Slide 1: Intertek Group plc Investor Presentation
INTERTEK GROUP PLC Investor Presentation
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 1 Intertek: A Pioneer in Quality Assurance 2 Attractive Structural Growth Opportunities 3 Intertek 5x5 Growth Strategy 4 Executing our 5x5 Growth Strategy 5 ATIC Innovations to Accelerate Growth 6 Sustainable Shareholder Value Creation 3
Slide 4: Intertek: A Pioneer in Quality Assurance
1 INTERTEK: A PIONEER IN QUALITY ASSURANCE
Slide 5: Intertek Pioneered the Quality Assurance Industry
INTERTEK PIONEERED THE QUALITY ASSURANCE INDUSTRY 1888: Milton Hersey Establishes his chemical testing lab in Canada 1954: Warnock Hersey Merger to create 'Warnock Hersey', one of the largest testing and 1927: Chas Warnock inspection groups in Canada Forms the Chas Warnock Company in Montreal, Canad
Slide 6: Leading Total Quality Assurance Provider to Industries Globally
LEADING TOTAL QUALITY ASSURANCE PROVIDER TO INDUSTRIES GLOBALLY A Purpose-Led Vision Our Purpose Our Vision Bringing Quality and Safety to Life To Be the Most Trusted Partner in Quality Assurance Total Quality Assurance = Assurance + Testing + Inspection + Certification Assurance Testing Inspection
Slide 7: 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 8: Intertek Business Structure
INTERTEK BUSINESS STRUCTURE Products Trade Resources 59% of Revenue 75% of Profit 23% of Revenue 19% of Profit 18% of Revenue 6% of Profit Softlines Hardlines Caleb Brett Capex Inspection (Cargo & Analytical Assessment) Electrical & Network Business Assurance Assurance AgriWorld Opex Inspection Buil
Slide 9: Attractive Structural Growth Opportunities
2 ATTRACTIVE STRUCTURAL GROWTH OPPORTUNITIES
Slide 10: 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 11: Intertek TQA Services Are Mission Critical for Our Clients
INTERTEK TQA SERVICES ARE MISSION CRITICAL FOR OUR CLIENTS TO OPERATE SAFELY Growing corporate complexity Higher quality expectations Vocal consumers on social media Increased regulatory demands Greater focus on sustainability TQA = ASSURANCE + TESTING + INSPECTION + CERTIFICATION 11
Slide 12: Increased Safety Concerns in the Food Industry
INCREASED SAFETY CONCERNS IN THE FOOD INDUSTRY Frequent Food and Drink Product Recalls “Chicken salad recalls over fears it might “Canada recalls gin over too strong “Crackers recalled over potential cause food poisoning” alcohol content” salmonella risk” Independent, July 2017 ABC News, May 2017 In
Slide 13: The Pace of Change Is Accelerating in Multiple Directions
THE PACE OF CHANGE IS ACCELERATING IN MULTIPLE DIRECTIONS “Growth in Emerging Markets “AI forecasted to increase “The global blockchain “By 2025, the car market for “Global solar power capacity to drive an increase in the USA economic growth by market is expected to be partially autonomous vehicles
Slide 14: Ever Growing Complexity Means Ever Greater Levels of Risk
EVER GROWING COMPLEXITY MEANS EVER GREATER LEVELS OF RISK Growth of New Products Drive Quality Risks Hacking is Driving Increases in Data Breaches 1,579 1,091 783 780 614 421 471 1996 1999 2002 2005 2008 2011 2014 2017 2011 2012 2013 2014 2015 2016 2017 Vehicle Recalls Car Makes Other Breaches Hacki
Slide 15: Global Trading Landscape Significantly Different 50 Years Ago
GLOBAL TRADING LANDSCAPE SIGNIFICANTLY DIFFERENT 50 YEARS AGO n/a 38% 10% 27% 72% 20% 7% Companies produced locally and were focussed on their domestic markets Global Trade represented 25% of Global GDP in the 1960s Trade as % of GDP 15 Source: World Bank. Trade is the sum of exports and imports of
Slide 16: The 21st Century Has Created a Truly Global Market
