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REG - Intertek Group Plc - Trading Statement

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RNS Number : 5844N  Intertek Group PLC  26 November 2024

TRADING STATEMENT

26 November 2024

 

Strong July-October performance - On track to deliver a strong 2024

 

•      YTD revenue of £2.82bn, growth of 6.6%(1), with broad-based LFL
revenue growth of 6.3%(1)

•      Robust Group revenue of £1.15bn in July-Oct, growth of 6.8%(1)
with 6.6%(1) LFL revenue growth vs 6.1% in H1

•      Revenue acceleration in Consumer Products with 9.4%(1) LFL
revenue growth in the period after 6.0% in H1, driven by double-digit growth
in Softlines

•      Strong demand in Corporate Assurance with 9.9%(1) LFL revenue
growth in the period

•      Strong demand in Health and Safety with 9.1%(1) LFL revenue
growth in the period

•      July-Oct trading in line with guidance in Industry and
Infrastructure and in World of Energy

•      LFL revenue growth acceleration in China to 7.4% after 5.6% in
H1, driven by Consumer Products

•      Strong margin progression driven by divisional mix, pricing,
operating leverage, cost controls and productivity improvements

•      Daily cash management discipline delivering excellent free cash
flow

•      Continued investment in organic and inorganic opportunities;
recent acquisitions in attractive growth and margin segments performing well

•      Well positioned to deliver a strong performance in 2024 and 2025

 

                              LFL Revenue Growth                                    Revenue Growth
                              H1 24             Jul-Oct24         YTD 24            YTD 24            YTD 24
                              Change at CCY(1)  Change at CCY(1)  Change at CCY(1)  Change at CCY(1)  Change at AR(2)
 Group                        6.1%              6.6%              6.3%              6.6%              1.8%
 Consumer Products            6.0%              9.4%              7.4%              7.0%              1.6%
 Corporate Assurance          8.3%              9.9%              8.9%              10.0%             5.1%
 Health and Safety            8.5%              9.1%              8.7%              10.2%             4.7%
 Industry and Infrastructure  2.2%              1.1%              1.8%              2.4%              (2.1%)
 World of Energy              8.3%              6.3%              7.5%              7.5%              3.3%

 

André Lacroix: Chief Executive Officer statement

 

"We delivered a strong performance in the July-Oct period with Consumer
Products, Corporate Assurance and Health and Safety, which represent 74% of
Group earnings, growing LFL revenue 9.5%(1,3), while trading performance in
Industry and Infrastructure and the World of Energy was in line with guidance.
Recent acquisitions are performing well, benefitting from the scale-up
opportunities within our global network, as we continue to invest in
high-growth and high-margin segments.

 

I would like to recognise my colleagues for their passion, commitment and
innovation, enabling us to deliver a strong performance in the January-October
2024 period. We have delivered revenue of £2.82bn, with a growth of 6.6%(1)
on a YTD basis, and strong margin progression driven by our divisional mix,
operating leverage linked to growth, disciplined cost approach and
productivity improvements. Our free cash flow was excellent and our ROIC was
strong.

 

Our good to great journey continues and last year, we unveiled our Intertek
AAA differentiated growth strategy to accelerate our revenue growth leveraging
the best-in-class operating platform we have built and targeting the areas
where we have opportunities to get better. Our highly engaged,
customer-centric organisation is laser-focused to take Intertek to greater
heights, and the execution of our AAA strategy is on track to create
sustainable growth and value for all stakeholders.

 

Given our first half performance and the high quality of earnings in this
latest four-month period, the Group is well on-track to deliver a strong
performance in 2024, with mid-single digit LFL revenue growth at constant
currency, strong margin progression and an excellent free cash flow
performance.

 

Our clients are increasing their focus on Risk-based Quality Assurance to
operate with higher standards on quality, safety and sustainability to make
their business stronger, positioning us well to deliver another strong
performance in 2025, consistent with the Group AAA Strategy we set out in May
2023. We will continue to capitalise on our high-quality earnings model,
creating sustainable growth and value based on the compounding effect, year
after year, of mid-single digit LFL revenue growth, margin accretion, strong
cash generation, and disciplined investments in high-growth, high-margin
segments."

