Intertek Group plc · LSE:ITRK
Intertek — FY2008 Earnings Presentation
40 slides from Intertek's earnings presentation, Mar 9, 2009
Slide 1: 2008 Full Year Results Presentation
2008 Full Year Results Presentation 9 March 2009 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 Chief Financial Officer Financial Performance 2008 Full Year Results Presentation
Slide 4: Revenue 1990 to 2008
£m 200 400 600 800 1,000 0 1990 1991 1992 1993 1994 1995 www.intertek.com 1996 Revenue 1990 to 2008 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 4
Slide 5: Financial highlights
Financial highlights For the twelve months to 31 December 2008 +29.4% at actual Revenue £1,003.5m +18.7% at constant +12.3% at constant organic +35.4% at actual Operating profit 1 £164.7m +21.2% at constant +14.8% at constant organic +70 bps at actual Operating profit margin 16.4% +30 bps at constan
Slide 6: Highlights continued
Highlights continued Operating cash flow 1 £194.0m Up 30.1% Profit before tax £138.6m Up 31.0% Diluted adjusted EPS 2 67.1p Up 37.5% 1. Operating cash flow is before capital expenditure 2. Diluted adjusted earnings per share based on operating profit before amortisation of acquisition intangibles, g
Slide 7: Statutory operating profit
Statutory operating profit £m @ actual exchange rates 2008 2007 Adjusted operating profit 1 (up 35.4%) 164.7 121.6 Amortisation of acquisition intangibles (9.6) (5.1) Impairment of goodwill (0.5) (0.4) Non-recurring costs (6.7) - Statutory operating profit (up 27.4%) 147.9 116.1 1. Operating profit
Slide 8: Profit before tax
Profit before tax £m @ actual exchange rates 2008 2007 Statutory operating profit 147.9 116.1 Net interest expense (9.5) (10.2) Share of profit/(loss) of associates 0.2 (0.1) Profit before tax (up 31.0%) 138.6 105.8 www.intertek.com 8
Slide 9: Taxation
Taxation £m @ actual exchange rates 2008 2007 Profit before tax 138.6 105.8 Tax (36.4) (27.0) Profit after tax (up 29.7%) 102.2 78.8 Reported tax rate 26.3% 25.5 % www.intertek.com
Slide 10: Dividends
Dividends 2008 2007 25.0 Full year dividend per share 20.8p 18.0p Annual Dividend 20.0 15.0 Growth in dividend per share 15.5% 21.6% Pence 10.0 5.0 % of net income 32% 36% 0.0 2004 2005 2006 2007 2008 Dividend cover (on net income) 3.1x 2.8x www.intertek.com 10
Slide 11: Operating cash flow
Operating cash flow £m @ actual exchange rates 2008 2007 EBITDA (up 30.2%) 201.4 154.7 Change in working capital (7.4) (5.6) Operating cash flow (up 30.1%) 194.0 149.1 Debtor days (constant exchange rates) 70 70 Bad debt provision % of gross 4.4% 4.2% receivables www.intertek.com 11
Slide 12: Free cash flow
Free cash flow £m @ actual exchange rates 2008 2007 Operating cash flow 194.0 149.1 Net interest (15.0) (9.7) Taxation (36.6) (28.4) Capital expenditure (67.6) (43.8) Free cash flow (up 11.3%) 74.8 67.2 Capital expenditure to sales % 6.7% 5.6% www.intertek.com 12
Slide 13: Increase in net debt
Increase in net debt £m @ actual exchange rates 2008 2007 Free cash flow 74.8 67.2 Acquisitions (84.5) (85.8) Dividends to Intertek Group plc (30.4) (25.2) shareholders Foreign exchange and other (95.6) 0.1 movements Excluding FX translation net Increase in net debt (135.7) (43.7) debt would be £221
Slide 14: Financial covenants
Financial covenants £m @ actual exchange rates 2008 2007 Borrowings (421.6) (231.2) Cash 113.3 58.6 Net debt (308.3) (172.6) Bank covenants:- Net debt to EBITDA 1.5x 1.2x < 3.5x Net Debt/EBITDA EBITDA Interest cover 15.9x 15.5x > 4.0x EBITDA/Net Interest www.intertek.com 14
Slide 15: Debt maturities
Debt maturities Maturing Senior Debt US$ Private Placement £m 300 Added £75m to bank 250 facility in June and July 200 Added US$200m USPP, 150 maturing 2014 to 2016 100 50 0 2009 2010 2011 2012 2013 2014 2015 2016 www.intertek.com
Slide 16: Financial summary
