TIDMITRK
RNS Number : 1904Y
Intertek Group PLC
03 May 2023
INTERTEK UNVEILS ITS INTERTEK 30 AAA GROWTH STRATEGY TO
UNLOCK
THE SIGNIFICANT VALUE GROWTH OPPORTUNITY AHEAD
3 May 2023, Intertek Group plc ("Intertek" and "Group"), a Total
Quality Assurance provider to a range of industries worldwide,
is holding a Capital Markets Event on 3 and 4 May for
institutional investors and sell-side analysts. André Lacroix,
Chief Executive Officer and other members of the Group's senior
management team will present the Intertek 30 AAA growth
strategy.
Intertek Capital Markets Event Highlights
-- Intertek announces its Intertek 30 AAA growth strategy
-- Stronger Portfolio poised for faster growth: targeting
mid-single digit LFL revenue growth at CCY
-- Plans in place to take our margin back to 17.5% peak and beyond
-- Higher cash generation to fuel growth investments and deliver strong returns
-- More agile organisation and high-performance capability to
unlock significant value growth opportunity
-- Current trading for 2023 is in line with our guidance
-- Enhanced segmental disclosures
André Lacroix: Chief Executive Officer comment
"I am proud of what our colleagues have accomplished in
implementing our 5x5 differentiated strategy launched in March
2016. We have made strong progress, demonstrating the power of our
compelling Total Quality Assurance ('TQA') value proposition giving
our clients the ATIC advantage, the effectiveness of our unique
end-to-end performance management approach and the benefits of our
high-quality growth earnings model. We are today setting out the
Intertek 30 Amazing ATIC Advantage ('AAA') growth strategy to
continue our good to great journey and unlock the significant value
growth opportunity ahead.
Our clients are increasing their focus on Risk--based Quality
Assurance to operate with higher standards on quality, safety and
sustainability in each part of their value chain, creating higher
demand for our ATIC solutions which are powered by our
Science--based Customer Excellence advantage.
We have made significant progress on our portfolio which is
poised for faster growth at the global level given that all
business lines are expected to benefit from exciting structural
growth and at the local level given our strong business
line/country portfolio mix. To better reflect their respective
growth drivers, we are expanding our segmentation to disclose our
results in five divisions.
We are a premium operator delivering a superior ATIC customer
service consistently, and we are laser focussed on margin accretive
revenue growth which has always been a value differentiator in the
industry. We have both proven processes and clear plans in place to
take our margin back to our 17.5% peak and beyond.
We have made great progress on cash generation with conversion
consistently in excess of 120% and when it comes to cash
management, there is much more fuel in the tank. We expect higher
cash generation to fuel growth investments and deliver strong
returns as we continue to pursue accretive disciplined capital
allocation.
We have made our organisation stronger over the years and our
people are truly amazing. We will continue to invest in people and
we now have a more agile operating structure which, combined with
our high-performance capability, will enable us to execute our
Intertek 30 AAA growth strategy seamlessly.
Our Intertek 30 AAA growth strategy will capitalise on the
best-in-class operating platform we have built and target the areas
where we have opportunities to get better. Our passionate,
innovative, and customer-centric organisation is energised to take
Intertek to greater heights delivering AAA performance for all
stakeholders. We are focussed on delivering value consistently,
targeting mid-single digit LFL revenue growth, margin accretion,
and strong cash generation, while pursuing disciplined investments
in attractive growth and margin ATIC spaces.
We operate a differentiated, high-quality growth business with
excellent fundamentals and intrinsic defensive characteristics,
giving our customers the Intertek Science-based Total Quality
Assurance advantage to strengthen their businesses. Our leading
ATIC solutions are mission-critical for the world to operate safely
and the growth in our end-markets is accelerating. The
implementation of our Intertek 30 AAA growth strategy will leverage
our high-performance earnings and cash compounder model which has
generated 8% annual Total Shareholder Returns over the last 10
years, to unlock the significant value growth opportunity
ahead."
--- Intertek 30 AAA Growth Strategy at a glance
We have made strong progress between 2014 and 2022 delivering
sustainable growth and value for our stakeholders and we are very
excited about the significant growth value opportunity ahead,
capitalising on our Science--based Customer Excellence TQA
advantage.
Our clients understand the mission--critical nature of
risk--based quality assurance to make their businesses stronger and
we expect the demand for our ATIC solutions will grow faster
post--Covid.
