intertek 2019 half year results presentation › › media › … · nothing in this presentation...

1

2019 HALF YEAR RESULTSPRESENTATION

CONTINUOUS PROGRESS ON REVENUE, MARGIN AND CASH

1 August 2019

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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.

IFRS 16 was adopted on 1 January 2019 for our statutory reporting, without restating prior year figures. As a result, the discussion of our operating results is on an IAS 17 basis for all periods presented, unless otherwise stated.

1 August 2019

2

AGENDA

3

Performance Highlights

H1 2019 Financial Results

Total Quality Assurance

2019 Outlook by Division

Summary

01

05

04

03

02

01

4

PERFORMANCEHIGHLIGHTS

14.9%15.5% 15.4%

16.3%16.8% 16.9%

HY14 HY15 HY16 HY17 HY18 HY19

Adjusted Operating Margin (%)

152 164 186

224 226 244


Adjusted Operating Profit (£m)

1,024 1,060 1,204

1,372 1,348 1,443


Revenue (£m)

CONTINUOUS PROGRESS ON REVENUE, MARGIN AND CASH

5

+4.9% CCR+7.0%

+6.8% CCR+7.9%

+30bps CCR+10bps

+6.0% CCR+7.2%

+7.2%14-19 CAGR: 9.1%

14-19 CAGR: +7.1% 14-19 CAGR: +9.8% 14-19: +200bps

14-19 CAGR: +9.8% 14-19 CAGR: 16.4%

148 170 156

226 204 229


Adjusted Operating Cash Flow (£m)

16.0 17.0 19.4 23.5

31.9 34.2


Interim Dividend (p)

61.2 65.3 74.5 90.4 91.2 97.8


Adjusted EPS (p)

+12.4%

0%

5%

10%

0% 5% 10%

BROAD-BASED REVENUE, PROFIT AND MARGIN PERFORMANCE

6

Note: (1) At 2019 constant currency rates; (2) Adjusted

Margin Accretion1,2Revenue Growth 1 Operating Profit Growth 1,2

6%

18% of

earnings76% of

earnings

Tota

l re

ven

ue

gro

wth

1(%

)

Organic revenue growth1 (%)

Resources: +3.5%

Products: +4.9%

Trade: +5.8%

6.8%

6.0%

6.8%

16.9%

Group

Products

Trade

Resources

+30bps

+20bps

+10bps

+70bps

Group

Products

Trade

Resources

Aldo Abela Surveys Proasem NTA Monitor Alchemy

Business line Cargo / AA Cargo / AA Network Assurance People Assurance

Location Malta Colombia UK, Malaysia USA, Canada

Completion Date March 2018 April 2018 June 2018 August 2018

Market positionA leading provider of quality and

quantity cargo inspection services

Leading provider of laboratory testing, inspection, metrology and training

services

A leading network security and assurance services provider

A leading provider of SaaS solutions for People Assurance

Growth driversStructural growth in regional and

global trade flowsStructural growth in regional and

global trade flowsIncreased corporate and consumer

focus on data securityIncreased focus on food safety, and

increased regulation; scalability

RNS Aldo Abela Surveys (AAS) Proasem NTA Monitor Alchemy

M&A IN ATTRACTIVE MARKETS ADDING 1.9% TO REVENUES IN H1

7

http://www.intertek.com/news/2018/03-12-aas-acquisition/

http://www.intertek.com/news/2018/04-12-intertek-to-acquire-proasem/

http://www.intertek.com/news/2018/06-07-intertek-to-acquire-nta-monitor/

Note: (1) In bps and at constant currency of that year; (2) Annualised; (3) Organic definition of that year

