Slide 1: 2017 Half Year Results Presentation
2017 HALF YEAR RESULTS PRESENTATION Strong Earnings Growth and Cash Generation 1 August 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 H1 2017 Financial Results 03 Strategic Update 04 2017 Outlook by Division 05 Summary 3
Slide 4: Performance Highlights
01 PERFORMANCE HIGHLIGHTS 4
Slide 5: Strong Earnings Growth and Cash Generation
STRONG EARNINGS GROWTH AND CASH GENERATION Revenue (£m) Operating Profit (£m) Operating margin (%) 1,204 1,372 224 16.3% 186 15.4% H1 16 H1 17 H1 16 H1 17 H1 16 H1 17 +13.9% +20.4% +90bps +2.7% CCR +10.1% CCR +110bps CCR Cash Flow from Operations (£m) Adjusted EPS (p) Interim Dividend (p) 90.4 23.5
Slide 6: 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 16.6% £1,500m £250m +90bps £1,372m £224m +110bps CCR2 16.3% £1,204m £1,200m £200m 16.2% £186m £1,060m £164m 58% £900m £150m 56% 73% 50% 15.8% 72% 67% £600m £100m -10bps 15.5% +1
Slide 7: 5.5% Organic Revenue Growth in 94% of Earnings
5.5% ORGANIC REVENUE GROWTH IN 94% OF EARNINGS H1 17 Organic revenue growth CCR1 (%) 10.0% Products: +5.8% 73% of earnings 21% 5.0% of Trade: +4.6% earnings H1 17 Total revenue (10.0%) 10.0% 20.0% growth (%) (5.0%) GDP+ Organic Growth in (10.0%) Products & Trade: +5.5% 6% Resources: (12.3%) of earni
Slide 8: Organic Operating Margin Accretion of 100bps
ORGANIC OPERATING MARGIN ACCRETION OF 100BPS Organic operating margin improvement1 +100bps +60bps +40bps H1 15 H1 16 H1 17 Cost reduction activities Productivity management Portfolio strategy Headcount Savings2 • Monthly performance reviews for Top • Margin accretive revenue growth in 30 countries/1
Slide 9: H1 2017 Financial Results
02 H1 2017 FINANCIAL RESULTS 9
Slide 10: Key Financials
KEY FINANCIALS YoY % Actual Constant H1 17 Rates Rates Revenue £1,372m 13.9% 2.7% Organic revenue1 £1,355m 12.8% 1.7% Operating profit2 £224m 20.4% 10.1% Operating profit margin2 16.3% 90bps 110bps Adjusted diluted EPS2 90.4p 21.3% 11.4% Free cash flow £124m £75m increase Notes: (1) Organic revenue
Slide 11: Operating Margin Bridge
OPERATING MARGIN BRIDGE 17.0% 16.4% 10bps 40bps 16.3% 10bps 0bps (20bps) 16.0% 50bps 15.4% 15.0% +100bps at constant rates 14.0% 13.0% Trade FX Resources H1 16 H1 17 Products Excluding FX and Acquisitions Divisional mix & Disposals Acquisitions & Disposals 11
Slide 12: Cash Flow & Net Debt
CASH FLOW & NET DEBT £m @ actual exchange rates H1 16 H1 17 Adjusted operating profit1 185.9 223.9 • +20.4% at actual rates Depreciation/amortisation 42.4 47.3 Change in working capital (76.7) (52.3) Other2 4.3 7.1 Adjusted cash flow from operations 155.9 226.0 • Cash flow from operations up 45% Net
Slide 13: Financial Guidance
FINANCIAL GUIDANCE FY 2017 Guidance Net finance cost £25-28m Effective tax rate 25.5 – 26.0% Minority interest c.£17m Diluted shares (as at 30 June 2017) 162.8m Capex £120 – 130m Net Debt £600 – 650m Note: Before any material change in FX rates and any additional M&A 13
Slide 14: Strategic Update
03 STRATEGIC UPDATE 14
Slide 15: 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 16: Attractive Growth in the $250bn Global Quality Assurance Market
ATTRACTIVE GROWTH IN THE $250BN GLOBAL QUALITY ASSURANCE MARKET Existing customers: • Increase account penetration • ATIC cross selling $50BN New customers: Currently • New contracts outsourced Existing & New customers: • Outsourcing $200BN Currently in-house 16
Slide 17: Structural Growth Drivers
STRUCTURAL GROWTH DRIVERS Products Trade Resources 58% of Revenue 73% of Profit 24% of Revenue 21% 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 Increased consumer
Slide 18: 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 5x5 Strategic Goals 1 2 3 4 5 Fully engaged Superior customer Margin accretive Strong cash Accretive, empl
Slide 19: Innovation to Deliver Superior Customer Service
INNOVATION TO DELIVER SUPERIOR CUSTOMER SERVICE 19
Slide 20: Innovations: Products
INNOVATIONS: PRODUCTS Nespresso Recycling Assurance Toy Apparatus Sustainability Cloud Assurance • Customer insight: Nespresso is managing the • Customer insight: Toys like whistles and kazoos, have • Customer insight: Customers need life cycle environmental issues associated with the disposal of sm
Slide 21: Innovations: Trade
