Slide 1: 2016 Full Year Results Presentation
2016 FULL YEAR RESULTS PRESENTATION Strong Revenue, Earnings and Cash Performance 7 March 2017
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: Agenda
AGENDA 01 Performance Highlights 02 2016 Financial Results 03 2016 Strategic Update 04 2017 Outlook by Division 05 Summary 3
Slide 4: Performance Highlights
01 PERFORMANCE HIGHLIGHTS André Lacroix Chief Executive Officer
Slide 5: Strong Revenue and Earnings Growth
STRONG REVENUE AND EARNINGS GROWTH Revenue (£m) Operating Profit (£m) Operating margin (%) 2,567 15.9 16.0 2,166 410 343 FY 15 FY 16 FY 15 FY 16 FY 15 FY 16 +18.5% +19.3% +10bps +8.8% CCR +10.4% CCR +30bps CCR Adjusted EPS (p) Dividend (p) ROIC (%) 167.7 62.4 21.7 140.7 52.3 20.0 FY 15 FY 16 FY 15 F
Slide 6: M&A in Attractive Markets Strengthening Intertek's Portfolio
M&A IN ATTRACTIVE MARKETS STRENGTHENING INTERTEK’S PORTFOLIO £242m additional revenue from M&A PSI MT Group FIT-Italia EWA Canada ABC Analitic Business model Building & Construction Building & Construction Food Electrical and Wireless Environmental Location US US Italy Canada Mexico Completion Date
Slide 7: Group's Centre of Gravity Moving Towards High Growth High Margin Sectors
GROUP’S CENTRE OF GRAVITY MOVING TOWARDS HIGH GROWTH HIGH MARGIN SECTORS Group Revenue Group Operating Profit Group Margin £3,000m £450m 16.2% +10bps £410m +30bps CCR £2,567m £400m +40bps 16.0% £2,500m 16.0% +20bps CCR £343m 15.9% £2,166m £350m £324m £2,093m £2,000m £300m 15.8% 57% £250m 73% 48% 51%
Slide 8: GDP+ Organic Growth in 93% of Earnings
GDP+ ORGANIC GROWTH IN 93% OF EARNINGS 2016 Organic revenue growth CCR (%) 10.0% Products 73% 4.1% Organic of Trade Growth in earnings 20% of Products & Trade earnings 2016 Total revenue growth CCR (%) (10.0%) 10.0% 20.0% 7% of earnings Resources (15.0%) 8
Slide 9: Continuous Cost and Margin Discipline
CONTINUOUS COST AND MARGIN DISCIPLINE Organic operating margin improvement1 +70bps +10bps FY 15 FY 16 Cost reduction activities Productivity management Portfolio strategy Headcount Savings2 • Monthly performance reviews for Top • Organic & inorganic growth in Products 30 countries/16 Business Lines
Slide 10: Strong Cash Conversion and Accretive Disciplined Capital Allocation
STRONG CASH CONVERSION AND ACCRETIVE DISCIPLINED CAPITAL ALLOCATION Working Capital as % of Revenue Cash Generated from Operations Cash Conversion £543m 139% 9.3% 8.8% £442m 136% 7.1% £387m 125% +14.3% +22.9% FY 14 FY 15 FY 16 FY 14 FY 15 FY 16 FY 14 FY 15 FY 16 Free Cash Flow Investment & Growth Di
Slide 11: 2016 Financial Results
02 2016 FINANCIAL RESULTS Edward Leigh Chief Financial Officer
Slide 12: Key Financials
KEY FINANCIALS YoY % Actual Constant FY 16 Rates Rates Revenue £2,567m 18.5% 8.8% Organic revenue1 £2,322m 8.9% 0.1% Operating profit2 £410m 19.3% 10.4% Operating profit margin2 16.0% 10bps 30bps Adjusted Diluted EPS2 167.7p 19.2% 9.6% Free cash flow £318m 35.2% increase Notes: (1) Organic revenue e
Slide 13: Operating Margin Bridge
OPERATING MARGIN BRIDGE 17.0% 50bps 16.6% 20bps 0bps 0bps 15.9% 16.0% 16.0% (40bps) (20bps) 15.0% +70bps at constant rates 14.0% 13.0% FX Trade Resources FY 2016 FY 2015 Products Excluding FX and Acquisitions Divisional mix & Disposals Acquisitions & Disposals 13
Slide 14: Cash Flow & Net Debt
CASH FLOW & NET DEBT £m @ actual exchange rates FY 15 FY 16 Adjusted operating profit1 343.4 409.7 • +19.3% at actual rates Depreciation/amortisation 85.2 89.5 Change in working capital 26.8 52.4 Other2 10.3 13.7 Adjusted cash flow from operations 465.7 565.3 • Cash conversion at 139%5 Net capex (11
Slide 15: Financial Guidance
FINANCIAL GUIDANCE FY 2017 Guidance Net finance cost c.£25m Effective tax rate 25.5 – 26.0% Minority interest c.£17m Diluted shares (as at 31 December 2016) 162.6m Capex £120 – 130m1 Net Debt £650 – 700m2 Note: (1) Before any material change in FX rates; (2) Before any material change in FX rates an
