2019 HALF YEAR RESULTS PRESENTATION CONTINUOUS PROGRESS ON - - PowerPoint PPT Presentation

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2019 HALF YEAR RESULTS PRESENTATION

CONTINUOUS PROGRESS ON REVENUE, MARGIN AND CASH

1 August 2019

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. IFRS 16 was adopted on 1 January 2019 for our statutory reporting, without restating prior year figures. As a result, the discussion of our operating results is on an IAS 17 basis for all periods presented, unless

• therwise stated.

1 August 2019

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AGENDA

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Performance Highlights H1 2019 Financial Results Total Quality Assurance 2019 Outlook by Division Summary 01 05 04 03 02

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PERFORMANCE HIGHLIGHTS

14.9% 15.5% 15.4% 16.3% 16.8% 16.9% HY14 HY15 HY16 HY17 HY18 HY19

Adjusted Operating Margin (%)

152 164 186 224 226 244 HY14 HY15 HY16 HY17 HY18 HY19

Adjusted Operating Profit (£m)

1,024 1,060 1,204 1,372 1,348 1,443 HY14 HY15 HY16 HY17 HY18 HY19

Revenue (£m)

CONTINUOUS PROGRESS ON REVENUE, MARGIN AND CASH

5 +4.9% CCR +7.0% +6.8% CCR +7.9% +30bps CCR +10bps +6.0% CCR +7.2% +7.2%

14-19 CAGR: 9.1% 14-19 CAGR: +7.1% 14-19 CAGR: +9.8% 14-19: +200bps 14-19 CAGR: +9.8% 14-19 CAGR: 16.4%

148 170 156 226 204 229 HY14 HY15 HY16 HY17 HY18 HY19

Adjusted Operating Cash Flow (£m)

16.0 17.0 19.4 23.5 31.9 34.2 HY14 HY15 HY16 HY17 HY18 HY19

Interim Dividend (p)

61.2 65.3 74.5 90.4 91.2 97.8 HY14 HY15 HY16 HY17 HY18 HY19

Adjusted EPS (p)

+12.4%

0% 5% 10% 0% 5% 10%

BROAD-BASED REVENUE, PROFIT AND MARGIN PERFORMANCE

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Note: (1) At 2019 constant currency rates; (2) Adjusted

Margin Accretion1,2 Revenue Growth 1 Operating Profit Growth 1,2

6%

18%

• f

earnings

76%

• f

earnings

Total revenue growth1 (%) Organic revenue growth1 (%)

Resources: +3.5% Products: +4.9% Trade: +5.8% 6.8% 6.0% 6.8% 16.9% Group Products Trade Resources +30bps +20bps +10bps +70bps Group Products Trade Resources

Aldo Abela Surveys Proasem NTA Monitor Alchemy

Business line Cargo / AA Cargo / AA Network Assurance People Assurance Location Malta Colombia UK, Malaysia USA, Canada Completion Date March 2018 April 2018 June 2018 August 2018 Market position

A leading provider of quality and quantity cargo inspection services Leading provider of laboratory testing, inspection, metrology and training services A leading network security and assurance services provider A leading provider of SaaS solutions for People Assurance

Growth drivers

Structural growth in regional and global trade flows Structural growth in regional and global trade flows Increased corporate and consumer focus on data security Increased focus on food safety, and increased regulation; scalability

RNS

Aldo Abela Surveys (AAS) Proasem NTA Monitor Alchemy

M&A IN ATTRACTIVE MARKETS ADDING 1.9% TO REVENUES IN H1

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Note: (1) In bps and at constant currency of that year; (2) Annualised; (3) Organic definition of that year

