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2017 HALF YEAR RESULTSPRESENTATION
1 August 2017
Strong Earnings Growth and Cash Generation
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.
1 August 2017
2
AGENDA
3
Performance Highlights
H1 2017 Financial Results
Strategic Update
2017 Outlook by Division
Summary
01
05
04
03
02
01
4
PERFORMANCEHIGHLIGHTS
STRONG EARNINGS GROWTH AND CASH GENERATION
5
1,204 1,372
H1 16 H1 17
Revenue (£m)
186 224
H1 16 H1 17
Operating Profit (£m)
15.4%16.3%
H1 16 H1 17
Operating margin (%)
74.5 90.4
H1 16 H1 17
Adjusted EPS (p)
19.4 23.5
H1 16 H1 17
Interim Dividend (p)
156226
H1 16 H1 17
Cash Flow from Operations (£m)
+13.9%+2.7% CCR
+20.4%+10.1% CCR
+90bps+110bps CCR
+21.3%+11.4% CCR
+21.1%+45.0%
GROUP’S CENTRE OF GRAVITY MOVING TOWARDS HIGH GROWTH HIGH MARGIN SECTORS
6
15.5%
15.4%
16.3%
15.0%
15.4%
15.8%
16.2%
16.6%
H1 15 H1 16 H1 17
Group Revenue Group Operating Profit Group Margin
-10bps+10bps CCR1
+90bps+110bps CCR2
25% 21% 18%
25% 23% 24%
50%56%
58%
£0m
£300m
£600m
£900m
£1,200m
£1,500m
H1 15 H1 16 H1 17
£1,204m
£1,060m
£1,372m
11% 8% 6%
22% 20% 21%
67%72%
73%
£0m
£50m
£100m
£150m
£200m
£250m
H1 15 H1 16 H1 17
£164m
£186m
£224m
Note: (1) At 2016 constant currency rates; (2) At 2017 constant currency rates
Resources: (12.3%)
5.5% ORGANIC REVENUE GROWTH IN 94% OF EARNINGS
7
Trade: +4.6%
Products: +5.8%
6% of
earnings
GDP+ Organic Growth in Products & Trade: +5.5%
H1 17 Organic revenue growth CCR1 (%)
73% of
earnings 21% of
earnings
10.0%
5.0%
(5.0%)
(10.0%)
(15.0%)
(10.0%) 20.0%10.0%H1 17 Total revenue
growth (%)
Note: (1) At 2017 constant currency rates
Cost reduction activities
• Margin accretive revenue growth in Products and Trade
• Investments in attractive growth and margin sectors
• Strategic review of underperforming business units
Headcount Savings2
2015 200 £4m
2016 550 £10m
2017 300 £4m
Note: (1) Organic operating margin at constant currency rates when reported (CCR); (2) Annualised
Productivity management Portfolio strategy
• Monthly performance reviews for Top 30 countries/16 Business Lines
• Performance benchmarking by business line, country and site
• Price and cost discipline
ORGANIC OPERATING MARGIN ACCRETION OF 100BPS
8
H1 15 H1 16 H1 17
+100bps
+60bps
+40bps
Organic operating margin improvement1
02
9
H1 2017 FINANCIAL RESULTS
KEY FINANCIALS
10
YoY %
H1 17ActualRates
Constant Rates
Revenue £1,372m 13.9% 2.7%
Organic revenue1 £1,355m 12.8% 1.7%
Operating profit2 £224m 20.4% 10.1%
Operating profit margin2 16.3% 90bps 110bps
Adjusted diluted EPS2 90.4p 21.3% 11.4%
Free cash flow £124m £75m increase
Notes: (1) Organic revenue excludes the impact of acquisitions and disposals in 2016 and 2017; (2) Before separately disclosed items
OPERATING MARGIN BRIDGE
11
15.4%
16.3%16.4%
50bps10bps 0bps
40bps10bps
(20bps)
13.0%
14.0%
15.0%
16.0%
17.0%
H1
16
Pro
du
cts
Trad
e
Res
ou
rces
Div
isio
nal
mix
Excl
ud
ing
FX a
nd
Acq
uis
itio
ns
& D
isp
osa
ls
Acq
uis
itio
ns
& D
isp
osa
ls FX
H1
17
+100bps at constant rates
£m @ actual exchange rates H1 16 H1 17
Adjusted operating profit1 185.9 223.9
Depreciation/amortisation 42.4 47.3
Change in working capital (76.7) (52.3)
Other2 4.3 7.1
Adjusted cash flow from operations 155.9 226.0
Net capex (47.6) (33.9)
Other3 (59.4) (68.1)
Free cash flow 48.9 124.0
Acquisitions4 (1.4) (10.5)
Net debt 887 696
CASH FLOW & NET DEBT
12Notes:(1) Before Separately Disclosed Items; (2) Comprises Special Pension payments, add back Equity Settled transactions and other Non-Cash Items; (3) Comprises: Exceptionals, Interest Paid/Received and Tax; (4) Total cash consideration in FY17 for 2017 acquisition £10.5m, net of cash acquired £0.3m
• +20.4% at actual rates
• Cash flow from operations up 45%
• Increase in Free Cash Flow of £75m
