Helping the world to Build Back Ever Better Annual Report 2020 Strategic report Directors’ report Financial statements Highlights
Financial Sustainability Resilient revenue Resilient FY financial performance, ahead of Highly cash-generative and carbon-light We were included in the FTSE4Good earnings and cash expectations earnings model delivers strong adjusted ROIC Index for the fourth year running performance, robust H2 2020 adjusted operating profit of of 21.6%, down 190bps YoY at constant rates Intertek participated in CDP’s margin and strong £259.5m with record adjusted operating Sustainable returns to shareholders with FY Climate Change Programme margin of 18.4%, up 60bps YoY at 2020 dividend of 105.8p, in line with 2019 58% reduction in lost time incidents cash generation constant rates Statutory operating profit of £378m, down We are an accredited living wage demonstrating the Excellent cash conversion of c.150% drives 20.7% YoY at constant rates employer in the UK a record adjusted free cash flow of £435.6m, Statutory net profit after tax of £263m, 2020 is our first carbon neutral year strengths of our up 10.2% YoY down 19.8% at constant rates and 21.3% Continuous focus on sustainability including Strong balance sheet with financial net debt at actual rates business model, targeting Net Zero emissions by 2050 of £419.9m, down £209.5m YoY; financial its geographic and net debt to EBITDA of 0.7x business line diversity, our disciplined approach to performance £2,742m £2,736m £436m management and Revenue Like-for-like revenue1 Adjusted free cash flow2 (2019: £2,987m) (2019: £2,983m) (2019: £395m) importantly, our strongly cash-generative £428m £378m 21.6% earnings model. Adjusted operating profit1,2 Statutory operating profit Return On Invested Capital1,2 (2019: £524m) (2019: £486m) (2019: 23.7%)
1. Definitions of the above metrics and constant rates are set out on page 24 2. Adjusted operating profit, adjusted operating profit margin, adjusted diluted earnings per share (‘EPS’) and adjusted free 15.6% 13.8% 105.8p cash flow are non-GAAP measures. Adjusted measures are 1,2 3 stated before Separately Disclosed Items, which are described Adjusted operating margin Statutory operating margin Dividend per share in note 3 to the financial statements. Reconciliations (2019: 17.5%) (2019: 16.3%) (2019: 105.8p) between statutory and adjusted measures, as well as return on invested capital and cash conversion, are shown in the Financial review. 3. Dividend per share for 2020 is based on the interim dividend paid of 34.2p (2019: 34.2p) plus the proposed final dividend of 170.9p 152.4p 71.6p (2019: 71.6p). Adjusted diluted earnings per share1,2 Statutory diluted earnings per share (2019: 212.5p) (2019: 192.6p)
Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Our role has never The pandemic has brought to life Intertek’s purpose- been more important. led role in society as never before. We are working Our purpose is with customers, both new and existing, using our As the only company globally scale and expertise to help them address their with a Total Quality Assurance challenges with leading-edge, innovative solutions. offering – comprising Assurance, We’ve proved this in 2020, helping our customers to bring quality, confront and resolve real issues in a way that’s Testing, Inspection and Certification making it easier and safer for them to operate. And, solutions – we’re uniquely placed to as our customers continue to face unprecedented keep businesses powering ahead, challenges, we’re always there to support them safety and no matter the obstacles they face. and Build Back Ever Better. sustainability to life
In this year’s report Strategic report 42 Products Financial statements 46 Trade Find out how our industry-leading 01 Welcome to Intertek 135 Consolidated income statement 48 Resources Total Quality Assurance enables companies 02 Building Back Ever Better 136 Consolidated statement of comprehensive income to power ahead safely and swiftly, 50 Financial review 02 A force for good 137 Consolidated statement of financial position wherever they are in the world. 56 Principal risks and uncertainties 03 ‘Ever Better’ solutions 138 Consolidated statement of changes in equity 64 Our stakeholders intertek.com 04 Safer, more diversified supply chains 140 Consolidated statement of cash flows 64 Section 172 statement 05 Better personal safety and wellbeing 141 Notes to the financial statements 06 Low carbon economy 184 Intertek Group plc – Company balance sheet Directors’ report 07 More than an idea 185 Intertek Group plc – Company statement of changes 72 Chairman’s introduction 08 Business model in equity 74 Board of Directors 08 What we do 186 Notes to the Company financial statements 77 Direct reports to the CEO 09 How we do it 189 Independent Auditors’ Report 78 Corporate governance 13 The value we create 197 Shareholder and corporate information 94 Nomination Committee report 14 Investment case 98 Audit Committee report 16 Chief Executive Officer’s review 105 Remuneration Committee report 24 Key performance indicators 131 Other statutory information 26 Sustainability 134 Statement of Directors’ responsibilities 42 Operating reviews
Intertek Group plc Annual Report and Accounts 2020 01 Strategic report Directors’ report Financial statements Building Back Ever Better A force for good
In challenging times, our In a year that has tested people and businesses mission-critical solutions are around the world, Intertek has responded with speed and innovation, proving itself to be an agile needed more than ever. and resilient business. We have stayed operational Since the onset of the COVID-19 across the world through the depths of the pandemic and played a critical role in mitigating pandemic, the issues facing the risks for our clients. world today have been felt more This has underlined the importance of Intertek’s acutely than ever. What’s more, purpose-led role in making sense of these changes. there is a growing realisation that We are throwing light on the choices we all have global issues are interconnected, to make now, and how that will determine not just how companies will act in the future, but where affecting individual lives in many the whole world goes next. indirect but significant ways.
02 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Building Back Ever Better Continued ‘Ever Better’ Safer, more solutions diversified supply chains
These include Total Sustainability Assurance, our Read more about our ‘Ever New normal. New opportunities. Better’ solutions on page 04 end-to-end sustainability offering, and Protek™, the Old thinking can’t solve new first assurance programme to safeguard systems problems. That’s why we draw and processes, facilities, materials, surfaces, on our unique global population products and – above all – people. of Total Quality Assurance experts, CarbonClear™ delivers unique clarity on the their entrepreneurial spirit and our carbon impact of end-to-end operations, while SourceClear™ is a new technology platform decentralised culture, to create providing visibility and traceability across the Better exciting and innovative solutions full range of supply chain relationships. personal safety to emerging needs. We expect the theme of Building Back Ever Better to guide the actions of governments, companies, Their focus is on what really matters when it institutions, regulators and consumers, especially and wellbeing comes to building a sustainable future for all: higher in three important areas: Read more about our ‘Ever standards of personal safety, health and wellbeing Better’ solutions on page 05 for everybody; low carbon societies; and more • management, boards and shareholders will want traceable and resilient supply chains. to build safer supply chains The events of 2020 have made the need for risk- • consumers, governments and corporations will based Quality Assurance all the more compelling. want to offer better personal safety With a focus on our 5x5 ‘Ever Better’ strategy, • the world will need to invest in and build a low disciplined performance management, and the carbon society. passion and expertise of our 43,769 people, we have already developed leading-edge innovations As the challenges that our customers face evolve, Low carbon to meet some of the world’s toughest challenges. so do we. And our priority today isn’t simply to help customers recover from the impact of COVID-19. economy It’s to empower them to prosper as never before, Read more about our ‘Ever building a sustainable future for all. Better’ solutions on page 06 You can see how Intertek is addressing these three areas on the following pages.
Intertek Group plc Annual Report and Accounts 2020 03 Strategic report Directors’ report Financial statements
Building Back Ever Better Our role Continued Delivering end-to-end, risk-based, supply- Safer, more diversified chain assurance is our core business at Intertek: underpinning supply resilience, supply chains minimising reputational risk and driving ethical and sustainable business practices. We give companies better insight into every layer of their supply chains – reducing risk, improving traceability, sharpening intelligence and increasing resilience.
SourceClear™ Independent certification with Intertek SourceClear™ gives customers instant credibility and traceability of sustainable production, preferred raw materials, social and environmental practices that maximise positive impacts throughout the supply chain.
