Intertek Group H1 2025 Earnings Report

Intertek Group EPS Results

• Actual EPS: GBX 112.50
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Intertek Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Intertek Group Announcement Details

• Quarter: H1 2025
• Date: 8/1/2025
• Time: Before Market Opens
• Conference Call Date: Friday, August 1, 2025
• Conference Call Time: 4:30AM ET

Intertek is a leading Total Quality Assurance provider to industries worldwide. Our network of more than 1,000 laboratories and offices in more than 100 countries, delivers innovative and bespoke Assurance, Testing, Inspection and Certification solutions for our customers' operations and supply chains. Intertek is a purpose-led company to Bring Quality, Safety and Sustainability to Life. We provide 24/7 mission-critical quality assurance solutions to our clients to ensure that they can operate with well-functioning supply chains in each of their operations. Our Customer Promise is: Intertek Total Quality Assurance expertise, delivered consistently, with precision, pace and passion, enabling our customers to power ahead safely.

Intertek Group H1 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Ninth consecutive period of mid-single-digit like-for-like revenue growth and fifth consecutive period of double-digit EPS growth.
• Positive Sentiment: Operating margin improved by 80 basis points to 16.5%, reflecting strong profit conversion year-on-year.
• Positive Sentiment: Cash conversion was robust at 118%, driving strong operating cash flow and an ROIC of 22.5%, up 170 basis points.
• Neutral Sentiment: Full-year outlook maintained for mid-single-digit like-for-like revenue growth and margin expansion to 18.5%+, despite ~3.5% revenue and ~5% EBIT headwinds from currency volatility.
• Positive Sentiment: Disciplined capital allocation continues with a £350 million share buyback, progressive dividend increase, and targeted M&A in high-growth, high-margin sectors.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to Intertek H1 twenty twenty five results. 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've dialed in, please select 9 to raise your hand and 6 to unmute.

[Operator]

Instructions will also follow at the time of q and 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.

[André Lacroix, CEO & Director at Intertek Group]

Good morning, and thanks for joining us on our call today. Carl, Denny, and I are delighted to be with you and discuss our h one twenty five results. Intertek has demonstrated once again its high performance through the passion, innovation, and the drive of its people. And I wouldn't want to start a 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.

[André Lacroix, CEO & Director at Intertek Group]

8125 marks the ninth consecutive six months period of mid single digit like for like revenue growth and the fifth consecutive six months period of double digit EPS growth at constant currency. Our profit conversion was strong with operating margin up year on year by 80 bps. Our cash conversion was 118%, and we've delivered a strong operating cash flow. Our ROIC 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.

[André Lacroix, CEO & Director at Intertek Group]

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. We'll continue to operate with our creative disciplined capital allocation policy, investing in organic growth, rewarding our shareholders with our progressive dividend policy, pursuing high quality M and 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 2025.

[André Lacroix, CEO & Director at Intertek Group]

Our like for like 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 investment were up 11%.

[André Lacroix, CEO & Director at Intertek Group]

ROIC of 12 22.5% was up 170 bps at constant rate. The interim dividend of 57.3 p is up year on year by 6.3%, and our balance sheets remain strong with a net debt to EBITDA ratio of one time. Let's now discuss our like for like revenue growth performance. The global demand for ETIC 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%.

[André Lacroix, CEO & Director at Intertek Group]

We are benefiting from proactive 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 insurance business the fastest growing division.

[André Lacroix, CEO & Director at Intertek Group]

The increased investments in oil and gas exploration 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 clients relationships, driving revenues that are largely recurring and giving us good visibility on new growth opportunities. The conservation opportunities in our industry are significant, and we're excited about the M and A opportunities. We've made seven acquisitions in the last five years to strengthen our ETIC value proposition in high growth and high margin sectors. These acquisitions are performing very well and the integration of Tissys, our recent acquisition is on track.

[André Lacroix, CEO & Director at Intertek Group]

Moving forward, we will capitalize on our strong M and A track record of selecting and executing transactions that are delivering strong returns. We're also very pleased with our margin performance of 16.5%, up 80 basis points at constant currency. Margin equity revenue growth is central to the way we deliver value. We have increased h one 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 two forty bps margin progression. We have benefited from our portfolio mix and strong pricing power.

[André Lacroix, CEO & Director at Intertek Group]

We have delivered consistent mid single digit like product revenue growth driving good operating leverage. We have reduced our fixed cost. A few years ago, we announced a cost reduction program to target productivity opportunities based operational streamlining and technology upgrade initiatives. Our restructuring program has delivered 13,000,000 of saving in '23, 11,000,000 in 2024, and 2,000,000 in the 2025. We expect a further benefit of 3,000,000 in the second half.

