Intertek Group Plc Ord

Good morning, and thanks for joining us on our call today. Carl, Denny, and I are delighted to be with you and discuss our H125 results. Intertech. has demonstrated once again its high performance through the passion, innovation, and the drive of its people. And I wouldn't want to start our call today without recognizing all of my colleagues for having delivered a strong set of results in customer service, revenue growth, margin accretion, earning growth, cash generation, and ROIC progression. Here are the key takeaways of our call today. 8-1-25 marks the ninth consecutive six-month period of mid-single-digit lack-for-lack revenue growth and the fifth consecutive six-month period of double-digit EPS growth at constant currency. Our profit conversion was strong with operating margin up here near about 80 bps. Our cash conversion was 118% and we've delivered a strong operating cash flow. Our RIC was excellent at 22.5%, up year-on-year by 170 bps. We are increasing our interim dividend in line with our EPS growth at actual rates. Moving forward, the value growth opportunity is significant. We expect a strong financial performance in 2025, and we remain confident in our medium-term targets of mid-single-digit like-for-like revenue growth, margin of 18.5% plus, and strong cash generation. will continue to operate with our creative discipline capital allocation policy, investing in organic growth, rewarding our shareholders with our progressive dividend policy, pursuing high-quality M&A opportunities, and returning surplus cash to shareholders. So let's start our presentation today with our performance highlights. We have delivered, indeed, a strong financial performance in the first half of 2025. Our lack-for-lack revenue growth was 4.5% at constant rate, Operating profit was up 9.7% at constant rate and 4.2% at actual rate. We've delivered a 16.5% operating margin, up 80 basis points at constant rate. EPS growth was 12.6% at constant rate and 6.3% at actual rate. CapEx investments were up 11%. RIC of 22.5% was up 108%. 70 bps at constant rate, the interim dividend of 57.3p is up year-on-year by 6.3%, and our balance sheets remain strong with a net debt-to-bid ratio of one time. Let's now discuss our like-for-like revenue growth performance. The global demand for ATIC solution was robust, and our like-for-like revenue growth of 4.5% at constant rate was driven by both volume and price. We'll discuss later in the call the performance by division and by business line, but we are pleased to see the consistent delivery of mid-single-digit like-for-like revenue growth resulting in a three-year like-for-like revenue growth of over 13%. We are benefiting from attractive structural growth drivers. Our clients are increasing their investment in quality assurance to improve their competitiveness. We are seeing a higher regulatory standard for quality, safety, and sustainability. We are seeing an increase in testing and certification activities in our consumer products and health and safety divisions as consumers want more choices and higher quality choices. Companies are increasing their focus on risk management, making our assurance business the fastest growing division. The increased investments in oil and gas exploration and production, as well as the electrification of society, are creating structural growth opportunities in our industry infrastructure and world of energy divisions. Last but not least, our superior customer service drives extremely high customer retention rates and excellent client relationships, driving revenues that are largely recurring and giving us good visibility on new growth opportunities. The consolidation opportunities in our industry are significant, and we're excited about the M&A opportunities. We've made seven acquisitions in the last five years to strengthen our ethic value proposition in high-growth and high-margin sectors. These acquisitions are performing very well, and the integration of Thesis, our recent acquisition, is on track. Moving forward, we'll capitalize on our strong M&A track record of selecting and executing transactions that are delivering strong returns. We are also very pleased with our margin performance of 16.5%, up 80 basis points at constant currency. Margin-accretive revenue growth is central to the way we deliver value. We have increased H1 margin in each of the last three years, and I want to spend a few moments to discuss the building blocks, underpinning our three-year 240-bps margin progression. We have benefited from our portfolio mix and strong pricing power. We have delivered consistent mid-single-digit like-for-like revenue growth, driving good operating leverage. We have reduced our fixed costs. 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 13 million of savings in 2023, 11 million in 2024, and 2 million in the first half of 2025. We expect a further benefit of 3 million in the second half. We truly believe in continuous improvement and we never stop reinventing ourselves to increase our productivity based on process re-engineering and technology investments. And our CapEx and M&A investments were made in high growth and high margin sectors and have delivered through that period, margin equity revenue growth. These positive margin drivers were partially upset by the investment we have made in people, process and technology to execute our AAA growth strategy. I will now hand over to Con to discuss our H1 results in details.

Thank you, Andre. In H1-25, the group delivered a strong financial performance. Total revenue growth was 4.5% at constant currency and 0.2% at actual rates, as sterling strengthened compared to the major currencies that impacted our revenue growth by 430 bps. Operating profit constant rate was up 9.7% to 276.3 million, delivering a margin of 16.5%, up year-on-year by 80 basis points at constant currency and 60 basis points at actual rates. Diluted earnings per share were 111.5p, growth of 12.6% at constant rates and 6.3 at actual rates. Our cash conversion was strong. We delivered an adjusted cash flow from operations of 265.8 million, and we finished H125 with net debt of 800.6 million, including the 187 million spent on shared buyback to the end of June. And this represents financial net debt to adjusted EBITDA ratio of one times. Now turning to our guidance for 25, we expect net finance costs to be in the range of 51 to 52 million pounds. We expect our effective tax rate to be between 25 and 26% and our minority interest to be between 22 and 23 million. CapEx investment will be in the range of 135 to 145 million pounds. Our financial net debt guidance, excluding future change in FX rates or M&A, will be 820 to 870 million. I will now hand back to André.

