Slide 1: 2018 Half Year Results Presentation
2018 HALF YEAR RESULTS PRESENTATION Good Revenue Growth Momentum 7 August 2018
Slide 2: Cautionary Statement Regarding Forward-Looking Statements
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
Slide 3: Agenda
AGENDA 01 Performance Highlights 02 H1 2018 Financial Results 03 Strategic Update 04 2018 Outlook by Division 05 Summary 3
Slide 4: Performance Highlights
01 PERFORMANCE HIGHLIGHTS 4
Slide 5: Continuous Progress on Revenue, Margin and Cash
CONTINUOUS PROGRESS ON REVENUE, MARGIN AND CASH Revenue (£m) Operating Profit (£m) Operating margin (%) 1,372 1,348 224 226 16.3% 16.8% H1 17 H1 18 H1 17 H1 18 H1 17 H1 18 +3.9% CCR +6.4% CCR +40bps CCR (1.8%) +0.8% +50bps Working Capital (£m) Adjusted EPS (p) Interim Dividend (p) 225 211 31.9 90.4
Slide 6: Organic Revenue Growth Acceleration
ORGANIC REVENUE GROWTH ACCELERATION Organic growth at constant currency H1 organic growth by division Organic revenue growth1 (%) 3.4% 10.0% Products: +5.7% 2.5% 76% of earnings 1.7% Trade: +0.7% 18% of Revenue (10.0%) earnings 10.0% growth (%) 6% Resources: (0.7%) H1 17 H2 17 H1 18 []% (10.0%) 6 No
Slide 7: Continuous Progress on Margin
CONTINUOUS PROGRESS ON MARGIN Operating margin (%) 16.8% 16.3% 15.4% H1 16 H1 17 H1 18 +60bps CCR 3 +110bps CCR 3 +40bps CCR 3 Productivity management Portfolio strategy Portfolio review • Monthly performance reviews for Top • Growth and margin accretive portfolio Headcount Savings2 30 countries/16
Slide 8: H1 2018 Financial Results
02 H1 2018 FINANCIAL RESULTS 8
Slide 9: Key P&L Financials
KEY P&L FINANCIALS YoY % H1 18 Actual Constant Rates Rates Revenue £1,347.7m (1.8%) 3.9% Organic revenue1 £1,339.4m (2.3%) 3.4% Operating profit2 £225.8m 0.8% 6.4% Operating profit margin2 16.8% 50bps 40bps Adjusted diluted EPS2 91.2p 0.9% 6.8% Notes: (1) Organic revenue excludes the impact of acqui
Slide 10: Operating Margin Bridge
OPERATING MARGIN BRIDGE 17.0% 10bps 16.8% 10bps 16.7% 30bps (20bps) 10bps (10bps) 20bps 16.3% 16.0% 15.0% +40bps at constant rates 14.0% 13.0% (1) FX Trade Resources H1 17 Other items H1 18 Products Acquisitions Divisional mix & Disposals Excluding FX 10 Note: (1) Comprises a net gain in relation to
Slide 11: Cash Flow & Net Debt
CASH FLOW & NET DEBT £m @ actual exchange rates H1 17 H1 18 Adjusted operating profit1 223.9 225.8 Depreciation/amortisation 47.3 43.8 Change in working capital (52.3) (75.4) Other2 7.1 9.9 Adjusted cash flow from operations 226.0 204.1 Net capex (33.9) (46.3) Other3 (68.1) (67.2) Free cash flow 124
Slide 12: Financial Guidance
FINANCIAL GUIDANCE FY 2018 Guidance Net finance cost £28 – 30m Effective tax rate 25.3 – 25.8% Minority interest c.£20m Diluted shares (as at 30 June 2018) 163.0m Capex £130 – 140m Net Debt (incl. acquisition of Alchemy) £800 – 850m Note: Before any material change in FX rates and any additional M&A
Slide 13: Strategic Update
03 STRATEGIC UPDATE 13
Slide 14: Intertek High Quality Earnings Model
INTERTEK HIGH QUALITY EARNINGS MODEL Our Services Assurance Testing Inspection Certification Products Trade Resources Our Sectors GDP+ GDP growth Long-term growth Intertek Virtuous Economics Our Mid- to Long-Term GDP+ Organic revenue growth Value Creation Margin accretive Investments in attractive r
Slide 15: Attractive Growth in the $250bn Global Quality Assurance Market
ATTRACTIVE GROWTH IN THE $250BN GLOBAL QUALITY ASSURANCE MARKET Existing customers: • Increase account penetration • ATIC cross selling $50BN New customers: Currently • New contracts outsourced Existing & New customers: • Outsourcing $200BN Currently in-house 15
Slide 16: Attractive Structural Growth Drivers
ATTRACTIVE STRUCTURAL GROWTH DRIVERS Products Trade Resources 60% of Revenue 76% of Profit 23% of Revenue 18% of Profit 17% of Revenue 6% of Profit Increased number Faster innovation Long term demand Investment in Population growth GDP growth of Brands & SKUs cycle for energy infrastructure Increase
Slide 17: 5x5 Differentiated Strategy for Growth
5X5 DIFFERENTIATED STRATEGY FOR GROWTH 5x5 Strategic Goals 1 2 3 4 5 Fully engaged Superior customer Margin accretive revenue Strong cash conversion Accretive, disciplined employees working in a service in Assurance, growth based on GDP+ from operations capital allocation safe environment Testing, I
Slide 18: Intertek TQA Value Proposition
INTERTEK TQA VALUE PROPOSITION A SYSTEMIC APPROACH TO QUALITY ASSURANCE Helping corporations manage the complexity of their supply chains by taking an end-to-end approach to quality assurance 18
Slide 19: Innovation and Kaizen
INNOVATION AND KAIZEN INNOVATIONS: CUSTOMER FACING DIFFERENTIATED SOLUTIONS Acquisition of leading and Digital Based Innovations Technology Based Innovations innovative solutions KAIZEN: OPERATIONAL MARGIN ACCRETIVE SOLUTIONS Operating Systems Shared Services Systems 19
Slide 20: Innovations: Products
INNOVATIONS: PRODUCTS Voice of the Consumer Intertek Sustainability InlightTM Network • Customer insight: Our customers collect vast • Customer insight: Stakeholder expectations and • Customer insight: With increasing regulation, supply quantities of valuable feedback from consumers. growing supply
Slide 21: Innovations: Trade
INNOVATIONS: TRADE Caleb Brett MAI: Mobile Testing Mobile Crop Quality Toolkit • Customer insight: Our clients value high quality and • Customer insight: For ExxonMobil, ensuring that • Customer insight: For small farmers in Sub-Saharan independent expertise in the services they receive they offer h
Slide 22: Innovations: Resources
INNOVATIONS: RESOURCES Greenlink Interconnector Project Near-Infrared Spectral Database Intertek PipeAware™ 2 • Customer insight: Greenlink is a major infrastructure • Customer insight: Our Oil Industry customers value • Customer insight: Pipeline asset owners require a project to link the power mar
Slide 23: Outlook by Division
04 OUTLOOK BY DIVISION
Slide 24: Group Outlook 2018
GROUP OUTLOOK 2018 • Good organic revenue growth at constant currency − Robust growth momentum in Products − Solid growth momentum in Trade − Stable revenue performance in Resources • Moderate Group margin expansion at constant currency − Continuous cost discipline − Performance management − Portfol
Slide 25: Excellent Performance in Products
EXCELLENT PERFORMANCE IN PRODUCTS Revenue (£m) Organic Revenue (£m) Operating Profit (£m) Operating Margin (%) 799 806 798 799 164 172 20.5% 21.3% H1 17 H1 18 H1 17 H1 18 H1 17 H1 18 H1 17 H1 18 +6.4% CCR +5.7% CCR +10.3% CCR +70bps CCR +0.9% +0.2% +4.6% +80bps HY18 Actual Growth Drivers FY18 Outloo
Slide 26: Excellent Performance in Products (continued)
EXCELLENT PERFORMANCE IN PRODUCTS HY18 Actual Growth Drivers FY18 Outlook Increased focus of ISO Increased consumer and Strong organic Strong organic Business Assurance corporations on supply standards government focus on ethical growth growth chain and risk management upgrades and sustainable suppl
Slide 27: Solid Performance in Trade
SOLID PERFORMANCE IN TRADE Revenue (£m) Organic Revenue (£m) Operating Profit (£m) Operating Margin (%) 326 311 326 309 14.1% 46 42 13.4% H1 17 H1 18 H1 17 H1 18 H1 17 H1 18 H1 17 H1 18 +1.1% CCR +0.7% CCR (3.3%) CCR (60bps) CCR (4.7%) (5.2%) (9.6%) (70bps) HY18 Actual Growth Drivers FY18 Outlook Ca
Slide 28: Improved Performance in Resources
IMPROVED PERFORMANCE IN RESOURCES Revenue (£m) Organic Revenue (£m) Operating Profit (£m) Operating Margin (%) 247 232 247 232 14 13 5.7% 5.5% H1 17 H1 18 H1 17 H1 18 H1 17 H1 18 H1 17 H1 18 (0.7%) CCR (0.7%) CCR (7.3%) CCR (40bps) CCR (6.3%) (6.3%) (9.3%) (20bps) HY18 Actual Growth Drivers FY18 Out
Slide 29: M&A in Attractive Markets Strengthening Intertek's Portfolio
M&A IN ATTRACTIVE MARKETS STRENGTHENING INTERTEK’S PORTFOLIO Aldo Abela Acumen Security Proasem NTA Monitor Alchemy Surveys Business line Network Assurance Cargo / AA Cargo / AA Network Assurance People Assurance Location USA Malta Colombia UK, Malaysia USA Completion Date December 2017 March 2018 A
Slide 30: Alchemy's Value Proposition Addresses the Front End of Supply
ALCHEMY'S VALUE PROPOSITION ADDRESSES THE FRONT END OF SUPPLY OFFICE WORKER CHARACTERISTICS • Limited direct impact on safety, quality, yield and productivity • Low risk environment • English fluent • Computer skills • Low turnover FRONTLINE WORKER CHARACTERISTICS ALCHEMY SOLUTIONS High Direct Impac
Slide 31: Opportunities for Significant Further Food Market Penetration
OPPORTUNITIES FOR SIGNIFICANT FURTHER FOOD MARKET PENETRATION US Food & Beverage Manufacturing/Processing US Quick Service Restaurants • c.25,000 companies in food & beverage processing • c.900 companies Brands Outlets/ • Over 30,000 plants • Over 270,000 restaurants Sites • Employing over 1.5 milli
Slide 32: Acquisition of Scalable Leading SaaS People Assurance Platform
ACQUISITION OF SCALABLE LEADING SAAS PEOPLE ASSURANCE PLATFORM 43,000+ 100+ employees countries Global Market Global Market Leader in Leader in TIC Assurance 3,000 1,000+ auditors labs and offices 100,000+ 80+ audits languages IN LINE WITH OUR M&A STRATEGY FOCUSED ON ACQUISITION OF LEADING AND INNOV
Slide 33: Alchemy: A Value Accretive Transaction
ALCHEMY: A VALUE ACCRETIVE TRANSACTION • $480m on cash and debt free basis • Represents 7.2x 2018E Billings DEAL METRICS • Valuation compares favourably with comparable companies that are trading on median 2018 EV/Revenue of 9.3x with an average expected 2018-19 growth rate of 20%** FINANCING • Fund
Slide 34: Summary
05 SUMMARY 34
Slide 35: Summary
SUMMARY • Consistent progress on revenue, margin, cash and returns with interim dividend up 35.7% • TQA Value Proposition delivering superior customer service with ATIC offering • GDP+ organic revenue growth outlook in real terms with attractive structural growth drivers: Products Trade Resources 76
Slide 36: Intertek: Total Quality. Assured.
intertek Total Quality. Assured.
Slide 37: Group Performance (H1 17 – H1 18)
GROUP PERFORMANCE (H1 17 – H1 18) Revenue (£m) Adjusted Operating Profit (£m) 224 226 1,372 1,348 799 806 164 172 326 311 46 42 247 232 14 13 H1 17 H1 18 H1 17 H1 18 Margin Key Metrics H1 2018 % Group % Group Organic Revenue H1 17 H1 18 Revenue Profit Growth1 Products 20.5% 21.3% 60% 76% 5.7% Trade
Slide 38: Group Performance (2016 – 2017)
GROUP PERFORMANCE (2016 – 2017) Revenue (£m) Adjusted Operating Profit (£m) 2,769 468 2,567 410 1,466 1,625 350 298 585 648 82 89 517 496 30 29 FY 16 FY 17 FY 16 FY17 Margin Key Metrics 2017 % Group % Group Organic Revenue FY 16 FY 17 Revenue Profit Growth1 Products 20.3% 21.6% 59% 75% 5.5% Trade 14
Slide 39: Key Investor Information
KEY INVESTOR INFORMATION Key dates: 2018 Half Year Results 7 August 2018 2018 Trading Update 27 November 2018 Conference attendance: UBS, Support and Business Services Conference, London 12 September 2018 IR KeplerCheuvreux Autumn Conference, Paris 13 September 2018 IR Bernstein, Strategic Decisions