[André Lacroix, CEO & Director at Intertek Group]

We truly believe in continuous improvement, and we never stop reinventing ourselves to increase our productivity based on process reengineering and technology investments. And our CapEx and M and A investments were made in high growth and high margin sectors and have delivered through that period margin accretive revenue growth. These positive margin drivers were partially offset by the investments 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.

[Colm Deasy, CFO & Director at Intertek Group]

Thank you, Andre. In H1 twenty twenty five, 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 major currencies that impacted our revenue growth by four thirty bps. Operating profit at constant rate was up 9.7% to 276,300,000.0, 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 111.5 p, growth of 12.6% at constant rates and 6.3% at actual rates. Our cash conversion was strong.

[Colm Deasy, CFO & Director at Intertek Group]

We delivered an adjusted cash flow from operations of $265,800,000 and we finished H1 twenty five with net debt of $800,600,000 including the 187,000,000 spent on share buyback to the 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 £51,000,000 to £52,000,000 We expect our effective tax rate to be between 2526%, and our minority interest to be between 22,000,023 CapEx investment will be in the range of GBP 135,000,000 to GBP 145,000,000. Our financial net debt guidance, excluding future change in FX rates or M and A, will be GBP $820,000,000 to $870,000,000. I will now hand back to Andre.

[André Lacroix, CEO & Director at Intertek Group]

Thank you, Cam. 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 £482,000,000 up year on year by 7.5%. Our high single digit like for like revenue growth was driven by double digit like for like in soft line, mid single digit like for like in hardlines, high single digit like for like in electrical, and double digit like for like in GTS.

[André Lacroix, CEO & Director at Intertek Group]

Operating profit was $135,600,000 up 15.8% year on year, and a margin of 28.2% was up year on year by two ten basis point. In 2025, we now expect Consumer Products division to deliver high single digit like for like revenue growth. We grew revenue in our corporate assurance division by 8.2% to £251,000,000. Our like for like revenue growth was driven by high single digit like for like in business assurance, low single digit like for like in Asurion's operating profit was $5,600,000 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.

[André Lacroix, CEO & Director at Intertek Group]

Health and Safety delivered a revenue of GBP 164,000,000, our low single digit like for like revenue growth of 3.2% was driven by double digit like for like in food, mid single digit like for like in AgriWorld, which was partially offset by negative low single digit like for like in C and P due to a baseline effect. Profitability was impacted by mix, and we've delivered a margin of 11.8%, down 10 basis points year on year. In 2025, we now expect our Health and Safety division to hit low single digit like for like revenue growth. Revenue in Industry Infrastructure increased 3.7% to GBP $417,000,000. Our low single digit like for like revenue growth reflects mid single digit like for like in Industry Services, mid single digit like for like in Minerals and stable like for like revenue in Building and Construction.

[André Lacroix, CEO & Director at Intertek Group]

Operating profit of $36,000,000 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 infrastructure related business to deliver low single digit like for like revenue growth. Revenue in our world of energy division were £359,000,000. Our stable like for like revenue performance was driven by stable like for like revenue in our Catbread business, low single digit like for like revenue growth in our TT business, which was offset by a mid single digit like for like revenue in our CA business due to a baseline effect. Profitability was impacted by mix in a margin of 8.2% was 60 basis points lower than last year.

[André Lacroix, CEO & Director at Intertek Group]

In 2025, we continue to expect our World of Energy division to deliver low single digit like for like 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 stakeholders with laser focus on the medium term goals of mid single digit like for like 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.

[André Lacroix, CEO & Director at Intertek Group]

And today, I would like to cover three important areas, the attractive growth model of consumer products, 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 this test. We operate in a world where consumers want more choices, which means companies needs 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 Intertek to test.

[André Lacroix, CEO & Director at Intertek Group]

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 test per SKU for Intertek. And the higher performance standards we need to test against mean 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.

[André Lacroix, CEO & Director at Intertek Group]

Now I'd like to give you a few examples on how customer expectations for higher quality in soft line, hard line 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 type of softlines products, t shirts, running shoe, denim jeans and a hat. Here, we are showing four product examples in the Heartland business, a toy, a stroller, a sofa, and a chair. And finally, the same data for four different product types in the electrical business, 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 represent half of our consumer products division.

