Strategy Update AWS
Strategy Update Portfolio Focus on Attractive Growth and Margin Opportunities
André Lacroix Chief Executive Officer
2 March 2016 www.intertek.com
Disclaimer This presentation contains certain forward-looking statements with respect to the financial condition, results, operations and business of Intertek Group plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this presentation should be construed as a profit forecast.
2 March 2016
2
Agenda
01
Intertek 5 Fundamental Strengths
02
Attractive Growth Opportunities
03
Intertek Quality Assurance Proposition
04
Strategy for Sustainable Growth
05
Short Term Priorities in 2016
www.intertek.com
01 Intertek 5 Fundamental Strengths
Video: Looking Back at Our History www.intertek.com
Track Record of Sustainable Growth
2002
2015
Change
Employees
11,192
41,434
+30,242
Revenue
£461m
£2,166m
+£1,705m
Operating Profit
£77m
£343m
+£266m
Market Cap
£0.6bn¹
£4.5bn
+£3.9bn
TSR
864%²
1
As at IPO 29 May 2002 ² TSR since IPO to 31 December 2015
5
5 Fundamental Strengths
Global Network of State of the
01 Art Facilities
02
Powerful Portfolio with Leadership Positions
03 Depth and Breadth of Quality Assurance Solutions
04 Passionate and
Entrepreneurial Culture
05 High Margin and Strongly Cash Generative Earnings Model
6
Powerful Portfolio with Leadership Positions
8 Global Business Lines (GBLs)
8 Regional Business Lines (RBLs)
• Softlines
• Transportation Technologies
• Hardlines
• Building Products
• Electrical and Wireless
• Food
• Business Assurance
• Product Assurance
• Government and Trade Services
• Minerals
• Cargo and Analytical Assessment
• Health, Environmental and Regulatory Services
• Agriculture
• Chemicals and Pharma
• Industry Services
• Exploration and Production
£1,670m
77%
£496m
23%
2015 Revenue
of Group Revenue
2015 Revenue
of Group Revenue
Global scale and leadership positions
Regional scale and strength
Attractive global growth prospects
Attractive regional growth prospects
7
Scale Positions in Top 30 Countries Top 30 Countries 92% of Intertek Revenue
Americas Brazil Canada Mexico USA
80% of Global GDP
76% of Global Trade
EMEA (Europe, Middle East & Africa)
Belgium France Germany Italy Netherlands Norway South Africa Sweden Switzerland Turkey UAE UK
91% of Global Production
Asia Pacific Australia Bangladesh China Hong Kong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Vietnam 8
Strong Portfolio at Local Business Unit Level
Softlines
Top 30 Countries
Australia Bangladesh Belgium Brazil Canada China France Germany Hong Kong India Indonesia Italy Japan Korea Malaysia Mexico Netherlands Norway Philippines Singapore South Africa Sweden Switzerland Taiwan Thailand Turkey UAE UK USA Vietnam
8 Global Business Lines Hardlines Electrical & Business GTS Wireless Assurance
• • • •
Cargo & AA
Agriculture
Industry Services
Food
Building Products
Trans. Tech
8 Regional Business Lines Product Minerals HERS Assurance
C&P
E&P
In-depth portfolio review C. 300 business units High quality portfolio Positioned strongly for growth
9
High Quality Earnings Model ¹ Revenue
£2bn+
EBITDA Margin
c. 20%
Cash Conversion²
140%
Capex
5% of Revenue
Dividend Payout
c. 40%
FCF³
£150m
Balance Sheet
1.7x Net Debt to EBITDA
1
Based on 2015 Actuals ² Cash from operations ³ After Capex and Dividends
10
02 Attractive Growth Opportunities
Attractive Testing, Inspection and Certification Structural Growth Drivers
Corporations investments in quality and innovation
Higher regulatory standards
Global and regional trade flow
Increased demand for energy to support GDP and population growth
12
Attractive Assurance Structural Growth Drivers Assurance Structural Growth Drivers • Increasingly complex operations with decentralised supply chains • Greater customer focus on risk management to manage systemic operational risk • Customers require Quality Assurance solutions beyond TIC
Customers Expect Total Quality Assurance • Quality and safety of physical components, products and assets • Reliability of operating processes and quality management systems
Industry Evolution From “TIC” to “ATIC”
Assurance
Testing
Inspection
Certification
Video: The Future of Our Industry
13
Global Intertek Network Strongly Positioned for ATIC Growth
Global Market Leader in Assurance
Global Market Leader in TIC
3,000 auditors
1,000+ lab and offices
90,000+ audits
100+ countries
Global ATIC Business with 41,434 Employees 14
Portfolio Geared for GDP+ Organic Growth Profit
Mix1
Products
Quality solutions for end-products, their components, processes and R&D
CG, C&E, C&P, Food & Business Assurance
Product variety, brand and supply chain expansion, innovation and regulations
Increasing quality and sustainability demands by developed and emerging economies
Increased Corporate focus on risk
Trade
Global and regional trade-driven, through GDP growth
Cargo & Analytical, Government Services & Agri
Increased customer focus on quality and quantity controls
Resources
Capex & opex investment supporting world economic growth
Industry Services & Minerals
Servicing oil & gas and other sectors of the economy
68% 2
51% Revenue
22%
Structural Growth Drivers
Economic Sectors
Mid-Long Term Growth
Continuing growth from expanding investment in quality & innovation
Trade-flow growth: global & regional
25% Revenue2
10%
Long-term growth
24% Revenue2
‘Global GDP Plus’ Organic Revenue Growth (1) 2015 adjusted operating profit. (2) 2015 revenues
15
03 Intertek Quality Assurance Proposition
Our Purpose, Vision and Mission
Bringing Quality and Safety to Life.