> Read the full case study on page 45
More and more companies are making purchasing decisions based on who they trust to address responsible sourcing issues. They are looking for reassurance as to how products are made, selection of preferred materials, and that’s what SourceClear™ gives them.” Simona Romanoschi Business Assurance Innovation VP 04 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Building Back Ever Better Our role Continued Empowering customers with innovative Better personal safety health, safety and wellbeing solutions is a key aspect of our vision to make the world and wellbeing a better and a safer place. More than ever, companies are turning to our expertise in We are helping to create a world where higher standards this area: driven by passion, delivered with of health and personal safety, hygiene and wellbeing are pace and precision. the norm, enabled by better understanding and more targeted investment.
Health, safety and wellbeing in the workplace, in public spaces and at home is the number one concern for businesses, employees and consumers. Intertek Protek™ safeguards people everywhere, bringing peace of mind to companies in every industry.
> Read the full case study on page 43
Whether they’re in hotels, restaurants, schools, transport, retail or another kind of business, Protek™ provides the procedures our clients need to reassure their customers and demonstrate the importance they place on health and safety.”
Chase Eastman Vice President, E-Commerce & Courseware – Alchemy Systems
Intertek Group plc Annual Report and Accounts 2020 05 Strategic report Directors’ report Financial statements
Building Back Ever Better Our role Continued We help companies meet growing Low carbon stakeholder expectations on clear and transformative sustainable objectives, economy trusted industry benchmarks, consistent performance improvement, and certify As people, companies and countries everywhere results with total transparency, assured. increasingly shape greener strategies, we’re helping our customers participate and transact confidently in the sustainability revolution transforming our world.
CarbonClear™ Intertek CarbonClear™ is a breakthrough global programme that brings companies, beginning in the energy sector, unique clarity on the carbon impact of their end-to-end operations. Ultimately, this will also empower countries, companies and consumers to cut their carbon footprints, by making informed buying decisions about the carbon impact of their energy resources.
> Read the full case study on page 49
Companies and countries are moving faster than ever to invest in, and be leaders of, sustainability and the energy transition. CarbonClear™ is a vital tool for energy investors, regulators, consumers and producers to converge financial and sustainability goals, commercialise low-carbon investments, and demonstrate certified progress in the race to net zero emissions.” Malissa Boudreaux Senior Vice President, 06 Intertek Group plc Annual Report and Accounts 2020 World of Energy Strategic report Directors’ report Financial statements
Building Back Ever Better Continued More than The world has changed. an idea But what if instead of settling for a new normal, we take responsibility for We’re building a movement Building Back Ever Better. Four simple words, but a world of meaning. tomorrow, and build back It’s why we do what we do. It’s why we form close partnerships and share ideas. It’s why we work so hard to tackle the real issues that matter better? Our 43,800 to our customers, and to the people we deal with across our operations. It combines our well-established ‘Ever Better’ philosophy with a call to employees are working action for the whole world. We believe a unified approach from leaders and innovators can harness the complexity of our connected world, and the to bring a new global risks that come with it. We are leading by example and inspiring others – thinking more sustainably, innovating collaboratively – and the value of society to life, with the risk-based Quality Assurance we provide has never been greater. sustainability, safety and In a year that has been dominated by a pandemic that has gripped the world, it’s about so much more than just getting back what we may wellbeing at its heart.” have lost. It’s about inspiring a global movement. It’s about building something that’s greater than before. And it’s about doing that André Lacroix ‘Ever Better’, together. #BBEB Chief Executive Officer
Watch our Building Back Ever Better video, available from 30 March 2021, > at intertek.com/bbeb
Intertek Group plc Annual Report and Accounts 2020 07 Strategic report Directors’ report Financial statements Business model Our ATIC services
Total Quality Assurance The work we do covers everything from testing What toys to inspecting power stations, and from certifying vaccines to providing end-to-end Quality Assurance. Our innovation-led, end- Assurance Testing Inspection Certification to-end Total Quality Assurance (‘TQA’) value Enabling our customers Evaluating how our Validating the Formally confirming proposition is designed to support our clients to identify and mitigate customers’ products specifications, value that our customers’ we do intrinsic risk in their and services meet and and safety of our products and services 24/7. It provides a fully integrated portfolio of operations, their supply exceed quality, safety, customers’ raw materials, meet all trusted external Assurance, Testing, Inspection and Certification and distribution chains sustainability and products and assets. and internal standards. Intertek has always been a (‘ATIC’) services to give our customers complete and quality management performance standards. purpose‑led business. Today, peace of mind for their products, services and systems. operating systems. that purpose is to make the world a better, safer and more But the ATIC solutions we offer go beyond the quality and safety of a corporation’s physical RESEARCH & sustainable place for all. Now, components, products and assets. They go Our DEVELOPMENT and for future generations. to the heart of the reliability of their operating processes and quality management. We call TQA value As the world changes, operating safely, sustainably it Total Quality Assurance because it enables RAW MATERIALS proposition: CONSUMER SOURCING and delivering quality products and services our clients to mitigate risk at every stage of MANAGEMENT becomes more difficult. Supply chains are rapidly their operations. Our unique TQA value growing in both size and complexity, bringing Our TQA customer promise unprecedented levels of risk. In these challenging proposition offers end- To become the most trusted partner for Quality times, companies need a trusted partner, and we to-end ATIC solutions Assurance, we have made a promise to our provide our clients with a risk-based approach to across a company’s customers: Intertek’s unrivalled TQA expertise Quality Assurance. Our global network of 43,769 entire value chain. is delivered consistently with precision, pace and colleagues helps address the complex quality, safety passion. This is what makes us different. Our and sustainability challenges that corporations face. clients can rely on the consistent quality and COMPONENT SUPPLIERS accuracy of our work; the speed of our response, DISTRIBUTION & Our Purpose RETAIL CHANNELS as we deliver rapid and accurate feedback; Bringing quality, safety and backed up by our desire and belief in what we do. sustainability to life. That means our clients can operate with total peace of mind and power ahead safely. Our Vision ‘Ever Better’ To be the world’s most trusted As a company we are committed to becoming partner for Quality Assurance. ‘Ever Better’ in everything we do. That means we’re not simply seeking ways to constantly improve our operations for enhanced efficiency and effectiveness. It means we’re researching and innovating to improve our services, enabling our 300,000 clients to become ‘Ever Better’ too.
TRANSPORTATION MANUFACTURING 08 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Business model Continued How Our global network we do it
The world of our customers is changing, becoming complex and interconnected with increased risks to quality, safety and sustainability. We support the growth of our clients with our TQA proposition by building trusted relationships, listening to their needs to develop the right insights and using meaningful data to create innovative TQA solutions.
With 43,769 employees in our global network, based in more than 100 countries, we keep close to our customers and understand their challenges.
1,000+ 3,000+ 100,000+ Laboratories and offices Auditors Audits 43,800 100+ 80+ Employees Countries Languages
Intertek Group plc Annual Report and Accounts 2020 09 Strategic report Directors’ report Financial statements
Business model Continued Our considered and focused approach to innovation uses a three-tiered method.
