Intertek Group Plc Ord

Good day, ladies and gentlemen, and welcome to Intertech Full Year Results 2024. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. If you have dialed in, please select star nine to raise your hand and star six to unmute. Instructions will also follow at the time of Q&A. I would like to remind all participants that this call is being recorded. Questions will follow after the presentation. I will now hand over to Andre Lacroix, Chief Executive Officer, to start the presentation.

Good morning to you all and thanks for joining us on a call today here from London. I have with me Colm Deasy, our CFO and Denis Moreau, our VP of Investor Relations. In 2024, we've delivered a strong performance with earnings slightly ahead of market expectations. And I would like to start our call today by recognizing all of my colleagues around the world for their incredible support. Here are the key takeaways of our presentation today. 2024 marks the fourth consecutive year of consistent mid-single-digit like-for-like revenue growth in line with the strategic guidance we gave at our capital market event a couple of years ago. Profit conversion was strong with a margin increase year-on-year of 100 bps. EPS growth at constant currency was 15.2%. We had very strong cash performance and delivered a record adjusted cash flow of 700 bps. 89 million pounds. RIC was outstanding at 22.4%, up year-on-year by 250 basis points. And our dividends to shareholders are up 40.1%. Importantly, moving forward, the value growth opportunity ahead of us is significant. We expect a robust financial performance in 2025. We are announcing today an initial share buyback program of 350 million pounds, and we are raising our medium term margin targets to 18.5% plus. Let's start with our performance highlights. We've delivered, as I said, a strong financial performance in 2024. Our group revenue was up 6.6% at constant rate and 1.9% at actual rate. Like-for-like revenue growth was in line with expectation at 6.3% at constant rate. Operating profit was up 13% at constant rate and 7% at actual rate. Operating margin was excellent, as I said. 17.4% up year-on-year by 100 basis points. EPS grew at 15% at constant rate. RIC, 22.4%, up 250 basis points at constant rate. And our free cash flow of £409 million was up year-on-year by 8%. In line with our dividend policy, our full-year dividend is 156.5p and is up year-on-year by 40.1%. Our balance sheet is very strong with a net debt to EBITDA ratio of 0.7 times. Let's now discuss our lack-for-lack revenue growth performance. The demand for ATIC solutions was robust and 2024 marks the fourth consecutive year of mid-single-digit lack-for-lack revenue growth, clearly a higher growth cycle compared to what we saw pre-COVID. Our lack-for-lack revenue growth of 6.3% at constant rate was driven by both volume and price. and we'll discuss later in the call the performance by division and business line. The acquisitions we've made are performing extremely well. We've made six acquisitions in the last five years to strengthen our ethic value proposition in high growth and high margin sectors. These six investments are value-creative to the group, having delivered in aggregate a margin of 25.1% in 2024. The consolidation opportunities in our industry are very exciting and significant, and will remain selective as we continue to invest in inorganic growth. From a geographic standpoint, our revenue growth was broad-based, with Americas, EMEA, and APAC up respectively by 5.9%, 7.5%, and 6.7% at constant currency. There's been a lot of discussion about the economy in China and the impact it has on our business. Let me give you an update on the performance of our business in China. We have a super strong business in China, which we have built over the last 50 years, where we operate a diversified portfolio with scale positions across all of our business lines. We've delivered a robust like-for-like revenue growth performance of 6.7% in China in 2024, with growth accelerating to 7.7% in the second half. The growth opportunities ahead in China are significant, given the manufacturing excellence that China offers to Western brands, the investment made in existing and new sectors, and of course, the untapped opportunities in the domestic market. We provide our clients with total quality assurance given our unique end-to-end ethical approach to quality, safety, and sustainability. Our ethical portfolio is very well diversified with assurance, testing, inspection, and certification representing respectively 21%, 46%, 25%, and 8% of our total revenue. As you can see on the slide, between 2015 and 2024, our capital light and high margin assurance business has grown double digit. Let's move to margin. We're very pleased with our margin performance of 17.4%, up 100 basis points at constant currency, as I just explained. We benefited, of course, from a portfolio mix, but also from fixed cost leverage linked to our 6% plus organic growth, productivity improvement, our restructuring programs and accretive M&A. These positive margin drivers were partially offset by cost of inflation, as you would expect. And in addition, we've continued to invest in capability to accelerate revenue growth. A few years ago, we announced a cost reduction program to target productivity opportunities based on operational streamlining and technology upgrade initiatives. Our restructuring program has delivered 30 million of savings in 2023 and a further 11 million in 2024. We expect a 3 million benefit in 2025 from the restructuring done in 2024. And of course, we'll continue to look at further cost reduction opportunities. Marginal accruative revenue growth, as you know, is central to the way we deliver value at Intertech. We have increased margin by 190 basis points between 2014 and 2024, making us the only global player in the industry with such an impressive track record. Cash was excellent with a cash conversion of 121%. In 2024, we delivered the highest ever cash from operation of £789 million, enabling us to invest in organic and inorganic growth. With free cash flow at £409 million, our net debt declined by £111 million to £500 million and our net debt to EBITDA ratio improved to 0.7. I will now hand over to Colm to discuss our full year results in detail.

Thank you, Andre. In summary, in 2024, the group delivered a strong financial performance. Total revenue grew to £3.4 billion, up 6.6% at constant currency and 1.9% at actual rates, starting to strengthen compared to major currencies, impacting our revenue growth by 470 basis points. Operating profit at constant rates was up 13% to £590 million, with operating margin of 17.4%, up year-on-year by 100 basis points at constant currency and 80 basis points at actual rates. Diluted earnings per share were at 240.6p, with double-digit growth of 15.2% at constant rates and 7.9% at actual rates. Turning now to cash flow and net debt. As you have heard from Andre, the group delivered record adjusted cash from operations of £789 million compared to £749 million last year, growth of 5.4%. Adjusted free cash flow of £409 million was higher year on year by £30 million, reflecting the growth in operating cash. We finished 2024 with financial net debt of just £500 million, £111 million lower than 2023 and represents financial net debt to adjusted EBITDA of 0.7 times. Turning to our financial guidance for 2025, we expect net finance costs to be in the range of £42 to £44 million, excluding FX. We expect our effective tax rate to be between 25% and 26%. Our minority interest would be between 23 and 24 million, and CapEx investment would be in the range of 135 to 145 million pounds. Our financial net debt guidance, excluding future change in FX rates, M&A, or the buyback, is 470 million to 520 million pounds. I will now hand back to Onbrecht.