The world’s most trusted partner for Quality Assurance
Exceed our customers’ expectations with innovative and bespoke Assurance, Testing, Inspection and Certification solutions for their operations and supply chain. Globally. 24/7.
17
Strong Business Model to Seize Growth Opportunities
What We Do Everyday
Where
Assurance
Which Economic Sectors
Products
Testing Trade Inspection
Certification
100+ countries 1,000+ laboratories 41,434 people
Resources
18
Well Diversified Revenue Streams Across Sectors, Geographies and Services Revenue Split¹ Sector
Service
Geographic
8%
24%
10%
29% 35% 30%
51%
52%
25% 36% Products
Trade
Resources
Strength in Products
• Largest by Revenues • Highest margin • Fastest organic growth (1) Based on 2015
Americas
Asia Pacific
EMEA
Excellent exposure to fast growing markets
• Asia Pacific largest • Americas strong position • Good exposure to fast growing markets
Assurance
Testing
Inspection
Certification
Breadth and Depth of ATIC Solutions
• Testing largest service offering • Assurance fastest growing 19
Depth and Breadth of ATIC Solutions Assurance
Testing
Inspection
Certification
• Management Systems
• Softlines
• Agriculture
• Benchmarking in Quality & Performance
• Hardlines
• Asset Integrity
• Appliance & Electronic
• Automotive
• Building Product
• Sustainability & environment • Facility / Plant & Equipment • Legal & Regulatory
• Product Development
• Biofuels • Building Product • Chemical & Pharmaceutical
• Electrical
• Chemical & Petrochemical
• Aerospace & Automotive • Building Products • Conformity by Country
• Electrical
• Eco-Textile
• Exporter & importer
• Food & Food Service
• Field Labelling
• Hazardous Location
• Vendor Compliance
• Food
• Corporate Social Responsibility
• Health & Beauty
• Industrial
• Mineral
• Mineral
• IT & Telecom
• Laboratory Outsourcing
• Packaging
• Oil & Gas
• Life Safety & Security
• Risk Management
• Pharmaceutical
• Site Construction
• Lighting
• Supply Chain Assessment
• Oil & Gas
• Textile & Apparel
• Medical Device
• Failure investigation
(1) Heating Ventilation Air Conditioning and Refrigeration
1
• HVACR
• Industrial Equipment
20
Aligned Organisational Structure
Intertek Organisational Structure Business Lines
Geographic Areas
Functional Areas
Products
Americas, Pacific and North East Asia
ATIC Operational Excellence
Softlines, Hardlines, Electrical & Wireless, Business Assurance, Building Products, Transportation Technologies, Chemicals & Pharma and Food
China
Corporate Development
Trade
South and South-East Asia
HR
Middle East and Africa
Finance and IT
Europe
Legal and Compliance
Cargo & Analytical Assessment, Agriculture and Government & Trade Services
Resources Industry Services and Minerals
21
Intertek Total Quality Assurance Value Proposition
Research and Development
Consumer Management
Distribution and Retail Channels
Raw Materials Sourcing Intertek Total Quality Assurance (Assurance, Testing, Inspection and Certification)
Transportation
Component Suppliers
Manufacturing
Systemic Approach to Quality and Safety with ATIC Solutions 22
04 Strategy for Sustainable Growth
Attractive Growth Opportunities
Quality Assurance market worth c.$250bn 01 Structural Growth Drivers
• Continued growth in Testing, Inspection and Certification • Increased demand for Assurance 03 New Customers
02
Existing Customers
• Increase account penetration
• Assurance, Testing, Inspection and Certification cross–selling 04
Industry Consolidation
• New contracts
• Expand geographic coverage
• Outsourcing
• Access to new solutions
24
Corporate Medium to Long Term Goals
Fully engaged employees in a safe
01 working environment
02 Deliver superior customer service Margin accretive organic revenue growth
03 based on GDP + organic growth
04 Strong cash conversion from operations Accretive disciplined capital allocation policy
05 for both capex (5% of Revenue) and M&A
25
5 Strategic Priorities Strategic Priorities
01
Strong Brand Proposition
02
Superior Customer Service
03
Effective Sales Strategy
04
Growth and Margin Accretive Portfolio
05
Operational Excellence
Action Plans
KPIs
Position Intertek as leading Quality Assurance provider Improve brand awareness across sectors and geographies Compelling Total Quality Assurance Brand positioning
Revenue growth New leads Customer acquisitions Pricing power A&P effectiveness
Build customer loyalty and win new customers Measure quality of customer service delivery Develop innovative ATIC solutions
NPS Customer retention Customer acquisition Pricing power Growth from innovation
Increase existing account penetration Drive ATIC cross selling Business development with new accounts
Growth from existing customers Growth from new customers Customer cross selling Customer profitability
Prioritised business lines, geographies and service areas Invest in areas with good growth and good margin prospects Disciplined resource, capital and people allocation
