REG - Intertek Group Plc - Capital Markets Event

IntertekAnnouncement

03/05/2023 07:00

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RNS Number : 1904Y  Intertek Group PLC  03 May 2023

INTERTEK UNVEILS ITS INTERTEK 30 AAA GROWTH STRATEGY TO UNLOCK
THE SIGNIFICANT VALUE GROWTH OPPORTUNITY AHEAD

 

3 May 2023, Intertek Group plc ("Intertek" and "Group"), a Total Quality
Assurance provider to a range of industries worldwide,

is holding a Capital Markets Event on 3 and 4 May for institutional investors
and sell-side analysts. André Lacroix, Chief Executive Officer and other
members of the Group's senior management team will present the Intertek 30 AAA
growth strategy.

 Intertek Capital Markets Event Highlights

 

·      Intertek announces its Intertek 30 AAA growth strategy

·      Stronger Portfolio poised for faster growth: targeting mid-single
digit LFL revenue growth at CCY

·      Plans in place to take our margin back to 17.5% peak and beyond

·      Higher cash generation to fuel growth investments and deliver
strong returns

·      More agile organisation and high-performance capability to unlock
significant value growth opportunity

·      Current trading for 2023 is in line with our guidance

·      Enhanced segmental disclosures

 

 André Lacroix: Chief Executive Officer comment

 

"I am proud of what our colleagues have accomplished in implementing our 5x5
differentiated strategy launched in March 2016. We have made strong progress,
demonstrating the power of our compelling Total Quality Assurance ('TQA')
value proposition giving our clients the ATIC advantage, the effectiveness of
our unique end-to-end performance management approach and the benefits of our
high-quality growth earnings model. We are today setting out the Intertek 30
Amazing ATIC Advantage ('AAA') growth strategy to continue our good to great
journey and unlock the significant value growth opportunity ahead.

 

Our clients are increasing their focus on Risk‐based Quality Assurance to
operate with higher standards on quality, safety and sustainability in each
part of their value chain, creating higher demand for our ATIC solutions which
are powered by our Science‐based Customer Excellence advantage.

 

We have made significant progress on our portfolio which is poised for faster
growth at the global level given that all business lines are expected to
benefit from exciting structural growth and at the local level given our
strong business line/country portfolio mix.  To better reflect their
respective growth drivers, we are expanding our segmentation to disclose our
results in five divisions.

 

We are a premium operator delivering a superior ATIC customer service
consistently, and we are laser focussed on margin accretive revenue growth
which has always been a value differentiator in the industry. We have both
proven processes and clear plans in place to take our margin back to our 17.5%
peak and beyond.

 

We have made great progress on cash generation with conversion consistently in
excess of 120% and when it comes to cash management, there is much more fuel
in the tank. We expect higher cash generation to fuel growth investments and
deliver strong returns as we continue to pursue accretive disciplined capital
allocation.

 

We have made our organisation stronger over the years and our people are truly
amazing. We will continue to invest in people and we now have a more agile
operating structure which, combined with our high-performance capability, will
enable us to execute our Intertek 30 AAA growth strategy seamlessly.

 

Our Intertek 30 AAA growth strategy will capitalise on the best-in-class
operating platform we have built and target the areas where we have
opportunities to get better.  Our passionate, innovative, and
customer-centric organisation is energised to take Intertek to greater heights
delivering AAA performance for all stakeholders.  We are focussed on
delivering value consistently, targeting mid-single digit LFL revenue growth,
margin accretion, and strong cash generation, while pursuing disciplined
investments in attractive growth and margin ATIC spaces.

 

We operate a differentiated, high-quality growth business with excellent
fundamentals and intrinsic defensive characteristics, giving our customers the
Intertek Science-based Total Quality Assurance advantage to strengthen their
businesses. Our leading ATIC solutions are mission-critical for the world to
operate safely and the growth in our end-markets is accelerating. The
implementation of our Intertek 30 AAA growth strategy will leverage our
high-performance earnings and cash compounder model which has generated 8%
annual Total Shareholder Returns over the last 10 years, to unlock the
significant value growth opportunity ahead."

 

---Intertek 30 AAA Growth Strategy at a glance

 

We have made strong progress between 2014 and 2022 delivering sustainable
growth and value for our stakeholders and we are very excited about the
significant growth value opportunity ahead, capitalising on our
Science‐based Customer Excellence TQA advantage.