5TH CONSECUTIVE YEAR OF MARGIN PROGRESSION IN H1

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Portfolio review

• Growth and margin accretive portfolio strategy

Headcount reduction Savings2 2017 400 £7m 2018 100 £2m 2019 250 £4m

Productivity management Portfolio strategy

• Monthly performance reviews for Top 30

countries/16 Business Lines

• Business Line and country benchmarking
• Site span of performance management

14.9% 15.5% 15.4% 16.3% 16.8% 16.9% HY14 HY15 HY16 HY17 HY18 HY19

Operating Margin, Actuals

30 30 10 110 40 30 HY14 HY15 HY16 HY17 HY18 HY19

Margin Accretion, CCR1

20 40 60 100 20 30 HY14 HY15 HY16 HY17 HY18 HY19

Organic Margin Accretion, (bps) 1,3

• Organic and inorganic investments
• Consolidation of facilities

125% 127% 125% 143% 123% 126% HY14 HY15 HY16 HY17 HY18 HY19

Cash Conversion (%) 2

10.6% 11.0% 13.4% 8.2% 7.7% 6.4% HY14 HY15 HY16 HY17 HY18 HY19

Working Capital as % of Revenue2

148 170 156 226 204 229 HY14 HY15 HY16 HY17 HY18 HY19

Operating Cash Flow (£m) 1

53 85 59 132 99 105 HY14 HY15 HY16 HY17 HY18 HY19

Free Cash Flow (£m) 1

SUSTAINED STRONG CASH PERFORMANCE

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14-19 CAGR: 18.6% 14-19 CAGR: 9.1% 14-19: (420bps)

77% 100% 90% 130% 97% 107% HY14 HY15 HY16 HY17 HY18 HY19

Free Cash Flow as % of Net Income 1,2

Note: (1) Adjusted; (2) On a last twelve months basis

1.6 1.5 2.0 1.3 1.0 1.4 HY14 HY15 HY16 HY17 HY18 HY19

Net Debt / Adjusted EBITDA2

02

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H1 2019 FINANCIAL RESULTS

KEY P&L FINANCIALS

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YoY % H1 19 IAS 17 Actual Rates IAS 17 Constant Rates IAS 17 H1 19 IFRS 16 Δ versus IAS 17 Revenue

£1,442.6m 7.0% 4.9% £1,442.6m

• Organic revenue1

£1,415.0m 5.1% 3.0% £1,415.0m

• Operating profit2

£243.6m 7.9% 6.8% £248.9m +£5.3m

Operating profit margin2

16.9% 10bps 30bps 17.3% +40bps

Adjusted diluted EPS2

97.8p 7.2% 6.0% 98.2p +0.4p

Notes: (1) Organic revenue excludes the impact of acquisitions and disposals in 2018 and 2019; (2) Before separately disclosed items

OPERATING MARGIN BRIDGE

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16.8% 16.9% 10bps 0bps 10bps 10bps (20bps) 14.0% 14.5% 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% H1 18 Products Trade Resources Divisional mix Excluding FX FX H1 19 +30bps at constant rates 17.1%

£m @ actual exchange rates H1 18 H1 19 IAS 17 H1 19 IFRS 16 Δ versus IAS 17 Adjusted operating profit1 225.8 243.6 248.9 5.3 Depreciation/amortisation 43.8 51.0 86.6 35.6 Change in working capital (75.4) (76.2) (76.2)

• Other2

9.9 11.0 14.7 3.7 Adjusted cash flow from

• perations

204.1 229.4 274.0 44.6 Net capex (46.3) (45.7) (45.7)

• Other3

(58.7) (79.1) (123.7) (44.6) Adjusted Free cash flow 99.1 104.6 104.6

• Acquisitions

(10.6)

• Net debt

568 826 1,082 256 Net debt/Adjusted EBITDA (rolling 12 months) 1.0 1.4 1.7 0.3

CASH FLOW & NET DEBT

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Notes: (1) Before separately disclosed items; (2) Comprises special pension payments, add back equity settled transactions and other non-cash items; (3) Comprises: interest paid/received and tax, lease liability repayment.