Thank you, Colm. And I will go through the performance division by division. There is, of course, more detail in our R&S and all the comments I will make in these next few minutes will be at constant currency. Let's start with consumer product. Very important division for Intertech, as you know very well, where we've delivered a revenue of £959 million up here near by 7.6%. Our high single-digit like-for-like revenue growth was driven by double-digit like-for-like in soft lines, mid-single-digit like-for-like in hard lines, high single-digit like-for-like in electrical, and low single-digit like-for-like revenue growth in GTS. Operating profit was super strong at £269 million with a margin of 28%, up year-on-year by 170 basis points. As you can imagine, we benefited from a strong operating leverage, productivity gains, and of course, portfolio mix. In 2025, we expect the consumer product division to deliver mid-single-digit like-for-like revenue growth. Let's move now to corporate assurance, a very important division also for Intertech. Revenue grew by 8.6% to £496 million. Our high single-digit like-for-like revenue growth was driven by high single-digit like-for-like in business assurance and mid-single-digit like-for-like in assurance. Operating profit was excellent at £117 million, up year-on-year by 13%, with a margin of 23.6% and improvement of 80 basis points, where we benefited, of course, from operating leverage, productivity gain and mix. In 2025, we expect our corporate assurance division to deliver high single-digit, life-for-life revenue growth. Health and safety delivered a revenue of £337 million, an increase of 9%, very commendable. A high single-digit lack for lack revenue growth of 8% was driven by high single-digit lack for lack in agri-world and food, mid-single-digit lack for lack in chemical and pharma. Benefiting from operating leverage and productivity gains, our operating profit rose by 14% to 46 million, with a margin of 13.6% up year-on-year by 50 basis points. In 2025, we expect our health and safety division to deliver mid-single-digit, lack-for-lack revenue growth. Revenue in industrial infrastructures increased by 2.4% to £844 million, after a growth of 7.9% in 2023, as you would remember. Our low single-digit lack-for-lack revenue growth was driven by mid-single-digit lack-for-lack in industry services with a strong double-digit lack-for-lack revenues in our CapEx business, partially offset by negative lack-for-lack revenue in OPEX due to the exit of non-profitable contracts, as we discussed throughout the year. Within minerals, we delivered a mid-single-digit lack-for-lack revenue growth after a high single-digit in 2023 and double-digit in 2022. We saw low single-digit negative lack-for-lack in building construction, as expected, due to the temporary slowdown of large projects, which happens during election years in North America, and as we discussed in November, severe weather conditions in the United States. Operating profit of £81 million was down 2%, with a margin of 9.6%, 40 bps lower than last year. The progress we made on margin within industry, services and minerals was more than offset by a low margin in building construction. In 2025, we expect our industry infrastructure-related business to deliver mid-single-digit, like-for-like revenue growth. Let's move to the world of energy, where we delivered an 8% revenue growth year-on-year, and so 75 million of revenue for the total division. Our high single-digit, like-for-like revenue growth was driven by high single-digit, like-for-like in calibrate and our TT business, and double-digit, like-for-like in our CA business, the industry business. leader in solar panel quality assurance. Operating profit was £78 million, up 25%, and the margin rose 140 bps to 10.2%, reflecting operating leverage, productivity gains, and portfolio mix. In 2025, we expect our World of Energy division to deliver mid-single-digit, like-for-like revenue goals. In 2023, we've introduced our AAA strategy to unlock the significant value growth opportunities ahead. And today, I would like to give you an update on the progress we are making on the ground, executing our AAA strategy. In March and August last year, I shared with you six deep dives on what we call AAA strategy in action. Today, we'd like to give you an update in three important areas. First, we'll discuss why China is not running out of growth and why China plus one is an ethic growth opportunity, which is very exciting for Intertech. We'll then talk about what AAA performance really means concretely for each of our stakeholders. And then I'll spend time on how we create superior value for our shareholders. Let's first discuss why China exports will continue to grow. The Chinese export economy was up 5.8% in 2024 and is up 43.1% compared to where it was in 2019. China has a track record of manufacturing excellence and strong customer service with fast turnaround times and a highly efficient logistic ecosystem. Importantly, China's consistent investment in new end markets has resulted in a strong diversification of their export revenue streams, with APAC now being their largest export partner and growing at a double-digit rate. As we all know, China's share in the global export economy has increased consistently, with exports growing on average by 12% per year since the beginning of the century. We are confident about the growth opportunities of the China export economy given the manufacturing excellence that China offers to Western brands, the continued expansion in new industry and the increased investment in R&D. In our business, supply chains never stand still, and we have seen structural change in the operations of our clients in the last few decades. Our mantra at Intertech is very simple. We always try to anticipate where our clients are taking their supply chain. Our global footprint and capitalized business model means that we are very agile, giving us the ability to move fast if we need to build additional AT capability for clients in existing or new markets. There have been a lot of discussions about brands exiting the manufacturing footprint in China. Over the years, we've seen only a handful of brands doing so because changing production locations is indeed a high-risk decision for any business. What we have seen is companies pursuing a China plus one strategy, which consists in building their supply chain for new businesses in a new country to operate a more diversified footprint. That has resulted in additional investments in countries like Vietnam, Cambodia, India and Bangladesh. We also have seen investment in nearshoring to reduce the time to market and CO2 emissions, with the main beneficiaries being Egypt, Turkey, Portugal, Morocco, Guatemala and Mexico in the Americas. Finally, we are seeing onshoring investment in the renewable sectors with manufacturing investments in energy storage, solar and wind, which are important for the energy security of the European and North American markets. What really matters to us is first, the number of SKUs in the global market that need to be tested and certified, and second, the number of factories and tier one, two and three suppliers that we need to audit and inspect. In summary, China Plus One is making the ATIC market larger for Intertech with an increase in number of products to test and factories to audit. APAC and the Americas will be the main beneficiaries from China Plus One. These are the two most vibrant regions in terms of investments, in terms of additional supply chain capability. These two regions represent 68% of global manufacturing and 85% of the global investments that are currently made in supply chain. We operate a scale ethic portfolio with leading market position in APAC and APAC represents 35% of our revenues over the years. We've built a strong portfolio of business lines in 22 countries and that position as well to benefit from future supply chain investments. The Americas is our largest region contributing 39% of the group revenue. As I mentioned, we've invested significantly in the last few years to take advantage of the ATIC demand acceleration. In the Americas, we operate scale operations in all of our business lines, and we are extremely well positioned to take advantage of future investment in supply chain capability. Let's now discuss how we are delivering AAA value for each of our stakeholder groups. The main goal of our AAA strategy is very clear. We want to be the best in industry by being the best every day for customers, employees, communities, and shareholders. That's what AAA is all about, being the best for every stakeholders all the time. Being the most trusted partner for clients is, of course, where it starts. To do so, we capitalize on our unique competitive advantage, science-based customer excellence. We offer, as you know, a unique value proposition with ethics, We operate well-capitalized state-of-the-art operations. We recruit from the best universities and offer unlimited opportunities. We invest in pioneering innovation, largely technology-based, and we rigorously monitor our customer service performance. Let's now talk about these five differentiators in more detail. Our superior customer service is based on our unique end-to-end ethical offering, which we call risk-based quality assurance. Our clients