Slide 1: 2017 Full Year Results Presentation
2017 FULL YEAR RESULTS PRESENTATION Continued Progress in Revenue, Margin and Cash 6 March 2018
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 2017 Financial Results 03 2017 Strategic Update 04 2018 Outlook by Division 05 Conclusion 3
Slide 4: Performance Highlights
01 PERFORMANCE HIGHLIGHTS
Slide 5: Continued Progress in Revenue, Margin and Cash
CONTINUED PROGRESS IN REVENUE, MARGIN AND CASH Revenue (£m) Adjusted Operating Profit (£m) Adjusted Operating Margin (%) 2,769 468 16.9 2,567 410 15.9 16.0 2,166 343 FY15 FY16 FY17 FY 15 FY 16 FY 17 FY 15 FY 16 FY 17 +7.9% +14.2% +90bps +3.0% CCR +10.0% CCR +110bps CCR Free Cash Flow Adjusted EPS (p
Slide 6: GDP+ Organic Growth in 94% of Earnings
GDP+ ORGANIC GROWTH IN 94% OF EARNINGS Organic growth at constant currency GDP+ Products & Trade Organic Growth 4.8% % of FY 16 FY 17 earnings1 Products 5.5% 5.5% 75% 4.1% Trade 1.3% 3.0% 19% 3.6% Products & Trade 4.1% 4.8% 94% Resources (13.0%) (8.6%) 6% 3.2% Group 0.1% 2.1% 100% 2016 World FY 16 2
Slide 7: Acquisitions Accelerating Revenue Growth
ACQUISITIONS ACCELERATING REVENUE GROWTH Leading provider of product £250m+ added in security certification solutions annual revenues FY17 from acquisitions Market leader in the provision of environmental water testing since 2015 services in Mexico Leading provider of on-road vehicle testing service
Slide 8: Continuous Cost and Margin Discipline
CONTINUOUS COST AND MARGIN DISCIPLINE Margin improvement1 +110bps +30bps +20bps FY 15 FY 16 FY 17 Cost reduction activities Productivity management Portfolio strategy Headcount Savings2 • Monthly performance reviews for Top • Organic growth in Products and Trade 30 countries/16 Business Lines • Marg
Slide 9: Highly Cash Generative Business Model
HIGHLY CASH GENERATIVE BUSINESS MODEL Adjusted EBITDA Cash Generated from Operations Free Cash Flow £563m £342m £543m £579m £499m £318m £429m £442m £235m +16.3% +12.7% +22.9% +6.6% +35.2% +7.4% FY 15 FY 16 FY 17 FY 15 FY 16 FY17 FY 15 FY 16 FY 17 Working Capital as % of Revenue Dividend Payout Ratio
Slide 10: 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 based on a target payout ratio of c.50% M&A focused on strong growth and margin
Slide 11: 2017 Financial Results
02 2017 FINANCIAL RESULTS
Slide 12: Key Financials
KEY FINANCIALS YoY % Actual Constant FY 17 Rates Rates Revenue £2,769m 7.9% 3.0% Organic revenue1 £2,733m 6.9% 2.1% Operating profit2 £468m 14.2% 10.0% Operating profit margin2 16.9% 90bps 110bps Adjusted Diluted EPS2 191.6p 14.3% 10.4% Free cash flow £342m 7.4% increase Notes: (1) Organic revenue e
Slide 13: Operating Margin Bridge
OPERATING MARGIN BRIDGE 18.0% 20bps 17.0% 30bps 16.9% 16.9% 70bps 0bps (20bps) (10bps) 16.0% 16.0% +90bps at constant rates 15.0% 14.0% 13.0% Trade FX Resources FY 2016 FY 2017 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 16 FY 17 Adjusted operating profit1 409.7 467.7 • 14.2% at actual rates Depreciation/amortisation 89.5 94.8 Change in working capital 52.4 19.7 Other2 13.7 13.9 Adjusted cash flow from operations 565.3 596.1 Net capex (102.5) (109.7) Other3 (144.7)
Slide 15: Financial Guidance
FINANCIAL GUIDANCE FY 2018 Guidance Net finance cost £25 – 27m Effective tax rate 25.5 – 26.0% Minority interest c.£20m Diluted shares (as at 31 December 2017) 163.0m Capex £130 – 140m Net Debt £400 – 450m Note: Before any material change in FX rates and any additional M&A 15
Slide 16: 2017 Strategic Update
03 2017 STRATEGIC UPDATE
Slide 17: Intertek High Quality Earnings Model
INTERTEK HIGH QUALITY EARNINGS MODEL Our Services Assurance Testing Inspection Certification Products Trade Resources Our Sectors GDP+ GDP growth Long-term growth Intertek Virtuous Economics Our Mid- to Long-Term GDP+ Organic revenue growth Value Creation Margin accretive Investments in attractive r
