced by the negative Argentinian peso impact.There are 6 small acquisitions made in the last 12 month that had growth of 49%, offset by the nonstrategic business in Energy & Industry that was disposed of in Q4 2018.Below the waterfall we show the Q3 percentage changes. The organic revenue growth in Q3 was 4.8%, lower than in H1 and mainly due to a lower revenue growth in Energy & Industry.Regarding adjusted operating profit, as we did for the H1 results, we have included the IFRS 16 impact, showing a pro forma of the 2018 figures. As a reminder, IFRS 16 is the new accounting standard on leases. Unless we say otherwise, all the profit figures are on the accounting standards currently in force, which is including IFRS 16. And the percentage changes are applying the same accounting standard to the prior period numbers, which is a pro forma.Overall, the adjusted operating profit was EUR 148.5 million, up 11.3%. This is made up of organic growth of 9.3%, plus 1.3% net inorganic and positive FX of 0.7%.Margin was up 11.2%, up 45 basis points with the majority of this increase being organic.And like for revenue, we show the Q3 percentage changes below the waterfall. Q3 total adjusted operating profit growth was up 6.7% of which 6.1% was organic on a pro forma basis.Slide #8, we have a summary of the income statement. And again, as we did in H1, in order to clarify the IFRS 16 impact, on the left side of the page we have included the income statement excluding IFRS 16; in the middle the IFRS 16 impact; and on the right you have the new income statement including IFRS 16 with a pro forma of year-to-date Q3 2018.So in the line on adjusted operating profit, as we just saw on the previous slide, we have the adjustment of EUR 6.1 million in 2019 that increases the profit and then mostly comes out as a finance expense while increasing the financials [ and trends ] is mostly neutral at the level of profit before tax and below.Below the adjusted operating profit, we have the PPA amortization, which stands for the purchase price amortization, and is the amortization of intangibles by an amount of EUR 44.3 million, same as last year, and the other results of EUR 2.4 million that correspond mostly the transaction cost.Overall, the reported operating profit EUR 101.7 million was up 16.2% on a pro forma basis.Net financial expense of EUR 16.8 million, including EUR 6 million from IFRS 16, is EUR 1.8 million lower than last year due to lower average amount of debt, lower interest rates and a better mix of the currency of the borrowings. We maintain our guidance of finance expenses for the whole year of around EUR 23 million, including EUR 8 million from IFRS 16.Finally, the statutory profit before tax is strongly up 31% on a pro forma basis, so on a like-for-like basis. Although we are not reporting taxes of minorities at Q3, the guidance for the full year of 2019 remains the same as we said on the last results meeting. We expect the effective tax rate in the range of 25%, 26%, and minorities what we expect is around EUR 21 million, EUR 22 million for the whole year.Regarding cash flow, since IFRS 16 treatment increases EBITDA, which is offset by an additional amount of financing which comes at the bottom of the cash flow table. I will focus on the cash flow excluding IFRS 16 so that you can get a better sense of it.Strong cash flow continues to be generated by the Group with an adjusted free cash flow of EUR 76.4 million, 34.6% up versus last year.The increase in working capital of EUR 36.5 million was EUR 17.8 million lower than the increase last year in the same period. We expect in Q4 to have working capital inflow, so the total end-of-year working capital outflow should be less than the current position.Net capital expenditure for the period was EUR 34 million, up EUR 4.1 million versus last year. As anticipated, the CapEx increase is due to the investments done in the electromagnetic compatibility in Labs and in a new connected and autonomous vehicle track in IDIADA. We maintain our CapEx guidance for the year at around 3.4% of our revenue due to these investments.Taxes paid, cash payment of EUR 25.0 million are higher than the same period from last year due to refunds in the prior years as we have explained previously. We also maintain our guidance for the whole year to be around EUR 36 million, although the final amount could vary depending on the timing of payments and refunds.Interest cash outflow, EUR 8.9 million, higher than last year due to a payment timing change following the refinancing of the debt facilities in July last year. And the revenue facilities, part of the H2 2018 interest were paid in January 2019. We maintain our guidance of around EUR 10 million, EUR 11 million for 2019.We had an increase in the dividend distributions. We increased the dividend payout to Group shareholders from 13 cents a share to 15 cents a share and paid in July by a total amount of EUR 21.5 million. Also the dividends paid to minorities increased to EUR 16.0 million, which is double last year, since we have the first full year from acquisition of Inversiones Finisterre.Acquisitions corresponds to Lam, a metrology company purchased in Spain, and A2MI, which is a material testing company purchased in France, plus deferred consideration on acquisitions made in prior years. Overall, we are pleased with the cash flow the Group are generating, and we expect to end the year strong and continuing to grow well into next year.And for my final slide, we show the net debt bridge, also with the detail of the IFRS 16 impact to help you understand it better. Excluding IFRS 16, the net debt has been reduced EUR 15.9 million, EUR 37 million from September 2018. It means that we have a leverage level of 2.1x from 2.4x at September 2018 and 2.3x at 2018 year end. The financial covenant from the lenders is set at 4x, which provides good financial flexibility. Under the new accounting policy of IFRS 16, our debt would be EUR 172 million higher, and that translate into a leverage ratio that is around 0.2x higher than under excluding IFRS 16 method. It means 2.3x.That concludes the financial slides. In the appendix we provide further slides with the usual analysis that we always provide, as well as a slide on the main currency rates.And now, let me hand over to Fernando.

