Intertek Group plc (IKTSF) Q4 2022 Earnings Call Transcript

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Intertek Group plc (OTCPK:IKTSF) Q4 2022 Results Conference Call February 28, 2023 2:45 AM ET

Company Participants

Denis Moreau - VP of Investor Relations

Andre Lacroix - CEO and Director

Jonathan Timmis - CFO and Executive Director

Andre Lacroix

Good greeting to you all, and acknowledgment for joining america connected our call. I person pinch maine Jonathan Timmis, our CFO; and Denis Moreau, our VP of Investor Relations. I'd for illustration to commencement our telephone coming recognizing each of my colleagues astatine Intertek for having delivered a robust capacity successful 2022.

2022 marks different twelvemonth of accordant transportation pinch gross and EPS successful statement pinch expectations, which demonstrates nan precocious value of our maturation net model. There is nary mobility that 2022 was much challenging than expected. The world system was impacted by nan compounding effect of 3 consecutive shocks successful nan past 3 years: nan world pandemic, a awesome disruption of nan world's proviso concatenation and nan return of inflation.

There are 5 takeaways successful our position today. First, we saw a higher request for ATIC solutions pinch mid-single digit like-for-like gross maturation astatine changeless rate. Second, our afloat separator was robust astatine 16.3% pinch a beardown H2. Third, pinch moreover double-digit EPS maturation astatine existent rate, some our rate travel from operations was beardown and grew by £26 million. And finally, we delivered an fantabulous ROIC of 18% pinch year-on-year advancement astatine changeless rate. Let's commencement pinch our capacity highlights.

We've delivered so a robust capacity pinch group revenues up 8% astatine changeless complaint and astir 15% astatine existent rates. Like-for-like gross maturation of 4.9% astatine changeless rate, operating profit up 4% astatine changeless complaint and astir 10% astatine existent rates, robust operating separator of 16.3%. EPS maturation of 4.6% astatine changeless complaint and 10.6% astatine existent rates progressed connected ROIC astatine changeless complaint and unchanged afloat twelvemonth dividend at 105.8p. Let's now talk our like-for-like gross performance.

Globally, we saw an acceleration of our momentum successful waste and acquisition and resources extracurricular of China. Our like-for-like gross maturation was 6.5%. Our Products section delivered a bully like-for-like gross maturation of 3.9%, notwithstanding nan impact of COVID-19 successful Q2 and Q4 successful China, nan proviso concatenation disruptions successful nan automotive manufacture and nan slowdown successful caller merchandise improvement successful Softline and Hardlines successful Q4.

Our Trade section delivered a like-for-like gross maturation of 5.6% arsenic we benefited from nan accrued request for power and Agri products. Our Resource section reported like-for-like gross maturation of 7.9%, driven by higher CapEx investments from our power clients and by nan higher request successful Minerals.

Before we talk separator and cash, a fewer remarks connected our November, December like-for-like performance, which was somewhat beneath our expectations. We knew that nan November, December like-for-like gross maturation would beryllium impacted by 1 little moving time and nan expected slowdown successful Softlines and Hardlines, but our capacity successful nan past 2 months of nan twelvemonth was impacted by a precocious number of COVID cases successful China.

Adjusted for nan £5 cardinal gross nonaccomplishment successful China owed to COVID, our like-for-like gross maturation successful November, December was mid-single digit. Indeed, aft nan relaxation of nan COVID-19 restriction, nan level of COVID-related sickness successful our China business was precocious successful November and December but was backmost to normal successful nan first week of January.

You will person noted that we person shown arsenic a reference successful November, December like-for-like for 2021, which was demanding successful position of comparable for products and trade. We person delivered a robust separator of 16.3%, which was down arsenic expected year-on-year by 70 ground points astatine changeless rates owed to nan COVID rumor successful China successful Q2 and Q4, higher-than-expected ostentation successful galore of our markets and nan truth that margins benefited from higher than accustomed authorities subsidies successful 2021.

We are pleased pinch nan beardown separator progression we saw successful waste and acquisition and resources. Margin accretive gross maturation is cardinal to nan measurement we did measure Intertek successful each portion of our portfolio. And moving forward, we are targeting separator progression. We prosecute a portfolio strategy that focuses connected value maturation initiatives based connected nan correct measurement value and operation benefits.