Financial summary • Business has remained resilient to the economic downturn • Very strong full year performance on all key financial metrics:- • Profitability • EPS • Cash flow • Working capital • Healthy balance sheet • Progressive dividend policy maintained www.intertek.com 16
Slide 17: Operating Performance
Wolfhart Hauser Chief Executive Officer Operating Performance 2008 Full Year Results Presentation
Slide 18: What we do and what we provide our customers
What we do and what we provide our customers • A leading international provider of quality and Regional Divisional safety solutions Revenue Revenue • Strengthen customers’ competitive position through: Asia Pacific 36% Oil, Chemical & Agri 31% • Improved products Americas 34% Consumer Goods 25% EMEA
Slide 19: Challenging times ahead
Challenging times ahead • Focus on 28 global industries in a broad portfolio • Clear strategy and objectives • Track record of strong growth • Intertek as One closer to regional markets • Flexible capacity management: good growth in some industries and regions and cost containment in volume related
Slide 20: Confident of continuing growth overall
Confident of continuing growth overall Acquisitions Outsourcing Expansion Customers: switch Successful track of services, from fixed to record regions, variable costs Quality, Safety, Industries Prices falling Environment Intertek: Gaining benefit from Product market share utilisation rates variety
Slide 21: Progress on Intertek as One
Progress on Intertek as One • Intertek as One country managers nominated • Common back office processes • Shared Service Centres Already seeing results: • Cross-divisional selling - incremental revenues already booked Mark Loughead • Cost synergies using procurement power - Chief Operating savings a
Slide 22: Case study: cross selling
Case study: cross selling • Existing US oil major client with gasoline retail outlets • REACH for Industrial division • Coffee inspection in forecourt retail units for Consumer Goods • Incremental annual revenue of US$2.9m from the cross-selling www.intertek.com 9/3/2009 22
Slide 23: Procurement: cost savings
Procurement: cost savings • Previously different software systems and agreements with several companies now one supplier: Peoplesoft • Savings of US$2.7m for three year license fees and support www.intertek.com 9/3/2009 23
Slide 24: The Divisions
The Divisions Consumer Goods Commercial & Electrical Oil, Chemical & Agri Analytical Services Industrial Services Minerals Government Services Divisional review at constant exchange rates follows www.intertek.com 9/3/2009 24
Slide 25: Consumer Goods
Consumer Goods 25.0% 46.0% of Group of Group Revenue Profit Paul Yao Source 2008 Revenue & Adjusted Operating Profit Industries: Textiles, Toys, Footwear, Hardlines, Food and Retail www.intertek.com 9/3/2009 25
Slide 26: High growth and stable margin: Consumer Goods
High growth and stable margin Consumer Goods £m @ constant exchange Organic 2008 Change rates change Revenue 250.4 24.1% 20.3% Operating profit 75.7 27.9% 25.3% Margin 30.2% +90 bps +120 bps www.intertek.com 9/3/2009 26
Slide 27: Review of 2008 Consumer Goods
Review of 2008 Consumer Goods • Consumer Product Safety Improvement Act (CPSIA) - US • Voluntary Toy testing growing well • Growth in Textile testing: quality demands, product variety, Azo-dye • Inspection volumes down but Wal-Mart China outsourced contract partially offsetting decline • Food testin
Slide 28: Outlook Consumer Goods
Outlook Consumer Goods • CPSIA will continue to generate growth, albeit at a slower pace • Azo-dye testing and product variety will support textiles • More supply chain assurance contracts commenced • Global Security Verification (GSV) programmes growing well • Chinese domestic market positioning •
Slide 29: Commercial & Electrical