Our Values Using data insight to drive innovation Our ‘Ever Better’ approach We have access to world-class customer intelligence Core • We are a global family Building on the strengths of existing site-by-site from anywhere across our global Our core strength is, and always that values diversity network. This data, along with customer feedback products and services will be, our people. The way • We always do the right thing, and the insight generated from our TQA Experts, From our ‘Core’ focus, we seek to build on the our colleagues combine passion with precision, pace and passion tells us what our customers need and want, strengths of our existing products and services, allowing us to provide them with faster and more and innovation with customer • We trust each other and continually improving them for our existing effective solutions. markets and customers. As part of breakthrough commitment sets us apart. This is a have fun winning together Why we do it innovation Protek™, which focuses on health, vital element of our entrepreneurial, • We own and shape our future We are passionate about our purpose. The world hygiene, safety and risk management, we have customer-centric culture. • We create sustainable growth. is changing fast, and, at Intertek, we know we are launched POSI-CHECK to help in the Prevention For all uniquely placed to help our clients adapt, seize of the Spread of Infection (‘POSI’) in restaurants, Our people, values and culture and drive the opportunities created by a more supermarkets, schools and other facilities. Our decentralised operating culture is built around sustainably aware and driven society. strong values. These values are inspirational Building trusted client relationships We are born to make the world ‘Ever Better’. What Adjacent and help us to drive sustainable growth for all. We aim to consistently deliver a superior customer we do has an impact on every aspect of modern Expanding into fast-growing and They guide our behaviours every single day, experience and build trusted relationships. Key to life, from the way we grow as individuals to how we high‑margin markets underpinning the way we work, guiding decision- this is regular engagement with our customers. thrive as a society. This vital role is shaping a better, making and connecting colleagues across Around the world, through our Net Promoter Score We aim to develop new products and safer and more sustainable world to which we all the world. (‘NPS’) programme, we carry out 6,000+ customer services for rapid-growth, high-margin markets aspire. This will be our legacy and our future. interviews every single month. The NPS measures that are ‘Adjacent’ to those we already serve. Our strategy and culture give our people the the percentage of customers likely to recommend Responding to demand during the pandemic, we right platform, not only to grow and develop their our services, helping us to understand our customers further developed our Remote Video Inspection careers, but also to become involved in socially > View our Sustainability Report at intertek.com/about/our- and deliver superior service at every Intertek site. responsibility for how our people responded to the pandemic responsible activities that further support our (‘RVI’) service, part of our market-leading Inview purpose to make the world a better place by Real-time insights from the NPS programme virtual assurance solution, which uses remote bringing quality, safety and sustainability to life. are fed back to senior management every day, live video-streaming and smartphone technology allowing us to continually measure performance, to carry out mission-critical inspection services gain insights, drive improvement and deliver our across the oil and gas supply chain. TQA Customer Promise. We capture key metrics at every site monthly and, when a project is complete, Breakthrough our TQA Experts talk to our customers about their Developing innovative products experience, the solution itself and the quality of and services customer service, to maintain high quality and disciplined performance management. We aim to develop ‘Breakthrough’ products and services that enable us to create new attractive markets and target emerging customer needs. In 2020 these included CarbonClear™, the world’s first independent carbon-intensity certification programme, and SourceClear™, a new technology platform that provides visibility and traceability across the full range of supply- chain relationships. 10 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Business model Continued
Our sectors Products Trade Resources By focusing on the three sectors of Products, Trade and Resources, Ensuring the quality and safety of Protecting the value and quality of Optimising the use of assets in oil, we concentrate the full power physical components and products, and products during custody-transfer, gas, nuclear and power industries and risk assessment of operating processes storage and transportation, via minimising risk in their supply chains of our innovation capabilities and quality management systems. analytical assessment, inspection and through technical inspection, asset into these attractive growth technical services. integrity management, analytical and high-margin sectors. testing and ongoing training services. £1,682m £593m £468m Revenue (61% of Group) Revenue (22% of Group) Revenue (17% of Group) (6.4%) at actual rates (12.8%) at actual rates (8.5%) at actual rates (5.7%) at constant rates (9.9%) at constant rates (6.3%) at constant rates £352m £47m £29m Adjusted Operating Profit Adjusted Operating Profit Adjusted Operating Profit (82% of Group) (11% of Group) (7% of Group)
Structural growth drivers Structural growth drivers Structural growth drivers • Growth in brands, SKUs and e-commerce • Population growth and social mobility • Population growth and social mobility • Faster innovation cycle • GDP growth • Investment in E&P, storage and transportation • Higher demand for healthy and sustainably • Development of regional trade • Total Energy with diversified portfolio sourced products • Improvements in transport infrastructure • Accelerated transition to renewable energies • Increased focus on safety, performance • Increased need for end-to-end traceability • Increased focus on Operational Sustainability and quality • Increased focus on Operational Sustainability • Digital supply chain management • Increased demand for smart products • Emerging markets growing middle class
Corporate Assurance • Growing need for ATIC risk-based • Importance of supply intelligence growth drivers: Quality Assurance and resiliency • Increasing regulation • More focus on Corporate Sustainability • Greater demand for People Assurance • Ever more vital role of Enterprise CyberSecurity
Intertek Group plc Annual Report and Accounts 2020 11 Strategic report Directors’ report Financial statements
Business model Continued
Our high-quality earnings model Based on the delivery of our unique TQA value proposition, the virtuous economics of our earnings model – high-margin, strongly cash-generative, capital-light and carbon-light, delivering GDP+ organic strong pricing power – is at the very revenue growth core of what makes us successful. in real terms
Our ability to profitably deliver ATIC services to customers operating in the structurally attractive Products, Trade and Resources economic sectors is based on our capital-light business model and entrepreneurial culture. Investments in Margin-accretive This model enables us to respond quickly to new high-growth and growth opportunities. To maximise returns, we Intertek revenue growth continue to invest in high-growth, high-margin areas high‑margin Virtuous and maintain a disciplined capital allocation. As a sectors result we have achieved strong free cash flow and Economics negative working capital.
Disciplined Strong free capital allocation cash flow
12 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Business model Continued Stakeholder types
Customers People Investors We deliver innovative and bespoke Assurance, Our experts embody our TQA culture, ensuring Our investor stakeholders include all groups that The value Testing, Inspection and Certification solutions the quality, safety and sustainability of products have an interest in the success and sustainability to our customers for their operations and and services used by millions around the world. of our global business. supply chains. Why they are important to us Why they are important to us we create Why they are important to us Our people are our most valuable asset and are critical to Delivering for our investors drives our ongoing success, Our customers are at the centre of everything we do, our success. Customer-centric and passionate about what enabling us to deliver for all stakeholders in the long term. and delivering the highest standards of customer service they do, they deliver sustainable value through unmatched expertise and quality of work for our customers every day. is crucial to us becoming the world’s most trusted How do we engage them? TQA partner. How do we engage them? We engage with existing and potential investors to help them understand the Group’s business model, strategy, How do we engage them? Delivering ‘Ever Better’ value for The work our people do is deeply meaningful to our world. financial performance and outlook. Our leaders support all colleagues to deliver our Core our stakeholders. We aim to create We continuously engage and build our relationships The programme is wide-ranging and includes regular with customers, and closely analyse our NPS data. Purpose, pursue their aspirations and enjoy a rewarding trading updates, investor conferences and roadshows meaningful and sustainable long-term career with us. We try to create a high performance, In 2020 we stepped up our customer communications throughout the year for investors and sell-side analysts. growth-oriented and caring culture with clear transparent value for a broad range of stakeholders. to provide support through the pandemic, addressing communication and regular recognition. We ensure that each emerging needs, and operational and supply chain colleague has a personal growth plan that is progressed. challenges. > To understand how we engage with our stakeholders, and how the Board oversees that engagement, please see our Section 172(1) statement on page 64 Suppliers Communities Government and regulators Our suppliers provide products and services, and We are focused on achieving a positive impact We comply with all global, regional and help us manage and track the performance in our within the communities where we operate, local regulations. supply chains. supporting local causes and partnering with charities. Why they are important to us Why they are important to us Compliance with local laws and regulations is an important Strong supplier relationships allow us to operate by Why they are important to us part of being a responsible employer and business. We are committed to engaging constructively with governments ‘Doing Business the Right Way’, and create value for The services we provide to our customers, including our and regulators to support the wider community. our business, through a better, more resilient, dedicated sustainability and growth innovations, generate direct and service, and preferential pricing. indirect benefits for our communities. How do we engage them?
How do we engage them? How do we engage them? We engage with national and local governments and regulators to share our intentions, understand their We partner with our suppliers to find sustainable ways Our businesses regularly engage with and contribute to concerns, and find mutually beneficial solutions. of using resources efficiently. We carry out regular our communities, and many colleagues support local and compliance and risk assessments to build strategic charitable causes. We do this through membership meetings of industry supplier partnerships. bodies as well as the publication of White papers. These activities reflect the diversity of our community Our ethical procurement practices have been adopted stakeholders and our people. widely across the Group and we work with suppliers who share our sustainability objectives.
