Intertek Group plc

Andre Lacroix - Chief Executive Officer Edward Leigh - Chief Financial Officer

Paul Sullivan - Barclays Josh Puddle - Berenberg Joel Spungin - Merrill Lynch Suhasini Varanasi - Goldman Sachs Tom Sykes - Deutsche Bank Ed Steele - Citigroup

Okay, so let’s start on time, because if we start on time, we will finish on time. Good morning to you all, and welcome to our results presentation this morning.

We are really pleased with our performance in 2016. We’ve delivered in our views a strong performance in revenue, earnings and cash performance and as we all know cash matters.

These results in our view demonstrate the ruthless focus we have on performance management and a way you know we manage performance inside the company. We’re really clear about making sure we address all levels that are available to the management.

And we call our performance management approach margin accretive revenue growth with strong cash conversion and accretive capital allocation which in our views are the key drivers to drive sustainable performance. So today, we’ll start the meeting with review of the highlights in 2016 and Ed will take you through the detailed financial results and I’ll come back and give you an update on where we are with the rollout of our strategy giving you some examples on how we make it happen day to day inside the company.

And then as you would expect, we’ll finish with a discussion on the performance by division as well as the outlook for 2017. So just let’s start with our highlights for 2016.

I am going to go really quickly to the key points you’ve read reports this morning. We’ve generated £2.6 billion revenue, up 18.5% at actual currency and 8.8 at constant currency.

And this strong revenue performance was driven by the excellent contribution of the acquisitions that we have made recently. Organic revenue was stable as expected at constant currency.

Operating profit of £410 million was up 19.3% at actual currency and 10.4% at constant currency, an incredible performance. We’ve delivered an operating margin of 16% with a moderate margin progressing.

You all know this is the second year in the row that we are delivering margin accretion up 10 basis point year-on-year at actual currency and 30 basis point at constant currency, very pleasing results. Our full EPS of 167.7p was up 19.2 at actual currency and 9.6% at constant.

In line with our progressive dividend policy, we are proposing full year dividend of 62.4p, up 19.3% compared to 2015. I think our shareholders will be very happy with our proposed dividend for the full year.

And important for us is returns. We’ve delivered an excellent return on invested capital of 21.7%, up 170 basis points at constant currency.

And this is obviously including the impact of acquisition. Taking about acquisitions, I think the acquisitions that we have made recently, we’re very successful.

They contributed to about 242 million of additional revenues. And this acquisition is important because they are strengthening our portfolio by providing us access to the right end markets with industry leadership positions.

And we can talk about any of that is if you are interested in the Q&A. The center of gravity of the company is moving as we talk about last year towards a high growth, high margin sectors in the industry.

And if you look at product and train combines, this now represent 80% of the Group revenue and 93% of the Group operating profit. Training conditions remained challenging as expect no surprise in the resource rating business.

We saw an organic revenue decline of 13% at constant currency bang in line with the guidance we gave in November. But if you look at most of the portfolio, we delivered GDP plus organic growth at constant currency in 93% of our earnings with a 4.1% organic growth in our combined product and trade division.

And to me that’s the important number in our performance today. We are delivering GDP plus organic growth at constant currency in 93% of our earnings, obviously resources is still very challenging.

And this GDP plus organic growth performance was driven by a very, very good performance in our product related business 5.5% organic growth at constant currency and maybe is an excellent performance. And in the trade, we delivered a solid organic growth of 1.3%.

In addition to our focus on revenue and portfolio, margin management is very important for us. And organic margin was up 70 basis points in constant currency, driven by our focus on cost, productivity and portfolio initiatives.

In 2016 no question about it, we continue to benefit from the cost restructuring activities we’ve implemented in last three years and you are very familiar with these. We’ve continued to stay very focused on productivity initiative with our performance, management approach.

I’ve talked about it at the beginning of the presentations. And as discussed last year, we’ve made progress with the review of the 20 business units where we had questions marks.

Remember I’ve talked about it last year having review the entire portfolio, we said there are about 20 businesses where we’d like to do some deep dive. And we’ve concludes the revenue throughout the year with Ed and our colleagues and that has led to the closure of nine business units and the restructuring of 11 business units.

In 2017, we will continue to focus on improving the performance of these 11 units that we have restructured. And as you would expect, we’ll continue to review areas in our portfolio that requires some attention from a strategic standpoint.

Cash management is also a very important priority. In 2016, our working capital as a percentage of revenue declined to 7.1% of our revenue.

You can see the trend decline year-on-year. I am delighted have to say with a significant impact of day to day cash activities are having on our cash performance.

The cash generated from operation was £543 million, up year-on-year by 23% driven by an excellent cash conversion of 139%. Our day to day cash focus combined with a disciplined capital allocation has delivered a very strong free cash flow of £318 million, up 35% year-on-year, an incredible growth.

Our adjusted free cash flow to net income ratio was at 118%, an incredible performance significantly up year-on-year as you would expect. Of course, we’ve continue to invest in growth.

We’ve invested £106 million in organic CapEx to drive growth in the areas of portfolio where we see good gross and good margin prospects. We have made three additional acquisitions in 2016.

We’ve invest around £35 million. In January last year you would remember we’ve acquired a very good business in Italy, FIT, a leading food assurance service provider in Italy, a very important market for us.

In October, we’ve completed the acquisition of EWA-Canada, a leading cyber security assurance business in North America with obviously customers also around the world. And in November, very excited about that project we’ve announced a partnership with ABC Analitic and we now run the market leading environmental testing provider in Mexico, tremendous business.

This morning, we’ve announced a proposed full year dividend of 62.4p. That will obviously increase the final divided to 43p and represent a payout ratio of 37% which is in line with our progressive dividend policy.

I’ll now hand over to Ed, who will take you through the results in greater details.