• LTM Net Debt / EBITDA = 1.3x
FINANCIAL GUIDANCE
13
Note: Before any material change in FX rates and any additional M&A
FY 2017 Guidance
Net finance cost £25-28m
Effective tax rate 25.5 – 26.0%
Minority interest c.£17m
Diluted shares (as at 30 June 2017) 162.8m
Capex £120 – 130m
Net Debt £600 – 650m
STRATEGIC UPDATE
03
14
INTERTEK HIGH QUALITY EARNINGS MODEL
15
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
Margin accretive revenue growth
Strong free cash flow
Disciplinedcapital allocation
Investments in growth
Capex / M&A
ATTRACTIVE GROWTH IN THE $250BN GLOBAL QUALITY ASSURANCE MARKET
$50BNCurrently outsourced
$200BNCurrently in-house
Existing & New customers:
Existing customers:
• Outsourcing
• Increase account penetration
• ATIC cross selling
New customers:• New contracts
16
Long-term growth
STRUCTURAL GROWTH DRIVERS
17
Resources
24% of Revenue 21% of Profit 18% of Revenue 6% of Profit
Products
58% of Revenue 73% of Profit
Trade
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
Population growth GDP growth
Development of regional trade
Increased focus on traceability
Growth in transport infrastructure
Growth in port infrastructure
Long term demand for energy
Investment in infrastructure
Supply chain risk management
Sustainability of energy supply
Growth in alternative energy
Focus on health & safety
GDP+ GDP growth
Mid to long-term outlook: GDP+ Organic revenue growth in real terms
5X5 DIFFERENTIATED STRATEGY
18
Differentiated Brand Proposition
Superior Customer Service
Effective Sales Strategy
Growth and Margin Accretive Portfolio
Operational Excellence
5 Strategic Priorities 5 Enablers
Living Our Customer Centric Culture
Disciplined Performance Management
Superior Technology
Energising Our People
Delivering Sustainable Results
Our Customer PromiseIntertek Total Quality Assurance expertise delivered consistently with precision, pace and passion, enabling our customers to power ahead safely
5x5 Strategic Goals
Fully engaged employees working in a safe environment
1 2 3 4 5
Superior customer service in Assurance, Testing, Inspection and Certification
Margin accretive revenue growth based on GDP+ organic growth
Strong cash conversion from operations
Accretive, disciplined capital allocation policy
INNOVATION TO DELIVER SUPERIOR CUSTOMER SERVICE
19
• Customer insight: Nespresso is managing the environmental issues associated with the disposal of used coffee capsules with its own global recycling programme
• Food & Business Assurance innovation: The programme involves transporting capsules from 100,000+ drop-off points to processing at dedicated recycling units. Intertek devised a unique approach using assurance to evaluate the critical points in its entire value chain
• Customer benefit: Provides Nespresso with confidence that their sustainable values are upheld, while customers are reassured recycling efforts are effective
• Customer insight: Customers need life cycle assessments (‘LCA’) to determine the sustainability and carbon footprint of their products, processes and business operations
• HERS innovation: Intertek has invested in cloud-based LCA technology that offers market leading LCA services to our global clients. We provide customers with greater insights, leveraging our expertise in sustainable design, materials testing and supply chain management
• Customer benefit: This innovative cloud-based approach allows our clients to benefit from our global network of ATIC experts in sustainability
Sustainability Cloud Assurance
INNOVATIONS: PRODUCTS
• Customer insight: Toys like whistles and kazoos, have small parts inside that vibrate to generate sound when being used and there is a risk that some of the small parts could become a projectile or be inhaled