Continuous improvement to drive productivity Best in class management to reduce span of performance Eliminate non–essential costs - facilities/offices/processes/ purchasing
Direct costs Overheads Productivity per employee Site capacity utilisation ROCE
Revenue growth Margin accretion Portfolio mix ROCE Capital allocation
26
5 Enablers Enablers
Action Plans
KPIs
Strong entrepreneurial culture Decentralised organisation Customer centric culture
Revenue and profit growth NPS Organisation engagement Employee turnover
01
Living Our Customer Centric Culture
02
Disciplined Performance Management
Performance management with financial and non-financial metrics Forecast and review processes focused on margin accretive revenue growth with strong cash conversion
Superior Technology
Upgrade business intelligence system Leverage back-office synergies Improve customer experience
Productivity/cost savings Customer feedback/NPS IT operating costs
• Invest in capability
Internal promotions Employee turnover Organisation engagement
03
04
Energising Our People
05
Delivering Sustainable Results
• Aligned reward system
EBIT margin Working capital Cash conversion ROCE and ROIC
• Promote internal growth Sustainable growth for customers and shareholders Importance of sustainability for the community Right balance between performance and sustainability
5 year revenue growth 5 year profit growth CO2 footprint Health and safety Employee turnover 27
5x5 Strategy for Growth
Purpose
Bringing Quality and Safety to Life
Vision
The world’s most trusted partner for Quality Assurance
Customer Promise
Our Innovative Assurance, Testing, Inspection and Certification solutions delivered 24/7 with precision, pace and passion enabling you to power ahead safely
5x5
5 Strategic Priorities
5 Enablers
Strong Brand Proposition
Living Our Customer Centric Culture
Superior Customer Service
Disciplined Performance Management
Effective Sales Strategy
Superior Technology
Growth and Margin Accretive Portfolio
Energising Our People
Operational Excellence
Delivering Sustainable Results
28
Three Tier Portfolio Strategy
01
Geographic
GBL
Grow Scale Businesses
02
03
Invest in Fast Growing Businesses
Improve Performance
• • • •
Softlines Hardlines Electrical & Wireless Cargo & Analytical Assessment • Government & Trade Services
• • • •
Business Assurance Agriculture Building Products Transportation Technologies • Food
• Industry Services • Minerals
• North America • Greater China
• • • •
• Australia • Europe
South Asia South East Asia South America Middle East and Africa
29
Accretive Disciplined Allocation of Capital
01
Capex and working capital investment to support organic growth (target c.5% of revenue in capex)
Sustainable shareholder returns through payment of progressive dividends
03
02
M&A focused on strong growth and margin prospects in businesses with leading market positions or in new exciting growth areas, geographies or services
Efficient balance sheet with flexibility to invest in growth with Net Debt / EBITDA target of 1.5x - 2.0x
04
30
Organisation and Reward Alignment Group Leadership Team André Lacroix CEO
Global Business Lines
Geographic Areas
Functional Areas
Products
Americas, Pacific and North East Asia
ATIC Operational Excellence
Calvin Yam Softlines
Gregg Tiemann
Nimer Al-Hafi
John Qin Hardlines
China
Corporate Development
Tim Hubbard Transportation Technologies
Fred Bai
Julia Thomas
Rich Adams Electrical & Wireless
South & South East Asia
HR
Calin Moldovean Business Assurance & Food
Rajesh Saigal
Tony George
Middle East & Africa
Finance & IT
Ian Galloway
Ed Leigh
Europe
Legal & Compliance
Graham Ritchie
Mark Thomas
Trade Ian Galloway
Resources Jan-Jörg Müller-Seiler
Yearly Incentives based on Revenues, Operating Profit and ROCE 31
05 Short Term Priorities in 2016
www.intertek.com
Internal Alignment to Execute Our 5x5 Strategy
What we have done • Implemented organisational structure to support our business model • Strategy communicated to top 200 leaders • New short-term incentive system and 2016 targets communicated to all
What we will do • Cascade 5x5 strategy throughout the organisation • Increase internal communication efforts to share best practice
• Performance management focus on financial and non-financial metrics
33
Focused 2016 Plans to Deliver Revenue Growth Business Line and Country Initiatives SOFTLINES • Growth in footwear and footwear electronics • Launch of Chemical Smart Screening HARDLINES • Supply chain expansion in India and Mexico • Launch of innovative technology for factory inspections
ELECTRICAL & WIRELESS • EMC expansion in S.Korea and Mexico • Regulatory changes in Energy Efficiency • Internet of Things BUILDING PRODUCTS • Growth of Commercial and Civil construction markets in the USA • Integration of PSI TRANSPORTATION TECHNOLOGIES • Focus on electrical and hybrid vehicles