Our superiority customer work gives america a beardown pricing power. And pursuing nan bully pricing capacity we saw done 2022, we person taken further pricing that will beryllium beneficial successful 2023.

Assurance, which now represents 20% of our revenues, is gross and separator accretive pinch fantabulous maturation opportunities. We prosecute a disciplined superior allocation approach, and our capacity guidance subject is based connected good embedded, continuous betterment processes. As portion of this, we are announcing coming a costs restructuring programme that targets productivity opportunities based connected operational streamlining and exertion upgrade initiatives to present £6 cardinal to £7 cardinal costs simplification successful 2023 pinch an yearly redeeming of £15 cardinal erstwhile nan programme is complete.

We've continued to make advancement connected rate guidance successful 2022, Our rate from cognition of £722 cardinal was up year-on-year by £26 million, which alteration america to put successful maturation while still operating pinch very beardown equilibrium sheet. We prosecute a disciplined attack to finance successful growth. Our M&A strategy targets investments successful charismatic maturation and separator sectors to augment our integrated growth.

The 3 caller acquisitions we made, SAI, GLA and CA, are performing good and added £153 cardinal of separator accretive gross successful 2022. Our pipeline of imaginable acquisitions is healthy. Investments successful invention are basal to present superior ATIC customer service. Our teams are focused connected scaling up our winning innovations while moving connected a adjacent procreation of industry-leading solutions.

We person operationalized these investments successfully complete nan years, arsenic evidenced by our fantabulous ROIC. Sustainability is an breathtaking maturation drivers, which we'll talk later. Internally, we are focused connected sustainability excellence successful each operation. We are targeting nett zero emanation by 2050, but sustainability is overmuch much than astatine 0. We besides attraction connected customer satisfaction, diversity, inclusion, wellness and safety, compliance and engagement.

I will now manus complete to Jonathan to talk our afloat twelvemonth results successful detail.

Jonathan Timmis

Thank you, Andre. All nan comments I will make will beryllium connected nan adjusted results. In summary, successful 2022, nan group delivered a robust financial performance. Total gross maturation was 8.2% astatine changeless rate and 14.6% astatine existent rates arsenic beneficial movements successful FX rates impacted our revenues by 640 ground points driven by nan weakening of sterling. Like-for-like gross grew astatine 4.9% astatine changeless rates.

Operating profit astatine changeless rates was up 3.8% to £520 million, delivering a separator of 16.3%, down year-on-year by 70 ground points. Diluted net per stock were 211.1p, maturation of 4.6% astatine changeless rates and 10.6% astatine existent rates.

Turning to rate flow. Adjusted rate travel from operations was £722 million, up £26 cardinal year-on-year. Adjusted free rate travel was £386 million, down year-on-year by £16 million. We invested £117 cardinal successful CapEx, £18 cardinal supra anterior twelvemonth and finance costs were £10 cardinal higher. We vanished 2022 pinch financial nett indebtedness of £738 million, successful statement pinch anterior year, which represents a financial nett indebtedness to adjusted EBITDA ratio of 1.1x.

Now turning to our financial guidance for 2023. We expect nett finance costs to beryllium successful nan scope of £40 cardinal to £45 million. We expect our effective taxation complaint to beryllium betwixt 26.5% and 27.5%, our number liking to beryllium betwixt £21.5 cardinal to £22.5 million, and CapEx investments to beryllium successful nan scope of £115 cardinal to £125 million. Net indebtedness guidance for M&A is £630 cardinal to £680 million. I will now manus backmost to Andre.

Andre Lacroix

Thank you, Jonathan, and let's talk nan capacity of our business lines, starting pinch Products. All comments that we make successful nan conception astatine changeless currency.

Our Products section delivered a bully capacity connected [Indiscernible]. Notwithstanding nan effect of COVID-19 successful Q2 and Q4 successful China, nan proviso concatenation disruptions successful nan automotive manufacture and nan slowdown successful caller merchandise improvement successful Softline and Hardlines successful Q4.

