Intertek Group plc · LSE:ITRK
Intertek — FY2010 Earnings Presentation
46 slides from Intertek's earnings presentation, Mar 7, 2011
Slide 1: 2010 Full Year Results Presentation
Valued Quality. Delivered. 2010 Full Year Results Presentation 7 March 2011 Wolfhart Hauser Lloyd Pitchford 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: Results presentation agenda
Results presentation agenda Vanni Treves Introduction Chairman Wolfhart Hauser Acquisition of Moody Chief Executive Officer Lloyd Pitchford Financials Chief Financial Officer Business Update Wolfhart Hauser And Conclusion Chief Executive Officer 3
Slide 4: Acquisition of Moody
Acquisition of Moody 7 March 2011 Wolfhart Hauser Chief Executive Officer
Slide 5: A Strategic Step
A Strategic Step Becoming a leading provider of quality & safety services for the global energy market An important step in the ongoing development of Intertek Adds £293m revenue and 2,500 people in 60 countries The Transaction Strategic deal with strong financial returns • £450m cash • All funded b
Slide 6: Overview
Overview Revenue ($m) 2,500 People 60 Countries, 80 Offices 500 12% CAGR 450 System 400 Industry Services Certification 87% Revenue 350 13% Revenue 300 Technical Asset Expert System 250 Inspection Integrity Consulting Certification 200 Inspection Inspection Safety Training ISO 9000/14000 150 Technic
Slide 7: Industry services
Industry services Complementary coverage nd Finla de n ay Moody rw Swe No Russia Intertek Moody Moody Poland Kazakhstan Intertek Algeria Saudi Qatar Pakistan Moody Arabia India Moody Intertek Nigeria Cameroon 2010 Revenue (£) Intertek Brazil Moody 254m Australia Intertek 63m Moody Total £317m Moody
Slide 8: Systems Certification
Systems Certification Achieving total global coverage Intertek nd Finla de n ay Moody rw Swe No Russia Intertek Poland Moody Kazakhstan Moody Algeria Saudi Qatar Pakistan India Arabia Moody Nigeria Moody Intertek Cameroon Intertek 2010 Revenue (£) Brazil Moody 39m Australia Intertek 23m Total £62m M
Slide 9: Energy Outlook
Billion tonnes of oil equivalent 18 Targeting one of the world’s Energy Outlook most important future markets 16 14 ~40% increase in total demand 2010-30 12 10 8 6 4 2 0 1990 2000 2010 2020 2030 Oil Gas Coal Nuclear Hydro Renewables Notes: 1. Includes biofuels. Source: BP Energy Outlook 2030 Energy
Slide 10: Energy Market Drivers
Energy Market Drivers Energy growth Increasing demand, capex and maintenance: ~10% pa Emerging Fast growth in emerging markets Markets Environmental Renewable infrastructure expansion; Environmental concerns needs Globalisation Globalisation of multinationals’ supply chain; Outsourcing of Q&S Qualit
Slide 11: The Energy Path
…the Energy Path Energy Upstream Downstream Our Support Production R&D Trading Products Quality & Quantity OCA Control Optimise Manage Risks Process Problem-solve Measure AS, IS, OCA People Assets Design Construct Maintain Extend 11
Slide 12: Systems Certification: A Strategic Cross-Selling Opportunity
Systems Certification …A Strategic Cross-Selling Opportunity The Customer Management: Quality Systems ISO 9000/14000…. Distribution Supply R&D Products Production Marketing & Chain Sales Intertek currently 12
Slide 13: Summary
Summary Intertek assumes a leadership position in quality and safety services for the global energy market Stronger service portfolio to be leveraged across the Intertek-client base Increase penetration of existing and new clients in Systems Certification Immediate value generation Diversification o
Slide 14: Financial Performance
Lloyd Pitchford Chief Financial Officer Financial Performance 2010 Full Year Results Presentation
Slide 15: Results overview
Results overview • Strong results; capturing recovering growth • Organic revenue growth of 7.7% • Operating margin 16.6% • Cash conversion of 96% • EPS and dividend up 10% 15
Slide 16: A strong and consistent growth record
A strong and consistent growth record Revenue Operating profit (adjusted) £m £m 1,475 20% CAGR 250 22% CAGR 1,400 225 1,325 200 1,250 1,175 175 1,100 150 1,025 125 950 875 100 800 75 725 50 650 575 25 500 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 16