expect much more than our tech solutions to manage their complex sourcing, manufacturing, and distribution operations. That's why a few years ago, we have redefined our value proposition, adding assurance to help our clients identify the intrinsic risks in their operations. Reinventing ourselves by offering our clients new solutions to address their unmet needs is paramount to stay ahead. That's why we never stop pioneering innovation to step up the quality of our customer service with an increased focus on technology-based solutions. We've highlighted numerous examples in the RNS, and there are more details on our website, intertech.com. I'm really proud of the work our teams have done over the years to strengthen our network of local operations around the world. We've invested more than a billion in CapEx in the last decade, and we operate a well-capitalized state-of-the-art operations given the opportunity to our colleagues to leverage their scientific expertise and deliver the best ethical customer experience to all of their clients. Let's now discuss what we do to be the employers of choice. Our approach is simple. We always treat our employees the way we want them to treat our customers. That's how we've built a high-performance organization by energizing our colleagues to take our company to new heights. We take As you can see on the slide, a very comprehensive approach and put people at the heart of our growth strategy. Our 10X culture is our DNA, the glue that bind us all together and is a major driver of high performance. We are really proud of the progress we've made on the metrics that define a high performance organization, as you can see on the slide. We've made progress on revenue per employee, profit per employee, cash flow per employee, employee turnover, and engagement. Sustainability is an exciting growth driver for Intertek and internally we are focused on sustainability excellence in every single operation. We are targeting net zero emissions by 2050 and we have reduced our CO2 emissions by 17% in 2024 and by 47% since 2019. Of course, sustainability is much more than achieving net zero. We continue to make progress on customer satisfaction, diversity and inclusion health and safety, compliance, and engagement. I'm particularly pleased by the commitment that our colleagues make every single day in their community. Let's now discuss how we are creating super value for our stakeholders. We operate a high-quality cash component earnings model that has created significant value over the years, as you can see on the slide. Between 2014 and 2024, we have grown revenue by 62%, and have increased operating profit by 82%. Our margin has increased, as we talked earlier in the call, by 190 basis points. Our EPS has grown by over two-thirds. Our cash and operation has grown by 385 million pounds, and our ROIC has improved by 610 bps to over 22%. Of course, we are extremely proud of the value we have created for our shareholders over the years, but more importantly, we are super excited about the future ahead of Intertech. The value growth opportunity ahead is significant. And let me explain how our AAA strategy will accelerate value creations for many years to come. First and foremost, we are now operating in a higher organic growth market with very attractive etic growth opportunities. Companies have increased their investment in risk-based quality assurance in the last two decades. And moving forward, Based on the growing challenge they face in their supply chain and more and more demanding stakeholders, our clients will continue to increase their investments. That's why we expect to deliver mid-single-digit light-for-light revenue growth through the cycle. Our high-quality portfolio positions us very well to deliver faster organic growth with industry-leading margins. implementing our laser-focused portfolio strategy, which always prioritizes high growth and high margin ethics spaces where we can be leader with scale. We have built over the years a unique suite of industry-leading ethics solutions in each of our five divisions, and all of our global business lines enjoy a scale leadership position both at the local and global level to deliver sustainable and profitable growth. In addition, To the exciting growth opportunities ahead, our portfolio has strong intrinsic defensive characteristics. The ethics solutions we offer to our clients are mission critical. Our clients cannot operate with ease. We operate a highly diversified set of revenue streams and we enjoy strong and lasting relationships with our clients. Let's move to the next important topic, remuneration and incentive in the group. Our organization is very aligned with what matters to our shoulders in terms of value creation. All of our colleagues share the same annual incentives throughout the group, with 70% of the earning opportunities linked to the delivery of margin equity for growth, 15% to progress on RIC, and 15% to reduction of CO2. At the senior level, our long-term incentive program is based on consistent EPS growth delivery additional free cash flow generation, and progress on ROIC. To deliver sustainable growth and create value for shareholders, we'll continue to strengthen our high-quality cash compound earnings model, benefiting year after year from the compounding effect of mid-single-digit lack-for-lack revenue growth, margin accretion, strong free cash flow, and disciplined investments in high-growth and high-margin sectors to deliver high-quality revenue growth with a superior ROIC. Margin-accurative revenue growth is central, as you know, to the way we deliver value and performance at Intertech. We have effectively delivered the 17.5% target we set in 2023 faster than we expected, and today we are announcing a new margin target. We are confident we'll achieve our medium-term ambitious targets of 18.5% plus for three very simple reasons. We expect to operate with mid-single-digit lack-for-lack revenue growth moving forward, and that will drive a strong operating leverage. We'll continue to streamline costs and drive productivity improvements through to our ever-better approach to business. And as you would expect, we'll stay very, very focused in terms of capital allocation and we'll invest in high growth and high margin segments provided we can deliver margin-accurate revenue growth and a superior ROIC. Let's move to capital allocation because disciplined capital allocation is also a key element of how we deliver sustainable growth and value for shareholders. In 2024, we've increased our investments in CapEx. We've spent 135 million in organic opportunities. In line with the dividend policy, we've announced a 40.1% increase in the full-year dividend to 156.5 P. As you know, we've acquired Base, Met Labs, a high-quality company, operators in the minerals business in North America, and our year-end leverage was excellent at 0.7 times. Our high-growth cash component earnings model is getting stronger every year, giving us the opportunity to further reward our shareholders while still investing organically and looking for value-equative M&A opportunities. Given the strengths of our earnings models, our performance track record, our confidence In future growth opportunities and the current level of leverage, we have announced today an initial 350 million share buyback program to be completed during the current financial year. Subject to competing organic and inorganic investment opportunities to deploy capital, to leverage remaining sustainably below the bottom of our target range, and to any relevant external macro economic factors, we expect our share buyback program to remain a core element of our capital allocation policy and to recur regularly. Before taking any questions, I'd like to share our guidance for 2025. We're entering 2025 with confidence, and we expect the group will deliver mid-single-digit lack-for-lack revenue growth at constant currency. Driven by mid-single-digit lack-for-lack in consumer product, health and safety, industry infrastructure, and the world of energy, we expect high single-digit lack-for-lack in corporate assurance. We are targeting further margin progression. Our cash discipline will remain in place to deliver a strong free cash flow. We'll invest in growth with a capex of circa 135 to 145 million pounds. We expect our financial net debt to be in the range of 470 to 520 million pounds before any M&A or Forex movement and, of course, the impact of share buyback. A quick update on currencies for your model. The average sterling exchange rate in the last three months applied to the full year results of 2024 would be broadly neutral at the revenue and operating profit level in 2025. In summary, the value growth opportunities ahead of us at Intertech is significant. We are seeing higher demand for ATX solutions, creating exciting organic and inorganic opportunities. We are very focused on converting revenue growth into stronger profit growth, targeting 18.5 plus operating margin in the medium term. A strong cash generation will enable us to invest in growth while providing our shareholders with strong returns. All of us at Intertech are committed to being the best all the time for every single stakeholder. This is what our AAA Differentiate Growth Strategy is all about. We'll now take any question you might have.