INNOVATIONS: TRADE Horticultural Lighting Mercury Decontamination Alternative fuels • Customer insight: Horticultural lights are subject to • Customer insight: Mercury contamination puts • Customer insight: In a growing market for alternative complex environmental conditions, and currently physical
Slide 22: Innovations: Resources
INNOVATIONS: RESOURCES Concrete Sensors Costcom 3D Metrology • Customer insight: Customers need assurance that • Customer insight: Power plants often start, stop, and • Customer insight: Customers need better insight into critical concrete infrastructures, such as road & rail cycle, which impacts th
Slide 23: Outlook by Division
04 OUTLOOK BY DIVISION
Slide 24: Group Outlook 2017
GROUP OUTLOOK 2017 • Solid organic revenue growth at constant currency Robust growth momentum in Products Good growth momentum in Trade Continuing challenging trading conditions in Resources • Robust Group margin progression at constant currency Continuous cost discipline Performance manag
Slide 25: 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 (%) 799 791 164 20.5% 678 675 134 19.7% H1 16 H1 17 H1 16 H1 17 H1 16 H1 17 H1 16 H1 17 +17.8% +17.2% +22.8% +80bps +6.4% CCR +5.8% CCR +11.9% CCR +1
Slide 26: Excellent Performance in Products with Strong Margin Accretive Revenue Growth
EXCELLENT PERFORMANCE IN PRODUCTS WITH STRONG MARGIN ACCRETIVE REVENUE GROWTH Growth Drivers HY17 Actual / FY17 Outlook Increased focus of ISO Increased consumer and Business Assurance corporations on supply standards government focus on ethical Double-digit organic growth chain and risk management
Slide 27: Good Momentum in Trade with Improved Organic Growth and Margin Progression
GOOD MOMENTUM IN TRADE WITH IMPROVED ORGANIC GROWTH AND MARGIN PROGRESSION Revenue (£m) Organic Revenue (£m) Operating Profit (£m) Operating Margin (%) 326 317 14.1% 273 273 46 13.6% 37 H1 16 H1 17 H1 16 H1 17 H1 16 H1 17 H1 16 H1 17 +19.6% +16.3% +24.1% +50bps +7.5% CCR +4.6% CCR +12.5% CCR +60bps
Slide 28: Continuous Challenging Trading Conditions in Resources
CONTINUOUS CHALLENGING TRADING CONDITIONS IN RESOURCES Revenue (£m) Organic Revenue (£m) Operating Profit (£m) Operating Margin (%) 254 247 254 247 15 14 6.0% 5.7% H1 16 H1 17 H1 16 H1 17 H1 16 H1 17 H1 16 H1 17 (2.4%) (2.4%) (8.5%) (30bps) (12.3%) CCR (12.3%) CCR (12.5%) CCR 0bps CCR Growth Drivers
Slide 29: M&A in Attractive Markets Strengthening Intertek's Portfolio
M&A IN ATTRACTIVE MARKETS STRENGTHENING INTERTEK’S PORTFOLIO FIT-Italia EWA Canada ABC Analitic KJ Tech Business line Food Network Assurance Sustainability Transportation Technologies Location Italy Canada Mexico Germany Completion Date January 2016 October 2016 November 2016 March 2017 Leading prov
Slide 30: Summary
05 SUMMARY 30
Slide 31: Summary
SUMMARY • Strong earnings growth and cash generation with interim dividend up 21% • Attractive growth prospects in the $250bn global Quality Assurance market • Total Quality Assurance differentiated growth strategy “We are on track on • Disciplined performance management and capital allocation our ‘
Slide 32: Intertek: Total Quality. Assured.
intertek Total Quality. Assured.
Slide 33: Group Performance (H1 16 – H1 17)
GROUP PERFORMANCE (H1 16 – H1 17) Revenue (£m) Adjusted Operating Profit (£m) 1,372 224 1,204 186 799 164 678 134 273 326 37 46 254 247 15 14 H1 16 H1 17 H1 16 H1 17 Margin Key Metrics H1 2017 % Group % Group Organic Revenue H1 16 H1 17 Revenue Profit Growth1 Products 19.7% 20.5% 58% 73% 5.8% Trade
Slide 34: Group Performance (2015 – 2016)
GROUP PERFORMANCE (2015 – 2016) Revenue (£m) Adjusted Operating Profit (£m) 2,567 2,166 410 343 1,466 1,111 298 234 537 585 76 82 519 517 34 30 FY 15 FY 16 FY 15 FY 16 Margin Key Metrics 2016 % Group % Group Organic Revenue FY 15 FY 16 Revenue Profit Growth1 Products 21.1% 20.3% 57% 73% 5.5% Trade 1
Slide 35: Adjusted EPS
ADJUSTED EPS £m @ actual exchange rates H1 16 H1 17 Adjusted operating profit1 185.9 223.9 +20.4% Net interest expense (13.4) (13.6) Profit before tax 172.5 210.3 Tax 25.5% (25.3%) (43.6) (53.6) Profit after tax 128.9 156.7 Non-controlling interest (7.9) (9.4) Net profit 121.0 147.3 Fully diluted sh
Slide 36: Key Investor Information
KEY INVESTOR INFORMATION Key dates: 2017 November Trading Update 21 November 2017 2017 Full Year Results 6 March 2018 Conference attendance: HSBC, Business Services Conference, Frankfurt 7 September 2017 IR UBS, Support and Business Services Conference, London 13 September 2017 CFO, IR Sanford C. Be