Our Intertek 30 AAA growth strategy is about being the best and
creating significant value for every stakeholder, all the time.
We want to be the most trusted TQA partner for our customers,
the employer of choice with our employees, to demonstrate
sustainability excellence everywhere in our community and deliver
significant growth and value for our shareholders.
To seize the significant growth value opportunity ahead we will
be laser-focussed on three strategic priorities and three strategic
enablers. Our Strategic Priorities are defined as Science-based
Customer Excellence TQA, Brand Push & Pull and Winning
Innovations, and our three Strategic Enablers are based on 10X
Purpose-based Engagement, Sustainability Excellence and Margin
Accretive Investments. We will both further improve where we are
already strong and address the areas where we can get better.
Our high--quality portfolio is poised for faster growth:
- The depth and breadth of our ATIC solutions positions us well
to seize the increased corporate needs for risk--based quality
assurance
- All of our global business lines have plans in place to seize
the exciting growth drivers in each of our divisions
- At the local level, our country--business mix is strong, with
the majority of our revenues exposed to fast growth segments
- Geographically we have the right exposure to the structural
growth opportunities across our global markets
We are improving our segmental disclosures to better reflect the
growth drivers in our businesses and starting from the Group's
FY2023 half year results we will report revenue, operating profit
and margin in five divisions:
-- Consumer Products
-- Corporate Assurance
-- Health and Safety
-- Industry and Infrastructure
-- World of Energy
Mid-single digit LFL revenue growth target
In terms of LFL revenue growth we are targeting Group mid-single
digit LFL revenue growth at CCY with the following expectations by
division:
-- Low- to mid--Single digit in Consumer Products
-- High-single digit to double digit in Corporate Assurance
-- Mid- to high-single digit in Health and Safety
-- Mid- to high-single digit in Industry and Infrastructure
-- Low- to mid--single digit in the World of Energy
Margin back to 17.5% peak and beyond
Margin accretive revenue growth is central to the way we deliver
value, and we are confident that over time we will return to our
17.5% peak margin performance and go beyond from there. Our
confidence is based on three simple reasons: we have the proven
tools and processes in place, we operate with a span of
performance, and we pursue a disciplined accretive portfolio
strategy.
Our methodology for driving margin accretive revenue growth is
deeply embedded within our operating model and is based on our '5
plus 5' margin drivers: firstly, our 5 site-level margin drivers
that harness the entrepreneurial spirit of each individual team
across the business; and secondly our 5 Group-level margin drivers
which provide the structural framework for us to deliver
sustainable margin improvements over time.
AAA Intertek Virtuous Economics
To deliver sustainable growth and value we will stay focussed on
our AAA Intertek Virtuous Economics based on the compounding effect
year after year of mid-single digit LFL revenue growth, margin
accretive revenue growth, strong free cash--flow and disciplined
investments in high growth and high margin sectors.
We believe in the value of accretive disciplined capital
allocation and pursue the following priorities:
- Our first priority is to support organic growth through
capital expenditure and investments in working capital (target c 5%
of turnover in capex).
- The second priority is to deliver sustainable returns for our
shareholders through the payment of progressive dividends and we
target a pay--out ratio of circa 50%.
- The third priority is to pursue M&A activities that
strengthen our portfolio in attractive growth and margin areas,
provided we can deliver good returns.
- And our fourth priority is to maintain an efficient balance
sheet with flexibility to invest in growth. Our leverage target is
1.3 - 1.8 net debt to EBITDA with the potential to return excess
capital to shareholders subject to our future requirements and
prevailing macro environment.
We have made strong progress in the last eight years and
equally, the value growth opportunity ahead is significant.
The demand for our strong and differentiated ATIC value
proposition is accelerating.
Our Science-based Customer Excellence TQA advantage and our
stronger portfolio at the global and local level positions us well
for faster growth.
Our Intertek 30 AAA growth strategy will capitalise on the
best-in-class operating platform we have built and target the areas
where we have opportunities to get better.
Our passionate, agile, and high-performance organisation is
energised to take Intertek to greater heights delivering AAA
performance for all stakeholders.
We will deliver value consistently, targeting mid-single digit
LFL revenue growth at CCY, margin accretion, and strong cash
generation, while pursuing disciplined investments in attractive
growth and margin ATIC spaces.
