intertek 2010 half year results presentation...business of intertek group plc. these statements and...
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2010 Half YearResults PresentationResults Presentation2 August 2010
Wolfhart HauserChief Executive Officer
Lloyd PitchfordChief Financial Officer
Cautionary statement regarding forward-looking statements
This presentation contains certain for ard looking statementsThis 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 andinvolve 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 implieddevelopments 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 August 2010
2010 Half Year Results Presentation www.intertek.com 202/08/2010
Lloyd PitchfordChief Financial Officer
Financial PerformanceFinancial Performance2010 Half Year Results Presentation
Results overview
• G d d i i th• Good and improving revenue growth
• Resilient profitability
• Cash conversion in line with first half trend
• Three acquisitions for £30m; good pipeline
• Strong financial position: 0.9 net debt/EBITDA
• Interim dividend increased by 13%Interim dividend increased by 13%
4
1H Financial highlights
1H Revenue 1H Operating profit (adjusted)
650
725£m
125£m
1H Revenue 1H Operating profit (adjusted)
500
575
650
75
100
350
425 50
200
275
2006 2007 2008 2009 20100
25
2006 2007 2008 2009 2010
5
1H Revenue growth
Constant
(1.7)4.028 0
660£m
(1.7)3.81.86.3650
660£m
rates
+ 5.2%
28.0
630
640
650 11.9
5.62.6630
640
650
600
610
620
600
610
620
580
590
600
009 nic ns FX 010
580
590
009
CG &E &A ical
rial
als FX 010
6
1H 20
09
Organ
iAcq
uisitio
ns FX
1H 20
10
1H 200 CG
C&
OC&AAnaly
ticIndustr
iaMinera
l FX1H
201
Financial highlights
For the six months to 30 June 2010
Revenue £652.6m+ 4.9% at actual
+ 4.6% at constant organic
+ 0 2% at actualOperating profit 1 £103.7m
+ 0.2% at actual
+ 1.5% at constant organic
Operating profit margin 1 15 9%- 70bps at actual
Operating profit margin 15.9%- 50bps at constant organic
Profit before tax 1 £97.3m + 3.3%
Diluted adjusted EPS 40.6p + 1.0%
Operating cash flow £87.7m - 25.1%
7
1. Before separately disclosed items
p g
Adjusted operating margin
O tl k
18
% OutlookBroadly similar
Full Year margin
Inventory t ti
Inventory testing
17
Inventory testing
testing
15
16
14
15
1H 2008 1H 2009 1H 2010 FY 2008 FY 2009 FY 2010
8
1H 2008 1H 2009 1H 2010 FY 2008 FY 2009 FY 2010
Interest, tax and other
• I t t h f £6 4 d £2 9• Interest charge of £6.4m, down £2.9m
• Effective tax rate of 27.0%
• Net debt of £240m, net debt/EBITDA of 0.9x
• Dec 2011 facilities of £365m to be refinanced
• Separately disclosed items
• £6.4m amortisation of acquisition intangiblesq g
• £6.4m acquisition related and settled claims
9
Cash flow
Cash conversion
£m @ actual exchange rates 1H 2010 1H 2009
EBITDA 128.7 132.4 120
140
% 1H 2H
Cash flow from operations 87.7 117.1
Cash Conversion % 68 8880
100
Cash Conversion % 68 88
Debtor days 68 6220
40
60
Capex £24.8m £23.5m 02006 2007 2008 2009 2010
1H 71 75 71 62 68
10
2H 72 70 69 62 -
Days Sales Outstanding (DSO)
Currency analysis
Cumulative average exchange ratesRevenue by currency
Other~25%
Value of £1 1H 2010 1H 2009 FY 2009
Cumulative average exchange ratesRevenue by currency
USD 1.53 1.49 1.56
CNY 10.45 10.15 10.63
EUR 1 1 1 11 1 12
USD
GBP & EUR~15%
EUR 1.15 1.11 1.12
HKD 11.89 11.51 12.06USD,
CNY & HKD~60%
~15%AUD 1.72 2.10 1.99
CAD 1.59 1.78 1.77
11
Interim dividend
• I t i di id d f 9 3Interim dividend per share • Interim dividend of 9.3p, up 13.4%
• Interim payout of £15m9.0
10.0Pence
Interim dividend per share
Interim payout of £15m
• Strong and consistent record of dividend growth6.0
7.0
8.0
3.0
4.0
5.0
0.0
1.0
2.0
2006 2007 2008 2009 2010
12
Results overview
• G d lt• Good results
• Strong financial position
• Investment to grow the business
13
Wolfhart HauserChief Executive Officer
Operating PerformanceOperating Performance2010 Half Year Results Presentation
Our industries