Intertek Group plc Annual Report and Accounts 2020 13 Strategic report Directors’ report Financial statements Investment case Global ATIC market Our unique offering means we are well placed Untapped potential to take advantage of the huge growth opportunities in the global ATIC market. Sustainable shareholder value $200bn Well £250bn Currently in-house Our track record of shareholder value creation is Global ATIC market strong, and the sustainability of our results is a positioned tribute to the quality of our earnings model, the $50bn trusted relationships we have with our clients, Currently outsourced the strength of our TQA customer service, the leading expertise of our 43,769 colleagues, and our for growth passionate and customer-centric culture. In a year Exciting growth that has been challenging for so many corporates, we have continued to invest in our business opportunities We have a proven history of growth, and we have strengthened further our financial As our customers’ operations and supply chains innovation, disciplined portfolio position, with a financial net debt at year end become more complex and they face new market Portfolio strategy £210m lower than in 2019. management and operational excellence. forces as the world recovers from COVID-19, they Intertek’s focus is on high-margin, high-return This, alongside the energy, agility and also face unprecedented levels of risk across every The sustainability of our performance has sectors. This guides where we invest for growth innovation of our colleagues around the element of their businesses. This has created even underpinned our growth, creating exceptional in terms of our scale businesses – those companies greater growth opportunities in the market for world, is why we are uniquely well value for our shareholders and the consistent where we expect the fastest growth to come Intertek’s TQA services, and attractive industry- positioned to capitalise on the growth payment of dividends. We have achieved this from or where we see opportunities for margin consolidation opportunities, as the world needs our opportunities ahead and drive sustainable through the powerful compounding effect, year improvement – and targeted, value-enhancing services even more, and we look to help customers value creation for stakeholders. acquisitions. Our M&A focus is on companies with after year, of our earnings model’s virtuous Build Back Ever Better. economics: margin-accretive revenue growth, attractive growth and margin prospects, strong IP strong cash generation and disciplined investment. We estimate that only US$50 billion of the and market positions and a highly cash-generative US$250 billion ATIC market is currently outsourced, business model. presenting further opportunity to capture a share We underpin this with our highly disciplined approach of the US$200 billion of work currently managed to performance management, based on a unique in-house. If anything, the pandemic has led dashboard of leading and lagging indicators. It Investing for growth corporations to reassess what is core and non- addresses a range of key financial metrics, from core to ensure the efficiency and sustainability of We invest in high-margin, high-return revenue growth, margin and customer profitability their operations – and this will inevitably lead to a sectors and in companies where to capital allocation and investments in growth. we see opportunities for margin reappraisal of what they need to outsource. The enhancement. future market potential could be even greater than Our operational metrics include leading indicators this, as it is also driven by new risks emerging from such as marketing leads, customer retention and the continued rise in operational complexity and customer acquisitions. multi-tiered supply chains. With our unique offering and current network serving 300,000 clients around the world, we are in the ideal position to attract a substantial share of this market potential.
14 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Investment case Continued Innovating to help businesses navigate a pandemic There is no question that the world changed in 2020 – people and corporates have faced challenges like never before in the face of High-quality COVID-19. And Intertek has been at the forefront earnings model of the response, helping our clients adapt to new conditions and bolster their business continuity At the very core of what makes us successful plans. We have launched a range of innovative is our high-margin, cash-generative earnings products and services, designed to provide the model, based on the delivery of our unique practical support and visionary guidance they TQA value proposition. Our ability to profitably need to deal with the effects of the pandemic. deliver ATIC services to customers operating in the structurally attractive Products, Trade and Read more about these innovations in our Resources economic sectors is based on our > operating reviews on pages 42 to 49 capital-light business model and entrepreneurial culture, which enable us to respond quickly to new growth opportunities. To maximise returns, we continue to invest in high-growth, high-margin areas and maintain a disciplined approach to capital allocation. Customer-led innovation Operational excellence
The real fuel for innovation is insight – a deep We take a disciplined approach to performance understanding of what our customers need and management, measuring progress against a range want. Through our NPS programme, we carry out of operational metrics and using data intelligence Innovation fuelled 6,000+ customer interviews every month and, to understand our customer service levels and by insight with the ability to access world-class customer turnaround times. All this creates a positive Our regular programme intelligence site-by-site from anywhere across atmosphere where our people feel fully engaged in of customer interviews our global network, we have a continuous stream a safe working environment, and it is a measure of provides the insight and of data to develop our insight and develop new the strength of our operations that Intertek stayed data needed to constantly ATIC solutions. fully operational throughout the pandemic. innovate. We are constantly learning from our customers, This approach, alongside a dedicated focus on using their extensive feedback to help us quality across every site, is crucial to our continuous deliver ‘Ever Better’ solutions to their improvement, underpinning our operational and evolving requirements. health and safety excellence, and ultimately ensuring 6,000+ that our customers receive a superior service. During the pandemic, we have rapidly launched customer interviews new services and industry changing innovations, every month such as Protek™ and CarbonClear™. We have also supported the Pharma industry in the development > Read more on page 10 of vaccines, provided end-to-end testing and certification for PPE, and introduced priority testing services for life-saving medical equipment.
Intertek Group plc Annual Report and Accounts 2020 15 Strategic report Directors’ report Financial statements Chief Executive Officer’s review
A big thank you Outline results Helping the Ever since I joined Intertek in 2015, the most important part of my review has come where I can take a moment to thank my colleagues around the world for their outstanding contribution during £2,742m 15.6% the year. Never has this been more the case than Revenue Adjusted Margin world to Build (8.2%) at actual rates (190bps) at actual rates in 2020, a year like no other when in the face of unparalleled challenges, Intertek’s amazing people worked tirelessly to ensure our operations across 170.9p 149% Back Ever Better the world could keep supporting our clients, helping global supply chains to operate safely. Adjusted Diluted EPS Cash conversion (19.6%) at actual rates +2,200bps at actual rates It was an extraordinary performance, and I thank each and every one of them from the bottom of my heart. The indomitable spirit that drove them is 21.6% 105.8p the same that has made us a leader in our industry ROIC Dividend for so long. No matter the challenges Intertek has (210bps) at actual rates In line with prior year faced – during 2020, or during the 130 years of our evolution – we have always exercised our spirit of innovation, the passion of our people and our unmatched customer commitment to realise our of our high-quality earnings model: strong pricing purpose of making the world an ever better, safer power driving strong margins and a high cash- and more sustainable place for all. generation while enabling Intertek to operate in an exceptionally capital- and carbon-light manner. Thanks to these qualities, we entered 2020 with a very strong record of sustainable growth across Our first priority is always health and safety. We André Lacroix our entire history, and particularly over the previous swiftly created a comprehensive, global COVID-19 Chief Executive Officer five years. Employee Health & Wellbeing policy, which we have updated regularly throughout as we have learned Our five-priority response more about best practice in managing the virus. Given what was about to happen, the strength of The policy is publicly available on our website. our track record and culture was particularly valuable and important. From early in the year, as we know, Our second priority is superior customer service. businesses across the world were rapidly affected We are a customer-centric organisation and by the pandemic. It caused significant disruption to understand that what we do every day to ensure the supply chains of our clients, restricting global our customers’ supply chains operate safely, securely mobility and impacting the global economy. and efficiently is mission-critical. Our clients were facing unprecedented challenges and since day one, The agility of our people and our business as a whole we have increased the frequency with which we was vital. We quickly refocused the organisation and communicate and kept our operations open 24/7, implemented a decisive, five-priority response to to ensure we can react and respond to customer the situation. Our financial results are testament to needs quickly. the success of these actions, and to the strength
16 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Chief Executive Officer’s review Continued