Slide 16: 2016 Strategic Update
03 2016 STRATEGIC UPDATE André Lacroix Chief Executive Officer
Slide 17: Attractive Growth in the $250bn Global Quality Assurance Market
ATTRACTIVE GROWTH IN THE $250BN GLOBAL QUALITY ASSURANCE MARKET Existing customers: • Increase account penetration $50BN • ATIC cross selling Currently New customers: outsourced • New contracts Existing & New customers: $200BN • Outsourcing Currently in-house 17
Slide 18: Structural Growth Drivers
STRUCTURAL GROWTH DRIVERS Products Trade Resources 57% of Revenue 73% of Profit 23% of Revenue 20% of Profit 20% of Revenue 7% of Profit Brand & SKU Faster innovation Long term demand Investment in Population growth GDP growth proliferation cycle for energy infrastructure Focus on Increased Developm
Slide 19: 5x5 Differentiated Strategy
5X5 DIFFERENTIATED STRATEGY Our Customer Promise Intertek Total Quality Assurance expertise delivered consistently with precision, pace and passion, enabling our customers to power ahead safely 5 Strategic Priorities 5 Enablers Strong Brand Proposition Living Our Customer Centric Culture Superior Cu
Slide 20: 5x5 Differentiated Strategy for Growth in Action
5X5 DIFFERENTIATED STRATEGY FOR GROWTH IN ACTION Revenue growth priorities 1. Customer 2. Customer 3. ATIC 4. New 5. Customer Retention Penetration Cross-Selling Customer Wins Outsourcing 20
Slide 21: 1. Customer Retention: Superior Customer Service
1. CUSTOMER RETENTION: SUPERIOR CUSTOMER SERVICE Methodology Coverage NPS Process • Net Promoter Score (NPS) • On average c.6-7,000 customer • Evaluate results in local operations and interviews per month global business lines • Helps drive improved customer retention and pricing power • Covering al
Slide 22: 2. Market Penetration: Existing Softline Lab Example
2. MARKET PENETRATION: EXISTING SOFTLINE LAB EXAMPLE Number of customers Number of test reports CAGR 7.8% CAGR 9.1% 2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016 29 CAGR 3.0% 39 2006 2016 Fabric properties (5) Fabric properties (7) Dimensional & Appearance Change (4) Dimensional & Appe
Slide 23: 3. ATIC Cross Selling: 2016 Customer Examples
3. ATIC CROSS SELLING: 2016 CUSTOMER EXAMPLES Global Automotive Manufacturer Global Toy Retailer Global FMCG Manufacturer • ATIC meeting provided opportunities in: • ATIC meeting provided opportunities in: • ATIC meeting providing opportunities in: - Pre-production supplier qualification - Auditing
Slide 24: 4. New Customer Wins: 2016 Examples
4. NEW CUSTOMER WINS: 2016 EXAMPLES US Hardlines Retailer Global Truck & Bus Company Global Garment e-Retailer • Asked Intertek to manage a more complex • Won an assurance contract for a global • Won a tender for the provision of testing quality assurance requirement, due to a automotive company – c
Slide 25: 5. Customer Outsourcing Wins: 2016 Examples
5. CUSTOMER OUTSOURCING WINS: 2016 EXAMPLES National Mine & Port Operator Americas Haulage & Logistics Provider Global Petroleum Formulator & Manufacturer • Client required expertise and • US logistics client was expanding its • Multi-year agreement with Intertek’s maintenance of specialized robotic
Slide 26: 2017 Outlook by Division
04 2017 OUTLOOK BY DIVISION André Lacroix Chief Executive Officer
Slide 27: Group Outlook 2017
GROUP OUTLOOK 2017 • Solid organic revenue growth at constant currency Good growth momentum in Products Solid growth expected in Trade Continuing challenging trading conditions in Resources • Moderate Group margin progression Portfolio strategy Continuous cost discipline Performance mana
Slide 28: Products – 73% of Group Earnings