 

Our clients understand the mission‐critical nature of risk‐based quality
assurance to make their businesses stronger and we expect the demand for our
ATIC solutions will grow faster post‐Covid.

 

Our Intertek 30 AAA growth strategy is about being the best and creating
significant value for every stakeholder, all the time.

 

We want to be the most trusted TQA partner for our customers, the employer of
choice with our employees, to demonstrate sustainability excellence everywhere
in our community and deliver significant growth and value for our
shareholders.

 

To seize the significant growth value opportunity ahead we will be
laser-focussed on three strategic priorities and three strategic enablers. Our
Strategic Priorities are defined as Science-based Customer Excellence TQA,
Brand Push & Pull and Winning Innovations, and our three Strategic
Enablers are based on 10X Purpose-based Engagement, Sustainability Excellence
and Margin Accretive Investments. We will both further improve where we are
already strong and address the areas where we can get better.

Our high‐quality portfolio is poised for faster growth:

-      The depth and breadth of our ATIC solutions positions us well to
seize the increased corporate needs for risk‐based quality assurance

-      All of our global business lines have plans in place to seize the
exciting growth drivers in each of our divisions

-      At the local level, our country‐business mix is strong, with the
majority of our revenues exposed to fast growth segments

-      Geographically we have the right exposure to the structural growth
opportunities across our global markets

We are improving our segmental disclosures to better reflect the growth
drivers in our businesses and starting from the Group's FY2023 half year
results we will report revenue, operating profit and margin in five divisions:

·    Consumer Products

·    Corporate Assurance

·    Health and Safety

·    Industry and Infrastructure

·    World of Energy

 

Mid-single digit LFL revenue growth target

 

In terms of LFL revenue growth we are targeting Group mid-single digit LFL
revenue growth at CCY with the following expectations by division:

·    Low- to mid‐Single digit in Consumer Products

·    High-single digit to double digit in Corporate Assurance

·    Mid- to high-single digit in Health and Safety

·    Mid- to high-single digit in Industry and Infrastructure

·    Low- to mid‐single digit in the World of Energy

 

Margin back to 17.5% peak and beyond

Margin accretive revenue growth is central to the way we deliver value, and we
are confident that over time we will return to our 17.5% peak margin
performance and go beyond from there. Our confidence is based on three simple
reasons: we have the proven tools and processes in place, we operate with a
span of performance, and we pursue a disciplined accretive portfolio strategy.

 

Our methodology for driving margin accretive revenue growth is deeply embedded
within our operating model and is based on our '5 plus 5' margin drivers:
firstly, our 5 site-level margin drivers that harness the entrepreneurial
spirit of each individual team across the business; and secondly our 5
Group-level margin drivers which provide the structural framework for us to
deliver sustainable margin improvements over time.

 

AAA Intertek Virtuous Economics

 

To deliver sustainable growth and value we will stay focussed on our AAA
Intertek Virtuous Economics based on the compounding effect year after year of
mid-single digit LFL revenue growth, margin accretive revenue growth, strong
free cash‐flow and disciplined investments in high growth and high margin
sectors.

 

We believe in the value of accretive disciplined capital allocation and pursue
the following priorities:

-      Our first priority is to support organic growth through capital
expenditure and investments in working capital (target c 5% of turnover in
capex).

-      The second priority is to deliver sustainable returns for our
shareholders through the payment of progressive dividends and we target a
pay‐out ratio of circa 50%.

-      The third priority is to pursue M&A activities that strengthen
our portfolio in attractive growth and margin areas, provided we can deliver
good returns.

-      And our fourth priority is to maintain an efficient balance sheet
with flexibility to invest in growth. Our leverage target is 1.3 - 1.8 net
debt to EBITDA with the potential to return excess capital to shareholders
subject to our future requirements and prevailing macro environment.

We have made strong progress in the last eight years and equally, the value
growth opportunity ahead is significant.

 

The demand for our strong and differentiated ATIC value proposition is
accelerating.

 

Our Science-based Customer Excellence TQA advantage and our stronger portfolio
at the global and local level positions us well for faster growth.

 

Our Intertek 30 AAA growth strategy will capitalise on the best-in-class
operating platform we have built and target the areas where we have
opportunities to get better.

 

Our passionate, agile, and high-performance organisation is energised to take
Intertek to greater heights delivering AAA performance for all stakeholders.