Thank you, Andre, and good morning, everyone. As Andre has described, we delivered a strong full year performance and I’ll now take you through some of the detailed underlying results.

So in summary, we delivered double digit revenue profit and EPS. Margin improved year-on-year both actual and constant currency.

Organic growth was flat for the year. The strong performance from acquisitions contributed 8.7% to revenue in the period and FX added a further 9.7%, which is driven by the depreciation of sterling particularly in the second half of the year.

At constant rates, operating profit progress was strong being up 10% to 410 million and margin was up 30 basis points. FX translation was a net gain for the year resulting operating profit up 19.3% of actual rates.

As expected, the effective tax rate increased to 25.3% compared to 24.3% in the prior year drive by business mix and the impact of acquisitions. Net financing costs were 22 million being slightly low than the 24 million last year, largely as a result of the weaker pound creating FX gains on our non-sterling debts.

So overall, fully diluted EPS drove double digit to 167.7 p being up 19 point at actual rates and 9.6% at constant rates. We also delivered a strong cash performance in the year with our focus on working capital and performance management leading to an increase in free cash of 35% to 318 million.

I’ll now take to you some information regarding our divisions. So the group recorded a 10 basis point improvement in total margin in the year increasing to 16%.

Organic margin improved by 70 basis points at constant rates driven by good margin accretion in products and also by the benefits of the stronger portfolio mix which contributed 50 basis points. M&A diluted the organic margin by 40 bps, largely as a result of the full year consolidated of PSI.

And finally FX had a slightly negative impact on the Group margin. Now if I turn to Group cash flow and debt, so free cash flow of 318 million was up strongly in the year improving by 35%.

This was driven by improved profitability of the Group as well as our day to day focus on cash flow management. We acquired three businesses investing 35 million.

And the overall strong performance in cash flow resulted in a reduction of our net debt to 744 million being 4% lower than year. This equivalent to 1.5 times net debt-to-EBITDA ratio which improved from 1.7 times we have in the prior year.

Now turning to our financial guidance for 2017, so the expected net finance cost would be around 25 million with the year-on-year reflects and fully reflect on interest charges of our dollar denominated debt. The effective tax rate is expected to be in the 25.5$ to 26% range reflecting our business mix, a minority interests will be 17 million.

And for the models, I’ve set out the number of shares for the EPS calculation. We are currently expecting a full year CapEx to be £120 million to £130 million.

For next debt, we expect to close the year between £650 million and £700 million, although noting this is started before any M&A completions and any material movements in FX. With that I’ll just hand over to Andre.

Thank you, Ed. I’d just like now to spend a bit of time on how we are executing our 5x5 strategy, the strategy that we presented to you last year in March.

Let’s just start with the market. Obviously, you know that but you know it’s always important to remind ourselves the growth opportunity in the quality assurance markets are very attractive and we believe we are really well positioned in medium to long term to seize this with our total quality assurance service offering.

I think the market is worth $250 billion yet only 20% of this market is currently outsourced and this is obviously the key number that we all have in mind. We see strong growth opportunities with existing and new customers, obviously by increasing the account penetration but also driving cross selling with our ATIC activities.

I’ll talk about in the second. But we also see some strong growth opportunities below obviously the water line by convincing customers they do in-house either testing our assurance to basically outsource and use an independent expert provider like Intertek.

And this you know outsourcing opportunities in my view are very important both from a testing inspection certification standpoint but also from an assurance standpoint as a lot of companies do a bit of assurance in-house but we know it so well is not end-to-end hence the opportunity for us. In a medium to long term, we believe that the industry will benefit from GDP plus organic growth rate in real terms.

We expect our product business to growth ahead of GDP and we’re already seeing that our product sector represent 57% of our Group revenue and 73% of our profit. Our product business will continue to benefit from brand and SKU proliferation, increase regulations as well as improvement in safety, performance, quality and let’s not forget the important role of sustainability these days.

We expect our trade business to continue to grow at a rate broadly similar to GDP through the cycle. The trade sector as you know represent 23% of the group revenue and 20% of our profit.

Our trade business will continue to benefit from the development of regional and global trade as well as from the increased focus on traceability and sustainability in the entire supply chains of corporations. Investment and exploration and production for essential resource like oil and minerals will growth in a medium to long term to meet the demand of the growing population around the world.

That’s the mega trend in the energy sector. As you know resources represent 20% of our revenue and 7% of our profit.

The strategic objective of 5x5 strategy is to move the center of gravity of the company towards a high growth and high margin sectors in each part of industry we operate in. We plan to seize these opportunities ahead with our total quality assurance service offering that addresses in our view the current and the emerging needs of our clients for a systemic end-to-end quality assurance.

As you know we have five goals as we execute our strategy. Our goal number one is to make sure our employees are fully engaged and work in a safe environment.

Health and safety is so important. Secondly, we want to deliver a superior customer service.

We are very demanding in ourselves to make sure you know we are the trusted partners for each of our clients. Our third target is to deliver margin accretive organic growth pattern based on GDP plus.

And fourth, we wanted to deliver strong cash conversion from our operations. And fifth, capital allocation is very important for us and we are very discipline when it comes to capital allocations for both CapEx and M&A.

What I like to do now is to share with our a few examples to give you a sense of what’s happening inside Intertek on daily basis. You’ve heard about the strategy last year, I am not going to spend more time on that.

But what we do concretely every single day to drive revenues and I talk about the five areas we focus on, customer retention, customer penetrations, ATIC cross selling, new customer wins and outsourcing. And I’ll give you some real examples, one think I cannot do is give you the name of our customers as total quality assurance providers, we do not reveal the name of our customers unless it’s agreed and it’s understandable.

Let’s start with customer retention, I mean we measure NPS to drive customer royalty with superior customer service and to create positive word of mouth to win new customers. The purpose of NPS you might know about the methodology is to ask very simple questions how likely are you commend us and we follow-up with a very simple questions why.