Strong value delivered
A few years ago, we took the decision to reinvent ourselves,
making Assurance, Testing, Inspection and Certification, or ATIC,
our Customer Promise. We rebranded the Company in 2017 and
positioned Intertek as Total Quality. Assured.
Our strategic goal with ATIC was to provide a better-quality
Assurance customer service, given how much global trade had changed
in the last 50 years. Today, companies operate in a truly global
market, running complex global multi-sourcing and manufacturing
operations, pursuing an omni-channel approach, when distributing
their products and services globally and locally.
In 2016 we were ahead of our time and today our clients agree
that our industry has changed and is now all about Risk-Based
Quality Assurance powered by ATIC. Indeed, all the quality, safety
and supply issues companies have faced pre and during Covid have
convinced Boards and leadership teams to increase their focus on
systemic risk management across their value chains.
Assurance provides the independent end-to-end data on where the
quality, safety and sustainability risks are in the entire value
chain of any company, while Testing, Inspection and Certification
provide the critical independent quality controls in the high-risk
areas of the entire value chain.
We have made strong progress between 2014 and 2022 and have
delivered sustainable growth in revenue, profit, margin and
dividend while operating with a robust balance sheet and delivering
strong returns.
Intertek 2014-2022 Value Delivery:
Metric(1) 2014 2022 Change
External Revenue GBP2,093m GBP3,193m 53%
---------- ---------- -----------
EBITDA GBP400.9m GBP700.6m 75%
---------- ---------- -----------
Operating
Profit (OP) GBP324.6m GBP520.1m 60%
---------- ---------- -----------
OP Margin 15.5% 16.3% 80bps
---------- ---------- -----------
EPS 132.1p 211.1p 60%
---------- ---------- -----------
Dividend 49.1p 105.8p 115%
---------- ---------- -----------
WC as % Revenue 9.3% (150bps) (10.8ppts)
---------- ---------- -----------
FCF GBP202m GBP386m 91%
---------- ---------- -----------
ROIC 16.3% 18.0% 170bps
---------- ---------- -----------
Net Debt/EBITDA 1.6x 1.1x (0.5x)
---------- ---------- -----------
Note (1): On an adjusted basis, (2) 2014 metrics are on an IAS17 basis
Faster Global Growth for ATIC Solutions
Our industry has always benefitted from attractive growth
drivers and in a post-Covid world everyone wants to build an
ever-better world. Corporations will invest more in quality,
safety, and sustainability, accelerating the demand for our ATIC
industry-leading solutions.
Indeed, based on our customer research, these attractive
structural growth drivers will be augmented by:
-- An increase in new clients
-- Higher investments in safer supply
-- Higher investments in innovation
-- A step change in sustainability
-- Higher growth in the World of Energy
We are seeing significant growth in the number of companies
globally given the lower barriers to entry for any brand with
e-commerce capabilities. The lack of Quality Assurance expertise of
these young companies is excellent news for our Global Market
Access solutions. Our decentralised Customer 1st organisation has a
strong track record of winning new clients.
Covid is proving a catalyst for many corporations to improve the
resilience of their supply chains. We are seeing a significant
change of focus within our clients and how they manage their value
chains with:
-- Better data on what is happening in all parts of the supply chain
-- Tighter risk management with razor-sharp business continuity planning
-- A more diversified portfolio strategy with tier 1/2/3 suppliers
-- A more diversified portfolio strategy regarding factories
-- Investments in processes, technology, training, and independent assurance
Our superior Assurance offering means we are well positioned to
help our clients reduce the intrinsic risks in their
operations.
Our clients have also realised that they need to invest more in
product and service innovation to meet the changing needs of their
customers. A recent survey by Gartner shows that 60% of R&D
leaders expect to increase their R&D investments in 2023. These
investments in innovation mean a higher number of SKUs and a higher
number of tests per SKUs - which will be beneficial for our
Products division.
The other major area of investment inside corporations is of
course sustainability and we are seeing positive momentum with new
and emerging regulation. This means companies will have to
re-invent the way they manage their sustainability agenda with a
greater emphasis on independently verified non-financial
disclosures. This is excellent news for our industry leading Total
Sustainability Assurance solutions. Sustainability is the movement
of our time.
The growth opportunities in the World of Energy are truly
exciting as the energy companies are planning higher investments.