 

We will deliver value consistently, targeting mid-single digit LFL revenue
growth at CCY, margin accretion, and strong cash generation, while pursuing
disciplined investments in attractive growth and margin ATIC spaces.

 

  Strong value delivered

A few years ago, we took the decision to reinvent ourselves, making Assurance,
Testing, Inspection and Certification, or ATIC, our Customer Promise.  We
rebranded the Company in 2017 and positioned Intertek as Total Quality.
Assured.

 

Our strategic goal with ATIC was to provide a better-quality Assurance
customer service, given how much global trade had changed in the last 50
years. Today, companies operate in a truly global market, running complex
global multi-sourcing and manufacturing operations, pursuing an omni-channel
approach, when distributing their products and services globally and locally.

 

In 2016 we were ahead of our time and today our clients agree that our
industry has changed and is now all about Risk-Based Quality Assurance powered
by ATIC. Indeed, all the quality, safety and supply issues companies have
faced pre and during Covid have convinced Boards and leadership teams to
increase their focus on systemic risk management across their value chains.

 

Assurance provides the independent end-to-end data on where the quality,
safety and sustainability risks are in the entire value chain of any company,
while Testing, Inspection and Certification provide the critical independent
quality controls in the high-risk areas of the entire value chain.

 

We have made strong progress between 2014 and 2022 and have delivered
sustainable growth in revenue, profit, margin and dividend while operating
with a robust balance sheet and delivering strong returns.

Intertek 2014-2022 Value Delivery:

 Metric(1)              2014      2022      Change
 External Revenue       £2,093m   £3,193m   53%
 EBITDA                 £400.9m   £700.6m   75%
 Operating Profit (OP)  £324.6m   £520.1m   60%
 OP Margin              15.5%     16.3%     80bps
 EPS                    132.1p    211.1p    60%
 Dividend               49.1p     105.8p    115%
 WC as % Revenue        9.3%      (150bps)  (10.8ppts)
 FCF                    £202m     £386m     91%
 ROIC                   16.3%     18.0%     170bps
 Net Debt/EBITDA        1.6x      1.1x      (0.5x)

 

 Note (1): On an adjusted basis, (2) 2014 metrics are on an IAS17 basis

 

 

 

Faster Global Growth for ATIC Solutions

Our industry has always benefitted from attractive growth drivers and in a
post-Covid world everyone wants to build an ever-better world. Corporations
will invest more in quality, safety, and sustainability, accelerating the
demand for our ATIC industry-leading solutions.

 

Indeed, based on our customer research, these attractive structural growth
drivers will be augmented by:

·    An increase in new clients

·    Higher investments in safer supply

·    Higher investments in innovation

·    A step change in sustainability

·    Higher growth in the World of Energy

 

We are seeing significant growth in the number of companies globally given the
lower barriers to entry for any brand with e-commerce capabilities. The lack
of Quality Assurance expertise of these young companies is excellent news for
our Global Market Access solutions. Our decentralised Customer 1st
organisation has a strong track record of winning new clients.

 

Covid is proving a catalyst for many corporations to improve the resilience of
their supply chains. We are seeing a significant change of focus within our
clients and how they manage their value chains with:

·    Better data on what is happening in all parts of the supply chain

·    Tighter risk management with razor-sharp business continuity planning

·    A more diversified portfolio strategy with tier 1/2/3 suppliers

·    A more diversified portfolio strategy regarding factories

·    Investments in processes, technology, training, and independent
assurance

 

Our superior Assurance offering means we are well positioned to help our
clients reduce the intrinsic risks in their operations.

 

Our clients have also realised that they need to invest more in product and
service innovation to meet the changing needs of their customers. A recent
survey by Gartner shows that 60% of R&D leaders expect to increase their
R&D investments in 2023. These investments in innovation mean a higher
number of SKUs and a higher number of tests per SKUs - which will be
beneficial for our Products division.

 

The other major area of investment inside corporations is of course
sustainability and we are seeing positive momentum with new and emerging
regulation.  This means companies will have to re-invent the way they manage
their sustainability agenda with a greater emphasis on independently verified
non-financial disclosures. This is excellent news for our industry leading
Total Sustainability Assurance solutions. Sustainability is the movement of
our time.