We will now start the Q&A. If you wish to ask a question, please use the raise hand function at the bottom of your Zoom screen or press star nine if you've dialed in by phone. We will take our first question from Rory McKenzie with UBS. Please go ahead.

Good morning. It's Rory McKenzie here. Two questions, please. Firstly, consumer products. Good morning, Rory. Firstly, consumer products accelerated through the year. I think it was a double-digit growth in November, December. Can you just help us understand what's within that growth? For example, how much of it is due to client activity still rebounding? Are you taking more share? And maybe can you say how much of that growth is coming from Asia outside of China? And then obviously, in terms of outlook, you're guiding for mid-single-digit growth in that division. Are you seeing any signs today that client activity is slowing, perhaps, dating to the power of uncertainty? And then secondly, on capital allocation, the stats you gave show a very good return on your inorganic investments. But we've only seen smaller bolt-ons the past couple of years since the deleveraging. How do you see the environment or the landscape from all the strategic acquisitions such as Alchemy or SAI Global you've made in the past? Thank you.

Thanks, Rory. The last bit of your question was not super clear. The volume was down. Can you repeat? Sure.

Yeah, on capital allocation, good stats on the return on your acquisitions overall. But the past couple of years, we've only seen smaller bolt-ons. Can you talk about the landscape for perhaps larger, more strategic deals as we saw with SAI Global Alchemy?

Yeah, look, maybe let's start with capital allocation and we'll go back to consumer. Look, we have... always had a very strategic, selective approach to M&A. We believe that it's very important to fewer, bigger, better M&A, if I could say, and deliver the returns that we just talked about. For sure, the landscape has been a bit quiet post-COVID, especially in 2021 and 2022. We've seen the environment becoming a bit more open to activities. We've done, obviously, one transaction last year. And what I said in the call is what matters for us is the returns you get on all these investments that we make organically. We've been very, very consistent of always investing in high-growth, high-margin sectors. Most of our investments have been in the fast-growing, high-margin sectors. As you know, sometimes we've used investments to get into new sectors. And then for us, the focus is really in attractive, inorganic opportunities. And if you look at what we've done, I mean, largely all of our businesses has been of a Bolton nature. And this is what we're focused on. We don't want to basically race for scale and make a large acquisition that will basically dilute the margin of the groups. I think it's very important that the acquisition that we made augment the ethic value proposition by getting additional coverage, like we've done in the case of SAI or additional solutions, but that position us in the high-growth, high-margin sectors. Otherwise, you know, we're not true to our creative capital allocation policy. That's, you know, what we need to do. M&A is here to augment the organic performance on revenue growth, margin and, of course, capital returns over time. As far as, you know. Consumer products, of course, we had a very strong growth. You rightly said it was double-digit, and it was across the board, frankly. We've seen a very strong rebound in GTS. As you know, we had existed a few contracts, so we're expecting that. Electrical remained super strong, and Southline was double-digit, but was a very strong double-digit, if I may say so. And hardline was very, very strong, a high single digit, very close to double digit in November, December. Essentially, we should remember that we had a low base in 2023. You remember we saw retailers reducing their activities. So that was to be expected. But it was better than I thought because the retailers have seen very strong traffic in the bricks and mortars operations, but also online. And the confidence has been super strong during the year. And we've seen a lot of additional new product development there. which obviously benefited our soft lines and hard line electrical you know operations are we getting share i would believe so but equally uh in our business uh this is a very different uh way of measuring shares you have to do it you know based on your own intel there is no independent you know market you know composite out there uh did we see any clients you know pull demand into uh q4 no i mean in the consumer products this is not possible when you know a client develop a new sku for a new product There is a significant planning that needs to get in place. They need to have the specs clearly communicate to the factory. The factory need to put the tools in place. Then they need to get the tier one, tier two, tier three suppliers ready for production. So this inertia in terms of supply chain management planning makes it very complicated for anyone to say, you know what, we're going to increase uh you know the number of new products when they launch because you know tariffs are coming our way uh and as you know for us what matters is not the number of tissues being produced but the number of skus being produced in the factory so now it was a very very strong you know finish for consumer products i'm delighted for the team and it's across the board great thank you audrey our next question comes from neil tyler with redbird atlantic please go ahead

Good morning, Andre. Good morning, Colin. Good morning. Two questions, please. Firstly, on the margin outlook, the increase in the medium term that you're framing. In your prepared remarks, you talked about principally operating leverage contributing to that. If I look at the mix of your sort of growth expectations, it looks as though divisional mix will act against that operating leverage a little bit. And then within the performance this year, you've also had some I suppose, product mix improvements as you've been shedding on profitable contracts, I think, you know, in industry and infrastructure. So could you sort of help us sort of piece those components back together and sort of, you know, as we bridge those 100 basis points or so over the next couple of years, think about, you know, the relative contributions of the various pieces I described, please.