FINANCIAL GUIDANCE (IAS 17)

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Note: Before any material change in FX rates and any additional M&A

FY 2019 Guidance (IAS 17) Net finance cost £31 – 33m Effective tax rate 24.5 – 25.5% Minority interest £21m – 23m Diluted shares (as at 30 June 2019) 162.7m Capex £130 – 140m Net debt £670 – 700m

TOTAL QUALITY ASSURANCE

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DEEP AND LONG-LASTING CUSTOMER RELATIONSHIPS

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Intertek Total Quality Assurance expertise delivered consistently, with precision, pace and passion, enabling our customers to power ahead safely

Customer Centric

Entrepreneurial, putting the Customer 1st

Net Promoter Score

Listening to c.7,000 customers per month

Data Intelligence

Benchmarking by site, service, and customer

TQA Value Delivery

Disciplined operating processes and continuous ATIC innovations

Our TQA Customer Promise

ATTRACTIVE QUALITY ASSURANCE GROWTH PROSPECTS

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GLOBAL ATIC MARKET GROWTH OPPORTUNITY

INTERTEK TQA VALUE PROPOSITION A SYSTEMIC APPROACH TO QUALITY ASSURANCE

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Helping corporations manage the complexity of their supply chains by taking a systemic risk-based approach to quality assurance

KAIZEN: OPERATIONAL MARGIN ACCRETIVE SOLUTIONS

Technology Based Innovations

INNOVATION AND KAIZEN

Shared Services Systems Operating Systems

INNOVATIONS: CUSTOMER FACING DIFFERENTIATED SOLUTIONS

Digital Based Innovations Acquisition of leading and innovative solutions

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INNOVATIONS: PRODUCTS

• Business Assurance innovation: Intertek has

developed a pioneering Virtual Audit solution, through which our TQA Experts are able to audit remotely. This allows us to deliver our audits faster and with a wider audience of observers

• Customer benefit: As the world of our clients

becomes increasingly complex, our customers can now benefit from real time quality audits, delivering robust assurance against key risk areas across their supply chains

Virtual Audits

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• Hardlines innovation: Intertek has developed

a unique STEM (Science, Technology, Engineering, and Math) Toy Mark, verifying that our customers’ Toys have met stringent quality and safety standards, as well as bringing educational benefits in STEM skills development

• Customer benefit: With the STEM Toys Mark,
• ur customers are able to give consumers the

peace of mind that their STEM Toy is safe, as well as educational

Intertek STEM Toy Mark

• Electrical innovation: Intertek has developed

a proprietary global database of Sanitation Authorised Materials, materials which have been evaluated by Intertek and determined to be safe to come into contact with food

• Customer benefit: Through this unique

solution our customers can save substantial time in providing the required information while making sure their products comply with safety standards.

Global Sanitation Authorised Materials Database

• Caleb Brett innovation: We have developed

self-contained Oceanlab Oil Quality Testing Laboratories, staffed by Intertek TQA Experts and have partnered with our customers to install these on their ships

• Customer benefit: Our Oceanlab initiative

has substantially reduced turnaround time and allowed our customers to introduce more flexibility into their sample testing processes

• Caleb Brett innovation: Intertek’s

entrepreneurial, customer-centric outlook has led us to open Iraq’s first commercial hydrocarbon testing lab, with state of the art technology enabling our TQA experts to deliver industry leading hydrocarbon testing services

• Customer benefit: Our customers benefit

from rapid turnaround times and from mission critical services which were not previously available in the country

Intertek Pioneers Hydrocarbon Testing

INNOVATIONS: TRADE

• AgriWorld innovation: Our AgriWorld TQA

Experts’ deep technical expertise on soya protein analysis has now been augmented with new state-of-the-art protein analysers

• Customer benefit: Using the new technology,
• ur Experts have been able to reduce the

turnaround time of soya protein tests from several hours down to a few minutes

Rapid Protein Analysis for Soya Exports Oceanlab

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INNOVATIONS: RESOURCES

• Minerals innovation: Intertek’s TQA experts,

based on-site at our customers operations, use state-of-the-art infrared spectroscopy to analyse samples quickly and proprietary software to create highly accurate quantitative models for predicting a range of chemical and physical properties