Outside of China, our like-for-like gross maturation was 5.5%. Our like-for-like capacity was driven by double-digit like-for-like successful Business Assurance, mid-single digit like-for-like successful Softlines, Building & Construction, debased single-digit like-for-like successful Hardlines, method [Indiscernible] and precocious single-digit antagonistic like-for-like successful Transportation Technology.

Operating profit of £427 cardinal was unchangeable year-on-year and arsenic a consequence of 21.1% decline, 180 bps year-on-year, reflecting nan COVID-19 disruption successful China and nan inflationary unit successful North America, Europe and Australia.

In 2023, we expect our Product section to present bully like-for-like gross growth. Our Trade divisions delivered like-for-like gross maturation of 5.6% arsenic we use from nan accrued request for inspection and testing successful power and Agri products, while nan capacity of our GTS business reflected nan determination to terminate 2 unprofitable contracts.

Outside of China, our past [Indiscernible] operating profit was up 14% to £58 million, resulting successful operating separator of 9.1%, 70 ground points higher. We expect our Trade section to present bully like-for-like gross growth.

Our Resource section delivered like-for-like gross maturation of 8%, driven by accrued CapEx investments by [Indiscernible] lipid and state and renewables arsenic good arsenic precocious request successful Minerals. Outside of China, our like-for-like gross maturation was [Indiscernible] 61% higher than [Indiscernible] producing successful [Indiscernible].

Let's now talk nan maturation opportunities we have. We've made a batch of advancement [Indiscernible]. Within our 3 divisions, products has been nan fastest increasing business pinch a CAGR of 9% and coming represents astir 2/3 of our gross and 82% of our profit. Within our ATIC solutions, Assurance has been nan fastest-growing business astatine 17% compound, representing 20% of our revenue.

Our portfolio is highly good positioned for maturation and fto maine explicate you why. COVID has been overmuch much than nan calamity for nan world. In nan post-COVID world, stakeholders' expectations successful quality, information and sustainability are higher, making nan lawsuit for respace Quality Assurance stronger.

The request for ATIC solutions will turn faster station COVID. Our manufacture is highly attractive, of course, pinch beardown structural epic maturation drivers that will present GDP positive like-for-like gross successful existent terms. Based connected our customer research, these charismatic structural maturation drivers will beryllium augmented by an summation successful caller clients, higher finance successful safer supply, higher investments successful innovation, nan measurement alteration successful sustainability and precocious maturation successful nan world of energy.

We are seeing important maturation successful a number of companies globally, fixed nan little barriers to introduction for immoderate marque pinch e-commerce capabilities. The deficiency of Quality Assurance expertise of these young companies is fantabulous news for our world marketplace entree solutions, and our decentralized customer-first statement has a beardown way grounds of winning caller clients.

COVID-19 is proving a catalyst for galore corporations to amended nan resilience of their proviso chains. We are seeing a alteration of attraction wrong our clients pinch amended information connected what is happening successful each parts of nan proviso chain. Tighter consequence guidance pinch razor-sharp business continuity planning, a much diversified portfolio strategy pinch Tier 1, Tier 2, Tier 3 suppliers, a much diversified portfolio strategy besides regarding factories. And of course, finance successful processes, technology, training and independent Assurance.

Our superior Assurance offering intends we are good positioned to thief our clients trim nan intrinsic risks successful their operations. Our clients person besides realized that they request to put much successful merchandise and work invention to meet nan changing needs of their customers. A caller study by Gartner show that 60% of R&D leaders expect to summation nan R&D investments successful 2023. These finance successful invention has been a higher number of SKUs and a precocious number of trial per SKUs, which will beryllium beneficial for our Products division.

The different awesome area of finance wrong corporations is, of course, sustainability. We are seeing affirmative momentum pinch caller and emerging regularisation that intends that companies will person to reinvent nan measurement they negociate nan sustainability schedule pinch a awesome accent connected independently verified nonfinancial disclosures.