 

The growth opportunities in the World of Energy are truly exciting as the
energy companies are planning higher investments. In 2022, we all have
witnessed the concerns reflecting energy security, and everyone agrees that
global energy production capacity is an issue that needs to be addressed
quickly to meet the growing demand for energy. Given the under-investments in
traditional O&G exploration and production in the last decade and the lack
of scale for Renewables, investment for production in traditional O&G and
in Renewables will increase. This is excellent news for our Caleb Brett and
Industry Services businesses.

 

Capitalising on our strengths to accelerate growth

On our good to great journey and to seize these exciting growth opportunities,
we plan to capitalise on our strengths.

 

There are several areas where we believe we are best in class:

·    We are purpose-led and operate with a 10X Culture.

·    We are positioned as the Risk-based Quality Assurance leader.

·    We deliver a superior customer service 24/7.

·    We do business the right way, operating in every part of the Group
with strong financials and corporate controls.

·    Our proven performance management discipline is systemic.

·    We are a pioneer, always leading the industry with innovations.

·    We have a highly differentiated and winning TQA value proposition.

·    Our people are amazing and Science-based Customer Excellence TQA
Advantage is our unique competitive advantage

 

We have built a best-in-class operating platform which is a major asset to
capitalise on and seize the demand acceleration for our ATIC solutions
unlocking the significant value growth opportunity ahead.

 

Intertek 30 AAA growth strategy to unlock the significant value growth
opportunity

We are a passionate, high-performance organisation and being the best in
everything we do is what will guide us to unlock the significant value growth
opportunity ahead.

 

We believe that winning in every business is about being much better at what
you are already the best at, while addressing your opportunity areas.

 

Getting better at what we are the best at starts of course with ATIC, our
competitive advantage. We were ahead of our time when we introduced ATIC a few
years ago and we have made a lot of progress with our clients. Equally, the
opportunities to provide an ever better customer service cross-selling our
ATIC solutions and increasing our share of ATIC wallet with every client are
truly exciting.

 

At the heart of our Intertek 30 AAA growth strategy is to always give our
clients an Amazing ATIC Advantage to strengthen their business. We have
branded our Intertek 30 good to great strategy 'AAA', which stands for Amazing
ATIC Advantage.

 

AAA is much more than being the best in terms of customer service. AAA is
about delivering significant value for every stakeholder by simply being the
best with each of them all the time.

·    We want to be the most trusted TQA partner with our customers.

·    We want to be the employer of choice with our employees.

·    We want to demonstrate sustainability excellence everywhere in our
community.

·    We want to deliver significant growth and value for our shareholders.

 

AAA will be evolutionary in its approach, capitalising on our strengths and
doing things differently to take the Company forward.

 

We are a purpose-led company and the meaning of what we do is important for
all of us. Our Purpose of Bringing Quality, Safety and Sustainability to Life
means that we are mission-critical to society.

 

Our Vision is very demanding:  to be the world's most trusted partner for
Quality Assurance.

 

Our Goals are focussed on delivering sustainable growth and value for our
shareholders.

-      We expect the demand for our ATIC solutions to be stronger in a
post-Covid world. We are targeting mid-single digit LFL revenue growth at CCY.

 

-      Margin accretive revenue growth is central to the way we create
value.  We have both the processes and plans in place to go back to our 2019
peak margin of 17.5% and beyond.

 

-      Every day, in every part of our organisation we apply with
discipline our Intertek Virtuous Economics model which is based on the
compounding effect year after year of LFL revenue growth, margin accretive
revenue growth, strong free cash-flow and disciplined investments in high
growth and high margin sectors.

 

To achieve these goals, we will pursue three strategic priorities and three
strategic enablers.

 

-      Our three strategic priorities are defined as Science-based
Customer Excellence TQA, Brand Push & Pull and Winning Innovations.

 

-      Our three strategic enablers are based on 10X Purpose-based
Engagement, Sustainability Excellence and Margin Accretive Investments.

 

Stronger portfolio poised for faster growth

When we announced our 5x5 strategy in 2016, we articulated our growth and
margin accretive portfolio strategy based on 3 types of opportunities, within
our business lines and countries.

 

·    Our first priority was to strengthen our core by growing our scale
growth businesses.

·    Our second priority was to invest in growth targeting the
fast‐growing businesses.

·    Our third priority was to improve the performance of underperforming
businesses.

 

We are pleased with the progress we have made in our business lines' portfolio
between 2014 and 2022, with the 12% CAGR in our fast‐growing businesses and
the 2.5% CAGR in our scale growth businesses. There is no question that the
reduction in oil & gas exploration and production capex impacted the
revenue performance of our underperforming businesses, primarily Industry
Services negatively which will not be the case moving forward.