Slide 17: Financial highlights
Financial highlights For the twelve months to 31 December 2010 +11.1% at actual Revenue £1,374.2m +7.7% at constant organic +8.9% at actual Operating profit 1 £227.5m +5.9% at constant organic -30bps at actual Operating profit margin 1 16.6% -30bps at constant organic Profit before tax 1 £211.9m +10
Slide 18: Revenue growth
Revenue growth + 11.1% £m Actual rates £m 1,400 25 1,374 1,400 18 1,374 16 13 96 14 1,350 1,350 46 1,300 1,300 25 21 1,237 1,237 1,250 1,250 1,200 1,200 + 7.7% 1,150 Constant 1,150 rates 1,100 1,100 1,050 1,050 1,000 1,000 Acquisitions 2009 Organic 2010 FX Analytical OC&A 2009 2010 Industrial C&E CG
Slide 19: Organic revenue growth
Organic revenue growth Organic revenue growth * • Resilient business model % • Rapid return to strong 12 growth 10 8 • “Intertek as One” supporting revenue growth 6 4 2 0 FY 09 FY 10 YTD Q3 09 YTD Q3 10 03 to 08 Avg Q1 09 Q1 10 H1 09 H1 10 * Constant currency. YTD at each quarter 19
Slide 20: Cash flow
Cash flow % * Cash conversion % • EBITDA conversion: 96% • DSO 64 days 120 • Cash flow from ops: £271m 100 80 60 • Capex: £66m; 4.8% of revenue • Seven acquisitions: £42m 40 20 0 2006 2007 2008 2009 2010 * cash flow from operations / EBITDA Days Sales Outstanding (DSO) DSO 72 70 69 62 64 20
Slide 21: Interest, tax and dividend
Interest, tax and dividend • Interest charge of £15.6m , down £1.9m1 • Effective tax rate of 26.7% 1 • Net debt of £169.7m: 0.6x EBITDA • Separately disclosed items: £22.0m (2009 £22.3m) • 10% increase in full year dividend 1 Before separately disclosed items 21
Slide 22: Transaction highlights
Transaction highlights • Completion expected Q2 • Price: c $730m at completion • Valuation • In line with recent similar TIC transactions • 2009 EBITA $66m; 11.1x • 2010 EBITA $54m; 13.4x • Value • 3.5% transaction and integration costs in 2011 • $10m cost synergies p.a. by 2013 • EPS: 2011 accretiv
Slide 23: Financing
Financing Facility Maturity Profile • Net debt: EBITDA of 0.6 • New facilities: $m 800 700 Total Facilities: £0.9 billion • $250m bonds (7,10 yrs) 600 500 • $600m bank facility (5 yrs) 400 • £30m bank facility (5 yrs) 300 • $300m acquisition facility (2 yrs) 200 • Continued financial strength 100 to
Slide 24: Outlook
Outlook • Intertek margin outlook pre-acquisition • 100 – 150 bps by 2013 • Organisational alignment • Back office efficiencies • Scale benefits • Outlook post acquisition of Moody • 2011 margin broadly similar to 2010 • Post transaction synergies and improving energy market • Enlarged Group up 100
Slide 25: Divisions and business lines
Consumer Goods Commercial & Electrical Textiles Medical Toys & Consumer IT & Telecoms Healthcare & Beauty Home Appliances Building Products HVAC and Automotive Commodities (Oil, Chemical & Agri) Oil & Gas Minerals Government Services Industry & Assurance Chemical & Pharma (Industrial Services) (Anal
Slide 26: Summary
Summary • Strong results; capturing recovering growth • Strongly financed • Moody acquisition • Positive outlook for high single digit organic revenue growth 26
Slide 27: Operating Performance
Wolfhart Hauser Chief Executive Officer Operating Performance 2010 Full Year Results Presentation
Slide 28: Growth from new technology
Growth from new technology 1 Standard 8 Standards 1980 2010 50 hrs testing 250 hrs testing Electrical Safety: BS EN 60335-2-7 Electrical & Mechanical Safety: BS EN 60335-2-7 Mechanical EMC: BS EN55014-1; BS EN55014-2; BS EN61000-3-2; BS EN61000-3-3; Safety: BS 3456 Part 2 Chemicals: BS EN 62321 Wast
Slide 29: Growth through supply chain complexity
Growth through supply chain complexity Produced in 3 Countries Produced in 6 Countries • Sold in 10 • Sold in 30 • 150 components 2010 • ≈ 500 components • Local sourcing • Global sourcing Performance Testing & Consulting for R&D and sales differentiation 1980 Auditing suppliers for Ethics, Environm
Slide 30: Future technology
Future technology Appliance communicates with the grid over ? internet & telephony Telecom technology and wireless 2010 - 2020 communication Smart functionality responds to individual user habits for improved energy & water efficiency Ongoing development of safety & environmental standards Media scr
