REG - Intertek Group Plc - Trading Statement

IntertekAnnouncement

24/11/2022 07:00

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RNS Number : 4248H  Intertek Group PLC  24 November 2022

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 TRADING STATEMENT

 24 November 2022

 

Intertek Group plc ("Intertek" or "the Group"), a leading Total Quality
Assurance provider to industries worldwide, today releases its November
Trading Update for the period from 1 January to 31 October 2022 ("period").
All comparative comments in this statement reflect comparisons with the
corresponding period during 2021. The Group's full year results to 31 December
2022 will be announced on 28 February 2023.

 

 Robust Demand for Intertek ATIC Solutions - Growth Acceleration in Trade and
 Resources

• 5.6% LFL revenue growth at CCY(1) in July-Oct driven by 4% LFL in
Products, 7.1% LFL in Trade and 9.7% LFL in Resources

• YTD revenue growth of 9% at CCY(1) with broad-based LFL revenue growth of
5.2% and a £120m contribution from acquisitions

• 15.5% YTD revenue growth at AR(2) driven by strong revenue growth at
CCY(1) and 650bps of positive Forex translation

• Continuous progress on pricing, productivity and cash initiatives to
deliver strong returns

• 2022 outlook: robust LFL revenue growth and good earnings growth at
CCY(1), strong earnings growth and free cash flow at AR(2)

• Robust balance sheet with low net debt to EBITDA ratio and 2022 expected
financial net debt of £750-800m(3)

• Proven high-quality growth earnings model with excellent fundamentals and
intrinsic defensive characteristics

• Well-positioned to seize the attractive organic and inorganic ATIC growth
opportunities ahead

 

            LFL Revenue Growth                  Revenue Growth
            Jul-Oct 22        YTD 22            YTD 22            YTD 22
            Change at CCY(1)  Change at CCY(1)  Change at CCY(1)  Change at AR(2)
 Group      5.6%              5.2%              9.0%              15.5%
 Products   4.0%              4.2%              9.8%              16.9%
 Trade      7.1%              6.3%              6.3%              10.9%
 Resources  9.7%              7.8%              9.3%              15.8%

 

 André Lacroix: Chief Executive Officer statement

"The Group has delivered a robust trading performance in the period at CCY(1),
driven by broad-based good LFL revenue growth in Products and LFL revenue
growth acceleration in Trade and Resources.  Reported revenue at CCY(1) grew
9.0% YTD driven by a LFL revenue growth of 5.2% and the performance of our
three recent acquisitions contributing £120m of revenue. Our superior ATIC
customer service and industry leading innovations enabled us to leverage our
strong pricing power and make good progress on pricing. Our disciplined cost
management remains in place to drive productivity gains and our day-to-day
focus on cash is delivering a strong cash performance in H2.

 

We have an excellent business in China with leading and scale positions. The
lockdown restrictions had a significant impact in our China business between
March and June with Shanghai the most impacted. It has been operating as
normal from July onwards and as expected, our business has rebounded quickly
delivering a good LFL revenue growth at constant currency in the July-Oct
period.

 

For the full year, we are confident that the Group will deliver robust LFL
revenue growth at CCY(1) with a margin below 2021 reflecting the lockdown
restrictions in China in H1, the expected divisional mix and the impact of
inflation on the Opex capability investments we are making in our businesses
in North America, UK, Europe and Australia. We expect the Group to deliver a
good earnings growth at CCY(1) and a strong earnings growth and free cash flow
at AR(2) with an excellent ROIC.

 

The Quality Assurance market will grow faster post Covid-19 as the demand for
Quality Assurance solutions is expanding across all our business lines given
the growing stakeholder expectations in quality, safety and sustainability.
Moving forward, we expect the attractive structural growth drivers in our
industry to be augmented by an increase in ATIC customers, a stronger focus by
corporations on safer supply chains, greater corporate investments in
innovation, a step change in sustainability management and reporting with
independently verified disclosures, and significant growth opportunities in
the World of Energy.

 

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. We operate a
high-performance earnings and cash compounder model which has delivered 13%
annual Total Shareholder Returns in the last decade and we will continue to
deliver sustainable growth and value for all stakeholders in the short, medium
and long term."