CHEMICALS & PHARMA • New pharma products in the USA and UK • Increased corporate focus on regulatory risk
GTS • Increased scope in Saudi Arabia • New programmes in new markets
CARGO & AA • New lab openings in Australia, PNG, Texas • Increased shipment of refined products
AGRI • Business development with existing and new accounts in fast growing markets
MINERALS • Cost and capacity control
FOOD • Integration of FIT • Development of food services BA • Leverage leadership position in supply chain management INDUSTRY SERVICES • Cost and capacity control in capex related activities • Continue diversification in opex related activities with NDT
• Implement NPS to measure customer service delivery on monthly basis
Group Initiatives
• Drive ATIC cross selling with existing and new customers • Launch innovative ATIC solutions in Products, Trade and Resources • Performance management based on financial and non-financial metrics • Capex investments in businesses with good growth and good margin prospects 34
Disciplined Margin and Cash Management
Cost Management • Q4 2015 cost restructuring − Headcount reduction of 207 − Full year cost reduction of £4m • Manage capacity and costs tightly
− Industry Services
Benchmarking/Productivity • Drive best-in-class performance management − Site span of performance reduction with Best in Class tool − Business line and country monthly benchmarking with financial and nonfinancial metrics
− Minerals • Continuous focus on costs − Consolidation of facilities
− Consolidation of offices − Process streamlining − Purchasing synergies
Cash Management • Tight controls on working capital
• Business line and country monthly benchmarking
35
2015 Performance Based on Future Disclosures Revenue (£m)
Adjusted Operating Profit (£m)
2,093
2,166
1,008
1,111
514
537
572
519
2014
Growth
Growth
3.5%
Trade
343
5.9%
208
234
12.5%
65
76
51
34
2014
2015
10.2%
4.4%
(9.2)%
2015
Resources
324
Products
Resources
Margin
Products
% Group Revenue
% Group Profit
Organic Revenue Growth¹
Products
51%
68%
6.0%
14.1%
Trade
25%
22%
5.4%
9.0%
6.5%
Resources
24%
10%
(10.2)%
15.5%
15.9%
Group
2015
Products
20.6%
21.1%
Trade
12.7%
Resources Group At constant rates
(33.9)%
Key Metrics
2014
1
Trade
15.9%
1.6% 36
Summary • Track record of sustainable growth and shareholder value creation • High margin and strongly cash generative earnings model • Attractive growth prospects in the Quality Assurance market • Portfolio focus on attractive growth and margin opportunities
• Disciplined approach to performance management and capital allocation
37
Appendix Strategy Update Presentation
www.intertek.com
38
Financial Performance by Sector in 2015 and 2014 2015 £m
2014 £m
Change at actual rates
Change at constant rates
Organic1 change at constant rates
1,110.6
1,007.9
10.2%
7.7%
6.0%
233.8
207.9
12.5%
8.4%
21.1%
20.6%
50bps
10bps
536.6
513.9
4.4%
5.5%
75.7
65.3
15.9%
18.3%
14.1%
12.7%
140bps
150bps
519.1
571.5
(9.2)%
(7.3)%
33.9
51.2
(33.8)%
(32.7%)
6.5%
9.0%
(250)bps
(250)bps
2,166.3
2,093.3
3.5%
3.2%
343.4
324.4
5.9%
4.0%
15.9%
15.5%
40bps
20bps
Products Revenue Adjusted operating profit Adjusted operating margin
Trade Revenue Adjusted operating profit Adjusted operating margin
5.4%
Resources Revenue Adjusted operating profit Adjusted operating margin
(10.2)%
Group Revenue Adjusted operating profit Adjusted operating margin
1.6%
39
Financial Performance by Sector in 2015, H1 and H2 H1 £m
H2 £m
FY £m
Revenue
531.7
578.9
1,110.6
Adjusted operating profit
109.9
123.9
233.8
20.7%
21.4%
21.1%
267.3
269.3
536.6
36.9
38.8
75.7
13.8%
14.4%
14.1%
261.2
257.9
519.1
17.6
16.3
33.9
6.7%
6.3%
6.5%
1,060.2
1,106.1
2,166.3
164.4
179.0
343.4
15.5%
16.2%
15.9%
Products
Adjusted operating margin
Trade Revenue Adjusted operating profit Adjusted operating margin
Resources Revenue Adjusted operating profit Adjusted operating margin
Group Revenue Adjusted operating profit Adjusted operating margin
40
Broad Based ATIC Services to Deliver Total Quality Assurance
A
Assurance ensures our customers identify and mitigate the intrinsic risk in their operations, supply chain and quality management systems
T
Testing is evaluating how products and services meet and exceed quality, safety, sustainability and performance standards
I C
Inspection is validating the specifications, value and safety of raw materials, products and assets
Certification is certifying that products and services meet trusted standards
41
André Lacroix Chief Executive Officer
2 March 2016 www.intertek.com
Disclaimer This presentation contains certain forward-looking statements with respect to the financial condition, results, operations and business of Intertek Group plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this presentation should be construed as a profit forecast.
2 March 2016
2
Agenda
01
Intertek 5 Fundamental Strengths
02
Attractive Growth Opportunities
03
Intertek Quality Assurance Proposition
04
Strategy for Sustainable Growth
05
Short Term Priorities in 2016
www.intertek.com
01 Intertek 5 Fundamental Strengths
Video: Looking Back at Our History www.intertek.com
Track Record of Sustainable Growth
2002
2015
Change
Employees
11,192
41,434
+30,242
Revenue
£461m
£2,166m
+£1,705m
Operating Profit
£77m
£343m
+£266m
Market Cap
£0.6bn¹
£4.5bn
+£3.9bn
TSR
864%²
1
As at IPO 29 May 2002 ² TSR since IPO to 31 December 2015
5
5 Fundamental Strengths
Global Network of State of the
01 Art Facilities
02
Powerful Portfolio with Leadership Positions
03 Depth and Breadth of Quality Assurance Solutions
04 Passionate and
Entrepreneurial Culture
05 High Margin and Strongly Cash Generative Earnings Model
6
Powerful Portfolio with Leadership Positions
8 Global Business Lines (GBLs)
8 Regional Business Lines (RBLs)
• Softlines
• Transportation Technologies
• Hardlines
• Building Products
• Electrical and Wireless
• Food
• Business Assurance
• Product Assurance
• Government and Trade Services
• Minerals
• Cargo and Analytical Assessment
• Health, Environmental and Regulatory Services
• Agriculture
• Chemicals and Pharma
• Industry Services
• Exploration and Production
£1,670m
77%
£496m
23%
2015 Revenue
of Group Revenue
2015 Revenue
of Group Revenue
Global scale and leadership positions
Regional scale and strength
Attractive global growth prospects
Attractive regional growth prospects
7
Scale Positions in Top 30 Countries Top 30 Countries 92% of Intertek Revenue
Americas Brazil Canada Mexico USA
80% of Global GDP
76% of Global Trade
EMEA (Europe, Middle East & Africa)
Belgium France Germany Italy Netherlands Norway South Africa Sweden Switzerland Turkey UAE UK
91% of Global Production
Asia Pacific Australia Bangladesh China Hong Kong India Indonesia Japan Korea Malaysia Philippines Singapore Taiwan Thailand Vietnam 8
Strong Portfolio at Local Business Unit Level
Softlines
Top 30 Countries
Australia Bangladesh Belgium Brazil Canada China France Germany Hong Kong India Indonesia Italy Japan Korea Malaysia Mexico Netherlands Norway Philippines Singapore South Africa Sweden Switzerland Taiwan Thailand Turkey UAE UK USA Vietnam
8 Global Business Lines Hardlines Electrical & Business GTS Wireless Assurance
• • • •
Cargo & AA
Agriculture
Industry Services
Food
Building Products
Trans. Tech
8 Regional Business Lines Product Minerals HERS Assurance
C&P
E&P
In-depth portfolio review C. 300 business units High quality portfolio Positioned strongly for growth
9
High Quality Earnings Model ¹ Revenue
£2bn+
EBITDA Margin
c. 20%
Cash Conversion²
140%
Capex
5% of Revenue
Dividend Payout
c. 40%
FCF³
£150m
Balance Sheet
1.7x Net Debt to EBITDA
1
Based on 2015 Actuals ² Cash from operations ³ After Capex and Dividends
10
02 Attractive Growth Opportunities
Attractive Testing, Inspection and Certification Structural Growth Drivers
Corporations investments in quality and innovation
Higher regulatory standards
Global and regional trade flow
Increased demand for energy to support GDP and population growth
12
Attractive Assurance Structural Growth Drivers Assurance Structural Growth Drivers • Increasingly complex operations with decentralised supply chains • Greater customer focus on risk management to manage systemic operational risk • Customers require Quality Assurance solutions beyond TIC
Customers Expect Total Quality Assurance • Quality and safety of physical components, products and assets • Reliability of operating processes and quality management systems
Industry Evolution From “TIC” to “ATIC”
Assurance
Testing
Inspection
Certification
Video: The Future of Our Industry
13
Global Intertek Network Strongly Positioned for ATIC Growth
Global Market Leader in Assurance
Global Market Leader in TIC
3,000 auditors
1,000+ lab and offices
90,000+ audits
100+ countries
Global ATIC Business with 41,434 Employees 14
Portfolio Geared for GDP+ Organic Growth Profit
Mix1
Products
Quality solutions for end-products, their components, processes and R&D
CG, C&E, C&P, Food & Business Assurance
Product variety, brand and supply chain expansion, innovation and regulations
Increasing quality and sustainability demands by developed and emerging economies
Increased Corporate focus on risk
Trade
Global and regional trade-driven, through GDP growth
Cargo & Analytical, Government Services & Agri
Increased customer focus on quality and quantity controls
Resources
Capex & opex investment supporting world economic growth
Industry Services & Minerals
Servicing oil & gas and other sectors of the economy
68% 2
51% Revenue
22%
Structural Growth Drivers
Economic Sectors
Mid-Long Term Growth
Continuing growth from expanding investment in quality & innovation
Trade-flow growth: global & regional
25% Revenue2
10%
Long-term growth
24% Revenue2
‘Global GDP Plus’ Organic Revenue Growth (1) 2015 adjusted operating profit. (2) 2015 revenues
15
03 Intertek Quality Assurance Proposition
Our Purpose, Vision and Mission
Bringing Quality and Safety to Life.
