ITRK Intertek Group Plc

TRADING STATEMENT

26 November 2024

•      YTD revenue of £2.82bn, growth of 6.6%¹, with broad-based LFL revenue growth of 6.3%¹

•      Robust Group revenue of £1.15bn in July-Oct, growth of 6.8%¹ with 6.6%¹ LFL revenue growth vs 6.1% in H1

•      Revenue acceleration in Consumer Products with 9.4%¹ LFL revenue growth in the period after 6.0% in H1, driven by double-digit growth in Softlines

•      Strong demand in Corporate Assurance with 9.9%¹ LFL revenue growth in the period

•      Strong demand in Health and Safety with 9.1%¹ LFL revenue growth in the period

•      July-Oct trading in line with guidance in Industry and Infrastructure and in World of Energy

•      LFL revenue growth acceleration in China to 7.4% after 5.6% in H1, driven by Consumer Products

•      Strong margin progression driven by divisional mix, pricing, operating leverage, cost controls and productivity improvements

•      Daily cash management discipline delivering excellent free cash flow

•      Continued investment in organic and inorganic opportunities; recent acquisitions in attractive growth and margin segments performing well

•      Well positioned to deliver a strong performance in 2024 and 2025

"We delivered a strong performance in the July-Oct period with Consumer Products, Corporate Assurance and Health and Safety, which represent 74% of Group earnings, growing LFL revenue 9.5%^1,3, while trading performance in Industry and Infrastructure and the World of Energy was in line with guidance. Recent acquisitions are performing well, benefitting from the scale-up opportunities within our global network, as we continue to invest 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 January-October 2024 period. We have delivered revenue of £2.82bn, with a growth of 6.6%¹ on a YTD basis, and strong margin progression driven by our divisional mix, operating leverage linked to growth, disciplined cost approach and productivity improvements. Our free cash flow was excellent and our ROIC was strong.

Our good to great journey continues and last year, we unveiled our Intertek AAA differentiated growth strategy to accelerate our revenue growth leveraging the best-in-class operating platform we have built and targeting 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 to create sustainable growth and value for all stakeholders.

Given our first half performance and the high quality of earnings in this latest four-month period, the Group is well on-track to deliver a strong performance in 2024, with mid-single digit LFL revenue growth at constant currency, strong margin progression and an excellent free cash flow performance.

Our clients are increasing their focus on Risk-based Quality Assurance to operate with higher standards on quality, safety and sustainability to make their business stronger, positioning us well to deliver another strong performance in 2025, consistent with the Group AAA Strategy we set out in May 2023. We will continue to capitalise on our high-quality earnings model, creating sustainable growth and value based on the compounding effect, year after year, of mid-single digit LFL revenue growth, margin accretion, strong cash generation, and disciplined investments in high-growth, high-margin segments."

1. Constant currency

2. Actual rates

3. Combined LFL revenue growth for Consumer Products, Corporate Assurance and Health and Safety

Contacts

For further information, please contact:

Denis Moreau, Investor Relations

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

Jonathon Brill/James Styles, DGA

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

Analysts' Call

A call for analysts and investors will be held today at 9:30am UK time. Details can be found at http://www.intertek.com/investors/

In the four-month period to end October 2024, our Consumer Products-related business delivered LFL revenue of £323.9m, up YoY by 9.4% at CCY enabling us to deliver a LFL revenue of £790.5m on a YTD basis, up YoY at CCY by 7.4% and up YoY by 1.9% at actual rates.

·    Our Softlines business delivered double-digit LFL revenue growth in the period resulting in a double digit LFL revenue performance YTD as we have seen an increase in ATIC investments by our clients in e-commerce, Risk-based Quality Assurance, end-to-end sustainability and in new products.

·    Hardlines reported a mid-single digit LFL revenue performance in the period and mid-single digit LFL revenue growth on a YTD basis as we are benefitting from ATIC investments by our clients in e-commerce, sustainability and new product development.

·    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 resulting in a high-single digit LFL revenue growth YTD.

·    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 mid-single digit LFL revenue growth in the period benefitting from contract wins and stable LFL on a YTD basis.

2024 growth outlook

In 2024, we are increasing our full year guidance and now expect our Consumer Products division to deliver high-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 at CCY for Consumer Products is low to mid-single digit.

In the four-month period to end October 2024, our Corporate Assurance-related business delivered a LFL revenue of £168.4m up YoY by 9.9% at CCY and on a YTD basis LFL revenue of £408.0m is up at CCY by 8.9% and by 4.1% YoY at actual rates.

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

•     The Assuris business reported high-single digit LFL revenue performance in the four months and a mid-single digit LFL revenue performance on a YTD basis as we continue to benefit from improved demand for our regulatory assurance solutions and from increased corporate investment in ESG.

2024 growth outlook

In 2024, 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 LFL guidance at CCY for Corporate Assurance is high-single digit to double-digit.

In the four-month period to end October 2024, our Health and Safety-related business delivered LFL revenue of £115.4m, up YoY by 9.1% at CCY. YTD LFL revenue of £278.5m is up YoY by 8.7% at CCY and 3.3% at actual rates.

•     AgriWorld provides inspection activities to ensure that the global food supply chain operates fully and safely. The business reported double-digit LFL revenue growth both in the period and on a YTD basis 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 and on a YTD basis 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 mid-single digit LFL revenue growth in the period and high-single digit LFL revenue growth on a YTD basis, reflecting improved demand for regulatory assurance and chemical testing and from the increased R&D investments of the pharma industry.

2024 growth outlook

In 2024, we continue to 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 LFL guidance at CCY for Health and Safety division is mid to high-single digit.

In the four-month period to end October 2024, our Industry and Infrastructure-related business delivered LFL revenue of £284.0m, YoY growth of 1.1% at CCY.  LFL revenue of £702.1m on a YTD basis was up YoY at CCY by 1.8% and down YoY by 2.7% at actual rates.

•     Industry Services, which includes our Capex Inspection services and Opex Maintenance services, delivered mid-single digit LFL revenue growth in the period and on a YTD basis. We benefitted from increased capex investment in traditional Oil and Gas exploration and production as well as in renewables, enabling our Moody division to deliver double digit LFL revenue growth in the period despite severe weather disruption in the USA. On a YTD basis our double-digit LFL revenue growth in our Moody business was partially offset by a negative LFL revenue performance in our Opex business, due to the exit of non-profitable contracts.

•     Our Minerals business delivered low-single digit LFL revenue growth in the period due to a strong base line effect last year and low-single digit LFL revenue growth on a YTD basis. We continue to benefit from the robust demand for testing and inspection activities in our key markets.

•     We continue to see growing demand for more environmentally friendly buildings and the increased number of infrastructure projects being planned in our Building & Construction business in North America. However, we reported negative LFL revenue growth in the period as our business was impacted by a temporary slow-down of investments in large construction projects and severe weather disruptions in the USA. YTD our business has delivered a stable LFL revenue performance.

2024 growth outlook

In 2024, we continue to expect our Industry & Infrastructure related businesses to deliver a low-single digit LFL revenue performance at constant currency.

Medium- to long-term growth outlook

Our Industry & Infrastructure division will grow in the mid to long-term, benefitting from increased global energy consumption, the transition to greener energy, population growth, large scale infrastructure investment, and demand for greener buildings. Our mid to long-term LFL guidance at CCY for Industry and Infrastructure is mid to high-single digit.

In the four-month period to end October 2024, our World of Energy-related business delivered LFL revenue of £250.5m, up YoY by 6.3% at CCY. YTD LFL revenue of £622.7m is up YoY at CCY by 7.5% and by 3.3% at actual rates.

•     Caleb Brett, the global leader in the Crude Oil and Refined products global trading markets, benefitted from robust momentum reflecting increased global mobility and higher testing activities for biofuels and delivered mid-single digit LFL revenue growth in the period despite a strong 2023 comparator and severe weather disruption in the USA. On a YTD basis, Caleb Brett delivered high-single digit LFL revenue growth.

•     Transportation Technologies delivered double digit LFL revenue growth in the period and high-single digit on a YTD basis, driven by increased investment in new powertrains to lower CO2/NOx emissions and in traditional combustion engines to improve fuel efficiency.

•     Our CEA business reported negative LFL revenue growth in the period due to a strong baseline effect in 2023.  After a strong H1 performance where we continued to benefit from the increased investments in solar panels which is the fastest growing form of renewable energy, YTD LFL revenue growth was mid-single digit.

2024 growth outlook

In 2024 we continue to expect our World of Energy division to deliver high-single digit LFL revenue growth at constant currency.

Medium- to long-term growth outlook

The 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, increased R&D investments that OEMs are making in EV/Hybrid vehicles and from the development greener fuels. Our mid to long-term LFL guidance at CCY for the World of Energy division is low to mid-single digit.

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 develop new ATIC solutions.

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 November 2023 survey by Capgemini shows that 67% of R&D leaders expect to increase their R&D investments in 2024. These investments in innovation mean a higher number of SKUs and a higher number of tests per SKUs - which will be beneficial for our Testing and Certification solutions.

The other major area of investment inside corporations is sustainability and we are seeing positive momentum with new and emerging regulations. This means companies will have to re-invent the way they manage their sustainability agenda with 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 energy companies are planning higher investments. In 2022 and 2023, we all 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 today. 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 Moody businesses.

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 1^st organisation has a strong track record of winning new clients.

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 regarding 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. 

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.

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. We have made three bolt-on acquisitions recently that are performing well:

In April 2023, we announced the acquisition of 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, 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, 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.

Given our strong performance on a YTD basis, we expect that the Group will deliver a strong performance in 2024 with mid-single digit LFL revenue growth at constant currency, strong margin progression and an excellent 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: High-single digit

•     Corporate Assurance: High-single digit

•     Health and Safety: High-single digit

•     Industry and Infrastructure: Low-single digit

•     World of Energy: High-single digit

Our financial guidance for 2024 is that we expect:

•     Capital expenditure in the range of £125-135m

•     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 of circa 65%

•     FY24 financial net debt to be in the range of £500-550m

Currency has remained volatile, and we are updating our FY forex guidance. The average Sterling rate since the beginning of the year applied to our FY 2023 results, would reduce our FY revenue by 450bps and FY earnings by 600bps.

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-