Supporting our customers in their global tradeOur organisation Industries we operate in What we doOur organisation Industries we operate in What we doSupporting our customers in their global tradeOur organisation Industries we operate in What we doOur organisation Industries we operate in What we doSupporting our customers in their global tradeOur organisation The industries we operate in What we doOur organisation What we doThe industries we operate in
g pg p
Testing
I tiConsumer Goods
Aerospace & AutomotiveBuilding Products
Supporting our customers in their global tradeOur organisation The industries we operate in What we doOur organisation What we doThe industries we operate in
g pg p
Testing
I ti
Testing
I tiConsumer Goods
Aerospace & AutomotiveBuilding Products
Inspection
Certification
Auditing
Commercial & Electrical
Oil, Chemical & Agri
ChemicalConsumer Goods & RetailersElectrical & ElectronicEnergyF d & A i lt
Inspection
Certification
Auditing
Inspection
Certification
Auditing
Commercial & Electrical
Oil, Chemical & Agri
ChemicalConsumer Goods & RetailersElectrical & ElectronicEnergyF d & A i ltas
One
Auditing
Outsourcing
Advisory
Analytical
Industrial
Food & AgricultureGovernment & InstitutionsIndustrialIT & TelecomMedical & Pharmace tical
Auditing
Outsourcing
Advisory
Auditing
Outsourcing
Advisory
Analytical
Industrial
Food & AgricultureGovernment & InstitutionsIndustrialIT & TelecomMedical & Pharmace tical
Inte
rtek
a
Training
Quality Assurance
MineralsMedical & PharmaceuticalPetroleumTextile, Apparel & FootwearToys, Games & Hardlines
Training
Quality Assurance
Training
Quality Assurance
MineralsMedical & PharmaceuticalPetroleumTextile, Apparel & FootwearToys, Games & Hardlines
1526,000 employees
16
Market drivers in an industry
New Technologies
Changing Product
Supply Chain Costs
Supply Chain Complexity
CO2
CSR
Health effects
Quality issues
Publicity
Awareness
Regulations
Prosecutions & Enforcement
Product Lifecycles
Technical Standards
Development
Complexity
Desire for Supply Chain
Flexibility
Access to Low
Environmental impacts
Biodegradable & Recycling
Brand
Competitiveness
Global access
Access to Low Cost Markets
PRODUCT SUPPLY CHAIN
y g
Product Life Cycle
SOCIAL-ENVIRONMENTAL QUALITY ISSUES REGULATION
External considerationsInternal considerations
17Client
Trending of industry growth
Regulatory changes
Industry Awareness & Recalls
Revenue Social-environmentalRevenue
New Generation Product launched
18
Time
Acquisitions
2005 toOur StrategyAcquisition Track Record
2005 to 1H 2010
Number Completed 55R&D • New expertise
Our Strategy
Total Spent £328m
Average Purchase Multiple
6.4x EBIT
New expertise
Widen the Portfolio
• Complementary services p
Average Margin >18%
Average Annual Expenditure £60m
• Complementary services
Scale
S i li /i d t i Average Annual Expenditure £60m
Average Completed Annually 10
• Service lines/industries
19
Year to date •£30m on 3 acquisitions
Consumer Goods of Group Revenue25%
£m @ constant exchange rates Half Year 2010 Change Organic
change
Revenue 161.9 1.6% 1.6%
Operating profit 51.2 (2.3)% (2.3)%
Margin 31 6% (130)bps (130)bpsMargin 31.6% (130)bps (130)bps
Review of 1H 2010
• Strong textiles testing• Toys revenue and margin downy g• Growth in inspection and food Paul Yao
20Textiles; Toys; Hardlines; Food; CSR; Health & Beauty
Consumer Goods
OutlookOutlook
• Textiles strong growth expected to continue• G d th i f d• Good growth in food• Toys could benefit from further safety concerns and
regulationsg
21
Commercial & Electrical of Group Revenue20%
£m @ constant exchange rates Half Year 2010 Change Organic
change
Revenue 129.6 4.5% 4.5%
Operating profit 17.5 (1.1)% (1.1)%
Margin 13 5% (80)bps (80)bpsMargin 13.5% (80)bps (80)bps
Review of 1H 2010
• Strong growth from China• Renewable energy and auto gy
components developing• Building products declined
Gregg Tiemann
22
Home Appliances; Lighting; Medical; Building; IT & Telecom; HVAC; Renewable Energy; Automotive
Commercial & Electrical
OutlookOutlook
• China and US expected to drive growth• B ildi d t t bili i• Building products stabilising• Continued investment in renewable energy
23
Oil, Chemical & Agri of Group Revenue34%
£m @ constant exchange rates Half Year 2010 Change Organic
change
Revenue 218.4 5.8% 5.8%
Operating profit 23.7 14.5% 14.5%