The world’s most trusted partner for Quality Assurance
Exceed our customers’ expectations with innovative and bespoke Assurance, Testing, Inspection and Certification solutions for their operations and supply chain. Globally. 24/7.
17
Strong Business Model to Seize Growth Opportunities
What We Do Everyday
Where
Assurance
Which Economic Sectors
Products
Testing Trade Inspection
Certification
100+ countries 1,000+ laboratories 41,434 people
Resources
18
Well Diversified Revenue Streams Across Sectors, Geographies and Services Revenue Split¹ Sector
Service
Geographic
8%
24%
10%
29% 35% 30%
51%
52%
25% 36% Products
Trade
Resources
Strength in Products
• Largest by Revenues • Highest margin • Fastest organic growth (1) Based on 2015
Americas
Asia Pacific
EMEA
Excellent exposure to fast growing markets
• Asia Pacific largest • Americas strong position • Good exposure to fast growing markets
Assurance
Testing
Inspection
Certification
Breadth and Depth of ATIC Solutions
• Testing largest service offering • Assurance fastest growing 19
Depth and Breadth of ATIC Solutions Assurance
Testing
Inspection
Certification
• Management Systems
• Softlines
• Agriculture
• Benchmarking in Quality & Performance
• Hardlines
• Asset Integrity
• Appliance & Electronic
• Automotive
• Building Product
• Sustainability & environment • Facility / Plant & Equipment • Legal & Regulatory
• Product Development
• Biofuels • Building Product • Chemical & Pharmaceutical
• Electrical
• Chemical & Petrochemical
• Aerospace & Automotive • Building Products • Conformity by Country
• Electrical
• Eco-Textile
• Exporter & importer
• Food & Food Service
• Field Labelling
• Hazardous Location
• Vendor Compliance
• Food
• Corporate Social Responsibility
• Health & Beauty
• Industrial
• Mineral
• Mineral
• IT & Telecom
• Laboratory Outsourcing
• Packaging
• Oil & Gas
• Life Safety & Security
• Risk Management
• Pharmaceutical
• Site Construction
• Lighting
• Supply Chain Assessment
• Oil & Gas
• Textile & Apparel
• Medical Device
• Failure investigation
(1) Heating Ventilation Air Conditioning and Refrigeration
1
• HVACR
• Industrial Equipment
20
Aligned Organisational Structure
Intertek Organisational Structure Business Lines
Geographic Areas
Functional Areas
Products
Americas, Pacific and North East Asia
ATIC Operational Excellence
Softlines, Hardlines, Electrical & Wireless, Business Assurance, Building Products, Transportation Technologies, Chemicals & Pharma and Food
China
Corporate Development
Trade
South and South-East Asia
HR
Middle East and Africa
Finance and IT
Europe
Legal and Compliance
Cargo & Analytical Assessment, Agriculture and Government & Trade Services
Resources Industry Services and Minerals
21
Intertek Total Quality Assurance Value Proposition
Research and Development
Consumer Management
Distribution and Retail Channels
Raw Materials Sourcing Intertek Total Quality Assurance (Assurance, Testing, Inspection and Certification)
Transportation
Component Suppliers
Manufacturing
Systemic Approach to Quality and Safety with ATIC Solutions 22
04 Strategy for Sustainable Growth
Attractive Growth Opportunities
Quality Assurance market worth c.$250bn 01 Structural Growth Drivers
• Continued growth in Testing, Inspection and Certification • Increased demand for Assurance 03 New Customers
02
Existing Customers
• Increase account penetration
• Assurance, Testing, Inspection and Certification cross–selling 04
Industry Consolidation
• New contracts
• Expand geographic coverage
• Outsourcing
• Access to new solutions
24
Corporate Medium to Long Term Goals
Fully engaged employees in a safe
01 working environment
02 Deliver superior customer service Margin accretive organic revenue growth
03 based on GDP + organic growth
04 Strong cash conversion from operations Accretive disciplined capital allocation policy
05 for both capex (5% of Revenue) and M&A
25
5 Strategic Priorities Strategic Priorities
01
Strong Brand Proposition
02
Superior Customer Service
03
Effective Sales Strategy
04
Growth and Margin Accretive Portfolio
05
Operational Excellence
Action Plans
KPIs
Position Intertek as leading Quality Assurance provider Improve brand awareness across sectors and geographies Compelling Total Quality Assurance Brand positioning
Revenue growth New leads Customer acquisitions Pricing power A&P effectiveness
Build customer loyalty and win new customers Measure quality of customer service delivery Develop innovative ATIC solutions
NPS Customer retention Customer acquisition Pricing power Growth from innovation
Increase existing account penetration Drive ATIC cross selling Business development with new accounts
Growth from existing customers Growth from new customers Customer cross selling Customer profitability