Yeah. Look, we did do a deep dive recently, and it's in one of the presentations that we made on how we are driving margin equity revenue growth. You would recall we did several examples looking at by business lines. Essentially, we do have our own, of course, strategic plan that obviously computes all the drivers that you just talked about, but there are more than that. You get, in terms of drivers of margin, you got, of course, operating leverage linked to faster organic growth, which is, of course, linked to disciplined fixed cost management. You got productivity, which is how you uh start you know getting productivity improvements on the additional revenue that you get you got as we said uh you know the investments in uh the sectors that you want gross and margin accretive you got as you said the mix effect which you look at from your perspective, at the global level, rightly so, but I look also at the mix effect at the local level. I'll come back to that in a second, because I think that's the most important part of the iceberg that none of you can see, but for us, this is what we do, and I'll spend a few minutes on that in a second. And then, finally, we should not underestimate the fact that we have a span of performance, right? It doesn't matter if we are proud about the fact that we're the only one to have made such a progress in margin in industry. We still have significant opportunities because not every single operation is firing on all cylinders. And this span of performance means that we need to be very robust in terms of performance management. You heard me talk about that. I managed margin in three dimensions against last year. against budget, but also against best in class, which is a property model we have where we can quantify line by line on the P&L, the delta between the actuals and what best in class look like in that business. But let me talk about the area that I think is, for me, you know, fundamental and why, you know, we are doing a pretty good job is essentially volume price mix at the local level. That's where it all starts. And let me just give you a very simple example that I've used in meetings to make it simple. We are, you know, a people-based business. When you run a lab with 100 engineers, how you allocate the available hours of these 100 engineers will have a significant impact on your growth, but also on your margin. So let me give you a very concrete example. Within our electrical business in North America, which is a super strong business, we have an excellent margin in North America. It happens that one of our best performers in terms of margin is a site called Boxborough in the north of Boston. Why is that? It's because our team, of course, does the certifications for light bulbs, for electrical appliances, for HVACs, does EMCs, does everything. all testing you can imagine in machinery equipment for factories. But in addition, they've invested in a very important sector called medical device, which a few years ago was nascent and now is scale and is a high margin sector. Where it really starts in terms of margin management at Intertech, and that's why I talked about the incentive schemes, where everyone inside the company is incentivized on ROIC and CO2 reduction, but on revenue growth and margin accretion. Because that, you know, site manager in Bugsboro has got the opportunity to make a difference. If she or he allocate a certain amount of available engineer hours to that growing segment, it's going to basically accelerate growth because they are starting to take share in a niche segment that will become very, very big. And in addition, they're getting margin accretion on top of the other sectors. If I were to summarize in a very simple story, if you're a law firm in New York City or London here, And if all of your talent lawyers, your 100 lawyers, only do rental contracts for one bedroom apartment, they're going to make some margin of X. If they do this, plus restructurings and M&A, they're going to make a much higher margin. And that's the power of margin equity revenue growth. That's why we focus on what I call quality revenue growth, because I want every single site operated. regional operators, business leaders to focus on the available revenue and available margins that are basically true to our strategy. And you can imagine that the opportunities are very significant because essentially, that's how you basically deploy capital and invest in future growth. So yes, 18.5% plus is ambitious. Yes, it's going to take us some time. But we're going to get there because I've got tremendous confidence in our performance management, our capital allocations, our mix management. But first and foremost, on the operational power of our volume price mix management at the local level.

That's very helpful. Thank you. And then the second question, just if I compare your FY25 divisional guidance and the medium term targets, specifically consumer and industry divisions, you know, one is a bit higher than the medium term, the other is a bit lower. Can you just sort of bridge those expectations short and medium term in your mind for us and what's making the difference in each case? Thank you.

Look, I think it's a fair question. When we did our medium term guidance at the capital market event that we had here in London in May, we gave essentially several ranges for each of the five divisions. Now, we're not going to do that on the call because it will be too much details, but you would be surprised. I've done the analysis because I was expecting the question. You'll be surprised if you look at the 22, 23, 24, 25 margin that we are guiding and you do a CAGR, you'll be surprised how close the three-year numbers is to the guidance we've given. And this is a guidance we're giving through the cycle, right? This is a guidance that's meant to be true till 2030. There will be differences from one year to the other. Like, of course, you know, in 2024, industry infrastructure was low at 1.7%, but it was 6.7% in 2022 and 7.9% in 2023. I'm guiding for mid-single digit. And then if you take mid-single digit as mid-single digit, you will see that, you know, the CAGR is banging in the range. So, There is, you know, precision in the long-term guidance that we've given, but there will be some change from one year to the other. That's what you expect in business. But you will see through the cycle, you know, it's pretty well calibrated.

Okay, super. That's very helpful. Thank you, Andre.

Our next question comes from Annalise Vermeulen from Morgan Stanley. Please go ahead.

Hi, good morning, Andre. I have two questions. Good morning. I have two questions, please. So firstly, just on the high single digit guidance for corporate assurance this year, could you talk a little bit about the drivers of that? And I'm asking that question particularly in light of the recently simplified omnibus package in Europe, as well as President Trump's very clear anti-ESG stance. So how do you think about the sort of headwinds and tailwinds to that guidance for this year, if any? And then just to follow up on the margin progression and your medium term target, could you give a little bit more detail on the divisional contribution to that? I mean, it sounds like. What you're talking around, you know, the volume price mix and so on is broad based. But given the progress you've already made in your high margin divisions of consumer and corporate assurance, I'm just wondering where that incremental margin uplift will come from on a divisional level. Thank you.