Margin 10 9% 90bps 90bpsMargin 10.9% 90bps 90bps
Review of 1H 2010
• Inspection resilient• Signs of improvement in testingg p g• Asia, Middle East and Latin
America offset flat market in USAJay Gutierrez
24Oil Cargo; Free Standing Testing; Agriculture; Government Services
Oil, Chemical & Agri
OutlookOutlook
• Increasing growth from emerging markets • USA t t t bili• USA expect to stabilise• Margin to improve from higher utilisation rates
25
Analytical Services of Group Revenue11%
£m @ constant exchange rates Half Year 2010 Change Organic
change
Revenue 72.3 9.5% 5.8%
Operating profit 7.0 6.1% 3.0%
Margin 9 7% (30)bps (30)bpsMargin 9.7% (30)bps (30)bps
Review of 1H 2010
• Materials services improving• New standards in US auto fuel
and lubes Andrew Swift
26Upstream; Chemicals & Materials; Pharmaceutical
Analytical Services
OutlookOutlook
• Recovery in materials services set to continue• N t i t t• New outsourcing contracts:
• Air Products, £6m pa• CIBA Expert Services from BASF, £20m pap , £ p
• Upstream increased safety regulations expected
27
Industrial Services of Group Revenue6%
£m @ constant exchange rates Half Year 2010 Change Organic
change
Revenue 41.8 4.5% 1.1%
Operating profit 2.3 (30.3)% (33.3)%
Margin 5 5% (280)bps (180)bpsMargin 5.5% (280)bps (180)bps
Review of 1H 2010
• Delayed infrastructure projects • Systems certification growing welly g g• Developing new HSE services
• Carbon footprint offsetStefan Butz
28
• REACHIndustry; Systems Certification; Health, Safety & Environment
Industrial Services
OutlookOutlook
• Infrastructure order books filling• HSE i ki i ll REACH• HSE picking up, especially REACH• Further acquisitions to come • New servicesNew services
29
Minerals of Group Revenue4%
£m @ constant exchange rates Half Year 2010 Change Organic
change
Revenue 28.6 15.3% 15.3%
Operating profit 2.0 11.1% 11.1%
Margin 7 0% (30)bps (30)bpsMargin 7.0% (30)bps (30)bps
Review of 1H 2010
• Strong end to 1H • Exploration and production p p
sample volumes increase Marc Hoffer
30Mining; Exploration; Robotic Testing
Minerals
OutlookOutlook
• Expect continuation of good market conditions • M i t i l t• Margin to improve as volumes restore
31
Summary and outlook
• Good results – 2010 outlook improved
• Overall growth drivers remain strongg g
• Expect organic revenue growth of mid single digits
• Broadly similar margin to 2009
• As markets recover further, high single digits , g g gorganic growth will return
32
2010 Half Year Results P t tiPresentation
Q&A
Profit before tax
£m @ actual exchange rates 1H 2010 1H 2009
Adjusted operating profit 1 103.7 103.5
Amortisation of acquisition intangibles (6.4) (6.5)
Acquisition and integration costs (3.6) -
Claims and settlements (2.8) -
Statutory operating profit 90.9 97.0
N t i t t (6 4) (9 3)Net interest expense (6.4) (9.3)
Share of Associates - -
Profit before tax 84 5 87 7
34
1. Before separately disclosed items
Profit before tax 84.5 87.7
Taxation
£m @ actual exchange rates 1H 2010 1H 2009
Profit before tax 84.5 87.7Profit before tax 84.5 87.7
Tax (23.1) (23.9)
P fit ft t 61 4 63 8Profit after tax 61.4 63.8
Reported tax rate 27.3% 27.3%
Effective tax rate on adjusted operating profit
27.0% 26.6%
35
Free cash flow
£m @ actual exchange rates 1H 2010 1H 2009
Operating cash flow 87.7 117.1p g
Net interest (7.6) (5.7)
Taxation (30 7) (35 5)Taxation (30.7) (35.5)
Capital expenditure (24.8) (23.5)
F h fl 24 6 2 4Free cash flow 24.6 52.4
Capital expenditure to revenue % (6M) 3.8% 3.8%
36
Capital expenditure to revenue % (12M) 4.3% 5.5%
Net debt at 30 June 2010
£m @ actual exchange rates 1H 2010 1H 2009
Borrowings 379.9 394.7Borrowings 379.9 394.7
Cash (139.8) (116.1)
N t d bt 240 1 278 6Net debt 240.1 278.6
Net debt to EBITDA (LTM) 0.9x 1.2x
37
Liquidity position at 30 June 2010
£m @ actual exchange rates 1H 2010 1H 2009
Debt facilities 650.9 600.1
Repayments to 30 June (110.0) (103.9)
Borrowings (379 9) (394 7)Borrowings (379.9) (394.7)
Letters of credit (5.6) (7.9)
U d i d b i f ili i 1 4 93 6Undrawn committed borrowing facilities 155.4 93.6
Cash 139.8 116.1
38
Liquid funds 295.2 209.7