[André Lacroix, CEO & Director at Intertek Group]

Our global electrical footprint is excellent. And over the years, we've built large scale operations, delivering our ethics 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.

[André Lacroix, CEO & Director at Intertek Group]

In 2020, a year of massive global supply chain disruption due to COVID, our like for like 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 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 AISquare, the first global AI assurance program. In addition, we've expanded our footprint to increase our capacity in HVACs, renewables, and grid management.

[André Lacroix, CEO & Director at Intertek Group]

Let's now turn to India, where we have 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 ten years with a revenue growth CAGR of 9.5%. We have leveraged our scale, of course, and benefited from our disciplined performance management, enabling us to deliver a high margin, strong cash and excellent ROIC performance on sustainable basis. India is one of the fastest growing economy in the world with very strong fundamentals underpinning the future.

[André Lacroix, CEO & Director at Intertek Group]

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.

[André Lacroix, CEO & Director at Intertek Group]

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 bio degradability. Let's now discuss our guidance for the full year. Given the strong performance we've delivered in 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 like for like revenue growth at constant currency, driven by high single digit like for like growth in consumer product and corporate assurance, low single digit like for like growth in health and safety, industry and infrastructure, and the world of energy. We are targeting year on year margin progression.

[André Lacroix, CEO & Director at Intertek Group]

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 GBP 135,000,000 to 145,000,000. We expect the financial net debt to be in the range of GBP $820,000,000 to GBP $870,000,000. 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 accretive, disciplined capital allocation.

[André Lacroix, CEO & Director at Intertek Group]

Our first priority is to support organic growth, and we target CapEx investments percent 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 and A investments will continue to be made with the same disciplined 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 $350,000,000 share buyback program to return the surplus cash we do not need to run the company for growth.

[André Lacroix, CEO & Director at Intertek Group]

And at the June, we have bought 4,000,000 shares for value of GBP 187,000,000. In summary, the value growth opportunity ahead is significant. Our highly engaged customer centric organization is laser focused to take Intertek to greater heights. To deliver sustainable growth and value for our shareholders, we'll capitalize on our high quality cash component earnings model, benefiting year after year from the compounding effect of mid single digit like for like 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 component earnings model.

[André Lacroix, CEO & Director at Intertek Group]

We operate in a highly attractive industry where we've delivered mid single digit like for like revenue growth for the last three years, and we have good visibility on the structural growth drivers moving forward to deliver mid single digit like for like revenue growth. Margin equity revenue growth is central to the way we manage performance, and we are confident that we'll deliver a medium term margin targets of 18.5% plus, focusing on our proven margin accretion building blocks. We have step change 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 all shareholders with our progressive dividend policy. We'll continue to invest in high growth and high margin sector with superior execution to deliver an excellent ROIC.

[André Lacroix, CEO & Director at Intertek Group]

In summary, Intertek has created significant value in the last ten 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, ATIC 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 and we'll now take any questions you might have.

[Operator]

We will now start the Q and A. If you are dialed into the call and wish to ask a question, please use the raise hand function at the bottom of your Zoom screen. We'll take our first question from Rory McKenzie of UBS. Please go ahead.

[Rory Mckenzie, Executive Director at UBS Group]

Good morning. It's Rory

[André Lacroix, CEO & Director at Intertek Group]

Morning.

[Rory Mckenzie, Executive Director at UBS Group]

And two quest two questions, please. Firstly, on consumer products. Thanks for that deep dive into the growth model. Was really interesting. How does the current environment affect your growth?

[Rory Mckenzie, Executive Director at UBS Group]

For example, are you seeing some clients reduce ranges because of consumer challenges? Are there other clients who maybe are speeding up launches before tariffs come in fully? And also, have you seen much acceleration yet in supply chain consulting and those kind of services? And then secondly, I appreciate cash conversion was still strong, but cash flow was a bit below last year. I know there's seasonality, but could you give us any more detail on the working capital outflow in H1?

[Rory Mckenzie, Executive Director at UBS Group]

And maybe especially comment on what's within the €30,000,000 change in provisions? Thank you.

[André Lacroix, CEO & Director at Intertek Group]

Why don't we start with the €30,000,000 provision question? So it's a very, very simple answer. So, Colm, Jim?

[Colm Deasy, CFO & Director at Intertek Group]

Morning, Rory. So simply, we have moved as we finalize the 24 EBITDA on a recent acquisition, we've moved from a contingent liability into payables. So the number is still in the balance sheet. It's just moved between lines. On cash flow, look, cash from operations, probably flat. On free cash flow, there's a couple of movements in there around higher CapEx, higher cash tax paid on the back of bigger profits last year.

