REG - Intertek Group Plc - Trading Statement

IntertekAnnouncement

24/05/2024 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240524:nRSX7415Pa&default-theme=true

RNS Number : 7415P  Intertek Group PLC  24 May 2024

TRADING STATEMENT

24 May 2024

 

 

Strong start to the year with faster LFL revenue growth(1) of 7.0%

 

•    Jan-April revenue of £1,080.8m, growth of 7.5% at constant currency
and 2.0% at actual rates

•    Broad-based LFL revenue growth(1) of 7.0%: 6.2% in Consumer
Products, 7.6% in Corporate Assurance, 9.9% in Health and Safety, 4.2% in
Industry and Infrastructure and 9.4% in World of Energy

•    Margin progression driven by pricing, operating leverage, cost
controls and productivity improvements

•    Cash management delivering strong free cash flow

•    Continued investment in organic and inorganic opportunities

•    Recent acquisitions in attractive growth and margin segments
performing well

•    Reconfirming 2024 outlook: Mid-single digit LFL revenue growth(1),
margin progression and

strong free cash flow

•    Intertek AAA growth strategy execution on track to unlock the
significant value growth opportunity ahead

 

André Lacroix: Chief Executive Officer statement

 

"We have had a strong start to 2024, delivering broad-based 7.0% LFL revenue
growth(1), driven by a strong recovery in Consumer Products, whilst Corporate
Assurance, Health and Safety, Industry and Infrastructure and World of Energy
continue to benefit from increased demand for our ATIC solutions.  Recent
acquisitions are performing well, benefitting from the scale-up opportunities
within our global network, and we continue to invest in organic and inorganic
opportunities in high-growth and high-margin segments.

 

I would like to recognise my colleagues for their passion, commitment and
innovation, enabling us to deliver a strong performance in the first four
months of the year, providing sustainable growth and value for all
stakeholders. We have delivered faster LFL revenue growth, slightly ahead of
our expectations and we have seen robust margin progression driven by our
pricing initiatives, operating leverage linked to growth, disciplined cost
approach and productivity improvements. Our free cash flow was strong which,
combined with our robust balance sheet, enables us to invest in growth and
accelerate performance.

 

Our clients are increasing their focus on Risk-based Quality Assurance to
operate with higher standards on quality, safety and sustainability in each
part of their value chain, triggering a higher demand for our ATIC solutions
which are powered by our Science-based Customer Excellence ATIC Advantage. In
May 2023, we unveiled our Intertek AAA differentiated growth strategy
(https://www.intertek.com/investors/capital-markets-event-presentations/) to
capitalise on the best-in-class operating platform we have built and to target
the areas where we have opportunities to get better. Our highly engaged,
customer-centric organisation is laser-focused to take Intertek to greater
heights, and the execution of our AAA strategy is on track as we continue to
deliver sustainable growth and value for all stakeholders.

 

Based on our strong start to the year, we reconfirm our guidance for 2024. We
expect the Group will deliver a robust performance with mid-single digit LFL
revenue growth at constant currency, margin progression and a strong cash flow
performance. We are well positioned to get back to our peak margin of 17.5%
and beyond in the medium-term, capitalising on the revenue growth acceleration
we are seeing for our ATIC solutions, our disciplined performance management
and our investments in high growth and high margin segments."

 

1.    At constant currency

 

 

 Revenue Performance
              4 months - January to April
              2024     2023     Change at      Change at

              £m       £m       actual rates   constant currency
 Group
 Revenue      1,080.8  1,059.6  2.0%           7.5%
 LFL revenue  1,074.1  1,057.9  1.5%           7.0%
 Consumer Products
 Revenue      298.7    300.3    (0.5%)         6.0%
 LFL revenue  297.6    298.6    (0.3%)         6.2%
 Corporate Assurance
 Revenue      153.7    148.9    3.2%           8.9%
 LFL Revenue  152.0    148.9    2.1%           7.6%
 Health and Safety
 Revenue      108.1    99.9     8.2%           13.0%
 LFL revenue  105.2    99.9     5.3%           9.9%
 Industry and Infrastructure
 Revenue      274.2    275.8    (0.6%)         4.6%
 LFL revenue  273.2    275.8    (0.9%)         4.2%
 World of Energy
 Revenue      246.1    234.7    4.9%           9.4%
 LFL revenue  246.1    234.7    4.9%           9.4%

 

Contacts

For further information, please contact:

 

Denis Moreau, Investor Relations

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

 

Jonathon Brill/James Styles, Dentons Global Advisors

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

 

Analysts' Call

A call for analysts and investors will be held today at 7.45am UK time.
Details can be found at http://www.intertek.com/investors/
(http://www.intertek.com/investors/)

 

 Intertek is a leading Total Quality Assurance provider to industries
 worldwide.