As a result, we have rapidly been able to bring a high-growth and high-margin sectors, as well • Strong balance sheet with financial net debt of range of innovations to market, including exciting as implementing our progressive dividend policy. £419.9m, down £209.5m YoY; financial net debt Performance by business new services like Protek™, SourceClear™ and to EBITDA of 0.7x Our fifth priority is purpose-led employee CarbonClear™ – I describe all of these and more in engagement. With many of our people working • Highly cash-generative and carbon-light earnings later pages. What they all have in common is their £1,682m remotely during lockdown restrictions, it has never model delivers strong adjusted ROIC of 21.6%, ability to confront and resolve real issues in a way Revenue been more important to stay connected every day. down 190bps YoY at constant rates (6.4%) at actual rates that makes it easier and safer for our customers Our world-class digital internal communications (5.7%) at constant rates to operate. • Sustainable returns to shareholders with platform has enabled us to reach out frequently to Products FY 2020 dividend of 105.8p, in-line with 2019 Many of our employees have also gone beyond everybody in the organisation, and their response the normal call of duty and responded fast to has been universally exceptional. A central part of • Carbon neutral in 2020 and continuous focus 20.9% help in any way they could, like creating hand our internal communication narratives was purpose- on sustainability; targeting net zero emissions Adjusted Margin sanitisers in countries including China, India, the led, reminding all of us about the meaning of what by 2050 (170bps) at actual rates (160bps) at constant rates Philippines, Turkey, the UK and the Netherlands we do at Intertek. Indeed, Intertek provides mission- to keep customers and colleagues safe. Colleagues critical solutions to make sure that the world’s • Strongly positioned for growth: COVID-19 in Intertek Indonesia provided some of the worst supply chains can operate fully and safely. recovery, increased corporate focus on risk affected countries with 200,000 face masks, and and M&A growth opportunities. Our results in 2020 £593m our UK Food business line team has been working Revenue Our results for 2020 demonstrate that in the seven days a week to collect, register and process Sir David Reid steps down as Chairman (12.8%) at actual rates COVID-19 era, the need for risk-based Quality samples, safely and in line with tight customer In 2020 we announced that Sir David Reid (9.9%) at constant rates Assurance has never been greater for all our deadlines. In Azerbaijan, our people have helped would retire on 31 December after serving nine Trade stakeholders. The pandemic brought to life, as to buy relief packages for suffering families, and years on the Intertek Board as Chairman and never before, the great importance of Intertek’s our facilities team in Bangladesh set up a virtual Non-Executive Director. I would like to thank 7.9 % purpose-led role in society. Amid the unprecedented hospital. These are just a few examples of our David for the significant contribution he has Adjusted Margin pressures affecting so many companies, the people’s actions across the world. made to Intertek’s development and growth (480bps) at actual rates strength of our strategy, people and end-to-end (460bps) at constant rates during his tenure with our Board. We will miss Our third priority is margin discipline. We took systemic approach has been emphasised by the his wise counsel and experience and wish him new steps to protect our margin during the crisis, continuing resilience of our revenue performance every success and enjoyment for his future building further on the disciplined approach to and our strong cash flow. retirement. Andrew Martin succeeded David as pricing and cost that we have focused on over the Key highlights of our 2020 performance: Chairman of the Board, read more on page 72. years. Actions included a pause on all recruitment, £468m a six-month delay to the 2020 annual salary Revenue • Resilient FY financial performance, ahead of (8.5%) at actual rates increase, and participation in a range of government earnings and cash expectations Our three sectors (6.3%) at constant rates support schemes. Such initiatives mean we will have The attractive structural growth drivers in the ability to support our clients fully once their • H2 2020 adjusted operating profit of £259.5m each of our three market sectors – Products, Trade Resources operations are back to normal. with record adjusted operating margin of 18.4%, and Resources – enabled us to deliver a resilient up 60bps YoY at constant rates financial performance during an unprecedented 6.2% Adjusted Margin Our fourth priority is cash discipline and we continue global pandemic. to be highly focused around cash collection. • Statutory operating profit of £378.2m, down (10bps) at actual rates (10bps) at constant rates Our operational focus on cash is delivering strong 20.7% YoY at constant rates free cash flow which is further strengthening • Excellent cash conversion of c.150% drives our robust balance sheet. We continue to take a a record adjusted free cash flow of £435.6m, disciplined approach to capital allocation, investing in up 10.2% YoY
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Our 5x5 strategy Our 5 strategic priorities Our 5 strategic enablers While we inevitably experienced some impact from disrupted client supply chains and factory closures in our Products sector, our leading positions across multiple industries have helped us to deliver a resilient like-for-like revenue decline of (5.9%) at constant rates. Some delays to audits and product Our long-term 5x5 strategy for Differentiated Superior Living our customer- Disciplined launches were offset by a number of positive developments, including increased demand for growth remains consistent and has brand proposition customer service centric culture performance testing personal protective equipment and medical informed our operational priorities We are focused on Delivering the highest Strong spirit of management devices, growth in e-commerce and associated developing a strong and standards of customer entrepreneurship, Financial and non- in response to the COVID-19 services and increased demand for ATIC (Assurance, differentiated brand, to service is at the heart a customer-focused financial metrics and pandemic. Testing, Inspection, Certification) services in areas position Intertek as the of our journey to being mindset and processes focusing global market leader in the world’s most trusted like supply chain assurance, energy efficiency and engagement at all levels on margin-accretive sustainability services. Total Quality Assurance TQA partner. of the organisation. revenue growth and (‘TQA’). strong cash conversion. In our Trade sector, the defensive strengths of our AgriWorld business enabled us to report a like-for- like revenue decline of (9.9%) at constant rates. This was despite the reduced level of demand for oil and gas which impacted our Caleb Brett business, Our goals as well as the challenging trading conditions for Effective Growth and margin- Superior technology Energising Government & Trade Services. sales strategy accretive portfolio Improving the customer our people 1 3 Our Resources business delivered a resilient Driving continuous Prioritising investments experience, leveraging Through investments Fully engaged Margin-accretive performance, despite the impact of lockdown in improvement in margin- with high-growth and back office synergies in their capabilities, employees working in revenue growth many territories on our Opex Maintenance Services accretive revenue growth high-margin prospects and delivering superior providing a fully a safe environment. based on GDP+ and the reduction of our clients’ capex investment demands a structured which help us to deliver business intelligence. aligned reward system organic growth. in the second half, while our Minerals business 2 and disciplined approach maximum value. and promoting internal delivered robust revenue growth helping the sector to sales effectiveness growth. Superior 4 achieve a like-for-like revenue decline of (6.1%) that is increasing leads customer service in Strong cash at constant rates. and conversion rates. Assurance, Testing, conversion from These assets are built around our five strategic Inspection and operations. priorities of our 5x5 Differentiated Strategy for Certification. Growth on which we have continued to focus 5 in 2020. Accretive, disciplined capital Operational excellence Delivering The growth allocation policy. An ‘Ever Better’ approach to sustainable results continuously improving our Providing growth for our opportunities ahead efficiency and productivity customers and shareholders The first pandemic in our global, highly connected through quality management and recognising the world has radically increased the complexity facing and operational excellence. importance of sustainability for the wider community. 18 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Chief Executive Officer’s review Continued organisations everywhere. It is not as though life and high-growth areas and we believe that the The key assets that • TIC: providing quality and safety controls was simple for corporations before the pandemic post-pandemic world will also offer us significant – Testing: evaluating how customers’ given the intertwined network of mega-trends they new growth opportunities through industry set us apart products and services exceed quality, safety, faced – from multiple geopolitical risks on a global consolidation. Our Purpose, Vision and Values are vital assets, sustainability and performance standards basis, through to the rapid impact of social media on which guide and support all our thinking and All the sectors we address are presenting us world opinion, the accelerating application of AI and activities. They are centred on our people, our – Inspection: validating the specification, with a wide array of structural growth drivers, automation, the energy transition, wealth inequality, unrivalled global population of TQA Experts. They value and safety of our customers’ raw and these are only set to diversify and increase increasing safety issues and more. are our core strength, combining passion, innovation materials, products and assets further in the post-pandemic world. Our Products and customer commitment in a way that sets us Now, this complexity is set to continue and sector, for example, is ideally positioned to – Certification: formally confirming our apart and sustains our entrepreneurial spirit and accelerate further, as the economic, infrastructure leverage faster innovation by companies across customers’ products and services meet all decentralised operating culture. They embody every and social impacts of the pandemic remain long after the world, growing numbers of brands and SKUs, trusted external and internal standards. day all the other key assets that distinguish us. the immediate threat of the virus has receded. But and increasing demand for Smart products. In our These include: I firmly believe that the post-pandemic world will Trade sector, social mobility and requirements These factors combine to drive our commitment to enabling the world to become a better and a safer ultimately emerge as a better and a