THE 21ST CENTURY HAS CREATED A TRULY GLOBAL MARKET 69% 51% 53% 65% 86% 57% 28% 43% 61% 73% 37% 35% 41% 73% 63% 27% Global trade as a % of global GDP 132% 56% 39% 51% 31% 49% 39% 45% 24% 65% 75% 29% 63% 41% 1965 1985 2000 2016 Demand has become truly global, reflected in global supply Today Global Tr
Slide 17: Corporations Increasing Focus on Systemic Operational Risk
CORPORATIONS ARE INCREASING THEIR FOCUS ON SYSTEMIC OPERATIONAL RISK SUPPLY PRODUCTION DISTRIBUTION RETAIL TIER 3 TIER 2 TIER 1 3RD PARTY OWNED TRANSPORTATION DISTRIBUTION CENTRES IN-STORE ONLINE CONSUMER Global multi-tier sourcing Global manufacturing Multi-country distribution Multi-channel routes
Slide 18: Redefining the Industry from TIC to ATIC
REDEFINING THE INDUSTRY FROM TIC TO ATIC TO HELP OUR CLIENTS MANAGE GREATER COMPLEXITY TIC PROVIDES QUALITY & SAFETY CONTROLS IN HIGH RISK AREAS Assurance ensures our customers SUPPLY PRODUCTION DISTRIBUTION RETAIL A identify and mitigate the intrinsic risk in their operations, supply chain and qual
Slide 19: 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 20: 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 21: 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
Slide 22: Exciting Global ATIC Growth Opportunities
EXCITING GLOBAL ATIC GROWTH OPPORTUNITIES GLOBAL ATIC MARKET GROWTH OPPORTUNITY 22
Slide 23: Market Penetration: Existing Softline Lab Example
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 & Appeara
Slide 24: 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 25: Intertek 5x5 Growth Strategy
3 INTERTEK 5X5 GROWTH STRATEGY
Slide 26: A Good to Great 5x5 Strategy for Growth
A GOOD TO GREAT 5X5 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,
Slide 27: 5 Strategic Priorities
5 STRATEGIC PRIORITIES Strategic Priorities Action Plans KPIs • Revenue growth • Position Intertek as leading Quality Assurance provider • New leads Strong Brand 01 Proposition • Improve brand awareness across sectors and geographies • Customer acquisitions • Compelling Total Quality Assurance Brand
Slide 28: 5 Enablers
5 ENABLERS Enablers Action Plans KPIs • Revenue and profit Living Our • Strong entrepreneurial culture growth 01 Customer Centric • Decentralised organisation • NPS • Customer centric culture • Organisation engagement Culture • Employee turnover Disciplined • Performance management with financial an
Slide 29: We Operate a Decentralised Customer Centric Organisation
WE OPERATE A DECENTRALISED CUSTOMER CENTRIC ORGANISATION INTERTEK ORGANISATIONAL STRUCTURE BUSINESS LINES GEOGRAPHIC AREAS GLOBAL FUNCTIONS Softlines, Hardlines, Electrical, Connected World, Business Americas ATIC Solutions Innovations Assurance, Building & PRODUCTS Construction, Transportation IT T
Slide 30: Systemic Performance Management
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 Allocation
Slide 31: Offering a Superior Customer Service with Our TQA Value Proposition
OFFERING A SUPERIOR CUSTOMER SERVICE WITH OUR TQA DIFFERENTIATED VALUE PROPOSITION Assurance Assurance ensures our customers identify and mitigate the intrinsic risk in their operations, supply chain and quality management systems RESEARCH & DEVELOPMENT Testing Our Customer RAW CONSUMER MATERIALS Te
Slide 32: Executing Our 5x5 Growth Strategy
4 EXECUTING OUR 5X5 GROWTH STRATEGY
Slide 33: Superior Customer Service Delivery with NPS
SUPERIOR CUSTOMER SERVICE DELIVERY WITH NPS 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 Disciplined operating Bench
Slide 34: Doing Business the Right Way
