EVER BETTER, EVER STRONGER 2018 FULL YEAR RESULTS PRESENTATION

Transcription

1 EVER BETTER, EVER STRONGER 2018 FULL YEAR RESULTS PRESENTATION 5 March 2019

2 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 events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this presentation should be construed as a profit forecast. 5 March

3 AGENDA 01 Performance Highlights Financial Results 03 5x5 Strategy Update Outlook by Division 05 Conclusion

4 01 PERFORMANCE HIGHLIGHTS

5 7.7% EPS GROWTH 1.6X REVENUE GROWTH Revenue ( m) Adjusted Operating Profit ( m) Adjusted Operating Margin 2,093 2,166 2,567 2,769 2, % 15.9% 16.0% 16.9% 17.2% FY14 FY15 FY16 FY17 FY Adjusted EPS (p) FY 14 FY 15 FY 16 FY 17 FY 18 FY 14 FY 15 FY 16 FY 17 FY CAGR: 7.6% +1.2% CAGR: 10.4% +3.0% 14-18: +170BPS +4.7% CCR +6.9% CCR Dividend (p) FY 14 FY 15 FY 16 FY 17 FY 18 FY 14 FY 15 FY 16 FY 17 FY Free Cash Flow ( m) bps + 40bps CCR FY 14 FY 15 FY 16 FY 17 FY CAGR: 10.7% +3.5% CAGR: 19.2% +39% CAGR: 17.4% +2.6% +7.7% CCR 5

6 CONTINUOUS ORGANIC REVENUE GROWTH ACCELERATION Organic at constant currency FY18 organic by division 3.4% 4.0% Organic revenue 1 (%) 10% 2.5% Products: +5.2% 1.7% 77% of earnings 17% of earnings Trade: +2.2% H1 17 H2 17 H1 18 H2 18 (5%) 6% 10% Resources: 0.3% Revenue 1 (%) []% Note: (1) At 2018 constant currency rates (5%) 6

7 17.2% OPERATING PROFIT MARGIN +40BPS YOY, +170 BPS SINCE 2014 Margin improvement 1 110bps +20bps +30bps +40bps FY 15 FY 16 FY 17 FY 18 Cost reduction activities Headcount Savings m m m m Productivity management Monthly performance reviews for Top 30 countries/16 Business Lines Business Line and country benchmarking Site span of performance management Cost discipline Portfolio strategy Organic in Products and Trade Margin accretive acquisitions Strategic review of underperforming business units Consolidation of facilities 7 Notes: (1) At 2018 constant currency rates; (2) Annualised

8 STRONG CASH PERFORMANCE Adjusted EBITDA 401m 429m 499m 563m 571m Cash Generated from Operations 387m 442m 543m 579m 581m 185m 235m Free Cash Flow 318m 342m 351m FY 14 FY 15 FY 16 FY 17 FY 18 FY 14 FY 15 FY 16 FY17 FY18 FY 14 FY 15 FY 16 FY 17 FY CAGR: 9.2% CAGR: 10.7% CAGR: 17.4% Working Capital as % of Revenue Dividend Payout Ratio Net Debt / EBITDA 9.3% 8.8% 7.1% 5.0% 3.9% 37% 37% 37% 37% 50% 1.6x 1.8x 1.5x 1.0x 1.4x FY 14 FY 15 FY 16 FY17 FY18 FY14 FY 15 FY 16 FY17 FY18 FY 14 FY 15 FY 16 FY17 FY : (540BPS) 8

9 M&A IN ATTRACTIVE GROWTH AND MARGIN SECTORS A leading provider of SaaS-based People Assurance solutions A leading network security and assurance services provider FY18 A leading provider of quality and quantity cargo inspection services Leading provider of materials testing and speciality construction inspection in New York FY15 Non-Destructive Testing services for the energy industry across Australasia Market leader in food assurance and inspection in Italy FY16 Leading provider of cyber security network assurance services Leading provider of product security certification solutions FY17 Leading provider of on-road vehicle testing services A leading provider of laboratory testing, inspection, metrology and training services Leading US provider of testing and assurance services to commercial and civil construction markets Leading certification body in Market leader in the provision of Denmark with an established environmental water testing network and expertise in auditing, services in Mexico certification and training 9