 

Our country portfolio got stronger. Our scale growth segment made up of North
America and Greater China grew by 3.8% CAGR, our fast-growing segment of South
Asia, South East Asia, Middle East and Africa, grew by 9.3% CAGR and our
improve segment, comprising Europe and Australia, grew by 4% CAGR.

 

Looking at our portfolio through our Product, Trade, Resources divisions and
our ATIC portfolio, the centre of gravity of the Group has moved toward high
margin sectors. This is in line with our accretive portfolio strategy, which
delivered strong growth with Products and which significantly increased
exposure to our Assurance solutions.

 

The financial impact of our accretive portfolio strategy at the Group level
has been strong, as we have added £1.1bn of revenue and £200m of operating
profit during the eight-year 2014‐2022 period while growing our dividend
double-digit.

 

Our differentiated TQA value proposition has made a huge contribution to the
strengthening of our portfolio.  Our TQA value proposition is unique as we
offer a systemic approach to our clients in quality, safety and sustainability
with industry leading ATIC solutions.

 

Our Science based Customer Excellence TQA advantage is a powerful portfolio
advantage to accelerate growth, given that our clients are increasing their
investments in risk-based quality assurance.

 

We have many opportunities to increase our ATIC share of wallet with existing
customers which demonstrates the power of our ATIC portfolio opportunity and
our ability to continue to create value growth.

 

We are entering our next phase of growth with a high‐quality growth
portfolio which enables us to provide our 400,000+ customers with leading ATIC
solutions in each of our global business lines in 100+ markets.

 

Our portfolio has the track record of consistent growth and value delivery,
based on the compounding effect, on a yearly basis, of margin accretive LFL
revenue growth, strong cash generation, and disciplined investments in growth.

 

Moreover, our portfolio has strong intrinsic defensive characteristics. The
ATIC solutions we offer are mission critical for our clients. We operate a
highly diversified set of revenue streams. Given our superior ATIC customer
service, we enjoy strong and lasting relationships with our clients.

 

Margin accretive investments to take our portfolio to new heights is one of
the 3 strategic enablers of our Intertek 30 AAA growth strategy.

 

We just concluded an in‐depth strategic review of our portfolio, and we are
really pleased with the progress we have made.

 

Global portfolio

 

Our global portfolio is stronger than ever and over the two days, we will set
out in detail the growth opportunities in our global business lines:

 

Business Assurance

FY22 Revenue: £450m

 

Business Assurance is central to our ATIC offering and remains one of the most
exciting sectors within Intertek, given the increased focus on operational
risk management within the value chain of every company. Making the value
chains more resilient and more sustainable is the number one priority of any
risk committee, and we have the Assurance solutions that our clients need now.

 

Softlines

FY22 Revenue: £248m

Our Softlines business is the industry leader in terms of scale, technical
expertise, customer service and TQA offering.  We will increase our ATIC
share of wallet with existing customers, leveraging our Risk-based Quality
Assurance solutions, our Corporate Sustainability offering and our SaaS
platforms. We will also benefit from the go-to-market assurance needs of new
brands entering the market.

 

Electrical and Connected World

FY22 Revenue: £468m

 

Our Electrical business was created by Thomas Edison and leads the industry
around the world. The electrification of society means that our Electrical
business is central to all changes in the world's energy. Also, we will
benefit from the exciting growth of smart products, medical devices, AI and
robotics.

 

Food

FY22 Revenue: £95m

 

Our Food business is strong locally and mid-size globally. The food industry
is an attractive industry for us as it is highly regulated, but local
authorities do not have the funds to secure regulatory enforcements. That's
why there are so many public high profile quality scandals which create
tremendous reputational issues for brands and governments.  Food will
continue to be a fast-growing business for Intertek.

 

Industry Services

FY22 Revenue: £383m

 

Our Industry Services business will also be a fast-growing business for
Intertek. The lack of Capex investments in Oil and Gas, Exploration and
Production and the slow investments in renewables have created energy supply
issues. Renewables represent less than 10% of the world's energy supply and
given the expected growth in demand, energy companies have to increase both
the investments in traditional Oil and Gas production assets as well as in
renewables.