 

1. Constant currency

2. Actual rates

3. Combined LFL revenue growth for Consumer Products, Corporate Assurance and
Health and Safety

 

 Revenue Performance - 5 divisions
 10 months - January to October                                                       4 months - July to October
                        2024     2023     Change at      Change at constant currency  2024     2023     Change at      Change at constant currency

                        £m       £m       actual rates                                £m       £m       actual rates
 Group
 Revenue                2,815.2  2,765.7  1.8%           6.6%                         1,145.7  1,125.7  1.8%           6.8%
 Like-for-like revenue  2,801.8  2,761.8  1.4%           6.3%                         1,142.2  1,124.3  1.6%           6.6%

 Consumer products
 Revenue                791.9    779.5    1.6%           7.0%                         324.0    311.6    4.0%           8.9%
 Like-for-like revenue  790.5    775.6    1.9%           7.4%                         323.9    310.2    4.4%           9.4%
 Corporate Assurance
 Revenue                411.8    391.9    5.1%           10.0%                        169.7    160.1    6.0%           10.8%
 Like-for-like revenue  408.0    391.9    4.1%           8.9%                         168.4    160.1    5.2%           9.9%
 Health and Safety
 Revenue                282.2    269.6    4.7%           10.2%                        115.4    112.9    2.2%           9.1%
 Like-for-like revenue  278.5    269.6    3.3%           8.7%                         115.4    112.9    2.2%           9.1%
 Industry and infrastructure
 Revenue                706.6    721.8    (2.1%)         2.4%                         286.1    294.8    (3.0%)         1.9%
 Like-for-like revenue  702.1    721.8    (2.7%)         1.8%                         284.0    294.8    (3.7%)         1.1%
 World of Energy
 Revenue                622.7    602.9    3.3%           7.5%                         250.5    246.3    1.7%           6.3%
 Like-for-like revenue  622.7    602.9    3.3%           7.5%                         250.5    246.3    1.7%           6.3%

 

 

Contacts

For further information, please contact:

 

Denis Moreau, Investor Relations

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

 

Jonathon Brill/James Styles, DGA

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

 

Analysts' Call

A call for analysts and investors will be held today at 9:30am UK time.
Details can be found at http://www.intertek.com/investors/
(http://www.intertek.com/investors/)

 

 

 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

 

 

Consumer Products Division

 

In the four-month period to end October 2024, our Consumer Products-related
business delivered LFL revenue of £323.9m, up YoY by 9.4% at CCY enabling us
to deliver a LFL revenue of £790.5m on a YTD basis, up YoY at CCY by 7.4% and
up YoY by 1.9% at actual rates.

 

·    Our Softlines business delivered double-digit LFL revenue growth in
the period resulting in a double digit LFL revenue performance YTD as we have
seen an increase in ATIC investments by our clients in e-commerce, Risk-based
Quality Assurance, end-to-end sustainability and in new products.

 

·    Hardlines reported a mid-single digit LFL revenue performance in the
period and mid-single digit LFL revenue growth on a YTD basis as we are
benefitting from ATIC investments by our clients in e-commerce, sustainability
and new product development.

 

·    With increased ATIC activities driven by greater regulatory standards
in energy efficiency, more demand for medical devices and 5G investments, our
Electrical & Connected World business delivered high-single digit LFL
revenue growth in the period resulting in a 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.
The business reported mid-single digit LFL revenue growth in the period
benefitting from contract wins and stable LFL on a YTD basis.

 

2024 growth outlook

In 2024, we are increasing our full year guidance and now expect our Consumer
Products division to deliver high-single digit LFL revenue growth at constant
currency.

 

Mid to long-term growth outlook

Our Consumer Products division will benefit from growth in new brands, SKUs
& ecommerce, increased regulation, a greater focus on sustainability and
technology, as well as a growing middle class. Our mid to long-term guidance
at CCY for Consumer Products is low to mid-single digit.

 

 

Corporate Assurance Division

 

In the four-month period to end October 2024, our Corporate Assurance-related
business delivered a LFL revenue of £168.4m up YoY by 9.9% at CCY and on a
YTD basis LFL revenue of £408.0m is up at CCY by 8.9% and by 4.1% YoY at
actual rates.