DOING BUSINESS THE RIGHT WAY DELIVERING SUSTAINABLE GROWTH FOR ALL STAKEHOLDERS 1 2 UN Sustainable Positive Impact Development on our people, Goals suppliers and communities OUR SUSTAINABILITY PRIORITIES 5 3 Comprehensive Supporting our non-financial clients’ ESG KPIs sustainability priorities 4 Cor
Slide 35: Acceleration of Organic Revenue Growth Momentum
ACCELERATION OF ORGANIC REVENUE GROWTH MOMENTUM Organic growth at constant currency H1 organic growth by division Organic revenue growth1 (%) 3.4% 10.0% Products: +5.7% 2.5% 76% of earnings 1.7% Trade: +0.7% 18% of Revenue (10.0%) earnings 10.0% growth (%) 6% Resources: (0.7%) H1 17 H2 17 H1 18 []%
Slide 36: Group Centre of Gravity Moving Towards High Growth Sectors
GROUP CENTRE OF GRAVITY MOVING TOWARDS HIGH GROWTH AND HIGH MARGIN SECTORS Divisional Revenue Split (£m) ATIC Revenue Split (£m) £2,769m £2,769m 14% £2,166m £2,166m 10% 59% 51% 54% 52% 25% 23% 30% 24% 24% 18% 8% 8% FY 15 FY 17 FY 15 FY 17 Products Trade Resources Assurance Testing Inspection Certifi
Slide 37: Selective M&A in Attractive Growth and Margin Sectors
SELECTIVE M&A IN ATTRACTIVE GROWTH AND MARGIN SECTORS £300m+ Added in Annual A leading provider of SaaS-based People Assurance solutions Revenue from Acquisitions A leading network security and assurance services provider Since 2015 FY18 A leading provider of quality and quantity cargo inspection se
Slide 38: ATIC Innovations to Accelerate Growth
5 ATIC INNOVATIONS TO ACCELERATE GROWTH
Slide 39: Innovative Solutions to Accelerate Growth
INNOVATIVE SOLUTIONS TO ACCELERATE GROWTH BREAKTHROUGH INNOVATION Technology that enable solutions BREAKTHROUGH Develop new Create new markets, to create new markets breakthrough products target new customer and services needs ADJACENT INNOVATION IN ADJACENT Develop new Develop new products and prod
Slide 40: Innovation from the Core to Strengthen Existing Services
INNOVATION FROM THE CORE TO STRENGTHEN EXISTING SERVICES Strengthened our differentiated oil and gas testing offering by Intertek’s innovative Mobile Laboratories gives ExxonMobil the leveraging the heritage of our founder Caleb Brett flexibility required to test fuel quality across their fast growi
Slide 41: Innovation in High Growth and High Margin Areas
INNOVATION IN HIGH GROWTH AND HIGH MARGIN AREAS With our Working Conditions Assessments, we Hardlines and Softlines Chemical Testing, safeguarding Intertek KJ Tech offers road testing, allowing auto support our customers in their goal of providing a safe consumers in an environment of rapidly develo
Slide 42: Technology Based Innovation Offering Breakthrough Services
TECHNOLOGY BASED INNOVATION OFFERING BREAKTHROUGH SERVICES Inlight is a SaaS platform delivering the bespoke Alchemy offers SaaS solutions delivering training to Interpret uses near infrared spectrum analysis to mapping of risks across the supply chain ensure employee consistency and compliance in t
Slide 43: Alchemy Expands Intertek's Value Proposition with People Assurance
ALCHEMY EXPANDS INTERTEK’S VALUE PROPOSITION WITH THE ADDITION OF PEOPLE ASSURANCE T I C T I C A STANDARD PRODUCT OR SERVICE SKILLS AND EQUIPMENT AND 4 1 2 3 OPERATING OUTPUT OF INTERTEK BEHAVIOUR ASSETS T PROCEDURES CUSTOMERS People I ASSURANCE Operating Systems ASSURANCE C A A SUPERIOR END-TO-END
Slide 44: Sustainable Shareholder Value Creation
6 SUSTAINABLE SHAREHOLDER VALUE CREATION
Slide 45: 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 46: Consistent Progress in Revenue, Margin and Cash in 15, 16 & 17
CONSISTENT PROGRESS IN REVENUE, MARGIN AND CASH IN 15, 16 & 17 Revenue (£m) Adjusted Operating Profit (£m) Change in Adjusted Operating Margin @ CCR (bps) 2,769 468 +110bps 2,567 410 2,166 324 343 2,093 +20bps +30bps FY14 FY15 FY16 FY17 FY 14 FY 15 FY 16 FY 17 FY 15 FY 16 FY 17 Adjusted EPS (p) Divi