( )

(1)Constant currency   (2)Actual rates   (3)Excluding further changes in
FX rates and M&A

 

 Revenue Performance
 10 months - January to October                                                       4 months - July to October
                        2022     2021     Change at      Change at constant currency  2022     2021     Change at      Change at constant currency

                        £m       £m       actual rates                                £m       £m       actual rates
 Group
 Revenue                2,632.4  2,279.1  15.5%          9.0%                         1,140.7  961.5    18.6%          8.5%
 Like-for-like revenue  2,512.9  2,254.7  11.5%          5.2%                         1,085.6  939.3    15.6%          5.6%

 Products
 Revenue                1,674.6  1,432.0  16.9%          9.8%                         723.6    612.5    18.1%          7.7%
 Like-for-like revenue  1,561.3  1,407.6  10.9%          4.2%                         674.4    590.3    14.2%          4.0%
 Trade
 Revenue                523.9    472.4    10.9%          6.3%                         224.3    194.2    15.5%          7.1%
 Like-for-like revenue  523.6    472.4    10.8%          6.3%                         224.3    194.2    15.5%          7.1%
 Resources
 Revenue                433.9    374.7    15.8%          9.3%                         192.8    154.8    24.5%          13.1%
 Like-for-like revenue  428.0    374.7    14.2%          7.8%                         186.9    154.8    20.7%          9.7%

 

Contacts

 

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

 

Analysts' Call

A live audiocast for analysts and investors will be held today at 7.45am UK
time; +44 (0) 33 0551 0200 (Link to audiocast
(https://broadcaster-audience.mediaplatform.com/#/event/63501bce10103e7e3fafb55a/registration)
). Details can be found at http://www.intertek.com/investors/
(http://www.intertek.com/investors/) together with a pdf copy of this report.
A recording of the audiocast will be available later in the day.

 

 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 is a purpose-led company to Bring Quality, Safety and Sustainability
 to Life. We provide 24/7 mission-critical quality assurance solutions to our
 clients to ensure that they can operate with well-functioning supply chains in
 each of their operations.

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

 intertek.com (http://www.intertek.com/)

 

 Products Divisional Review

Revenue in our Products business benefitted from a continuing increase in ATIC
customer demand and from our acquisitions enabling us to deliver a revenue
growth of 7.7% in the July-Oct period at constant currency and 9.8% YTD at
constant currency. During the period, our Products business delivered a LFL
revenue growth of 4.0% at constant currency, slightly below our expectations,
as we recently saw a slowdown in new product development by some of our
Softlines and Hardlines clients focusing on short-term reduction of
higher-than-expected inventory before year-end, and we have not seen our
automotive clients increase their R&D investments in H2 given the
challenges they face in their supply chains. LFL revenue growth on a YTD basis
in Products was 4.2% at constant currency.

 

• Our Softlines business delivered mid-single digit LFL revenue growth in
the July-Oct period resulting in mid-single digit LFL revenue growth YTD,
benefitting from growth in e-commerce, investments of our clients in new
collections, growth in risk-based Quality Assurance and increased investment
in end-to-end sustainability.

 

• Hardlines reported low-single digit LFL revenue growth in the July-Oct
period and low-single digit LFL revenue growth on a YTD basis, benefitting
from the growth in e-commerce, the increased consumer demand for home
furniture and toys as well as the investments of our clients in
sustainability.

 

• With increased ATIC activities driven by greater regulatory standards in
energy efficiency, higher demand for testing and certification of medical
devices and the increased testing requirements for 5G, our Electrical &
Connected World business delivered low-single digit LFL revenue growth in the
July-Oct period and on a YTD basis.

 

• Business Assurance delivered double-digit LFL revenue growth globally in
the July-Oct period and on YTD basis as the business benefitted from the
increased investments by our clients to improve the resilience of their supply
chains, the continuous focus on ethical supply, the increased need for
sustainability assurance and the strong growth in our People Assurance
segment.

 

• Our Building & Construction business generated high-single digit LFL
revenue growth in the July-Oct period resulting in a high-single digit LFL
revenue growth YTD. We benefitted from the growing demand for more
environmentally friendly and higher quality buildings and the increased number
of infrastructure projects in North America.

 

• Transportation Technologies reported double-digit negative LFL revenue
growth in the July-Oct period and high-single digit negative LFL revenue
growth on a YTD basis as we saw lower levels of investments in new powertrains
to lower CO2/NOx emissions and in traditional combustion engines to improve
fuel efficiency.