10 FINANCIAL RESULTS 10

11 KEY FINANCIALS FY 18 Actual Rates YoY % Constant Rates Revenue 2,801m 1.2% 4.7% Organic revenue 1 2,770m 0.2% 3.7% Operating profit 2 482m 3.0% 6.9% Operating profit margin % 30bps 40bps Adjusted Diluted EPS p 3.5% 7.7% Free cash flow 351m 2.6% Notes: (1) Organic revenue excludes the impact of acquisitions and disposals in 2017 and 2018; (2) Before separately disclosed items 11

12 FY 2017 Products Trade Resources Divisional mix Excluding FX and Acquisitions & Disposals Acquisitions & Disposals FX FY 2018 OPERATING MARGIN BRIDGE 18.0% 17.0% 40bps (20bps) 0bps 10bps 17.2% 10bps (10bps) 17.2% 16.9% 16.0% 15.0% +30bps organic at constant rates 14.0% 13.0% 12 Note: Organic excludes the impact of acquisitions and disposals in 2017 and 2018

13 CASH FLOW & NET DEBT actual exchange rates FY 17 FY 18 Adjusted operating profit Depreciation/amortisation Change in working capital Other Cash flow for cash conversion Cash conversion % 128% 126% 3.0% at actual rates 126% cash conversion Net capex (109.7) (109.7) Other 3 (147.6) (144.6) Free cash flow FCF 109% of adjusted Net Income Acquisitions 4 (27.4) (387.9) Net debt Net debt / 1.4x EBITDA Notes: (1) Before Separately Disclosed Items; (2) Comprises Equity Settled transactions and other Non-Cash Items; (3) Comprises: Exceptionals, Interest Paid/Received and Tax; Special pension contributions (4) Total cash consideration in FY18 for 2018 acquisitions 393.5m, with cash acquired of 5.6m 13

14 FINANCIAL GUIDANCE FY 2019 Guidance Net finance cost 31 33m Effective tax rate % Minority interest 21 23m Diluted shares (as at 31 December 2018) 162.8m Capex Net Debt m m 14 Note: Net debt guidance before any material change in FX rates, any additional M&A and impact of IFRS 16

15 03 5X5 STRATEGY UPDATE 15

16 5X5 DIFFERENTIATED STRATEGY FOR GROWTH 5x5 Strategic Goals Fully engaged employees working in a safe environment Superior customer service in Assurance, Testing, Inspection and Certification Margin accretive revenue based on GDP+ organic 5 Strategic Priorities 5 Enablers Strong cash conversion from operations Accretive, disciplined capital allocation policy Differentiated Brand Proposition Superior Customer Service Living Our Customer Centric Culture Disciplined Performance Management Effective Sales Strategy Superior Technology Growth and Margin Accretive Portfolio Energising Our People Operational Excellence Delivering Sustainable Results 16

17 THE 21ST CENTURY HAS CREATED A TRULY GLOBAL MARKET 69% 47% 61% 64% 62% 87% 26% 63% 45% 63% 49% 38% 31% 78% 24% 56% 123% Global trade as a % of global GDP 72% 34% 26% 41% 39% 51% 47% 52% 75% 24% 25% 58% 42% Demand has become truly global, reflected in global supply Today Global Trade represents 72% of Global GDP Trade as % of GDP Source: World Bank. Trade is the sum of exports and imports of goods and services measured as a share of gross domestic product. 17

18 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 to market GROWING COMPLEXITY DRIVING DEMAND FOR END-TO-END SYSTEMIC QUALITY ASSURANCE 18

19 ATIC SOLUTIONS HELPING OUR CLIENTS MANAGE GREATER COMPLEXITY TIC PROVIDES QUALITY & SAFETY CONTROLS IN HIGH RISK AREAS SUPPLY TIER 3 TIER 2 TIER 1 3RD PARTY PRODUCTION OWNED TRANSPORTATION DISTRIBUTION DISTRIBUTION CENTRES RETAIL IN-STORE ONLINE CONSUMER A T T I I C C ASSURANCE PROVIDES AN END-TO-END ASSESSMENT OF QUALITY & SAFETY PROCESSES 19

20 SUPERIOR CUSTOMER SERVICE WITH OUR TQA VALUE PROPOSITION Assurance CONSUMER MANAGEMENT RESEARCH & DEVELOPMENT Our Customer Promise Intertek Total Quality Assurance expertise delivered consistently with precision, pace and passion, enabling our customers to power ahead safely RAW MATERIALS SOURCING Assurance ensures our customers identify and mitigate the intrinsic risk in their operations, supply chain and quality management systems Testing Testing is evaluating how products and services meet and exceed quality, safety, sustainability and performance standards Inspection DISTRIBUTION & RETAIL CHANNELS Assurance Testing Inspection Certification COMPONENT SUPPLIERS Inspection is validating the specifications, value and safety of raw materials, products and assets Certification TRANSPORTATION MANUFACTURING Certification is certifying that products and services meet trusted standards TQA END-TO-END SYSTEMIC APPROACH TO QUALITY ASSURANCE 20