Yeah, so let's just start with margin. The reality is that we expect every single site, every single business local level, every single country, every single division, every single business clients to drive margin equity revenue growth. That's the way people are targeted and that's the way we do business as I just explained. Of course, if the higher margin businesses like consumer product and corporations grow faster, you get a divisional mix, which we understand very well. And frankly, that did help in 2024. What's interesting is We still have some room for improvement in some of our divisions. I mean, if you look at consumer products, we're getting close to our peak in 2019, but we are still not there. Of course, corporate assurance has done extremely well and health and safety is the same, but we still have some opportunities in the world of energy. Look, when you plan for a company of our diversification in terms of revenue stream, we do it business by business, and it yields group margin accretion. That's why we are committing to 18.5% plus. But there might be some year where some divisions of low margin will grow faster than others and will have a bit of negative portfolio mix. But I would expect... that the work that we're doing at the frontline, as I just explained to your colleagues, will enable us to manage that and then we'll take it from there. So it's never a perfect model, but you've got the opportunities to get there and this is the way we are planning. As far as corporate assurance, look, I wouldn't take what we're seeing in the US as a negative, because frankly speaking, the US had never basically communicated anything significant in terms of independent non-financial disclosures audit, i.e. a version of CSRD that you were talking about. I'll come to that in a second. Look, in the US, we have to differentiate what's happening at the national level, what's happening at the state level. And there are some states taking some interesting moves in terms of sustainability The one thing I would say, you know, for us, the audit of non-financial disclosures has never been the key focus for us. You remember, we can do that and we do that, you know, competing with, you know, some of the big four. But for us, the focus is helping our clients, you know, benchmarking. their sustainability strategy, and importantly, addressing the operational sustainable risk inside their value chain. That's where we have invested our capital over the years, and that's where I think Intertech has the edge, where we have a huge suite of operational sustainable solutions in every single business line. And why is it important? Because reporting progress on sustainability metrics is super important. Stakeholders want to see that. But what's more important is not what you report, it's how you drive progress. And this is, you know, what the operational sustainable solutions of Intertech are. As you know, we take an industry-specific approach for every single industry. And you will remember the presentation I did recently, where I gave example of, you know, light bulb, t-shirts, or oil and gas. We basically have in every single industry operational sustainable solutions addressing the sustainability risk inside the industry of our clients, not at the generic level. As far as the EU announcement last week, I was not surprised. It was to be expected. I think the CSRD has made a huge step forward in terms of modeling what is expected from companies, but it was impossible for medium, small-sized companies to basically implement this. So it means that the 7,000 companies that have the obligation to do that are big companies or clients. And it doesn't change anything for us. One thing that I don't know if you know that, but the CSRD passed by the EU many years ago was supposed to open the ethics markets to our industry. But only a few countries did so because a lot of countries didn't want to move away from the financial auditor. So from us, you know, the financial audit, the audit of non-financial disclosures has never been a big expectation. We can do that. But as I just said, you know, what really matters for us is helping our clients benchmark their value chain, look at the risk and offer the operational sustainable solution in their factories, in their supply chain, in their value chain, because that's where the margin is. So no challenge to my expectations for assurance moving forward.

Very clear. Thank you.

Our next question comes from Sylvia Barker with JP Morgan. Please go ahead.

Thank you. Hi, morning, everyone.

Morning.

Two questions for me, please. Question number one. On consumer products and the margins there, could you give us an idea of the range and maybe the distribution of margins? Clearly, you've got a lot of very granular data. So do you have a lot of sites which have, I don't know, 30% EBIT margins, but then a few which have 10? How do we think about that? And then second question on pricing, especially in consumer products again. Can we maybe just understand the dynamics a little bit better? You touched on that on the last call, actually, just around having a pricing level with the brand and then again, having to actually find that pricing in reality with the contract manufacturer. What are the dynamics? What's the gap between your, I guess, your headline pricing and the pricing agreed locally today? How has that progressed maybe over the last couple of years with inflation? Thank you.

Yeah. So let's start with with pricing today. I mean, you know, we've explained that to the capital market event. You know, we are the industry leader in terms of quality of customer service, right? Everybody knows that Intertech offers superior customer service. That means that, you know, from a pricing standpoint, we're very disciplined. We tend to, you know, command a premium. And we never, you know, use price to just drive volume because we're not racing for scale, right? We want to be the best. in terms of returns, and it starts with quality revenue growth. So there is no point in lowering the prices to get your volume and therefore revenue growth, because it will bite you. And when you are quality leaders, this is obviously, as people know, a commodity trap for those of us who study economics. The point about how do we implement our pricing strategy, as you rightly said, we have global agreement with certain customers for basically global contracts. And all teams at the local level are basically demonstrating that they are the best in terms of customer service and turnaround times and data they provide to the factories. But they're not taking the global prices that we are agreeing with the brands and you know, applying significant discounts. Of course, you know, we are, you know, commercial and then we'll make sure that, you know, we respond to commercial challenge to our clients. But this is really, really on the margins. The way you want to think about the intertech pricing approach, it's a disciplined global and local because we are very focused on superior customer service. And when you're the best in terms of customer service, you don't need to discount to get volume. So that's the approach we take. And honestly speaking, I wouldn't want you to worry about that. This is a very disciplined industry and you know that. But as far as the margin span of performance within consumer product, I mean, there is no question that our consumer product margin is the envy of many in this industry, always has been and will stay the envy for many years to come, I guess so, or I hope so, if I want to be a bit flippant. We're not going to reveal, obviously, what the margin is on soft lines, hard lines, electrical, and GTS, but everybody knows that soft line and hard lines have the best margin within consumer product, and of course, electrical is pretty strong and making some strong progress. The span of performance within the local market is something we manage, but I would never disclose any of this. This is proprietary information. As I said, we have a best-in-class model that is proprietary, that gives us real-time at the end of the month, I know what's the gap between the profit that an operation has made and the profit that the operation could have made if that operation would have performed at the best level within their clusters on every single line of the cost structure. And there is plenty to go for. Of course, there are some operational performance opportunities, which is what we're supposed to do. But I'm not going to disclose any of that. But this is not insignificant. And that's why I believe in the 18.5% plus margin over time, because we still have some work to do to get better in certain operations. I mean, we are way not perfect here, right? We're not perfect.

