HALF YEAR RESULTS PRESENTATION Strong Earnings Growth and Cash - - PowerPoint PPT Presentation

2017 HALF YEAR RESULTS PRESENTATION

1 August 2017

Strong Earnings Growth and Cash Generation

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

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AGENDA

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Performance Highlights H1 2017 Financial Results Strategic Update 2017 Outlook by Division Summary 01 05 04 03 02

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PERFORMANCE HIGHLIGHTS

STRONG EARNINGS GROWTH AND CASH GENERATION

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1,204 1,372 H1 16 H1 17

Revenue (£m)

186 224 H1 16 H1 17

Operating Profit (£m)

15.4% 16.3% H1 16 H1 17

Operating margin (%)

74.5 90.4 H1 16 H1 17

Adjusted EPS (p)

19.4 23.5 H1 16 H1 17

Interim Dividend (p)

156 226 H1 16 H1 17

Cash Flow from Operations (£m)

+13.9% +2.7% CCR +20.4% +10.1% CCR +90bps +110bps CCR +21.3% +11.4% CCR +21.1% +45.0%

GROUP’S CENTRE OF GRAVITY MOVING TOWARDS HIGH GROWTH HIGH MARGIN SECTORS

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15.5% 15.4% 16.3%

15.0% 15.4% 15.8% 16.2% 16.6% H1 15 H1 16 H1 17

Group Revenue Group Operating Profit Group Margin

• 10bps

+10bps CCR1 +90bps +110bps CCR2

25% 21% 18% 25% 23% 24% 50% 56% 58% £0m £300m £600m £900m £1,200m £1,500m H1 15 H1 16 H1 17

£1,204m £1,060m £1,372m

11% 8% 6% 22% 20% 21% 67% 72% 73% £0m £50m £100m £150m £200m £250m H1 15 H1 16 H1 17

£164m £186m £224m

Note: (1) At 2016 constant currency rates; (2) At 2017 constant currency rates

Resources: (12.3%)

5.5% ORGANIC REVENUE GROWTH IN 94% OF EARNINGS

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Trade: +4.6% Products: +5.8%

6%

• f

earnings

GDP+ Organic Growth in Products & Trade: +5.5%

H1 17 Organic revenue growth CCR1 (%)

73%

• f

earnings

21%

• f

earnings

10.0% 5.0% (5.0%) (10.0%) (15.0%) (10.0%) 20.0% 10.0%

H1 17 Total revenue growth (%)

Note: (1) At 2017 constant currency rates

Cost reduction activities

• Margin accretive revenue growth in

Products and Trade

• Investments in attractive growth and

margin sectors

• Strategic review of underperforming

business units Headcount Savings2 2015 200 £4m 2016 550 £10m 2017 300 £4m

Note: (1) Organic operating margin at constant currency rates when reported (CCR); (2) Annualised

Productivity management Portfolio strategy

• Monthly performance reviews for Top

30 countries/16 Business Lines

• Performance benchmarking by business

line, country and site

• Price and cost discipline

ORGANIC OPERATING MARGIN ACCRETION OF 100BPS

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H1 15 H1 16 H1 17

+100bps +60bps +40bps Organic operating margin improvement1

02

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H1 2017 FINANCIAL RESULTS

KEY FINANCIALS

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YoY % H1 17 Actual Rates Constant 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 excludes the impact of acquisitions and disposals in 2016 and 2017; (2) Before separately disclosed items

OPERATING MARGIN BRIDGE

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15.4% 16.3% 16.4% 50bps 10bps 0bps 40bps 10bps (20bps) 13.0% 14.0% 15.0% 16.0% 17.0% H1 16 Products Trade Resources Divisional mix Excluding FX and Acquisitions & Disposals Acquisitions & Disposals FX H1 17 +100bps at constant rates

£m @ actual exchange rates H1 16 H1 17 Adjusted operating profit1 185.9 223.9 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 Net capex (47.6) (33.9) Other3 (59.4) (68.1) Free cash flow 48.9 124.0 Acquisitions4 (1.4) (10.5) Net debt 887 696

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: Exceptionals, Interest Paid/Received and Tax; (4) Total cash consideration in FY17 for 2017 acquisition £10.5m, net of cash acquired £0.3m