And the beauty of NPS is obviously is meaningful at a group level but it’s very important for the operators allow manager no matter where we are around the world get this NPS results every single week and you can discuss the inside with the team. That’s the beauty of NPS.

We use the feedback that we receive from customers to drive continues improvement and obviously innovate. And we have now rollout NPS across all of our markets.

So we have 100% of coverage inside the world of Intertek. We do about 6,000 interviews per month.

Can you imagine 6,000x12, the amount of data we get in terms of customer research; this is just an incredible data base that we have at our fingertip now to really understand what’s in the matter of our customers. I believe we are well ahead of many, many corporations in the world not only in our industry.

This is invaluable inside as resulted in several improvements already but we are just at the beginning. So to give you a couple of examples, in one of our top 30 markets, we’ve launched a new communication platform with our customers is a fast track outline that ensures that customer enquiries are replied within the hour, with 60 minutes.

The process is we have to go to any enquiry from any customers. That’s the word we live in today, very powerful innovation.

And this is already showing some very strong improvement in terms of NPS. Another interesting innovation, in Africa, we’ve launched an innovative Soil Manager app which enables farmers from all of Africa in remote location to get access to a range of digital service.

And this is the beauty of technology today with 3G and 4G networks anyone can get access to online services. And our farmers can now online Africa submit sample information, track the progress of the testing, receive timely results and of course pay online.

What a world we’re in. Let’s now discuss how we increase customer penetrations.

And here we’ve taken example from big self-line operation and it’s just a performance of a lab over the last 10 years. So it’s not a proxy for the total global softline business, but I can you models ready ramping up the assumptions.

But just to give you a sense you know a lab over last 10 years real lab. And let’s go through the data.

We are increasing our market penetration in that market by focusing on three growth areas. First, we’ve seen a strong increase in number of customers who actually retailers that we are servicing from this lab that demonstrate a progress that we have made winning new accounts driven by brand proliferation what we’ve talked about in the past.

Secondly, the data show the number of test report has increased faster that number of clients and that’s supporting the high number of SKUs that we test for every single client that we’ve talked about. And the third, which is very important because has an impact on the average price which our test reports.

The increase focus on quality and safety has increased the scope of testing protocol. And with just as example of typical knitwear, this product now requires 39 test compared to 29 ten years ago.

And that’s trying to show you on a pro forma basis the key driver we see with existing softline customers. Obviously, we are increasing number of customers, increasing the number of SKUs and increasing the type of test we do for each test report.

Let’s now move to cross selling and let me give you a few examples what’s happening with our ATIC activities. Let’s just start with the process; our ATIC cross selling process is all inside Intertek by the key account managers.

Our key account managers are inside every single business lines and they are responsible to basically develop and build a strategic account for every single account they run. But they are also responsible for liaising with their colleagues inside of Intertek to basically make sure they can get the ATIC solution they need for their customers inside the Group portfolio.

So a few examples of recent wins in transportation technology we had re-successful ATIC presentation was one of the global garment manufactures and basically they gave us additional opportunities beyond the test we already do today in fuel consumption or engine performance and they asked us to look at pre-production supply qualifications. So that’s a real issue in many industries especially the automotive industry when you launch new models, you have to bring new parts and qualifying your new supplies for new path is typically a root cause for quality issues.

So they wanted to get some assurance on that. They’ve also asked us to look at their entire supply chain risk management.

They’re very interested with the approach we take to end-to-end risk management to take a risk based approach to testing and inspections. And obviously this is very important these days in the automotive industry, they’ve asked us to start doing some portable vehicle emission testing because as you know manufacturers now need to go and measure the emissions in fuel consumptions on the road.

That shows industry a global retailer provide an additional sales opportunity recently with the auditing of the entire supply chain as well as with regulatory product evaluation to make sure they are up-to-date with new and relevant regulatory standards. And this is a key example of what’s happening in the toy industry where toys these days have a lot of technology.

And in terms of regulatory, it’s very, very complex. Each time you change technology and you put more chemicals or you put a wireless technology, the entire regulatory environment change overnight.

And this is a huge need for companies and they typically don’t have the in-house expertise. Let’s move to another industry a leading FMCG manufacturer gave us an additional ATIC opportunities with certifications of their processes across a multiple set standards they were not happy with their in-house end-to-end assurance process.

They also were worried about the development in terms of regulatory market access. And if you think about it in the world of FMCG and I don’t know if you guys know work with big FMCG companies, what has happened over time corporation environment so big, they have centralized their back offices, their finance team, their legal teams and marketing and sales.

And as I remember the big of my carrier when I was Procter Manager Colgate in France, each time I wanted to make a chance in order to the formulation of diapers, or toothpaste or detergent. I had to go and talk to the technical department, to the R&D, to the legal departments, to the printing companies, and obviously to general management to get the approval.

Now, these companies operate with sales and marketing divisions around the world. So the measure in this business, I have no one to talk to and that’s creating a huge gap in terms of regulatory assurance and that’s where we can provide this global regulatory expertise that obviously works very well.

And that FMCG company is very, very interested in our services. And then they’ve also asked us to look at their end-to-end risk assurance management very, very current theme that we see with corporations.

As you know shareholders are putting increased pressure on public companies to have a better risk management and companies are coming to the conclusion that they need to step-up their activities and raise their game when it comes to risk management. Let’s not talk about new customer wins and a few examples here.

Hardline business, a U.S. retailer asked us to manage a more complex quality assurance program that they were doing in-house.

Why? Because they’ve expanded their geographic footprint to a very complex operating environment and we won that contract giving us an inspection contract in additional 10 countries and it was a very, very lucrative deal for us.

In business assurance, we have won a new contract with a global automotive truck and bus company. It was a tender process and they were really impressed by the bespoke solution that Intertek was able to offer including our regulatory expertise again.