 Our network of more than 1,000 laboratories and offices in more than 100
 countries, delivers innovative and bespoke Assurance, Testing, Inspection and
 Certification solutions for our customers' operations and supply chains.

 Intertek is a purpose-led company to Bring Quality, Safety and Sustainability
 to Life. We provide 24/7 mission-critical quality assurance solutions to our
 clients to ensure that they can operate with well-functioning supply chains in
 each of their operations.

 Our Customer Promise is: Intertek Total Quality Assurance expertise, delivered
 consistently, with precision, pace and passion, enabling our customers to
 power ahead safely.

 intertek.com

 

 

Consumer Products Division

 

In the four-month period to the end of April 2024, our Consumer
Products-related business delivered LFL revenue of £297.6m up year-on-year by
6.2% at constant currency.

 

·    Our Softlines business delivered high-single digit LFL revenue growth
in the period, benefitting from additional ATIC investments from our clients
in e-commerce and sustainability, as well as an increased focus on new
products.

 

·    Hardlines reported mid-single digit LFL revenue growth in the period
benefitting from ATIC investments by our clients in e-commerce and
sustainability, as well as new product development in both the toy and
furniture segments.

 

·    With increased ATIC activities driven by greater regulatory standards
in energy efficiency, more demand for medical devices and 5G investments, our
Electrical & Connected World business delivered high-single digit LFL
revenue growth in the period.

 

·    Our Government & Trade Services business provides certification
services to governments in the Middle East and Africa to facilitate the import
of goods in their markets, based on acceptable quality and safety standards.
The business reported LFL revenue slightly below last year.

 

2024 growth outlook

Based on the strong start to the year, we now expect our Consumer Products
division to deliver mid-single digit LFL revenue growth at constant currency.

 

Mid to long-term growth outlook

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

 

 

Corporate Assurance Division

 

In the four-month period to the end of April 2024, our Corporate
Assurance-related business delivered LFL revenue of £152.0m, 7.6% higher
year-on-year at constant currency.

 

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

 

·    The Assuris business reported mid-single digit LFL revenue growth as
we continue to benefit from improved demand for our regulatory assurance
solutions and from increased corporate investment in ESG.

 

2024 growth outlook

We continue to expect our Corporate Assurance division to deliver high-single
digit LFL revenue growth at constant currency.

 

Medium- to long-term growth outlook

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

 

 

Health and Safety Division

 

In the four-month period to the end of April 2024, our Health and
Safety-related business reported LFL revenue of £105.2m, an increase of 9.9%
at constant currency.

 

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

 

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

 

·    In Chemicals & Pharma we saw high-single digit LFL revenue growth
reflecting improved demand for regulatory assurance and chemical testing and
from the increased R&D investments of the pharma industry.

 

2024 growth outlook

Based on the strong start to the year, we now expect our Health and Safety
division to deliver high-single digit LFL revenue growth.

 

Medium- to long-term growth outlook

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

 

 

Industry and Infrastructure Division

 

In the four-month period to the end of April 2024, our Industry and
Infrastructure-related business grew LFL revenue by 4.2% at constant currency
to £273.2m.

 

·    Industry Services, which includes our Capex Inspection services and
Opex Maintenance services, delivered mid-single digit revenue growth as we
benefitted from increased capex investment in traditional Oil and Gas
exploration and production as well as in renewables.

 

·    The continuing high demand for testing and inspection activities
drove mid-single digit LFL revenue growth in our Minerals business.

 

·    We continue to benefit from growing demand for more environmentally
friendly buildings and the increased number of infrastructure projects in our
Building & Construction business in North America, which delivered
low-single digit revenue growth.

 

2024 growth outlook

We now expect our Industry and Infrastructure division to deliver mid-single
digit LFL revenue growth at constant currency.

 

Medium- to long-term growth outlook

Our Industry and Infrastructure division will benefit from increased
investment from energy companies to meet growing demand and consumption of
energy from the growing global population, the scaling up of Renewables,
increase R&D investments that OEMs are making in EV/Hybrid vehicles and
from the development of greener fuels. We expect mid to high-single digit LFL
revenue growth in the medium-term at constant currency.

 

 

World of Energy Division

 

In the four-month period to the end of April 2024, our World of Energy-related
business reported LFL revenue of £246.1m, up year-on-year by 9.4%.