[Colm Deasy, CFO & Director at Intertek Group]

And, of course, the weakening of the dollar will have led to some cash outflow on on the hedge program. But broadly, I mean, look, conversion is very strong, and and and and we don't have any concerns on the outlook for net debt for the year.

[André Lacroix, CEO & Director at Intertek Group]

Thanks, Colm. Look, on on consumer product, plans, right, are taking the time, Rory, to understand what the tariff change could imply for their economics. That's basically what we are seeing throughout the world. Nobody is rushing or or or panicking. As you know, our volume of testing and certification is linked to number of SKUs we test and a number of test based SKUs.

[André Lacroix, CEO & Director at Intertek Group]

And to set up, you know, a yearly production program for any brand, this is applying the text a long time. And, you know, brands didn't have the time nor the desire to basically advance new product launches. Right? So we've not seen any demand being pulled forward from a testing and certification standpoint. It just doesn't work like this in soft lines, in hard lines, in electrical, and in GTS.

[André Lacroix, CEO & Director at Intertek Group]

Right? Companies set up their supply chain for the next twelve months based on their new product strategy. They need to get the tier one, the tier two, the tier three supplies organized and to get the CapEx approved and implemented in the factories. So there is a huge inertia in supply chain planning, as you can imagine, that's super complex. And companies cannot just say, look, we're going to just launch these new products three months before because of the tariff.

[André Lacroix, CEO & Director at Intertek Group]

This doesn't work like this. I think important point, you know, for us, is that when we basically do a product test or product certification, doesn't matter if it's electrical, if it's hard line and soft lines. Companies have built scale manufacturing operations around the world that, you know, produce not for one geographic destination. And of course, you know, some of the brands, you know, importing into United States might feel some increased cost in in the short term, but where they produce that SKU, they produce for multiple destination. That's why, you know, they're taking the time to understand what the true economics are going to be and what are the options.

[André Lacroix, CEO & Director at Intertek Group]

What's really really interesting is that, you know, we are seeing a significant interest for supply tech, you know, assurance program, because companies want to take the time to understand, you know, what the options available to their peroxides are. Because if you are, let's just say, you know, producing batteries in China or in in Korea, and and you might want to change your production location for tariff consideration. I just explained it's complicated to set up a supply chain to run it. To change it, it's not easy. They're gonna need to look at the entire ecosystem.

[André Lacroix, CEO & Director at Intertek Group]

Right? Do they have the raw materials, the components, the logistics infrastructure? So this is super complex. And of course, you know, customers have been very, very positive about the fact that we've reached out to them to say, look, we can help you understand the potential new routes that, you know, you could eventually, you know, invest in. For us, right, what it's gonna mean if new routes are being established is gonna create new opportunities because we'll have, you know, more factories to audit and inspect and more products to to test and and and certify.

[André Lacroix, CEO & Director at Intertek Group]

So that's the state, you know, of play, and and, you know, we are not seeing anyone anyone, you know, overreacting, which is, you know, what I would have expected.

[Rory Mckenzie, Executive Director at UBS Group]

Very interesting times. Thank you, Andre.

[Operator]

We'll take our next question from Suhasini Varanasi of Goldman Sachs. Please go ahead.

[Suhasini Varanasi, Vice President at Goldman Sachs]

Hi. Good morning. Good morning.

[Colm Deasy, CFO & Director at Intertek Group]

Good morning.

[Suhasini Varanasi, Vice President at Goldman Sachs]

Just a couple from me, please. Can you discuss, what's changed versus your previous expectations in, health and safety industry infrastructure then that caused the downgrade to full year expectations on revenues. And the second one, on m and a, there has been a larger deal done in the space in The US. Just wanna get a sense of whether you took a look at that transaction and decided not to pursue it, and how is the pipeline looking today? Thank you.

[André Lacroix, CEO & Director at Intertek Group]

Yeah. So, look, on on m and a, the the pipeline is increasingly more active. That's the good news. This is what, you know, we've about in the last few years, and and we continue to, you know, to look at, you know, opportunities that make sense for for for Intertek. Of course, we saw the prospectus on this transaction you're referring to, but I would never have considered that for Intertek.