In terms of ecommerce, we recently have won a tender for testing services for any retailer. And as a result of our presentations and also of the high quality services that we’ve provided in the first year, one year later, they have asked us to support their footwear and non-clothing businesses.

Obviously we love that we start with one piece inside a new customers, they see the difference we’re making and then we get on and expanded. And that’s obviously what you want in terms of customer relationship.

Let’s talk about outsourcing, 80% as you know of the $250 billion ATIC market is done in-house and we continue to focus on convincing companies that using the expertise of the independence of Intertek is really important. And let me just give you a real life example and why is outsourcing so important and why is the opportunities so meaningful.

It doesn’t matter which product quality issues look at around the world and I could go on with many examples in the food industries, in the battery industry, automotive industry et cetera and so forth. Typically what happened is and I’ve seen it, having worked in all of these companies.

You’ve got a situation like this, the CEO says to the team you know what, we’ve got a press conference in September, we’re going to be ready for Christmas trade, we’re going to have to announce all new products on September 25 in San Francisco to take an example. What happened then the team goes and run like a big rabbit inside the company and they come back to the CEO’s head boss as a marketing guys, I’d like to be ready but the product and quality guys are dragging their feet, they’re not ready.

Oh. Okay.

And the CEO says you know what let me just talk to them. So you get them all together and he says, okay, you sales and marketing and product people in quality, you work together but we’re not going to be ready you just find a solution.

Once the CEO have said that, that’s the beginning of the problem. Yeah, once the CEO have said you know what I don’t care, we’re going to be ready for the for the Christmas press release that’s where the problem starts.

And that’s why if inside the corporation, there is an Intertek test report that says you know what Mr. CEO, no matter how aggressive you are, you’re not ready.

It’s very difficult for the CEO to overrule the supply people. And if the CEO’s get on and says you know what we’re going to do it no matter what either a product recall and either market can decrease about 20% or 30% and the both certainly gets suspicious.

And say you know what happened here, let’s just do a post-mortem. And the post-mortem finds, there was an Intertek report saying you were not ready, why did you do that.

The rest is history, right, you’ve heard the bullet is left okay, that’s what will happen to the CEO. That’s why our sourcing and you’re laughing but this is a real situation guys, the intrinsic conflict, inside corporations between the commercial and the quality agenda is why we exist.

We’re here to provide this independent assessment because we are not involved in the decision making process when it comes to a new product launch. And that’s why outsourcing is only going to happen more and more.

So a couple of examples in our minerals division, one of our major client started tendering process for an in-depth risk review of their in-house quality assurance process exactly what I’m talking about. And basically we were selected as the only service providers to afford - to offer both day-to-day personnel to run their client laboratory but also because a significant expertise in the maintenance of laboratory robotic equipment, that’s where they wanted us to play a role.

In business assurance, U.S. logistic clients expanded their footprint into Latin America and pointed to us to provide full logistics supply, auditing services across this new operations.

We love that example, because the scope of outsourcing, activity is expanding very rapidly and we do not only cover now so the America but the North American operation and we have replaced the entire in-house operations. A different industry in a Cargo/AA, a global petroleum manufacturer, a very big company just signed a multi-year agreement to outsource their in-house quality assurance lab activities.

Going back to the point, independent expertise in-house is valuable to our customers. So let’s now move to the last section of the presentation and talk about the outlook for 2017.

This year, we expect to give a solid organic revenue growth at constant currency. We expect good growth momentum in our product business and solid growth in our trade businesses, trading conditions will remain changing in resources.

From a profitability standpoint, we expect to deliver moderate margin progression leveraging the portfolio strength we talked about but also discipline performance to cost and performance management. We’ll continue to invest in growth and we expect our full year CapEx divestment to be £120 million to £130 million.

There will be some ForEx translation benefits based on the recent trends we’ve seen in currencies. And if you take the average selling rate of the last three months applied to the full year results of 2016’s that would provide an uplift of 450 basis points of the revenue level and 350 basis points at the operating profit level.

I will update you during the year when we see the currency for volatility moving further but this is what we see today. Let’s not discuss the performance in 2016 and the outlook for 2017 for each of our division.

Starting with products, obviously really, really please we they’ve got an excellent revenue performance, double-digit growth 5.5% organic growth and in addition we saw the benefit of the acquisition we’ve made. Our margin was slightly down year-on-year as the improvement we saw in organic margin and that talked about but offset by the impact of acquisitions.

Our softline business delivered robust organic growth performance across all markets. Moving forward, we expect our softline business to deliver good organic growth and the drivers we talked about that.

This is the increased number of SKUs and brands, the supply expansion of our customers in new markets and the increased demand for chemical testing. Our hardline business delivered also a robust organic growth performance across all of our markets, our main markets of China, Hong Kong, India and Vietnam.

In 2017, we expect hardlines to deliver good organic growth. We’re seeing innovation from our customers in the areas in wireless technology.

I talked about a toy example with additional wireless technology earlier. We also seen a toy business increase demand for chemical testing, the more sophisticated the toys are the more chemical testing is required.

And obviously we continue to invest in innovation with technology to better service or inspection activities in the markets. Our transportation technology delivered a strong organic growth performance across our main markets U.S., U.K., Germany and China.

We expect TT to continue to perform strongly this year. We are seeing continuous investment of our clients in new models and fuel efficient engines.

The growth in electrical and hybrid technology is obvious to everyone and as we all know so well, there is increased scrutiny from the regulator and consumers and the price on emission claims which is a huge opportunity for us. Our business assurance business delivered double-digit organic growth in the three regions of North America, Europe and Asia, fantastic performance across the board.

