Intertek reported full-year revenue of £2.8bn, with like-for-like (LFL) growth of 5.6%, ignoring the effect of exchange rates all three divisions grew. Underlying operating profit rose 15.4% to £474m, ahead of market expectations.
Looking to 2022, the group expects to deliver ''robust LFL growth at constant currencies with margin progression year on year and a strong free cash flow performance.''
The board will be proposing a final dividend of 71.6p, in line with the previous year.
The shares were unmoved following the announcement.
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Our view
Intertek makes most of its money testing and certifying the quality of products and components - everything from children's toys to huge components on oil rigs. It's not too surprising to see performance on the up, given managing every inch in the supply chain is becoming more important for businesses.
Longer term, riding the global regulation wave remains a good place to be. Safety checks were already getting tighter across a wide range of industries and the pandemic has amplified that trend. With services to help companies prove they comply with new requirements, Intertek is well positioned to help.
The part of the business geared towards natural resources has tended to be more cyclical. Things have picked up as people take to the roads and skies once again. Meanwhile, buoyant commodity prices mean miners have been ramping up production, keeping the Minerals business supported. But increased costs have weighed on the Resources segment, as we saw margins decline despite a rise in sales.
Over the longer term the group's strategy calls for a shift towards higher-growth, higher-margin businesses. Such as ESG related monitoring, which should be a long-term growth driver. As businesses around the world are expected to give more details on their supply chains, demonstrating the environmental and social impacts is likely to become more important.
Assurance is another attractive business area, showing good growth, high margins and low capital requirements. So you can see why Intertek is looking for a bigger slice of the pie, splashing the cash to acquire SAI Global Assurance last year. However, the SAI deal came with a hefty price tag, pushing net debt north of £700m.
The group hopes to improve margins to boost profitability, but it will still take years for the deal to break even. If the group can capture a sufficient share of the growing assurance industry that won't matter - but large deals at high prices are risky, and integrating businesses is rarely as straight forward as management hopes.
Overall, we think Intertek has proven its resilience as a diverse and operationally sound business. The SAI deal remains a risk worth watching, but for now we are prepared to give management the benefit of the doubt. The group's valuation is sitting above the long term average but has come down somewhat, and is less demanding than it has been for a few years.
Intertek key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Full Year Results (constant exchange rates)
The largest division, Products, reported a 9.1% increase in revenue to £1.8bn, with LFL sales up 7.6%. Underlying operating profit grew 18.0% to £399.7m. The division saw LFL revenue growth across all segments except Transportation Technology, which registered a low single digit decline. That came following a slow start to the year as demand for testing in Western Europe and North America dropped.
Trade posted a 2.8% rise in revenue to £575.4m, with LFL sales up 3.0%. Underlying operating profit grew 17.3% to £51.6m. Both Caleb Brett and Government and Trade Services saw low-single digit LFL sales growth, with AgriWorld the standout performer posting double-digit growth.
In Resources, revenue grew 1.6% to £455.6m, with LFL sales up 1.7%. However, margins were down 1.2 percentage points which meant underlying operating profit fell 18.7% to £22.6m. LFL sales grew in Opex Maintentance and Mineral, but Capex Inspection services declined over the year.
Free cash flow came in at £401.8m, down 7.8% on the previous year due to changes in working capital. Net debt (excluding leases) stood at £733.3m, an increase of £313.4m primarily related to the acquisition on SAI in September 2021.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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