[André Lacroix, CEO & Director at Intertek Group]

It doesn't make sense for us. As far as, you know, the slight change of outlook for, you know, health and safety and and industry infrastructure, look, this is really, you know, a small change around the edge, I would say. We basically are recognizing the h one performance, and we've seen a few project delays with some of our large pharma, you know, customers in CMP that will not happen in the second half. And, also, with with Moody, that's why, you know, we are basically adjusting, you know, the guidance accordingly, but, you know, nothing to worry about without just project delays, not cancellation.

[Suhasini Varanasi, Vice President at Goldman Sachs]

Thank you.

[Operator]

We will take our next question from Carl Green of RBC. Please go ahead. Yes.

[Karl Green, Director - Equity Research at RBC Capital Markets]

Thank you very much. Sorry about that. Good morning. Yes. Just following up on the provision movements, Colm.

[Karl Green, Director - Equity Research at RBC Capital Markets]

If I heard you correctly, you said that, that was largely due to reclassification from contingent considerate consideration payable to to a hard payable. But but I just wanted to be clear in terms of the the cash flow adjustment that's come from that. Did you say it was still payable for the cash that's yet to go out or or the cash has gone out? So just trying to reconcile what's happening in terms of the change in provisions of 31,000,000 in the cash flow statement, please.

[Colm Deasy, CFO & Director at Intertek Group]

Yeah.

[Colm Deasy, CFO & Director at Intertek Group]

Good morning, Carl. Carl, yep. So there's 32,000,000 from contingent consideration once we finalize the EBITDA on the acquisition, and it's now in payables. Of course, it won't be in the cash flow because it's separately disclosed, but happy to kinda go through the more detail with you after the call if you'd like. Yeah.

[Karl Green, Director - Equity Research at RBC Capital Markets]

I mean, know, of the questions floating around this morning, it's it's it's a big cash movement in the in in the provisions in the in the cash flow. So people just finally understand, you know, is that just kind of timing issues, or has there been provision releases to the p and l?

[Colm Deasy, CFO & Director at Intertek Group]

Yeah. Carl, I'm not sure if there's some cross wires here. The provision movement wouldn't be in the cash flow. The movement of cash flow is driven by three key factors. It's the higher CapEx, a higher tax cash tax paid, and the outflow on the hedge program.

[Colm Deasy, CFO & Director at Intertek Group]

So I'm not sure why we're linking the two together.

[André Lacroix, CEO & Director at Intertek Group]

Yeah.

[André Lacroix, CEO & Director at Intertek Group]

And then on your question, Karl, about p and l, I can reassure you that has no impact on the p and l. If you take this recast re reclass, you know, the provision is up year on year.

[Karl Green, Director - Equity Research at RBC Capital Markets]

Alright. Okay. Thanks.

[André Lacroix, CEO & Director at Intertek Group]

No impact on EPS. No impact on cash flow. Thank you.

[Operator]

We'll take our next question from Neil Tyler of Redburn Atlantic. Please go ahead.

[Neil Tyler, Director - Partner at Rothschild & Co]

Good morning. Thank you. Just returning back to the yes, morning, Andre. Returning back to Consumer Products and the themes that you described, and thanks also for me for the detail in the slides. Can you talk a little bit about how that might be changing the competitive landscape more broadly?

[Neil Tyler, Director - Partner at Rothschild & Co]

I'm not just thinking obviously of the larger listed players, but more broadly how that complexity is altering that perhaps in the major regions? And then secondly, you talked about in your comments about pricing power. Now, there are you referring again to mix, I. E, you know, more higher priced tests being performed similar to the comment you made on on on the previous call? Or or are you talking about sort of, I I guess, sort of price over cost being a per item? Thank you.

[André Lacroix, CEO & Director at Intertek Group]

I mean, look, if I understand your first question, you want to explore would come would brands or or companies open new trading routes because of different tariff consideration, how would that change the testing competitive landscape? That's what your question is. Right?

[Neil Tyler, Director - Partner at Rothschild & Co]

That's right. Yes.

[André Lacroix, CEO & Director at Intertek Group]

Yeah. Very important question. And and this is what I was trying to to clarify. When when a company decide to produce in a country a or b and c, it's a very, very, very, you know, strategic and and and and risky decision, and therefore, a lot of building blocks need to be in place. Access to the right raw materials at the right c o two consumptions, not only costs.

[André Lacroix, CEO & Director at Intertek Group]

As you can imagine, companies are really, really focused on, you know, c o two emissions. The right, of course, you know, quality factories, the right, you know, logistic infrastructure because you need capacity in the ports, the right, of course, you know, ability to recruit and and and train. And, of course, they need, you know, partners in in in quality assurance because, as you know, these brand and companies don't own the factory, so they need our independence. And and that's why, you know, we at Intertek always have a very clear mantra, right, is to anticipate where our clients will take the supply chain in the future. And we expand our laboratory network in these locations that that makes sense.