safer place for for traceability and operational sustainability are • Our TQA Customer Promise: Intertek’s place both during and following the pandemic. all. And I believe that Intertek has a fundamental growing fast, fuelling the need for our services. In Total Quality Assurance expertise, delivered To do so, we have focused on leveraging the spirit role to play in making this happen. Resources, increasing needs for digital supply chain consistently with precision, pace and passion, of innovation that runs through our organisation, management, renewable energies and exploration enabling our customers to power ahead safely Intertek is a world leader in the US$250 billion & production are similarly driving demand. And continually strengthening our existing products Quality Assurance market, with a proven, high- the need for end-to-end corporate services, from • Our high-margin, cash-generative Earnings and services while also introducing exciting new quality business model and a global network of CyberSecurity to risk-based Quality Assurance and Model, based on our capital-light business model solutions to meet emerging needs. We take a customer-focused operations and highly engaged people assurance, ensures that Intertek will stay and entrepreneurial culture, which enable us to three-pronged approach to innovation: subject matter experts. respond rapidly to new growth opportunities front-of-mind for major corporations across • from the core: evolving existing solutions The uninterrupted support our teams provide in local the world. • Our ATIC Customer Value Proposition: providing and creating new ones to broaden our service markets has never been needed more, servicing our In short, having withstood more than 130 years’ our customers with the quality and safety offerings to clients in the sectors where we clients with precision, pace and passion as the world worth of challenges – including world wars, controls that are more important today than at are already established; recovers. The mission-critical services we provide economic recessions and even depressions – any time in the past as their operations and value will help to drive this recovery, playing an ever-more • in adjacent sectors: leveraging our expertise Intertek is now proving its ability to respond chains grow more complex and exposed to risk: important role in society as a source of good for in one sector by adapting existing solutions to positively and effectively to the biggest and most everyone and an important home of innovation • A: the end-to-end assessment and Assurance meet identified needs in an adjacent market; and challenging crisis of our time. We are well placed to for industries across the world. We are a force for of quality and safety processes meet the growing demand for the mission-critical • targeting new markets: creating entirely new good in society, helping our clients manage risk and services and solutions that are essential in helping – enabling our customers to identify and solutions for markets in which we are currently deliver their sustainability agenda, while remaining to bring about a better and safer world for all as mitigate intrinsic risk in their operations, not involved. internally focused on delivering sustainability their supply and distribution chains and we recover from this crisis. Our ‘Ever Better’ approach to innovation, driven by excellence based on our ten Total Sustainability their quality-management systems Assurance (‘TSA’) standards. Today, just 20% of the Solutions that are enabling our customers to our customer-centric TQA Experts, is supporting our Quality Assurance market is outsourced, providing operate safely, efficiently and with total peace of clients to thrive by delivering pioneering solutions us with extremely attractive growth prospects mind as we help them to Build Back Ever Better. for today and tomorrow. as we innovate with ever greater pace to meet To do so, we are focusing our innovative efforts on fast-increasing demand for the truly end-to-end three core priority areas: supporting supply chains; Total Quality Assurance (‘TQA’) solutions that only ensuring better personal safety for everybody; and Intertek is uniquely placed to provide. We continue to helping the world to lower its carbon intensity. look at M&A opportunities in attractive high-margin See page 2 for further details. Intertek Group plc Annual Report and Accounts 2020 19 Strategic report Directors’ report Financial statements
Chief Executive Officer’s review Continued
• Consumers, governments, companies and By allowing independent validation of factors such virtual assurance solution, which uses remote A purpose-led organisation regulators will want better personal safety as recycled content, organic materials and good live video-streaming and smartphone technology Through our unique range of products and services, practice during manufacturing, it enables accurate to carry out mission-critical inspection services • The way we will operate and invest post- our high-margin, cash-generative earnings model and verified labelling, helping consumers to make across the oil and gas supply chain. With some COVID-19 will help build a low carbon society. consistently delivers value for all our stakeholders. well-informed buying decisions. companies restricting access to their sites, our The demand for our services and the experience of RVI solutions enable inspectors to remain home This success is based on the energy and We brought Fast-Tek to market, a comprehensive our customers across the world clearly demonstrate based while leading inspections of client premises. enthusiasm with which our people react to our solution for the key global accounts of our Trade that the global need for Total Quality Assurance is This is enabling global customers to maintain meaningful Purpose of Bringing Quality, Safety customers, which enables our customers to move stronger than ever. And more than ever, our clients business continuity, supply chain requirements and Sustainability to Life. their goods more quickly through global supply chains. are calling for our support, energy, expertise and and manufacturing schedules. Our Vision is to be the world’s most trusted partner relentless focus on overcoming the challenges Better personal safety for Quality Assurance, underpinned by our they face. Our view, supported by research and strengthened shared Values: We know there is much more we can do to build by the pandemic, is that health, safety and wellbeing • We are a global family that values diversity back an ‘Ever Better’ world by helping to make the As more industries undergo profound shifts at an constitute the number one concern for the entire supply chains of our clients safer, by ensuring better even faster pace, the need for creative solutions world. Companies everywhere are having to abide • We always do the right thing. With precision, personal safety for everyone in society and by underpinned by research, design and Quality by increasingly stringent health, safety, wellbeing pace and passion helping the world to lower its carbon intensity Assurance expertise, has never been more relevant. and associated risk-management standards, • We trust each other and have fun winning and get to net zero fast. Our Maison Centre of Excellence in Florence, creating important structural growth opportunities together Italy is our new innovative experiential space where for Intertek moving forward. During 2020, we Safer supply chains science meets luxury, and will bring together – responded positively to this trend, providing Supply chain assurance is in Intertek’s DNA. It • We own and shape our future virtually or face-to-face – our industry experts, governments and clients with pandemic-related became even more important during the pandemic, forward-thinking fashion brands, industry leaders, assurance solutions and developing many truly • We create sustainable growth. For all. with strengthened growth drivers ranging from academics and a host of textile industry participants ground-breaking innovations. faster access to supplies, improved intelligence, to collaborate and to take bold new ideas and turn increased demand for supply resilience, end-to-end Helping our clients to them into reality, reshaping the future in a more traceability and more. During the year we drew on sustainable way. Build Back Ever Better our expertise and intimate customer understanding Developments to existing supply chain Assurance 2020 will be remembered as the year when a global to create a more risk-free trading environment for services included a significant upgrade to our external event forced everyone to rethink how our clients everywhere. market-leading supply chain compliance solution to operate and make the world a safer place. with the launch of Inlight 2.0. Inlight™ uses We are convinced that the world will be a better integrated learning to help organisations better and safer place post-COVID-19. understand their supply chains and protect their New services included SourceClear™, a new brands. Inlight 2.0 builds on this by providing We expect the theme of ‘Build Back Ever Better’ technology platform that provides visibility enhanced analytics that give clients live dashboards to guide the actions of governments, companies, and traceability across the full range of supply- of supplier performance, trends, risks and investors, regulators and consumers. The learnings chain relationships, enabling companies to track opportunities. This enables them to analyse risks at of the global pandemic we faced in 2020 will be in sustainable material claims throughout all stages every point, from the sourcing of raw materials, to three areas: of trade and production in the supply chain. In this regulatory compliance and end-use by consumers. Building Back Ever Better way, it empowers our customers to demonstrate Watch our Building Back Ever Better • Managements, Boards and shareholders will their sustainability commitments by managing and Responding to demand during the pandemic, we also video, available from 30 March 2021, want to see their companies operate with a safer certifying verifiable product and materials data and further developed our Remote Video Inspection at intertek.com/bbeb supply chain transactions across all supply chain participants. (‘RVI’) service, part of our market-leading Inview 20 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Chief Executive Officer’s review Continued