 

•     Business Assurance delivered double digit LFL revenue growth in
the period and high-single digit LFL revenue growth on a YTD basis driven by
increased investments by our clients to improve the resilience of their supply
chains, the continuous focus on ethical supply and the greater need for
sustainability assurance.

 

•     The Assuris business reported high-single digit LFL revenue
performance in the four months and a mid-single digit LFL revenue performance
on a YTD basis as we continue to benefit from improved demand for our
regulatory assurance solutions and from increased corporate investment in ESG.

 

2024 growth outlook

In 2024, we continue to expect our Corporate Assurance division to deliver
high-single digit LFL revenue growth at constant currency.

 

Medium- to long-term growth outlook

Our Corporate Assurance division will benefit from a greater corporate focus
on sustainability, the need for increased supply chain resilience, enterprise
cyber-security, People Assurance services and regulatory assurance. Our mid to
long-term LFL guidance at CCY for Corporate Assurance is high-single digit to
double-digit.

 

 

Health and Safety Division

 

In the four-month period to end October 2024, our Health and Safety-related
business delivered LFL revenue of £115.4m, up YoY by 9.1% at CCY. YTD LFL
revenue of £278.5m is up YoY by 8.7% at CCY and 3.3% at actual rates.

 

•     AgriWorld provides inspection activities to ensure that the global
food supply chain operates fully and safely. The business reported
double-digit LFL revenue growth both in the period and on a YTD basis as we
continue to see an increase in demand for inspection activities driven by
sustained growth in the global food industry.

 

•     Our Food business registered double-digit LFL revenue growth in
the period and on a YTD basis as we continue to benefit from higher demand for
food safety testing activities as well as hygiene and safety audits in
factories.

 

•     In Chemicals & Pharma we saw mid-single digit LFL revenue
growth in the period and high-single digit LFL revenue growth on a YTD basis,
reflecting improved demand for regulatory assurance and chemical testing and
from the increased R&D investments of the pharma industry.

 

2024 growth outlook

In 2024, we continue to expect our Health and Safety division to deliver
high-single digit LFL revenue growth.

 

Medium- to long-term growth outlook

Our Health and Safety division will benefit from the demand for healthier and
more sustainable food to support a growing global population, increased
regulation, and new R&D investments in the pharma industry. Our mid to
long-term LFL guidance at CCY for Health and Safety division is mid to
high-single digit.

 

 

Industry and Infrastructure Division

 

In the four-month period to end October 2024, our Industry and
Infrastructure-related business delivered LFL revenue of £284.0m, YoY growth
of 1.1% at CCY.  LFL revenue of £702.1m on a YTD basis was up YoY at CCY by
1.8% and down YoY by 2.7% at actual rates.

 

•     Industry Services, which includes our Capex Inspection services
and Opex Maintenance services, delivered mid-single digit LFL revenue growth
in the period and on a YTD basis. We benefitted from increased capex
investment in traditional Oil and Gas exploration and production as well as in
renewables, enabling our Moody division to deliver double digit LFL revenue
growth in the period despite severe weather disruption in the USA. On a YTD
basis our double-digit LFL revenue growth in our Moody business was partially
offset by a negative LFL revenue performance in our Opex business, due to the
exit of non-profitable contracts.

 

•     Our Minerals business delivered low-single digit LFL revenue
growth in the period due to a strong base line effect last year and low-single
digit LFL revenue growth on a YTD basis. We continue to benefit from the
robust demand for testing and inspection activities in our key markets.

 

•     We continue to see growing demand for more environmentally
friendly buildings and the increased number of infrastructure projects being
planned in our Building & Construction business in North America. However,
we reported negative LFL revenue growth in the period as our business was
impacted by a temporary slow-down of investments in large construction
projects and severe weather disruptions in the USA. YTD our business has
delivered a stable LFL revenue performance.

 

2024 growth outlook

In 2024, we continue to expect our Industry & Infrastructure related
businesses to deliver a low-single digit LFL revenue performance at constant
currency.

 

Medium- to long-term growth outlook

Our Industry & Infrastructure division will grow in the mid to long-term,
benefitting from increased global energy consumption, the transition to
greener energy, population growth, large scale infrastructure investment, and
demand for greener buildings. Our mid to long-term LFL guidance at CCY for
Industry and Infrastructure is mid to high-single digit.