[Fernando Basabe Armijo, CEO & Executive Director]

Thank you, Joan. I will now go through the divisions, starting with Energy & Industry, our largest one, accounting for 59% of the Group revenue. We are now in our sixth consecutive quarter of positive growth since the beginning of the recovery of the oil and gas markets -- excuse me.The year-to-date organic revenue growth is just under 5%. So although the third quarter growth of 3.5% is lower than the first half, we are seeing generally good activity levels and solid underlying growth. Our target here is mid-single digit organic revenue growth, which we are achieving on a year-to-date basis, although for the full year it might be lower due to the very strong comparable growth rate in Q4 last year which was 11.5%.Power and construction are performing strongly with Spain the biggest country for this end markets with good performance, as well as new contracts being won in other regions. Aerospace, our highest margin business within Energy & Industry, also performed well.Oil and gas had a mixed performance with some regions growing well, with the largest market of USA as well as the Africa business offset a lot of this. Main reason is the absence of an increase in large CapEx spending in these markets.And as I mentioned in the highlights, in the last few days we've just closed the acquisition of LEM, saying the name as a company we acquired last year for the Labs, which is a company that tests construction materials for civil and mining infrastructure investment in Chile. It currently generates around EUR 8 million of revenue at a margin higher than the division and the Group, and this aligned with our strategy of acquisitions in this growth market. We will continue to seek further opportunities like this one.And now to go through the division performance by region, starting with the biggest region that includes Southern Europe, Africa, Middle East and Asia Pacific that accounts for almost half of the division. Revenue year to date performed well with high-single digit growth. Spain and Oceania, both very large operations, were the strongest geographies and are expected to continue leading the growth. Africa, Middle East is flat year to date after a weak quarter due to our largest contract in Africa declining.North America, a quarter of the division by revenue, 1 year ago our revenue accelerated here into newer and complementary markets like aerospace in the U.S., nuclear in Canada, and we continued to grow well in these markets, as well as on the OpEx side of oil and gas infrastructure. But our oil and gas CapEx market has been weak with no large projects being done this year. So the region as a whole is down in the period.Northern Europe, 17% of the division, is up around mid-single digits with the main driver for this being the international oil and gas project-related business managed out of Rotterdam, which is performing well. The UK and Germany are also growing well with the main contracts renewed.Finally in Latin America, accounting for 11%, we are continuing to have good growth, double digit year to date, although slower in the third quarter due to some large projects coming to an end. This is the area with the toughest Q4 comparable after more than 30% growth last year.Turning to Labs next, the growth here continues to be healthy at 16.4% of which organic 9.5% for the quarter, and this is despite the very high comparable of 17% organic revenue growth last year. Business lines that continue to drive the growth here are electromagnetic compatibility testing for the commercial electrical product sector and cars, as well as structural testing of building material products and aerospace components. Meteorology and calibration services, which is a line that we have expanded over the last few years, is also growing nicely.The revenue increase from acquisitions of 10% year to date comes from 4 small acquisitions made in the last 12 months and are performing well, and we are confident more will come and of larger size.Automotive division. After strong mid-single digit growth in the first half due to new contracts ramping up, as well as solid underlying growth in the existing contracts, I was pleased to see pretty good growth in Q3 and a mid-single digits year-to-date growth rate. This is coming from all the geographies except Finland, which is 4% of the division revenue, as well as further ramping up from new contracts in LatAm.There was a further devaluation in the Argentinian peso in Q3, bringing the year-to-date devaluation to 40% and increasing the year-to-date FX impact to 1.8%, which was 1.4% at the first half. At the end of September, FX rates, Argentina represents 4.6% of the revenue of the division.Last division is IDIADA accounting for 13% of Group revenue. The growth in this division continues to be very high in the double digits on the back of a lot of testing for new models and technologies in the auto sector. This growth, as we have said before, is despite the challenges facing our customers in the auto sector with them showing declining sales volume, while at the same time being compelled to invest in new technologies to improve the driving experience and safety and [indiscernible]. So far, we've been immune to the pressures that our customers are facing, but this can change and we could see some customers reducing the number of projects.We will remain vigilant, and in the meantime continue to invest in the areas where we are seeing the higher demand and where we can make a difference. The last 2 notable investments we've made, for example, are in new test track within our main site near Barcelona, which is equipped for both testing ADAS , Advanced Driver Assistance Systems, and connected and autonomous vehicles. And we've also invested in a highly advanced driving simulator that complements the real-life testing. This will reduce time to market and the cost for our customers and expand the range of services we provide to them. Both these investments are up and running already.So in summary, for Q3 we've continued to see good organic revenue growth coming from all 4 divisions. The adjusted operating profit margin increased year to date by 45 basis points of which 3 quarters of this is organic. And with every quarter this year, including this Q3, saw a margin increase. And of course and very important, the cash generation has been strong, leaving us farther improving our balance sheet with which we expect to continue making acquisitions.We are confirming the revenue guidance for the year; mid-single digit organic revenue growth at constant currency rates. We expect to achieve it with IDIADA, Labs and Auto outperforming our initial expectations, while Energy & Industry might slight underperform them.For the margin, we continue to expect it to improve by at least 30 basis points with all divisions in line with our expectations and to have additional revenue from acquisitions.And that concludes the presentation. Joan and I are now ready to take your questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Rory McKenzie from UBS.