 

Building & Construction (B&C)

FY22 Revenue: £345m

 

We scaled-up our B&C business in North America with the acquisition of PSI
in 2015. We have seen good growth in the last few years and moving forward,
what we call 'Greener US' will be a major opportunity for us. The various
bills passed recently in Washington are triggering a level of manufacturing
and infrastructure investments which will be a game changer for the US.

 

Hardlines

FY22 Revenue: £180m

 

Our Global Hardlines business is a global leader with a scale expertise and
ATIC offering advantage. We will benefit from significant growth opportunities
in the toy segment and the furniture segment. Smart toys are growing fast and
importantly, the number of tests per toy is higher, impacting our margin
favourably. We have excellent customer relationships within the furniture
segment and we will continue to benefit from the investments households are
making to improve quality of life at home.

 

Transportation Technologies (TT)

FY22 Revenue: £129m

 

Global mobility will continue to increase, with greener mobility gaining
share. We will benefit from the R&D investments that all OEMs are planning
to make in Full Electric or Hybrid cars. We will also benefit from the
improvement in traditional combustion engines to deliver high performance with
greener fuels and greener lubricants. These are excellent prospects for our TT
business.

 

Caleb Brett

FY22 Revenue: £492m

 

Greener fuels is one of the main growth opportunities for Caleb Brett and we
have the ATIC capability to support our clients with biofuels, sustainable
aviation fuels, synthetic fuels, and hydrogen. Greener fuels require a more
complex testing technical protocol and is higher margin for us. We will also
benefit from the overall growth in demand for crude and refined products as we
expect developing countries to expand their oil and gas production/refining
infrastructure.

 

Minerals

FY22 Revenue: £150m

 

Our Minerals business is leading the industry in several regions where we have
established a strong position in terms of scale, technical expertise and
offering which, combined with our advanced levels of automation and
operational excellence, provide us with strong returns. Our Minerals business
will benefit from the growth in global infrastructure and from the growing
demand for greener minerals supporting the global energy transition.

 

Government and Trade Services (GTS)

FY22 Revenue: £67m

Global Market Access for businesses remains a major concern, as most companies
have centralised their quality assurance expertise in their global
Headquarters and have sub-contracted the manufacturing of their products. In a
world where consumers can be very vocal on social media about any quality,
safety, sustainability issues of the products they buy, our clients need more
than ever the independent inspection services of our GTS business to operate
safely. We have the global network, the technical expertise, and solutions
companies need to go to market.

 

AgriWorld

FY22 Revenue: £76m

 

The growth of our AgriWorld business has been impressive and there are many
more growth opportunities given our mid-size scale globally. We have a strong
end-to-end ATIC offering which, combined with our superior customer service,
has enabled us to win major contracts over the years. Eating safe food starts
with getting the right ingredients in the factory or in the kitchen preparing
meals. The lack of enforcement of food safety standards by local authorities,
is a significant structural growth driver for our Agri and Food businesses.
Our AgriWorld business will continue to grow rapidly.

 

Local portfolio

 

Building on the strength of our global business line portfolio, we are
extremely well positioned for faster growth when looking at our portfolio at
the local level, given our stronger business line/country mix.

 

During our strategic review we have spent quality time as a team discussing
the performance of our top c.450 country business lines in the last few years
and importantly, the growth opportunities moving forward. The conclusion of
this review is that, at the local level, we have a high-quality portfolio
which is poised for faster growth. The outcome of our strategic review has
resulted in the following powerful insights:

 

-      55% of our revenue is in the fast‐growing segment which has the
potential to grow LFL revenue at high-single digit/double-digit

 

-      35% of our revenue is in the scale growth segment which has the
potential to grow LFL revenue at low-single digit/mid-single digit

 

-      10% of our revenue is in the improving performance segment where
we expect the LFL revenue growth to be between flat and low single-digit

 

We have streamlined our organisation at the country level to make the
management of our local portfolio more agile by leveraging our scale and
capitalising on our business line expertise at the regional level.

 

Our portfolio will play a major role to deliver the significant growth value
delivery. All global business lines are targeting margin accretive revenue
growth and our new organisation will enable us to be more impactful when
implementing our margin accretive growth plans at the local level.

 

Achieving over time and strengthening the number 1 or number 2 position in the
local market and/or global basis remains our strategic goal as well as a
significant opportunity. We have achieved this position in many parts of our
business and when this is the case, our main focus area is about strengthening
our leadership positions. We have many parts in our portfolio where we have
not achieved this goal at the local and/or global area, which is a very
exciting opportunity. In both cases, we have developed, as part of our AAA
portfolio strategy, compelling margin accretive growth plans to achieve these
goals over time.