[André Lacroix, CEO & Director at Intertek Group]

So if I were to give you, for instance, an example. Right? We are the only tick global player in Egypt. We have almost 100% of the market. Why?

[André Lacroix, CEO & Director at Intertek Group]

Because we recognize the importance of the Egypt, you know, market in terms of manufacturing in Egypt, but also proximity with with a country Right? Take another example. Another market where we've invest ahead of the curve is Guatemala, where, you know, we are also the market leader because we recognize that, you know, there will be some some investments from, you know, US brands, but also Latin American brands to to produce in Guatemala, which has, you know, all the big blocks I was talking about. So from our perspective, right, our job at Intertek is to make sure we stay connected to our clients.

[André Lacroix, CEO & Director at Intertek Group]

We understand where they want to take the supply chain, and we build, you know, the infrastructure they need, you know, to expand the the the the the supply chain activities. The advantage we have, of course, is that we have a global network. You know, we are the market leader, you know, within electrical. We are the market leader, you know, within soft lines, and and we know where where where the supply chains are are evolving. So I'm not worried about it.

[André Lacroix, CEO & Director at Intertek Group]

If anything, I'm super excited because all these investments we have made, all the skills that we've built in our teams, we we are ready. And and and our clients can rely on our technical expertise as well as our, you know, testing and inspection and assurance, you know, capability. So for us, it's it's it's it's really, really good news because the more factories our clients operate in, the more SKUs we will test and certify, and the more factories will audit and inspect. The 85, said differently, will will will get bigger. Having said all of that, this is not gonna happen overnight.

[André Lacroix, CEO & Director at Intertek Group]

Right? Companies are gonna need to take the time to study clearly the economics and all the options they need to consider to make a change in their supply chain. This is a very, very complex decision process, but, you know, this is gonna be additive to our growth moving forward. No question.

[Neil Tyler, Director - Partner at Rothschild & Co]

Thank you. Well, perhaps before we move on to the second question, given that conclusion you reached and obviously, a lot of these complexities have arisen subsequent to your issuing the medium term guidance for that division, which you're tracking above. Would can I sort of try and tempt you to reframe your medium term guidance for consumer product testing from low to mid, which, you know, you've been you've been achieving substantially ahead of that?

[André Lacroix, CEO & Director at Intertek Group]

Okay. It's a fair question. We've done our capital market event a few years ago, and that's true that, you know, we're doing better in consumer product, and and some of you did ask the question at the time. Look. We've just upgraded consumer products for the year, and then, you know, we'll consider the point, you know, move moving forward.

[André Lacroix, CEO & Director at Intertek Group]

But, you know, we are, you know, tremendously, tremendously proud of our consumer product business as you know. This is our highest margin business and and and compounding effect of revenue and margin growth. The the one thing, you know, I I would say is that, you know, the performance in in h one has been, you know, better than I thought because we had one less working day. Right? And if you look at, you know, the the two year h one, you know, like for like of consumer product, it's very impressive.

[André Lacroix, CEO & Director at Intertek Group]

It's not like we had a weak 2024 as you would recall. Right? So a two year like for like adjusted for, you know, one working day, less in h one is close to 15%. This is very impressive, right?

[Neil Tyler, Director - Partner at Rothschild & Co]

Yeah.

[Operator]

We'll take our next question from Arthur Truslove of Citi. Please go ahead.

[Arthur Truslove, Director at Citi]

Can you hear me okay?

[André Lacroix, CEO & Director at Intertek Group]

Of course. Hi, Arthur.

[Arthur Truslove, Director at Citi]

Good morning. So a couple of questions from me. So first one, you've obviously bumped up your guide for consumer products products for the year. And I note that electrical and connected world obviously is about half that division. Are you able to just tell us, you know, what have been the key drivers of of the acceleration within electrical and connected world?

[Arthur Truslove, Director at Citi]

And can you also just give us an idea of how much of what goes on in electrical and connected world is actually linked in any way to trade? And I guess also to what extent is it linked to sort of electricity demand and all that we've heard about that in recent times? Second question, I think I'm right in saying your employee costs have fallen, and I just wondered how FTE count had evolved. And, obviously, you have managed to grow the business very nicely, so I just wondered how you've managed to do that. Thank you.