Thank you, Carm. And let's discuss our performance by division. All the comments I will make will be at constant currency. Our consumer products division delivered a revenue of 482 million pounds per year by 7.5%. Our high single-digit lack-for-lack revenue growth was driven by double-digit lack-for-lack in softline, mid-single-digit lack-for-lack in hardlines, high single-digit lack-for-lack in electrical, and double-digit lack-for-lack in GTS. Operating profit was $135.6 million, up 15.8% year-on-year, and a margin of 28.2% was up year-on-year by 210 basis points. In 2025, we now expect the consumer product division to deliver high single-digit like-for-like revenue growth. We grew revenue in our corporate assurance division by 8.2% to 251 million pounds. Our like-for-like revenue growth was driven by high single-digit like-for-like in business assurance, low single-digit like-for-like insurance operating profit was 55.6 million up year-on-year by 11.2%, and our margin of 22.1% was up year-on-year by 60 basis point. In 2025, we continue to expect our corporate assurance division to deliver high single-digit like-for-like revenue growth. Health and safety delivered a revenue of 164 million pounds, our low single-digit like-for-like revenue growth of 3.2%, was driven by double-digit lack-for-lack in food, mid-single-digit lack-for-lack in agri-world, which was partially offset by negative low-single-digit lack-for-lack in CNP due to a baseline effect. Profitability was impacted by a mix, and we've delivered a margin of 11.8% down 10 basis points year-on-year. In 2025, we now expect a health and safety division to the low-single-digit lack-for-lack revenue growth. Revenue in industry infrastructure increased 3.7% to £417 million, although single-digit lack-for-lack revenue growth reflects mid-single-digit lack-for-lack in industry services, mid-single-digit lack-for-lack in minerals, and stable lack-for-lack revenue in building construction. Operating profit of £36 million was up 4.6% year-on-year, with a margin of 8.7% up year-on-year by 10 basis points. In 2025, we now expect our industry and infrastructure-related business to deliver low single-digit like-for-like revenue growth. Revenue in our world of energy division were £359 million. Our stable like-for-like revenue performance was driven by stable like-for-like revenue in our calibrated business, low single-digit like-for-like revenue growth in our TT business, which was offset by a mid-single-digit lack-for-lack revenue in our CAA business due to a baseline effect. Profitability was impacted by a mix, and our margin of 8.2% was 60 basis points lower than last year. In 2025, we continue to expect our World of Energy division to deliver low single-digit lack-for-lack revenue growth. A few years ago, we introduced our AAA-differentiated strategy for growth to unlock the significant value growth opportunity ahead. And today, I would like to give you an update on the progress we are making on the ground. Our AAA strategy is about being the best for every stakeholder with a laser focus on our medium-term goals of mid-single-legit lack-for-lack revenue growth, 18.5% plus margin, and strong cash generation. In the last two years, I've shared with you several deep dives called AAA Strategy in Action, which you can see on the slide. And today, I would like to cover three important areas, the attractive growth model of consumer product, the exciting global growth strategy of electrical, and the outstanding business poised for fast growth we have built in India. Let's start with consumer products, our largest and most profitable division, where structural growth drivers are both unique and exciting. Our revenue growth model is essentially based on the number of SKUs or product type we test, the number of tests we do per SKU, and the price we charge for these tests. We operate in a world where consumers want more choices, which means companies need to innovate constantly to gain market share. The global SKU expansion that we've seen in the last few decades has resulted in more SKUs for Intertech to test. Consumers also want higher quality choices, which means companies need to upgrade the performance of their products in quality, safety, and sustainability. This means more tests per SKU for Intertech. And the higher performance standards we need to test against means that we benefit from a higher price per report. Over the years, we've increased our scale leadership position in softlines, hardline, and electrical, and we've delivered consistent revenue and margin progression. Moving forward, we are confident we'll continue to benefit from these three strong growth drivers. Now I'd like to give you a few examples on how customer expectations for higher quality in soft lines, hard lines, and electrical have resulted in a higher number of tests per report and a higher price per report. On this slide, you can see the progression of number of tests per report for four types of soft lines products, t-shirts, a running shoe, denim jeans, and a hat. Here, we are showing four product examples in a hardline business, a toy, a stroller, a sofa, and a chair. And finally, the same data for four different product types in the electrical business, a large battery for energy storage, electrical fans, lighting certifications, and cooking equipment. Let's now focus on the exciting growth opportunity for electrical business, which represents half of our consumer products division. Our global electrical footprint is excellent, and over the years, we've built large-scale operations delivering our ethnic service across 11 industries in 23 countries. Our track record has been excellent. Revenue growth CAGR was 7% between 2015 and 2024 as the electrification of society increased its growth momentum and as we benefit from continuous regulatory upgrades. Our electrical business is truly mission critical to society. In 2020, a year of massive global supply chain disruption due to COVID, our lack for lack revenue grew by 2% on global basis. We are very excited about the growth opportunities ahead, and we