 

·    Caleb Brett, the global leader in the Crude Oil and Refined products
global trading markets, benefitted from improved momentum driven by increased
global mobility and higher testing activities for biofuels with double-digit
LFL revenue growth in the period.

 

·    Transportation Technologies delivered a mid-single digit LFL revenue
growth in the period driven by increased investment in new powertrains to
lower CO2/NOx emissions and in traditional combustion engines to improve fuel
efficiency.

 

·    Our CEA business continued to benefit from the increased investments
in solar panels, which is the fastest growing form of renewable energy, and
delivered double-digit LFL revenue growth in the period.

 

2024 growth outlook

Based on the strong start to the year, we now expect our World of Energy
division to deliver high-single digit LFL revenue growth at constant currency.

 

Medium- to long-term growth outlook

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

 

 

Innovation

 

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

 

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

 

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

 

In our Consumer Products division, we announced in March our strategic
partnership with Trace For Good with the launch of a SaaS platform designed to
improve traceability and sustainability in complex supply chains, especially
in the textile industry. The platform helps brands to effectively manage and
communicate the environmental and social impacts of their products.

 

In Corporate Assurance, Green R&D is a science-driven innovation that
offers our customers comprehensive insights into product development, focusing
on safety, quality and sustainability. The solution encompasses detailed
performance testing, analysis, regulatory compliance and environmental
assessments, providing a holistic view of a product's journey enabling
companies to ensure their products are developed with minimal environmental
impact.

 

In the Health and Safety division, we developed the Intertek Crystek solution
for the growing Honey industry. Crystek provides services to evaluate and
estimate a honey sample's tendency to crystallise, as well as key insights on
improving the quality of honey and its production.  Intertek is one of the
world-leading experts in the analysis of honey and hive products.

 

In Industry and Infrastructure, Intertek innovations are improving the safety,
efficiency and performance of complex equipment.  Intertek Aware is a
'Digital Twin' offering which integrates data from IoT sensors, robotic
feedback and powerful software, fueled by analytics, to create an accurate
visual replica of industrial equipment. The software empowers energy asset
owners and operators to improve reliability, increase safety, estimate
remaining useful life and manage inspection data, as well as helps to reduce
costs.

 

Our World of Energy division focuses on the ATIC solutions we offer to our
clients to develop renewables, as well as better and greener fuels. Intertek
is investing in Sustainable Aviation Fuels solutions, supporting clients with
a vast array of services from fuel chemistry to certification, biofuels
refineries construction to green hydrogen feedstock production, as well as
material corrosion analysis to feedstock traceability.  These solutions are
supporting the transition from traditional fossil fuels to carbon neutral
alternatives, while ensuring credibility of decarbonisation efforts.

 

All of these developments reflect the commitment we share at Intertek to drive
continuous innovation which powers new growth opportunities and helps to make
our world a safer, more sustainable, and amazing place.

 

 

Sustainability

 

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

 

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

 

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

 

The TSA programme comprises three elements:

•     Intertek Operational Sustainability Solutions

•     Intertek ESG Assurance

•     Intertek Corporate Sustainability Certification

 

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

 

In 2023 we made progress on our Sustainability Excellence agenda:

•     Levels of Hazard Observations increased, reflecting greater levels
of activity across our sites as well as greater awareness and reporting of
Health and Safety overall.

•     Since 2015, we have used the Net Promoter Score ('NPS') process to
listen to our customers that has enabled us to improve our customer service
over the years consistently.

•     We are driving environmental performance across our operations
through science-based reduction targets to 2030. Our rigorous monthly
performance management of climate-related action plans delivered operational
market-based emissions reductions of 11% against 2022 and 37% against our base
year 2019.

•     In 2023, our GHG emissions reduction targets were validated by the
SBTi. Through the validation of scope 1, scope 2 and scope 3 targets, the SBTi
found Intertek to be in line with the ambition to limit global temperature
increases to 1.5°C above pre-industrial levels. This achievement serves to
reconfirm Intertek's commitment to sustainable growth and acknowledges the
Group's ongoing efforts to limit the effects of climate change as part of the
Race to Zero.

•     We recognise the importance of employee engagement in driving
sustainable performance for all stakeholders, and we measure employee
engagement against our Intertek ATIC Engagement Index. Our 2023 score was 87
(2022: 80).

•     Our voluntary permanent employee turnover improved to a low rate of
12.3% (2022: 14%).

Intertek is committed to:

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

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

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

 

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

 

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

 

 

M&A

 

We are investing inorganically to seize the attractive growth opportunities in
the global Quality Assurance market, and to strengthen our ATIC portfolio in
high-margin, high-growth areas.