Slide 31: Our divisions 2010: FY revenue by division
Our divisions 2010 2010 FY revenue by division Minerals 5% Industrial Services 7% Oil, Chemical & Agri Analytical Services 33% 11% Commercial & Electrical 19% Consumer Goods 25% 31
Slide 32: Consumer Goods
Consumer Goods Review of 2010 and outlook Organic £m @ constant exchange rates 2010 Change change Revenue 341.5 5.2% 5.2% Operating profit 109.2 1.8% 1.8% Margin 32.0% (110)bps (110)bps • Textiles testing continued • Increasing quality and safety growth concerns on children’s and • Toys testing back
Slide 33: Commercial & Electrical
Commercial & Electrical Review of 2010 and outlook Organic £m @ constant exchange rates 2010 Change change Revenue 269.2 7.8% 7.8% Operating profit 38.2 7.0% 7.0% Margin 14.2% (10)bps (10)bps • Medical appliances, • New product development lighting, HVAC - strong • Energy efficient products growth •
Slide 34: Oil, Chemical & Agri
Oil, Chemical & Agri Review of 2010 and outlook Organic £m @ constant exchange rates 2010 Change change Revenue 452.7 8.7% 8.0% Operating profit 51.0 12.3% 11.0% Margin 11.3% 40bps 30bps • Emerging markets fastest • Emerging economies growth demand for oil • End of year improvement in • Alternative
Slide 35: Analytical Services
Analytical Services Review of 2010 and outlook Organic £m @ constant exchange rates 2010 Change change Revenue 151.5 10.3% 6.3% Operating profit 14.5 0.0% 1.4% Margin 9.6% (100)bps (50)bps • Growth in chemicals and • Penetration of in-house materials laboratories • Decline in pharma • New lighter, s
Slide 36: Industrial Services
Industrial Services Review of 2010 and outlook Organic £m @ constant exchange rates 2010 Change change Revenue 93.8 14.1% 7.4% Operating profit 7.3 9.0% 0.0% Margin 7.8% (40)bps (30)bps • Strong 2H revenue • Growth from Moody acqn acceleration • Full bid pipeline • Good growth for SC and • Rising oi
Slide 37: Minerals
Minerals Review of 2010 and outlook Organic £m @ constant exchange rates 2010 Change change Revenue 65.5 25.0% 25.0% Operating profit 7.3 65.9% 65.9% Margin 11.1% 270bps 270bps • Rapid ramp up in year • Economic growth, • New contracts on new especially from emerging mining capex economies • Higher
Slide 38: A New Leadership Position
A New Leadership Position Commodities Retail & Quality & Materials Manufactured Products Safety Industry Assets 38
Slide 39: Appendix
Va Intertek Appendix
Slide 40: Adjusted operating profit
Adjusted operating profit £m @ actual exchange rates 2010 2009 Adjusted operating profit 1 227.5 209.0 Amortisation of acquisition intangibles (12.9) (12.8) Acquisition and integration costs (5.3) (2.5) Claims and settlements (2.8) (3.8) Restructuring costs - (3.2) Statutory operating profit 206.5 1
Slide 41: Profit before tax
Profit before tax £m @ actual exchange rates 2010 2009 Statutory operating profit 206.5 186.7 Net interest expense (15.6) (17.5) Fair value of interest rate swaps (1.0) - Profit before tax 189.9 169.2 41
Slide 42: Taxation
Taxation £m @ actual exchange rates 2010 2009 Profit before tax 189.9 169.2 Tax (50.9) (45.5) Profit after tax 139.0 123.7 Reported tax rate 26.8% 26.9% Effective tax rate 26.7% 26.7% on adjusted operating profit 42
Slide 43: Free cash flow
Free cash flow £m @ actual exchange rates 2010 2009 Operating p g cash flow 271.4 278.4 Net interest (15.4) (16.1) Taxation (61 7) (61.7) (59 6) (59.6) Capital expenditure (65.1) (52.5) F Free cash h flow fl 129 2 129.2 1 02 150.2 43
Slide 44: Net debt
Net debt £m @ actual exchange rates 2010 2009 Borrowings 386.7 335.6 Cash (217.0) (134.2) Net debt 169.7 201.4 Net debt to EBITDA (LTM) 0.6x 0.8x 44
Slide 45: Currency
Currency Revenue by currency Cumulative average exchange rates Other Value of local FY 2010 FY 2009 ~23% currency USD 1.55 1.56 HKD 12.00 12.06 CNY 10.47 10.63 GBP & EUR AUD 1.69 1.99 ~17% USD, CNY & CAD 1.60 1.77 HKD ~60% EUR 1.17 1.12 45
Slide 46: Dividend
Dividend Full year dividend per share Pence • Full year dividend of 28.1p; 30 up 10% 25 • Final dividend of 18.8p 20 • Progressive approach to 15 dividend increases 10 5 0 2006 2007 2008 2009 2010 46