Slide 47: Continuous Progress on Revenue, Margin and Cash in H1 2018
CONTINUOUS PROGRESS ON REVENUE, MARGIN AND CASH IN H1 2018 Revenue (£m) Adjusted Operating Profit (£m) Adjusted Operating margin (%) 1,372 1,348 224 226 16.3% 16.8% H1 17 H1 18 H1 17 H1 18 H1 17 H1 18 +3.9% CCR +6.4% CCR +40bps CCR (1.8%) +0.8% +50bps Adjusted EPS (p) Working Capital (£m) Interim Di
Slide 48: Strong Operating Margin Growth
STRONG OPERATING MARGIN GROWTH 20bps 30bps 16.9% (20bps) 50bps 60bps 20bps (40bps) 16.0% 15.9% (20bps) FY15 Underlying Mix Acquisitions FX FY16 Underlying Mix Acquisitions FX FY17 & Disposals & Disposals 48
Slide 49: Capital Light Business Model
CAPITAL LIGHT BUSINESS MODEL Working Capital % of Return on Invested Operating Margin1 Free Cash Flow1 Revenue Capital1 £342m 16.9% 7.1% 26.7% 16.0% 5.0% £318m 21.7% FY 16 FY 17 FY 16 FY 17 FY 16 FY 17 FY 16 FY 17 Note: (1) Adjusted 49
Slide 50: Disciplined Capital Allocation
DISCIPLINED CAPITAL ALLOCATION 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 prospects in
Slide 51: Track Record of Shareholder Value Creation
TRACK RECORD OF SHAREHOLDER VALUE CREATION Revenue (£m) Adjusted EPS (p) 10y CAGR 14.5% 10y CAGR 14.5% 2016-17 7.9% 2016-17 14.3% 2,769 2,567 191.6 2,184 2,093 2,166 167.7 2,054 1,749 131.2 138.6 132.1 140.7 1,237 1,374 107.2 1,004 81.5 89.4 775 67.1 49.7 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY
Slide 52: Appendix
APPENDIX
Slide 53: Alchemy Solutions Help Assess, Monitor and Improve Employee Skills
ALCHEMY SOLUTIONS HELP ASSESS, MONITOR AND IMPROVE EMPLOYEE SKILLS 1 Alchemy provides people assurance solutions at the front end of the food supply chain 2 Combines innovative technology and proprietary, industry focused, content 3 Business model that is complementary to Intertek as it brings a new
Slide 54: Alchemy Opportunities for Significant Further Food Market Penetration
ALCHEMY OPPORTUNITIES FOR SIGNIFICANT FURTHER FOOD MARKET PENETRATION US Food & Beverage Manufacturing/Processing US Quick Service Restaurants • c.25,000 companies in food & beverage processing • c.900 companies Brands Outlets/ • Over 30,000 plants • Over 270,000 restaurants Sites • Employing over 1
Slide 55: Alchemy Scalable Platform: New Services, New Industries, New Markets
ALCHEMY SCALABLE PLATFORM: NEW SERVICES, NEW INDUSTRIES, NEW MARKETS SERVICES INDUSTRIES GEOGRAPHIES Professional Job Equipment Franchises Non-Food France UK Germany Training Training Manufacturing Supervisor Training Entertainment & Leisure Brazil Chile Today Today Today • Workers Skills Audit & Tr
Slide 56: Alchemy a Value Accretive Transaction
ALCHEMY A VALUE ACCRETIVE TRANSACTION • $480m on cash and debt free basis • Represents 7.2x 2018E Billings DEAL METRICS • Valuation compares favourably with comparable companies that are trading on median 2018 EV/Revenue of 9.3x with an average expected 2018-19 growth rate of 20%** DELIVERING • High
Slide 57: Alchemy Attractive Revenue, Margin, Cash Opportunities
ALCHEMY ATTRACTIVE REVENUE, MARGIN, CASH OPPORTUNITIES 5 YEAR GUIDANCE Billings / Revenue High growth of c.20% p.a. IFRS EBITDA margin >30% by year 5 IFRS EBIT margin >25% by year 5 Working capital Negative Capex Low intensity of < 5% Billings Free Cash Flow Strong cash conversion Tax c.25% EPS Bill
Slide 58: Illustrative IFRS Adjustments
ILLUSTRATIVE IFRS ADJUSTMENTS ILLUSTRATIVE £100M EXAMPLE BILLINGS BASIS IFRS BASIS IFRS BASIS PLUS FAIR VALUE ADJUSTMENT Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4 Year 5 Year 1 Year 2 Year 3 Year 4 Year 5 £’m Billings 100 115 132 152 175 Revenue 94 110 127 146 168 Revenue 79 105