This is fantabulous news for industry-leading full sustainability Assurance solutions. The maturation opportunities successful nan world of power are genuinely exciting. In 2022, we person each witnessed nan concerns reflecting power security, and everyone agrees that world power accumulation capacity is an rumor that needs to beryllium addressed quickly to meet nan increasing request for energy. Given nan underinvestments successful accepted lipid and state exploration accumulation successful nan past decade and nan deficiency of standard for renewables, finance for accumulation successful accepted lipid and state and successful renewables will increase. This is fantabulous news for Caleb Brett and Industry Services businesses.

Moving forward, we'll proceed to present sustainable maturation and worth for each of our stakeholders. Our science-based customer excellence USP provides our clients pinch nan ATIC advantage they request to fortify their business. We run a high-margin capital-light carbon-light and highly cash-generative net model. Intertek's attack to worth creation is based connected nan compounding effect year-after-year of margin-accretive gross growth, beardown rate procreation and disciplined finance successful growth. That attack has delivered 8% yearly TSR since 2012.

Moreover, our net exemplary has beardown intrinsic protect characteristics. The ATIC solutions we connection are solutions [Indiscernible]. We bask beardown and lasting narration pinch our clients. Our business exemplary is based connected a number of quality, information and sustainability [Indiscernible] make an existing SKU arsenic good arsenic a number of caller brands and SKUs that are being launched successful [Indiscernible]. Our Trade business grows successful statement pinch GDP type [Indiscernible] is good positioned for maturation fixed nan deficiency of finance successful accepted lipid and state successful nan past fewer years and nan request to standard up renewables.

We are genuinely excited and request to deliberation astir nan maturation opportunities ahead. Our bully to awesome journey, which has delivered important worth betwixt 2014 and 2022, continues capitalizing connected our USP, nan Intertek science-based customer excellence TQA advantage.

On May 3 and 4, we will big nan Capital Market Day successful London, which will springiness nan opportunity to nan full activity squad to coming our Intertek 2030 maturation strategy. True to our intent of bringing quality, information and sustainability to life. Our science-based customer excellence TQA advantage helps our clients to make nan world ever better.

Our unsocial attack is based connected 3 components. First, it's astir our science-based method expertise. Our manufacture starring processors build nan world's champion intelligence spot to present superior TQA solutions. Second is our committedness to science-based continuous improvement. We ever spell backmost to nan information to guarantee nan solutions we connection to our clients are based connected nan champion imaginable research, knowledge and insight.

And 3rd is, of course, our science-based innovation. We continuously use superior data-driven insights erstwhile creating caller solutions for our clients. Let maine springiness you a fewer examples to exemplify what I mean.

Our aesculapian instrumentality experts support nan improvement of artificial sites to nan blind. Intertek calibrate is supporting nan improvement of synthetic fuels for nan hose industry. Our IB World business has developed innovative DNA testing devices to assistance nan [Indiscernible] industry.

Before taking your questions, I'd for illustration to stock our 2023 guidance. We're entering 2023 pinch assurance fixed nan reopening of China, nan accrued request for ATIC solutions, nan spot of our portfolio, our beardown pricing power, our productivity and costs initiatives arsenic good arsenic our rate discipline. We expect nan group will present mid-single digit like-for-like gross maturation astatine changeless currency, driven by bully like-for-like successful merchandise and waste and acquisition and a robust like-for-like successful resources.

We are targeting separator progression some successful H1 and H2. Our rate subject will stay successful spot to present beardown free rate flow. We'll put successful maturation pinch CapEx betwixt £115 cardinal and £125 million, and we expect our financial nett indebtedness to beryllium successful nan scope of £680 cardinal to £680 million.

A speedy update connected rate for your models. The mean sterling complaint since nan opening of nan twelvemonth applied to nan afloat twelvemonth results of 2022 will beryllium broadly neutral astatine nan gross and net level. In summary, we are a purpose-led institution offering ATIC solutions that are mission-critical for nan world. The maturation successful our extremity marketplace is accelerating. We run a beardown portfolio pinch starring marketplace positions. Our high-performance net exemplary has a beardown way record. We are a high-quality maturation business, creating sustainable worth for all. Thank again for your clip today. Apologies for nan method hiccup.

Question-and-Answer Session

End of Q&A

Editor: Naga

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