Protek™ POSI-CHECK audit solution, for example, Low carbon society enabling producers to reduce carbon-intensity helps in the Prevention of the Spread of Infection With a tipping point having been reached, and participate in the transition to a low-carbon (‘POSI’) and has been designed to formulate and sustainability is the movement of our time, and the economy. Ultimately, it will provide consumer monitor an effective response to infections in hotels expectations of all stakeholders have changed as transparency, drive buying decisions and enable Intertek Protek™, for example, which we launched and restaurants. Its primary aim is to help hospitality people across the world are deliberately choosing producers to exercise a price advantage. Critically of at the beginning of May 2020, is the world’s first clients ensure the safety of their staff and guests to lead greener ‘stay local’ lifestyles. This move course, decarbonising the production of oil & gas is industry-agnostic, end-to-end health, safety as global travel accelerates once again when the has accelerated during the pandemic, with remote an imperative for the sector and such transparency and wellbeing assurance programme for people, pandemic has been brought under control. The working, distance learning and online shopping all is a fundamental factor in investment decisions. workplaces and public spaces. The Protek™ portfolio CEO of Club Med, specialists in luxury all-inclusive gaining traction as never before. We built on our comprises four sets of specialist services: holidays, posted a personal ‘welcome back’ video position as the industry-leading provider of Total ‘Ever Better’ Intertek • Protek™ People Assurance: an on-demand message to its guests, reassuring them of the Sustainability Assurance (‘TSA’) solutions during training and certification programme to ensure health and safety measures which have been the year with new launches that help our clients Our focus on our role in the global employees are up-to-date with essential health implemented at their resorts by Intertek’s and their customers mitigate their risks and carbon recovery from the pandemic is and safety topics; Protek™ solution. footprint. As a world leader in sustainability services, and a purpose-led organisation, we believe it is incredibly important to everybody at We continued to expand the range of solutions • Protek™ Business Assurance: end-to-end important for us to ensure that our own standards from our Intertek Alchemy business, the leading Intertek. It draws on our commitment auditing of all procedures and systems to are as high as those we provide for our clients. As provider of training and engagement solutions ensure clients can demonstrate safety; such our sustainability reporting follows the TSA to innovation, growth, cost control, for frontline workers. This included the launch of ten Corporate Sustainability Certification standards. performance management and • Protek™ Facilities Assurance: audit and Alchemy Playbook™, a mobile application that You can read the detail of our activities in this area inspection services for facilities including reduces unplanned downtime for manufacturers by sustainability. And it acknowledges during 2020 in our separate Sustainability Report. hotels, retail outlets, travel hubs, schools and identifying and reallocating workers to fill any gaps that the world needs Intertek workplaces, where people will look for visible in the production caused by a key employee being We started to scale up our Cyber Assured more than ever – our insight, our signs of safety verification; and absent. This has proved particularly important Programme, the unique CyberSecurity testing innovation, our expertise and • Protek™ Materials & Surfaces: complete during the pandemic. and certification programme providing continuous vulnerability monitoring for connected products, our passion. workplace and public space testing solutions We have also been quick to develop a wide range increasingly important given the rise in home- to ensure employee and customer safety. of other services in response to the pandemic, working, online shopping, etc. Intertek Cyber leveraging our leadership in areas including the Our Protek™ experts were also closely involved Assured enables manufacturers to ensure their Free-to-download testing of ventilators, protective clothing and other from our website in the publication of Travel Truth and Lies products meet security best practices and emerging forms of PPE. Intertek is becoming established as intertek.com/protek/ Unmasked, a COVID-safe travel tips eBook written regulatory requirements, clearly demonstrating a a global PPE market leader, with full testing and travel-unmasked- in association with New York Times best-selling high level of security to regulators and consumers. ebook author, Martin Lindstrom. The book contains inspection capabilities in all key regions. practical advice and guidance covering many areas, Among other related initiatives, we also increased to help the world as it starts to travel again. our testing capacity and speed of services for hand The book is free-to-download from our website sanitisers, germicides and surface disinfectants. intertek.com/protek/travel-unmasked-ebook We built a leading position in germicidal products, In a major breakthrough innovation, we launched CarbonClear™, the world’s first independent The reactions of our clients around the world to strengthened our support to pharma companies for carbon-intensity certification programme. It gives Protek™ have been very positive. It is very much in vaccine development, and further developed our oil & gas producers the ability both to evaluate line with what the world needs right now, and we CyberSecurity audit solution for people working emissions across every stage of exploration and already have many thousands of customers for our from home. production and to validate the carbon impact of solutions in markets across the world. Our new producing one barrel of oil equivalent. This brings unique clarity to their cradle-to-gate operations, Intertek Group plc Annual Report and Accounts 2020 21 Strategic report Directors’ report Financial statements
Chief Executive Officer’s review Continued
Our five corporate goals have consistently driven our Our five strategic priorities Growth and margin-accretive portfolio This has been achieved thanks to our highly cash- activities over the last five years, and have become Our differentiated brand proposition To achieve the sustainable growth we target, we generative and carbon-light earnings model, based more important than ever for us during – and after – Intertek is positioned globally as the leading supplier prioritise those business lines, geographies and on our investments in high-growth, high-margin the COVID-19 pandemic: of truly end-to-end Total Quality Assurance. We service areas where the solutions we provide are areas, disciplined capital allocation, strong free have achieved global consistency on our TQA brand of the greatest value to customers and prospects. cash flow and margin-accretive revenue growth. • Fully engaged employees working in a safe proposition and identity across more than 100 This enables us to invest in those areas that environment Now, with our people across the world drawing countries. At a time when the need for a better and demonstrate the greatest potential for delivering on our strategic enablers to deliver against our • Superior customer service in Assurance, Testing, a safer world has never been greater, we have been attractive returns, in terms of both business growth priorities and so achieve our goals, Intertek is Inspection and Certification quick to address ATIC opportunities arising from and good margins. During 2020, in the face of the destined to make the world a better, safer and emerging new growth drivers and created stand-out pandemic, we maintained our disciplined focus • Margin-accretive revenue growth based on GDP+ more sustainable place for all. product brands for our market-leading innovations. on how we allocate resource, capital and people, like-for-like growth ensuring that we continued to strengthen the core The services we offer have never been more Superior customer service • Strong cash conversion from operations of our business during a time of unprecedented mission-critical than now and in the years to come. Our commitment to outperforming our competition challenges. The Group’s centre of gravity continues Our position as the FTSE’s leading company in • Accretive, disciplined capital allocation policy. on the quality of our customer service is driven by a to move towards the high-growth and high-margin terms of dividend growth emphasises our superb straightforward business imperative: to build loyalty Once again, during 2020 we have made strong sectors that in turn feed further accelerated margin- performance throughout the 21st Century. from our existing clients and win new customers. progress on our five strategic priorities (see below), accretive revenue growth. We recognised the huge operational challenges But I believe our best years are still ahead of us. which are empowered by our unique set of customers faced during the pandemic and have Operational excellence strategic enablers: Sustainability excellence raised our game even further. We are continuously Continuous improvement is essential to drive the Intertek is bringing quality, safety and sustainability • living our customer-centric culture, built on a communicating to understand and respond to their operational excellence that underpins sustainable to life and delivering sustainable value for all strong spirit of entrepreneurship, a customer- needs and drawing on the metrics and insights from growth. To achieve this, we operate strict stakeholders. We support our client’s sustainability focused mindset and engagement at all levels the 6,000+ NPS (Net Promoter Score) customer performance management controls to improve agenda with our operational sustainability of the organisation; interviews we hold every month has enabled the consistency of all activities and processes, assurance solutions, our global audits to verify us to constantly improve our quality of delivery so ensuring we achieve the highest standards their ESG disclosures and our industry leading • disciplined performance management, built on and develop innovative new and improved ATIC of efficiency and productivity. We have in place corporate certification programme. Sustainability financial and non-financial metrics and processes solutions, including unique offerings like Protek™ a holistic view of performance at all our locations is central to everything we do internally at focusing on margin-accretive revenue growth and CarbonClear™. across the world, enabling us to apply our ‘Ever Intertek, and I am pleased to report that the and strong cash conversion; Better’ approach to every part of the business, Group was carbon neutral in 2020 and that Effective sales strategy with metrics on key financials such as revenue • superior technology, improving the customer we are committed to further progress on our Existing clients are the most productive source of growth, margin, cash conversion, pricing power and experience, leveraging back office synergies sustainability agenda moving forward, including new business opportunities, and