5TH CONSECUTIVE YEAR OF MARGIN PROGRESSION IN H1

8

Portfolio review

• Growth and margin accretive portfolio strategy Headcountreduction

Savings2

2017 400 £7m

2018 100 £2m

2019 250 £4m

Productivity management Portfolio strategy

• Monthly performance reviews for Top 30 countries/16 Business Lines

• Business Line and country benchmarking

• Site span of performance management

14.9%15.5% 15.4%

16.3%16.8% 16.9%


Operating Margin, Actuals

30 3010

110

40 30


Margin Accretion, CCR1

2040

60

100

2030


Organic Margin Accretion, (bps) 1,3

• Organic and inorganic investments

• Consolidation of facilities

125% 127% 125%

143%

123%126%


Cash Conversion (%) 2

10.6% 11.0%

13.4%

8.2% 7.7%6.4%


Working Capital as % of Revenue2

148 170 156

226 204 229


Operating Cash Flow (£m) 1

53

85 59

132

99 105


Free Cash Flow (£m) 1

SUSTAINED STRONG CASH PERFORMANCE

9

14-19 CAGR: 18.6%14-19 CAGR: 9.1% 14-19: (420bps)

77%

100% 90%

130%

97%107%


Free Cash Flow as % of Net Income 1,2

Note: (1) Adjusted; (2) On a last twelve months basis

1.6 1.5

2.0

1.31.0

1.4


Net Debt / Adjusted EBITDA2

02

10

H1 2019 FINANCIAL RESULTS

KEY P&L FINANCIALS

11

YoY %

H1 19

IAS 17

Actual Rates

IAS 17

Constant Rates

IAS 17

H1 19

IFRS 16

Δ versus

IAS 17

Revenue £1,442.6m 7.0% 4.9% £1,442.6m -

Organic revenue1 £1,415.0m 5.1% 3.0% £1,415.0m -

Operating profit2 £243.6m 7.9% 6.8% £248.9m +£5.3m

Operating profit margin2 16.9% 10bps 30bps 17.3% +40bps

Adjusted diluted EPS2 97.8p 7.2% 6.0% 98.2p +0.4p

Notes: (1) Organic revenue excludes the impact of acquisitions and disposals in 2018 and 2019; (2) Before separately disclosed items

OPERATING MARGIN BRIDGE

12

16.8% 16.9%10bps0bps 10bps

10bps

(20bps)

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

H1

18

Pro

du

cts

Trad

e

Res

ou

rces

Div

isio

nal

mix

Excl

ud

ing

FX FX

H1

19

+30bps at constant rates

17.1%

£m @ actual exchange rates

H1 18H1 19 IAS 17

H1 19 IFRS 16

Δ versus IAS 17

Adjusted operating profit1 225.8 243.6 248.9 5.3

Depreciation/amortisation 43.8 51.0 86.6 35.6

Change in working capital (75.4) (76.2) (76.2) -

Other2 9.9 11.0 14.7 3.7

Adjusted cash flow from operations

204.1 229.4 274.0 44.6

Net capex (46.3) (45.7) (45.7) -

Other3 (58.7) (79.1) (123.7) (44.6)

Adjusted Free cash flow 99.1 104.6 104.6 -

Acquisitions (10.6) - - -

Net debt 568 826 1,082 256

Net debt/Adjusted EBITDA (rolling 12 months)

1.0 1.4 1.7 0.3

CASH FLOW & NET DEBT

13

Notes:(1) Before separately disclosed items; (2) Comprises special pension payments, add back equity settled transactions and other non-cash items; (3) Comprises: interest paid/received and tax, lease liability repayment.

FINANCIAL GUIDANCE (IAS 17)

14

Note: Before any material change in FX rates and any additional M&A

FY 2019 Guidance (IAS 17)