Commercial & Electrical 20.2% 17.7% of Group of Group Revenue Profit Gregg Tiemann Source 2008 Revenue & Adjusted Operating Profit Industries: Home Appliances, Lighting, Medical, Building, Industrial, IT & Telecom, HVAC/R (Heating, Ventilation, Air Conditioning & Refrigeration) and Automotive www.in
Slide 30: Good growth: Commercial & Electrical
Good growth Commercial & Electrical £m @ constant exchange Organic 2008 Change rates change Revenue 203.5 13.9% 8.5% Operating profit 29.2 12.3% 6.9% Margin 14.3% -30 bps -10 bps www.intertek.com 9/3/2009 30
Slide 31: Market share gains: Commercial & Electrical
Market share gains Commercial & Electrical Review of 2008 Outlook • Good growth in tough • Risk in automotive market conditions remains • Continued market share • Aggressive sales and gains for ETL mark marketing will drive • 1H restructuring and growth investments benefited 2H • New sales initiativ
Slide 32: Oil, Chemical & Agri
Oil, Chemical & Agri 30.7% 20.3% of Group of Group Revenue Profit Jay Gutierrez Source 2008 Revenue & Adjusted Operating Profit Industries: Energy, Petroleum, Chemical and Agricultural www.intertek.com 9/3/2009 32
Slide 33: Increased profitability: Oil, Chemical & Agri
Increased profitability Oil, Chemical & Agri £m @ constant exchange Organic 2008 Change rates change Revenue 308.1 14.5% 13.3% Operating profit 33.5 25.5% 23.0% Margin 10.9% +100 bps +80 bps www.intertek.com 9/3/2009 33
Slide 34: Well diversified division giving resilience
Well diversified division giving resilience Oil, Chemical & Agri Review of 2008 Outlook • Excellent growth rates • Lower import volumes in from good market US West Coast and conditions despite Canada hurricanes • Increased activity in non- • Margin improvement from inspection related testing: non-in
Slide 35: Government Services
Government Services £m @ constant exchange Organic 2008 Change rates change Revenue 46.8 (3.5)% (3.5)% Operating profit 6.3 (8.7)% (8.7)% Margin 13.5% -80 bps -80 bps Business radically restructured and now falling within Oil, Chemical & Agri division to get cost synergies www.intertek.com 9/3/2009
Slide 36: Investing in new growth areas
Investing in new growth areas New Divisions Analytical Minerals Industrial Total £m @ constant exchange rates 2008 Change 2008 Change 2008 Change 2008 Change Revenue 119.5 17.4% 39.2 83.2% 36.0 48.1% 194.7 32.0% Operating 13.2 5.6% 4.9 48.5% 1.8 50.0% 19.9 17.0% profit Margin 11.0% -130 bps 12.5% -2
Slide 37: Mixed prospects, continued cost control: Analytical Services
Mixed prospects, continued cost control Analytical Services Review of 2008 • 2H improvement after 1H cost cuts in Pharma and Downstream • Upstream performed well Dr. Andrew Swift Outlook Upstream Oil & Gas • Upstream holding up well. Synergies Downstream Chemical, with new acquisitions Fuel & Lubric
Slide 38: Weaker markets: Minerals
Weaker markets Minerals Review of 2008 • Strong growth until fourth quarter 2008 • Investments in robotics and new laboratories in first half depressed margins Outlook Marc Hoffer • Intertek has market share opportunities, Minerals, Ore and focusing on Pacific Rim region Mining • Main exposures to:
Slide 39: Good overall outlook: Industrial Services
Good overall outlook Industrial Services Review of 2008 • Good growth in 2008 • Low margin due to investments and lack of scale Outlook • Focus on high end, global solutions for major infrastructure projects Stefan Butz • Aptech and Wisco acquisitions in 2009 bring Technical Inspection global scale
Slide 40: Outlook
Outlook • An excellent result in 2008 • Continued progress towards improved balanced portfolio • Economic uncertainty remains, however main business drivers do not depend on economic variables Growth drivers Value to clients Good growth in 2009 Diversification www.intertek.com 9/3/2009 40