Last checked at 8 Mar 2010 07:00
2009 ANNUAL FINANCIAL REPORT ANNOUNCEMENT
8 MARCH 2010
Intertek Group plc ("Intertek"), a leading international provider of quality and safety services, announces its full year results for the year ended 31 December 2009.
Strong performance despite difficult market conditions
| Year ended 31 December | 2009 | 2008 | Growth as reported | Growth at constant currency |
| Revenue | £1,237.3m | £1,003.5m | + 23.3% | + 7.0% |
| Adjusted operating profit¹ | £209.0m | £164.7m | + 26.9% | + 6.1% |
| Adjusted profit before tax¹ | £191.5m | £155.4m | + 23.2% |
|
| Adjusted diluted earnings per share¹ | 81.5p | 67.1p | + 21.5% |
|
Statutory:
| Year ended 31 December | 2009 | 2008 | Growth as reported |
| Operating profit | £186.7m | £147.9m | + 26.2% |
| Profit before tax | £169.2m | £138.6m | + 22.1% |
| Basic earnings per share | 72.4p | 59.5p | + 21.7% |
| Dividend per share | 25.5p | 20.8p | + 22.6% |
Highlights
·; Organic revenue growth of 3.5% at constant currency
·; Organic adjusted operating profit¹ growth of 3.7% at constant currency
·; Adjusted operating profit¹ margin increased by 50 bps to 16.9%
·; Operating cash flow of £278.4m, up 43.5%
·; Full year dividend up 22.6%
·; Negotiations are continuing with DNV to acquire their Business Assurance division
¹ Before amortisation of acquisition intangibles of £12.8m (2008: £9.6m), goodwill impairment of £nil (2008: £0.5m) and non-recurring items of £9.5m (2008: £6.7m)
Wolfhart Hauser, Chief Executive Officer, commented:
"Intertek has produced strong results in a year of challenging economic conditions. This demonstrates the resilience of the Intertek growth model as well as the strength and customer focus of the management and employees. We also generated strong cash flow and have a healthy balance sheet.
As expected, organic growth rates moved to low single digits. We expect to continue growing organically in 2010 at similar levels, with the second half improving on the first. With good market positions, geographic and industry diversification, and many acquisition opportunities the Board is confident that Intertek will grow well in the future, despite the economic environment."
Contacts
For further information, please contact
Aston Swift, Investor Relations
Telephone: +44 (0) 20 7396 3400 aston.swift@intertek.com
Richard Mountain, Financial Dynamics
Telephone: +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, 20 Moorgate, London EC2R 6DA. A copy of the presentation will be available on the website later today.
The 2009 statutory audited Report and Accounts will be available to download from the website later today. If you wish to receive a hard copy of this Report and Accounts, please contact Intertek by email to investor@intertek.com or call +44 (0) 20 7396 3400.
Corporate website: www.intertek.com
About Intertek
Intertek is a leading provider of quality and safety solutions serving a wide range of industries around the world.
From auditing and inspection, to testing, quality assurance and certification, Intertek people are dedicated to adding value to customers' products and processes, supporting their success in the global marketplace.
Intertek has the expertise, resources and global reach to support its customers through its network of more than 1,000 laboratories and offices and over 25,000 people in more than 100 countries around the world.
Chairman's Statement
Results
Intertek delivered strong results in 2009, notwithstanding very difficult macro-economic conditions throughout the world, and ended the year with a revenue figure of £1,237.3m, up 23.3% over last year. Excluding acquisitions revenue growth was 19.4%.
Operating profit was £186.7m, up 26.2% over last year. Adjusted operating profit increased to £209.0m, up 26.9%. Our adjusted operating margin increased by 50 basis points to 16.9%. Excluding acquisitions, adjusted operating profit grew by 24.4%.
Earnings per share
Basic earnings per share were 72.4p, up 21.7% over last year and diluted adjusted earnings per share were 81.5p, up 21.5%.
Dividends
An interim dividend of 8.2p per share (2008: 7.1p) was paid to shareholders on 20 November 2009. The Directors will propose a final dividend of 17.3p per share at the Annual General Meeting on 14 May 2010, to be paid on 18 June 2010 to shareholders on the register at close of business on 4 June 2010. If approved, this will make a full year dividend of 25.5p per share (2008: 20.8p), an increase of 22.6%.
