Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Intertek Group PLC (IKTSF, Financial) reported double-digit growth in operating profit, EPS, and free cash flow for H1 2024.
- The company achieved broad-based like-for-like revenue growth of 6.1% at constant currency.
- Operating margin improved by 110 basis points at constant currency, reaching 15.9%.
- EPS grew by 17.5% at constant currency, reflecting strong profitability.
- Free cash flow increased by 14%, with excellent cash conversion at 118%.
Negative Points
- Revenue growth at actual rates was only 1.8%, impacted by the strengthening of sterling.
- Industry infrastructure division reported low single-digit like-for-like revenue growth due to a slowdown in large infrastructure projects in the US.
- The GTS segment within the consumer products division performed slightly below last year.
- The company faces challenges in the OpEx business within industry services, leading to a double-digit decline in this segment.
- There is uncertainty regarding the impact of potential protectionist policies in the US on SKU volume production.
Q & A Highlights
Q: Given the actions in the US this year, can you share some feedback from clients regarding SKU volume production in light of the risks around increased protectionist policies? Also, can we expect double-digit growth for the next quarter given the trading day adjusted organic growth?
A: We don't provide quantitative guidance per quarter, but momentum is strong, and we are confident about the second half. Regarding SKU volume production, our clients in the consumer product space, particularly in softlines, hardlines, and electrical, are in a good place. We haven't seen any significant concerns that would affect our consumer product performance in the second half.
Q: Can you tell us what the revenue growth was in APAC overall in H1? How are the investments in the region adding to growth and how are margins evolving in these faster-growing countries within APAC?
A: We are pleased with the mid-single-digit performance in China. Other strong performers include Japan, Korea, Vietnam, India, and Bangladesh. Our investments in these regions are driving exceptional returns, and we are seeing strong growth and margin improvements.
Q: Can you help us understand the strong margin improvement in H1? What were the key drivers, and how should we think about this evolving in H2?
A: The margin improvement is driven by our focus on margin equity revenue growth, performance management, and our restructuring program. We expect margin to continue progressing, aiming for a 17.5%-plus medium-term margin target.
Q: How are you expecting operational leverage to progress in the second half? Also, why was depreciation and amortization around GBP10 million lower than in the prior year?
A: We expect operational leverage to remain strong in the second half. The lower depreciation and amortization are due to lower CapEx during the COVID years.
Q: Can you clarify the organic growth adjusted for days and its impact on profitability?
A: The adjusted like-for-like revenue growth in May and June was strong, and we are entering H2 with confidence. The margin could have been better if we didn't have the impact of fewer trading days.
Q: Can you share your thoughts on the performance of the GTA division and what can be done to improve it?
A: The GTA division is stabilizing, and the slight decline is due to consumer reactions to high-price categories in the Middle East and Africa. We expect growth to improve in Q4.
Q: Can you talk about the M&A pipeline and capital allocation? Is there potential to return excess cash?
A: The M&A pipeline is getting incrementally stronger, and we remain disciplined in our approach. We are not against returning excess capital if it is the right thing to do, but no decision has been made yet.
Q: Can you provide insights into the building and construction division and its outlook?
A: The slowdown in large infrastructure projects in the US is more pronounced this time due to higher interest rates and uncertainties around the Inflation Reduction Act. We expect the market to improve post-US election.
Q: Can you discuss the performance and outlook for China, particularly in consumer products?
A: The rebound in our Chinese business in consumer products has been strong, particularly in softlines and hardlines. We are comfortable with the outlook in China, supported by positive manufacturing and service data.
Q: Can you elaborate on the sustainability opportunities and how Intertek differentiates itself from competitors?
A: Intertek offers end-to-end total sustainability assurance, combining operational sustainable solutions with corporate sustainability certification. We are strong in technical understanding and innovation, providing comprehensive solutions that address high-risk sustainability areas in our clients' value chains.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