are confident that we'll continue to benefit from electrification of society and regulatory upgrades. We pursue a very disciplined organic and inorganic investment strategy within electrical, targeting, as you would expect, high growth and high margin space. Over the years, we've pioneered the industry with our cyber assurance solutions, and a few weeks ago, we've launched AI Square, the first global AI assurance program. In addition, we've expanded our footprint to increase our capacity in HVACs, renewables, and grid management. Let's now turn to India, where we've built a well-diversified scale business with market leadership positions in most of the business lines we operate in. We operate in state-of-the-art operations, and we have a good national coverage of 18 sites, positioning us well for the exciting growth opportunities ahead. Our business was founded in 1993 and has delivered an excellent performance over the past 10 years, with a revenue growth CAGR of 9.5%. We have leveraged our scale of calls and benefited from our disciplined performance management, enabling us to deliver a high margin, strong cash, and excellent ROIC performance on a sustainable basis. India is one of the fastest growing economies in the world with very strong fundamentals underpinning the future. Given our track record and growth potential, we expect India to deliver high performance for many years to come. We see opportunities to increase our IT revenue with existing customers as brand increase the number of products that manufacture in India and upgrade the quality, safety and sustainability performance of these products. What is equally exciting in India is a number of companies being created every day to seize the domestic market opportunities as well as a number of international companies setting up operations in India. We have a highly talented organization in India and we continue to invest in growth. We've opened the Center of Excellence in Gurgaon for soft-line operation, which is the flagship of the industry. We've launched recently our global market access program, Supply Tech, to help factories improve their global market access. And we are leading in the space of sustainability assurance and bowel degradability. Let's now discuss our guidance for the full year. Given a strong performance with David and H1, we are entering H2 with confidence and expect to deliver a strong performance in 2025. We expect the group will deliver mid-single-digit lack-for-lack revenue growth at constant currency, driven by high single-digit lack-for-lack growth in consumer product and corporate assurance, low single-digit lack-for-lack growth in health and safety, industry and infrastructure, and the world of energy. We are targeting year-on-year margin progression. Our cash discipline will remain in place to deliver strong free cash flow, and we will invest in growth with our capex, investment being circa 135 to 145 million pounds. We expect the financial net debt to be in the range of 820 to 870 million pounds. A quick update on currencies for your model. Currencies have been very volatile, and the average selling rate in the last three months, applied to the full-year results of 2024, would reduce our full-year revenue and operating profit by circa 350 bps and 500 bps, respectively. We believe in the value of a creative, disciplined capital allocation. Our first priority is to support organic growth, and we target capex investments of circa 4% to 5% of revenues to expand our footprint geographically develop industry-winning innovations that are largely technology-based, maintain our state-of-the-art global network, and invest in technology to digitize and streamline our processes. Our second priority is to reward our shareholders with a progressive dividend policy, and we target a 65% payout ratio. We are very excited about the inorganic investment opportunities, and our M&A investments will continue to be made with the same discipline ROIC-driven approach. Our leverage target is 1.3 to 1.8 net debt to EBITDA. Given the increasing strengths of our high-quality cash component earnings model, we've announced in March a 350 million share buyback program to return the surplus cash we do not need to run the company for growth. And at the end of June, we have bought 4 million shares for a value of 187 million pounds. value growth opportunity ahead is significant. Our highly engaged customer-centric organization is laser-focused to take Intertech to greater heights. To deliver sustainable growth and value for shareholders, we'll capitalize on our high-quality cash component 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. Before I take your questions, let me summarize the economic drivers of a high-quality cash compounder earnings model. We operate in a highly attractive industry where we've delivered mid-single-digit lack-for-lack revenue growth for the last few years, and we have good visibility on the structural growth drivers moving forward to deliver mid-single-digit lack-for-lack revenue growth. Margin accretive revenue growth is central to the way we manage performance, and we are confident that we'll deliver a medium-term margin target of 18.5% plus, focusing on our proven margin accretion building blocks. We have step-changed the cash generation of the group and now operate a highly cash-generative earnings model. We'll continue to operate with our creative discipline capital allocation policy and reward our shareholders with our progressive dividend policy. will continue to invest in high growth and high margin sector with superior execution to deliver an excellent ROIC. In summary, Intertech has created significant value in the last 10 years, and we are well-positioned to create significant value moving forward. To do so, we'll capitalize on our five strengths, our high-quality global growth portfolio, our science-based customer excellence, ethic advantage, our discipline, performance management, our high-performance organization, and, of course, our doing business the right way operating culture. Thank you for being on our call today.