21 GROUP CENTRE OF GRAVITY MOVING TOWARDS HIGH GROWTH AND HIGH MARGIN SECTORS Divisional Revenue Split ( m) ATIC Revenue Split ( m) 2,801m 2,801m 2,166m 2,166m 2,166m 16% 16% 51% 60% 10% 10% 52% 52% 53% 53% 25% 23% 24% 17% FY 15 FY18 30% 22% 8% 9% 8% 9% FY 15 FY18 Products Trade Resources Assurance Testing Inspection Certification 30% FY 15 22% FY18 21

22 2,093m 2,801m 324m 482m 15.5% 17.2% 132p 198p 9.3% 3.9% 185m 351m 49.1p 99.1p 444m 691m 22.7% CONSISTENT PROGRESS ON REVENUE, MARGIN, CASH AND ROIC Revenue Profit Margin EPS WC% Revenue Free Cash Flow DPS +34% +49% +170bps +51% (540)bps +90% +102% Capex Investment M&A Investment ROIC % CAGR % CAGR % CAGR % CAGR % CAGR DISCIPLINED PERFORMANCE MANAGEMENT Performance Management Calendar Weekly Monthly Quarterly Yearly 5 Year Plan X-PERFORMANCE FACTOR DRIVING SUSTAINABLE VALUE CREATION 1 2.8x Financial Metrics Operational Metrics 2.3x Revenue Growth Pricing Power Marketing Leads Health and Safety Margin Working Capital Customer Retention Sales Funnel 1.6x ROCE Cash Conversion Customer Profitability Capital Allocation Cost Investments in Growth Customer Acquisitions Employee Turnover Operational Excellence Backlog Management Net Promoter Score Site Capacity Utilisation OP X Rev. 2 FCF X Rev. TSR X Rev Note: (1) Based on CAGR; (2) At 2018 constant currency rates 22

23 EVER BETTER EVER STRONGER EVER BETTER GROWTH EVER STRONGER PERFORMANCE Service Offering / Innovations Sales Management Operational Excellence Margin Management Cash Management 23

24 THE PACE OF CHANGE IS ACCELERATING IN MULTIPLE DIRECTIONS AI forecasted to increase USA economic by 35% by 2035 The global blockchain market is expected to be worth US$20bn in 2024 Global solar power capacity to increase 590% by 2040 Growth in Emerging Markets to drive an increase in the world s middle class to 5bn people by 2030 By 2025, the car market for partially autonomous vehicles is expected to be at US$36bn The rise of cyber crime continues to accelerate: UK business cyber crime rose 63% in 2017 By 2050, 70% of the world s population will live in cities Ecommerce, online food and traceability are rewriting the retail rulebook 22% of American adults have sold in the Sharing Economy Sales of Electric Vehicles will increase 1,000% in the next 8 years Between 2009 and 2015 the number of internationally recognised trademarks grew 50% to 24m 87% of millennials would be more loyal to a company that supports environmental issues IoT will change the way we live and work By 2050 there will be 2bn people aged over 60 A MORE COMPLEX CORPORATE WORLD MEANS MORE GROWTH OPPORTUNITIES FOR INTERTEK 24

25 EVER GROWING COMPLEXITY MEANS EVER GREATER LEVELS OF RISK FOR CORPORATIONS Growing Food and Drink Recalls Hacking is Driving Increases in Data Breaches Food and Drink Recalls Hacking Breaches Other Breaches 1,579 1, Increasing Recalls of Medical Devices Growth of New Products Drive Quality Risks Medical Devices Recalls Vehicle Recalls Car Makes Sources: Food and Drink USDA; Hacking - Identity Theft Resource Centre; Medical Devices US FDA; Vehicles - National Highway Traffic Safety Administration

26 INNOVATIVE SOLUTIONS TO ACCELERATE GROWTH BREAKTHROUGH INNOVATION ADJACENT INNOVATION Develop new products and services Strengthen existing products and services Enter adjacent markets, serving Breakthrough adjacent customers Technology that enable solutions to create new markets CORE INNOVATION Serve existing markets and customers BREAKTHROUGH INNOVATION Technology that enable solutions to create new markets INNOVATION IN ADJACENT SEGMENTS Expanding into fast growing and high margin adjacent segments INNOVATION FROM THE CORE Strengthening existing products and services SUPPORTING OUR CUSTOMERS TO THRIVE IN AN INCREASINGLY COMPLEX WORLD 26 26