Acquisitions
In 2009, we made three bolt-on acquisitions for total consideration of £30.8m (2008: £83.1m). Details of these acquisitions are given in note 4. Our strategy of growing key industry sectors through acquisitions is unchanged, although we deliberately scaled back our acquisitions in 2009 to concentrate on integrating the businesses we acquired in prior years. We will continue to invest in new opportunities as they arise.
The Board
On 14 January 2010, we announced that Bill Spencer has decided to retire from his position as Chief Financial Officer. Bill has served Intertek extremely well for over 18 years and has played a valuable part in the development of the Group. After 24 years with the Group, Richard Nelson retired from the Intertek Board on 1 September 2009. Richard's work over the past two decades, as Chief Executive Officer and more recently as Non-Executive Director and Deputy Chairman, will have a lasting impact and has been integral in taking Intertek to the successful position that it holds today. On behalf of the Board, I would like to thank both Bill and Richard very much for the significant contribution they have made to the Group. Our best wishes for the future to them both.
On 1 September 2009, I was pleased to welcome Edward Astle and Gavin Darby to the Board as Non-Executive Directors. Edward Astle is Pro-Rector of Commercial Development at Imperial College London where he leads the development of major business opportunities in the UK and internationally. Edward's management and commercial strategy experience at high level in the telecoms, industrial and science related fields will bring additional perspective to the Board.
Gavin Darby is Operations and Business Development Director of Vodafone Group Plc for the Asia Pacific and Middle East Region. Gavin's extensive background in overseeing the operational development of businesses across international markets will be a valuable complement to the Board.
In April 2010, Lloyd Pitchford will join the Board as Chief Financial Officer. Lloyd has spent ten years with BG Group plc, one of the largest UK publicly listed companies, holding the role of Group Financial Controller for the BG Group for the past five years. Lloyd's extensive international and management experience with large, complex and growing organisations will assist Intertek to explore exciting opportunities across global markets. I am delighted to welcome Lloyd to the Board and am confident that he will contribute to Intertek's continued success.
Environmental impact
Intertek is committed to playing an important and positive role with respect to climate change and the environmental impact of products and processes. We advise our clients, as an integral part of our business, on many issues which have an impact on the environment, such as the chemical content of their products and packaging, the energy efficiency of their equipment, CO2 emissions and the disposal of harmful substances and waste electrical products. We also provide advisory and consultancy services to help retailers and manufacturers design their products and services to comply with current and future environmental regulations around the world. Through our services we help our clients to minimise the environmental impact of their products and processes for the benefit of society as a whole. We are also mindful of our own impact on the environment and are working on various initiatives to reduce this.
Quality and integrity
Quality and integrity are in essence what our customers are buying and they therefore lie at the heart of Intertek's culture and processes. We have embedded our values across the organisation and are continually reviewing and reinforcing our internal processes to ensure compliance. The Intertek Compliance Code and Code of Ethics provide practical guidance and instruction for employees and there are email and telephone hotlines so that staff may report anonymously any inaccurate or unethical working practices. Our strong focus on compliance provides assurance to our customers that our reports and certificates are valid and accurate.
Employees
Our mission to support and add value for our customers is delivered through over 25,000 people across Intertek worldwide. It's been a tough year for many of our customers and the dedication of our employees to customer service and going the extra mile has helped us to retain business in the face of increased competition. We constantly strive to improve our capacity to attract, develop and retain the best people who share in the mission, values and success of the Group.
On behalf of the Board, I would like to welcome all new employees to Intertek and to thank all our employees around the world for their commitment to making 2009 another successful year.
Summary
Intertek has performed strongly in difficult circumstances and generated cash. Our key growth drivers remain intact and the Board's confidence in the future is reflected in the dividend increase of 22.6%.
Directors' Report - Business Review
Operating Review
Group overview
Intertek is a global market leader in many industries, supporting customers in the international market place and ensuring that their products comply with their own quality and safety standards and all relevant external regulations. Our services cover the whole supply chain including the sourcing of raw materials, product design, manufacturing processes, compliance certifications and performance testing of the end product. Our customers range from major household names and international corporations to niche suppliers, globally and locally. With over 1,000 facilities in more than 100 countries and over 25,000 employees, we can provide services in almost every country in the world.
What we do
Intertek is a global market leader providing safety and quality services to customers to add value to their products and processes, and support their success in the global market place. We help customers improve performance, gain efficiencies in manufacturing and logistics, overcome market constraints and reduce risk. We offer a comprehensive range of services from testing, inspection and certification through to auditing and consultancy. Using internationally-approved methods, standards, equipment and guidelines, we test consumer products, commercial products, commodities, food, and raw materials for quality control, research, vendor compliance and against regulatory and customer requirements.