Looking ahead, we expect this trend to continue. The drivers are there is an upgrade as you’ve heard in terms of ISO standards, corporations are increasing their focus on supply in chain and risk management and let’s not forget the increased focus of governments, shareholders and consumers on ethical supplies and sustainable supply.

In terms of electrical and wireless, we delivered a solid performance and we expect this trend to continue. We are seeing innovations within electrical appliances to provide both better efficiency and connectivity.

And there is no question that we are seeing an increased demand for internet of things assurance services including of course cyber security. Our building and construction business delivered a robust organic performance and the integration of both PSI and MT in U.S.

is doing very well. In 2017, we expect the trend to continue while other trends here we are seeing a growing demand for greener and higher quality commercial buildings.

And as we know there is an expectation that the large investment infrastructure in the U.S. will continue.

As far as chemical and pharma is concern, a smaller business for us, but we saw also a solid organic growth in 2016. We expect this trend to continue.

The drivers our growth of SKUs expansion of supply base in emerging markets are consumers in these markets wants their own duty and follow-up products. And obviously there is an increased concern around the world on product safety and traceability especially with the rise of e-commerce.

In terms of food also small business for us but nonetheless doing very well, we delivered a good organic growth. That trend should continue.

The innovation in food is obvious to everyone no matter where you are in the world and it is good for us. The increased focus on safety and traceability is very, very important.

And another trend that we see in the food business especially in the food service outlets where you and I go and have lunch or coffee is obviously making sure that there is an assurance program in place to give consumers an end-to-end quality and safety in a reassurance. So in summary, we expect our product division to deliver good organic growth in 2017.

Let’s move to trade in 2016. Our trade related business delivered solid organic growth with moderate margin expansion.

Our Cargo/AA business as expected delivered solid organic growth performance and we expect this trend in 2017 to continue obviously. We are benefiting from the global or real trade structural drivers, I’ve talked earlier.

But there is still normalization of the excess supply we saw in the market in the supply chain in 2014 and 2017 and that’s going to take time to normalize. In terms of GTS, the GTS services weakened in 2016 compared to 2015.

We talked about the trend is essentially due to lower volume of regional trades in the Middle East and Africa given the economic chances in these regions that you are very familiar with. In 2017, we expect GTS to do a bit better.

We’ve won quite a few new contracts and that should help us offset these difficulties in the Middle East and Africa. Our Agri business delivered a robust organic growth performance in 2016 and we expect that trend to continue.

We’re seeing our clients expand their supply chain in the fast growing markets as you would expect and we’re also getting some new customer wins. So overall, we expect in our trade related business a solid organic growth at constant currency in 2017.

Moving to resources, our resource related business saw an organic revenue decline of 13% and a slight reduction in operating margin. I have to say that I’m really pleased with the work the guys are doing because given the revenue decline, you would expect a much bigger negative operating leverage in the business, but we are in a very, very, very focused on cost and capacity management, our guys are doing a very good job.

Looking at each of the businesses separately, in minerals as you know relatively small business for us, nonetheless you know important. So we are seeing a stable level of demand in terms of testing activities in the minerals and we expect this trend to continue.

Obviously we have restructure the mineral business in terms of cost when the cycle starts getting difficult a few years ago. So now we are seeing stable revenue but really good margin progression.

And this is good news. As far as CapEx inspection services, which is the biggest part of our resource business, the revenue was lower than last year.

And there are basically two drivers. It’s important to understand.

Number one is the lower level of investments in exploration activities for our clients, but there is also price pressure in the industry. As I’ve said earlier, we all before we are where very, very focused on protecting our pricing power but in the resource industry, we had to be supportive in the last few years in terms of pricing with our customers to make sure that we are true partners in is very difficult times.

But given the fact that trading commission also changing, we’ve very, very focused on cost and capacity management you know CapEx inspection business and it’s not easy to do because what you want to do is make sure that you know protect your margin despite the pricing reduction you had to accept to support your customers. But you also want to make sure you maintain your quality.

And we are the market leader with Moody. Moody is a tremendous franchise in the oil and gas industries and wanted to make sure that when the upturn happens, our clients remember in tough times, Intertek was supportive when it comes to price, but they never let us down in terms of quality.

So the team is doing really, really good job. In 2107, we expect the trading conditions in the CapEx inspection markets to remain challenging while the demand for OpEx activities should be broadly stable.

And we do not believe that we have reached a trough in the resource division and we expect the conditions to remain challenging in 2017. So from an organic revenue standpoint, we expect to decline between 8% and 12% for the full year in our resource division in 2017.

So before answering your question, just like to spend a few minutes on what I see as the intrinsic strengths of Intertek’s and let’s just start with a high quality earnings models. Our high margin and strong cash relative earnings model is based on a delivery of our total quality assurance value proposition.

We offered ATIC solutions, assurance testing, inspection certifications to customers in three sectors of the economy, product, trade and resources. One of the key advantage of our business model is we operate a very capital light business model.

You’ve seen our return on invested capital which is tremendous. And that combined with entrepreneurial culture, enables us to react very, very quickly to new growth opportunities.

And when there are changed, we can follow the supply chain of our customers in new geographies. That’s we very, very strong advantage we have with our business model.

Our medium to long term organic growth guidance, I have talked about before is GDP plus in real terms. We are very focused from a portfolio strategy on targeting organic growth and M&A in the business lines and geography with good growth and good margin potential and where we see sustainability, obviously this is very important.

We are very focused in terms of cash conversion. And let me just talk about briefly the way we look at capital allocation because I believe we can make a huge difference for our shareholders in the futures not only if we drive margin accretive revenue grows with strong cash conversion but we make the right decision in terms of capital allocation that’s why I’m so focused on that.

We believe in the value of accretive disciplined allocation of capital, our first priority is to basically invest our funds to support organic growth through CapEx or working capital investments with new services or client developments. In the medium term, in the medium to long term, we believe that 5% of revenues investment in CapEx is probably right.

