Slide 1: The Total Quality Assurance Opportunity
Intertek Group plc The Total Quality Assurance Opportunity André Lacroix Chief Executive Officer 21 September 2016 www.intertek.com 1
Slide 2: Agenda
Agenda 01 Corporate Evolution in Response to Global Trade 02 Intertek: A Pioneer in Quality Assurance 03 Attractive Growth Opportunities in Quality Assurance www.intertek.com 2
Slide 3: The global trading landscape looked significantly different in the mid-20th century
The global trading landscape looked significantly different in the mid-20th century Companies produced locally and were focussed on their 1960s-1970s domestic markets World Total 25% Global trade represented 25% of global GDP and was mainly between East and West n/a 38% 10% 27% 72% 20% 7% Trade as %
Slide 4: Global trade opened, now representing 33% of GDP
Global trade opened, now representing 33% of GDP Trade between East and West continued to grow, but was 1970s-1980s focussed on raw material supplies rather than manufacturing World Total 33% Consumer choices were led by local manufacturing 78% n/a 46% 36% 51% 15% 36% 95% 25% 61% 10% 19% 77% 30% 12%
Slide 5: Global trade accelerated in the 1980s, driven by global demand
Global trade accelerated in the 1980s, driven by global demand Manufacturing bases shifted to low cost locations, Asia started to 1980s - 2000s rapidly grow as a manufacturing hub World Total 40% Natural resource production became truly global Consumer demand started to evolve 73% 36% 50% 46% 47% 20
Slide 6: The 21st century has created a truly global market with global trade representing 58% of GDP
The 21st century has created a truly global market with global trade representing 58% of GDP Demand has become truly global reflected in global supply 2000s - Present World Total Resource production continues to be developed in new locations 58% 69% 51% 53% 65% 86% 57% 28% 43% 61% 73% 37% 35% 41% 73
Slide 7: Corporations are now facing increasingly complex sourcing operations
As a result…corporations are now facing increasingly complex sourcing operations Companies are sourcing from an increasing variety of locations with decentralised manufacturing operations Driven by cheaper Improved emerging Faster communication and materials sourcing market manufacturing infrastruct
Slide 8: …and distribution activities are becoming more global and more complex
…and distribution activities are becoming more global and more complex Consumers are Developing Developed and Increased number of Social media driving demanding more countries’ share emerging countries trade channels consumer behaviours variety in their of global demand is access to technology not o
Slide 9: …which is leading corporations to increase focus on managing their systemic operational risk
…which is leading corporations to increase focus on managing their systemic operational risk More complex operations are creating increased operational risk Tier 3 Tier 2 Tier 1 Consumers Direct Components eCommerce Packaging Materials eRetailer Corporations Warehouse Retail Energy Customers Distrib
Slide 10: Agenda
Agenda 01 Corporate Evolution in Response to Global Trade 02 Intertek: A Pioneer in Quality Assurance 03 Attractive Growth Opportunities in Quality Assurance www.intertek.com 10
Slide 11: Intertek pioneered the Quality Assurance industry
Intertek pioneered the Quality Assurance industry 2009: Intertek 1888: Milton enters the Hersey establishes FTSE 100 1987: “Inchcape Testing Services” a chemical testing formed laboratory in Montreal, Quebec 1973: Labtest 1996: Inchcape established in divests testing 2015: PSI building 1896: Lamp Te
Slide 12: The quality assurance industry is evolving further
The quality assurance industry is evolving further Customers expect more than TIC* to manage the risk in their complex sourcing and distribution operations Assurance ensures our customers identify and A mitigate the intrinsic risk in their operations, supply chain and quality management systems Test
Slide 13: We are evolving to meet the needs of our clients
We are evolving to meet the needs of our clients We have evolved rapidly to support our clients Global Quality Assurance needs and we offer a systemic approach to Quality Assurance with ATIC Global Market Global Market Leader in Leader in TIC Assurance 3,000 1,000+ auditors lab and offices 90,000+ 1
Slide 14: Depth and Breadth of ATIC Solutions
Depth and Breadth of ATIC Solutions Assurance Testing Inspection Certification Management Systems Softlines Agriculture Appliance & Electronic Benchmarking in Quality Hardlines Asset Integrity Aerospace & Automotive & Performance Automotive Building Product Building Products Sustainability & Environ
Slide 15: Intertek Total Quality Assurance Value Proposition
Intertek Total Quality Assurance Value Proposition Systemic Approach to Quality and Safety with ATIC Solutions Research and Development Consumer Raw Materials Management Sourcing Intertek Total Quality Assurance (Assurance, Testing, Inspection and Distribution Certification) Component and Retail Sup
Slide 16: Agenda
Agenda 01 Corporate Evolution in Response to Global Trade 02 Intertek: A Pioneer in Quality Assurance 03 Attractive Growth Opportunities in Quality Assurance www.intertek.com 16
Slide 17: Exciting Growth Opportunities in the $250bn Global ATIC Market
Exciting Growth Opportunities in the $250bn Global ATIC Market Existing customers: Increase account penetration ATIC cross selling $50BN Currently New customers: outsourced New contracts Existing & New customers: $200BN Outsourcing Currently in-house 17
Slide 18: Products Sector Structural Growth Drivers
Products Sector Structural Growth Drivers Consumer Corporations demands evolve… are aiming to… Maintain Faster More variety Constantly quality whilst innovation and choice innovate expanding cycle supply chains Increase Increased focus Improved their focus Protect on sustainable quality on risk repu
Slide 19: Products – 72% of Intertek Group Profit
Products – 72% of Intertek Group Profit How does this impact the earnings model? # of SKUs # of tests Brand SKU Regulation Safety proliferation proliferation Shorter product Increased trade Quality Performance life cycles channels /fast fashion Products Sector ATIC growth rate GDP agnostic GDP+ grow
Slide 20: Continued product development
Continued product development # of global brands selling over 40m 0 2 3 4 6 5 6 9 phones 1983 1992 1998 1999 2000 2003 2004 2007 2010 2016 Technology is Companies are Consumers face Products have playing a major investing more a wider variety increased in part in product in innovation to of choice t
Slide 21: Trade Sector Structural Growth Drivers
Trade Sector Structural Growth Drivers What are the structural growth drivers? Global trading routes have Population growth changed with new producers and emerging market demand Increased transport $ GDP growth infrastructure Development of Regional Development Trade in Asia, the Indian of Global Tr
Slide 22: Trade – 20% of Intertek Group Profit
Trade – 20% of Intertek Group Profit How does this impact the earnings model? Tonnage # of Vessels Global Rise in Number Regional vs. population emerging of routes International growth market demand Global long Small vs. term wealth large creation Trade Sector ATIC growth rate GDP linked GDP growth
Slide 23: Vessel capacity and the volume of seaborne trade is increasing to meet global demand
Vessel capacity and the volume of seaborne trade is increasing to meet global demand Total seaborne cargo capacity is increasing across a range of vessel Greater volumes of cargo in all categories types Oil Tankers Bulk Carriers Millions of DeadWeight Tonnage Oil Container Traded Cargo billions of t
Slide 24: Trade flows will continue to develop
Trade flows will continue to develop The global demand for agricultural products Cargo vessels will continue to support both international and resources continues to develop and intra-regional trade Top 5 Exporters Million tonnes 2001 2015 CAGR Brazil 15.7 54.3 +9.3% USA 28.9 48.2 +3.7% Argentina 7.
Slide 25: Resources Sector Structural Growth Drivers
Resources Sector Structural Growth Drivers Increased demand for energy to support GDP $ and population growth Continued long term demand for energy as emerging markets continue to grow Focus on sustainability, carbon reduction and cleanliness of energy supply Growth in renewables as a source of ener
Slide 26: Resources – 8% of Intertek Group Profit
Resources – 8% of Intertek Group Profit How does this impact the earnings model? Investment in new capacity / Maintenance of existing capacity Replacement of existing capacity Capacity Increased demand Technological Age of equipment utilisation for energy innovation Productivity Productivity Renewab
Slide 27: The long term growth in demand for Resources will be sustained
The long term growth in demand for Resources will be sustained Despite supply currently outstripping demand, the long term trend Oil exploration will continue in the long run to support the demands continues to show growth in global demand for petroleum products from a growing global population 12 9
Slide 28: Intertek High Quality Earnings Model: Our Services
Intertek High Quality Earnings Model Our Services Assurance Testing Inspection Certification 28
Slide 29: Intertek High Quality Earnings Model: Our Sectors
Intertek High Quality Earnings Model Our Services Assurance Testing Inspection Certification Our Sectors Products Trade Resources GDP+ GDP growth Long term growth 29
Slide 30: Our Mid-Long Term Value Creation
Intertek High Quality Earnings Model Our Services Assurance Testing Inspection Certification Our Sectors Products Trade Resources GDP+ GDP growth Long term growth GDP+ Organic Our Mid-Long Term revenue growth Value Creation Margin accretive revenue growth Capex / M&A Strong free cash flow Discipline
Slide 31: Accretive Disciplined Allocation of Capital
Accretive Disciplined Allocation of Capital 01 Capex and working capital investment to support organic growth (target c.5% of revenue in capex) Sustainable shareholder returns through payment of progressive 02 dividends 03 M&A focused on strong growth and margin prospects in businesses with leading
Slide 32: The Intertek Entrepreneurial Culture
The Intertek Entrepreneurial Culture True to its pioneering track record, Intertek is evolving to meet the needs of its customers As the world of Quality Assurance becomes more complex, Intertek is well positioned to seize the attractive growth opportunities Intertek will build on its strong ATIC ca
Slide 33: Our 5x5 strategy
Our 5x5 strategy Will move the centre of gravity of the company to the high growth, high margin opportunities Purpose Vision Customer Promise Bringing Quality The world’s most Our Innovative Assurance, Testing, Inspection and and Safety to Life trusted partner for Certification solutions delivered 2
Slide 34: Summary
Summary Attractive growth prospects in the Quality Assurance market Track record of sustainable growth and shareholder value creation High margin and strongly cash generative earnings model Strategic portfolio focus on attractive growth and margin opportunities Disciplined approach to performance ma