Intertek Group Regulatory News (ITRK)

10 Mar 2008 07:01

Intertek Group PLC10 March 2008 2007 FULL YEAR RESULTS ANNOUNCEMENT 10 MARCH 2008 Intertek Group plc ("Intertek"), a leading international provider of quality andsafety services, announces its full year results for the year ended 31 December2007. Record 2007 result - well positioned for continued growth in 2008 +----------------------------+---------------+-------------+--------------+|Year ended 31 December | 2007| 2006| % change|| | | | |+----------------------------+---------------+-------------+--------------+|Revenue | £775.4m| £664.5m| + 16.7%|+----------------------------+---------------+-------------+--------------+|Operating profit(1) | £121.6m| £102.2m| + 19.0%|+----------------------------+---------------+-------------+--------------+|Profit before tax | £105.8m| £91.4m| + 15.8%|+----------------------------+---------------+-------------+--------------+|Adjusted profit before tax | £111.3m| £95.5m| + 16.5%||(1) | | | |+----------------------------+---------------+-------------+--------------+|Basic earnings per share | 46.7p| 40.9p| + 14.2%|+----------------------------+---------------+-------------+--------------+|Earnings per share(2) | 49.7p| 43.2p| + 15.0%|+----------------------------+---------------+-------------+--------------+|Dividend per share | 18.0p| 14.8p| + 21.6%|+----------------------------+---------------+-------------+--------------+All numbers are at actual exchange rates Highlights • Group revenue and operating profit(1) growth of 22.5% and 27.2%, at constant currency • Organic revenue and operating profit(1) growth of 13.0% and 15.2% at constant currency • Operating profit(1) margin increased by 30 bps to 15.7% • Operating cash flow of £149.1m, up 19.7% • Sixteen businesses acquired in 2007, for net consideration of £100m (1) Excluding amortisation of intangible assets arising on acquisitions £5.1m(2006: £3.8m) and goodwill impairment £0.4m (2006: £0.3m)(2) Diluted adjusted earnings per share based on adjusted profit Wolfhart Hauser, Chief Executive Officer, commented: "I am delighted with these very strong results being the combination of strongperformance in all four divisions coupled with a significant contribution fromacquisitions. Our clear and effective growth strategy will ensure that we continue to benefitfrom the increasing demand for outsourced quality and safety services across thewide range of industries and geographies that we serve. We expect 2008 to beanother good year for Intertek." Contacts For further information, please contactAston Swift, Investor RelationsTelephone: +44 (0) 20 7396 3400 aston.swift@intertek.com Richard Mountain, Financial DynamicsTelephone: +44 (0) 20 7269 7121 richard.mountain@fd.com Analysts' Meeting There will be a meeting for analysts at 9.30am today at JPMorgan Cazenove, 20Moorgate, London EC2R 6DA. A copy of the presentation will be available on thewebsite later today. Corporate website: www.intertek.com High resolution images of Intertek businesses are available to download, free ofcharge from the News & Media section of www.intertek.com About Intertek Intertek is a leading provider of quality and safety solutions serving a widerange of industries around the world. From auditing to inspection, to testing, quality assurance and certification,Intertek people are dedicated to increasing the value to customers' products andprocesses, supporting their success in the global marketplace. Intertek has the expertise, resources and global reach to support its customersthrough its network of more than 1,000 laboratories and offices and over 21,000people in 110 countries around the world. Introduction by the ChairmanRecord revenue growth ResultsI am delighted to report that Intertek performed strongly in 2007, demonstratingthe effectiveness of our business model and strategy. Revenue increased to£775.4m, up a record 16.7% over last year. This was achieved despite the averageexchange rate for the US dollar being nearly 9% weaker against sterling, whichreduced reported revenue when translated into sterling. Operating profit was £116.1m, up 18.3% over last year. Operating profit beforethe amortisation of intangible assets arising on acquisitions and impairment ofgoodwill ('adjusted operating profit') increased to £121.6m, up 19.0%. Ouradjusted operating margin increased by 30 basis points to 15.7%. At constant exchange rates, revenue and adjusted operating profit grew 22.5% and27.2% respectively, and on a like-for-like basis, organic revenue and adjustedoperating profit increased by 13.0% and 15.2% respectively, reflecting thestrong growth in our underlying businesses. Acquisitions We completed 16 acquisitions in 2007 for total consideration of £100.0m (2006:£36.9m). Details of the acquisitions are given in the business review bydivision. We continue to see many opportunities to acquire businesses in ourchosen industry sectors and so far in 2008 we have completed a further fiveacquisitions for total consideration of £17.5m which further widen the scope andrange of the services we offer. Earnings per shareBasic earnings per share were 46.7p, up 14.2% over last year. Diluted adjustedearnings per share, before amortisation of intangibles arising on acquisitionsand impairment of goodwill were 49.7p, up 15.0%. Dividends An interim dividend of 5.8p per share (2006: 4.6p) was paid to shareholders on13 November 2007. The Directors will propose a final dividend of 12.2p per shareat the Annual General Meeting on 9 May 2008, to be paid on 19 June 2008 toshareholders on the register at close of business on 6 June 2008. If approved,this will make a full year dividend of 18.0p per share (2006: 14.8p), anincrease of 21.6%. This is in line with our dividend policy and reflects thegood performance of the Group. As announced in our last Annual Report, ourintention is to pay an annual dividend that is covered at least two and a halftimes by earnings. Board changes As previously announced, after 34 years with the Group, Raymond Kong retired on11 May 2007. I would like to express my deep gratitude to him, on behalf of hisfellow Directors, employees and customers, for his outstanding contributiontowards building the Consumer Goods division into the successful business it istoday and for his excellent contribution to the Board, on which he served forthe past three years. We wish him a happy and healthy retirement. On 1 January 2008, Mark Loughead joined the Intertek Board as Executive Directorand Chief Operating Officer for the Group. Mark was previously Executive VicePresident of our Oil, Chemical & Agri division and has 30 years experience inthe industry, 19 of which have been with Intertek. I congratulate and welcomeMark and look forward to his pursuit of opportunities to increase our growth andincrease value for our customers and shareholders. EmployeesThe growth reflected in this strong set of results has been delivered by thededication and expertise of the Group's employees in providing value to ourcustomers. At the end of 2007, the Group employed over 21,300 people in 110countries, an increase of 3,100 people over last year. Almost 900 new employeesjoined the Group in the businesses that we acquired in the year. On behalf ofthe Board, I would like to welcome all new employees to Intertek and to thankall our employees around the world for their commitment to making 2007 such asuccessful year. Climate changeIntertek is committed to play an important and positive role with respect toclimate change. We advise our clients as an integral part of our business, onmany issues which have an impact on the environment, such as the chemicalcontent of their products and packaging, the energy efficiency of theirequipment, CO2 emissions and the disposal of harmful substances and wasteelectrical products. We also provide advisory and consultancy services to helpretailers and manufacturers design their products and services to comply withcurrent and future environmental regulations around the world. Through ourservices we help our clients to minimise the environmental impact of theirproducts for the benefit of society as a whole. We are also mindful of our ownimpact on the environment and are working on various initiatives to reduce this.This is discussed further in the Corporate Social Responsibility Report. Organisation changesIn 2008, we are dividing our four operating divisions into seven. This reflectsthe growth and change in composition of our business, particularly in the Oil,Chemical & Agri division which will be split into three to better support theneeds of our customers. Each division will build on the strong foundationsalready in place to grow both organically and through strategic acquisitions.This new structure and the dedication of our management and employees willenable us to concentrate on developing our business sectors to create value forour customers and shareholders. OutlookDemand for Intertek's services is driven by product variety and innovation,growth in regulatory requirements and standards, and increasing environmentalawareness, as well as global trade and the drive to increase quality and safety.Therefore, our