Slide 18: Attractive Structural Growth Drivers
ATTRACTIVE STRUCTURAL GROWTH DRIVERS Products Trade Resources 59% of Revenue 75% of Profit 23% of Revenue 19% of Profit 18% of Revenue 6% of Profit Increased number Faster innovation Long term demand Investment in Population growth GDP growth of Brands & SKUs cycle for energy infrastructure Increase
Slide 19: 5x5 Differentiated Strategy for Growth
5X5 DIFFERENTIATED STRATEGY FOR GROWTH 5x5 Strategic Goals 1 2 3 4 5 Fully engaged Superior customer Margin accretive revenue Strong cash conversion Accretive, disciplined employees working in a service in Assurance, growth based on GDP+ from operations capital allocation safe environment Testing, I
Slide 20: Intertek TQA Value Proposition
INTERTEK TQA VALUE PROPOSITION ATIC Revenue Split £2,769m RESEARCH & DEVELOPMENT 14% £2,166m CONSUMER RAW MATERIALS 10% MANAGEMENT SOURCING Systemic End-to-End 54% Quality and Safety 52% Approach with ATIC DISTRIBUTION & RETAIL CHANNELS Solutions COMPONENT SUPPLIERS 30% 24% TRANSPORTATION MANUFACTUR
Slide 21: 5x5 Differentiated Strategy for Growth in Action: Margin Management
5X5 DIFFERENTIATED STRATEGY FOR GROWTH IN ACTION INTERTEK MARGIN MANAGEMENT 01 02 03 04 05 Growth & Superior Systemic Organisation Margin Innovation & Customer Performance Engagement Accretive Kaizen Service Management Portfolio 21
Slide 22: 1. Organisation Engagement
1. ORGANISATION ENGAGEMENT Clear Strategic Goals 1 2 3 4 5 Fully engaged Superior customer Margin accretive revenue Strong cash Accretive, disciplined employees working in a service in Assurance, growth based on GDP+ conversion from capital allocation safe environment Testing, Inspection and organic
Slide 23: 2. Superior Customer Service Underpinning Strong Pricing Power
2. SUPERIOR CUSTOMER SERVICE UNDERPINNING STRONG PRICING POWER Customer Net Promoter Centric Score Entrepreneurial, putting Listening to c.7,000 the Customer 1st customers per month Total Quality Assurance Assurance | Testing | Inspection | Certification Data TQA Value Intelligence Delivery Discipli
Slide 24: 3. A Growth and Margin Accretive Portfolio Strategy
3. A GROWTH AND MARGIN ACCRETIVE PORTFOLIO STRATEGY Invest in Fast Growing 1 Grow Scale Businesses 2 Businesses 3 Improve Performance 4 Portfolio Review 5 M&A • Softlines • Business Assurance • Industry Services • Strategic portfolio review • Focused on attractive growth and margin prospects • Hardl
Slide 25: 4. Systemic Performance Management
4. SYSTEMIC PERFORMANCE MANAGEMENT Disciplined Performance Management Calendar Weekly Monthly Quarterly Yearly 5 Year Plan Financial Metrics Operational Metrics Revenue Growth Pricing Power Marketing Leads Health and Safety Margin Working Capital Customer Retention Sales Funnel ROCE Capital Allocati
Slide 26: 5. Innovation and Kaizen
5. INNOVATION AND KAIZEN INNOVATIONS: CUSTOMER FACING MARGIN ACCRETIVE SOLUTIONS Digital Based Innovations Technology Based Innovations Inspection Autonomous Drone Automated Lab Cutting Edge inLight eReporting Astra SMART LCA Robots Vehicles Inspections Robotics Technology Intertek IoT / Cyber Senso
Slide 27: 2018 Outlook by Division
04 2018 OUTLOOK BY DIVISION
Slide 28: Group Outlook 2018
GROUP OUTLOOK 2018 • Good organic revenue growth at constant currency with sequential progression throughout the year Robust growth momentum in Products Solid growth expected in Trade Continuing challenging trading conditions in Resources in H1 18 and gradual improvement expected in H2 18 • Mo
Slide 29: Excellent Performance in Products with Strong Margin Accretive Revenue Growth
EXCELLENT PERFORMANCE IN PRODUCTS WITH STRONG MARGIN ACCRETIVE REVENUE GROWTH Revenue (£m) Organic Revenue (£m) Operating Profit (£m) Operating Margin (%) 1,625 1,608 350 21.6% 1,466 1,458 298 20.3% FY 16 FY 17 FY 16 FY 17 FY 16 FY 17 FY 16 FY 17 +10.9% +10.3% +17.7% +130bps +6.1% CCR +5.5% CCR +13.
Slide 30: Excellent Performance in Products with Strong Margin Accretive Revenue Growth
EXCELLENT PERFORMANCE IN PRODUCTS WITH STRONG MARGIN ACCRETIVE REVENUE GROWTH FY17 Actual Growth Drivers FY18 Outlook Increased focus of ISO Increased consumer and Double-digit Double-digit Business Assurance corporations on supply standards government focus on ethical organic growth organic growth
Slide 31: Innovations: Products
INNOVATIONS: PRODUCTS i2Q Softlines Robotic Automation Connected and Automated Vehicle Proving Grounds • Customer insight: Customers value fast reports and • Customer insight: For Softlines customers, speed to • Customer insight: Rigorous testing of autonomous insights from supplier inspections with
Slide 32: Good Momentum in Trade with Improved Organic Growth
GOOD MOMENTUM IN TRADE WITH IMPROVED ORGANIC GROWTH Revenue (£m) Organic Revenue (£m) Operating Profit (£m) Operating Margin (%) 648 630 82 89 585 583 14.0% 13.7% FY 16 FY 17 FY 16 FY 17 FY 16 FY 17 FY 16 FY 17 +10.8% +8.1% +8.4% -30bps +5.6% CCR +3.0% CCR +4.1% CCR -20bps CCR FY17 Actual Growth Dri
Slide 33: Innovations: Trade
INNOVATIONS: TRADE iDocs Fuel Tank Inspection Robot Stockpile Measurement • Customer insight: Agriculture export processes are • Customer insight: Fuel tank inspections can be costly • Customer insight: Customers rely on the accurate complex and time consuming with multiple stages of and time-consum
Slide 34: Continuous Challenging Trading Conditions in Resources
CONTINUOUS CHALLENGING TRADING CONDITIONS IN RESOURCES Revenue (£m) Organic Revenue (£m) Operating Profit (£m) Operating Margin (%) 517 496 517 496 30 29 5.8% 5.7% FY 16 FY 17 FY 16 FY 17 FY 16 FY 17 FY 16 FY 17 (4.1%) (4.1%) (5.6%) (10bps) (8.6%) CCR (8.6%) CCR (5.9%) CCR +10bps CCR FY17 Actual Gro
Slide 35: Innovations: Resources
INNOVATIONS: RESOURCES Intertek PipeAwareTM Drones Deliver Industrial Asset Inspection Services Robotic mine site laboratories • Customer insight: Pipeline asset owners require a • Customer insight: Industrial asset owners require • Customer insight: Minerals customers value fast, way in which to ac
Slide 36: Conclusion
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Slide 37: Track Record of Sustainable Shareholder Value Creation
TRACK RECORD OF SUSTAINABLE SHAREHOLDER VALUE CREATION Revenue (£m) Adjusted EPS (p) 15y CAGR 12.7% 15y CAGR 14.0% 2016-17 7.9% 2016-17 14.3% 2,769 2,567 191.6 167.7 2,054 2,184 2,093 2,166 1,749 131.2 138.6 132.1 140.7 1,237 1,374 107.2 1,004 81.5 89.4 665 775 67.1 461 471 500 580 43.2 49.7 26.9 29
Slide 38: High Quality Earnings Model
HIGH QUALITY EARNINGS MODEL • Continued progress in 2017 on revenue, margin, cash and returns • TQA Value Proposition delivering superior customer service • GDP+ organic revenue growth outlook in real terms with attractive structural growth drivers: Products Trade Resources 75% of Group profit based
Slide 39: Intertek: Total Quality. Assured.
intertek Total Quality. Assured.
Slide 40: Group Performance (2015 – 2017)
GROUP PERFORMANCE (2015 – 2017) Revenue (£m) Adjusted Operating Profit (£m) Adjusted Margin (%) £2,769m £468m 16.9% £2,567m £410m £2,166m 15.9% 16.0% £343m 59% 57% 75% 51% 73% 68% 25% 23% 23% 22% 20% 19% 24% 20% 18% 10% 7% 6% FY 15 FY 16 FY 17 FY 15 FY 16 FY 17 FY 15 FY 16 FY 17 Margin Key Metrics 2
Slide 41: Adjusted EPS
ADJUSTED EPS £m @ actual exchange rates FY 16 FY 17 Adjusted operating profit1 409.7 467.7 +14.2% Net interest expense (22.4) (28.9) Profit before tax 387.3 438.8 Tax 24.5% (25.3%) (98.0) (107.5) Profit after tax 289.3 331.3 Non-controlling interest (16.6) (19.0) Net profit 272.7 312.3 Fully diluted
Slide 42: Margin Accretive Solutions
MARGIN ACCRETIVE SOLUTIONS INNOVATIONS: CUSTOMER FACING Digital Based Innovations Technology Based Innovations • Inlight: Cloud based end-to-end supply chain risk management solution • Inspection Robots: Delivering inspections with improved safety and efficiency • eReporting: Bespoke customer report
Slide 43: The Quality Assurance Industry Is Evolving from TIC to ATIC
THE QUALITY ASSURANCE INDUSTRY IS EVOLVING FROM TIC TO ATIC SUPPLY PRODUCTION DISTRIBUTION RETAIL TIER 3 TIER 2 TIER 1 3RD PARTY OWNED TRANSPORTATION DISTRIBUTION CENTRES IN-STORE ONLINE CONSUMER Testing Inspection Certification Testing is evaluating how products and services Inspection is validatin
Slide 44: The Quality Assurance Industry Is Evolving from TIC to ATIC
THE QUALITY ASSURANCE INDUSTRY IS EVOLVING FROM TIC TO ATIC SUPPLY PRODUCTION DISTRIBUTION RETAIL TIER 3 TIER 2 TIER 1 3RD PARTY OWNED TRANSPORTATION DISTRIBUTION CENTRES IN-STORE ONLINE CONSUMER Assurance Ensures our customers identify and mitigate the intrinsic risk in their operations, supply cha
Slide 45: Intertek Provides Global Total Quality Assurance: AA + TT + II + CC
INTERTEK PROVIDES GLOBAL TOTAL QUALITY ASSURANCE: AA + TT + II + CC TIC PROVIDES QUALITY & SAFETY CONTROLS IN HIGH RISK AREAS SUPPLY PRODUCTION DISTRIBUTION RETAIL TIER 3 TIER 2 TIER 1 3RD PARTY OWNED TRANSPORTATION DISTRIBUTION CENTRES IN-STORE ONLINE CONSUMER A A T T I I C C Global multi-tier sour
Slide 46: Intertek Provides a Depth and Breadth of ATIC Solutions
INTERTEK PROVIDES A 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 & Construction Building & Cons
Slide 47: T-Shirt Global Operations – Systemic Risk Management
T-SHIRT GLOBAL OPERATIONS – SYSTEMIC RISK MANAGEMENT SUPPLY PRODUCTION DISTRIBUTION RETAIL TIER 3 TIER 2 TIER 1 3RD PARTY OWNED TRANSPORTATION DISTRIBUTION CENTRES IN-STORE ONLINE CONSUMER Global Organic Commercial & Textile Standard Functional Claims Retail Store Building High Volume Testing & Insp
Slide 48: Lightbulb Global Operations – Systemic Risk Management
LIGHTBULB GLOBAL OPERATIONS – SYSTEMIC RISK MANAGEMENT SUPPLY PRODUCTION DISTRIBUTION RETAIL TIER 3 TIER 2 TIER 1 3RD PARTY OWNED TRANSPORTATION DISTRIBUTION CENTRES IN-STORE ONLINE CONSUMER Physical Testing & Commercial & Chemical Analysis Functional Claims Market Surveillance Hazardous Inspecting
Slide 49: Car Global Operations – Systemic Risk Management
CAR GLOBAL OPERATIONS – SYSTEMIC RISK MANAGEMENT SUPPLY PRODUCTION DISTRIBUTION RETAIL TIER 3 TIER 2 TIER 1 OEM TRANSPORTATION DISTRIBUTION CENTRES OEM CONSUMER Design Validation Certification Plan - Testing Aftermarket Sales Material, Component & Software Validation & Regulatory Ergonomic Panel Tes