Our testing methods use a wide range of skills including complex analytical laboratory techniques in the fields of organic and inorganic chemistry and biochemistry, critical analysis to trouble-shoot customers' problems, 3D laser scanning, electromagnetic compatibility testing, minerals assay and performance testing amongst many others. We provide inspection services to manufacturers, retailers, bulk commodity traders, governments and international buyers and sellers of goods, including factory evaluation, quality inspection, custody transfer, pre-production, in-production, final random sampling, pre-shipment and loading supervision. We hold an extensive range of global accreditations, recognitions and agreements to provide certification services for manufacturers, retailers and traders to enable them to sell products in virtually any market in the world. Our audit services check whether a process, system or facility is performing in the prescribed manner. This includes corporate social responsibility auditing to ensure that factory conditions, especially in developing countries, meet the standards required by our clients. We also offer an extensive range of consultancy and training services. Our services are integrated together to provide our customers with a complete and customised service that meets the precise requirements of the different industries in which they operate.
Our market
Intertek provides services to a wide range of industry sectors, including Aerospace & Automotive, Building Products, Chemicals, Consumer Goods & Retailers, Electrical & Electronic, Energy, Food & Agriculture, Industrial, IT & Telecom, Medical & Pharmaceutical, Minerals, Petroleum, Toys, Games & Hardlines and Textiles, Apparel & Footwear. Each industry has its own characteristics but there are a number of key drivers for our services common to all markets. These are global and local trade through new product development, increasing consumer demand for good quality, safe and environmentally friendly products, more stringent regulations, and the increasing requirement for independent certification of the quantity and quality of traded commodities.
By outsourcing their testing to us, customers reduce the cost of maintaining in-house testing facilities and they benefit from the economies of scale that we can achieve by higher utilisation of the laboratory equipment and personnel. Many products are subject to increased regulation to protect consumers and the environment. For example, the US Consumer Product Safety Improvement Act (CPSIA) contains many provisions concerning the safety and quality of consumer goods and more stringent requirements for children's products. In the European Union, the Registration, Evaluation and Authorisation of Chemicals (REACH) regulation covers over 30,000 chemicals used in products. We advise our customers on the regulatory developments that are applicable to their products in the markets they choose.
Despite slower economic activity, the key growth drivers behind the Intertek business model remain intact. We tend to test products at the prototype stage and therefore our business is driven by product development activity rather than the volume of products sold.
Our employees
At 31 December 2009, the Group employed 25,183 people (2008: 23,841) in over 100 countries. Our people include highly skilled scientists and engineers with specialist knowledge of the industries in which we operate. Many are educated to degree level and above and are peer group leaders in their fields of expertise. Our operations are located close to our customers and our strategy is to employ and develop people native to those locations as they have a better understanding of local issues and cultures and can build strong customer relationships. Through their appointed relationship manager, our clients can access all the services and expertise offered by our global network. Through our Intertek as One programme we emphasise the need to join together to ensure our customers receive a co-ordinated and cohesive service. We have a strong emphasis on training and professional development and this together with the strength of our collective leadership ensures that our employees remain motivated to deliver a world class service.
Our impact on the environment
Being a service industry, energy consumption is not a material part of our cost base. In 2009, 1.2% (2008: 1.3%) of our total costs were spent on gas and electricity. However, we are mindful of our impact on the environment and where possible take measures to reduce energy consumption and eliminate waste. Our internal meetings are increasingly held by conference call to reduce our emissions footprint. We recycle waste paper and we dispose of our waste products responsibly and in compliance with applicable legislation. In the UK and Ireland we operate a 'green' company car policy.
Our main impact on the environment is through the services we offer to customers. We test the performance and evaluate the efficiency of products and advise customers of ways in which they can improve their products and processes to reduce energy use. Since we usually perform our work at the design stage of product development, the small amount of energy that we use to conduct our tests is far outweighed by the global benefits to the environment of our clients using our advice to produce energy efficient products on a larger scale. Our services are supporting the growing alternative energy sectors such as photovoltaic, biofuels and wind energy.
Significant relationships
The Group does not have any contractual or other relationships with any single party which are essential to the business of the Group and therefore no such relationships have been disclosed.