Prioritised business lines, geographies and service areas Invest in areas with good growth and good margin prospects Disciplined resource, capital and people allocation
Continuous improvement to drive productivity Best in class management to reduce span of performance Eliminate non–essential costs - facilities/offices/processes/ purchasing
Direct costs Overheads Productivity per employee Site capacity utilisation ROCE
Revenue growth Margin accretion Portfolio mix ROCE Capital allocation
26
5 Enablers Enablers
Action Plans
KPIs
Strong entrepreneurial culture Decentralised organisation Customer centric culture
Revenue and profit growth NPS Organisation engagement Employee turnover
01
Living Our Customer Centric Culture
02
Disciplined Performance Management
Performance management with financial and non-financial metrics Forecast and review processes focused on margin accretive revenue growth with strong cash conversion
Superior Technology
Upgrade business intelligence system Leverage back-office synergies Improve customer experience
Productivity/cost savings Customer feedback/NPS IT operating costs
• Invest in capability
Internal promotions Employee turnover Organisation engagement
03
04
Energising Our People
05
Delivering Sustainable Results
• Aligned reward system
EBIT margin Working capital Cash conversion ROCE and ROIC
• Promote internal growth Sustainable growth for customers and shareholders Importance of sustainability for the community Right balance between performance and sustainability
5 year revenue growth 5 year profit growth CO2 footprint Health and safety Employee turnover 27
5x5 Strategy for Growth
Purpose
Bringing Quality and Safety to Life
Vision
The world’s most trusted partner for Quality Assurance
Customer Promise
Our Innovative Assurance, Testing, Inspection and Certification solutions delivered 24/7 with precision, pace and passion enabling you to power ahead safely
5x5
5 Strategic Priorities
5 Enablers
Strong Brand Proposition
Living Our Customer Centric Culture
Superior Customer Service
Disciplined Performance Management
Effective Sales Strategy
Superior Technology
Growth and Margin Accretive Portfolio
Energising Our People
Operational Excellence
Delivering Sustainable Results
28
Three Tier Portfolio Strategy
01
Geographic
GBL
Grow Scale Businesses
02
03
Invest in Fast Growing Businesses
Improve Performance
• • • •
Softlines Hardlines Electrical & Wireless Cargo & Analytical Assessment • Government & Trade Services
• • • •
Business Assurance Agriculture Building Products Transportation Technologies • Food
• Industry Services • Minerals
• North America • Greater China
• • • •
• Australia • Europe
South Asia South East Asia South America Middle East and Africa
29
Accretive Disciplined Allocation of Capital
01
Capex and working capital investment to support organic growth (target c.5% of revenue in capex)
Sustainable shareholder returns through payment of progressive dividends
03
02
M&A focused on strong growth and margin prospects in businesses with leading market positions or in new exciting growth areas, geographies or services
Efficient balance sheet with flexibility to invest in growth with Net Debt / EBITDA target of 1.5x - 2.0x
04
30
Organisation and Reward Alignment Group Leadership Team André Lacroix CEO
Global Business Lines
Geographic Areas
Functional Areas
Products
Americas, Pacific and North East Asia
ATIC Operational Excellence
Calvin Yam Softlines
Gregg Tiemann
Nimer Al-Hafi
John Qin Hardlines
China
Corporate Development
Tim Hubbard Transportation Technologies
Fred Bai
Julia Thomas
Rich Adams Electrical & Wireless
South & South East Asia
HR
Calin Moldovean Business Assurance & Food
Rajesh Saigal
Tony George
Middle East & Africa
Finance & IT
Ian Galloway
Ed Leigh
Europe
Legal & Compliance
Graham Ritchie
Mark Thomas
Trade Ian Galloway
Resources Jan-Jörg Müller-Seiler
Yearly Incentives based on Revenues, Operating Profit and ROCE 31
05 Short Term Priorities in 2016
www.intertek.com
Internal Alignment to Execute Our 5x5 Strategy
What we have done • Implemented organisational structure to support our business model • Strategy communicated to top 200 leaders • New short-term incentive system and 2016 targets communicated to all
What we will do • Cascade 5x5 strategy throughout the organisation • Increase internal communication efforts to share best practice
• Performance management focus on financial and non-financial metrics
33
Focused 2016 Plans to Deliver Revenue Growth Business Line and Country Initiatives SOFTLINES • Growth in footwear and footwear electronics • Launch of Chemical Smart Screening HARDLINES • Supply chain expansion in India and Mexico • Launch of innovative technology for factory inspections