The second priority is to give sustainable returns for our shareholders with a progressive different policy in our results this year demonstrate our commitment to that. Our dividend payout ratio is around 40%.

The third capital allocation priority is M&A. But we want to do M&A in areas where we truly strengthen our portfolio by investing in attractive growth and margin areas provider obviously we don’t pay too much and we can deliver good returns.

And the fourth priority is to maintain an efficient balance sheet that gives us the flexibility to invest in growth. And the ratio we have in line in terms of net debt-to-EBITDA is 1.5 to 2 times.

A few words on our track record of shareholder value creation, because I think it is truly impressive looking over the last 10 years. In the last 10 years, we have multiplied our revenue EPS cash generated from operations and dividend by 34 times and that’s why the company has created sustainable shareholder value over the years.

So in summary, we have delivered a strong set of results in 2016, driven by the revenue and earnings growth in our product and trade related business and these two divisions represent 93% of the group’s earnings. Our free cash flow was up 35%, very strong.

In our views, we are really well positioned to benefit from the attractive growth opportunities and $250 billion total quality assurance market. All strategy in our focus is to move the center of gravity of the company to all of the attractive roles and margin areas.

In the industry, we have very discipline when it comes to performance management and capital allocations and we believe that all high quality earnings model we continue to drive sustainable returns for all shareholders. So we’ll stop here and take any questions you might have.

Great, thank you. It’s Paul Sullivan from Barclays.

Just a few from me; firstly, on the margins, it looks like your guidance is more of the same this year to last year. You don’t have the same dilutive impact from historic acquisition.

So is there some conservatism built in there or what should we expect the resources margin to continue to come down again this year? That’s the first question.

Secondly, in terms of the growth outlook in product; is - it looks like you’ve just changed the description from robust to good in terms of the outlook. It feels like global GDP growth is still looking pretty robust.

So can you just talk about the change there? And then finally, in terms of Trump’s policies, is it still your view that the rhetoric what he’s talking about won’t prove any disruptive threat to your business?

Okay. Can you take the microphone away otherwise he is going to ask another question.

That’s a trick they play so, yes. Okay.

But I would answer every single question. I think look as far as the margin is concerned, we’re making some really good progress.

It’s the second year in a row where we’re seeing organic margin progression. Obviously, this year was really, really good because none despite the dilutive effects of PSI we able to grow the margin.

Look, I think we are calling for a moderate margin progression. I think you’re starting to get used to the choice objectives.

We delivered moderate margin progression in 2016. Obviously, the yeah just started so, give us a bit of time to make it happen and we’ll see where we go at the half year.

But resources will continue to be a pressure point no question about it. So that’s what we’ve got to be careful and mindful.

As far as the growth of product, I think the slight variation objective and I’m not surprised we picked it up, I would have expected it. I mean you’ve got to be also mindful that to deliver 5.5% organic growth in product which is a huge part of our business, 100 countries around the world is an incredible performance.

And if you look at the organic growth of our customers in the FMCG world, they’re not close to 5.5%. So there is the compounding effect of the times.

This is the GDP growth story in China, when you grow at so much at one point of time and the percentage will be a bit lower and what’s really important is the absolute. Look this is the jewel of a company in terms of margin and performance in the market leading positions.

We’re always going to try to be as aggressive as we can. But and this is the very important point, because the two points are related.

I don’t want the guys to just drive volume at the expense of margin. And I want good organic growth which is volume, mix and pricing.

And I would rather take a few bps of organic growth less but make sure get the margin because when you are the market leader, you are operator to show margin accretion is a testament of your pricing power. And therefore you intrinsically ship in the industry and to me that’s why the two are related.

As far as Trump policy is concern look, you know these are very early days and nobody knows really what kind of measures will be taken. But if you look at two things, our business models globally and in the U.S.

I think the first thing globally is we operate in a world that is truly global. I mean global trade as a percentage of GDP is close to 60% and has continued to increase So the world is truly global and I believe that when brands have got innovative power into R&D and they’ve got new good innovations, consumers will always find a way to get products into their countries no matter where they are around the world.

And frankly speaking, no matter where the tariffs will be because fundamentally proud business and that’s why I was trying to explain that with our softline lab examples. What matters to us is the number of brands, the number of SKUs, the number of test we do for SKUs no matter what the tariffs are because frankly speaking when brands wants to produce a T-shirt, Tie or computer, they need to have the right innovations to be successful and that’s where we can make a difference for them.

Now, there might be a challenge where some factories are being brought back in the U.S. I mean if you forget, if you want the change of administrations in Washington I think has been therefore many, many years that, the cost of energy in the U.S.

is so low, the demands makes sense for factories to bring back some manufacturing in the U.S. The good news for us is we are there.

I mean we have our operations there. So our customers want to bring some factories for high end products or whatever into the U.S.

we can support them. And I think that’s the beauty of our business model.

I think our volume of testing is not related in the product sector which is the majority of earnings to the volume of trade, it’s driven by a number of brand SKUs innovations and we have the flexibility with our business model to move with our customers. And frankly speaking when it comes to large infrastructure investments, well PSI was bought because we saw the opportunity in the U.S.

market, country needing to invest in infrastructure and there will be some stimulus there, why not, we’re ready for that. So look, we need to be mindful and I don’t want to get involved into politics but I think that the power of Intertek business models goes beyond policies in the various governments around the world.

Okay.

Hi, good morning. It’s Josh Puddle from Berenberg.

And two questions please. Firstly, on the trade division, so with solid organic growth expected in trade, should this division start achieving positive organic margin development?

And then my second question is on the working capital, was there an underlying improvement in each of the divisions or was the improvement mainly driven by mix and I wanted if you could give the outlook for working capital for something?

Okay. Just, I mean the trade division did show some organic margin improvement because it was essentially all organic this year.