• Customer benefit: Customers benefit from

Intertek’s on-site experts, delivering best in class analytics that are customised to their needs and saving them much-valued time

Pioneering the use of Spectroscopy

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DeepView3D TM

• Intertek innovation: Our entrepreneurial

Intertek experts addressed our customers’ safety risks by developing a Helicopter Underwater Escape Simulation programme under international standards

• Customer benefit: Our Exploration and

Production customers now have peace of mind that their staff are best prepared for the most dangerous situation they can face

Helicopter Underwater Escape Simulations

• Industry Services innovation: Intertek has

developed DeepView3D, a new inspection methodology that combines 3D laser scanning and precise metrology data with advanced Non- Destructive Testing results in 3D space to give an accurate representation of current condition and mechanical integrity of critical assets

• Customer benefit: DeepView3D allows our

customers to take a smarter approach to maintenance, allowing them to move from Time Based Maintenance to highly-efficient Condition Based Maintenance Programmes, reducing expensive operational downtime

2019 OUTLOOK BY DIVISION

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• Good organic revenue growth at constant currency

− Good growth momentum in Products − Good growth momentum in Trade − Good growth momentum in Resources

• Moderate Group margin expansion at constant currency1

− Continuous cost discipline − Performance management − Portfolio strategy

• Strong cash conversion
• Capex: £130m – £140m
• Net debt: £670m – £700m1

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GROUP OUTLOOK 2019: ON TRACK TO DELIVER FULL YEAR TARGETS

Note: (1) Guidance given on an IAS 17 basis and before any material change in FX rates and any additional M&A

CONTINUOUS MARGIN ACCRETIVE REVENUE GROWTH IN PRODUCTS

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Growth Drivers

Increased number of Brands & SKUs Supply chain expansion in new markets Increased demand in chemical testing Softlines Solid organic growth Hardlines Electrical & Connected World

HY19 Actual

Innovation from our customers leveraging wireless technology Increased demand for chemical testing Innovative inspection technology Solid organic growth Electrical appliance innovations to provide better efficiency and connectivity Increased demand for IoT Assurance services, including cyber security Robust organic growth

FY19 Outlook

Solid organic growth Good organic growth Robust organic growth

806 867 H1 18 H1 19

Revenue (£m)

+4.9% CCR +7.6%

172 185 H1 18 H1 19

Operating Profit (£m)

+2.1% CCR +4.7%

805 843 H1 18 H1 19

Organic Revenue (£m)

+6.0% CCR +7.8%

21.3% 21.3% H1 18 H1 19

Operating Margin (%)

+20bps CCR +0bps

Growth Drivers

ISO standards upgrades Increased focus of corporations on supply chain and risk management Increased consumer and government focus on ethical and sustainable supply Business Assurance Building & Construction Transportation Technology Growing demand for greener, safer and higher quality commercial buildings Increased investment in large infrastructure projects Continued investment of our clients in new models and new fuel efficient engines Growth in the hybrid / electric engine segment Food Chemicals and Pharma Continuous food innovation Increased focus on the safety of supply chains Growth in the food service assurance business Increased scrutiny on emissions Growth of SKUs Expansion of the supply base in emerging markets Increased concerns on product safety and traceability

CONTINUOUS MARGIN ACCRETIVE REVENUE GROWTH IN PRODUCTS

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HY19 Actual FY19 Outlook

Below PY organic Solid organic growth Robust organic growth Robust organic growth Good organic growth Robust organic growth Good organic growth Good organic growth Solid organic growth Good organic growth

Global and regional trade structural growth drivers Increased transport infrastructure Caleb Brett Government & Trade Services AgriWorld Award of new contracts GDP growth Population growth The expansion of our clients’ supply chains in fast growing markets New customer wins

REVENUE MOMENTUM ACCELERATION WITH MARGIN ACCRETION IN TRADE

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Growth Drivers HY19 Actual FY19 Outlook

Good organic growth Good organic growth Good organic growth Good organic growth Double-digit