[André Lacroix, CEO & Director at Intertek Group]

Alright. On the electrical question, this is a important question. Right? When we talk about consumer products, we always think of soft lines and and and and hard lines and for the right reasons. Right?

[André Lacroix, CEO & Director at Intertek Group]

This is what we've been talking about it for for many years, but we tend to forget that electrical is another crown jewel at Intertek. Right? We operate the ETL brand. You know? We are a very strong player in North America.

[André Lacroix, CEO & Director at Intertek Group]

We are the global leader outside of North America. It's a, you know, science based, you know, operation where having the right scale, the right skills, and and, of course, the right investment and the right, you know, technology makes a big difference. And it's not, if you want, one industry. Right? It it's made of 11 industries, and and and you would recall the presentation that Sony did at the Capital Market event where it talked about the various industries we are in investing in.

[André Lacroix, CEO & Director at Intertek Group]

But the the the the mega trend, you know, behind the incredible performance, which I talked about this morning, even in 2020, it was the only global business line that really continued to grow, is essentially driven by a electrification of society, which is the megatrend of the century, right, with the of the world and and the way, you know, our lifestyles are evolving. And that applies to every single industry that, you know, we we operate in and higher, of course, you know, regulatory standards. And, of course, innovation, you know, driving, you know, higher functionality and and and a higher higher performance. What's, of course, you know, important to state is that the global supply chain in the electrical industry is different than, for instance, in hardlines and softlines that tend to be concentrated in more in a few markets. It is truly global.

[André Lacroix, CEO & Director at Intertek Group]

And and, you know, we do not expect as much cashes potentially in in in in trading routes in electrical that potentially there will be in in in other categories if people decide to do so because the, you know, supply chain ecosystems is not just local, but is in most of the case, you know, local. So this is a very exciting business. And and, of course, you know, we we we continue to deliver, you know, strong performance. So what is basically, you know, behind the the performance we we we basically delivered this this this first half? Well, it's essentially we're getting more SKUs to test and certify from our clients in medical devices in, of course, you know, appliances, and and we we are seeing some investment in in battery because energy storage is very, very big drivers of of future growth if you want to electrify the the the society.

[André Lacroix, CEO & Director at Intertek Group]

We we are seeing, of course, some really important, you know, opportunities with manufacturing as, you know, factories need to to open. We we certify, of course, the the the machinery, the equipment that goes into in into these factories. And, of course, you know, the the the work that we've done on on on cybersecurity over the years, you know, is is also, you know, compounding. Right? So this is this is this this is, you know, what what what we are seeing, and and, you know, people talk about AI, which is, of course, a very, very important drivers of technology based innovations.

[André Lacroix, CEO & Director at Intertek Group]

But the impact that AI is having on data center is is is significant. And guess, you know, who is involved in certifying the electrical equipment that gets into data centers in United States, for instance. It's ETL. Right? The Edison Testing Laboratory brand.

[André Lacroix, CEO & Director at Intertek Group]

So, look, you know, the this is a very, very, very, very, you know, exciting opportunity. And and the key is we are seeing the benefits of the investment that we have made in grid management, in HVAC, you know, capabilities, in in in renewables. So, you know, this is a a very, very, very strong business for us. So alright.

[Operator]

We have another question from Arthur Troslove, Alve City. If you would like to go ahead.

[Arthur Truslove, Director at Citi]

Sorry, I didn't fully catch your response to the question about the employee costs coming down. If you if you wouldn't mind, just we just wondered how you've managed to do that. Thank you.

[Colm Deasy, CFO & Director at Intertek Group]

Good morning, Arthur. Arthur, Andre has already referenced our our our cost reduction program. And and, clearly, you know, there will be some staff movement associated with that. I don't think we'd go into any further detail. You know?

[Arthur Truslove, Director at Citi]

Right. Thank you.

[Operator]

We'll take our next question from Neil Tyler of Redburn Atlantic. Please go ahead.

[Neil Tyler, Director - Partner at Rothschild & Co]

Hello again. I just wanted to follow-up on the previous question about pricing in Consumer Products, Andre, and ask whether your sort of your optimism around pricing and your comments around pricing in the pre prepared remarks were relating to absolute sort of prices rising on a per product basis more quickly than they have done in the past or whether that's more a mix related question? And then a sort of follow-up question as well around Corporate Assurance. Can you just talk a little bit about the sort of the forward visibility in that business and how you sort of how you're looking at the pipeline of work to be done there and and and have confidence over that? Thank you.

