Intertek Group plc · LSE:ITRK
Intertek — H1 2005 Earnings Presentation
37 slides from Intertek's earnings presentation, Sep 5, 2005
Slide 1: Interim Results Presentation
Interim Results Presentation 5 September 2005 Wolfhart Hauser, Chief Executive Officer Bill Spencer, Chief Financial Officer 1
Slide 2: Cautionary Statement regarding Forward-looking Statements
Cautionary Statement regarding Forward-looking Statements Certain matters discussed in this presentation may constitute forward-looking statements. These statements involve inherent risks and uncertainties. A number of important factors could therefore cause actual future results to differ materiall
Slide 3: Financial Performance
Bill Spencer Chief Financial Officer Financial Performance Interim Results Presentation – 5 September 2005 3
Slide 4: Financial Highlights
Financial Highlights for the six months to 30 June 2005 Revenue £272.3m Up 14.5% at actual Up 15.7% at constant (organic 13.2%) Operating profit1 £43.5m Up 11.5% at actual Up 13.3% at constant (organic 9.1% excl IFRS share option charges) Operating margin1 16.0% Down from 16.3% Operating cash flow £
Slide 5: GBP/USD Exchange Rates
GBP/USD Exchange Rates £/$ 1.95 June ytd 2005 Average = $1.88 1.90 1.85 June ytd 2004 Average = $1.82 1.80 1.75 1.70 Jan Feb Mar Apr May June US$ Actual Rate 2005 US$ Actual Rate 2004 5
Slide 6: IAS Operating Profit
IAS Operating Profit Half Year - £m 2005 2004 Operating profit1 43.5 39.0 Amortisation of intangible assets (IAS 38) (0.8) (0.3) Impairment of goodwill (2.0) ─ IAS operating profit 40.7 38.7 1 Before amortisation of intangible assets, goodwill impairment and profit from associates 6
Slide 7: Operating Profit Reconciliation
Operating Profit Reconciliation Half Year - £m 2005 2004 IAS operating profit 40.7 38.7 Add back amortisation of intangibles (IAS 38) 0.8 0.3 Add profit from associates (IAS 28) 0.6 0.6 Add back share option expenses (IFRS 2) 1.0 0.5 UK GAAP operating profit1 43.1 40.1 1 UK GAAP Operating Profit (EB
Slide 8: Profit Before Tax
Profit Before Tax Half Year - £m 2005 2004 IAS Operating profit 40.7 38.7 Net interest cost (2.6) (2.2) Share of profits of associates 0.4 0.4 Profit before tax 38.5 36.9 Interest cover 15.7 17.6 8
Slide 9: Taxation
Taxation Half Year - £m 2005 2004 Profit before tax 38.5 36.9 Remove amortisation of intangibles & impairment 2.8 0.3 Normalised profit before tax 41.3 37.2 Tax 10.4 9.4 Normalised effective tax rate 25.2% 25.3% 9
Slide 10: Earnings & Dividends
Earnings & Dividends Half Year – pence 2005 2004 Adjusted EPS1 18.7p 16.4p Up 14.0% Dividend per share 3.9p 3.4p Up 14.7% 1 Diluted adjusted earnings per share based on profit before amortisation of intangibles and goodwill impairment. 10
Slide 11: Cash Flow
Cash Flow Half Year £m 2005 2004 IAS operating profit 40.7 38.7 Add back depreciation and other non cash items 13.7 9.8 Change in working capital (24.4) (9.1) Cash generated from operations 30.0 39.4 Operating working capital1 to LTM sales 10.1% 8.0% 1 Business debtors plus stock, less business cred
Slide 12: Free Cash Flow
Free Cash Flow Half Year - £m 2005 2004 Cash generated from operations 30.0 39.4 Interest paid (2.9) (2.9) Taxation (7.1) (6.1) Capital expenditure (11.7) (8.3) Free cash flow 8.3 22.1 Capital expenditure to LTM sales % 6.0% 4.8% 12
Slide 13: Financing
Financing 30 June 1 Jan £m 2005 2005 Borrowings (164.5) (164.9) Cash 43.3 52.5 Net Debt (121.2) (112.4) Unutilised credit facilities of £129m at 30 June 2005 13