• +20.4% at actual rates
• Cash flow from operations up 45%
• Increase in Free Cash Flow of £75m
• LTM Net Debt / EBITDA = 1.3x

FINANCIAL GUIDANCE

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

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

STRATEGIC UPDATE

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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 Margin accretive revenue growth Strong free cash flow Disciplined capital allocation Investments in growth Capex / M&A

ATTRACTIVE GROWTH IN THE $250BN GLOBAL QUALITY ASSURANCE MARKET

$50BN

Currently

• utsourced

$200BN

Currently in-house Existing & New customers: Existing customers:

• Outsourcing
• Increase account penetration
• ATIC cross selling

New customers:

• New contracts

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Long-term growth

STRUCTURAL GROWTH DRIVERS

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Resources

24% of Revenue 21% of Profit 18% of Revenue 6% of Profit

Products

58% of Revenue 73% of Profit

Trade

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 Population growth GDP growth Development of regional trade Increased focus on traceability Growth in transport infrastructure Growth in port infrastructure Long term demand for energy Investment in infrastructure Supply chain risk management Sustainability of energy supply Growth in alternative energy Focus on health & safety

GDP+ GDP growth

Mid to long-term outlook: GDP+ Organic revenue growth in real terms

5X5 DIFFERENTIATED STRATEGY

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Differentiated Brand Proposition Superior Customer Service Effective Sales Strategy Growth and Margin Accretive Portfolio Operational Excellence

5 Strategic Priorities 5 Enablers

Living Our Customer Centric Culture Disciplined Performance Management Superior Technology Energising Our People Delivering Sustainable Results

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

Fully engaged employees working in a safe environment 1 2 3 4 5 Superior customer service in Assurance, Testing, Inspection and Certification Margin accretive revenue growth based

• n GDP+ organic

growth Strong cash conversion from

• perations

Accretive, disciplined capital allocation policy

INNOVATION TO DELIVER SUPERIOR CUSTOMER SERVICE

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• Customer insight: Nespresso is managing the

environmental issues associated with the disposal of used coffee capsules with its own global recycling programme

• Food & Business Assurance innovation: The

programme involves transporting capsules from 100,000+ drop-off points to processing at dedicated recycling units. Intertek devised a unique approach using assurance to evaluate the critical points in its entire value chain

• Customer benefit: Provides Nespresso with

confidence that their sustainable values are upheld, while customers are reassured recycling efforts are effective

• Customer insight: Customers need life cycle

assessments (‘LCA’) to determine the sustainability and carbon footprint of their products, processes and business operations

• HERS innovation: Intertek has invested in cloud-

based LCA technology that offers market leading LCA services to our global clients. We provide customers with greater insights, leveraging our expertise in sustainable design, materials testing and supply chain management

• Customer benefit: This innovative cloud-based

approach allows our clients to benefit from our global network of ATIC experts in sustainability Sustainability Cloud Assurance

INNOVATIONS: PRODUCTS

• Customer insight: Toys like whistles and kazoos, have

small parts inside that vibrate to generate sound when being used and there is a risk that some of the small parts could become a projectile or be inhaled

• Hardlines innovation: Intertek’s experts developed a

mouth actuated small parts breathing apparatus that mimics the airflow rate that an 8-year-old child could generate

• Customer benefit: This proprietary apparatus is

designed to determine the likelihood that small parts would dislodge from these types of products and therefore help protect children’s safety Toy Apparatus Nespresso Recycling Assurance

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Alternative fuels

• Customer insight: In a growing market for alternative

fuels, such as hydrogen gas, and fuel cells, a lack of consistency in regulatory standards for the supporting components has led to increased safety concerns

• AA & Transportation Technologies innovation:

Intertek has worked with both alternative fuel manufacturers as well as regulatory authorities to develop standards that provide our clients with clear safety solutions for alternative fuel components

• Customer benefit: By partnering with Intertek,

clients are assisted with navigating the complex regulatory environment, whilst also reducing risk and

• ptimising productivity
• Customer insight: Mercury contamination puts

physical infrastructure assets, such as refineries and pipelines at increased corrosion risk

• AA & Industry Services innovation: Intertek’s experts

use advanced technology to detect, monitor and analyse mercury content in very low levels of oil & gas samples as well as measuring the mercury emission into the atmosphere