In 2022, we all have witnessed the concerns reflecting energy
security, and everyone agrees that global energy production
capacity is an issue that needs to be addressed quickly to meet the
growing demand for energy. Given the under-investments in
traditional O&G exploration and production in the last decade
and the lack of scale for Renewables, investment for production in
traditional O&G and in Renewables will increase. This is
excellent news for our Caleb Brett and Industry Services
businesses.
Capitalising on our strengths to accelerate growth
On our good to great journey and to seize these exciting growth
opportunities, we plan to capitalise on our strengths.
There are several areas where we believe we are best in
class:
-- We are purpose-led and operate with a 10X Culture.
-- We are positioned as the Risk-based Quality Assurance leader.
-- We deliver a superior customer service 24/7.
-- We do business the right way, operating in every part of the
Group with strong financials and corporate controls.
-- Our proven performance management discipline is systemic.
-- We are a pioneer, always leading the industry with innovations.
-- We have a highly differentiated and winning TQA value proposition.
-- Our people are amazing and Science-based Customer Excellence
TQA Advantage is our unique competitive advantage
We have built a best-in-class operating platform which is a
major asset to capitalise on and seize the demand acceleration for
our ATIC solutions unlocking the significant value growth
opportunity ahead.
Intertek 30 AAA growth strategy to unlock the significant value
growth opportunity
We are a passionate, high-performance organisation and being the
best in everything we do is what will guide us to unlock the
significant value growth opportunity ahead.
We believe that winning in every business is about being much
better at what you are already the best at, while addressing your
opportunity areas.
Getting better at what we are the best at starts of course with
ATIC, our competitive advantage. We were ahead of our time when we
introduced ATIC a few years ago and we have made a lot of progress
with our clients. Equally, the opportunities to provide an ever
better customer service cross-selling our ATIC solutions and
increasing our share of ATIC wallet with every client are truly
exciting.
At the heart of our Intertek 30 AAA growth strategy is to always
give our clients an Amazing ATIC Advantage to strengthen their
business. We have branded our Intertek 30 good to great strategy
'AAA', which stands for Amazing ATIC Advantage.
AAA is much more than being the best in terms of customer
service. AAA is about delivering significant value for every
stakeholder by simply being the best with each of them all the
time.
-- We want to be the most trusted TQA partner with our customers.
-- We want to be the employer of choice with our employees.
-- We want to demonstrate sustainability excellence everywhere in our community.
-- We want to deliver significant growth and value for our shareholders.
AAA will be evolutionary in its approach, capitalising on our
strengths and doing things differently to take the Company
forward.
We are a purpose-led company and the meaning of what we do is
important for all of us. Our Purpose of Bringing Quality, Safety
and Sustainability to Life means that we are mission-critical to
society.
Our Vision is very demanding: to be the world's most trusted
partner for Quality Assurance.
O ur Goals are focussed on delivering sustainable growth and
value for our shareholders.
- We expect the demand for our ATIC solutions to be stronger in
a post-Covid world. We are targeting mid-single digit LFL revenue
growth at CCY.
- Margin accretive revenue growth is central to the way we
create value. We have both the processes and plans in place to go
back to our 2019 peak margin of 17.5% and beyond.
- Every day, in every part of our organisation we apply with
discipline our Intertek Virtuous Economics model which is based on
the compounding effect year after year of LFL revenue growth,
margin accretive revenue growth, strong free cash-flow and
disciplined investments in high growth and high margin sectors.
To achieve these goals, we will pursue three strategic
priorities and three strategic enablers.
- Our three strategic priorities are defined as Science-based
Customer Excellence TQA, Brand Push & Pull and Winning
Innovations.
- Our three strategic enablers are based on 10X Purpose-based
Engagement, Sustainability Excellence and Margin Accretive
Investments.
Stronger portfolio poised for faster growth
When we announced our 5x5 strategy in 2016, we articulated our
growth and margin accretive portfolio strategy based on 3 types of
opportunities, within our business lines and countries.
-- Our first priority was to strengthen our core by growing our scale growth businesses.
-- Our second priority was to invest in growth targeting the fast--growing businesses.
-- Our third priority was to improve the performance of underperforming businesses.