ELECTRICAL & WIRELESS • EMC expansion in S.Korea and Mexico • Regulatory changes in Energy Efficiency • Internet of Things BUILDING PRODUCTS • Growth of Commercial and Civil construction markets in the USA • Integration of PSI TRANSPORTATION TECHNOLOGIES • Focus on electrical and hybrid vehicles
CHEMICALS & PHARMA • New pharma products in the USA and UK • Increased corporate focus on regulatory risk
GTS • Increased scope in Saudi Arabia • New programmes in new markets
CARGO & AA • New lab openings in Australia, PNG, Texas • Increased shipment of refined products
AGRI • Business development with existing and new accounts in fast growing markets
MINERALS • Cost and capacity control
FOOD • Integration of FIT • Development of food services BA • Leverage leadership position in supply chain management INDUSTRY SERVICES • Cost and capacity control in capex related activities • Continue diversification in opex related activities with NDT
• Implement NPS to measure customer service delivery on monthly basis
Group Initiatives
• Drive ATIC cross selling with existing and new customers • Launch innovative ATIC solutions in Products, Trade and Resources • Performance management based on financial and non-financial metrics • Capex investments in businesses with good growth and good margin prospects 34
Disciplined Margin and Cash Management
Cost Management • Q4 2015 cost restructuring − Headcount reduction of 207 − Full year cost reduction of £4m • Manage capacity and costs tightly
− Industry Services
Benchmarking/Productivity • Drive best-in-class performance management − Site span of performance reduction with Best in Class tool − Business line and country monthly benchmarking with financial and nonfinancial metrics
− Minerals • Continuous focus on costs − Consolidation of facilities
− Consolidation of offices − Process streamlining − Purchasing synergies
Cash Management • Tight controls on working capital
• Business line and country monthly benchmarking
35
2015 Performance Based on Future Disclosures Revenue (£m)
Adjusted Operating Profit (£m)
2,093
2,166
1,008
1,111
514
537
572
519
2014
Growth
Growth
3.5%
Trade
343
5.9%
208
234
12.5%
65
76
51
34
2014
2015
10.2%
4.4%
(9.2)%
2015
Resources
324
Products
Resources
Margin
Products
% Group Revenue
% Group Profit
Organic Revenue Growth¹
Products
51%
68%
6.0%
14.1%
Trade
25%
22%
5.4%
9.0%
6.5%
Resources
24%
10%
(10.2)%
15.5%
15.9%
Group
2015
Products
20.6%
21.1%
Trade
12.7%
Resources Group At constant rates
(33.9)%
Key Metrics
2014
1
Trade
15.9%
1.6% 36
Summary • Track record of sustainable growth and shareholder value creation • High margin and strongly cash generative earnings model • Attractive growth prospects in the Quality Assurance market • Portfolio focus on attractive growth and margin opportunities
• Disciplined approach to performance management and capital allocation
37
Appendix Strategy Update Presentation
www.intertek.com
38
Financial Performance by Sector in 2015 and 2014 2015 £m
2014 £m
Change at actual rates
Change at constant rates
Organic1 change at constant rates
1,110.6
1,007.9
10.2%
7.7%
6.0%
233.8
207.9
12.5%
8.4%
21.1%
20.6%
50bps
10bps
536.6
513.9
4.4%
5.5%
75.7
65.3
15.9%
18.3%
14.1%
12.7%
140bps
150bps
519.1
571.5
(9.2)%
(7.3)%
33.9
51.2
(33.8)%
(32.7%)
6.5%
9.0%
(250)bps
(250)bps
2,166.3
2,093.3
3.5%
3.2%
343.4
324.4
5.9%
4.0%
15.9%
15.5%
40bps
20bps
Products Revenue Adjusted operating profit Adjusted operating margin
Trade Revenue Adjusted operating profit Adjusted operating margin
5.4%
Resources Revenue Adjusted operating profit Adjusted operating margin
(10.2)%
Group Revenue Adjusted operating profit Adjusted operating margin
1.6%
39
Financial Performance by Sector in 2015, H1 and H2 H1 £m
H2 £m
FY £m
Revenue
531.7
578.9
1,110.6
Adjusted operating profit
109.9
123.9
233.8
20.7%
21.4%
21.1%
267.3
269.3
536.6
36.9
38.8
75.7
13.8%
14.4%
14.1%
261.2
257.9
519.1
17.6
16.3
33.9
6.7%
6.3%
6.5%
1,060.2
1,106.1
2,166.3
164.4
179.0
343.4
15.5%
16.2%
15.9%
Products
Adjusted operating margin
Trade Revenue Adjusted operating profit Adjusted operating margin
Resources Revenue Adjusted operating profit Adjusted operating margin
Group Revenue Adjusted operating profit Adjusted operating margin
40
Broad Based ATIC Services to Deliver Total Quality Assurance
A
Assurance ensures our customers identify and mitigate the intrinsic risk in their operations, supply chain and quality management systems
T
Testing is evaluating how products and services meet and exceed quality, safety, sustainability and performance standards
I C
Inspection is validating the specifications, value and safety of raw materials, products and assets
Certification is certifying that products and services meet trusted standards
41