 

• Our Food business registered high-single digit LFL revenue growth in the
period and mid-single digit LFL revenue growth on YTD basis resulting from
increased demand for food safety testing activities and hygiene and safety
audits in factories.

 

• We saw low-single digit LFL revenue growth in the July-Oct period and
low-single digit LFL revenue growth on a YTD basis in our Chemicals &
Pharma business. We benefitted from an improvement of demand for regulatory
assurance and chemical testing and from the increased R&D investments of
the pharma industry.

 

Full Year growth outlook
 In 2022, we expect our Products division to deliver good LFL revenue growth at constant currency.

 

Mid- to long- term growth outlook
Our Products division will benefit from mid to long-term structural growth
drivers including product variety, brand and supply chain expansion, product
innovation and regulation, the growing demand for quality and sustainability
from developed and emerging economies, the acceleration of e-commerce as a
sales channel, and the increased corporate focus on risk.

 

 Trade Divisional Review

Following a good 2021 organic performance when we benefitted from the rebound
in global trade, the higher demand for Energy and Agri products in 2022
enabled our Trade business to deliver a robust trading performance as it
accelerated its growth momentum with a LFL revenue growth of 7.1% at constant
currency in the July-Oct period, resulting in YTD LFL revenue growth of 6.3%.

 

• Caleb Brett, the global leader in the Crude Oil and Refined products
global trading markets, benefitted from improved momentum driven by increased
global mobility and higher testing activities for biofuels with double-digit
LFL revenue growth in the July-Oct period and high-single digit LFL revenue
growth YTD.

 

• Our Government & Trade Services business provides certification
services to governments in the Middle East and Africa to facilitate the import
of goods in their markets, based on acceptable quality and safety standards.
We saw double-digit negative LFL revenue growth in the July-Oct period and
double-digit negative LFL revenue growth on YTD basis as the benefit from a
recovery of supply chain activities in the Middle East and Africa was more
than offset by the termination of two contracts which we did not renew for
profitability reasons.

 

• AgriWorld provides inspection activities to ensure that the global food
supply chain operates fully and safely. The business reported mid-single digit
LFL revenue growth in the July-Oct period and high-single digit LFL revenue
growth on YTD basis. We continue to see an increase in demand for inspection
activities driven by the strong growth in the global food industry.

 
Full Year growth outlook
In 2022 we expect our Trade division to deliver robust LFL revenue growth at constant currency.
 
Mid to long- term growth outlook
 Our Trade division will continue to benefit from both regional and global trade-flow growth, as well as the increased customer focus on quality, quantity controls and supply chain risk management.

 

 Resources Divisional Review

Our clients are benefitting from the global recovery in the oil and gas
industry and from higher demand for minerals which enabled our Resources
business to deliver a strong trading performance with a LFL revenue growth of
9.7% at constant currency in the July-Oct period, resulting in a LFL revenue
growth of 7.8% YTD.

 

• In our Exploration & Production operations, our Capex Inspection
services business delivered double-digit LFL revenue growth in the July-Oct
period and high-single digit LFL revenue growth on YTD basis. The revenue
growth acceleration seen in H2 was driven by increased Capex investments from
our clients in traditional oil and gas and renewables, as well as new contract
wins.

 

• We delivered low-single digit LFL revenue growth in the July-Oct period
and low-single digit negative on YTD basis in Opex Maintenance as we exited a
large contract in North America for profitability reasons.

 

• The increased demand for testing and inspection activities saw our
Minerals business deliver double-digit LFL revenue growth in the July-Oct
period and on YTD basis.

 

Full Year growth outlook

We expect our Resources related businesses to deliver a robust LFL revenue
performance at constant currency.

 
Mid to long- term growth outlook
Our Resources division will grow in the mid to long-term as we benefit from investments in Energy to meet the demands of the growing population around the world.
 
 Innovation

True to our pioneering spirit, and building on our existing strengths, we
continue to innovate and provide customers

with the mission critical solutions they need.

 

We are investing organically to seize the sustained long-term growth
opportunities in our industry through a disciplined approach to capital
allocation, targeting high-margin and high-growth areas that in turn
accelerate margin accretive revenue growth.

 

Intertek has been a pioneer in the industry, providing new and innovative
solutions to our clients, capitalising on the Science-based Customer
Excellence and creativity of our organisation.