• Hardlines innovation: Intertek’s experts developed a mouth actuated small parts breathing apparatus that mimics the airflow rate that an 8-year-old child could generate
• Customer benefit: This proprietary apparatus is designed to determine the likelihood that small parts would dislodge from these types of products and therefore help protect children’s safety
Toy ApparatusNespresso Recycling Assurance
20
Alternative fuels
• Customer insight: In a growing market for alternative fuels, such as hydrogen gas, and fuel cells, a lack of consistency in regulatory standards for the supporting components has led to increased safety concerns
• AA & Transportation Technologies innovation: Intertek has worked with both alternative fuel manufacturers as well as regulatory authorities to develop standards that provide our clients with clear safety solutions for alternative fuel components
• Customer benefit: By partnering with Intertek, clients are assisted with navigating the complex regulatory environment, whilst also reducing risk and optimising productivity
• Customer insight: Mercury contamination puts physical infrastructure assets, such as refineries and pipelines at increased corrosion risk
• AA & Industry Services innovation: Intertek’s experts use advanced technology to detect, monitor and analyse mercury content in very low levels of oil & gas samples as well as measuring the mercury emission into the atmosphere
• Customer benefit: The technology enables our clients to minimise the impact of mercury on their infrastructure and to work safely
Mercury Decontamination
• Customer insight: Horticultural lights are subject to complex environmental conditions, and currently there are no safety and performance standards specific to these products
• AgriWorld & Electrical & Network Assurance innovation: Intertek developed a Horticultural Lighting Certification Program leveraging our lighting and agricultural expertise to help manufacturers develop innovative, safe and high-performance products for an emerging industry
• Customer benefit: Manufacturers are now able to develop their products with improved performance and safety standards
Horticultural Lighting
INNOVATIONS: TRADE
21
Costcom
• Customer insight: Power plants often start, stop, and cycle, which impacts the life of the equipment and associated operating costs
• Industry Services innovation: Intertek has developed a real-time artificial intelligence based algorithm that analyses customer Big Data in the form of millions of sensor data points and displays the maintenance, capital replacement, and wear-and-tear costs associated with cycles changes
• Customer benefit: Plant operators receive real-time insights to optimise plant operations, minimising equipment damage and ensuring cycling costs are well planned
• Customer insight: Customers need better insight into the quality evolution of new equipment and rate of wear-and-tear on their industrial assets
• Industry Services innovation: Intertek uses state of the art 3D digital measurement software that comprehensively delineates physical objects and is accurate to one ten thousandth of an inch. This method can be used to analyse a newly manufactured part or to determine the rate of wear and deterioration on existing parts or reverse engineer parts and equipment
• Customer benefit: Our expertise helps customers detect product defects, ensuring products do not deviate from the intended design and performance
3D Metrology
• Customer insight: Customers need assurance that critical concrete infrastructures, such as road & rail tunnels and bridges remain robust over their entire lives
• Industry Services innovation: Access to examine the condition of embedded steel in concrete is complex, so Intertek’s experts have developed specialist sensors that are embedded directly into the concrete to monitor the resilience of the infrastructure