 

 

World of Energy Division

 

In the four-month period to end October 2024, our World of Energy-related
business delivered LFL revenue of £250.5m, up YoY by 6.3% at CCY. YTD LFL
revenue of £622.7m is up YoY at CCY by 7.5% and by 3.3% at actual rates.

 

•     Caleb Brett, the global leader in the Crude Oil and Refined
products global trading markets, benefitted from robust momentum reflecting
increased global mobility and higher testing activities for biofuels and
delivered mid-single digit LFL revenue growth in the period despite a strong
2023 comparator and severe weather disruption in the USA. On a YTD basis,
Caleb Brett delivered high-single digit LFL revenue growth.

 

•     Transportation Technologies delivered double digit LFL revenue
growth in the period and high-single digit on a YTD basis, driven by increased
investment in new powertrains to lower CO2/NOx emissions and in traditional
combustion engines to improve fuel efficiency.

 

•     Our CEA business reported negative LFL revenue growth in the
period due to a strong baseline effect in 2023.  After a strong H1
performance where we continued to benefit from the increased investments in
solar panels which is the fastest growing form of renewable energy, YTD LFL
revenue growth was mid-single digit.

 

2024 growth outlook

In 2024 we continue to expect our World of Energy division to deliver
high-single digit LFL revenue growth at constant currency.

 

Medium- to long-term growth outlook

The World of Energy division will benefit from increased investment from
energy companies to meet growing demand and consumption of energy from the
growing global population, the scaling up of Renewables, increased R&D
investments that OEMs are making in EV/Hybrid vehicles and from the
development greener fuels. Our mid to long-term LFL guidance at CCY for the
World of Energy division is low to mid-single digit.

 

 

Innovation

 

True to our pioneering spirit, we continue to lead the industry and innovate
to meet the emerging needs of our customers with winning ATIC solutions.

 

We are constantly learning from our customers, using extensive feedback they
provide us with every month with our extensive NPS research programme to help
deliver ever better solutions for their evolving requirements.

 

We believe that successful innovation starts with investing in the insight
advantage, which means having a deep understanding of what our customers need
and want. With the ability to access world-class customer intelligence
site-by-site from anywhere across our global network, we have a continuous
stream of data that enables us to build on our insights and develop new ATIC
solutions.

 

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 November
2023 survey by Capgemini shows that 67% of R&D leaders expect to increase
their R&D investments in 2024. These investments in innovation mean a
higher number of SKUs and a higher number of tests per SKUs - which will be
beneficial for our Testing and Certification solutions.

 

The other major area of investment inside corporations is sustainability and
we are seeing positive momentum with new and emerging regulations. This means
companies will have to re-invent the way they manage their sustainability
agenda with 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 energy
companies are planning higher investments. In 2022 and 2023, we all 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 today. 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
Moody businesses.

 

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 1(st)
organisation has a strong track record of winning new clients.

 

 

Sustainability

 

Sustainability is the movement of our time and is central to everything we do
at Intertek, anchored in our Purpose, our Vision, our Values and our Strategy.

 

Sustainability is important to all stakeholders in society who are
consistently demanding faster progress and greater transparency in
sustainability reporting. Companies therefore continuously need to upgrade and
reinvent how they manage their sustainability agenda, particularly regarding
how they disclose their non-financial performance.

 

This is why, under our global Total Sustainability Assurance (TSA) programme,
we provide our clients with proven independent, systemic and end-to-end
assurance on all aspects of their sustainability strategies, activities and
operations.

The TSA programme comprises three elements:

 

•     Intertek Operational Sustainability Solutions

•     Intertek ESG Assurance

•     Intertek Corporate Sustainability Certification

For Intertek's Sustainability Excellence progamme, we focus on the 10 highly
demanding TSA sustainability standards which are truly end-to-end and
systemic.

 

Intertek is committed to:

•     Reducing absolute scope 1 and 2 GHG emissions by 50% by 2030 from
a 2019 base year;

•     Reducing absolute scope 3 GHG emissions from business travel and
employee commuting by 50% within the same timeframe;

•     Ensuring 70% of its suppliers by spend will have science-based
targets by 2027.

We will continue to lead by example by pursuing our Sustainability Excellence
agenda, energising deeply and genuinely all stakeholders: our people, our
customers, our regulators, our suppliers, our communities and our
shareholders.