Thank you. Our next question comes from Alan Wells with Jefferies. Please go ahead. Our next question is from Alan Wells with Jefferies. Please unmute your line and go ahead.

Hey, hi, Andre. Hi, apologies if I'm muted then. If I could ask three quick ones, please. Firstly, just on the M&A landscape and particularly just generally how you see the competitive landscape for M&A and deals. It feels like some of the other listed peers, at least from a management narrative, are maybe being a bit more aggressive on the M&A side. Is that something that you're seeing in terms of the competitiveness for deals when you're looking at things? Does that influence your um strategy um in terms of caps allocation at all that's that's my first um secondly i'd love to just get a quick update on how you guys are seeing and thinking about kind of the broader tariff impact on the business obviously there's been further developments over the last you know week and a half i guess previously the industry's probably talked down a little bit about the impact um you know you were flagging growth in china but anecdotally you seeing anything at all in terms of customer behavior there And then third question is just on the comments you made around in some divisions exiting some low margin contracts. I just wonder, is there much more work to be done there or is that opportunity largely done in terms of the way you're thinking about and factoring into that 18% midterm guidance? Thank you.

Thanks. Look, on low margin contract opportunity moving forward, look, we've been pre-discipline at exiting contracts where we are not able to convince the clients that, you know, our customer service had a price. And, you know, we've done so, you know, within AIM, within GTS over the years. Many, many years ago, we did that in, you know, the CapEx business. Look, we are very, very focused on that. And Colm and I review contracts every single time. And it's not that the contract is low margin today. It's also a client saying, you know what, I want to reduce my cost of quality assurance. And you say, you know what, not with us. Because the moment you start lowering your price, you're de facto making a commitment to lower your quality. That's what I was talking about when I talked about the commodity trap, right? On the M&A landscape, look, the market is more active today than it was a year ago, but still not back to the level it was pre-COVID-19 for a very simple reason, is the cost of credit is still quite high. And the private equity operators have been also quite quiet, if I were to say so. And if you are... the owner of a high quality business out there and you want to command a strong multiple when you sell, you need the market to be active. You need competition. So I think that will improve over time. It doesn't really matter for us because we are focusing on the high quality asset, as I said earlier. We don't want to race for scale. We want to be the best and we target businesses that are in the segments where we want to make a difference. I mean, you would be you know, very surprised, you know, to know that, you know, in all the transactions that we've done over the years, we've rarely been basically competing against our, you know, three other, you know, listed peers because, you know, we all look at the market slightly differently, as you know. You know, we have a very different solution mix, right? We have very big in assurance of testing and the others are very big on inspection. And as you know, I don't believe that I think it's a low-value approach. It's low-tech, and I want to focus on high-value, highly complex quality assurance solutions. So that's what I would say now. It has obviously not escaped me that, you know, there's been more activities, you know, within our peers recently. If you look, you know, at their disclosures, I think you will understand why. And I'm not going to comment on what they said. I think on the question on tariff, I think that's important. That's an important, you know, point. We've talked quite a bit in November on the fact that the last time, you know, the US put tariffs on China, it didn't work because we've been operating in mid single digit, like for like, you know, revenue growth. And what I said in November still holds is that, you know, what matters for us is the number of SKUs that we test, the number of factories that we audit. And in, you know, all of the cases when we test factories, T-shirts or a light bulb or spare parts is essentially against global market access standards, which means that factory is producing that SKU for multiple markets. And given the huge complexity and economics at play in global supply chain, even if one of the destination is more expensive because tariffs have increased, you know, in the case of the U.S., doesn't mean that factory will stop producing because they are still producing for the other countries, right? So that's the approach we take in terms of global market access. And this is why I'm not too worried about the impact on short-term trends because we're going to keep testing the new product, the product being launched in the markets, right? And over time, if companies invest in other locations, that's the ethic opportunity I talked about with China Plus One. I mean, that is the way we look at it. We've not heard much from our clients. I know that people are watching the news every single day like we do. But let me also use the opportunity to cover Canada and Mexico, which we obviously announced last night. Both operations are very small for Intertech and largely focus on the domestic market. So we don't see anything of importance here. So we are in a good place overall.

Our next question comes from Karl Rainsford with Barenbach. Please unmute your line and ask a question.

Morning, Andre. Morning. Three from me, please. I'll ask the first separately and then the other two afterwards, if I may. So the first on the CapEx spend, which is up to 4% of revenue from 3.2% last year. I know in the past you've guided for 5% of the longer term. And your guidance for 2025 is roughly 4% of revenue at the midpoint. So the question is, really, has that 5% thought on cap expense change? And if not, would you be able to give us some colour on the timing and phasing of that increase? And then further, would you be able to share what that extra spend would be targeted towards? So essentially, is it the increase in spend for growth means or is it for kind of equipment replacement in labs?

Look, our guidance, which we've given consistently over the years, is around, right, 4% to 5%. And we believe that's right for business. If we don't need to spend, you know, 4.8% or 5%, we will not spend it. But, you know, we want our shareholders not to be surprised. Where we increase our investment is on, you know, organic growth opportunities. As I said, we have, you know, well-capitalized, high-quality businesses. state-of-the-art facilities, and maintenance is part, of course, of what we do, but it's not where the incremental spans are going. The incremental spans are going in innovations, in new lab equipment, in, of course, opening new labs if need be, and, of course, technology for the work we do on innovation, which is very, very important. We talked about it in one of the other calls. We try to come up with technology-based innovations because that's a great way of

uh improving your customer service and making your your relationship very very sticky so it's all about organic growth okay thank you i'll take the next two together um so it's on taylor brett and world of energy um some further good progress there on margin um so margin's still about 360 basis points off of 2019 levels so if returning to that margin of 12.8 12.9 feasible um what are the current headwinds that need to be sort of adapted to return to that level And then on oil and gas capex, that continues to grow well. And just wondering if you'd give us some color on the sorts of projects that are enabling that growth. Is it generally oil or gas? And how beneficial would reports of using gas to power the increase in energy demand because of data centers B for intertech business in the sort of mid to long term?