We are pleased with the progress we have made in our business
lines' portfolio between 2014 and 2022, with the 12% CAGR in our
fast--growing businesses and the 2.5% CAGR in our scale growth
businesses. There is no question that the reduction in oil &
gas exploration and production capex impacted the revenue
performance of our underperforming businesses, primarily Industry
Services negatively which will not be the case moving forward.
Our country portfolio got stronger. Our scale growth segment
made up of North America and Greater China grew by 3.8% CAGR, our
fast-growing segment of South Asia, South East Asia, Middle East
and Africa, grew by 9.3% CAGR and our improve segment, comprising
Europe and Australia, grew by 4% CAGR.
Looking at our portfolio through our Product, Trade, Resources
divisions and our ATIC portfolio, the centre of gravity of the
Group has moved toward high margin sectors. This is in line with
our accretive portfolio strategy, which delivered strong growth
with Products and which significantly increased exposure to our
Assurance solutions.
The financial impact of our accretive portfolio strategy at the
Group level has been strong, as we have added GBP1.1bn of revenue
and GBP200m of operating profit during the eight-year 2014--2022
period while growing our dividend double-digit.
Our differentiated TQA value proposition has made a huge
contribution to the strengthening of our portfolio. Our TQA value
proposition is unique as we offer a systemic approach to our
clients in quality, safety and sustainability with industry leading
ATIC solutions.
Our Science based Customer Excellence TQA advantage is a
powerful portfolio advantage to accelerate growth, given that our
clients are increasing their investments in risk-based quality
assurance.
We have many opportunities to increase our ATIC share of wallet
with existing customers which demonstrates the power of our ATIC
portfolio opportunity and our ability to continue to create value
growth.
We are entering our next phase of growth with a high--quality
growth portfolio which enables us to provide our 400,000+ customers
with leading ATIC solutions in each of our global business lines in
100+ markets.
Our portfolio has the track record of consistent growth and
value delivery, based on the compounding effect, on a yearly basis,
of margin accretive LFL revenue growth, strong cash generation, and
disciplined investments in growth.
Moreover, our portfolio has strong intrinsic defensive
characteristics. The ATIC solutions we offer are mission critical
for our clients. We operate a highly diversified set of revenue
streams. Given our superior ATIC customer service, we enjoy strong
and lasting relationships with our clients.
Margin accretive investments to take our portfolio to new
heights is one of the 3 strategic enablers of our Intertek 30 AAA
growth strategy.
We just concluded an in--depth strategic review of our
portfolio, and we are really pleased with the progress we have
made.
Global portfolio
Our global portfolio is stronger than ever and over the two
days, we will set out in detail the growth opportunities in our
global business lines:
Business Assurance
FY22 Revenue: GBP450m
Business Assurance is central to our ATIC offering and remains
one of the most exciting sectors within Intertek, given the
increased focus on operational risk management within the value
chain of every company. Making the value chains more resilient and
more sustainable is the number one priority of any risk committee,
and we have the Assurance solutions that our clients need now.
Softlines
FY22 Revenue: GBP248m
Our Softlines business is the industry leader in terms of scale,
technical expertise, customer service and TQA offering. We will
increase our ATIC share of wallet with existing customers,
leveraging our Risk-based Quality Assurance solutions, our
Corporate Sustainability offering and our SaaS platforms. We will
also benefit from the go-to-market assurance needs of new brands
entering the market.
Electrical and Connected World
FY22 Revenue: GBP468m
Our Electrical business was created by Thomas Edison and leads
the industry around the world. The electrification of society means
that our Electrical business is central to all changes in the
world's energy. Also, we will benefit from the exciting growth of
smart products, medical devices, AI and robotics.
Food
FY22 Revenue: GBP95m
Our Food business is strong locally and mid-size globally. The
food industry is an attractive industry for us as it is highly
regulated, but local authorities do not have the funds to secure
regulatory enforcements. That's why there are so many public high
profile quality scandals which create tremendous reputational
issues for brands and governments. Food will continue to be a
fast-growing business for Intertek.
Industry Services
FY22 Revenue: GBP383m
Our Industry Services business will also be a fast-growing
business for Intertek. The lack of Capex investments in Oil and
Gas, Exploration and Production and the slow investments in
renewables have created energy supply issues. Renewables represent
less than 10% of the world's energy supply and given the expected
growth in demand, energy companies have to increase both the
investments in traditional Oil and Gas production assets as well as
in renewables.