 

We have a focused approach to innovation, adopting our proven three-tiered
method: 'Core', building on strengths of existing products and services;
'Adjacent', expanding into fast-growing and high-margin markets; and
'Breakthrough', developing innovative products and services.

 

We have brought many exciting innovations to market under all these headings.

 

Recent examples of innovations include Intertek EcoCheck, a sustainable
tourism solution that audits management systems and offers a Carbon Footprint
Calculation, enabling our clients to meet their customers' requests to
demonstrate tangible actions and results to achieve their sustainability
goals.

 

In our Softlines business, we launched Intertek TOXCLEAR, an innovative
digital chemical management platform for the fashion industry, to deliver
production free of hazardous chemicals. The platform enables brands and their
suppliers to deliver transparency and traceability on chemicals used and build
safer and more sustainable supply chains.

 

We also added new and enhanced features to our market-leading supply chain
compliance solution, Inlight 2.0, enabling organisations to manage
increasingly complex supply chain risks, empowering them to bring visibility
to the workings of their vendor partners and turn potential disruptions and
compliance irregularities to their competitive advantage.

 

Our Minerals Global Centre of Excellence in Perth, Western Australia is a key
hub for the minerals and mining industry. This state-of-the-art laboratory
gives our customers access to trusted expertise in mineral testing, inspection
and analysis. We recently installed a third PhotonAssay unit at the Centre,
supporting our customers with faster, more accurate and environmentally
friendly analysis of gold. Every sample analysed with PhotonAssay means
reduced CO(2) emissions and less hazardous waste compared to the fire assay
method traditionally used for the determination of gold content in ores.

 

All these innovations and many more have performed exceptionally well in 2022,
underlining how we have created and maintained our industry leadership
position.

 

 Sustainability

Sustainability is central to everything we do at Intertek and as a purpose-led
company it is anchored in our Purpose, Vision and Values.

 

We are proud to have been recognised for our leading sustainability
credentials with the highest possible 'AAA' ESG rating from the world's
largest provider of Environmental, Social and Governance ('ESG') Indexes,
MSCI.

 

Offering innovative sustainability services to our clients is core to our
value proposition and we are committed to pioneering new solutions that will
help our clients.

 

What our clients are looking for today is systematic, independent end-to-end
assurance on all aspects of their sustainability journey. Intertek Total
Sustainability Assurance ('TSA') is a holistic programme empowering our
customers to achieve sustainability excellence across all aspects of their
business and communicate results with confidence.

 

TSA is a global programme that leverages our footprint in over 100 countries
and covers all industries. We have built a team of sustainability experts in
every major region, who can help with both a global and local perspective.

 

Intertek Total Sustainability Assurance is comprised of three parts:

• Intertek Operational Sustainability Solutions

• Intertek ESG Assurance; and

• Intertek Sustainability Certification

 

Internally, we are focussed on driving sustainability excellence and below are
our 2021 sustainability results which were published at the end of March in
our Annual report:

 

• Driving a culture of proactive Health & Safety awareness with
continuous improvement in our Total Recordable Incident Rate of 0.51 for 2021.

 

• Since 2015, we have used the Net Promoter Score ('NPS') process to listen
to our customers; during 2021 we continued to conduct on average 6,000
interviews each month.

 

• Improving the environmental performance across our operations is key to
our ambition of aligning our business to reduction targets set by the Paris
Agreement. Operational emissions intensity per employee was 4.35 tCO2e for
2021. Total CO2e emissions (market-based) reduced by 13.3% vs 2020.

 

• We recognise the importance of employee engagement in driving sustainable
performance for all stakeholders, and we measure employee engagement against
our Intertek ATIC Engagement Index. Our 2021 score was 79.9%.

 

• Our voluntary permanent turnover rate returned to similar levels seen
prior to Covid-19 at 13%.

 

• We have increased the representation of women in senior management roles
by 6% to 23% since 2017, aiming to achieving better gender balance by 2025.

 

• Supporting our commitment to the highest standards of integrity and
professional ethics, 94% of eligible employees completed our annual compliance
training.

 

 M&A

We are investing inorganically to seize the attractive growth opportunities in
the global Quality Assurance market and to strengthen our ATIC portfolio in
high-margin, high-growth areas.