• Customer benefit: The technology enables our

clients to minimise the impact of mercury on their infrastructure and to work safely Mercury Decontamination

• Customer insight: Horticultural lights are subject to

complex environmental conditions, and currently there are no safety and performance standards specific to these products

• AgriWorld & Electrical & Network Assurance

innovation: Intertek developed a Horticultural Lighting Certification Program leveraging our lighting and agricultural expertise to help manufacturers develop innovative, safe and high-performance products for an emerging industry

• Customer benefit: Manufacturers are now able to

develop their products with improved performance and safety standards Horticultural Lighting

INNOVATIONS: TRADE

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Costcom

• Customer insight: Power plants often start, stop, and

cycle, which impacts the life of the equipment and associated operating costs

• Industry Services innovation: Intertek has developed

a real-time artificial intelligence based algorithm that analyses customer Big Data in the form of millions of sensor data points and displays the maintenance, capital replacement, and wear-and-tear costs associated with cycles changes

• Customer benefit: Plant operators receive real-time

insights to optimise plant operations, minimising equipment damage and ensuring cycling costs are well planned

• Customer insight: Customers need better insight into

the quality evolution of new equipment and rate of wear-and-tear on their industrial assets

• Industry Services innovation: Intertek uses state of

the art 3D digital measurement software that comprehensively delineates physical objects and is accurate to one ten thousandth of an inch. This method can be used to analyse a newly manufactured part or to determine the rate of wear and deterioration on existing parts or reverse engineer parts and equipment

• Customer benefit: Our expertise helps customers

detect product defects, ensuring products do not deviate from the intended design and performance 3D Metrology

• Customer insight: Customers need assurance that

critical concrete infrastructures, such as road & rail tunnels and bridges remain robust over their entire lives

• Industry Services innovation: Access to examine the

condition of embedded steel in concrete is complex, so Intertek’s experts have developed specialist sensors that are embedded directly into the concrete to monitor the resilience of the infrastructure

• Customer benefit: The integrated system is

connected into the entire built infrastructure. Intertek supports clients throughout the entire structure life cycle

INNOVATIONS: RESOURCES

Concrete Sensors

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OUTLOOK BY DIVISION

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• 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 management  Portfolio strategy

• Strong cash conversion
• Capex: £120m – £130m
• Net debt: £600m – £650m1

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GROUP OUTLOOK 2017

Note: (1) Before any material change in FX rates and any additional M&A

EXCELLENT PERFORMANCE IN PRODUCTS WITH STRONG MARGIN ACCRETIVE REVENUE GROWTH

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678 799 H1 16 H1 17

Revenue (£m)

675 791 H1 16 H1 17

Organic Revenue (£m)

134 164 H1 16 H1 17

Operating Profit (£m)

19.7% 20.5% H1 16 H1 17

Operating Margin (%)

+17.8% +6.4% CCR +17.2% +5.8% CCR +22.8% +11.9% CCR +80bps +100bps CCR

Growth Drivers

Increased number of Brands & SKUs Supply chain expansion in new markets Increased demand in chemical testing Softlines Robust organic growth Hardlines Electrical & Network Assurance

HY17 Actual / FY17 Outlook

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

Growth Drivers HY17 Actual / FY17 Outlook

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 Double-digit organic growth Building & Construction Transportation Technology Growing demand for greener, safer and higher quality commercial buildings Increased investment in large infrastructure projects Good organic growth Continued investment of our clients in new models and new fuel efficient engines Growth in the hybrid / electric engine segment Solid organic growth Food Chemicals and Pharma Continuous food innovation Increased focus on the safety of supply chains Growth in the food service assurance business Good organic growth Solid organic growth Increased scrutiny on emissions Growth of SKUs Expansion of the supply base in emerging markets Increased concerns on product safety and traceability

EXCELLENT PERFORMANCE IN PRODUCTS WITH STRONG MARGIN ACCRETIVE REVENUE GROWTH

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

273 326 H1 16 H1 17

Revenue (£m)

273 317 H1 16 H1 17

Organic Revenue (£m)

37 46 H1 16 H1 17

Operating Profit (£m)