[Rory Edward McKenzie, European Support Services Analyst]

It's Rory here. First question, please, Fernando. Lots of the oil and gas OpEx activities are recovering and doing well, but it seems like you're calling out some more incremental caution on the CapEx side in North America. Can you say if anything's changed there, or whether you're just seeing kind of more permitting delays and that kind of thing? And if any of that work is just slipping into next year, or whether you're seeing outright cancellations in that market. And then secondly on the financials, maybe more for Joan. The cash flow improvement was very strong. So can you talk more about what's behind the working capital improvement, which areas really were in focus and how much further do you think there are other gains to be made on that side.

[Fernando Basabe Armijo, CEO & Executive Director]

Thank you, Rory. On oil and gas, we are growing year to date low-single. In the third quarter, we've been low-single digit down. And as I mentioned, this is mainly -- a comment of the recent to this is mainly in North America, more precisely the U.S. In the U.S., most of our revenue is now OpEx, but we still have a significant part in CapEx. And that's NDT that we do in the new construction of pipelines, so principally in midstream, and there's where we haven't had much activity this year. We don't expect this to change in the fourth quarter. And so we had a large pipeline work that we won early, I think at the end of last year, early this year that has been delayed. That's the Atlantic Coast Pipeline. Which we don't expect it to start in the first half next year either. So, we are seeing weaker CapEx market in the U.S. for in the segment in which we compete, which is mainly midstream, and in the type of services that we do, which are NDT. Other than that, oil and gas is fine in I would say in the rest of the regions, and we do expect growth for next year and for this year. Overall in the year we expect oil and gas revenues to grow.