Yeah, so look, thank you. On your last question on capex, I mean, you've seen that we have rebranded the business to where it was originally, which is Moody, which has a tremendous equity in the marketplace and is the creator of engineering-based inspections in highly technological, complex energy assets. And I'm really pleased about the progress that we've made where our team have Of course, grown the pie and our business is much bigger than it used to be. We've seen additional investments in traditional oil and gas, you know, exploration, production, refinery activities. I'm sure you've seen it. There have been not enough investments pre-COVID and there is a bit of catch up there because energy, traditional oil and gas, the consumption continue to increase and there is a need to invest. And these projects are basically where, you know, the energy resources are. So we are seeing a lot of progress in LATAM, of course, in the US, in the Middle East, and in some part of Asia. But where the team is making a big difference is obviously taking our Moody expertise into the renewable space. And we've invest a lot in a relationship with our clients to help them in power plants. Of course, we talk about the solar opportunities through both the quality assurance and the factory level, but the infrastructure that is required, which is where we can help with our Moody operations. Of course, we are super involved in wheat farms and and then continue to look at, you know, carbon capture opportunities. So we have very, very much, you know, in what we call the world of energy, helping our clients to basically continue to invest in the production of traditional oil and gas resource because it needs to be, you know, further invested in as well as, you know, renewables. And then from the world of energy, you know, standpoint, look, we have, you know, three large businesses within that, uh, division calibrate, uh, transportation, you know, technology, which is automotive and CA. There is no question that, uh, you know, I'm pleased with the progress we've made on transportation technology in 2024, because as you know, the, the, the OEMs, the car manufacturers had a very difficult 21 and 22 and 23. So, uh, we have quite a bit of, uh, you know, catch up to do here. Uh, and, and, you know, the, the, the acquisition that we've made, we, we see a, we'll, we'll help because it's a, It's a fast-growing business, and it's a very, very, very, you know, decent margin. And Calibret is, as you know, the market leader in terms of all in guys, you know, inspection and testing, with testing being obviously the biggest majority of the earnings that we get there. What's really interesting, as we talked about it at the capital market event, is the fact that, you know, greener fuels – is going to help with the average price point and margin because the more technology you put into the formulation of these fuels, the more testing that you need to do. So, look, yes, there is quite a bit of work to be done, but we'll get there step by step.

Very helpful, Andre. Thank you.

Our next question comes from Carl Green with RBC Capital Markets. Please press star six to unmute and ask your question.

Thank you very much. Good morning, Andre. Morning. Carl here from RBC. A couple of questions. I'm really just following on from some of the stuff you've already talked about. I think particularly on consumer products, there is some data in the last few days that is suggesting that uh the u.s trade balances uh have seen a pull forward of imports and you know i suppose the first question is really the extent to which you think that has fed into that strong cp performance in november and december and do you think on a very short term view just thinking about you know particularly calendar q2 that we could see a little bit of a kind of reversal of that so that's that's my first question linked to that um Just in terms of various countries trying to play the arbitrage around the evolution of trade rules, and I think some of the things that Trump was talking about last night seem to be targeting that whole sort of China plus one strategy of some of the big producers. Do you think that the tech industry and intertech specifically will move towards more flexible commercial arrangements as regards Labour, perhaps, lab leases, technology licences, etc. How do you think that you might be able to make the business more flexible than it already is? And then the second question, again, it's a bit of a follow-up to stuff that's been asked before, just around the pipeline. You've been very clear about the criteria and the fact you're not in a rush. But just a very specific question, have you got anything brewing? Are there any kind of material deals that may or may not land on a six to 12 month view? Thank you.

Thank you. Look, you know, the way we communicate, we never speculate on M&As, and we never give any target, which will defy the purposes of being selective and disciplined, if you understand what I'm talking about here. Look, the good news about us, right, is that we know where the assets that we want to buy are, because we have a very deep understanding of the industry around the world. And of course, there are always assets that come that we don't know, we don't know everything. But largely, you know, the bottom, which are high quality and of importance to us, we know where they are. And what we do is we try to build relationships and make sure we're there where the, you know, when the owner is ready and the best deal we do are always on bilateral basis. We'll, of course, you know, competitive transaction if that's what we want to do. But that's what we focus on. And I will never say, you know, what's, you know, in the making at the moment. We don't speculate on that. And we don't disclose any of our plans. Look, on consumer products, so again, you know, don't think of the consumer performance of Intertech. as a performance that is linked to the volume of trade, right? Being shipped from one country to the other. What matters for us, as I said, is a number of SKUs, right? So there is nothing to read in the data that you just talked about. I think your question on how is global trade gonna evolve post what we're seeing at the moment is a fair question. I mean, the good news is global trade is never static, right? There are always challenges. in terms of global trade agreements, et cetera, and so forth. The good news about our business is we are capital light, right? And, you know, as an organization, we are very decentralized. We are very close to our customers, and we want to anticipate where they want to take their business and move with them with agility, speed, and that's, you know, what we do. Is the change in global trade relationship going to change the way we organize our business model? I don't think so because it's capitalized, it's decentralized. What matters to us is the skills of our people because equipment and processes, it's very easy to replicate. Being in a market where our customers are, where they want to go and be ready for them with the right skills and the right scale operations is what capital allocation is all about. If you look at the business we're in, this is what it is. It's a very, very customer-centric business model, and we spend quite a bit of time with our clients, and we always try to anticipate where they want to take their business in terms of supply chain. As I said in the previous questions, these are very difficult decisions. When you have established an ecosystem to produce your T-shirts or your shirts in Shaoxing, China, Or when you do your obviously, you know, computers in Shanghai to change that takes a long time. And that's why, you know, having good customer relationship, being in the conversations, understanding what they want to do and helping them. I mean, we do a lot of assurance work for them, essentially benchmarking the supply chain where they want to take. you know, their future, you know, production. So, look, we can always get better, no question about that. But staying close to your customers, having an agile, you know, capitalized business models and being very, very quick at reacting is what it's all about. And I believe that this is what our culture is all about, why we are very customer-centric, agile. And personally, when there are challenges in the global, you know, supply chain, I see these as opportunities for Intertech.

Understood. Thank you.

There are no further questions on this webinar. I will now hand over to management for closing remarks.

Well, thank you very much to everyone for being on the call. We appreciate your time. It's a busy week for everyone. Of course, if you've got any follow-up questions, Denny is available for any more questions during the day or later in the week. Have a good day, everyone. Thank you.