Intertek issues warning as resources weakness hits revenues

Product testing group Intertek has warned that persistent weak conditions for its commodities and oil and gas customers in the third quarter will result in full year revenues being lower than previously expected and margins unimproved on last year's.Although total group revenues returned to growth in the period since 1 July, organic revenue growth continued its decline, falling 0.7%.A definite upside is that the strategy for the industry and assurance division to exit from certain low-value contracts has continued to improve underlying organic revenues, which grew 1.2%, an improvement from the 1.0% in the first half when excluding those exits.But outgoing chief executive Wolfhart Hauser, whose replacement André Lacroix will take charge from 16 May next year, took a cautionary tone after the commodities division continued to reflect the weak market conditions for minerals, including the impact of the Indonesian nickel export ban this year, while the otherwise-robust oil and gas cargo business was hit by the weak environment in Europe.Acceleration of the exits from low-value industry contracts led to reduced group organic revenue growth by 1.9% in the period, while underlying market conditions in the oil and gas infrastructure technical inspection business remained negative and saw further delays in work related to capital expenditure (capex) during the period."While good growth continues in most of our product-related businesses, the underlying weak market conditions for our commodities and oil and gas capex-related businesses have not improved in the second half," Hauser said."As a result, we now expect the 2014 full year organic revenue growth rate to be similar to that in the [third-quarter] period and to hold our margin broadly stable with that of 2013."Looking to 2015, we expect group revenue growth to strengthen, led by our product-related businesses, but remain cautious about our oil and gas capex end-markets."A full year exceptional restructuring charge has grown to around £15m, from £10.8m at the half year, which will also be a one-off hit on profits. On the upside, services related to operational expenditure (opex), which represent a smaller part of the division, did see positive growth, while demand for food and agricultural services has strengthened in the second half. Consumer goods and commercial and electrical divisions saw growth driven by textiles and transport technologies, although toys faced stronger comparables.Broker Shore Capital said that though the tough trading environment has continued from the summer months, "we sense some underlying improvement in the organic revenue trend at a group level" and said that while currency translation continues to weigh, a resurgent US dollar should assist in the final weeks of the current year."We note the comment on the operating margin that this is now expected to be 'broadly stable' on last year for the full year. We had anticipated some modest improvement, as guided, but clearly we have been too optimistic here.Due to the increased restructuring charge, analyst Robin Speakman expects to "nudge down" his full year forecasts. Intertek Group