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TRANSCRIPT
www.intertek.com1
5 March 2012
Wolfhart HauserChief Executive Officer
Lloyd PitchfordChief Financial Officer
2011 Full YearResults Presentation
www.intertek.com2
Lloyd Pitchford
Financial Performance
2011 Full Year Results Presentation
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This presentation contains certain forward-looking statements with respect to the financial condition, results, operations and business of Intertek Group plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this presentation should be construed as a profit forecast.
5 March 2012
Cautionary statement regarding forward-looking statements
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Results Overview
• Strong results; delivering material growth
• Total revenue up 27.3%; Organic growth of 8.3%
• Operating margin 16.1%; Organic margin +20bps
• Adjusted EPS up 20%
• Full year dividend increased by 20%
• Moody acquisition delivering ahead of plan
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For the twelve months to 31 December 2011
Revenue £1,749m + 27% at actual+ 8.3% at constant organic(2)
Operating profit(1) £281.1m + 24% at actual+ 9.6% at constant organic(2)
Operating profit margin(1) 16.1% – 50bps at actual+ 20bps at constant organic(2)
Profit before tax(1) £260.1m + 23%
Diluted EPS(1) 107.2p + 20%
Operating cash flow(1) £314.8m + 14%
Financial Highlights
(1) Before separately disclosed items; see slide 6 and appendix slide 35 for further information
(2) Growth excluding acquisitions at constant exchange rates
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Profit Before Tax & Separately Disclosed Items
£m @ actual exchange rates 2011 2010
Adjusted operating profit (1) 281.1 227.5
Separately disclosed items:
Amortisation of acquisition intangibles (25.3) (12.9)
Acquisition transaction and integration costs (14.1) (5.3)
Restructuring costs – Business Process Outsourcing (7.7) -
Claims and settlements - (2.8)
Statutory operating profit 234.0 206.5
Net interest expense (21.0) (16.6)
Profit before tax 213.0 189.9
(1) Before separately disclosed items
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1,374
1,749
112
268 (5)
1,2001,2501,3001,3501,4001,4501,5001,5501,6001,6501,7001,7501,800
2010
Org
anic
Acq
uisi
tions FX
2011
£m
1,374
1,749
277
57 2212 7
1,2001,2501,3001,3501,4001,4501,5001,5501,6001,6501,7001,7501,800
2010 I&A
Com
mod
ities
C&
E
CG
C&
P
2011
£m
Revenue Growth
+ 27.3%Actual rates
+ 8.3%Constant
rates
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Revenue by Region
Americas
EMEA
Asia Pacific
32%
36%32%
Emerging Markets
34%
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Moody Acquisition
• Large and complex acquisition
• Management structures integrated
• Good cultural fit
• Key staff retained
• Locations consolidating
Industry Services87% Revenue
System Certification13% Revenue
£450m acquisition
2,500+ People 60 Countries, 80 Offices
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Moody Acquisition Performance
Revenue History • Performing ahead of expectations
• Organic annualised growth 15%
• Margin up 70bps to 12%
• Strategic growth platform created
• Strong global customer demand
0
100
200
300
400
2008 2009 2010 2011
£m
Margin % 14.3 14.4 11.3 12.0
8 months: 12.8
Pre-Acquisition
+ 15%Organic
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Margin Enhancement Programme
• Underlying margin increase of 20bps in 2011
• Moody integration cost savings; £6m per annum from 2012
• Finance and IT outsourcing; £10m per annum from 2014
• Operational margin improvement and Intertek as One
• Economies of Scale
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• Adjusted cash flow from operations £315m
• Capex £81m, 4.6% of revenue
• 5 acquisitions for £460m
• Net debt: EBITDA of 1.6
• Interest charge £21m
• Adjusted effective tax rate at 28%
Financing, Tax & Investment
2012-1513%
2016+87%
Funding Maturity Profile
• £0.9bn facilities
• 50% Bond: 50% Bank
• Maturity profile strong
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Five Year Performance 2007 to 2011
Revenue Adjusted Operating Profit(1)
1,749
500
800
1,100
1,400
1,700
2,000
2007 2008 2009 2010 2011
£m
281
0
50
100
150
200
250
300
2007 2008 2009 2010 2011
£m23% CAGR 23% CAGR
107
0
30
60
90
120
2007 2008 2009 2010 2011
Pence
Adjusted Diluted EPS(1)
22% CAGR
(1) Before separately disclosed items
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Dividend Increased by 20%
• Full year dividend of 33.7p, up 20%
• Full year pay-out of £54m
• Strong and consistent record of dividend growth
• Dividend cover of 3.2
Full Year Dividend Per Share
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Summary
• Strong results; delivering material growth
• Moody acquisition delivering ahead of plan
• Margin enhancement programme progressing
• Strong financial position
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Wolfhart HauserChief Executive Officer
2011 Full Year Results Presentation
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0
1,000
2,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
10 years from IPO
A decade of consistent revenue growth
Revenue£m
OUR GROWTH DRIVERS
OUR PLATFORM
OUR STRATEGY
The Future
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Enduring Growth Drivers
1 Global Trade & Emerging Market Trade Growth
2 Market Drivers in our Industries
3 Network & Service Expansion
4 Outsourcing & Consulting Services
5 Industry Consolidation
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Global Trade: The Future?
Forecast Shipped Container Volumes (million TEUs)
Rate of growth in TEU Volume from 2010-30
ASIAUSA
EUROPE
Asia-USA
27
26
Asia-Europe
130
Intra-Asia
Asia -Australasia
10
Europe-Asia
25
USA-Asia
32
3
3
Intra-North America
18
Intra-Europe
USA-Europe
6
7
6
7
310% - 410%
>410%
200% - 310%
Based on Goldman Sachs Equity Research
310% - 410%
>410%
LATAM
17
6
Intra-LATAM
Asia - LATAM
8
USA-LATAM 3
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End-User Quality Demand in 2020
Source: Bain & Company
$10trillion extra
consumer spend from growth markets
1.3billion new consumers
$1trillion on
innovations for thenext big thing$5
trillion by ‘soft’ innovators onproduct variety
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What
MarketDrivers
RegulationQuality, Safety and
Environmental standards
Supply Chain Changes
Shifting cycles, sourcing and complexity
New TechnologiesInnovation and product variety
Energy Growth & Diversity
Capex and Opex
End-User Quality Expectations & Diversity
Developed and emerging economies
Market Drivers in our Industries
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Quality Expectations
Established and emerging brands use quality as a foundation
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What is Quality?
Our Strategy: Quality
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Commodities 30% 24%
Industry & Assurance 27% 18%
Consumer Goods 18% 38%
Commercial & Electrical 17% 16%
Chemicals & Pharma 8% 4%
Divisional Mix
% of Group Revenue
% of Group Profit
Commodities
Industry & Assurance
Consumer Goods
Commercial & Electrical
Chemicals & Pharma
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• Continued strong performance in Minerals and Government Trade Services
• Good demand for oil cargo and analytical testing driven by growth economies
• North America improving
Commodities
FY 11 Performance Developments
• Continued network and service expansion
• Emerging economies continuing to drive demand for commodities and product quality
£m @ constant exchange FY 11 Change
Organicchange
Revenue 530.2 12.0% 11.9%
Operating profit 67.0 22.8% 22.9%
Margin 12.6% 110bps 110bps
Outlook
• £24m invested in laboratories, equipment and network expansion
• Expansion of additive services, Minerals facilities in Asia and Africa
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£m @ constant exchange FY 11 Change
Organicchange
Revenue 468.6 145.5% 7.5%
Operating profit 50.9 208.5% (0.6)%
Margin 10.9% 230bps (60)bps
Industry & Assurance
• New growth platform in energy sector
• Benefitting from structural recovery
• Moody delivering ahead of plan
• Agri difficult first half; Food good performance
FY 11 Performance Developments
Add chart
• Increased energy sector investment in energy assets and diversification
• Portfolio of complementary services across infrastructure spectrum
• Further consolidation of global contracts
• Good Food opportunities
• Acquisitions in UK & Chile
• New global client contracts in Industry & Business Assurance
Outlook
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£m @ constant exchange FY 11 Change
Organicchange
Revenue 315.7 5.0% 4.8%
Operating profit 106.3 1.1% 1.2%
Margin 33.7% (130)bps (120)bps
Consumer Goods
• H1: HK and coastal China flat with textile industry rapid upsizing and downsizing
• H2: Improved growth and margin in Textiles
• Good demand in Auditing and Health & Beauty
FY 11 Performance
• Quality and safety demand increasing in growth economies
• Sustainability creating new opportunities
• Product variety and technological innovation by major global brands
• Higher brand awareness among emerging market consumers
Outlook
Developments
• New service innovations and network expansion: Guatemala, Bangladesh, Vietnam, Cambodia, Turkey
• Acquisition: Product lifecycle analysis in Europe
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£m @ constant exchange FY 11 Change
Organicchange
Revenue 291.0 8.7% 8.7%
Operating profit 44.1 15.7% 15.7%
Margin 15.2% 100bps 100bps
Commercial & Electrical
• Good growth with excellent performance in high tech areas
• Strong performance in China
• H2 margin lower due to investments
• Technology innovations for better energy usage and communications
• Network and capability enhancement
• Technical standards increasing in new technology areas eg medical & lighting
• China producing more high-value, high-tech products
FY 11 Performance Developments
Outlook
• Organic capital investment of >£20m and business development to drive growth
• Value-adding services
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£m @ constant exchange FY 11 Change
Organicchange
Revenue 143.9 5.5% 3.9%
Operating profit 12.8 9.4% 16.5%
Margin 8.9% 30bps 120bps
Chemicals & Pharma
• Good growth in Chemicals & Materials
• H2 growth moderated against strong PY regulatory environment (REACH)
• Pharma flat
• Renegotiation of 2010 outsourcing contract in H2
• Insolvency of key Irish client
• Development of new materials, polymers, composites and packaging
• EU REACH and new cosmetics regulations
• High-end materials and chemicals expertise sought by global brand clients
• Pipeline of outsourcing opportunities
FY 11 Performance Developments
Outlook
• Acquisition: Oil and lubricants in UK
• Increased expertise in counterfeit drugs and biologics
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Outlook
• Resilient business model
• Full year Moody in 2012 (8 months 2011)
• High single digit organic growth average
• Margin progression
• Industry consolidation
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Summary
GLOBAL TRADE
MARKET DRIVERS
NETWORK & SERVICE
OUTSOURCING & CONSULTING
INDUSTRY CONSOLIDATION
QUALITY
COMMODITIES& MATERIALS
RETAIL & MANUFACTURED
PRODUCTS
INDUSTRY ASSETS
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Wolfhart HauserChief Executive Officer
2011 Full Year Results Presentation
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2011 Full Year Results PresentationAppendix
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Taxation
£m @ actual exchange rates 2011 2010
Profit before tax 213.0 189.9
Tax (61.9) (50.9)
Profit after tax 151.1 139.0
Reported tax rate 29.1% 26.8%
Effective tax rate on adjusted operating profit 28.2% 26.7%
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+14%
Operating Cash Flow
£m @ actual exchange rates 2011 2010
Operating Profit before changes in working capital and provisions 329.1 282.3
Changes in working capital:
Inventory (2.1) (1.3)
Debtors and prepayments (34.8) (32.5)
Creditors and accruals (3.5) 22.9
Cash generated from operations 288.7 271.4
Separately disclosed items – cash flow 26.1 5.3
Adjusted cash flow from operations 314.8 276.7
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+20%
Free Cash Flow
£m @ actual exchange rates 2011 2010
Operating cash flow 288.7 271.4
Net interest (20.3) (14.5)
Taxation (53.4) (61.7)
Net capital expenditure (79.0) (65.1)
Free cash flow 136.0 130.1
Separately disclosed items – cash flow 26.1 5.3
Adjusted free cash flow 162.1 135.4
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Net Debt
£m @ actual exchange rates 2011 2010
Borrowings 762.6 386.7
Cash (181.9) (217.0)
Net debt 580.7 169.7
Net debt to EBITDA (Proforma 12mths Moody) 1.6x 0.6x
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Liquidity Position
£m @ actual exchange rates 2011 2010
Debt facilities 911.2 722.9
Borrowings (762.6) (386.7)
Undrawn committed borrowing facilities 148.6 336.2
Cash 181.9 217.0
Liquid funds 330.5 553.2
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Currency Analysis
Local currency to GBP 2011 2010
USD 3.5% 1.60 1.55
CNY 1.1% 10.35 10.47
EUR 1.7% 1.15 1.17
HKD 3.7% 12.47 12.00
AUD 9.0% 1.55 1.69
CAD 1.0% 1.59 1.60
Revenue By Currency
USD, CNY & HKD~ 55%
GBP & EUR~ 19%
Other~ 26%
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Divisional Performance Summary
£m @ constant exchange
Revenue Margin
FY 11 ChangeOrganic change FY 11 Change
Organic change
Commodities 530.2 12.0% 11.9% 12.6% 110bps 110bps
Industry & Assurance 468.6 145.5% 7.5% 10.9% 230bps (60)bps
Consumer Goods 315.7 5.0% 4.8% 33.7% (130)bps (120)bps
Commercial & Electrical 291.0 8.7% 8.7% 15.2% 100bps 100bps
Chemicals & Pharma 143.9 5.5% 3.9% 8.9% 30bps 120bps
Group Total 1,749.4 27.8% 8.3% 16.1% (40)bps 20bps
FY 2011