[Rory Edward McKenzie, European Support Services Analyst]

Okay. So many just follow up on that. Is there any impact on the margin in the industry? I guess you're having to keep some capacity in that market when volumes are very low, or can you flex it up and down quite quickly?

[Fernando Basabe Armijo, CEO & Executive Director]

No, we do expect revenue at the end of the year for Energy & Industry might be, our target was mid-single. We might reach it, but it will be in the lowest part of the mid-single range. On the margin, we continue to maintain our target of 40, 50 basis points improvement for the year. And so we're doing quite well elsewhere. And the international pipeline business, we manage it from the Netherlands which was weak last year, is much better this year. So on the margin side, we expect the division to perform well.

[Joan Amigó I. Casas, CFO & Executive Director]

And Rory, regarding cash flow generation. Obviously working capital is quite significant, so the working capital increase this year has been a little bit lower than last year. In terms of days of working capital, honestly, we are in a very similar situation than last year. It's likely better. I think as you know that working capital, the most important part in our business is in the Energy & Industry, and in terms of this has been a slightly [ bad ]. But I would not say nothing really, really special or different than last year. So we are maintaining similar days in 26, 27 days of working capital. And as usual, this is the typical seasonality that we have. And what we expect, as we did last year, is that even in Q4 these working capital variations should continue reducing.

[Operator]

Next question comes from the line of Edward Stanley from Morgan Stanley.

[Edward Stanley, Equity Analyst]

I've got three, please. One is just a follow up. Are you able to give either the growth rate in CapEx in North America or the exit rate or just how much of the split of North America of that 25% that you said is North America in E&I, just so we can get a better feel for the sort of how quickly it slid down. Secondly, you say you'll do more M&A in your guidance, but can you give us an idea of how much you think is realistic before year end, given your oversight of the pipeline? And thirdly, on the auto division, given you've got Washington dropping out, should we broadly be expecting that the division next year does sort of flat growth unless you otherwise win new contracts there?

[Joan Amigó I. Casas, CFO & Executive Director]

Thank you, Edward. So your first question on North America, in the CapEx revenue year to date is 15.1% of the revenue we do in oil and gas in North America, right? I don't know if that answers your question. So 25% North America is the revenue over the total revenue of the Energy & Industry division. Our North America, around 75% is oil and gas and 15% of that is CapEx. That CapEx was close to 20%, around 20% last year.

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. And your second question was on M&A. Well, it's always difficult to know when you're going to sign or close some of the acquisitions. I think something similar to what we have announced today, similar sites, we are I would say almost certain that we'll be able to do it before year end. And I think I mentioned when I talked about the Labs that we expect some larger acquisitions in that division to happen. I wouldn't expect that this year, but if we succeed, I think next year we should be able to close some larger operations. One of the main targets that as a group we have, and I think I've mentioned in previous calls, is to have the Labs division that today represents around 5% of Group revenue, to grow that significantly. I think we've been able to grow this division quite well in the last 2 years with small acquisitions. They're all performing well. We feel more confident to try to do some larger acquisitions here. And we have some in the pipeline, but I don't expect them, as I said, to happen before year end. And then your last question on Auto. Yes, Washington contract, which is around 7 million, 7, 8 million revenue ends this year. We would also have in the second half the impact of Ireland under the new terms. But overall, we do expect growth with the growing portfolio of contracts that we have for next year. And so we still have some contracts that have already ramped up, but not at full speed. In Latin America, that should help. And in some of the -- most of the regions, we are all growing organically. So we continue looking for low-single digit growth without any new contracts coming in.

[Operator]

[Operator Instructions] Your next question comes from the line of Paul Sullivan from Barclays.

[Paul Daniel Alexander Sullivan, Director & Analyst]

Sorry to keep going on about oil and gas, but do you think we should be braced on that basis of revenue decline in oil and gas in the first half of next year? It sounds like we should be expecting that. And can you just remind us, the Atlantic Coast Pipeline contract, how big that is and your best expectation of when that could start to kick in. And following on from that, could you just talk about the contract pipeline visibility that you have in Energy & Industry outside of the U.S. looking into next year and what your initial expectations are there?