27 INNOVATION FROM THE CORE TO STRENGTHEN EXISTING SERVICES Strengthened our differentiated oil and gas testing offering by leveraging the heritage of our founder Caleb Brett Intertek s innovative Mobile Laboratories gives ExxonMobil the flexibility required to test fuel quality across their fast growing Mexico retail business Intertek PipeAware 2 delivers technology enabled transparency into the pipeline manufacturing and construction process Voice of the Consumer leverages our customers consumer feedback through holistic product assurance plans, addressing safety, quality and perception concerns 27

28 INNOVATION IN HIGH GROWTH AND HIGH MARGIN ADJACENT SEGMENTS With our Working Conditions Assessments, we support our customers in their goal of providing a safe and ethical working environment for their employees Hardlines and Softlines Chemical Testing, safeguarding consumers in an environment of rapidly developing chemical regulations and advanced materials technologies Intertek KJ Tech offers road testing, allowing auto manufacturers to understand how their vehicles perform in real life situations Intertek s Cybersecurity Services are an integral part of our differentiated TQA service offering, addressing growing cyber threats as part of a systemic risk mitigation approach With our global network of Sustainability experts and ATIC solutions, Intertek is uniquely placed to help customers achieve their existing and emerging sustainability goals 28

29 TECHNOLOGY BASED INNOVATION OFFERING BREAKTHROUGH SERVICES Inlight is a SaaS platform delivering the bespoke mapping of risks across the supply chain Alchemy offers SaaS solutions delivering training to ensure employee consistency and compliance in the fast growing food industry Interpret uses near infrared spectrum analysis to predict the physical properties of crude oil, reducing the time taken from weeks to minutes Wisetail is a leading e-learning platform that helps restaurants and retailers create a brand specific operating culture On Track enables restaurant brands to benchmark operational performance and efficiently train staff through interactive simulations and gamification 29

30 OUTLOOK BY DIVISION

31 GROUP OUTLOOK 2019 Good organic revenue at constant currency Good expected in Products Good expected in Trade Solid expected in Resources Moderate Group margin progression Portfolio strategy Continuous cost discipline Performance management Strong cash conversion Capex: m Net debt: m 31 Note: Net debt guidance before any material change in FX rates, any additional M&A and impact of IFRS 16

32 EXCELLENT PERFORMANCE IN PRODUCTS WITH 9.5% PROFIT GROWTH Revenue ( m) Organic Revenue ( m) Operating Profit ( m) Operating Margin (%) 1,626 1,680 1,621 1, % 22.1% FY 17 FY % +6.6% CCR FY 17 FY % +5.2% CCR FY 17 FY % +9.5% CCR FY 17 FY bps +60bps CCR FY18 Actual Growth Drivers FY19 Outlook Softlines Solid organic Increased number of Brands & SKUs Supply chain expansion in new markets Increased demand in chemical testing Solid organic Hardlines Good organic Innovation from our customers leveraging wireless technology Increased demand for chemical testing Innovative inspection technology Good organic Electrical & Connected World Robust organic Electrical appliance innovations to provide better efficiency and connectivity Increased demand for IoT Assurance services, including cyber security Robust organic 32

33 EXCELLENT PERFORMANCE IN PRODUCTS WITH 9.5% PROFIT GROWTH FY18 Actual Growth Drivers FY19 Outlook Business Assurance Strong organic Increased focus of corporations on supply chain and risk management ISO standards upgrades Increased consumer and government focus on ethical and sustainable supply Robust organic Building & Construction Robust organic Growing demand for greener, safer and higher quality commercial buildings Increased investment in large infrastructure projects Good organic Transportation Technology Double-digit organic Continued investment of our clients in new models and new fuel efficient engines Growth in the hybrid / electric engine segment Increased scrutiny on emissions Robust organic Food Robust organic Continuous food innovation Increased focus on the safety of supply chains Growth in the food service assurance business Robust organic Chemicals and Pharma Robust organic Growth of SKUs Expansion of the supply base in emerging markets Increased concerns on product safety and traceability Solid organic 33