Slide 14: Renminbi Revaluation
Renminbi Revaluation • In China – Approx 1/3 to 1/2 of invoices paid in USD, balance in RMB – 100% of costs in RMB • Steps to mitigate the risk – More invoicing in RMB – Matching currency assets and liabilities – Hedging • Offsetting translation benefit if RMB strengthens relative to GBP 14
Slide 15: Operating Performance
Wolfhart Hauser Chief Executive Officer Operating Performance at constant exchange rates Interim Results Presentation – 5 September 2005 15
Slide 16: Intertek Group plc
Intertek Group plc £m @ constant exchange rates Organic Organic Half Year June 2005 Change Change Change excl share options Revenue 272.3 15.7% 13.2% 13.2% Operating Profit 43.5 13.3% 7.9% 9.1% Margin 16.0% -30 bps -80 bps -60 bps Associates of £0.7m (2004: £0.6m) now shown separately Share options
Slide 17: Labtest
Labtest £m @ constant exchange rates Organic Organic Half Year June 2005 Change Change Change excl share options Revenue 65.9 4.9% 10.1% 10.1% Operating Profit 20.6 1.0% (0.5)% 1.0% Margin 31.3% -120 bps -330 bps -290 bps Associates of £0.7m (2004: £0.6m) now shown separately Share options charge of
Slide 18: Labtest % of Revenue @ 30 June 2005
Labtest % of Revenue @ 30 June 2005 Revenue £65.9m up 4.9% Other 5% (9%) Certification 11% (11%) Inspection 11% (12 %) Textiles 44% (43%) Toys 29% (25%) Textiles Toys Inspection Certification Other 2004 figures in brackets 18
Slide 19: Labtest Greater China Network
Labtest Greater China Network Liaoning Shenyang Beijing Tianjin Qingdao Zhengzhou Wuxi Nanjing Shanghai CHINA Hangzhou Ningbo Shaoxing Liuyang Xiamen Taipei Dongguan Guangzhou TAIWAN Testing Lab & Inspection Location Beihai Inspection Site Shenzhen Office Hong Kong 19
Slide 20: Labtest
Labtest • Drivers remain unchanged (range, increased quality) • Shift to developing countries • Strong growth in mainland China of 47% • Toys and Hardlines developing very well • Increased capacity in textiles, especially China (Wuxi), India (Bangalore) and Romania • Well prepared for more stable gr
Slide 21: Labtest
Labtest Margin Decrease in 2005 • Incremental cost in China (47% growth) • Transfer cost of testing and inspection from Hong Kong to China • Contraction in textile business in Europe and America • Package pricing • Highly competitive inspection market • Turbulence remains in the market caused by the
Slide 22: Quota Turbulence
Quota Turbulence • 30 year old quotas came off 01/01/05 • May: US imposed limit of 7.5% on seven categories (WTO safeguard) • June: EU/China agreed limits of up to 12.5% on ten categories until 2007 • Nearly all categories hitting limits • Negotiations ongoing 22
Slide 23: ETL SEMKO
ETL SEMKO £m @ constant exchange rates Organic Organic Half Year June 2005 Change Change Change excl share options Revenue 69.3 20.1% 11.1% 11.1% Operating Profit 11.1 24.7% 12.8% 13.8% Margin 16.0% +60 bps +20 bps +40 bps Share options charge of £0.2m (2004: £0.1m) 23
Slide 24: ETL SEMKO % of Revenue @ 30 June 2005
ETL SEMKO % of Revenue @ 30 June 2005 Revenue £69.3m up 20.1% Automotive 11% Building (4%) 9% (9%) Industrial 22% (19%) Electrical 58% (68%) Electrical Industrial Building Automotive 2004 figures in brackets 24
Slide 25: ETL SEMKO
ETL SEMKO Commercial and Electrical Consumer Products • Asia growing very well – Acceptance of the ETL mark – Building materials started – Automotive component testing lab investment – HVAC in India • Americas – Successful marketing efforts – Commercial products developing very well • HVAC • Buildin