we maintained capital allocation; and operational indicators such as and delivering superior business intelligence; targeting net zero emissions by 2050. our focus during 2020 on increasing account customer retention and acquisition rates, marketing penetration into new parts of our customers’ • energising our people through investments in leads, the sales funnel, our health and safety Intertek has been a force for good for over 130 businesses. The end-to-end nature of our ATIC their capabilities, providing a fully aligned reward performance and NPS. years, bringing quality and safety to life with portfolio is delivering unique opportunities in system and promoting internal growth; and a pioneering spirit. Sustainability is central to this area, supporting the cross-selling of new Highly cash-generative and carbon-light everything we do at Intertek and we are passionate • delivering sustainable results, providing growth and existing services. In addition, our emphasis earnings model about making Intertek ‘Ever Better’, every day. for our customers and shareholders, recognising during the year on safer supply chains, health and The power of our earnings model has massively the importance of sustainability for the wider safety, and the low-carbon society opened many contributed to Intertek’s ranking as the FTSE’s In 2020, we have made significant progress community and achieving the right balance opportunities with new customers across the world. leading company in terms of dividend progression to deliver sustainability excellence in every between performance and sustainability. between 2003 and 2019, with a CAGR of 17%. operation within the Group, including:
22 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Chief Executive Officer’s review Continued
• driven our sustainability agenda deeper into the committed to setting independently verified sustainable value for all our stakeholders. Our services that didn’t exist prior to the pandemic. organisation by inspiring our people to create science-based GHG emission reduction targets. Our beyond net zero sustainability targets are: Consumers want more sustainable products, supply local sustainability initiatives; aim is for our Science Based Target to be aligned to chain simplicity, visibility and traceability of goods, • 6,000 NPS interviews per month limiting global temperature rise to below 1.5°C and new solutions for hygiene, health and wellbeing, • developed an Environmental Sustainability reaching net zero emissions no later than 2050. • Women in 30% of senior management roles as well as lower carbon emissions. Employers are Dashboard down to site level to give our by 2025 being tasked with developing and providing new people the visibility and ownership of their Intertek has also joined the UN Race to Zero tech and virtual remote-working solutions. own environmental data; and campaign – a global effort from the United Nations • Total Recordable Incidents rate below 0.5 per Framework Convention on Climate Change that 200,000 hours worked The world needs Intertek more than ever, with • evaluated ourselves against our own TSA calls for a resilient, zero-carbon recovery from the the unrivalled expertise of our people, our focus standards and improved our understanding COVID-19 pandemic and is aligned with our own • 100% attendance of eligible employees at on delivering risk-based Total Quality Assurance of how we can be truly Best-in-Class. ambitious agenda to Build Back Ever Better. Compliance training solutions, and our proven track record of innovating Our commitment to net zero emissions and anticipating the growing needs of our clients Sustainability means more than net zero • Voluntary permanent turnover rate less than 15% In line with our commitment to reducing the as the world around them grows more complex. We Sustainability is central to our 5x5 differentiated • Group Engagement Index score of 90%. carbon footprint of our direct operations, we provide mission-critical ATIC solutions to enable strategy for growth. Internally, we are focused continue to focus on improving our energy the world’s supply chains to operate fully and on sustainability excellence in every operation. efficiency, purchasing energy from clean sources safely, given the increased expectations from all We believe that ‘Doing Business the Right Future focus and outlook such as renewables and investing in on-site stakeholders to live in a better and safer society. Way’ with a systemic approach is the only Our structural growth prospects appear ever-more renewable energy generation at our locations. way to deliver our corporate goals and create compelling as health, safety, wellbeing, transparency In 2017, we set ourselves the target of reducing sustainable value creation for all stakeholders. and sustainability grow in importance for companies GHG emissions per employee by 5% by 2023, and individuals alike. Intertek’s continued strong To do that, we follow precise processes and and we are well on track to achieve that. performance during the pandemic and the standard operating procedures in ten areas associated global economic downturn highlights which form our Corporate Sustainability We have a carbon-light earnings model. Our the unprecedented importance of our role. André Lacroix average carbon intensity over the last three years Certification standards. They are: Chief Executive Officer was 4.5 tonnes of CO per employee, which is low Our success in launching innovative new 2 • Quality & Safety • Financial compared to the all-industry average of 12.3 tonnes products and services, and the continuing of CO2 per employee (Intertek research based on • Environment • People & Culture emergence of powerful growth drivers, publicly available information for 2018/19). also demonstrates the significant scale • Governance • Enterprise Security of the available growth opportunities. In addition, we have bought carbon credits to offset our direct operational Scope 1, 2 and 3 • Risk Management • Communities The quality of our results in 2020 illustrates GHG emissions, making 2020 our first carbon the heightened relevance of our purpose, neutral year. The credits we have bought help • Compliance • Communications the underlying strength of our strategy and & Disclosures to fund verified carbon off-setting projects the resilience of our high-quality and cash- Building Back Ever Be er staina ilit eport that have a meaningful benefit to communities In line with our Sustainability standard on generative compounder earnings model. in which we operate, including a hydropower Communications & Disclosures, we have made Into 2021 and the years ahead, we are committed project in Pakistan, an electricity generation the disclosures in our 2020 Annual Report to further leveraging these strengths and targeting project in Turkey, a wind power project in India View our separate Sustainability Report at broad based to provide total transparency. new opportunities to grasp a greater share of > and a forest conservation project in Brazil. intertek.com/about/our-responsibility We have also set and embedded our targets the ATIC market. Society has changed. We are in Further, we have signed up to the Science Based to go beyond net zero in those areas in our the ‘new normal’ and are observing new trends Target initiative which means that we are formally business model that are central to delivering and behaviours and demands for products and
Intertek Group plc Annual Report and Accounts 2020 23 Strategic report Directors’ report Financial statements Key performance indicators Definitions
• Constant rates (‘CCY’): Growth at constant • Return On Invested Capital (‘ROIC’): Adjusted exchange rates compares both 2020 and 2019 profit after tax (see income statement on page Strong returns figures at the average and year end exchange 135) divided by invested capital. rates for 2020, in order to remove the impact • Invested capital: Net assets excluding tax of currency translation from the Group’s balances, financial net debt and net pension growth figures. liabilities. on invested • Like-for-like: Like-for-like growth measures are • Diluted earnings per share: Profit for calculated by including acquisitions following their the year attributable to equity shareholders of 12-month anniversary of ownership and removing the Company divided by the diluted weighted the historical contribution of any business average number of shares (see note 7 to the capital disposals/closures. financial statements). • Operating profit: Revenue less operating costs. • Cash flow from operations: See Group • Operating margin: Operating profit divided cash flow statement (page 140 to the by revenue. financial statements). Disciplined performance management focused on margin- accretive revenue growth with strong cash conversion and accretive Adjusted actual rates 2020 Adjusted capital allocation to drive strong Adjusted constant rates 2019 Adjusted returns on invested capital. Statutory actual rates Statutory
Financial The Group uses a variety of key performance indicators (‘KPIs’) to monitor performance and measure the financial impact of the Group’s strategy. Where applicable, KPIs are based on adjusted measures in order to provide a meaningful and consistent year-on-year comparison. An explanation and reconciliation of 1. Revenue, adjusted operating profit and ROIC are recalculated using 3. Dividend per share is based on the interim dividend of 34.2p (2019: statutory to adjusted performance measures is given on page 52. 2019 exchange rates to form the basis for Executive Director 34.2p) plus the proposed final dividend of 71.6p (2019: 71.6p). remuneration, as described in more detail on page 122. 4. 2019 ROIC has been prepared using 2020 average exchange rates Non-financial KPIs are shown in the Sustainability Report on pages 40 and 41. 2. Adjusted operating profit, adjusted operating margin, adjusted cash for adjusted operating profit and adjusted tax, and year end 2020 flow from operations, adjusted free cash flow and adjusted diluted exchange rates for invested capital. 2019 ROIC at actual rates earnings per share are stated before Separately Disclosed Items, was 23.7%. which are described on page 52. There is no difference between adjusted and statutory revenue.
24 Intertek Group plc Annual Report and Accounts 2020 Strategic report Directors’ report Financial statements
Key performance indicators Continued
Revenue1 (£m) Like-for-like revenue (£m) Cash flow from operations2 (£m) Revenue growth measures how well the Group is expanding its Revenue growth, including acquisitions following their 12-month Shows the ability of the Group to turn profit into cash. business and includes currency impacts. anniversary of ownership and excluding the historical contribution of any business disposals/closures excluding acquisitions and disposals.
(8.2%) (6.7%) (8.3%) (6.8%) (3.5%) (4.2%)
2020 2,742 2020 2,736 2020 685 705