So solid trade performance provided things go well in terms of mix. We should be able to see some good margin that’s why we’re calling margin progression at the group level.

As far as working capital is concerned, obviously we’re not going to get into working capital forecasting our guidance because it would be too details. But I just want - thanks for asking because I just want you to understand what is it that we’re doing to basically drive the performance in revenue, cost margin and working capital.

And it doesn’t matter which level you look at the same approach. As we talked about earlier, Ed and I worked together before.

I arrived and we put a new performance management system approach which is based on a monthly deep dive reviews for every single business for every single country. And this forensic approach which I qualified as ruthless at the beginning because we are very, very tough when it comes to performance management is showing some very, very good results and working capital is an example.

And at the end of the day, it’s not science fiction. It’s not complicated.

If you running a business like that what we, we see 100 countries, 30 big countries, 10s, 15, 16 business lines and what do we see? We see span of performance.

And when you see is point of performance you basically ask the question why is the best doing so much better than the others and why the loggers so far behind. And what you do is you try to bring the loggers higher on the span of performance scales and you motivate the best to get even better.

And that’s basically what you’re seeing. It’s not one big thing, it’s not a mixing.

It’s basically share performance management on day-to-day, trying to reduce the span of performance. And that opportunity exists in every single company of our size.

The adventure of us is that we are both countries industries and sites. So you can imagine you look at the performance management in three dimensions very, very quickly.

So that’s basically what’s driving it. Okay, yeah.

Hi, it’s Joel Spungin from Merrill Lynch. I have just got two.

The first is just on products again just following on from Paul’s question. It looks like the in terms of the warning the relative soft spots, I mean obviously it was a good performance, soft spot was actually getting while, I just wondering you could elaborate a little bit more about why that was solid I think is how you described and what your view on the outlook for the sub segment is through 2017?

And then the other question for Ed, just on the finance cost. I think you’re guiding to around 30 million at the half year finance cost you came in quite a long way below that, you did mention in your prepared piece but I was just wondering if you just talk us through exactly why came in so much below again, just something clear on that?

Look, I think a little while as you know as you will know we are one of the strongest company in the world with our Edison franchise in the U.S. a franchise in Europe.

And basically, you have basically two types of businesses, you’ve got electrical appliances and you’ve got the wireless technology. And I think what you’ve heard I’m sure from several companies is that the investments in new wireless technologies tend to fluctuate dependent on the innovation cycle.

And there is no question that as the 4G technology is maturing and we are getting ready for 5G, there is a bit of oppose in terms of investment in testing on the while, it’s front. That’s why we decided to basically broaden offering beyond wireless assurance to go into cyber security, but with the 5G in the technology coming very, very quickly the market that we expect that to continue to grow much faster.

But in the meantime solid for us is we are good, we are the market leader. And again it’s not about chasing volume; it’s about the volume as much as the price.

Okay. Ed?

We did indeed given a guidance, there’s a range around, if it’s plus or minus around the guidance we gave. As we look through the second half, couple of things, first our cash performance as you saw was very, very good, very strong, so that clearly played through to the levels of debt and the levels of interest being paid.

So the movement in the FX was around the dollar strength in the final to the quarter of the year did result in some gains on some of our debt is basically reflects within the finest cost and that was a slight help into the second half of the year and that’s pretty much drive is.

Okay. So one question from will come to.

Hi, good morning. Suhasini from Goldman Sachs.

A couple for me please, in terms of the M&A pipeline, can you tell us how that’s doing, it’s been more than a year now since you completed PSI, can we expect something bigger along those lines this year? And second question is on the risk management, end-to-end risk management, you are getting quite a lot of those contracts, but can you remind us how Intertek would be protected if after you get a very clean bill of health to a company something that’s go wrong?

Thank you.

Thank you. Thanks.

Basically as far as the M&A pipeline, I mean it’s healthy, we are very selective, we get a lots, lots, lots of lease as you can imagine, but we want to make sure that you know we invest in the right area and we’re not going to rush because why should. We’ve got so many other opportunities to do and we’re very focused on that.

We’ve got a great team in London and got great teams in the market, so we know what’s happening. As far as risk management is concern, I think it’s a great question.

I think one point to always remember, Intertek is not judge. We’re always giving if you want photography if you want or what the quality, what the standards or what the risks are telling in terms of diagnosis.

So in our risk management solution in assurance what we do is we basically help corporations, customize their risk management approach. So that they can basically read the indicators in terms of quality, in terms of sustainability, in terms ethical supply, in terms of the financial health of their suppliers.

So they can take if you want to risk based approach to where they want to make some changes, but we’re not consulting company, we are basically - this is based on the standards that you believe are important to you what the risk is saying. What you do about it that’s your decision.

Okay. Yes, we have a question here.

Good mooring. Tom Sykes from Deutsche Bank.

Just on your capital allocation and oil and gas, at some point, you’re going to have to consider if the oil and gas market picks up the reinvestment back into that sector. So is that something that you look forward to doing or would you preferred to allocate that capital to M&A in products and further shift the center of gravity of the business away?

And just on the transportation business within products, is that something that shows operational gearing when you’re growing at the levels that you’re growing at now and maybe you could allude to how big that is within the products business, please? And just finally, you mentioned the net promoter score for your customers, you’re obviously pushing your own employees quite hard at the moment and the degree of performance management is quite high.

How is that going down internally and how would they sort of you have a net promoter score of working within Intertek at the moment?

Thanks, Tom for this a very good questions. I think on the oil and gas sector, if you really think about what we do globally with Moody, it’s a very capitalized business because at the end of the day the way it works is just take an example a big oil and gas company wants to build a platform in the Gulf of Mexico.

