Strategy Update Portfolio Focus on Attractive Growth and Margin - - PowerPoint PPT Presentation

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Strategy Update

2 March 2016

André Lacroix

Chief Executive Officer Portfolio Focus on Attractive Growth and Margin Opportunities

2

Disclaimer

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.

2 March 2016

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Intertek 5 Fundamental Strengths Attractive Growth Opportunities Intertek Quality Assurance Proposition Strategy for Sustainable Growth Short Term Priorities in 2016 Agenda

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02 03 04 05

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Intertek 5 Fundamental Strengths 01

Video: Looking Back at Our History

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Track Record of Sustainable Growth Revenue Operating Profit

2002

2015 Change 11,192 41,434 +30,242 £461m £2,166m +£1,705m £77m £343m +£266m £0.6bn¹ £4.5bn +£3.9bn 864%² Market Cap TSR

1 As at IPO 29 May 2002

² TSR since IPO to 31 December 2015

Employees

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5 Fundamental Strengths Global Network of State of the Art Facilities Powerful Portfolio with Leadership Positions Depth and Breadth of Quality Assurance Solutions Passionate and Entrepreneurial Culture High Margin and Strongly Cash Generative Earnings Model

01 02 03 04 05

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Powerful Portfolio with Leadership Positions

• Softlines
• Hardlines
• Electrical and Wireless
• Business Assurance
• Government and Trade Services
• Cargo and Analytical Assessment
• Agriculture
• Industry Services

8 Global Business Lines (GBLs)

• Transportation Technologies
• Building Products
• Food
• Product Assurance
• Minerals
• Health, Environmental and Regulatory Services
• Chemicals and Pharma
• Exploration and Production

8 Regional Business Lines (RBLs)

£1,670m

2015 Revenue

77%

• f Group Revenue

£496m

2015 Revenue

23%

• f Group Revenue

Regional scale and strength Attractive regional growth prospects Global scale and leadership positions Attractive global growth prospects

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Scale Positions in Top 30 Countries Top 30 Countries

92%

• f Intertek Revenue

80%

• f Global GDP

76%

• f Global Trade

91%

• f Global Production

Brazil Canada Mexico USA

Americas EMEA

(Europe, Middle East & Africa)

Asia Pacific

Belgium France Germany Italy Netherlands Norway South Africa Sweden Switzerland Turkey UAE UK Australia Bangladesh China Hong Kong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Vietnam

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Strong Portfolio at Local Business Unit Level

8 Global Business Lines 8 Regional Business Lines Softlines Hardlines Electrical & Wireless Business Assurance GTS Agriculture Industry Services Food Building Products Trans. Tech Product Assurance Minerals HERS C&P E&P

Top 30 Countries

Australia Bangladesh Belgium Brazil Canada China France Germany Hong Kong India Indonesia Italy Japan Korea Malaysia Mexico Netherlands Norway Philippines Singapore South Africa Sweden Switzerland Taiwan Thailand Turkey UAE UK USA Vietnam

• In-depth portfolio review
• C. 300 business units
• High quality portfolio
• Positioned strongly for growth

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Balance Sheet Revenue £2bn+

• c. 20%

140% 5% of Revenue

• c. 40%

£150m 1.7x Net Debt to EBITDA High Quality Earnings Model ¹ EBITDA Margin Cash Conversion² Capex Dividend Payout FCF³

1 Based on 2015 Actuals

² Cash from operations ³ After Capex and Dividends

Attractive Growth Opportunities 02

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Higher regulatory standards Corporations investments in quality and innovation Attractive Testing, Inspection and Certification Structural Growth Drivers Global and regional trade flow Increased demand for energy to support GDP and population growth

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Customers Expect Total Quality Assurance

• Quality and safety of physical components, products and assets
• Reliability of operating processes and quality management systems

Assurance Structural Growth Drivers

• Increasingly complex operations with decentralised supply chains
• Greater customer focus on risk management to manage systemic operational risk
• Customers require Quality Assurance solutions beyond TIC