[André Lacroix, CEO & Director at Intertek Group]

Yeah. Look. I think let me decompose your question of mix between what I really call portfolio mix and pricing power, because I think they are, of course, linked. But, you know, we we look at it slightly differently. When I talk about portfolio mix, right, and it starts at at the site level, you know, staying with with electrical, if our site managers in Boxborough, right, has got 100 engineers, and he applies these available engineering hours to one product category, let's just say, lighting certification, is gonna make a margin of x based on, you know, the price he charged, the the cost he operates in, etcetera.

[André Lacroix, CEO & Director at Intertek Group]

And and really, the the mix management from a portfolio standpoint at Intertek starts, you know, with the choices that our site managers make to basically focus on the good growth, good margin opportunities. In the case of Bugsboro, which is our highest margin, you know, electrical business in in in in in North America, of course, they are very strong in lighting. They're very strong in, you know, HVACs. They're very, very strong in in battery testing. But they have invested because there's been significant investment in this region in medical devices in medical devices, which is, you know, a higher margin, you know, business because we are basically charging the hours at a higher price point.

[André Lacroix, CEO & Director at Intertek Group]

Right? So it is pricing power, but it is not, you know, price increase. So when I talk about the mix, essentially, it's growing businesses that have scale, strong pricing power, and higher margin faster than the rest. And that applies at your site level. That applies at the regional level if you look at the region like Europe, that applies at the global level.

[André Lacroix, CEO & Director at Intertek Group]

So when I talk about, you know, the mix effect having impacted our margin in the last three years, it's essentially, you know, purely the portfolio. When it comes to pricing, how do we increase the price at Intertek? There are obviously several considerations to to to to take. One is our price points. Right?

[André Lacroix, CEO & Director at Intertek Group]

The hours that we charge for an auditors or for an engineer or for chemist. And and here, we've talked in the past about our policy. Our policy is to basically increase price reasonably and in period of high inflation. We just passed 50% of the wage cost increase to our customers so that we show a real partnership, and over time, we'll catch up. And when I said earlier today, you know, we had both volume and price, you know, like for like revenue growth, and it's about, you know, one third, two third, we are still taking prices because we say we would do so because in 2022 and 2023, in a high inflation period, globally, we didn't price the full wage cost increase.

[André Lacroix, CEO & Director at Intertek Group]

But in addition to your price point that you put in your in your contract with the customer, there are other ways to increase price. And one of them is, of course, to sell solutions of higher price, which are we call margin accretive innovations. And then the one that you're referring to is what I just, you know, talked about today in in consumer products is essentially increasing the number of tests, you know, per report. Because when we look at our volume, our volume is a test report, and and and the price per test report is a function of the price point we charge per hour, as I just explained, but also number of tests we do per per report. And that's why, you know, you know, you've seen the performance that that you've seen in in in consumer products. Does it make sense?

[Neil Tyler, Director - Partner at Rothschild & Co]

That makes perfect sense. That's really helpful. Thank you.

[André Lacroix, CEO & Director at Intertek Group]

Yeah. That's why you would have noted in in in the presentation, I've talked about portfolio mix and, you know, pricing power. As far as, you know, corporate assurance is concerned, I mean, this is a business where you have, of course, you know, extremely good visibility like, in in in many of our businesses. Because when we do, you know, audits for clients, this is typically a three year, you know, cycle. And when we basically win a new, you know, business opportunity, it's pretty easy to to to plan for it.

[André Lacroix, CEO & Director at Intertek Group]

So the the visibility is is is very good, and and and, you know, there is a concept that we use, you know, industry called backlog, essentially the orders that you have on the books, right? And, you know, we look at, you know, these data precisely to underpin our forecast, you know, and, of course, what we share with you in terms of guidance.

[Neil Tyler, Director - Partner at Rothschild & Co]

Great. Very helpful. Thank you very much.

[André Lacroix, CEO & Director at Intertek Group]

You're welcome.

[Operator]

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

[André Lacroix, CEO & Director at Intertek Group]

Thank you very much for being on the call today. And and, course, you know, Denis is available for any more questions you might have. Thank you very much.

[Operator]

Thanks for joining. We are no longer live. Have a nice day.

Participants

Executives

• André Lacroix, CEO & Director
• Colm Deasy, CFO & Director

Analysts

• Rory Mckenzie, Executive Director at UBS Group
• Suhasini Varanasi, Vice President at Goldman Sachs
• Karl Green, Director - Equity Research at RBC Capital Markets
• Neil Tyler, Director - Partner at Rothschild & Co
• Arthur Truslove, Director at Citi