Building & Construction (B&C)
FY22 Revenue: GBP345m
We scaled-up our B&C business in North America with the
acquisition of PSI in 2015. We have seen good growth in the last
few years and moving forward, what we call 'Greener US' will be a
major opportunity for us. The various bills passed recently in
Washington are triggering a level of manufacturing and
infrastructure investments which will be a game changer for the
US.
Hardlines
FY22 Revenue: GBP180m
Our Global Hardlines business is a global leader with a scale
expertise and ATIC offering advantage. We will benefit from
significant growth opportunities in the toy segment and the
furniture segment. Smart toys are growing fast and importantly, the
number of tests per toy is higher, impacting our margin favourably.
We have excellent customer relationships within the furniture
segment and we will continue to benefit from the investments
households are making to improve quality of life at home.
Transportation Technologies (TT)
FY22 Revenue: GBP129m
Global mobility will continue to increase, with greener mobility
gaining share. We will benefit from the R&D investments that
all OEMs are planning to make in Full Electric or Hybrid cars. We
will also benefit from the improvement in traditional combustion
engines to deliver high performance with greener fuels and greener
lubricants. These are excellent prospects for our TT business.
Caleb Brett
FY22 Revenue: GBP492m
Greener fuels is one of the main growth opportunities for Caleb
Brett and we have the ATIC capability to support our clients with
biofuels, sustainable aviation fuels, synthetic fuels, and
hydrogen. Greener fuels require a more complex testing technical
protocol and is higher margin for us. We will also benefit from the
overall growth in demand for crude and refined products as we
expect developing countries to expand their oil and gas
production/refining infrastructure.
Minerals
FY22 Revenue: GBP150m
Our Minerals business is leading the industry in several regions
where we have established a strong position in terms of scale,
technical expertise and offering which, combined with our advanced
levels of automation and operational excellence, provide us with
strong returns. Our Minerals business will benefit from the growth
in global infrastructure and from the growing demand for greener
minerals supporting the global energy transition.
Government and Trade Services (GTS)
FY22 Revenue: GBP67m
Global Market Access for businesses remains a major concern, as
most companies have centralised their quality assurance expertise
in their global Headquarters and have sub-contracted the
manufacturing of their products. In a world where consumers can be
very vocal on social media about any quality, safety,
sustainability issues of the products they buy, our clients need
more than ever the independent inspection services of our GTS
business to operate safely. We have the global network, the
technical expertise, and solutions companies need to go to
market.
AgriWorld
FY22 Revenue: GBP76m
The growth of our AgriWorld business has been impressive and
there are many more growth opportunities given our mid-size scale
globally. We have a strong end-to-end ATIC offering which, combined
with our superior customer service, has enabled us to win major
contracts over the years. Eating safe food starts with getting the
right ingredients in the factory or in the kitchen preparing meals.
The lack of enforcement of food safety standards by local
authorities, is a significant structural growth driver for our Agri
and Food businesses. Our AgriWorld business will continue to grow
rapidly.
Local portfolio
Building on the strength of our global business line portfolio,
we are extremely well positioned for faster growth when looking at
our portfolio at the local level, given our stronger business
line/country mix.
During our strategic review we have spent quality time as a team
discussing the performance of our top c.450 country business lines
in the last few years and importantly, the growth opportunities
moving forward. The conclusion of this review is that, at the local
level, we have a high-quality portfolio which is poised for faster
growth. The outcome of our strategic review has resulted in the
following powerful insights:
- 55% of our revenue is in the fast--growing segment which has
the potential to grow LFL revenue at high-single
digit/double-digit
- 35% of our revenue is in the scale growth segment which has
the potential to grow LFL revenue at low-single digit/mid-single
digit
- 10% of our revenue is in the improving performance segment
where we expect the LFL revenue growth to be between flat and low
single-digit
We have streamlined our organisation at the country level to
make the management of our local portfolio more agile by leveraging
our scale and capitalising on our business line expertise at the
regional level.
Our portfolio will play a major role to deliver the significant
growth value delivery. All global business lines are targeting
margin accretive revenue growth and our new organisation will
enable us to be more impactful when implementing our margin
accretive growth plans at the local level.