Attractive Assurance Structural Growth Drivers Industry Evolution From “TIC” to “ATIC”

Certification Assurance Testing Inspection

Video: The Future of Our Industry

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Global Intertek Network Strongly Positioned for ATIC Growth

Global Market Leader in TIC 1,000+ lab and offices 100+ countries

Global ATIC Business with 41,434 Employees

Global Market Leader in Assurance 3,000 auditors 90,000+ audits

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Long-term growth

 Capex & opex investment

supporting world economic growth

 Servicing oil & gas and other sectors of

the economy

10%

Structural Growth Drivers Mid-Long Term Growth

‘Global GDP Plus’ Organic Revenue Growth

Profit Mix1

68%

Continuing growth from expanding investment in quality & innovation

 Quality solutions for end-products, their

components, processes and R&D

 Product variety, brand and supply chain

expansion, innovation and regulations

 Increasing quality and sustainability

demands by developed and emerging economies

 Increased Corporate focus on risk

22%

Trade-flow growth: global & regional

 Global and regional trade-driven, through

GDP growth

 Increased customer focus on quality and

quantity controls

(1) 2015 adjusted operating profit. (2) 2015 revenues

Portfolio Geared for GDP+ Organic Growth

Products

CG, C&E, C&P, Food & Business Assurance

51% Revenue

Trade

Cargo & Analytical, Government Services & Agri

25% Revenue

Resources

Industry Services & Minerals

24% Revenue

Economic Sectors

2 2 2

Intertek Quality Assurance Proposition 03

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Our Purpose, Vision and Mission

Bringing Quality and Safety to Life. The world’s most trusted partner for Quality Assurance Exceed our customers’ expectations with innovative and bespoke Assurance, Testing, Inspection and Certification solutions for their

• perations and supply chain. Globally. 24/7.

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Strong Business Model to Seize Growth Opportunities What We Do Everyday Which Economic Sectors Where

Assurance Testing Inspection Certification Products Trade Resources 100+ countries 1,000+ laboratories 41,434 people

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Well diversified revenue streams across sectors, geographies and services

35% 36% 29%

Americas Asia Pacific EMEA

10% 52% 30% 8%

Assurance Testing Inspection Certification

51% 25% 24%

Products Trade Resources

Sector Geographic Service Revenue Split¹

• Largest by Revenues
• Highest margin
• Fastest organic growth
• Asia Pacific largest
• Americas strong position
• Good exposure to fast

growing markets

• Testing largest service
• ffering
• Assurance fastest

growing

Strength in Products Excellent exposure to fast growing markets Breadth and Depth of ATIC Solutions

(1) Based on 2015

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• Management Systems
• Benchmarking in

Quality & Performance

• Sustainability &

environment

• Facility / Plant &

Equipment

• Legal & Regulatory
• Product Development
• Vendor Compliance
• Corporate Social

Responsibility

• Failure investigation
• Laboratory Outsourcing
• Risk Management
• Supply Chain

Assessment

Depth and Breadth of ATIC Solutions

• Softlines
• Hardlines
• Automotive
• Biofuels
• Building Product
• Chemical &

Pharmaceutical

• Electrical
• Food
• Health & Beauty
• Mineral
• Packaging
• Pharmaceutical
• Oil & Gas
• Appliance &

Electronic

• Aerospace &

Automotive

• Building Products
• Conformity by

Country

• Eco-Textile
• Food & Food Service
• Hazardous Location
• HVACR
• Industrial Equipment
• IT & Telecom
• Life Safety &

Security

• Lightning
• Medical Device
• Agriculture
• Asset Integrity
• Building Product
• Chemical &

Petrochemical

• Electrical
• Exporter & importer
• Field Labelling
• Industrial
• Mineral
• Oil & Gas
• Site Construction
• Textile & Apparel

Assurance Testing Certification Inspection

(1) Heating Ventilation Air Conditioning and Refrigeration 1

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Aligned Organisational Structure Intertek Organisational Structure Geographic Areas Business Lines Functional Areas

Products Trade Americas, Pacific and North East Asia China South and South-East Asia Middle East and Africa ATIC Operational Excellence Corporate Development HR Finance and IT Legal and Compliance Europe Resources

Softlines, Hardlines, Electrical & Wireless, Business Assurance, Building Products, Transportation Technologies, Chemicals & Pharma and Food Cargo & Analytical Assessment, Agriculture and Government & Trade Services Industry Services and Minerals

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Intertek Total Quality Assurance Value Proposition

Systemic Approach to Quality and Safety with ATIC Solutions

Intertek Total Quality Assurance (Assurance, Testing, Inspection and Certification)

Research and Development Raw Materials Sourcing Component Suppliers Manufacturing Transportation Distribution and Retail Channels Consumer Management

Strategy for Sustainable Growth 04

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Attractive Growth Opportunities

• Continued growth in Testing,

Inspection and Certification

• Increased demand for Assurance
• Increase account penetration
• Assurance, Testing, Inspection and

Certification cross–selling

• New contracts
• Outsourcing
• Expand geographic coverage
• Access to new solutions

Structural Growth Drivers Existing Customers New Customers Industry Consolidation Quality Assurance market worth c.$250bn

01 03 02 04

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Fully engaged employees in a safe working environment Deliver superior customer service Margin accretive organic revenue growth based on GDP + organic growth Strong cash conversion from operations Accretive disciplined capital allocation policy for both capex (5% of Revenue) and M&A

Corporate Medium to Long Term Goals

01 02 03 04 05

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5 Strategic Priorities

Strong Brand Proposition

01

Superior Customer Service

02

Effective Sales Strategy

03

Growth and Margin Accretive Portfolio

04

Operational Excellence

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Strategic Priorities  Position Intertek as leading Quality Assurance provider  Improve brand awareness across sectors and geographies  Compelling Total Quality Assurance Brand positioning  Build customer loyalty and win new customers  Measure quality of customer service delivery  Develop innovative ATIC solutions  Increase existing account penetration  Drive ATIC cross selling  Business development with new accounts  Prioritised business lines, geographies and service areas  Invest in areas with good growth and good margin prospects  Disciplined resource, capital and people allocation  Continuous improvement to drive productivity  Best in class management to reduce span of performance  Eliminate non–essential costs - facilities/offices/processes/ purchasing Action Plans KPIs

 NPS  Customer retention  Customer acquisition  Pricing power  Growth from innovation  Growth from existing customers  Growth from new customers  Customer cross selling  Customer profitability  Revenue growth  Margin accretion  Portfolio mix  ROCE  Capital allocation  Direct costs  Overheads  Productivity per employee  Site capacity utilisation  ROCE  Revenue growth  New leads  Customer acquisitions  Pricing power  A&P effectiveness

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5 Enablers

Living Our Customer Centric Culture

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Disciplined Performance Management

02

Superior Technology

03

Energising Our People

04

Delivering Sustainable Results

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Enablers  Strong entrepreneurial culture  Decentralised organisation  Customer centric culture  Performance management with financial and non-financial metrics  Forecast and review processes focused on margin accretive revenue growth with strong cash conversion  Upgrade business intelligence system  Leverage back-office synergies  Improve customer experience

• Invest in capability
• Aligned reward system
• Promote internal growth

 Sustainable growth for customers and shareholders  Importance of sustainability for the community  Right balance between performance and sustainability Action Plans KPIs

 EBIT margin  Working capital  Cash conversion  ROCE and ROIC  Productivity/cost savings  Customer feedback/NPS  IT operating costs  Internal promotions  Employee turnover  Organisation engagement  5 year revenue growth  5 year profit growth  CO2 footprint  Health and safety  Employee turnover  Revenue and profit growth  NPS  Organisation engagement  Employee turnover