PRODUCTS – 73% OF GROUP EARNINGS 2016 Trading @ Constant Currency 2017 Outlook @ Constant Currency Products Division 5.5% Organic Revenue Growth 20.3% Operating Margin Good organic growth • Our Softlines business delivered robust organic growth across our • We expect good growth in the softlines bus
Slide 29: Products – 73% of Group Earnings
PRODUCTS – 73% OF GROUP EARNINGS 2016 Trading @ Constant Currency 2017 Outlook @ Constant Currency Products Division 5.5% Organic Revenue Growth 20.3% Operating Margin Good organic growth • We expect our Building & Construction business to deliver robust organic Building & • Building & Construction
Slide 30: Trade – 20% of Group Earnings
TRADE – 20% OF GROUP EARNINGS 2016 Trading @ Constant Currency 2017 Outlook @ Constant Currency Trade Division 1.3% Organic Revenue Growth 14.0% Operating Margin Solid organic growth • We expect our Cargo/AA business to deliver solid organic growth based on • Benefiting from structural growth driver
Slide 31: Resources – 7% of Group Earnings
RESOURCES – 7% OF GROUP EARNINGS 2016 Trading @ Constant Currency 2017 Outlook @ Constant Currency Resources Division (13.0%) Organic Revenue Growth 5.8% Operating Margin Continued challenging trading conditions Minerals • Minerals testing activities were stable • We expect our Minerals business to
Slide 32: Summary
05 SUMMARY André Lacroix Chief Executive Officer 32
Slide 33: Intertek High Quality Earnings Model
INTERTEK HIGH QUALITY EARNINGS MODEL Assurance Testing Inspection Certification Our Services Products Trade Resources Our Sectors GDP+ GDP growth Long-term growth Our Mid- to Long-Term Value Creation GDP+ Organic revenue growth Margin accretive Capex / M&A revenue growth Strong free cash flow Discip
Slide 34: 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 dividends 02 M&A focused on strong growth and margin prospects in businesses with leading mar
Slide 35: Track Record of Shareholder Value Creation
TRACK RECORD OF SHAREHOLDER VALUE CREATION Revenue (£m) EPS (p) 10y CAGR 14.5% 10y CAGR 14.5% 2015-16 18.5% 2015-16 19.2% 2,567 2,184 167.7 2,054 2,093 2,166 131.2 138.6 132.1 140.7 1,749 107.2 1,237 1,374 89.4 1,004 81.5 775 67.1 665 49.7 43.2 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 F
Slide 36: Summary
SUMMARY • Strong revenue, earnings and cash performance • Attractive growth prospects • Differentiated growth strategy • Disciplined performance management and capital allocation • High quality earnings model 36
Slide 37: Intertek Total Quality. Assured.
intertek Total Quality. Assured.
Slide 38: Group Performance (2014 – 2016)
GROUP PERFORMANCE (2014 – 2016) Revenue (£m) Adjusted Operating Profit (£m) 2,567 2,166 410 2,093 324 343 1,466 1,008 1,111 298 208 234 514 537 585 65 76 82 572 519 517 51 34 30 FY 14 FY 15 FY 16 FY 14 FY 15 FY 16 Margin Key Metrics 2016 % Group % Group Organic Revenue FY 14 FY 15 FY 16 Revenue Prof
Slide 39: Adjusted EPS
ADJUSTED EPS £m @ actual exchange rates FY 15 FY 16 Adjusted operating profit1 343.4 409.7 +19.3% Net interest expense (24.2) (22.4) Profit before tax 319.2 387.3 Tax 25.3% (24.3%) (77.5) (98.0) Profit after tax 241.7 289.3 Non-controlling interest (13.5) (16.6) Net profit 228.2 272.7 Fully diluted
Slide 40: Global Trade Represents 58% of Global GDP
GLOBAL TRADE REPRESENTS 58% OF GLOBAL GDP Demand has become truly global reflected in global supply 69% 51% 53% 65% 86% 57% 28% 43% 61% 73% 37% 35% 41% 73% 27% 63% Global trade as a % of global GDP 132% 19% 56% 58% 39% 31% 49% 44% 39% 33% 45% 75% 65% 24% 29% 63% 41% 1965 1975 1985 1995 2005 2015 40
Slide 41: 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 42: 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 43: Intertek Total Quality Assurance Value Proposition
INTERTEK TOTAL QUALITY ASSURANCE VALUE PROPOSITION Systemic Approach to Quality and Safety with ATIC Solutions 43