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1
2019 HALF YEAR RESULTSPRESENTATION
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 otherwise stated.
1 August 2019
2
AGENDA
3
Performance Highlights
H1 2019 Financial Results
Total Quality Assurance
2019 Outlook by Division
Summary
01
05
04
03
02
01
4
PERFORMANCEHIGHLIGHTS
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
6
Note: (1) At 2019 constant currency rates; (2) Adjusted
Margin Accretion1,2Revenue Growth 1 Operating Profit Growth 1,2
6%
18% of
earnings76% of
earnings
Tota
l re
ven
ue
gro
wth
1(%
)
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 positionA 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 driversStructural growth in regional and
global trade flowsStructural growth in regional and
global trade flowsIncreased corporate and consumer
focus on data securityIncreased 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
7
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
8
Portfolio review
• Growth and margin accretive portfolio strategy Headcountreduction
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 3010
110
40 30
HY14 HY15 HY16 HY17 HY18 HY19
Margin Accretion, CCR1
2040
60
100
2030
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
9
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
1.31.0
1.4
HY14 HY15 HY16 HY17 HY18 HY19
Net Debt / Adjusted EBITDA2
02
10
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
12
16.8% 16.9%10bps0bps 10bps
10bps
(20bps)
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
17.5%
H1
18
Pro
du
cts
Trad
e
Res
ou
rces
Div
isio
nal
mix
Excl
ud
ing
FX FX
H1
19
+30bps at constant rates
17.1%
£m @ actual exchange rates
H1 18H1 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 operations
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
13
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)
14
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
03
15
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
17
GLOBAL ATIC MARKET GROWTH OPPORTUNITY
INTERTEK TQA VALUE PROPOSITIONA 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 SystemsOperating Systems
INNOVATIONS: CUSTOMER FACING DIFFERENTIATED SOLUTIONS
Digital Based InnovationsAcquisition 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
20
• 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, our 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, our 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 ExportsOceanlab
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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
22
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
04
• 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
24
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
25
Growth Drivers
Increased number of Brands & SKUs
Supply chain expansion in new
markets
Increased demand in chemical testing
SoftlinesSolid 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 supplyBusiness 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
26
HY19 Actual FY19 Outlook
Below PY organicSolid 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 infrastructureCaleb 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
27
Growth DriversHY19 Actual FY19 Outlook
Good organic growth
Good organic growth
Good organic growth
Good organic growth
Double-digit organic 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
28
Minerals demandTechnological
innovationMinerals
Capex Inspection
Opex Inspection
Demand for energy Asset productivityTechnological
innovation
Capacity utilisation Asset productivityAgeing 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
30
Ou
r Se
rvic
es Testing Inspection CertificationAssurance
ResourcesTradeProducts
Ou
r Se
cto
rsO
ur
Mid
-to
Lo
ng-
Term
V
alu
e C
reat
ion
GDP+ GDP growth Long-term growth
GDP+ Organic revenue growth
in real termsMargin accretive revenue growth
Strong free cash flow
Disciplinedcapital allocation
Investments in attractive growth and margin sectors
with Capex / M&A
Intertek Virtuous Economics
ATTRACTIVE STRUCTURAL GROWTH DRIVERS
31
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 of Brands & SKUs
Faster innovation cycle
Increased regulation
Increased corporation focus
on 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
Insert Footer Here 32
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)
34
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
244
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; [email protected]
www.intertek.com/investors