growth drivers are not directly correlated to total consumer orbusiness expenditure, which means we are well placed to withstand a globaleconomic slowdown. Indeed, our services can help our customers remaincompetitive in more challenging market conditions. Furthermore, we are also verywell diversified, both geographically and across industry sectors, which wouldhelp mitigate any impact in the event of an economic downturn. We expect 2008 to be another good year for Intertek. Vanni TrevesChairman Chief Executive Officer's ReviewOur strategy for success IntroductionOur financial results speak for themselves - we have enjoyed a very successfulyear, with record revenue growth. This outstanding performance was due to ourclear and effective growth strategy, favourable conditions in some of ourmarkets and the dedication and expertise of our people. In the paragraphs below,I describe how our strategy works in practice. Add value to our clients' business and productsOur mission is to support our clients in their global and local trade by addingvalue to their products and processes. But what does this really mean? As ourclients buy, sell or receive products around the world, we help them to achievethe quality, safety, social and environmental standards that they need fortrading these products successfully and within critical time frames.Manufacturers, retailers and traders operate in an increasingly competitiveglobal marketplace. We act in partnership with them to help them to succeed. Bydoing this we create value for our shareholders. Combine and increase services to meet clients' future needsWe constantly review the services that we offer our clients and identify wheretheir future needs are developing. By being in regular and close contact withthem, we listen, anticipate and then plan the key areas in which to expand ourservices and resources to best support their changing needs. For example, wehave long provided clients with electromagnetic compatibility, safetycertification and performance testing for mobile devices. By acquiring ProductQuality Partners and National Software Technology Laboratories in the UnitedStates, we now offer a full suite of hardware testing, including advancedtesting applications and software compatibility services which are becomingincreasingly sought after in many markets. This is exactly the support that ourclients now require from us, as their products and the environment in which theyoperate, evolve. We grew the breadth of our emissions service offerings to engine, lubricant andadditive manufacturer and automotive industries substantially, by acquiringCarnot Emission Services, a company based in San Antonio, Texas, US. Carnotprovides emissions testing services to small engine and industrial equipmentmanufacturers and certifies engines to the latest recently enacted EnvironmentalProtection Agency (EPA) off-road regulations. These services expand andcomplement the heavy diesel on-highway and off-road emission services we provideat our neighbouring Intertek Automotive Research facility. Acquisitions bring new clients into the Group who can benefit from our serviceson a global scale and also allow us to provide new services to our existingcustomers. By listening to and foreseeing our clients' future needs we aregrowing our business. Get closer to customers - organise ourselves to their industry linesIn response to the growth opportunities in new sectors and to increase the focuson customers in their specific industries, we have changed the organisationalstructure from four divisions to seven: Consumer Goods; Commercial & Electrical;Analytical Services; Minerals; Oil, Chemical & Agri; Industrial Services; andGovernment Services. This will enable the leaders of each division to focus onthe needs of their customers and pursue a growth strategy more directly focusedon the industries that they serve and thereby continue to diversify the revenuestreams into different industries. To support these seven divisions, our 'Intertek as One' initiative launched twoyears ago, will ensure there is cross-divisional integration and co-operation.It has led to more service offerings and added value for our customers and atthe same time allowed us to pursue opportunities for sharing of resources. Our global brand of one Intertek, with thirteen main industry groupings, ensuresour customers can rapidly identify themselves with us and helps us to offer afull range of services to each industry. To be a leader in our core service industriesOur strategy is to concentrate on industry sectors which provide us with anopportunity to service customers globally. We have developed a list ofindustries that meet our criteria. In many of these, we are already a leadingprovider and maintain a strong reputation. Where we are not, we aim to gainsufficient market share to become the first or second service provider. For example, the global demand for minerals is accelerating due to rapidindustrialisation and increasing development in emerging economies. This growthleads to increased demand for testing services at the point of extraction andinspection at the point of shipment. We lacked market presence in Australia,which is a key location for the mining industry, so we acquired two companies:Genalysis which provides testing and analytical services to the mining industryin Western and Southern Australia and Africa; and Northern TerritoriesEnvironmental Laboratories which covers Northern Australia. These companies havegiven us a strong presence in the Australian minerals sector and helped us towin a significant seven-year contract with Fortescue Metals Group (FMG) toprovide analytical testing of mine samples to a major mining company. These twoacquisitions complement our existing minerals operations in Asia and theAmericas and give us the market penetration to pursue other opportunities in theminerals testing market.Our strategy of growing Intertek in our core industry sectors means that we canfocus our acquisition strategy, building a complete portfolio of services whichmaximises the value we can add to our customers. Drive the outsourcing trend in our core industriesWe developed the laboratory outsourcing strategy initially in the oil sectorover eight years ago, but have now extended our reach to the chemical,pharmaceutical, personal care, automotive and minerals industries. Majoroutsourcing contracts won in 2007 include: • ICI outsourced its Measurement Science Group in the UK • Kodak outsourced the analytical services of its Eastman Gelatine Corporation in the US • FMG outsourced its minerals sample preparation to Intertek Robotics in Australia • Limburg Water Board outsourced its water and environmental laboratory activities in the Netherlands Our outstanding track record is attracting more opportunity and has establishedIntertek as the market leader in laboratory outsourcing in the oil and chemicalsectors. Many companies still run their quality and safety services in-house. These areoften non-core activities within a large, complex organisation. We take the timeto understand these companies' quality requirements and offer outsourcedsolutions to maximise value to our customers, including the resources and skillsavailable from our global network of 1,000 laboratories and offices. We expectmore outsourcing of these services across a variety of industries, especially ifthe business environment for our customers becomes more challenging, as theremay be increased pressure to optimise value from scarcer resources, presenting astrong growth opportunity for Intertek. Our business is underpinned by global trade but more importantly depends onproduct variety, increasing demands for quality and safety and the growingvolume of regulations concerning the environment and quality and safety issues.I am confident that our proven strategy and the dedication of our people willcontinue to drive strong demand for our services, providing added value for ourcustomers and increased value creation for our shareholders. Wolfhart HauserChief Executive Officer Business and Financial Review (extract) Group overviewIntertek provides safety and quality services to customers to add value to theirproducts and processes and support their success in the global marketplace. IntroductionThis Business and Financial Review is provided to help shareholders gain anunderstanding of our business and the issues affecting the Group. The Groupoverview sets out our performance for the year and highlights any significantissues that affected the Group. This is followed by a more detailed commentaryon the performance of each division. We continue with a Financial Review andconclude with a summary of the risks and uncertainties affecting our business. ResultsThe Group had an excellent year and reported record revenue growth. Revenueincreased by 16.7% (22.5% at constant rates) and adjusted operating profitincreased by 19.0% (27.2% at constant rates). The adjusted operating margin was15.7%, up 30 basis points from last year. The results for 2007 by division are summarised below. +---------------------+--------------------------+-----------------------------+| | Revenue | Operating profit (1) |+---------------------+------+---------+---------+---------+---------+---------+|£m | 2007|Change at|Change at| 2007|Change at|Change at|| | | actual| constant| | actual| constant|| | | rates| rates| | rates| rates|+---------------------+------+---------+---------+---------+---------+---------+|Oil, Chemical & Agri | 364.0| 29.3%| 35.3%| 45.8| 52.7%| 61.8%|+---------------------+------+---------+---------+---------+---------+---------+|Commercial & | 179.1| 6.7%| 12.9%| 27.2| 10.6%| 18.8%||Electrical | | | | | | |+---------------------+------+---------+---------+---------+---------+---------+|Consumer Goods | 181.2| 12.1%| 17.7%| 55.2| 7.0%| 12.9%|+---------------------+------+---------+---------+---------+---------+---------+|Government Services | 51.1| (4.3)%| (0.8)%| 7.6| 15.2%| 26.7%|+---------------------+------+---------+---------+---------+---------+---------+|Central overheads | -| -| -| (14.2)| (34.0)%| (35.2)%|+---------------------+------+---------+---------+---------+---------+---------+| | 775.4| 16.7%| 22.5%| 121.6| 19.0%| 27.2%|+---------------------+------+---------+---------+---------+---------+---------+|Amortisation | -| | | (5.1)| | |+---------------------+------+---------+---------+---------+---------+---------+|Impairment | -| | | (0.4)| | |+---------------------+------+---------+---------+---------+---------+---------+|Operating profit | -| | | 116.1| 18.3%| |+---------------------+------+---------+---------+---------+---------+---------+|Net financing costs | -| | | (10.2)| | |+---------------------+------+---------+---------+---------+---------+---------+|Share of loss of | -| | | (0.1)| | ||associate | | | | | | |+---------------------+------+---------+---------+---------+---------+---------+|Profit before income | -| | | 105.8| 15.8%| ||tax | | | | | | |+---------------------+------+---------+---------+---------+---------+---------+|Income tax expense | -| | | (27.0)| | |+---------------------+------+---------+---------+---------+---------+---------+|Result for the year | 775.4| 16.7%| 22.5%| 78.8| 14.4%| |+---------------------+------+---------+---------+---------+---------+---------+ (1) Before amortisation of intangible assets arising on acquisitions andgoodwill impairment. For statutory reporting purposes, operating profit is stated after the deductionof the amortisation of intangible assets arising on acquisitions and goodwillimpairment. For management purposes, we adjust operating profit to remove thesecharges as we consider that adjusted operating profit is a better figure onwhich to judge year-on-year growth. The percentage change at actual rates compares the results for 2007 and 2006translated into sterling at the average exchange rates applicable in each ofthose years. The percentage change at constant rates compares the results for2007 and 2006 at the average exchange rates applicable in 2007. For managementpurposes we measure growth in revenue and adjusted operating profit at constantrates, as we consider that it provides a better like-for-like comparison of theunderlying performance. We calculate organic growth by excluding the results of acquisitions made in2006 and 2007. On an organic basis, revenue grew by 7.6% (13.0% at constantrates) and adjusted operating profit grew by 7.8% (15.2% at constant rates). Theorganic growth was generated primarily by growth in the market for quality andsafety services, an increase in environmental regulations, an increase inoutsourcing and increased global trade. Part of the Group's growth strategy is to make bolt-on acquisitions whichcomplement and extend the Group's service offering into new areas of expertiseand new geographies. We made 16 such acquisitions in 2007 and seven in 2006,which were located in 12 different countries. These businesses have extended therange of analytical services offered by the Group in a variety of sectorsincluding the minerals, plastics, food, pharmaceutical and chemical industries,and have increased the Group's footprint in strategically important countriessuch as the United States (US), the United Kingdom (UK), Australia, India, Japanand Spain. The Group is able to leverage the return from these acquisitions byoffering new services on a global basis to existing customers. Details of the performance of each division, including more information aboutthe acquisitions are given in the Business review by division. The Group operates in 110 countries and revenue is relatively evenly spread overthe three key regions. Our largest contributors are the US and China (includingHong Kong), which accounted for 28% and 20% respectively of the Group's revenuein 2007. Growth in the US was driven partly by acquisitions but also by thestrong petroleum market. Growth in China was driven mainly by increased demandfor quality and safety services. The Group has been established in China formany years and continues to expand its facilities into new locations with threelaboratories and seven offices opened in 2007 offering services to a wide rangeof industries. There was substantial growth in revenue in Australia in 2007which was mainly in the minerals sector where we acquired two new companies inthe year. OutlookThe market for our services continues to expand. Consumers and regulatory bodiesare increasingly concerned about the quality and safety of products and servicesand their impact on the environment. The number of global and domesticregulations concerning issues such as the environment and the safety and qualityof products has increased; and this trend is set to continue. Manufacturers andretailers need to meet the demands of their customers and ensure that theycomply with the increasingly complex array of legislation. We work inpartnership with our customers to help them meet those demands and increase thevalue of their products and services. Our business is based partly on global trade but also on product variety andincreasing consumer demand for variety, quality and safety. Whilst a significantrecession in key countries such as the US and China would probably slowdown ourgrowth, we are very well diversified, both geographically and across industrysectors, which would help mitigate any impact. Each of our divisions offers opportunities for organic growth through increasingour service offering to customers, to add value to their products and processesand help them compete in the global market. We have been very successful infinding businesses to acquire which extend the range of services we are able tooffer. We have a pipeline of potential acquisitions which we are pursuing and wewill continue to seek other opportunities. The outlook for our business is positive and we look forward to continued growthand value creation for our shareholders. We expect 2008 to be another good yearfor Intertek. Business review by divisionFor management purposes the Group is organised into four operating divisions,each covering certain industry sectors. For management purposes and in thediscussion that follows, we calculate growth at constant rates because weconsider it gives a better comparison of year-on-year growth. We also useadjusted operating profit which is a non-GAAP measure of operating profit beforededucting amortisation of intangible assets arising on acquisitions andimpairment of goodwill. Organic growth is calculated by excluding the results ofacquisitions made in 2006 and 2007. OIL, CHEMICAL & AGRI The Oil, Chemical & Agri division offers independent cargo inspection, testingand analytical services to the oil and chemical, agricultural, mineral andpharmaceutical sectors. Global customers include the major oil companies andleading chemical companies and the division also provides outsourcing servicesto many other major manufacturers. Cargo inspection and testing is a well established global market in whichIntertek is one of the leading service providers. High barriers to entry areprincipally due to the fixed costs of establishing a global network ofoperations and laboratories. Analytical services continue to expand as a varietyof industries continue to outsource non-core services including testing. Morestringent environmental and regulatory requirements for fossil fuels and thedrive for alternative energy sources are also expanding the market for testingservices. Intertek developed laboratory outsourcing initially in the oil sector,but has now extended its reach to the chemical, pharmaceutical, cosmetics/personal care, automotive/aerospace and minerals industries. Intertek'soutstanding track record is attracting more opportunity and has establishedIntertek as the market leader in laboratory outsourcing in the oil and chemicalsectors. Oil, Chemical & Agri had an excellent performance with strong organic growthacross all regions, enhanced by several acquisitions. Total revenue increased by35.3% to £364.0m and total adjusted operating profit increased by 61.8% to£45.8m. Adjusted operating profit is stated before amortisation of intangibleassets arising on acquisitions of £2.9m (2006: £1.2m) and goodwill impairment of£nil (2006: £0.3m). The adjusted operating margin improved by 210 basis pointsto 12.6%. On an organic basis, revenue growth was 15.6% and adjusted operatingprofit growth was 27.5%. Organic growth was driven by favourable marketconditions, including high demand for alternative fuels and more stringentregulations, resulting in increased testing and inspection services. Inaddition, optimising the utilisation of our laboratories and equipment hashelped to drive growth in operating profit. Demand for outsourced analyticalservices also continued to grow. This sector accounted for half of thedivision's revenue in 2007, up from 43% in 2006. We continue to extend the breadth and depth of the services we can offer ourcustomers by acquiring businesses which complement our existing services. Thedivision made 11 acquisitions in 2007 and a further four in January and February2008. In January 2007, upstream services were extended by the acquisition of UKbased Umitek Ltd and its subsidiaries, CAPCIS and SREL, which provide specialisttesting and consultancy services to the oil and gas industries in the North Seaand globally. These businesses allow our analytical services stream to extendthe range of services provided by its upstream operations globally andespecially in Europe, North and West Africa and the Middle East. The acquisitionof Geotechnical Services Pty Ltd, located near Perth, Australia, in July 2007,extended Intertek's global reach in upstream services and reinforced thenational spread of petroleum testing services for the division across Australia. The global demand for minerals is accelerating due to rapid industrialisationand growing numbers of new consumers in emerging economies. This growth leads toincreased demand for testing and inspection services. In April 2007, the Groupacquired Genalysis Laboratory Services Pty Ltd, which provides testing andanalytical services to the mining industry in Western and Southern Australia andAfrica. In September 2007, we acquired Northern Territories EnvironmentalLaboratories Pty Ltd, a company based in Darwin, Australia, which providesenvironmental and geochemical analysis services in Northern Australia. Theseacquisitions give us a strong presence in the minerals sector in Australia andhelped us to win a significant seven-year contract to provide analytical testingof mine samples to a major mining company. These acquisitions complement ourexisting minerals operations in Asia and the Americas and give us the marketpenetration to pursue other opportunities in the minerals testing market. Ouranalytical services stream increased its range of offerings for thepharmaceutical industry in June 2007, with the acquisition of QuantitativeTechnologies Inc. (QTI). Located in New Jersey, US, QTI established an EastCoast presence for pharmaceutical support services for Intertek, building uponour existing operations in California and Europe. QTI provides product qualitytesting services to pharmaceutical, medical device and biotechnology companies.This acquisition further extends our growth in the provision of expertanalytical support to the global pharmaceutical, medical device and drugdelivery industries. We also made two strategic acquisitions in the petroleum inspection and testingsector. In June 2007, we acquired Union Lab which is a key local petroleumtesting and inspection company in Singapore. The business was absorbed into ourexisting operations in Singapore and further strengthens our market position inthis strategically important country. In July 2007, we acquired VIP CargoSurveys Inc., (VIP) a petroleum inspection and testing company based in Texas,US. VIP will further strengthen our operations in Texas and provide us with aplatform to develop our offshore lightering business. In August 2007, we announced two new laboratory outsourcing contracts. AtTeesside in the UK, ICI has outsourced its Measurement Science Group (MSG) toIntertek under a four-year contract for highly advanced analytical services. Aspart of this agreement, MSG sold its business assets to Intertek and transferredall 42 of its employees. At the same time, and building from the success of ouroutsourcing contracts with them in Harrow, UK and Chalon sur Saone, France,Eastman Kodak's Gelatine Corporation outsourced its analytical laboratoryservices in Peabody, Massachusetts, US, to Intertek under a three-year contract.Both laboratories provide significant new materials expertise and measurementcapability to Intertek's existing network. In March 2008, the Limburg water authorities in Holland will transfer all theirlaboratory activities from Waterschapsbedrijf Limburg (WBL) to IntertekPolychemlab. Intertek will provide extended analytical and consultancy servicesto the Limburg water authorities and other environmental branches of WBL. Thiscontract serves as a model towards establishing further public and privatesector partnerships in analysis and testing in Europe. On 31 August 2007, we acquired Carnot Emission Services LLC (Carnot), a companybased in San Antonio, Texas, US, which provides niche emissions testing servicesto small engine and industrial equipment manufacturers, certifying engines tothe latest recently enacted Environmental Protection Agency (EPA) off-roadregulations. Carnot's services are highly complementary to the heavy dieselon-highway and off-road emission services at our neighbouring IntertekAutomotive Research facility and enable the Group to substantially grow thebreadth of our emissions service offerings to the engine, lubricant and additivemanufacturer and automotive industries, both in the US and internationally. In October 2007, we acquired Ageus Solutions, a company based in Canada offeringenvironmental and compliance consultancy services addressing globalenvironmental regulations such as Waste Electrical and Electronic Equipment(WEEE), Restriction of Hazardous Substances (RoHS), and Registration, Evaluationand Authorisation of Chemicals (REACH) amongst others. The environmentalcompliance market is fast growing, driven by increased regulations and widerapplication, and we expect this to lead to an increasing demand for complianceadvice. In November 2007, we acquired Plastics Technologies Laboratories Inc. (PTLI), acompany based in Massachusetts, US, which provides plastics testing services.This business slots neatly into our emerging network of polymer and plasticstesting laboratories with strong technical complementarity to the capabilitiesof Polychemlab in the Netherlands and MSG in the UK, for whom it also providesan important portal to the marketplace in the US. We have been very successful in making acquisitions to extend the serviceofferings of the division and we continue to see more opportunities. In January2008, we acquired Electrical Mechanical Instrument Services (UK) Ltd, a companywhich provides calibration services to the oil and gas industries, and inFebruary 2008, we acquired Bioclin Research Laboratories Ltd (Bioclin), aspecialist pharmaceutical testing laboratory located in Athlone, Ireland.Bioclin provides product quality testing and bio-analytical services topharmaceutical, medical device and biotechnology companies locally andinternationally. It holds Good Laboratory Practice (GLP) and Good ManufacturingPractice (cGMP) certifications and presents an excellent geographic site forfurther penetration of one of Europe's key centres for pharmaceutical andmedical device manufacture. In February we also acquired CML Biotech Ltd (CML),a company which has expertise in the measurement and management of microbialbacteria in oil and gas production infrastructure. The majority of CML'soperations are in the North Sea and the Gulf of Mexico, but it also supportsother main oil reserve regions including North and West Coast Africa, theCaspian Sea and the Middle East. In 2007, the Oil, Chemical & Agri division accounted for almost half of therevenue in the Group and through the numerous acquisitions made in the past fewyears, its activities have diversified into three main activities: Oil, Chemical& Agri, Analytical Services and Minerals. In 2008, these activities will becomeseparate operating divisions which will enable the leaders of each newdivisional sector to pursue a growth strategy more directly focused on theindustries that they serve, whilst retaining the benefits of their historicalclose co-operation. COMMERCIAL & ELECTRICAL The Commercial & Electrical division provides services to a wide range ofindustries including those in the home appliances, lighting, medical, building,industrial and HVAC/R (heating, ventilation, air conditioning andrefrigeration), IT and telecom and automotive sectors. On 1 January 2007, theElectrical and Electronic retail inspection (E&E) business was transferred fromCommercial & Electrical to Consumer Goods. Revenue and operating profit forprior periods have been restated to show a like-for-like comparison. Customers are mostly manufacturers but also retailers, industry organisationsand government departments. Services include testing and certification,electromagnetic compatibility testing (EMC), systems auditing, outsourcing,benchmark and performance testing and environmental testing. The Group has thewidest range of owned marks and accreditations, including the ETL listed markand Warnock Hersey mark for North America and the S mark, as well as being aleader in providing CB certification and the CE mark and GS mark for Europe. The market for the services of the Commercial & Electrical division is drivenprimarily by increasing regulations over the safety of products, increasedproduct variety and growing environmental concerns. This includes currentconcerns over climate change and the impact on the environment of electricalproducts. The division has a global strategy for each of its key industrysectors, for example expertise in the United States in automotive componenttesting and building products testing has been extended into China, by theopening of an automotive facility in Shanghai and a building products facilityin Guangzhou. The division performed well in 2007, with revenue and adjusted operating profitgrowth of 12.9% and 18.8% respectively. Adjusted operating profit is statedbefore amortisation of intangible assets arising on acquisitions of £1.6m (2006:£2.0m) and goodwill impairment of £0.4m (2006: £nil). On an organic basis,revenue increased by 8.6% and adjusted operating profit increased by 11.9%. The electrical, building products and HVAC/R businesses, which accounted for 75%of the division's revenue grew strongly, with double digit organic revenuegrowth. The performance of the automotive sector was mixed, with strong growthin China reduced by weak results in the United States where the domesticautomotive market remained depressed. The systems certification sector alsounder performed in some regions, particularly the United States where automotivecertification declined. In March 2007, the Group acquired the Finnish company Natlabs Oy which provideselectro-magnetic compatibility testing. This gives us a significant presence inFinland and allows us to improve service to our customers in the Baltic region. In June 2007, we acquired UK based ASTA BEAB, which provides product and systemscertification services and is the owner of the ASTA and BEAB certificationmarks. These marks are an important addition to our leading portfolio of markswhich are recognised around the world, giving us a competitive advantage andproviding manufacturers with seamless global market access. We have madeprogress in gaining acceptance of the ETL mark by retailers in the US and thishas helped to drive revenue growth in Asia and the rest of the world. In August 2007, we acquired Product Quality Partners Inc., which is a leader inNorth America in wireless device and application testing and in September 2007,we acquired National Software Technology Laboratories Inc. (NSTL), which testsapplications software, based primarily in North America. Combining thesebusinesses with our existing EMC, safety certification and performance testingservices, gave us a strategic platform to launch a full suite of softwaretesting services to existing and new customers. Our strategy is to establish aleading position in the growing cellular/mobile application software market inthe United States and globally. In February 2008, we acquired Epsilon Technical Services Ltd, a company in theUK which provides testing and certification of equipment and systems inexplosive atmospheres. This business will complement our existing explosiveenvironment certification services. Customer demand for safe, reliable, energy efficient products continues toincrease and the market for Commercial & Electrical continues to evolvepresenting opportunities for growth. Concerns over climate change are drivingnew directives regarding the energy usage of products. This is particularlyevident in the HVAC/R industry and is expected to extend over other industries. There are many small niche players in the market and this provides opportunitiesfor continued bolt-on acquisitions. CONSUMER GOODS The Consumer Goods division provides services to the textiles, toys, footwear,hardlines, food and retail industries. Services include testing, inspection,auditing, advisory services, quality assurance and hazardous substance testing.Customers are often retailers but can include manufacturers and suppliers withina global supply chain. On 1 January 2007, the Electrical and Electronic retailinspection (E&E) business was transferred from Commercial & Electrical toConsumer Goods. Revenue and operating profit for prior periods have beenrestated to show a like-for-like comparison. The market for the services of the Consumer Goods division is diverse. Demand isdriven by retailers who require the goods they sell to be produced to a qualityset by either their own internal standards or by legislation in a particularcountry. Increasingly, materials are sourced and goods are manufactured inlocations that are remote from the eventual consumer, causing supply chains tobe longer and more complex. The market is increasingly being driven byregulations issued to address safety and environmental concerns over such issuesas carcinogenic dyes in textiles and chemicals in toys and cosmetics. The Consumer Goods division reported good results in 2007, with revenue growthof 17.7% and adjusted operating profit growth of 12.9%. Adjusted operatingprofit is stated before amortisation of intangible assets arising onacquisitions of £0.5m (2006: £0.5m). The high adjusted operating margin inConsumer Goods was maintained at over 30% but decreased by 130 basis points overlast year. This decline was due to a change in market conditions in Restrictionof Hazardous Substances (RoHS) testing and the changing mix of services in thedivision. On an organic basis, revenue growth was 17.4% and adjusted operatingprofit growth was 12.7%. Toy testing finished the year with a very strong performance, driven by anincrease in heavy metals testing. Product recalls received considerablepublicity in the second half of 2007 and this prompted customers to increase thevolume of testing performed by independent service providers such as ourselves.We are uncertain whether this increased volume will continue at the same levelin 2008, but we expect to benefit from any increase in the market. The textile market was stable. Good growth was reported in many countries,including China, and we continue to invest in this region. New facilities inVietnam, Pakistan, Brazil, Colombia, Romania and Egypt, contributed to revenuegrowth but are not expected to cover their costs until 2008 Revenue from RoHS testing declined in 2007 compared to 2006. The RoHS directivebecame mandatory in the European Union on 1 July 2006, prompting a peak in RoHStesting in 2006 as companies rushed to meet the deadline. However, subsequentlimited enforcement of the legislation has reduced the demand for testing. Thisvolatility is common with new legislation and going forward we expect demand tostabilise. We anticipate that the acquisition of Ageus Solutions in the Oil,Chemical & Agri division will help to drive growth in the RoHS sector as itprovides consultancy and advisory services on environmental regulations. The market for corporate social responsibility services is growing and ourrevenue in this sector, which was 7% of the division's total revenue, grew well.We expect this sector to develop as the demand for sustainability reportingincreases and environmental issues become more prominent. We also expectregulation in this area to increase, which will lead to increased demand for ourservices. Revenue from inspection work declined slightly, due to a reduction in the volumeof E&E retail inspections. In September 2007, we acquired Biodata Analytik GmbH, a small food testingcompany based in Germany. This provides us with a centre of excellence in Europefrom which to develop our food testing business. The key growth drivers in Consumer Goods remain strong, principally the sourcingof products from China, the increasingly wide range of products being sold byretailers and shorter product lifecycles. Also, the recent public concerns overthe safety of consumer products will increase demand from consumers andregulatory bodies for independent assurance of quality and safety. However, themix of businesses in this division is changing, with developing services such asRoHS, consultancy, inspection, food and corporate social responsibility notalways having the high margins earned by the established services. GOVERNMENT SERVICES The Government Services division offers a range of services to governments,national standards organisations, customs departments and industrial companies.Services include cargo scanning, fiscal support services (including pre-shipmentinspection), standards programmes and industrial services. Services offeredinclude ensuring imports comply with relevant safety, quality and otherstandards. Goods and commodities are tested and/or inspected prior to shipmentwhich prevents dumping of unsafe goods and improves the quality of imported andsold goods. Ministries of Finance retain services to increase import duty andhelp improve efficiency. Imports are inspected and valued before shipment toenable import duties to be accurately assessed and certified. Container scanningservices are offered to help protect against security risks associated withinternational trade. Intertek's worldwide laboratory coverage allows for rapidinspection, certification and valuation of shipments, anywhere in the world. Most of the customers of the Government Services division are governments ordepartments linked to governments in countries which do not have the necessaryinfrastructure to enforce import controls effectively. The division performed well in 2007, with a small decline in revenue of 0.8%,but an increase of 26.7% in adjusted operating profit. Adjusted operating profitis stated before amortisation of intangible assets arising on acquisitions of£0.1m (2006: £0.1m). The adjusted operating margin increased by 320 basis pointsto 14.9%. The slight decline in revenue in 2007 over 2006 was due to the inclusion in 2006of £3.8m for the final work performed on the discontinued Nigerian pre-shipmentinspection (PSI) contract. Revenue from continuing business increased by 7.2% in2007 compared to 2006. The division's reliance on traditional PSI contracts has reduced and two-thirdsof revenue is now generated by other services such as standards programmes,supply chain security and industrial services. The container scanning contractin Guinea is now fully operational and performing well. The PSI contract inMozambique was extended for a further two years. The government of Ecuadorannounced the termination of their PSI programme, two years earlier than theofficial end date, but the contract has continued to operate. If the contractdoes cease in March 2008 as expected, annual revenue will be reduced by about£5.0m. Closure costs are fully provided. The Government Services division continues to seek new opportunities withgovernments in the PSI market and is committed to developing innovativesolutions to the cargo security issues facing international trade. There are anumber of potential opportunities for new contracts, particularly in the areasof container scanning and standards programmes. Financial review Results for the yearProfit before income tax increased by 15.8% to £105.8m (2006: £91.4m) anddiluted adjusted earnings per share were 49.7p (2006: 43.2p). Basic earnings pershare were 46.7p (2006: 40.9p). Key performance indicatorsWe use a variety of key performance indicators (KPIs) to monitor the performanceof the Group. Similar indicators are used to review the performance of theoperating divisions. These KPIs are reviewed by the Board and management on amonthly basis and are used to assess past performance and set targets for thefuture. Most of the KPIs also form part of the management incentive schemewhereby managers may receive annual bonus payments on achieving or exceeding arange of targets set for the year. Further information on management incentivesis given in the Remuneration Report. Key performance indicatorsRevenue + 16.7%Operating profit + 18.3%Adjusted operating profit + 19.0%Adjusted operating margin + 30bpOperating cash flow + 19.7%Profit before income tax + 15.8%Basic earnings per share + 14.2%Dividend per share + 21.6%Return on business assets +10bp Growth in revenueTop line revenue growth is a key performance measure. Revenue increased by£110.9m to £775.4m in 2007, up 16.7% over the prior year (22.5% at constantrates). The Group operates in 67 different currencies, although the majority of theGroup's earnings are denominated in US dollars or currencies linked to the US orwhich historically have moved in line with the dollar. Other currencies such asthe Euro and the Chinese renminbi are also an important constituent of overseasearnings. Therefore the Group's results when translated into sterling, areexposed to changes in the value of the US dollar and other currencies. We showbelow the main currencies that make up the Group's earnings and the cumulativeaverage exchange rates that we have used when translating results into sterlingin 2007 and 2006. +-------------------------------+-------------+---------------+|Value of £1 | 2007| 2006|+-------------------------------+-------------+---------------+|US dollar | 2.00| 1.84|+-------------------------------+-------------+---------------+|Euro | 1.46| 1.47|+-------------------------------+-------------+---------------+|Chinese renminbi | 15.24| 14.67|+-------------------------------+-------------+---------------+|Hong Kong dollar | 15.62| 14.30|+-------------------------------+-------------+---------------+ Growth in adjusted operating profit and margin 2007 2006 £m £m ChangeOperating profit 116.1 98.1 18.3%Amortisation of intangible assets arising on 5.1 3.8 34.2%acquisitionsImpairment of goodwill 0.4 0.3 33.3%Adjusted operating profit 121.6 102.2 19.0%Adjusted operating margin 15.7% 15.4% + 30bp For management purposes, the Group adjusts operating profit and operating marginto exclude the amortisation of intangible assets arising on acquisitions and theimpairment of goodwill. In 2007, adjusted operating profit was £121.6m, up 19.0%over the previous year. The adjusted operating margin was 15.7%, up 30 basispoints from 15.4%. Amortisation of intangible assets arising on acquisitionsAmortisation of intangible assets arising on acquisitions is provided on astraight line basis over the life of the assets, which is normally five yearsbut can be up to ten years. The charge increased in 2007 due to the number ofacquisitions made in 2006 and 2007. Impairment of goodwillWe perform a detailed review of goodwill each year to consider whether there isany impairment in its carrying value. The capitalised goodwill at 31 December2007 was £148.4m (2006: £71.1m) which relates to acquisitions made since 1998.Our review revealed that an acquisition made by the Commercial & Electricaldivision in 2005, had underperformed our expectations, mainly due to the loss ofkey employees. We therefore considered that the goodwill associated with thisbusiness should be reduced by £0.4m to £0.8m. This business is now under newmanagement and is expected to improve in the future. Net financing costsThe Group reported finance income in 2007 of £5.4m (2006: £6.3m). This comprisedthe expected return on pension assets, interest on bank balances, the change infair value of financial instruments, foreign exchange differences on interestaccruals and the ineffective portion of hedge of net investment in foreignoperations. The decrease was mainly due to a reduction in the change in fairvalue of financial instruments. The Group's finance expense for 2007 was £15.6m compared to £13.3m in 2006. Thecharge comprised interest on borrowings, pension interest cost, other foreignexchange differences and other financing fees. The increase was primarily due tohigher levels of debt. Income tax expenseIncome tax expense for 2007 was £27.0m (2006: £22.5m), comprising a current taxcharge of £29.3m (2006: £22.0m) less a deferred tax credit of £2.3m (2006:charge £0.5m). The tax rate was 25.5%, up from 24.6% in 2006. The main reasonfor the increase in the tax rate was increased earnings in higher taxedjurisdictions. Profit for the yearProfit for the year after income tax was £78.8m (2006: £68.9m) of which £73.2m(2006: £63.8m) was attributable to equity holders of the Company. Minority interestsProfit attributable to minority shareholders was £5.6m in 2007 (2006: £5.1m).The increase was mainly due to the strong growth in the Group's non-wholly ownedsubsidiaries in Asia. Earnings per shareEarnings per share are calculated by dividing the profit attributable toordinary shareholders of the Company by the weighted average number of ordinaryshares in issue during the year. As set out in note 8 to the financialstatements, basic earnings per share at the end of the year were 46.7p (2006:40.9p), an increase of 14.2%. A diluted adjusted earnings per share calculationis also shown which removes the impact of amortisation of intangible assetsarising on acquisitions and impairment of goodwill from earnings, and includespotentially dilutive share options in the number of shares, to give dilutedadjusted earnings per share of 49.7p (2006: 43.2p), an increase of 15.0%. Weconsider that growth in the diluted adjusted earnings per share figure gives amore representative measure of underlying performance and is one of the keyperformance targets that the Group uses to incentivise its managers. DividendsDuring the year, the Group paid total dividends of £25.2m (2006: £19.8m), whichcomprised £16.1m in respect of the final dividend for the year ended 31 December2006, paid on 15 June 2007 at the rate of 10.2p per share and £9.1m being theinterim dividend in respect of the year ended 31 December 2007, paid on 13November 2007 at a rate of 5.8p per share. These amounts were charged toretained earnings (see note 19 to the financial statements). After the balancesheet date, the Board recommended a 19.6% increase in the final dividend inrespect of the year ended 31 December 2007, to 12.2p per share (2006: 10.2p)which together with the interim dividend will give a full year dividend of 18.0pper share (2006: 14.8p), an increase of 21.6% over last year. If approved, thefinal dividend will be paid to shareholders on 19 June 2008. The total cost ofthe final dividend is expected to be £19.2m, giving a total cost of £28.3m forthe dividends paid in respect of the year ended 31 December 2007. Dividend coveris 2.8 times (2006: 2.9 times). Cash and liquidity 2007 2006 Increase £m £mCash generated from operations 149.1 124.6 19.7%Less net acquisition of property, plant, (43.5) (42.3) 2.8%equipment and softwareOperating cash flow after capital 105.6 82.3 28.3%expenditureAdjusted operating profit 121.6 102.2 19.0%Operating cash flow/adjusted operating 86.8% 80.5% +630bpprofit The primary source of the Group's cash liquidity over the last two financialyears has been cash generated from operations and the drawdown of debt. Aportion of these funds has been used to fund acquisitions and capitalexpenditure and to pay interest, dividends and taxes. Cash flow for the year was excellent. Cash generated from operations was £149.1mfor 2007, compared to £124.6m for 2006. The increase of 19.7% was due toimproved profitability and effective working capital management. One of the keyperformance indicators we use to measure the efficiency of our cash generationis the percentage of adjusted operating profit that is converted into cash. Asshown in the table above, in 2007, 86.8% of adjusted operating profit wasconverted into cash compared to 80.5% in 2006. In order to support our growth strategy we need to invest continually in ouroperations. In 2007, net cash flows used in investing activities were £128.2m(2006: £78.1m). In 2007, we invested net £129.3m (2006: £79.2m) in acquisitionsand property, plant, equipment and software. We paid £85.8m net of cashacquired, (2006: £36.9m) for 16 new businesses and £43.5m (2006: £42.3m) for theacquisition of property, plant and equipment and computer software. Historicallyour level of capital expenditure has been less than 7% of revenue. In 2007, theratio was 5.6% compared to 6.4% the year before. Cash flows from financing activities comprised cash inflows from the issue ofshare capital following the exercise of employee share options of £4.9m (2006:£4.2m) and the net drawdown of debt of £49.4m (2006: £8.2m), and cash outflowsof dividends paid to minorities of £3.6m (2006: £3.8m) and dividends paid toGroup shareholders of £25.2m (2006: £19.8m), which resulted in a net cash inflowof £25.5m (2006: outflow £11.2m). Interest bearing loans and borrowings were £231.2m at 31 December 2007, anincrease of 29.6% over 2006. The Group's borrowings are in currencies whichmatch its asset base. The increase in borrowings comprised exchange adjustmentsof £3.4m due to the translation into sterling of borrowings denominated in othercurrencies and the net drawdown of debt of £49.4m. The debt drawdown was mainlyused to finance acquisitions. Cash and cash equivalents at 31 December 2007,were £58.6m, an increase of 18.4% over 2006. As shown in note 23 to thefinancial statements, net debt at 31 December 2007 was £172.6m (2006: £128.9m). Consolidated income statementFor the year ended 31 December 2007 2007 2006 Notes £m £m Revenue 775.4 664.5Cost of sales (615.9) (523.6) Gross profit 159.5 140.9Amortisation of intangible assets arising on (5.1) (3.8)acquisitionsImpairment of goodwill (0.4) (0.3)Other administrative expenses (37.9) (38.7)Total administrative expenses (43.4) (42.8) Group operating profit 1 116.1 98.1Finance income 5.4 6.3Finance expense (15.6) (13.3) Net financing costs (10.2) (7.0)Share of (loss)/profit of associates (0.1) 0.3 Profit before income 105.8 91.4taxIncome tax expense (27.0) (22.5) Profit for the year 78.8 68.9 Attributable to: Equity holders of the Company 73.2 63.8 Minority interest 5.6 5.1Profit for the year 78.8 68.9 Earnings per share Basic 2 46.7p 40.9pDiluted 2 46.2p 40.6p Consolidated balance sheetAs at 31 December 2007 2007 2006 £m £m ASSETSProperty, plant and equipment 149.2 123.7Goodwill 148.4 71.1Other intangible assets 35.0 19.6Investments in associates 0.6 0.7Deferred tax assets 11.9 13.3 Total non-current assets 345.1 228.4 Inventories 4.0 3.2Trade and other receivables 191.0 151.9Derivative financial instruments - 0.4Cash and cash equivalents 58.6 49.5 Total current assets 253.6 205.0 Total assets 598.7 433.4 LIABILITIESInterest bearing loans and borrowings (13.7) (13.6)Derivative financial instruments (0.7) -Current taxes payable (25.3) (24.1)Trade and other payables (128.6) (101.0)Provisions (22.7) (4.8) Total current liabilities (191.0) (143.5) Interest bearing loans and borrowings (217.5) (164.8)Deferred tax liabilities (5.3) (3.8)Net pension liabilities (7.3) (15.2)Other payables (0.9) (0.4)Provisions (0.9) (0.5) Total non-current liabilities (231.9) (184.7) Total liabilities (422.9) (328.2) Net assets 175.8 105.2 EQUITYShare capital 1.6 1.6Share premium 247.3 242.4Other reserves 11.7 6.0Retained earnings (96.4) (153.6) Total equity attributable to equity holders 164.2 96.4of the CompanyMinority interest 11.6 8.8 Total equity 175.8 105.2 Consolidated statement of cash flowsFor the year ended 31 December 2007 2007 2006 Notes £m £m Cash flows from operating activitiesProfit for the year 1 78.8 68.9Adjustments for:Depreciation charge 27.7 24.1Amortisation of software 2.3 2.2Amortisation of intangible assets arising 5.1 3.8on acquisitionsImpairment of goodwill 0.4 0.3Equity-settled transactions 3.0 2.4Share of loss/(profit) of associates 0.1 (0.3)Net financing costs 10.2 7.0Income tax expense 27.0 22.5Loss/(profit) on disposal of property, 0.1 (0.3)plant and equipment Operating profit before changes in working 154.7 130.6capital and operating provisionsChange in inventories (0.3) (0.4)Change in trade and other receivables (20.7) (13.7)Change in trade and other payables 11.6 12.3Change in claims and other provisions 3.8 (4.2) Cash generated from operations 149.1 124.6Interest paid (10.8) (7.7)Income taxes paid (28.4) (24.6) Net cash flows from operating activities 109.9 92.3 Cash flows from investing activitiesProceeds from sale of property, plant and 0.3 0.9equipmentInterest received 1.1 1.1Acquisition of subsidiaries, net of cash (85.8) (36.9)acquiredAcquisition of property, plant and (41.3) (42.0)equipmentAcquisition of software (2.5) (1.2) Net cash flows used in investing activities (128.2) (78.1) Cash flows from financing activities Proceeds from the issue of share capital 4.9 4.2Drawdown of debt 70.6 22.1Repayment of debt (21.2) (13.9)Dividends paid to minorities (3.6) (3.8)Equity dividends paid (25.2) (19.8) Net cash flows from/(used in) financing 25.5 (11.2)activities Net increase in cash and cash equivalents 7.2 3.0Cash and cash equivalents at 1 January 49.5 50.8Effect of exchange rate fluctuations on 1.9 (4.3)cash held Cash and cash equivalents at 31 December 58.6 49.5 Consolidated statement of recognised income and expenseFor the year ended 31 December 2007 2007 2006 £m £m Foreign exchange translation differences for 10.0 (26.6)foreign operationsActuarial gains and losses on defined benefit 8.5 3.2pension schemesTax on income and expense recognised directly in (2.3) (1.9)equityEffective portion of changes in fair value of cash (1.1) (1.3)flow hedgesNet (loss)/gain on hedges of net investments in (3.2) 20.5foreign operations Income and expense recognised directly in equity 11.9 (6.1) Profit for the year 78.8 68.9 Total recognised income and expense for the year 90.7 62.8 Total recognised income and expense for the yearattributable to:Equity holders of the Company 84.5 58.2Minority interest 6.2 4.6 Total recognised income and expense for the year 90.7 62.8 Notes to the financial statements 1 SEGMENT REPORTING Segment information is presented in respect of the Group's business andgeographical segments. The primary format, business segments, is based on theGroup's management and internal reporting structure. Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis.Unallocated items comprise mainly borrowings, pension fund liabilities, andcorporate expenses and assets. Segment capital expenditure is the total cost incurred during the year toacquire land and buildings, property, plant and equipment, and computersoftware. Business segmentsThe Group comprises the following main business segments: Oil, Chemical & Agri which provides cargo inspection, testing and analyticalservices to the oil and gas, chemical, agricultural, mineral and pharmaceuticalsectors. Commercial & Electrical which provides testing, inspection and certificationservices to industries including those in the home appliances, medical,building, industrial and HVAC/R, IT and telecom and automotive sectors. Consumer Goods which provides services to the textiles, footwear, toys, food andhardlines industries. Government Services which provides trade services to standards bodies andgovernments. Central overheads comprise the costs of the corporate head office andnon-operating holding companies and other costs which are not controlled by theoperating divisions. On 1 January 2007, the electrical and electronic retail inspection (E&E)business was transferred from the Commercial & Electrical division to theConsumer Goods division and prior period figures for revenue and operatingprofit have been restated to show a like-for-like comparison. Geographical segmentsAll the business segments are managed on a worldwide basis but can be dividedinto the following geographic regions: • Americas • Europe, Middle East and Africa • Asia Pacific In presenting information on the basis of geographic segments, segment revenueis based on the geographical location of the entity that generated that revenue.Segment assets are based on the geographical location of the assets. Segment reporting Business analysis (primary segment)+-----------------+-------------+------------+---------------+-----------+| |Oil, Chemical|Commercial &| Consumer| Government|| | & Agri| Electrical| Goods| Services|+-----------------+------+------+-----+------+-------+-------+-----+-----+| | 2007| 2006| 2007| 2006| 2007| 2006| 2007| 2006|+-----------------+------+------+-----+------+-------+-------+-----+-----+| | £m| £m| £m| £m| | £m| £m| £m|+-----------------+------+------+-----+------+-------+-------+-----+-----+|Revenue from | 364.0| 281.5|179.1|167.9*| 181.2| 161.7*| 51.1| 53.4||external | | | | | | | | ||customers | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Inter-segment | 3.1| 2.4| 1.8| 1.4| 0.4| 0.3| 1.3| 1.3||revenue | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Revenue | 367.1| 283.9|180.9| 169.3| 181.6| 162.0| 52.4| 54.7|+-----------------+------+------+-----+------+-------+-------+-----+-----+|Operating profit | 45.8| 30.0| 27.2| 24.6*| 55.2| 51.6*| 7.6| 6.6||before | | | | | | | | ||amortisation and | | | | | | | | ||impairment | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Amortisation of | (2.9)| (1.2)|(1.6)| (2.0)| (0.5)| (0.5)|(0.1)|(0.1)||intangible assets| | | | | | | | ||arising on | | | | | | | | ||acquisitions | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+| Impairment of | -| (0.3)|(0.4)| -| -| -| -| -|| goodwill | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Group operating | 42.9| 28.5| 25.2| 22.6| 54.7| 51.1| 7.5| 6.5||profit | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Net financing | | | | | | | | ||costs | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Share of (loss)/ | | | | | | | | ||profit of | | | | | | | | ||associates | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Income tax | | | | | | | | ||expense | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Profit for the | | | | | | | | ||year | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+| | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Segment assets | 303.6| 188.0|121.5| 95.0| 80.7| 64.9| 16.0| 18.1|+-----------------+------+------+-----+------+-------+-------+-----+-----+|Investment in | | | | | | | | ||associates | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Unallocated | | | | | | | | ||assets | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Total assets | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Segment | 55.1| 40.3| 37.1| 31.3| 28.1| 21.5| 9.4| 9.1||liabilities | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Unallocated | | | | | | | | ||liabilities | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Total liabilities| | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Depreciation and | | | | | | | | ||software | 13.4| 11.0| 7.7| 7.6| 7.3| 6.2| 1.5| 1.4||amortisation | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+|Capital | | | | | | | | ||expenditure | 24.8| 16.7| 9.6| 9.9| 8.7| 14.3| 0.4| 2.2||including | | | | | | | | ||software | | | | | | | | |+-----------------+------+------+-----+------+-------+-------+-----+-----+ Business analysis (primary segment) (Continued) +-------------------+---------------+-------------+---------------+| | Central |Eliminations | Consolidated || | overheads | | |+-------------------+-------+-------+------+------+-------+-------+| | 2007| 2006| 2007| 2006| 2007| 2006|+-------------------+-------+-------+------+------+-------+-------+| | £m| £m| £m| £m| £m| £m|+-------------------+-------+-------+------+------+-------+-------+|Revenue from | -| -| -| -| 775.4| 664.5||external customers | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Inter-segment | -| -| (6.6)| (5.4)| -| -||revenue | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Revenue | -| -| (6.6)| (5.4)| 775.4| 664.5|+-------------------+-------+-------+------+------+-------+-------+|Operating profit | (14.2)| (10.6)| -| -| 121.6| 102.2||before amortisation| | | | | | ||and impairment | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Amortisation of | -| -| -| -| (5.1)| (3.8)||intangible assets | | | | | | ||arising on | | | | | | ||acquisitions | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Impairment of | -| -| -| -| (0.4)| (0.3)||goodwill | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Group operating | (14.2)| (10.6)| -| -| 116.1| 98.1||profit | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Net financing costs| | | | | (10.2)| (7.0)|+-------------------+-------+-------+------+------+-------+-------+|Share of (loss)/ | | | | | (0.1)| 0.3||profit of | | | | | | ||associates | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Income tax expense | | | | | (27.0)| (22.5)|+-------------------+-------+-------+------+------+-------+-------+|Profit for the year| | | | | 78.8| 68.9|+-------------------+-------+-------+------+------+-------+-------+| | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Segment assets | 4.2| 2.4| | | 526.0| 368.4|+-------------------+-------+-------+------+------+-------+-------+|Investment in | | | | | 0.6| 0.7||associates | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Unallocated assets | | | | | 72.1| 64.3|+-------------------+-------+-------+------+------+-------+-------+|Total assets | | | | | 598.7| 433.4|+-------------------+-------+-------+------+------+-------+-------+|Segment liabilities| 6.7| 3.1| | | 136.4| 105.3|+-------------------+-------+-------+------+------+-------+-------+|Unallocated | | | | | 286.5| 222.9||liabilities | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Total liabilities | | | | | 422.9| 328.2|+-------------------+-------+-------+------+------+-------+-------+|Depreciation and | 0.1| 0.1| -| -| 30.0| 26.3||software | | | | | | ||amortisation | | | | | | |+-------------------+-------+-------+------+------+-------+-------+|Capital expenditure| 0.3| 0.1| -| -| 43.8| 43.2||including software | | | | | | |+-------------------+-------+-------+------+------+-------+-------+ * On 1 January 2007, the electrical and electronic retail inspection (E&E)business was transferred from the Commercial and Electrical division to theConsumer Goods division and the 2006 figures have been restated to show alike-for-like comparison. Geographic analysis (secondary segment) Americas Europe, Middle Asia Consolidated East and Africa Pacific 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £mRevenue from 271.7 245.1 235.0 190.3 268.7 229.1 775.4 664.5external customersGroup operating 36.7 29.6 2.5 (2.0) 76.9 70.5 116.1 98.1profitAmortisation of 1.8 1.7 1.6 1.1 1.7 1.0 5.1 3.8intangible assetsarising onacquisitionsImpairment of - - - 0.3 0.4 - 0.4 0.3goodwillSegment assets 198.7 142.8 172.2 128.2 155.1 97.4 526.0 368.4Capital expenditure 14.2 11.5 10.5 10.1 19.1 21.6 43.8 43.2including software 2 EARNINGS PER ORDINARY SHARE The calculation of earnings per ordinary share is based on profit attributableto ordinary shareholders of the Company and the weighted average number ofordinary shares in issue during the year. In addition to the earnings per sharerequired by IAS 33: Earnings Per Share, an adjusted earnings per share has alsobeen calculated and is based on earnings excluding the effect of amortisation ofintangible assets arising on acquisitions and goodwill impairment. It has beencalculated to allow shareholders to have a better understanding of the tradingperformance of the Group. Details of the adjusted earnings per share are set outbelow: 2007 2006Based on the profit for the year: £m £mProfit attributable to ordinary shareholders 73.2 63.8Amortisation of intangible assets arising on 5.1 3.8acquisitions Impairment of goodwill 0.4 0.3 Adjusted earnings 78.7 67.9 Number of shares (millions)Basic weighted average number of ordinary 156.9 156.0sharesPotentially dilutive share options (1) 1.4 1.2Diluted weighted average number of shares 158.3 157.2 Basic earnings per share 46.7p 40.9pOptions (0.5)p (0.3)pDiluted earnings per share 46.2p 40.6p Basic adjusted earnings per share 50.2p 43.5pOptions (0.5)p (0.3)p Diluted adjusted earnings per share 49.7p 43.2p (1). The weighted average number of shares used in the calculation of thediluted earnings per share for the year to 31 December 2007, excludes nil (2006:128,194) contingently issuable shares as the performance conditions were notmet. 3. ANNUAL REPORTThe financial information set out above does not constitute the company'sstatutory accounts for the year ended 31 December 2007 or 2006 but is derivedfrom the 2007 accounts. Statutory accounts for 2006 have been delivered to theregistrar of companies, and those for 2007 will be delivered in due course. Theauditors have reported on those accounts; their reports were (i) unqualified,(ii) did not include a reference to any matters to which the auditors drewattention by way of emphasis without qualifying their report and (iii) did notcontain a statement under section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange