2017 HALF YEAR RESULTS PRESENTATION Strong Earnings Growth and Cash Generation 1 August 2017
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. 1 August 2017 2
AGENDA Performance Highlights 01 H1 2017 Financial Results 02 03 Strategic Update 2017 Outlook by Division 04 Summary 05 3
01 PERFORMANCE HIGHLIGHTS 4
STRONG EARNINGS GROWTH AND CASH GENERATION Operating Profit (£m) Operating margin (%) Revenue (£m) 1,372 16.3% 224 1,204 15.4% 186 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 Interim Dividend (p) Cash Flow from Operations (£m) Adjusted EPS (p) 23.5 90.4 19.4 226 74.5 156 H1 16 H1 17 H1 16 H1 17 H1 16 H1 17 +45.0% +21.3% +21.1% +11.4% CCR 5
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 +110bps CCR 2 £224m 16.3% £1,204m £1,200m £200m 16.2% £186m £1,060m £164m 58% £900m £150m 56% 73% 15.8% 50% 72% 67% -10bps £600m £100m 15.5% +10bps CCR 1 15.4% 15.4% 24% 25% 23% £300m £50m 21% 22% 20% 25% 21% 18% 11% 8% 6% 15.0% £0m £0m H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 6 Note: (1) At 2016 constant currency rates; (2) At 2017 constant currency rates
5.5% ORGANIC REVENUE GROWTH IN 94% OF EARNINGS H1 17 Organic revenue growth CCR 1 (%) 10.0% Products: +5.8% 73% of 21% earnings 5.0% Trade: +4.6% of earnings H1 17 Total revenue 10.0% (10.0%) 20.0% growth (%) (5.0%) GDP+ Organic Growth in Products & Trade: +5.5% (10.0%) 6% Resources: (12.3%) of earnings (15.0%) 7 Note: (1) At 2017 constant currency rates
ORGANIC OPERATING MARGIN ACCRETION OF 100BPS Organic operating margin improvement 1 +100bps +60bps +40bps H1 15 H1 16 H1 17 Productivity management Portfolio strategy Cost reduction activities • • Monthly performance reviews for Top Margin accretive revenue growth in Savings 2 Headcount 30 countries/16 Business Lines Products and Trade 2015 200 £4m • • Performance benchmarking by business Investments in attractive growth and line, country and site margin sectors 2016 550 £10m 2017 300 £4m • • Price and cost discipline Strategic review of underperforming business units 8 Note: (1) Organic operating margin at constant currency rates when reported (CCR); (2) Annualised
02 H1 2017 FINANCIAL RESULTS 9
KEY FINANCIALS YoY % Actual Constant H1 17 Rates Rates Revenue £1,372m 13.9% 2.7% Organic revenue 1 £1,355m 12.8% 1.7% Operating profit 2 £224m 20.4% 10.1% Operating profit margin 2 16.3% 90bps 110bps Adjusted diluted EPS 2 90.4p 21.3% 11.4% Free cash flow £124m £75m increase Notes: (1) Organic revenue excludes the impact of acquisitions and disposals in 2016 and 2017; (2) Before separately disclosed items 10
OPERATING MARGIN BRIDGE 17.0% 10bps 16.4% 40bps 16.3% 0bps 10bps (20bps) 50bps 16.0% 15.4% 15.0% +100bps at constant rates 14.0% 13.0% H1 16 Products Trade Resources Divisional mix Excluding FX and Acquisitions FX H1 17 & Disposals Acquisitions & Disposals 11
CASH FLOW & NET DEBT £m @ actual exchange rates H1 16 H1 17 • +20.4% at actual rates Adjusted operating profit 1 185.9 223.9 Depreciation/amortisation 42.4 47.3 Change in working capital (76.7) (52.3) Other 2 4.3 7.1 • Cash flow from operations up 45% Adjusted cash flow from operations 155.9 226.0 Net capex (47.6) (33.9) Other 3 (59.4) (68.1) • Increase in Free Cash Flow of £75m Free cash flow 48.9 124.0 Acquisitions 4 (1.4) (10.5) • LTM Net Debt / EBITDA = 1.3x Net debt 887 696 Notes: 12 (1) Before Separately Disclosed Items; (2) Comprises Special Pension payments, add back Equity Settled transactions and other Non-Cash Items; (3) Comprises: Exceptionals, Interest Paid/Received and Tax; (4) Total cash consideration in FY17 for 2017 acquisition £10.5m, net of cash acquired £0.3m
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
03 STRATEGIC UPDATE 14
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 Disciplined Investments capital allocation in growth 15
ATTRACTIVE GROWTH IN THE $250BN GLOBAL QUALITY ASSURANCE MARKET Existing customers: • Increase account penetration $50BN • ATIC cross selling Currently New customers: outsourced • New contracts Existing & New customers: • Outsourcing $200BN Currently in-house 16
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 Increased Development of Growth in transport Supply chain risk Growth in focus on sustainable regulation regional trade infrastructure management alternative energy products Improvements in Increased Increased focus on Growth in port Sustainability of Focus on health & safety, performance corporation focus traceability infrastructure energy supply safety and quality on risk management GDP growth Long-term growth GDP+ Mid to long-term outlook: GDP+ Organic revenue growth in real terms 17
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, employees working in service in Assurance, revenue growth based conversion from disciplined capital a safe environment Testing, Inspection on GDP+ organic operations allocation policy and Certification growth 5 Strategic Priorities 5 Enablers Differentiated Brand Proposition Living Our Customer Centric Culture Superior Customer Service Disciplined Performance Management Effective Sales Strategy Superior Technology Growth and Margin Accretive Portfolio Energising Our People Operational Excellence Delivering Sustainable Results 18
INNOVATION TO DELIVER SUPERIOR CUSTOMER SERVICE 19
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 small parts inside that vibrate to generate sound assessments (‘LCA’) to determine the sustainability used coffee capsules with its own global recycling when being used and there is a risk that some of the and carbon footprint of their products, processes programme small parts could become a projectile or be inhaled and business operations • HERS innovation: Intertek has invested in cloud- • Food & Business Assurance innovation: The • Hardlines innovation: Intertek’s experts developed a based LCA technology that offers market leading LCA programme involves transporting capsules from mouth actuated small parts breathing apparatus that services to our global clients. We provide customers 100,000+ drop-off points to processing at dedicated mimics the airflow rate that an 8-year-old child could with greater insights, leveraging our expertise in recycling units. Intertek devised a unique approach generate sustainable design, materials testing and supply using assurance to evaluate the critical points in its chain management entire value chain • Customer benefit: This proprietary apparatus is designed to determine the likelihood that small parts • Customer benefit: This innovative cloud-based • Customer benefit: Provides Nespresso with would dislodge from these types of products and approach allows our clients to benefit from our confidence that their sustainable values are upheld, therefore help protect children’s safety global network of ATIC experts in sustainability while customers are reassured recycling efforts are effective 20
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