 

Our most recent acquisitions, SAI Global Assurance, JLA Brasil Laboratório de
Análises de Alimentos S.A. and Clean Energy Associates LLC, are excellent
examples of investments in complementary businesses.

 

They have been successfully integrated and are performing well delivering
£120m of revenue at CCY in the first 10 months of the year.

 

Our teams have made excellent progress leveraging the investments made in the
last few years as evidenced by our strong return on capital.

 

We will continue to look at M&A opportunities in attractive high-margin
and high-growth areas to broaden our ATIC portfolio of solutions with new
services we can offer to our clients and to expand our regional coverage with
our current ATIC portfolio.

 

With our strong balance sheet, we are well positioned to seize the attractive
external growth opportunities in a highly fragmented industry.

 

 Outlook 2022

In 2022, we expect the Group to deliver a good earnings growth at constant
currency and a strong earnings growth and free cash flow at actual rates.

 

We expect to deliver robust LFL revenue growth at the Group level at constant
currency, with good LFL revenue growth in Products and robust LFL revenue
growth in Trade and Resources.

 

Given the impact of China in H1, the expected divisional mix, and the impact
of inflation on the Opex capabilities investments we are making, our margin at
constant currency will be below 2021 and slightly below our 2021 underlying
margin, adjusted for the £10.5m additional government subsidies we benefitted
from last year.

 

We expect net finance costs to now be in the range of £34-36m, our effective
tax rate to be between 26.5-27.0%, our minority interest to be between
£19-20m and our capex investments to be in the range of £120-125m.

 

The average sterling rate since the beginning of the year applied to the full
year results of 2021 would provide an uplift of 600/650bps at the revenue and
earnings level.

 

Our financial net debt guidance, taking into account the latest FX
developments and the CEA acquisition, but excluding future change in FX rates
or M&A, is £750m-800m.

 

 Looking Beyond 2022

Looking beyond 2022, we are well positioned to seize the attractive organic
and inorganic ATIC growth opportunities ahead and we are very confident in our
ability to continue to deliver sustainable growth and value for all our
stakeholders.

 

Intertek's approach to value creation is based on the compounding effect, year
after year, of margin accretive revenue growth, strong cash generation and
disciplined investment in growth.

 

This approach has delivered 13% annual TSR in the last decade.

 

We are a high-quality growth business delivering value for all stakeholders,
with excellent fundamentals in customer service, ATIC demand, margin
management, capital allocation discipline, and operating culture.

 

We provide a superior customer service with our ATIC solutions and
Science-based Customer Excellence is our competitive advantage. We measure our
customer service with circa 7,000 interviews a month and work continuously at
becoming ever better with both process improvements and industry leading
innovations. That's why we operate with a very high customer retention.

 

From an ATIC demand standpoint, stakeholders' expectations in a post Covid-19
world in terms of quality, safety and sustainability are higher, making the
case for our Risk Based Quality Assurance solutions stronger. We operate with
a strong pricing power underpinned by our excellent customer retention which
is enabling us to adjust our pricing in this inflationary environment. That's
why we expect the higher demand for our ATIC solutions to drive a higher
organic growth post Covid-19.

 

Margin accretive revenue growth is central to the way we deliver value. It
starts with our growth and margin accretive portfolio approach that targets
organic and inorganic investments in attractive growth and margin sectors. We
have established over the years a continuous improvement performance approach
at every layer in the organisation to control costs and drive productivity
improvement, leveraging our unique performance management platform supported
by digitally enabled leading and lagging indicators. That's why we expect
margin progress moving forward.

 

Our strong focus on cash management has stepped up our free cash flow
performance over the years enabling us to invest 4-5% of our revenue in
organic capability development, reward our shareholders with a progressive
dividend policy targeting 50% payout and operate with a strong balance sheet
giving us the firepower to invest selectively in M&A. This is what we mean
by disciplined capital allocation.

 

At Intertek, we are purpose-led and we are all passionate about making the
world a better place, bringing quality, safety and sustainability to life. We
are a growth-oriented company attracting, developing and retaining the best
talents in the industry to exceed our clients' expectations. We operate a high
energy and people-centric culture focussed on delivering sustainable value for
all stakeholders, doing business the right way.

 

 -ENDS-

 The 2022 November Trading Statement Audiocast CEO Script will be available
 after the call at
 www.intertek.com/investors/ (http://www.intertek.com/investors/)

 

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