Slide 26: ETL SEMKO
ETL SEMKO Commercial and Electrical Consumer Products • Growth opportunities in under-developed areas – IT industry – Medical industry – Asia outside China – South and Central Europe 26
Slide 27: Caleb Brett
Caleb Brett £m @ constant exchange rates Organic Organic Half Year June 2005 Change Change Change excl share options Revenue 100.0 17.9% 13.2% 13.2% Operating Profit 8.9 20.3% 11.1% 10.8% Margin 8.9% +20 bps -20 bps -20 bps Share options charge of £0.2m (2004: £0.2m) 27
Slide 28: Caleb Brett % of Revenue @ 30 June 2005
Caleb Brett % of Revenue @ 30 June 2005 Revenue £100.0m up 17.9% Agri 9% (6%) Analytical Services Cargo Services 33% (28%) 58% (66%) Cargo Services Analytical Services Agri 2004 figures in brackets 28
Slide 29: Caleb Brett
Caleb Brett • Cargo services – Excellent growth in cargo inspection – Expansion in Agri • Analytical services (33% up from 28% previous half year) – Strong growth in outsourced analytical labs – Acquisition of Kelley Completion Services (Dec 2004) – Acquisition of PARC Technical Services (Aug 2005)
Slide 30: FTS
FTS £m @ constant exchange rates Organic Organic Half Year June 2005 Change Change Change excl share options Revenue 37.1 23.3% 23.3% 23.3% Operating Profit 7.4 48.0% 48.0% 47.1% Margin 19.9% +330 bps +330 bps +330 bps Share options charge of £0.1m (2004: £0.1m) 30
Slide 31: FTS % of Revenue @ 30 June 2005
FTS % of Revenue @ 30 June 2005 Revenue £37.1m up 23.3% Industrial Inspection 6% (7%) Standards 26% (31%) Pre- Pre-Shipment Inspection 68% (62%) Pre-Shipment Inspection Standards Industrial Inspection 2004 figures in brackets 31
Slide 32: FTS
FTS • Volume growth in Nigeria, Venezuela, Bangladesh and Mozambique • Malawi contract renewed for two years, annual revenues £2m • Venezuela programme ended August 2005 (2.5% of Group revenues) restructuring costs fully provided • Sierra Leone container scanning contract started in May 2005. New co
Slide 33: Divisional Revenue Growth @ Constant Rates
Divisional Revenue Growth @ Constant Rates 25 20 23.3% 9.0% 4.7% 4.0% 15 10 13.2% 13.2% 11.1% 10.1% 5 0 (5.2)% (1.5)% -5 Labtest ETL Caleb Brett FTS Group -10 SEMKO Organic Acquisitions Disposal 33
Slide 34: Regional Revenue Growth @ Constant Rates
Regional Revenue Growth @ Constant Rates 25 20 0.4% 15 2.1% 9.1% 4.0% 10 14.5% 13.2% 13.6% 11.5% 5 0 (4.2)% (1.5)% -5 Asia EAME Americas Group -10 Organic Acquisitions Disposal 34
Slide 35: Outlook
Outlook • Labtest : Toys growing well. Textiles well positioned for 2006. Competitive inspection market • ETL SEMKO : Strong growth in all areas. Expansion in Asia • Caleb Brett : Rapid growth in high margin analytical services. Cargo inspection strong market • FTS : Very good growth in 1H 2005, but
Slide 36: Key Drivers Remain Strong
Key Drivers Remain Strong • Increasing variety of new products • Reduction in average product lifespan • Wider range of countries sourced from and sold in • Safety, more reliability, higher quality demands increasing • Environmental and social regulations increasing • Outsourcing trend continues 36
Slide 37: Mission
Mission “We facilitate our customers’ success in the global market place……” • Strong key drivers generate organic growth potential in all four divisions – Existing businesses – Value adding services – Cross divisional activities • High quality acquisition pipeline with good prospects for bolt-ons in