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5x5 Strategy for Growth

Bringing Quality and Safety to Life The world’s most trusted partner for Quality Assurance Our Innovative Assurance, Testing, Inspection and Certification solutions delivered 24/7 with precision, pace and passion enabling you to power ahead safely Purpose Vision Customer Promise 5x5 5 Strategic Priorities 5 Enablers Strong Brand Proposition Superior Customer Service Effective Sales Strategy Growth and Margin Accretive Portfolio Operational Excellence Living Our Customer Centric Culture Disciplined Performance Management Superior Technology Energising Our People Delivering Sustainable Results

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Three Tier Portfolio Strategy Grow Scale Businesses Improve Performance Invest in Fast Growing Businesses

• Softlines
• Hardlines
• Electrical & Wireless
• Cargo & Analytical

Assessment

• Government & Trade

Services

• Industry Services
• Minerals
• Business Assurance
• Agriculture
• Building Products
• Transportation

Technologies

• Food
• North America
• Greater China
• Australia
• Europe
• South Asia
• South East Asia
• South America
• Middle East and Africa

01 02 03

GBL Geographic

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Efficient balance sheet with flexibility to invest in growth with Net Debt / EBITDA target of 1.5x - 2.0x M&A focused on strong growth and margin prospects in businesses with leading market positions or in new exciting growth areas, geographies or services

Accretive Disciplined Allocation of Capital

Sustainable shareholder returns through payment of progressive dividends Capex and working capital investment to support organic growth (target c.5% of revenue in capex)

01 02 03 04

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Organisation and Reward Alignment

Yearly Incentives based on Revenues, Operating Profit and ROCE Group Leadership Team Geographic Areas Global Business Lines Functional Areas

Products

Calvin Yam Softlines John Qin Hardlines Tim Hubbard Transportation Technologies Rich Adams Electrical & Wireless Calin Moldovean Business Assurance & Food

Trade

Ian Galloway

Resources

Jan-Jörg Müller-Seiler

Americas, Pacific and North East Asia

Gregg Tiemann

China

Fred Bai

South & South East Asia

Rajesh Saigal

Middle East & Africa

Ian Galloway

Europe

Graham Ritchie

ATIC Operational Excellence

Nimer Al-Hafi

Corporate Development

Julia Thomas

HR

Tony George

Finance & IT

Ed Leigh

Legal & Compliance

Mark Thomas André Lacroix CEO

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Short Term Priorities in 2016 05

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Internal Alignment to Execute Our 5x5 Strategy What we have done

• Implemented organisational structure to support our business model
• Strategy communicated to top 200 leaders
• New short-term incentive system and 2016 targets communicated to all

What we will do

• Cascade 5x5 strategy throughout the organisation
• Increase internal communication efforts to share best practice
• Performance management focus on financial and non-financial metrics

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Focused 2016 Plans to Deliver Revenue Growth

• Implement NPS to measure customer service delivery on monthly basis
• Drive ATIC cross selling with existing and new customers
• Launch innovative ATIC solutions in Products, Trade and Resources
• Performance management based on financial and non-financial metrics
• Capex investments in businesses with good growth and good margin prospects

SOFTLINES

• Growth in

footwear and footwear electronics

• Launch of

Chemical Smart Screening HARDLINES

• Supply chain

expansion in India and Mexico

• Launch of

innovative technology for factory inspections ELECTRICAL & WIRELESS

• EMC expansion in

S.Korea and Mexico

• Regulatory changes

in Energy Efficiency

• Internet of Things

BUILDING PRODUCTS

• Growth of

Commercial and Civil construction markets in the USA

• Integration of PSI

TRANSPORTATION TECHNOLOGIES

• Focus on electrical

and hybrid vehicles CHEMICALS & PHARMA

• New pharma

products in the USA and UK

• Increased

corporate focus on regulatory risk CARGO & AA

• New lab openings

in Australia, PNG, Texas

• Increased

shipment of refined products GTS

• Increased scope

in Saudi Arabia

• New programmes

in new markets MINERALS

• Cost and capacity

control AGRI

• Business

development with existing and new accounts in fast growing markets FOOD

• Integration of FIT
• Development of

food services BA

• Leverage

leadership position in supply chain management INDUSTRY SERVICES

• Cost and capacity

control in capex related activities

• Continue

diversification in

• pex related

activities with NDT

Business Line and Country Initiatives Group Initiatives

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Disciplined Margin and Cash Management