Achieving over time and strengthening the number 1 or number 2
position in the local market and/or global basis remains our
strategic goal as well as a significant opportunity. We have
achieved this position in many parts of our business and when this
is the case, our main focus area is about strengthening our
leadership positions. We have many parts in our portfolio where we
have not achieved this goal at the local and/or global area, which
is a very exciting opportunity. In both cases, we have developed,
as part of our AAA portfolio strategy, compelling margin accretive
growth plans to achieve these goals over time.
We will be looking at both organic and inorganic opportunities
to achieve these goals. Our M&A strategy is central to our AAA
portfolio strategy to complement our organic margin accretive
growth plan, with the view of expanding or accessing new IP that we
can scale up or expand our geographic footprint.
We are very proud of the high--performance capability which we
have built with our 5x5 strategy. We believe that the capability
investments we have made have enabled us to build our industry
leading operating platform. Our strong operating platform is
underpinned by our global network, highly skilled colleagues,
well-documented operational and corporate processes, state of the
art equipment in our operations and leading IT infrastructure.
The growth we expect will require continuous investment in our
network, people, processes, equipment, and IT. We will therefore
continue to invest in capability to make sure that we continue to
operate with the best operating platform in the industry.
We will stay very focussed on our disciplined capital allocation
approach to make sure we invest in growth delivering strong
returns.
Margin back to 17.5% peak and beyond
Over many years, Intertek has operated with a differentiated
margin management approach which gives us the foundation and
confidence in our plans to return to our peak margin of 17.5% and
beyond. Our approach to margin accretion is built on three core
fundamentals:
- We have the tools and processes in place to drive margin accretive revenue growth.
- While we have made strong progress on productivity over the
last 8 years, a significant span of performance opportunity remains
- within business lines and across countries.
- We pursue a margin and growth accretive portfolio investment strategy.
Our methodology for driving margin accretive revenue growth is
deeply embedded within our operating model and is based on our "5
plus 5" margin drivers: firstly, our 5 site-level margin drivers
that harness the entrepreneurial spirit of each individual team
across the business; and secondly our 5 Group-level margin drivers
which provide the structural framework for us to deliver
sustainable margin improvements over time.
Our five site-level margin enhancement drivers are:
1. Volume, price, mix management: Every site across the Group is
empowered to maximise the intrinsic value of our science-based
expertise at its disposal. Our analytical tools provide the
framework for our sites to get the right insight to improve
sequentially.
2. Fixed cost capability management: The strong and scale market
positions we have in many markets are combined with the rigorous
site-level optimisation of our fixed cost base to drive economics
of scale advantages. Continued disciplined investment in our fixed
asset base also ensures we reduce the like-for-like cost of
operational delivery.
3. Variable cost capability management: Each of our sites
consistently adopts a kaizen approach to process re-engineering to
improve productivity. Local efficiency initiatives are complemented
with a global approach to larger-scale procurement to optimise
costs.
4. Team-based Planning for 10Xcellence: Planning for 10Xcellence
is our proprietary team-based integrated end-to-end model for
optimising supply and demand management. Our approach enables full
visibility and alignment of all our site-based teams in the value
chain - from sales to scheduling to production to billing.
5. Short-term incentives: Each of our sites have annual revenue
and profit targets which form the basis of annual incentives to
drive year-on-year revenue and margin growth.
Our five Group-led margin enhancement drivers are:
1. Pricing discipline: Our customer relationships are deep, long
lasting and with high retention rates, which over time has
positioned Intertek as a premium operator.
2. Portfolio optimisation: We pursue a growth and margin
accretive portfolio investment strategy. Over the last 8 years we
have increased the Group's exposure to high growth and high margin
segments - in 2022, 63% of revenue was generated in the Products
sector and 20% within the attractive Assurance service segment.
3. Disciplined performance management: Our approach to
performance management is highly disciplined and fully embedded
into the standard operating procedures of the Group. We have a
clear daily, weekly, monthly cadence which is applicable at every
layer of the organisation, driving superior insight and action
planning.
4. IT productivity-led initiatives: Our IT investment strategy
and initiatives are broad based and support our margin accretion
strategy across multiple pillars. These pillars include
laboratory-level productivity; digitising the customer experience;
and back-office efficiency improvements.
5. Short and long-term incentives: Our annual short-term
incentives apply at every layer of the organisation and reward
year-on-year improvements in revenue, profit, ROIC and CO(2)
intensity. These are complemented by our long-term incentive plans
which are designed to drive sustainable growth in EPS, ROIC and
free cash flow.