They will ask us to be their quality experts and control quality experts where the equipment that’s going to be used to build the platform Mexico is produce. So we make an agreement with them and they just say in Mexico City and our inspectors goes into the factories of Siemens and Alstom and NMGE.

Basically this is what Moody offers. Moody basically as IP is a global network of highly qualified inspectors that can move to any factories around the world and be the eyes and ears for customers in terms of the delivery of the standard they expect before the big equipment is shipped around the world.

Now that model doesn’t need much CapEx because at the end of the day, you deploy a workforce and you go where the contracts are. So I think when the upturns happens, I think I don’t expect us to be making huge CapEx investments of course, we are investing in technology to improve our service et cetera and so forth, but I don’t expect us to have to build huge capacity because we have the IP, we have the relationship with our customers and our workforce can be flexible.

As far as transportation technology is concerned, we are seeing obviously some strong growth. And yes there is some good margin progression there.

So the business is doing very well. As you know we are quite small around the world and therefore we still have huge critical mass opportunity, but nonetheless have little helps.

As far as the internal pressure, obviously you don’t take what I say literally, we work hard no question about it, but in Intertek has always been working hard, it’s not because there is a new CEO that certainly people are working harder. I mean this company would not be as strong as it is and you’ve seen a 10 year result, if you didn’t have an incredible workforce.

And that’s we never did get a chance to talk about it because we talk about numbers. But at the end of the day, our number one assets are people.

We have very decentralized operating models. We have a truly Anglo-Saxon culture where we have locals running the country, we don’t have a bunch of experts around the world, got to Chinese running China.

We got a Hong Kong Chinese running Hong Kong and so on. And yes, people are working hard away because they’re passionate.

I mean the level of advocacy inside Intertek are what we stand for the kind of difference we make. I mean it’s just incredible.

And of course, we’re always trying to get harder. But I wouldn’t want you to believe that suddenly because there is a new CEO, the pressure from one from here to here.

I mean we’ve got high performing teams. And when you’ve got smart entrepreneurs inside organizations, as a CEO what you need to do is be very clear about the directions we’re going, be very clear about you how you measure performance and ask the right questions because end of the day people like to be in and they are winners.

So I mean the energy inside the company is very, very, very positive. And obviously as you would expect in a culture of high performing individuals, the results that you are delivering on day-to-day would have a disproportionate impact in terms of energy.

So the businesses are doing tremendously well, are just on fire and want to do more. The business that are basically under pressure want to be on the top of league tables.

And yes as you would expect I use the company spirit of the organization and their league tables every single month on who is number one and who nobody wants to be at the bottom. I mean this is a look I mean Richard Nelson the guy who created the company and when you talk to Richard and you understand the culture, I mean this is a culture of winners and we have very different and our people are working hard.

But I would say working hard because they believe in it. They believe in it and that’s the key thing.

We want people to be believing in the meaning of what we’re trying to do and working hard is good, it’s healthy for everyone, it so well. Okay.

Good morning. It’s Ed Steele from Citigroup.

Three for me please. First of all, on the net promoter score, you’re pushing through.

Are you finding that your clients are giving you ideas about coping competitive so as just done this, or are you finding it more that they’re suggesting genuinely new things for the industry? And secondly on the restructuring the 21 million charge, can you give us a feel for the segments where that particularly works?

And thirdly, in Moody, are you finding you’re still churning out contracts signed two or three years ago when property was better at a time generally and so that’s pretty flowing through now. And if so how many more, what percent you roughly basis still yet to churn through please?

Thanks.

I’ll answer one and three and Ed will do the second one. Look, I think NPS, we do the 6,000 interviews every single month.

So I mean it’s really rich what you hear from your customers. And you can be indeed you know your competition is doing this or why don’t you do that.

But typically, what customers tell us is what are the areas that appraisals fall or the area they would like us to do better. And then the key is not to produce a huge report that we look at here in the center, it’s really meaningless.

I think the key is for the operators to sit down with their teams and says look we’ve done 30 interviews last months, we had 10 super score here, what is it we’re doing great that we can do more of and why is it our customers are really liking it and the areas where we can do some sort of some improvement in innovation. The key of net promoter scores is to create what I call in this occasion approach which is obviously Japanese terms where continuous improvement happen going back to discussion we had with Tom based on entrepreneurial spirit and a decentralized approach of the organization.

So the local team can really make an impact. And then if a given team does something it works, the key for us in the center is to spot ideas that are scalable, but you want people in the front end to innovate.

As far as Moody is concerned, I mean typically what we have is we have MSA agreements with our customers that tend to go into multi years. And the projects tend to evolve quite a bit.

And there are some pricing, renegotiation from time to time. So you wouldn’t be able to say so much of the volume is based on agreements five years ago because these things evolve very, very quickly if you’ve got a big MSA with a company in big part of the world that would basically contact you on different projects and each time you will basically agree some specific terms here.

Edward, why don’t you talk about the…

Yeah, on the restructuring side, I’m just a briefly he talked about that being to do that new growth strategy to moving the business towards high great, high marginally, so did this full, view the portfolio and that review continues. About the 20 that we talked about, there were non-closures as I said earlier and 11 that were turned around restructuring areas.

I’m taking the last first if the 11, those there’s a variety of different businesses to be honest, it depending on very specific challenges in a specific business units on a sort of broad general headings in the closure areas that they’re more areas that you would I think you’d recognize in that in the gas space, so exploration production related technical services is related particularly and also a little bit in the chemical and pharma business and some more challenged businesses. That’s the broad shapes about seven clients specific to business lines with other 11 or a bit more general targeted areas we are looking at.

Okay. Just on restructuring because we talked about it in the past, we’ve also closed trade good.

So trade good if you need to. Any question now?

No. Do you have any question from anyone on the phone before we close the meeting?

Okay, well. Thank you very much for being here this morning.

Obviously Josh, Ed and I are available in anytime you need us, but thank you very much.