[Fernando Basabe Armijo, CEO & Executive Director]

Thank you. So your first question on revenue in oil and gas, we expect growth in the first half of next year. So I think Q4, the comp is very tough, but going forward for next year, we do expect growth. The Atlantic Coast Pipeline, that type of contracts are around USD 15 million in 5, 6 months. That's what it would represent. And I think your third question was about the Energy & Industry visibility. We don't have now any large contract coming to an end. So during this year, we renewed EDF in the UK, which is 1 of the largest 1 we had. Woodside in Australia, which is one of the largest contracts at Group level, it comes to an end, has also been renewed. So the visibility I'd say in the contracts is high in the ones that we already have and should continue providing our services. There's always a significant part of the world, which is what we call [ call-on work ], which is in the different operations that we have around the world. You get that from proximity customers from 1 day to the other. That's more difficult to predict. But overall, I think the risk of large contracts not being renewed is quite low.

[Paul Daniel Alexander Sullivan, Director & Analyst]

And just following up…

[Fernando Basabe Armijo, CEO & Executive Director]

Sorry. To finish, you asked when those Atlantic Coast Pipeline started. It was scheduled to start in the second half of this year. For permitting reasons, it hasn't started. It has been delayed. And I think it's in the high court in the U.S. now. So we are not expecting that to happen at least until second half next year or maybe even later.

[Paul Daniel Alexander Sullivan, Director & Analyst]

Okay. But just following up in terms of the -- so there's little downside risk from contracts ending, but in terms of the pipeline of new tenders that you're currently working on outside of the U.S., in the rest of the world, what sort of -- what's the activity level? What are the activity levels like there?

[Fernando Basabe Armijo, CEO & Executive Director]

I would say it's not as good as it was 1 year ago. I think the overall CapEx in the oil and gas industry, the research, the different research that we receive is that this year at the beginning of the year, the initial expectations were for high-single digit growth rate, and now it's more low-single digit. But overall, we think the activity is good enough to allow us to grow again next year.

[Operator]

Next question comes from the line of Alexander Mees from JP Morgan.

[Alexander Mees, Head of UK Small and Mid Cap Research]

Three, please. Firstly, just again to apologize for going on about oil and gas. But I just wonder if you can just confirm that the weakness in the oil and gas that you've seen reflects the level of activity in the market and not that you've lost share to your competitors in any way. Secondly, there is no change in the guidance. And given you are incrementally more cautious on oil and gas going into Q4, I wonder if you can be clear to us as to what you're more positive on to allow you to keep your guidance unchanged elsewhere in the business. And finally, just in Spain, minimum wage increased significantly this year. I just wonder if that's had any knock-on effect onto the wages that you have to pay in Spain, and whether that's affected margins at all.

[Fernando Basabe Armijo, CEO & Executive Director]

Thank you, Alex. So on oil and gas, it's difficult to measure market share. We compete in many different countries with many different type of competitors. We don't think we've lost market share. I think, as I mentioned before, the overall CapEx in the industry this year is going to increase in the range of 3%, whereas at the beginning of the year the idea was more in the range of 8%, 9% within. So I think our growth for the full year will be more or less in line with that. Your second question on the guidance. I think I mentioned we maintained a revenue guidance, and overall, 3 divisions, Auto, IDIADA and Labs will be slightly above our initial expectations and Energy & Industry might be slightly below. And your third question was on the minimum wage in Spain. This was increased at the beginning of the year. We don't have many people within our payroll impacted by that, so minimal impact for us. So we haven't seen margins decreasing in Auto or in IDIADA or in the Energy & Industry division in Spain. So no, not much impact for us.

[Operator]

[Operator Instructions] Your next question comes from the line of Will Kirkness from Jefferies.