13.6% 14.1% H1 16 H1 17

Operating Margin (%)

+19.6% +7.5% CCR +16.3% +4.6% CCR +24.1% +12.5% CCR +50bps +60bps CCR

GOOD MOMENTUM IN TRADE WITH IMPROVED ORGANIC GROWTH AND MARGIN PROGRESSION

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Growth Drivers HY17 Actual / FY17 Outlook

254 247 H1 16 H1 17

Revenue (£m)

254 247 H1 16 H1 17

Organic Revenue (£m)

15 14 H1 16 H1 17

Operating Profit (£m)

6.0% 5.7% H1 16 H1 17

Operating Margin (%)

(2.4%) (12.3%) CCR (2.4%) (12.3%) CCR (8.5%) (12.5%) CCR (30bps) 0bps CCR

CONTINUOUS CHALLENGING TRADING CONDITIONS IN RESOURCES

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Minerals demand Technological innovation Minerals Stable demand Capex Inspection Opex Inspection Demand for energy Asset productivity Technological innovation Continued challenging trading conditions Capacity utilisation Asset productivity Stable demand in a competitive environment Ageing of equipment Outsourcing

Growth Drivers HY17 Actual / FY17 Outlook

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 Market position

Market leader in food assurance and inspection in Italy Leading provider of security assurance services for products, equipment and networks across multiple industries Market leader in the provision of environmental water testing and analytical services in Mexico A leading provider of on-road vehicle testing, component, lubrication and fuel testing services based in Germany

Growth drivers

Increased focus on food supply chain risk management Increased corporate and consumer focus on data security Increased corporate and government focus on environmental safety Increased consumer and regulator scrutiny on fuel consumption and emissions

RNS

FIT-Italia EWA Canada ABC Analitic KJ Tech

M&A IN ATTRACTIVE MARKETS STRENGTHENING INTERTEK’S PORTFOLIO

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SUMMARY

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• 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
• Disciplined performance management and capital allocation
• Proven high quality earnings model driving shareholder value

SUMMARY

“We are on track on

• ur ‘good to great’

journey, making progress on both performance and strategy”

GROUP PERFORMANCE (H1 16 – H1 17)

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254 247 273 326 678 799 1,204 1,372 H1 16 H1 17

Revenue (£m)

15 14 37 46 134 164 186 224 H1 16 H1 17

Adjusted Operating Profit (£m) Margin Key Metrics H1 2017

H1 16 H1 17 % Group Revenue % Group Profit Organic Revenue Growth1 Products 19.7% 20.5% 58% 73% 5.8% Trade 13.6% 14.1% 24% 21% 4.6% Resources 6.0% 5.7% 18% 6% (12.3%) Group 15.4% 16.3% 100% 100% 1.7%

Note: At 2017 constant currency rates

Margin Key Metrics 2016

FY 15 FY 16 % Group Revenue % Group Profit Organic Revenue Growth1 Products 21.1% 20.3% 57% 73% 5.5% Trade 14.1% 14.0% 23% 20% 1.3% Resources 6.5% 5.8% 20% 7% (13.0%) Group 15.9% 16.0% 100% 100% 0.1%

GROUP PERFORMANCE (2015 – 2016)

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519 517 537 585 1,111 1,466 2,166 2,567 FY 15 FY 16

Revenue (£m)

34 30 76 82 234 298 343 410 FY 15 FY 16

Adjusted Operating Profit (£m)

Note: At 2016 constant currency rates

ADJUSTED EPS

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£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 shares (m) 162.5 162.8 Earnings per share (GBp) 74.5p 90.4p +21.3% Interim Dividend (GBp) 19.4p 23.5p +21.1%

KEY INVESTOR INFORMATION

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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. Bernstein, Strategic Decisions Conference, London 28 September 2017 CEO, IR Berenberg, Testing, Inspection & Certification Conference, London 5 October 2017 IR Societe Generale, European ESG/SRI Conference 7 November 2017 IR Deutsche Bank, Business Services, Leisure and Transport 28 November 2017 IR Credit Suisse, Business Services and Consumer Conference, San Francisco 5 December 2017 IR

Key contacts:

Josh Egan, Investor Relations Director ; +44 (0)20 7396 3400; investor@intertek.com www.intertek.com/investors