34 SOLID MOMENTUM IN TRADE WITH 2.2% ORGANIC GROWTH Revenue ( m) Organic Revenue ( m) Operating Profit ( m) Operating Margin (%) % 13.0% FY 17 FY 18 (0.9)% +3.1% CCR FY 17 FY 18 (1.7)% +2.2% CCR FY 17 FY 18 (6.0)% (1.3)% CCR FY 17 FY 18 (70)bps (60)bps CCR FY18 Actual Growth Drivers FY19 Outlook Caleb Brett Solid organic Global and regional trade structural drivers Increased transport infrastructure Good organic Government & Trade Services Robust organic Award of new contracts GDP Population Robust organic AgriWorld Below last year The expansion of our clients supply chains in fast growing markets New customer wins Solid organic 34

35 IMPROVED TRADING CONDITIONS IN RESOURCES WITH STABLE REVENUE AND MARGIN Revenue ( m) Organic Revenue ( m) Operating Profit ( m) Operating Margin (%) % 5.7% FY 17 FY 18 (3.4)% +0.3% CCR FY 17 FY 18 (3.4)% +0.3% CCR FY 17 FY 18 (3.9)% (0.4)% CCR FY 17 FY 18 0bps (10)bps CCR FY18 Actual Growth Drivers FY19 Outlook Capex Inspection Slight decline Demand for energy Asset productivity Technological innovation Solid organic Opex Inspection Stable revenue Capacity utilisation Ageing of equipment Asset productivity Stable Revenue Minerals Robust organic Minerals demand Technological innovation Outsourcing Good organic 35

36 05 CONCLUSION

37 Our Mid- to Long-Term Value Creation Our Sectors Our Services INTERTEK HIGH QUALITY EARNINGS MODEL Assurance Testing Inspection Certification Products Trade Resources GDP+ GDP Long-term GDP+ Organic revenue Margin accretive revenue Intertek Virtuous Economics Strong free cash flow Disciplined capital allocation Investments in attractive and margin sectors with Capex / M&A 37

38 ATTRACTIVE STRUCTURAL GROWTH DRIVERS Products 60% of Revenue 77% of Profit Trade 23% of Revenue 17% of Profit Resources 17% of Revenue 6% of Profit Increased number of Brands & SKUs Faster innovation cycle Population GDP Long term demand for energy Investment in infrastructure Increased regulation Increased consumer focus on sustainable products Development of regional trade Growth in transport infrastructure Supply chain risk management Growth in alternative energy Improvements in safety, performance and quality Increased corporation focus on risk management Increased focus on traceability Growth in port infrastructure Sustainability of energy supply Focus on health & safety 77% of Group profit based on GDP agnostic drivers 17% of Group profit based on global trade 6% of Group profit based on global drivers in the energy sector GDP+ GDP Long-term Growth outlook: GDP+ Organic revenue in real terms 38

39 INTERTEK IS GOING FROM STRENGTH TO STRENGTH Industry leader in a growing global $250bn ATIC market Scale positions in attractive end-markets in 100+ countries Unique Total Quality Assurance value proposition offering superior customer service High quality compounder earnings model Ever growing corporate complexity is a accelerator Ever Better operational discipline making Intertek Ever Stronger Insert Footer Here 39 39

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41 GROUP PERFORMANCE ( ) Revenue ( m) Adjusted Operating Profit ( m) Adjusted Margin (%) 2,567m 2,769m 2,801m 410m 468m 482m 16.9% 17.2% 2,166m 343m 51% 57% 59% 60% 68% 73% 75% 77% 15.9% 16.0% 25% 23% 23% 23% 24% 20% 18% 17% FY 15 FY 16 FY 17 FY 18 22% 20% 19% 17% 10% 7% 6% 6% FY 15 FY 16 FY 17 FY 18 FY 15 FY 16 FY 17 FY 18 Margin FY 15 FY 16 FY 17 FY 18 Key Metrics 2018 % Group Revenue % Group Profit Organic Revenue Growth 1 Products 21.1% 20.3% 21.6% 22.1% Trade 14.1% 14.0% 13.7% 13.0% Resources 6.5% 5.8% 5.7% 5.7% Group 15.9% 16.0% 16.9% 17.2% 60% 77% 5.2% 23% 17% 2.2% 17% 6% 0.3% 100% 100% 3.7% 41 Note: (1) At 2018 constant currency rates

42 ADJUSTED EPS actual exchange rates FY 17 FY 18 Adjusted operating profit % Net interest expense (28.9) (25.3) Profit before tax Tax 24.7% (24.5%) (107.5) (112.8) Profit after tax Non-controlling interest (19.0) (20.8) Net profit Fully diluted shares (m) Earnings per share (GBP) % Dividend (GBP) % 42