• rganic growth

Strong organic growth

311 333 H1 18 H1 19

Revenue (£m)

+5.8% CCR +7.1%

42 44 H1 18 H1 19

Operating Profit (£m)

+5.1% CCR +6.4%

309 329 H1 18 H1 19

Organic Revenue (£m)

+6.8% CCR +6.5%

13.4% 13.3% H1 18 H1 19

Operating Margin (%)

+10bps CCR +(10bps)

IMPROVED REVENUE MOMENTUM AND MARGIN ACCRETION IN RESOURCES

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Minerals demand Technological innovation Minerals Capex Inspection Opex Inspection Demand for energy Asset productivity Technological innovation Capacity utilisation Asset productivity Ageing of equipment Outsourcing

Growth Drivers

Good organic growth

HY19 Actual

Stable revenue Robust organic growth

FY19 Outlook

Good organic growth Stable Revenue Good organic growth

232 243 H1 18 H1 19

Revenue (£m)

+3.5% CCR +5.0%

13 15 H1 18 H1 19

Operating Profit (£m)

+3.5% CCR +5.0%

232 243 H1 18 H1 19

Organic Revenue (£m)

+16.9% CCR +14.2%

5.5% 6.0% H1 18 H1 19

Operating Margin (%)

+70bps CCR +50bps

SUMMARY

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INTERTEK HIGH QUALITY EARNINGS MODEL

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Our Services

Testing Inspection Certification Assurance Resources Trade Products

Our Sectors Our Mid- to Long-Term Value Creation

GDP+ GDP growth Long-term growth

GDP+ Organic revenue growth in real terms Margin accretive revenue growth Strong free cash flow Disciplined capital allocation Investments in attractive growth and margin sectors with Capex / M&A

Intertek Virtuous Economics

ATTRACTIVE STRUCTURAL GROWTH DRIVERS

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6% of Group profit based on global growth drivers in the energy sector Long-term growth

Resources

17% of Revenue 6% of Profit

Long term demand for energy Investment in infrastructure Supply chain risk management Sustainability of energy supply Growth in alternative energy Focus on health & safety

76% of Group profit based on GDP agnostic growth drivers

Products

60% of Revenue 76% of Profit

Increased number

• f Brands & SKUs

Faster innovation cycle Increased regulation Increased corporation focus

• n risk

management Increased consumer focus on sustainable products Improvements in safety, performance and quality

GDP+ 18% of Group profit based on global trade growth 23% of Revenue 18% of Profit

Trade

Population growth GDP growth Development of regional trade Increased focus on traceability Growth in transport infrastructure Growth in port infrastructure

GDP growth Growth outlook: GDP+ Organic revenue growth in real terms

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EVER BETTER… EVER STRONGER

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• 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 Better operational discipline making Intertek Ever Stronger

GROUP PERFORMANCE (H1 18 – H1 19)

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232 243 311 333 806 867 1,348 1,443 H1 18 H1 19

Revenue (£m)

13 15 42 44 172 185 226 H1 18 H1 19

Adjusted Operating Profit (£m) Margin Key Metrics H1 2019

H1 18 H1 19 % Group Revenue % Group Profit Organic Revenue Growth1 Products 21.3% 21.3% 60% 76% 2.1% Trade 13.4% 13.3% 23% 18% 5.1% Resources 5.5% 6.0% 17% 6% 3.5% Group 16.8% 16.9% 100% 100% 3.0%

Note: (1) At 2019 constant currency rates

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KEY INVESTOR INFORMATION

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Key dates:

Intertek Management Meeting 12 September 2019 July - October Trading Update 26 November 2019 FY19 Results Announcement 3 March 2020

Conference attendance:

Bernstein, Strategic Decisions Conference, London 25 September 2019 CEO, IR Berenberg, Testing, Inspection & Certification Conference, London 1 October 2019 CEO, IR

Key contacts:

Denis Moreau, VP Investor Relations; +44 (0)20 7396 3400; investor@intertek.com www.intertek.com/investors