Net finance cost £31 – 33m

Effective tax rate 24.5 – 25.5%

Minority interest £21m – 23m

Diluted shares (as at 30 June 2019) 162.7m

Capex £130 – 140m

Net debt £670 – 700m

TOTAL QUALITY ASSURANCE

03

15

DEEP AND LONG-LASTING CUSTOMER RELATIONSHIPS

16

Intertek Total Quality Assurance expertise delivered consistently,

with precision, pace and passion, enabling our customers

to power ahead safely

Customer Centric

Entrepreneurial, putting the Customer 1st

Net Promoter Score

Listening to c.7,000 customers per month

Data Intelligence

Benchmarking by site, service, and customer

TQA Value Delivery

Disciplined operating processes and continuous

ATIC innovations

Our TQA Customer Promise

ATTRACTIVE QUALITY ASSURANCE GROWTH PROSPECTS

17

GLOBAL ATIC MARKET GROWTH OPPORTUNITY

INTERTEK TQA VALUE PROPOSITIONA SYSTEMIC APPROACH TO QUALITY ASSURANCE

18

Helping corporations manage the complexity of their supply chains by taking a systemic risk-based approach to quality assurance

KAIZEN: OPERATIONAL MARGIN ACCRETIVE SOLUTIONS

Technology Based Innovations

INNOVATION AND KAIZEN

Shared Services SystemsOperating Systems

INNOVATIONS: CUSTOMER FACING DIFFERENTIATED SOLUTIONS

Digital Based InnovationsAcquisition of leading and

innovative solutions

19

INNOVATIONS: PRODUCTS

• Business Assurance innovation: Intertek has developed a pioneering Virtual Audit solution, through which our TQA Experts are able to audit remotely. This allows us to deliver our audits faster and with a wider audience of observers

• Customer benefit: As the world of our clients becomes increasingly complex, our customers can now benefit from real time quality audits, delivering robust assurance against key risk areas across their supply chains

Virtual Audits

20

• Hardlines innovation: Intertek has developed a unique STEM (Science, Technology, Engineering, and Math) Toy Mark, verifying that our customers’ Toys have met stringent quality and safety standards, as well as bringing educational benefits in STEM skills development

• Customer benefit: With the STEM Toys Mark, our customers are able to give consumers the peace of mind that their STEM Toy is safe, as well as educational

Intertek STEM Toy Mark

• Electrical innovation: Intertek has developed a proprietary global database of Sanitation Authorised Materials, materials which have been evaluated by Intertek and determined to be safe to come into contact with food

• Customer benefit: Through this unique solution our customers can save substantial time in providing the required information while making sure their products comply with safety standards.

Global Sanitation Authorised Materials Database

• Caleb Brett innovation: We have developed self-contained Oceanlab Oil Quality Testing Laboratories, staffed by Intertek TQA Experts and have partnered with our customers to install these on their ships

• Customer benefit: Our Oceanlab initiative has substantially reduced turnaround time and allowed our customers to introduce more flexibility into their sample testing processes

• Caleb Brett innovation: Intertek’s entrepreneurial, customer-centric outlook has led us to open Iraq’s first commercial hydrocarbon testing lab, with state of the art technology enabling our TQA experts to deliver industry leading hydrocarbon testing services

• Customer benefit: Our customers benefit from rapid turnaround times and from mission critical services which were not previously available in the country

Intertek Pioneers Hydrocarbon Testing

INNOVATIONS: TRADE

• AgriWorld innovation: Our AgriWorld TQA Experts’ deep technical expertise on soya protein analysis has now been augmented with new state-of-the-art protein analysers

• Customer benefit: Using the new technology, our Experts have been able to reduce the turnaround time of soya protein tests from several hours down to a few minutes

Rapid Protein Analysis for Soya ExportsOceanlab

21

INNOVATIONS: RESOURCES

• Minerals innovation: Intertek’s TQA experts, based on-site at our customers operations, use state-of-the-art infrared spectroscopy to analyse samples quickly and proprietary software to create highly accurate quantitative models for predicting a range of chemical and physical properties

• Customer benefit: Customers benefit from Intertek’s on-site experts, delivering best in class analytics that are customised to their needs and saving them much-valued time

Pioneering the use of Spectroscopy

22

DeepView3D TM

• Intertek innovation: Our entrepreneurial Intertek experts addressed our customers’ safety risks by developing a Helicopter Underwater Escape Simulation programme under international standards