 

Our recent acquisitions of JLA Brasil Laboratório de Análises de Alimentos
S.A., and Clean Energy Associates LLC have been successfully integrated and
are performing well and in line with our expectations.

 

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

 

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

 

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

 

We will continue to look at M&A opportunities in attractive high-margin
and high-growth areas to broaden our ATIC portfolio of solutions with new
services we can offer to our clients and to expand our regional coverage.

 

 

Outlook 2024

 

Given our strong start to the year, we expect that the Group will deliver a
robust performance in 2024 with mid-single digit LFL revenue growth at
constant currency, margin progression and a strong free cash flow performance.

 

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

•     Consumer Products: Mid-single digit

•     Corporate Assurance: High-single digit

•     Health and Safety: High-single digit

•     Industry and Infrastructure: Mid-single digit

•     World of Energy: High-single digit

 

Our financial guidance for 2024 is that we expect:

•     Capital expenditure in the range of £135-145m

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

•     Effective tax rate in the 25-26% range

•     Minority interests of between £23-24m

•     Targeted dividend payout ratio to circa 65% from 2024 Interims

•     FY24 financial net debt to be in the range of £510-560m

 

The average sterling exchange rate in the last three months applied to the
full year results of 2023 would reduce our FY revenue and earnings growth by
circa 200bps and 300bps respectively.

 

 

Significant value growth opportunity ahead

 

Our clients are increasing their focus on Risk-based Quality Assurance to
operate with higher standards on quality, safety and sustainability in each
part of their value chain, triggering a higher demand for our ATIC solutions
which are powered by our Science-based Customer Excellence ATIC Advantage.

 

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

 

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

 

True to our high performance 10X Culture, our Intertek AAA differentiated
growth strategy is about being the best and creating significant value for
every stakeholder, all the time. We want to be the most trusted TQA partner
for our customers, the employer of choice with our employees, to demonstrate
sustainability excellence everywhere in our community and deliver significant
growth and value for our shareholders.

 

To seize the significant growth value opportunity ahead we will be
laser-focused on three strategic priorities and three strategic enablers. Our
strategic priorities are defined as Science-based Customer Excellence TQA,
Brand Push & Pull and Winning Innovations, and our three strategic
enablers are based on 10X Purpose-based Engagement, Sustainability Excellence
and Margin Accretive Investments. We will both further improve where we are
already strong and address the areas where we can get better.

 

Our high-quality portfolio is poised for faster growth:

•     The depth and breadth of our ATIC solutions positions us well to
seize the increased opportunities arising from corporate needs for Risk-based
Quality Assurance

 

•     All of our global business lines have plans in place to seize the
exciting growth drivers in each of our divisions

 

•     At the local level, our local portfolio is strong, with the
majority of our revenues exposed to fast growth segments

 

•     Geographically we have the right exposure to the structural growth
opportunities across our global markets

 

In terms of LFL revenue growth we are targeting Group mid-single digit LFL
revenue growth at constant currency with the following expectations by
division:

 

•     Low to mid-single digit in Consumer Products

•     High-single digit to double-digit in Corporate Assurance

•     Mid to high-single digit in Health and Safety

•     Mid to high-single digit in Industry and Infrastructure

•     Low to mid-single digit in the World of Energy

 

Margin accretive revenue growth is central to the way we deliver value, and we
are confident that over time we will return to our 17.5% peak margin
performance and go beyond. Our confidence is based on three simple reasons: we
have the proven tools and processes in place, we operate with a span of
performance, and we pursue a disciplined accretive portfolio strategy.

 

To deliver sustainable growth and value we will stay focused on our Intertek
Virtuous Economics based on the compounding effect year after year of
mid-single digit LFL revenue growth, margin accretive revenue growth, strong
free cash-flow and disciplined investments in high growth and high margin
sectors.

 

We believe in the value of accretive disciplined capital allocation and pursue
the following priorities:

 

•     Our first priority is to support organic growth through capital
expenditure and investments in working capital (target circa 5% of turnover in
capex).

•     The second priority is to deliver sustainable returns for our
shareholders through the payment of progressive dividends and we target a
pay-out ratio of circa 65%.

•     The third priority is to pursue M&A activities that strengthen
our portfolio in attractive growth and margin areas, provided we can deliver
good returns.

•     And our fourth priority is to maintain an efficient balance sheet
with flexibility to invest in growth. Our leverage target is 1.3x - 1.8x net
debt to EBITDA with the potential to return excess capital to shareholders
subject to our future requirements and prevailing macro environment.

 

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

 

 

-ENDS-

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTDXLFLZELEBBZ