Intertek Group plc · LSE:ITRK
Intertek — H1 2008 Earnings Presentation
40 slides from Intertek's earnings presentation, Aug 4, 2008
Slide 1: Half Year Results Presentation
Half Year Results Presentation 4 August 2008 Wolfhart Hauser Bill Spencer Chief Executive Officer Chief Financial Officer
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: Financial Performance - Bill Spencer, CFO
Bill Spencer Chief Financial Officer Financial Performance 2008 Half Year Results Presentation
Slide 4: Financial highlights
Financial highlights For the six months to 30 June 2008 £457.4m Up 26.8% at actual Revenue Up 17.6% organic 1 £68.7m Up 26.1% at actual Operating profit Up 15.0% organic 1 15.0% Down 10 bps at actual Operating profit margin Down 40 bps organic 1. Operating profit is before amortisation of acquisitio
Slide 5: Highlights continued
Highlights continued Operating cash flow £56.7m Up 31.9% Profit before tax £58.5m Up 20.9% Basic EPS 25.1p Up 16.7% 1 Diluted adjusted EPS 27.6p Up 22.7% Interim dividend per share 7.1p Up 22.4% 1. Diluted adjusted earnings per share based on operating profit before amortisation of acquisition intan
Slide 6: Revenue growth bridge
Revenue growth bridge £m 480 12.6% 26.8% 460 440 £457.4 420 9.3% 400 4.9% 380 360 £360.8 340 320 300 Revenue H1 Currency Acquisitions Organic Revenue H1 07 translation Growth 08 6
Slide 7: Profit growth bridge
Profit growth bridge £m 70 9.4% 26.1% 68 £68.7 66 11.4% 64 62 60 5.3% 58 56 54 £54.5 52 50 Operating profit Currency Acquisitions Organic Operating profit H1 07 translation Growth H1 08 7
Slide 8: Profit before tax
Profit before tax Half Year - £m 2008 2007 Adjusted operating profit (up 26.1%) 68.7 54.5 Amortisation of acquisition intangibles (4.4) (1.9) Statutory operating profit (up 22.2%) 64.3 52.6 Net finance cost (5.8) (4.2) Profit before tax (up 20.9%) 58.5 48.4 Interest Cover 11.1x 12.5x 8
Slide 9: Taxation
Taxation Half Year - £m 2008 2007 Profit before tax 58.5 48.4 Tax (15.5) (12.3) Profit after tax (up 19.1%) 43.0 36.1 Reported tax rate 26.5% 25.4% 9
Slide 10: Earnings and dividends
Earnings and dividends Half Year – pence 2008 2007 Basic EPS 25.1 21.5 Up 16.7% 1 Adjusted EPS 27.6 22.5 Up 22.7% Interim dividend per share 7.1 5.8 Up 22.4% Interim dividend total amount £11.2m £9.1m Up 23.1% 1. Diluted adjusted earnings per share based on operating profit before amortisation of ac
Slide 11: Operating cash flow
Operating cash flow Half Year - £m 2008 2007 Operating profit 64.3 52.6 Add back depreciation and other non cash items 24.0 17.7 Change in working capital (31.6) (27.3) Operating cash flow (up 31.9%) 56.7 43.0 Operating working capital to LTM sales 9.7% 11.1% Debtor days 71 75 11
Slide 12: Free cash flow
Free cash flow Half Year - £m 2008 2007 Operating cash flow 56.7 43.0 Net interest (5.5) (4.0) Taxation (19.3) (10.6) Capital expenditure (26.7) (17.8) Free cash flow 5.2 10.6 Capital expenditure to LTM sales % 6.1% 5.8% 12
Slide 13: Net cash flow
Net cash flow Half Year - £m 2008 2007 Free cash flow 5.2 10.6 Acquisitions (51.0) (43.9) Dividends to Intertek Group plc shareholders (19.2) (16.0) Other movements and foreign exchange (2.0) 6.1 Increase in net debt (67.0) (43.2) Net debt at period end 239.6 172.1 £125m of new debt facilities added
Slide 14: Acquisitions
Acquisitions 8 acquisitions for £40m (H1 07: 6 for £58m) Including: – Hi-Cad (Industrial) - £12m – Commercial Microbiology (AS) - £10m – 4-Front Research (CG) - £9m One further acquisition in July: Applica (CG) £4m 14
Slide 15: Financial summary
Financial summary ¾ Strong half year results ¾ Ongoing investment ¾ Strong cash flow ¾ Strong balance sheet; increased debt capacity ¾ Progressive dividend payout 15
Slide 16: Operating Performance - Wolfhart Hauser, CEO
Wolfhart Hauser Chief Executive Officer Operating Performance 2008 Half Year Results Presentation
Slide 17: Strategy for Growth
Strategy for Growth ¾ Support customers in their global trade ¾ Focusing on global industries in a broader portfolio ¾ Continue to diversify by investing in organic and external growth 17
Slide 18: Themes in 2008
Themes in 2008 ¾ New organisational structure ¾ Chief Operating Officer ¾ Investment in new growth areas ¾ Uncertainty in global economy 18
Slide 19: The growth strategy: mainly non-cyclical growth drivers
The growth strategy Expansion of services, regions, Acquisitions industries Quality, Safety, Outsourcing Safety Gaining Environmental market share Increasing variety Inter- regional trade ~40% GLOBAL MARKET DRIVING THE EXTERNAL TRADE DRIVERS EXPANSION INDUSTRY GROWTH …Mainly non-cyclical growth driv
Slide 20: New organisational structure