• Q4 2015 cost restructuring

− Headcount reduction of 207 − Full year cost reduction of £4m

• Manage capacity and costs tightly

− Industry Services − Minerals

• Continuous focus on costs

− Consolidation of facilities − Consolidation of offices − Process streamlining − Purchasing synergies Cost Management Benchmarking/Productivity Cash Management

• Drive best-in-class performance

management − Site span of performance reduction with Best in Class tool − Business line and country monthly benchmarking with financial and non- financial metrics

• Tight controls on working capital
• Business line and country monthly

benchmarking

36 51 34 65 76 208 234 2014 2015 Resources Trade Products

324 343

572 519 514 537 1,008 1,111 2014 2015 Resources Trade Products

2,093 2,166

2015 Performance Based on Future Disclosures

Growth

2014 2015 Products 20.6% 21.1% Trade 12.7% 14.1% Resources 9.0% 6.5% Group 15.5% 15.9% % Group Revenue % Group Profit Organic Revenue Growth¹ Products 51% 68% 6.0% Trade 25% 22% 5.4% Resources 24% 10% (10.2)% Group 1.6%

1 At constant rates

Revenue (£m) Adjusted Operating Profit (£m)

(33.9)% 15.9% 12.5% 5.9%

Growth

(9.2)% 4.4% 10.2% 3.5%

Margin Key Metrics

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• Track record of sustainable growth and

shareholder value creation

• High margin and strongly cash generative

earnings model

• Attractive growth prospects in the Quality

Assurance market

• Portfolio focus on attractive growth and

margin opportunities

• Disciplined approach to performance

management and capital allocation

Summary

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Strategy Update Presentation

Appendix

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Financial Performance by Sector in 2015 and 2014

2015 £m 2014 £m Change at actual rates Change at constant rates Organic1 change at constant rates Products

Revenue 1,110.6 1,007.9 10.2% 7.7% 6.0% Adjusted operating profit 233.8 207.9 12.5% 8.4% Adjusted operating margin 21.1% 20.6% 50bps 10bps

Trade

Revenue 536.6 513.9 4.4% 5.5% 5.4% Adjusted operating profit 75.7 65.3 15.9% 18.3% Adjusted operating margin 14.1% 12.7% 140bps 150bps

Resources

Revenue 519.1 571.5 (9.2)% (7.3)% (10.2)% Adjusted operating profit 33.9 51.2 (33.8)% (32.7%) Adjusted operating margin 6.5% 9.0% (250)bps (250)bps

Group

Revenue 2,166.3 2,093.3 3.5% 3.2% 1.6% Adjusted operating profit 343.4 324.4 5.9% 4.0% Adjusted operating margin 15.9% 15.5% 40bps 20bps

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Financial Performance by Sector in 2015, H1 and H2

H1 £m H2 £m FY £m Products

Revenue 531.7 578.9 1,110.6 Adjusted operating profit 109.9 123.9 233.8 Adjusted operating margin 20.7% 21.4% 21.1%

Trade

Revenue 267.3 269.3 536.6 Adjusted operating profit 36.9 38.8 75.7 Adjusted operating margin 13.8% 14.4% 14.1%

Resources

Revenue 261.2 257.9 519.1 Adjusted operating profit 17.6 16.3 33.9 Adjusted operating margin 6.7% 6.3% 6.5%

Group

Revenue 1,060.2 1,106.1 2,166.3 Adjusted operating profit 164.4 179.0 343.4 Adjusted operating margin 15.5% 16.2% 15.9%