 

We will be looking at both organic and inorganic opportunities to achieve
these goals. Our M&A strategy is central to our AAA portfolio strategy to
complement our organic margin accretive growth plan, with the view of
expanding or accessing new IP that we can scale up or expand our geographic
footprint.

 

We are very proud of the high‐performance capability which we have built
with our 5x5 strategy. We believe that the capability investments we have made
have enabled us to build our industry leading operating platform. Our strong
operating platform is underpinned by our global network, highly skilled
colleagues, well-documented operational and corporate processes, state of the
art equipment in our operations and leading IT infrastructure.

 

The growth we expect will require continuous investment in our network,
people, processes, equipment, and IT. We will therefore continue to invest in
capability to make sure that we continue to operate with the best operating
platform in the industry.

 

We will stay very focussed on our disciplined capital allocation approach to
make sure we invest in growth delivering strong returns.

 

Margin back to 17.5% peak and beyond

 

Over many years, Intertek has operated with a differentiated margin management
approach which gives us the foundation and confidence in our plans to return
to our peak margin of 17.5% and beyond. Our approach to margin accretion is
built on three core fundamentals:

 

-      We have the tools and processes in place to drive margin accretive
revenue growth.

 

-      While we have made strong progress on productivity over the last 8
years, a significant span of performance opportunity remains - within business
lines and across countries.

 

-      We pursue a margin and growth accretive portfolio investment
strategy.

 

Our methodology for driving margin accretive revenue growth is deeply embedded
within our operating model and is based on our "5 plus 5" margin drivers:
firstly, our 5 site-level margin drivers that harness the entrepreneurial
spirit of each individual team across the business; and secondly our 5
Group-level margin drivers which provide the structural framework for us to
deliver sustainable margin improvements over time.

 

Our five site-level margin enhancement drivers are:

 

1.    Volume, price, mix management: Every site across the Group is
empowered to maximise the intrinsic value of our science-based expertise at
its disposal. Our analytical tools provide the framework for our sites to get
the right insight to improve sequentially.

 

2.    Fixed cost capability management: The strong and scale market
positions we have in many markets are combined with the rigorous site-level
optimisation of our fixed cost base to drive economics of scale advantages.
Continued disciplined investment in our fixed asset base also ensures we
reduce the like-for-like cost of operational delivery.

 

3.    Variable cost capability management: Each of our sites consistently
adopts a kaizen approach to process re-engineering to improve productivity.
Local efficiency initiatives are complemented with a global approach to
larger-scale procurement to optimise costs.

 

4.    Team-based Planning for 10Xcellence: Planning for 10Xcellence is our
proprietary team-based integrated end-to-end model for optimising supply and
demand management. Our approach enables full visibility and alignment of all
our site-based teams in the value chain - from sales to scheduling to
production to billing.

 

5.    Short-term incentives: Each of our sites have annual revenue and
profit targets which form the basis of annual incentives to drive year-on-year
revenue and margin growth.

 

Our five Group-led margin enhancement drivers are:

 

1.    Pricing discipline: Our customer relationships are deep, long lasting
and with high retention rates, which over time has positioned Intertek as a
premium operator.

 

2.    Portfolio optimisation: We pursue a growth and margin accretive
portfolio investment strategy. Over the last 8 years we have increased the
Group's exposure to high growth and high margin segments - in 2022, 63% of
revenue was generated in the Products sector and 20% within the attractive
Assurance service segment.

 

3.    Disciplined performance management: Our approach to performance
management is highly disciplined and fully embedded into the standard
operating procedures of the Group. We have a clear daily, weekly, monthly
cadence which is applicable at every layer of the organisation, driving
superior insight and action planning.

 

4.    IT productivity-led initiatives: Our IT investment strategy and
initiatives are broad based and support our margin accretion strategy across
multiple pillars. These pillars include laboratory-level productivity;
digitising the customer experience; and back-office efficiency improvements.

 

5.    Short and long-term incentives: Our annual short-term incentives
apply at every layer of the organisation and reward year-on-year improvements
in revenue, profit, ROIC and CO(2) intensity. These are complemented by our
long-term incentive plans which are designed to drive sustainable growth in
EPS, ROIC and free cash flow.