 

Read more about Intertek's Sustainability Excellence programme and progress in
our 2023 Sustainability Report.
(https://cdn.intertek.com/www-intertek-com/media/investors/2024/ar/pdf/Intertek-Sustainability-Report-2023.pdf)

 

 

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. We have made three bolt-on acquisitions
recently that are performing well:

 

In April 2023, we announced the acquisition of Controle Analitico
(https://www.intertek.com/news/2023/04-03-intertek-to-acquire-controle-analitico/)
, a leading provider of environmental analysis, with a focus on water testing,
based in Brazil. The acquisition was a compelling strategic fit, expanding our
footprint of leading Food and Agri TQA solutions in Brazil.

 

In August 2023, we announced the acquisition of US-based PlayerLync
(https://www.intertek.com/news/2023/08-24-intertek-acquires-playerlync/) , a
leading provider of high-quality mobile-first training and learning content to
frontline workforces at some of the world's leading consumer brands,
strengthening our position as a leader in SaaS-based, technology-enabled
People Assurance services. We invested in our People Assurance business with
the acquisition of Alchemy/Wisetail in 2018, and PlayerLync provides a
compelling opportunity to further enhance our differentiated TQA proposition
and customer excellence advantage in what is a fast-evolving landscape.

 

In March 2024, we announced the acquisition of Base Metallurgical Laboratories
(https://www.intertek.com/news/2024/intertek-to-acquire-base-met-labs/) , a
leading provider of metallurgical testing services for the Minerals sector
based in North America, reinforcing and expanding Intertek's ATIC offering in
the Minerals Industry. The acquisition of Base Met Labs is highly
complementary to our ATIC service offering, establishing a Minerals testing
footprint for Intertek on the American continent and creating attractive
growth opportunities with existing and new clients.

 

 

Outlook 2024

 

Given our strong performance on a YTD basis, we expect that the Group will
deliver a strong performance in 2024 with mid-single digit LFL revenue growth
at constant currency, strong margin progression and an excellent free cash
flow performance.

 

Our mid‐single digit LFL revenue growth at constant currency will be driven
by the following contribution from our divisions:

•     Consumer Products: High-single digit

•     Corporate Assurance: High-single digit

•     Health and Safety: High-single digit

•     Industry and Infrastructure: Low-single digit

•     World of Energy: High-single digit

 

Our financial guidance for 2024 is that we expect:

•     Capital expenditure in the range of £125-135m

•     Net finance costs in the £41-43m range

•     Effective tax rate in the 25-26% range

•     Minority interests of between £23-24m

•     Targeted dividend payout ratio of circa 65%

•     FY24 financial net debt to be in the range of £500-550m

 

Currency has remained volatile, and we are updating our FY forex guidance. The
average Sterling rate since the beginning of the year applied to our FY 2023
results, would reduce our FY revenue by 450bps and FY earnings by 600bps.

 

 

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, triggering a higher demand for our ATIC solutions
which are powered by our Science-based Customer Excellence ATIC Advantage.

 

Over the last nine years, from 2014-2023, we have delivered a CAGR of 5.3%,
6.1% and 6.0% for revenue, operating profit and EPS, notwithstanding the
impact of Covid. In May 2023, we unveiled our Intertek AAA differentiated
growth strategy to capitalise on the best-in-class operating platform we have
built and target the areas where we have opportunities to get better.

 

Our highly engaged, customer-centric organisation is laser-focused to take
Intertek to greater heights, and the execution of our AAA strategy is on track
as we continue to deliver sustainable growth and value for all stakeholders.

 

True to our high performance 10X Culture, our Intertek AAA differentiated
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-focused 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 opportunities arising from 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 local portfolio 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

 

In terms of LFL revenue growth we are targeting Group mid-single digit LFL
revenue growth at constant currency 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 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. 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.

 

To deliver sustainable growth and value we will stay focused on our 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 circa 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 65%.

•     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 1.3x - 1.8x net
debt to EBITDA with the potential to return excess capital to shareholders
subject to our future requirements and prevailing macro environment.

 

Our good to great journey continues to unlock the significant value growth
opportunity ahead.

 

-ENDS-

 

 

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