• Customer benefit: Our Exploration and Production customers now have peace of mind that their staff are best prepared for the most dangerous situation they can face

Helicopter Underwater Escape Simulations

• Industry Services innovation: Intertek has developed DeepView3D, a new inspection methodology that combines 3D laser scanning and precise metrology data with advanced Non-Destructive Testing results in 3D space to give an accurate representation of current condition and mechanical integrity of critical assets

• Customer benefit: DeepView3D allows our customers to take a smarter approach to maintenance, allowing them to move from Time Based Maintenance to highly-efficient Condition Based Maintenance Programmes, reducing expensive operational downtime

2019 OUTLOOK BY DIVISION

04

• Good organic revenue growth at constant currency

− Good growth momentum in Products

− Good growth momentum in Trade

− Good growth momentum in Resources

• Moderate Group margin expansion at constant currency1

− Continuous cost discipline

− Performance management

− Portfolio strategy

• Strong cash conversion

• Capex: £130m – £140m

• Net debt: £670m – £700m1

24

GROUP OUTLOOK 2019: ON TRACK TO DELIVER FULL YEAR TARGETS

Note: (1) Guidance given on an IAS 17 basis and before any material change in FX rates and any additional M&A

CONTINUOUS MARGIN ACCRETIVE REVENUE GROWTH IN PRODUCTS

25

Growth Drivers

Increased number of Brands & SKUs

Supply chain expansion in new

markets

Increased demand in chemical testing

SoftlinesSolid organic

growth

Hardlines

Electrical & Connected World

HY19 Actual

Innovation from our customers leveraging wireless technology

Increased demand for chemical testing

Innovative inspection technology

Solid organic growth

Electrical appliance innovations to provide better efficiency and

connectivity

Increased demand for IoT Assurance services, including cyber

security

Robust organic growth

FY19 Outlook


Good organic growth


806

867

H1 18 H1 19

Revenue (£m)

+4.9% CCR+7.6%

172

185

H1 18 H1 19

Operating Profit (£m)

+2.1% CCR+4.7%

805

843

H1 18 H1 19

Organic Revenue (£m)

+6.0% CCR+7.8%

21.3% 21.3%

H1 18 H1 19

Operating Margin (%)

+20bps CCR+0bps

Growth Drivers

ISO standards upgrades

Increased focus of corporations on supply

chain and risk management

Increased consumer and government focus on ethical

and sustainable supplyBusiness Assurance

Building & Construction

Transportation Technology

Growing demand for greener, safer and higher quality commercial buildings

Increased investment in large infrastructure projects

Continued investment of our clients in new models and new

fuel efficient engines

Growth in the hybrid / electric engine

segment

Food

Chemicals and Pharma

Continuous food innovation

Increased focus on the safety of supply chains

Growth in the food service assurance

business

Increased scrutiny on emissions

Growth of SKUs

Expansion of the supply base in emerging markets

Increased concerns on product safety and

traceability

CONTINUOUS MARGIN ACCRETIVE REVENUE GROWTH IN PRODUCTS

26

HY19 Actual FY19 Outlook

Below PY organicSolid organic

growth



Good organic growth


Good organic growth

Good organic growth


Good organic growth

Global and regional trade structural growth drivers

Increased transport infrastructureCaleb Brett

Government & Trade Services

AgriWorld

Award of new contracts

GDP growth Population growth

The expansion of our clients’ supply chains in fast growing markets

New customer wins

REVENUE MOMENTUM ACCELERATION WITH MARGIN ACCRETION IN TRADE

27

Growth DriversHY19 Actual FY19 Outlook

Good organic growth

Good organic growth

Good organic growth

Good organic growth

Double-digit organic growth

Strong organic growth

311

333

H1 18 H1 19

Revenue (£m)

+5.8% CCR+7.1%

42

44

H1 18 H1 19


+5.1% CCR+6.4%

309

329

H1 18 H1 19


+6.8% CCR+6.5%

13.4% 13.3%

H1 18 H1 19


+10bps CCR+(10bps)