 

Accretive disciplined capital allocation

 

We believe in the value of accretive disciplined capital allocation.

 

We pursue the following priorities:

 

-      Our first priority is to support organic growth through capital
expenditure and investments in working capital (target c 5% of revenue in
capex)

 

-      The second priority is to deliver sustainable returns for our
shareholders through the payment of progressive dividends and we target a
pay-out ratio of circa 50%

 

-      The third priority is to pursue M&A activities that strengthen
our portfolio in attractive growth and margin areas, provided we can deliver
good returns.

 

-      And our fourth priority is to maintain an efficient balance sheet
with flexibility to invest in growth. Our leverage target is 1.3 - 1.8 net
debt to EBITDA with the potential to return excess capital to shareholders
subject to our future requirements and prevailing macros.

 

Improved segmental disclosures

To reflect the value creation drivers identified in the Intertek 30 AAA growth
strategy, we are improving our segmental disclosures and will report our
revenue, operating profit and margin in five divisions.

 

Our Consumer Products division will focus on the ATIC solutions we offer to
our clients to develop and sell better, safer, and more sustainable products
to their own clients. This division was 31% of our revenue in 2022 and will
include the following business lines: Softlines, Hardlines,
Electrical/Connected World and GTS.  We expect it to grow LFL revenue low to
mid-single digit.

 

Our Corporate Assurance division will focus on the industry agnostic Assurance
solutions we offer to our clients to make their value chains more sustainable
and more resilient end to end. This division was 13% of our revenue in 2022
and will include Business Assurance and Assuris.  We expect it to grow LFL
revenue high-single to double digit.

 

Our Industry and Infrastructure division will be focussed on the ATIC
solutions our clients need to develop and build better, safer and greener
infrastructure. This division was 26% of our revenue in 2022 and includes
Industry Services, Minerals and B&C. We expect it to grow LFL revenue mid-
to high-single digit.

 

Our Health and Safety division will focus on the ATIC solutions we offer to
our clients to make sure we all enjoy a healthier and safer life. This
division was 9% of our revenue in 2022 and includes our AgriWorld, Food, and
Chemical and Pharma business lines. We expect it to grow LFL revenue mid- to
high-single digit.

 

Our World of Energy division will focus on the ATIC solutions we offer to our
clients to develop better and greener fuels as well as renewables. This
division was 21% of our revenue in 2022 and includes Caleb Brett, TT and CEA.
We expect it to grow LFL revenue low to mid-single digit.

 

We will also evolve our regional segmentation disclosing revenue twice a year
for the Americas, EMEA as well as APAC which represented respectively 38%, 26%
and 36% of our revenue in 2022.

 

We will continue our ATIC segmentation and provide the revenue split every
year moving forward.

 

 

Our Trading statement in a few weeks will use the current Product, Trade and
Resources (PTR) disclosure and we will start reporting based on our new
divisions when we announce our 2023 half year results. We will publish on our
website in June 2023 comparative data for 2019 and 2022 under the new
divisional segmentation. To make the analysis of our current year easier, we
will also continue to report our 2023 results using PTR.

 

2023 outlook

Current trading for 2023 is in line with our guidance.

 

-      We continue to expect the Group to deliver mid-single digit LFL
revenue growth at constant currency driven by good LFL revenue growth in
Products and Trade and robust LFL revenue growth in Resources and are
targeting margin progression, in both H1 an H2.

 

-      Our cash discipline will remain in place to deliver a strong free
cash flow.

 

-      We will invest in growth with capex of circa £115-125m.

 

-      We expect our FY23 financial net debt to be in the range of
£630-680m

 

We will report trading for January to April 2023 on 24 May 2023.

 

~ENDS~

 

 

For further information please contact:

 

Denis Moreau, Investor Relations

Telephone: +44 (0) 20 7396 3415     investor@intertek.com
(mailto:investor@intertek.com)

 

Jonathon Brill/James Styles, Dentons Global Advisors

Telephone: +44 (0)7510 385 554      intertek@dentonsglobaladvisors.com
(mailto:intertek@dentonsglobaladvisors.com)

 

 Intertek is a leading Total Quality Assurance provider to industries
 worldwide.

 Our network of more than 1,000 laboratories and offices in more than 100
 countries, delivers innovative and bespoke Assurance, Testing, Inspection and
 Certification solutions for our customers' operations and supply chains.

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

   intertek.com

 

 

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