• Customer benefit: The integrated system is connected into the entire built infrastructure. Intertek supports clients throughout the entire structure life cycle
INNOVATIONS: RESOURCES
Concrete Sensors
22
OUTLOOK BY DIVISION
04
• Solid organic revenue growth at constant currency
Robust growth momentum in Products
Good growth momentum in Trade
Continuing challenging trading conditions in Resources
• Robust Group margin progression at constant currency
Continuous cost discipline
Performance management
Portfolio strategy
• Strong cash conversion
• Capex: £120m – £130m
• Net debt: £600m – £650m1
24
GROUP OUTLOOK 2017
Note: (1) Before any material change in FX rates and any additional M&A
EXCELLENT PERFORMANCE IN PRODUCTS WITH STRONG MARGIN ACCRETIVE REVENUE GROWTH
25
678 799
H1 16 H1 17
Revenue (£m)
675 791
H1 16 H1 17
Organic Revenue (£m)
134 164
H1 16 H1 17
Operating Profit (£m)
19.7% 20.5%
H1 16 H1 17
Operating Margin (%)
+17.8%+6.4% CCR
+17.2%+5.8% CCR
+22.8%+11.9% CCR
+80bps+100bps CCR
Growth Drivers
Increased number of Brands & SKUs
Supply chain expansion in new
markets
Increased demand in chemical testing
Softlines Robust organic growth
Hardlines
Electrical & Network Assurance
HY17 Actual / FY17 Outlook
Innovation from our customers leveraging wireless technology
Increased demand for chemical testing
Innovative inspection technology
Robust organic growth
Electrical appliance innovations to provide better efficiency and
connectivity
Increased demand for IoT Assurance services, including cyber
securityRobust organic growth
Growth Drivers HY17 Actual / FY17 Outlook
ISO standards upgrades
Increased focus of corporations on supply
chain and risk management
Increased consumer and government focus on ethical
and sustainable supplyBusiness Assurance Double-digit organic growth
Building & Construction
Transportation Technology
Growing demand for greener, safer and higher quality commercial buildings
Increased investment in large infrastructure projects
Good organic growth
Continued investment of our clients in new models and new
fuel efficient engines
Growth in the hybrid / electric engine
segmentSolid organic growth
Food
Chemicals and Pharma
Continuous food innovation
Increased focus on the safety of supply chains
Growth in the food service assurance
businessGood organic growth
Solid organic growth
Increased scrutiny on emissions
Growth of SKUs
Expansion of the supply base in emerging markets
Increased concerns on product safety and
traceability
EXCELLENT PERFORMANCE IN PRODUCTS WITH STRONG MARGIN ACCRETIVE REVENUE GROWTH
26
Global and regional trade structural growth drivers
Increased transport infrastructureCargo / AA Solid organic growth
Government & Trade Services
AgriWorld
Award of new contracts
GDP growth Population growth Robust organic growth
The expansion of our clients’ supply chains in fast growing markets
New customer wins Robust organic growth
273 326
H1 16 H1 17
Revenue (£m)
273 317
H1 16 H1 17
Organic Revenue (£m)
37 46
H1 16 H1 17
Operating Profit (£m)
13.6%14.1%
H1 16 H1 17
Operating Margin (%)
+19.6%+7.5% CCR
+16.3%+4.6% CCR
+24.1%+12.5% CCR
+50bps+60bps CCR
GOOD MOMENTUM IN TRADE WITH IMPROVED ORGANIC GROWTH AND MARGIN PROGRESSION
27
Growth Drivers HY17 Actual / FY17 Outlook
254 247
H1 16 H1 17
Revenue (£m)
254 247
H1 16 H1 17
Organic Revenue (£m)
15 14
H1 16 H1 17
Operating Profit (£m)
6.0% 5.7%
H1 16 H1 17
Operating Margin (%)
(2.4%)(12.3%) CCR
(2.4%)(12.3%) CCR
(8.5%)(12.5%) CCR
(30bps)0bps CCR
CONTINUOUS CHALLENGING TRADING CONDITIONS IN RESOURCES
28
Minerals demandTechnological
innovationMinerals Stable demand
Capex Inspection
Opex Inspection
Demand for energy Asset productivityTechnological
innovationContinued challenging trading
conditions
Capacity utilisation Asset productivityStable demand in a competitive
environmentAgeing of equipment
Outsourcing
Growth Drivers HY17 Actual / FY17 Outlook
FIT-Italia EWA Canada ABC Analitic KJ Tech
Business line Food Network Assurance Sustainability Transportation Technologies
Location Italy Canada Mexico Germany
Completion Date January 2016 October 2016 November 2016 March 2017
Market positionMarket leader in food assurance and
inspection in Italy
Leading provider of security assurance services for products, equipment and networks across
multiple industries
Market leader in the provision of environmental water testing and
analytical services in Mexico
A leading provider of on-road vehicle testing, component, lubrication and
fuel testing services based in Germany
Growth driversIncreased focus on food supply chain
risk managementIncreased corporate and consumer
focus on data securityIncreased corporate and government
focus on environmental safety
Increased consumer and regulator scrutiny on fuel consumption and
emissions
RNS FIT-Italia EWA Canada ABC Analitic KJ Tech
M&A IN ATTRACTIVE MARKETS STRENGTHENING INTERTEK’S PORTFOLIO
29
SUMMARY
05
30
• Strong earnings growth and cash generation with interim dividend up 21%
• Attractive growth prospects in the $250bn global Quality Assurance market
• Total Quality Assurance differentiated growth strategy
• Disciplined performance management and capital allocation
• Proven high quality earnings model driving shareholder value
SUMMARY
“We are on track on our ‘good to great’
journey, making progress on both performance and
strategy”
GROUP PERFORMANCE (H1 16 – H1 17)
33
254 247
273 326
678 799
1,204 1,372
H1 16 H1 17
Revenue (£m)
15 14 37 46
134 164
186
224
H1 16 H1 17
Adjusted Operating Profit (£m)
Margin Key Metrics H1 2017
H1 16 H1 17% Group Revenue
% Group Profit
Organic Revenue Growth1
Products 19.7% 20.5% 58% 73% 5.8%
Trade 13.6% 14.1% 24% 21% 4.6%
Resources 6.0% 5.7% 18% 6% (12.3%)
Group 15.4% 16.3% 100% 100% 1.7%
Note: At 2017 constant currency rates
Margin Key Metrics 2016
FY 15 FY 16% Group Revenue
% Group Profit
Organic Revenue Growth1
Products 21.1% 20.3% 57% 73% 5.5%
Trade 14.1% 14.0% 23% 20% 1.3%
Resources 6.5% 5.8% 20% 7% (13.0%)
Group 15.9% 16.0% 100% 100% 0.1%
GROUP PERFORMANCE (2015 – 2016)
34
519 517
537 585
1,111 1,466
2,166
2,567
FY 15 FY 16
Revenue (£m)
34 30 76 82
234 298
343
410
FY 15 FY 16
Adjusted Operating Profit (£m)
Note: At 2016 constant currency rates
ADJUSTED EPS
35
£m @ actual exchange rates H1 16 H1 17
Adjusted operating profit1 185.9 223.9 +20.4%
Net interest expense (13.4) (13.6)
Profit before tax 172.5 210.3
Tax 25.5% (25.3%) (43.6) (53.6)
Profit after tax 128.9 156.7
Non-controlling interest (7.9) (9.4)
Net profit 121.0 147.3
Fully diluted shares (m) 162.5 162.8
Earnings per share (GBp) 74.5p 90.4p +21.3%
Interim Dividend (GBp) 19.4p 23.5p +21.1%
KEY INVESTOR INFORMATION
36
Key dates:
2017 November Trading Update 21 November 2017
2017 Full Year Results 6 March 2018
Conference attendance:
HSBC, Business Services Conference, Frankfurt 7 September 2017 IR
UBS, Support and Business Services Conference, London 13 September 2017 CFO, IR
Sanford C. Bernstein, Strategic Decisions Conference, London 28 September 2017 CEO, IR
Berenberg, Testing, Inspection & Certification Conference, London 5 October 2017 IR
Societe Generale, European ESG/SRI Conference 7 November 2017 IR
Deutsche Bank, Business Services, Leisure and Transport 28 November 2017 IR
Credit Suisse, Business Services and Consumer Conference, San Francisco 5 December 2017 IR
Key contacts:
Josh Egan, Investor Relations Director ; +44 (0)20 7396 3400; [email protected]
www.intertek.com/investors