IMPROVED REVENUE MOMENTUM AND MARGIN ACCRETION IN RESOURCES

28

Minerals demandTechnological

innovationMinerals

Capex Inspection

Opex Inspection

Demand for energy Asset productivityTechnological

innovation

Capacity utilisation Asset productivityAgeing of equipment

Outsourcing

Growth Drivers

Good organic growth

HY19 Actual

Stable revenue


FY19 Outlook

Good organic growth

Stable Revenue

Good organic growth

232

243

H1 18 H1 19

Revenue (£m)

+3.5% CCR+5.0%

13

15

H1 18 H1 19


+3.5% CCR+5.0%

232

243

H1 18 H1 19


+16.9% CCR+14.2%

5.5%

6.0%

H1 18 H1 19


+70bps CCR+50bps

SUMMARY

05

INTERTEK HIGH QUALITY EARNINGS MODEL

30

Ou

r Se

rvic

es Testing Inspection CertificationAssurance

ResourcesTradeProducts

Ou

r Se

cto

rsO

ur

Mid

-to

Lo

ng-

Term

V

alu

e C

reat

ion

GDP+ GDP growth Long-term growth

GDP+ Organic revenue growth

in real termsMargin accretive revenue growth

Strong free cash flow

Disciplinedcapital allocation

Investments in attractive growth and margin sectors

with Capex / M&A

Intertek Virtuous Economics

ATTRACTIVE STRUCTURAL GROWTH DRIVERS

31

6% of Group profit based on global growth drivers in the energy sector

Long-term growth

Resources

17% of Revenue 6% of Profit

Long term demand for energy

Investment in infrastructure

Supply chain risk management

Sustainability of energy supply

Growth in alternative energy

Focus on health & safety

76% of Group profit based on GDP agnostic growth drivers

Products


Increased number of Brands & SKUs

Faster innovation cycle

Increased regulation

Increased corporation focus

on risk management

Increased consumer focus on

sustainable products

Improvements in safety,

performance and quality

GDP+

18% of Group profit based on global trade growth


Trade

Population growth GDP growth

Development of regional trade

Increased focus on traceability

Growth in transport

infrastructure

Growth in port infrastructure

GDP growth

Growth outlook: GDP+ Organic revenue growth in real terms

Insert Footer Here 32

EVER BETTER… EVER STRONGER

32

• Industry leader in a growing global $250bn ATIC market

• Scale positions in attractive end-markets in 100+ countries

• Unique Total Quality Assurance value proposition offering superior customer service

• High quality compounder earnings model

• Ever Better operational discipline making Intertek Ever Stronger

GROUP PERFORMANCE (H1 18 – H1 19)

34

232 243

311 333

806 867

1,348 1,443

H1 18 H1 19

Revenue (£m)

13 15 42 44

172 185

226

H1 18 H1 19

Adjusted Operating Profit (£m)

Margin Key Metrics H1 2019

H1 18 H1 19% Group Revenue

% Group Profit

Organic Revenue Growth1

Products 21.3% 21.3% 60% 76% 2.1%

Trade 13.4% 13.3% 23% 18% 5.1%

Resources 5.5% 6.0% 17% 6% 3.5%

Group 16.8% 16.9% 100% 100% 3.0%

Note: (1) At 2019 constant currency rates

244

KEY INVESTOR INFORMATION

35

Key dates:

Intertek Management Meeting 12 September 2019

July - October Trading Update 26 November 2019

FY19 Results Announcement 3 March 2020

Conference attendance:

Bernstein, Strategic Decisions Conference, London 25 September 2019 CEO, IR

Berenberg, Testing, Inspection & Certification Conference, London 1 October 2019 CEO, IR

Key contacts:

Denis Moreau, VP Investor Relations; +44 (0)20 7396 3400; [email protected]

www.intertek.com/investors

mailto:[email protected]

http://www.intertek.com/investors

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