[William Kirkness, Equity Analyst]

Just a couple for me. I dialed in late, so apologies if you already addressed this. Firstly, could you sort of say how much you paid for LEM in Chile and whether the sort of acquisition or pipeline is similar to that? And secondly, just thinking about the shape of the fourth quarter, Energy & Industry, you've got a toughening comp. Sounds like some of the work might have slipped into next year. So whether that will actually be a negative growth rate, and therefore implications on margins for that fourth quarter. Should we see a stalling in margin progression there? If you're not growing, I guess it's difficult to expand margins, and then Auto potentially not seeing any expansion either. So just a bit of color there would be useful.

[Fernando Basabe Armijo, CEO & Executive Director]

For LEM, we've not disclosed what we've paid, but I would say similar multiple than in previous acquisition of this size, and that's in the range of mid to high-single digits multiple on EBITDA. On your second question on Energy & Industry growth or not growth in Q4, as I mentioned before, the comp is 11.5% last year. So I think we will be, compared to last year, similar level or maybe we might decrease. What is the impact on margins? Well, I think the guidance we are giving for at Group level at least 30 basis points. We maintain it. And for me at least means that we expect to do better than that. So that hasn't changed. On Energy & Industry, we also expect to maintain our initial target of improvement between 40, 50 basis points for the year. So that Q4 was already going to be a tough comp for Energy & Industry. We know since the beginning of the year. So the guidance we gave was taking that into account, and we have -- we raised the guidance after Q1, and we have maintained that guidance throughout the year.

[William Kirkness, Equity Analyst]

Okay. I have just a follow up on the margin on Energy & Industry. I guess you look back at history, it doesn't look like there's a very relevant guide to the future. So if you were to think beyond fiscal 2020, maybe 2021, 2022, 2023, how do you think you can progress that margin?

[Fernando Basabe Armijo, CEO & Executive Director]

We should be able next year, I think when we did our 2018-2020 strategic plan, our target for Energy & Industry was to raise 100 basis points in that period. It was flat last year due mainly to the mix in the services. We saw highest margin business decreasing last year. That's going, as I mentioned before, much better this year. So this year we expect to improve that 40, 50 basis points. We expect to do that again next year. So even though it's early days and we are working on our budgets now, but there's no reason to change our targets for this plan. Now beyond 2020, we will work in that next year and present again a plan for 3 years in 1 year time.

[Operator]

Your next question comes from the line of Robert Jackson from Banco Santander.

[Robert Jackson, Equity Analyst]

Regarding the oil and gas business, everyone's been talking about the CapEx side. What about the OpEx side? And bear in mind the new regulation which is going to be implemented in the U.S. next year. Could that help to support higher growth in that 3% you just mentioned during 2020 and possibly looking longer ahead as well? And the second question would be related to the Andalucian potential setting off of their statutory vehicle inspection. Do you have any comments related to that business opportunity?

[Fernando Basabe Armijo, CEO & Executive Director]

Thank you, Robert. On the oil and gas, the OpEx side is doing well and is growing. Actually in the U.S. it's also growing as well, but not enough to compensate, to offset the decrease in CapEx. Any new regulation in principle is good for our business. So there are always new regulations around the world. Some impact more than others, but they're all positive. We don't expect a huge change next year in the U.S., but it's all, as I mentioned, always positive for us. On Andalucia, there was, yes, in one online newspaper yesterday saying that the government in Andalucia might be looking to take private the vehicle inspection business. It's not the first time we hear about it. I think now that there is a conservative government in Andalucia for the first time in many, many years, normally conservative governments in Spain are more capable to take in private this type of business. So it might happen, but I think we don't know when and how. So if that is the case, it's very early days. It would only be upside for us. So we are not present in Andalucia. We are the largest player in Spain. If they take it private, whether it's for one company or they divide it into several companies or even if they open the market, in any of the cases it could be upside for us. But as I said it's early -- very early days, and we haven't heard much more than what you've read in the newspapers here.

[Operator]

Thank you. There are currently no further questions. I'd now like to hand it back to Fernando. Thank you.

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. Thank you all for attending the call. Bye.

[Joan Amigó I. Casas, CFO & Executive Director]

Thank you. Goodbye.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may now all disconnect.