Accretive disciplined capital allocation
We believe in the value of accretive disciplined capital
allocation.
We pursue the following priorities:
- Our first priority is to support organic growth through
capital expenditure and investments in working capital (target c 5%
of revenue in capex)
- The second priority is to deliver sustainable returns for our
shareholders through the payment of progressive dividends and we
target a pay-out ratio of circa 50%
- The third priority is to pursue M&A activities that
strengthen our portfolio in attractive growth and margin areas,
provided we can deliver good returns.
- And our fourth priority is to maintain an efficient balance
sheet with flexibility to invest in growth. Our leverage target is
1.3 - 1.8 net debt to EBITDA with the potential to return excess
capital to shareholders subject to our future requirements and
prevailing macros.
Improved segmental disclosures
To reflect the value creation drivers identified in the Intertek
30 AAA growth strategy, we are improving our segmental disclosures
and will report our revenue, operating profit and margin in five
divisions.
Our Consumer Products division will focus on the ATIC solutions
we offer to our clients to develop and sell better, safer, and more
sustainable products to their own clients. This division was 31% of
our revenue in 2022 and will include the following business lines:
Softlines, Hardlines, Electrical/Connected World and GTS. We expect
it to grow LFL revenue low to mid-single digit.
Our Corporate Assurance division will focus on the industry
agnostic Assurance solutions we offer to our clients to make their
value chains more sustainable and more resilient end to end. This
division was 13% of our revenue in 2022 and will include Business
Assurance and Assuris. We expect it to grow LFL revenue high-single
to double digit.
Our Industry and Infrastructure division will be focussed on the
ATIC solutions our clients need to develop and build better, safer
and greener infrastructure. This division was 26% of our revenue in
2022 and includes Industry Services, Minerals and B&C. We
expect it to grow LFL revenue mid- to high-single digit.
Our Health and Safety division will focus on the ATIC solutions
we offer to our clients to make sure we all enjoy a healthier and
safer life. This division was 9% of our revenue in 2022 and
includes our AgriWorld, Food, and Chemical and Pharma business
lines. We expect it to grow LFL revenue mid- to high-single
digit.
Our World of Energy division will focus on the ATIC solutions we
offer to our clients to develop better and greener fuels as well as
renewables. This division was 21% of our revenue in 2022 and
includes Caleb Brett, TT and CEA. We expect it to grow LFL revenue
low to mid-single digit.
We will also evolve our regional segmentation disclosing revenue
twice a year for the Americas, EMEA as well as APAC which
represented respectively 38%, 26% and 36% of our revenue in
2022.
We will continue our ATIC segmentation and provide the revenue
split every year moving forward.
Our Trading statement in a few weeks will use the current
Product, Trade and Resources (PTR) disclosure and we will start
reporting based on our new divisions when we announce our 2023 half
year results. We will publish on our website in June 2023
comparative data for 2019 and 2022 under the new divisional
segmentation. To make the analysis of our current year easier, we
will also continue to report our 2023 results using PTR.
2023 outlook
Current trading for 2023 is in line with our guidance.
- We continue to expect the Group to deliver mid-single digit
LFL revenue growth at constant currency driven by good LFL revenue
growth in Products and Trade and robust LFL revenue growth in
Resources and are targeting margin progression, in both H1 an
H2.
- Our cash discipline will remain in place to deliver a strong free cash flow.
- We will invest in growth with capex of circa GBP115-125m.
- We expect our FY23 financial net debt to be in the range of GBP630-680m
We will report trading for January to April 2023 on 24 May
2023.
ENDS
For further information please contact:
Denis Moreau, Investor Relations
Telephone: +44 (0) 20 7396 3415 investor@intertek.com
Jonathon Brill/James Styles, Dentons Global Advisors
Telephone: +44 (0)7510 385 554 intertek@dentonsglobaladvisors.com
Intertek is a leading Total Quality Assurance provider to industries worldwide.
Our network of more than 1,000 laboratories and offices in more than 100
countries, delivers innovative and bespoke Assurance, Testing, Inspection
and Certification solutions for our customers' operations and supply chains.
Intertek Total Quality Assurance expertise, delivered consistently, with
precision, pace and passion, enabling our customers to power ahead safely.
intertek.com
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END
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