Intertek Group plc (ITRK) Earnings Call Transcript & Summary

Good morning, and thanks for joining the call following our announcement earlier today. I have with me Julia Thomas, our SVP of Corporate Development; Jonathan Timmis, our CFO; and Denis Moreau, our VP of Investor Relations. I am delighted that we have entered into an agreement to acquire SAI Global Assurance to scale up our global assurance offering. We are very excited about the acquisition of SAI Global Assurance. The ATIC industry is expected to grow faster post COVID-19. Assurance is a capital-light, high-growth and high-margin service and is mission-critical to addressing the increased corporate focus on risk. The acquisition will scale up Intertek's assurance offering with a high-quality business run by a highly respected management team. SAI Global Assurance will increase our global presence in complementary geographic markets and bring new services in attractive end markets. This transaction is expected to deliver attractive financial returns for our shareholders. We've been leading the industry for many years based on our risk-based quality assurance approach, offering total quality assurance to our clients with our ATIC solutions. Pre-COVID-19 and for several years, we saw our clients increase their focus on risk-based quality assurance to make sure that they provide the highest quality, safety and sustainability products and services to their own customers. COVID-19 has demonstrated there were major risks in the operations of our clients that were not properly identified nor mitigated. Moving forward, all stakeholders expect governments and corporations to build back a better world with a sharper focus on end-to-end quality assurance. Said differently, COVID-19 has made the case for total quality assurance clearer and stronger. 2020 will be remembered as the year when we were forced to rethink how we operate to make the world a safer place. And we expect the theme of Build Back Ever Better to guide the actions of governments, companies, institutions, regulators and consumers in 3 areas. Management Board and shareholders will want to see their companies operate with a safer supply chain. Consumers, governments, corporations will want to offer better personal safety. The way the world will operate and invest will build a low-carbon society. Indeed, 2020 has made the need for risk-based quality assurance clear and stronger. And this is evidenced by Gartner's recent survey. 87% of companies said they will invest within 2 years to make their supply chain more resilient, great news for our Assurance business. Therefore, we expect the total quality assurance market to grow faster moving forward, given that increased corporate focus on risk-based quality assurance. And within our ATIC TQA offering, assurance is mission-critical to addressing the increased corporate focus on risk-based quality assurance. The acquisition of SAI Global Assurance is an attractive opportunity to scale up our global industry-leading assurance business with a high-quality business. SAI Global Assurance was found in 2003, is headquartered in Sydney, Australia, operates in 16 locations globally and worked with more than 70,000 customers. SAI Global Assurance is part of the wider SAI Global Group owned by Baring Private Equity Asia and will be acquired for cash consideration of AUD 855 million on a cash-free and debt-free basis. The purchase price is equivalent to a multiple of 15.5x SAI Global Assurance expected adjusted EBITDA for 2021. SAI Global Assurance year end is June and the expected full year revenue for 2021 is AUD 240 million. SAI Global Assurance operates with a strong margin, and the '21 adjusted EBITDA margin is expected to be 23%. This transaction is expected to provide attractive financial returns to our shareholders. Specifically, we expect to deliver robust organic growth, capitalizing on a strong track record of our Assurance business, which has been the fastest-growing solution over the years in the group. For the acquisition, we have targeted a 300 basis plus with margin accretion over 3 years as we'll benefit from positive operating leverage linked to robust organic growth as well as from the cost synergies we plan to realize during the integration. EPS is expected to be accretive from the first full year. And the SAI Global Assurance ROIC is expected to exceed the group cost of capital by year 5. The transaction will be funded by newly arranged certain funds facilities at an attractive interest rate. And the transaction is subject to customary closing conditions and is expected to close in Q3 of 2021. SAI Global Assurance has built excellent relationships with its 70,000 customers over the years, providing audit and global market access solutions globally. 65% of SAI Global Assurance revenues are delivered within their audit activities, providing management system certification and second-party audits to more than 60,000 customers in 130 countries across a wide variety of sectors. 30% of SAI Global Assurance revenues are delivered through their global market access solutions, offering more than 1.5 million technical standards to more than 10,000 customers in Asia Pac, Europe and the Americas. The strategic fit of SAI Global Assurance with Intertek is excellent from a geographic standpoint as it will strengthen our scale position in attractive growth countries. Specifically, we'll benefit post acquisition from a stronger market position in Australia, the U.S., Canada, the U.S., U.K. and China. The strategic fit of the SAI Global Assurance portfolio with Intertek solutions is also excellent from a service standpoint. And we'll expand our audit offering in the high-growth sectors. Specifically, we look forward to getting additional scales in the following sectors: food, agriculture, quick service restaurant, sustainability and global market access. In conclusion, the acquisition of SAI Global Assurance is a value-accretive transaction with an excellent strategic fit for Intertek. Given the increased corporate focus on risk moving forward, the growth of the ATIC industry is expected to accelerate. Assurance is mission-critical to addressing the increased corporate focus on risk. This acquisition scales up Intertek industry-leading offering with a high-quality business run by a highly respected management team. SAI Global Assurance will increase our global presence in attractive geographic markets and bring new services in the high-growth sectors. This transaction is expected to provide strong financial returns to our shareholders by scaling up our capital-light, high-growth and high-margin global assurance business. Thank you for your time this morning.