New organisational structure Old Format New Format Consumer Goods Consumer Goods Oil, Chemical & Agri Oil, Chemical & Agri Commercial & Electrical Commercial & Electrical Government Services Government Services Analytical Services Industrial Services Minerals 20
Slide 21: Consumer Goods
Consumer Goods DIVISION Consumer Goods BUSINESS Textiles STREAMS Toys Hardlines Inspection Food Corporate Social Responsibility Supply Chain Services 21
Slide 22: Consumer Goods
Consumer Goods Half year Organic £m @ actual exchange rates Change 2008 change Revenue 108.1 32.6% 29.7% Operating profit 31.2 32.8% 31.1% Margin 28.9% +10 bps +30 bps 22
Slide 23: Consumer Goods: Growth in all areas
Consumer Goods Growth in all areas ¾ High demand for toys heavy metals testing ¾ Intertek taking leadership position ¾ Textiles continues to grow well ¾ Inspection flat; expect pick up in 2H ¾ Investment in new labs and services continues 23
Slide 24: Commercial & Electrical
Commercial & Electrical DIVISION Commercial & Electrical BUSINESS Electrical STREAMS Automotive Heating, Ventilation, Air Conditioning Building Products Medical 24
Slide 25: Commercial & Electrical
Commercial & Electrical Half year Organic £m @ actual exchange rates Change 2008 change Revenue 95.8 23.3% 13.7% Operating profit 12.3 13.9% 0.0% Margin 12.8% -110 bps -170 bps 25
Slide 26: Investment in growth areas
Commercial & Electrical Investment in growth areas ¾ Americas (>50% of revenue) growing strongly, despite economic uncertainty ¾ Asia good growth, rising costs slightly reducing margins ¾ Europe slow; management restructuring ¾ Investments in US, China and India in new areas e.g. Photovoltaic, energ
Slide 27: Oil, Chemical & Agri
Oil, Chemical & Agri DIVISION Oil, Chemical & Agri BUSINESS Cargo Inspection & Testing STREAMS Non Inspection Related Testing Agriculture 27
Slide 28: Oil, Chemical & Agri
Oil, Chemical & Agri Half year Organic £m @ actual exchange rates Change 2008 change Revenue 143.8 22.3% 20.1% Operating profit 15.3 39.1% 34.9% Margin 10.6% +120 bps +110 bps 28
Slide 29: Continued strong market conditions
Oil, Chemical & Agri Continued strong market conditions ¾ High demand for oil cargo inspection and testing ¾ Gaining market share in non-inspection related testing ¾ Leadership position in US petroleum market ¾ Regulatory drivers ¾ Price increases coming through ¾ Continue to invest in China 29
Slide 30: Government Services
Government Services DIVISION Government Services BUSINESS Pre Shipment Inspection (PSI) STREAMS Standards Contracts Scanning Contracts 30
Slide 31: Government Services
Government Services Half year Organic £m @ actual exchange rates Change 2008 change Revenue 21.7 (3.6)% (3.6)% Operating profit 2.0 (23.1)% (23.1)% Margin 9.2% -240 bps -240 bps 31
Slide 32: Standards contracts growth
Government Services Standards contracts growth ¾ Good growth in Standards ¾ Ecuador termination and flat revenue on remaining PSI contracts ¾ Cost containment measures continued 32
Slide 33: New Divisions
New Divisions DIVISION Analytical Minerals Industrial Services Services BUSINESS Chemicals & Exploration & Technical STREAMS Materials Mining Inspection Pharma Systems Upstream Oil Certification and Gas Health & Environment Climate Change 33
Slide 34: High sales and margin growth potential
New Divisions High sales and margin growth potential Half year Organic £m @ actual exchange rates Change 2008 change Revenue 88.0 43.1% 9.0% Operating profit 7.9 19.7% (43.9)% Margin 9.0% -170 bps -470 bps 34
Slide 35: Revenue breakdown
New Divisions Revenue breakdown Industrial 17% Minerals 20% Analytical 63% 35
Slide 36: New Divisions: Chemicals & Materials, Pharma, Upstream
New Divisions Chemicals & Materials Strong market overall. Lubricants weak in 2008, but new Standard due out in 2009 Pharma US developing very well, Europe delayed contracts impacting 1H 08. Expect 2H pick up Upstream Oil & Gas Strong performance with good contribution from acquisitions 36
Slide 37: New Divisions: Minerals, Inspection, Certification
New Divisions Minerals Strong market, significant start up costs Technical Inspection Hi-Cad acquisition good contribution, restructuring under-performing areas Systems Certification Aerospace and medical performing well. Weakness in US in Automotive Health and Environment REACH legislation to impac
Slide 38: Investing in growth opportunities
Investing in growth opportunities ¾ New Divisions set up to deliver high revenue and margin growth ¾ Investment in internal and external opportunities – Long term growth of Intertek – Diversify the income streams ¾ Retaining the focus with a broader portfolio 38
Slide 39: Outlook
Outlook ¾ Resilient business drivers independent of economic cycles ¾ Balanced portfolio ¾ Expect strong performance in 2H 39
Slide 40: Intertek
Intertek Creating value through expertise