Divisional structure
For management purposes we organise ourselves into operating divisions combining similar industry sectors. During 2009, these divisions were Consumer Goods, Commercial & Electrical, Oil, Chemical & Agri, Analytical Services, Industrial Services and Minerals. We aim to operate a balanced portfolio of businesses across industry sectors and regions.
Our performance in 2009
Considering the challenging economic environment, the Group had a good year with underlying organic growth boosted by acquisitions and favourable exchange rates. Revenue increased by 23.3% (7.0% at constant exchange rates) and adjusted operating profit increased by 26.9% (6.1% at constant exchange rates). The adjusted operating margin was 16.9%, up 50 basis points from last year (down 10 basis points at constant exchange rates).
The results for 2009 by division are summarised below.
|
| Revenue | Adjusted operating profit 1 | ||||
| £m | 2009 | Change at actual rates | Change at constant rates | 2009 | Change at actual rates | Change at constant rates |
| Consumer Goods | 320.9 | 32.3% | 12.4% | 105.5 | 40.5% | 16.8% |
| Commercial & Electrical | 244.8 | 20.2% | 2.3% | 34.7 | 18.8% | (2.0)% |
| Oil, Chemical & Agri | 406.7 | 16.7% | 2.2% | 43.7 | 11.2% | (7.2)% |
| Analytical Services | 137.5 | 15.1% | 4.3% | 14.6 | 10.6% | (2.0)% |
| Industrial Services | 80.7 | 77.0% | 53.1% | 6.5 | 132.1% | 91.2% |
| Minerals | 46.7 | 6.6% | (4.9)% | 4.0 | (21.6)% | (32.2)% |
| Revenue/Adjusted operating profit | 1,237.3 | 23.3% | 7.0% | 209.0 | 26.9% | 6.1% |
| Amortisation |
|
|
| (12.8) |
|
|
| Non-recurring costs |
|
|
| (9.5) |
|
|
| Operating profit |
|
|
| 186.7 | 26.2% |
|
| Net financing costs |
|
|
| (17.5) |
|
|
| Profit before income tax |
|
|
| 169.2 | 22.1% |
|
| Income tax expense |
|
|
| (45.5) |
|
|
| Result for the year | 1,237.3 | 23.3% | 7.0% | 123.7 | 21.0% |
|
1. Before amortisation of acquisition intangibles, goodwill impairment and non-recurring costs.
We calculate organic growth by excluding the results of acquisitions made in 2008 and 2009. On an organic basis, revenue grew by 19.4% (3.5% at constant exchange rates) and adjusted operating profit grew by 24.4% (3.7% at constant exchange rates). The organic growth was generated primarily by growth in the market for quality and safety services, an increase in environmental regulations and an increase in outsourcing.
Part of the Group's growth strategy is to make acquisitions which complement and extend the Group's service offering into new areas of expertise and new locations. As the economic outlook in 2009 was uncertain and financial markets were turbulent, the Group took the strategic decision to slow down its acquisition activity. Three businesses were acquired in the first part of the year which had operations in six different countries. The two main acquisitions were in Industrial Services which is one of the sectors targeted for investment.
The market for our services continues to expand. Consumers and regulatory bodies are increasingly concerned about the quality and safety of products and services and their impact on health and the environment. The number of global and domestic regulations regarding the environment and the safety and quality of products continues to increase. Manufacturers and retailers need to meet the demands of their customers and ensure that they comply with quality and safety requirements, increasingly complex legislation and longer supply chains. We work in partnership with our customers to help them meet those demands and increase the value of their products and services.
Our business is based on facilitating trade and increasing consumer demand for product variety, quality and safety, as well as manufacturers' desire to reduce overhead costs by outsourcing testing and inspection activities. Our 2009 organic revenue growth at constant exchange rates was 3.5%. As expected, some of our businesses were significantly affected by the global recession, however we are very well diversified, both geographically and across industry sectors, which helped to mitigate any weaker performing areas.
The key growth drivers in our business model remain unchanged so our business is robust. The prevailing economic uncertainty made it difficult to predict performance in 2009 and to some extent this continues into 2010. The decline in global trade in products and commodities affected our customers and reduced the volume of goods that we inspect. Some of our customers are undertaking fewer development projects and have reduced their outsourcing which has reduced the number of products that we test and certify.
Each of our divisions offers opportunities for organic growth through increasing our service offering to customers, to add value to their products and processes and help them compete in the global market. We anticipate that businesses will increasingly be looking to reduce the cost of non-core activities such as in-house testing, which provides us with an opportunity to offer our services. We have been very successful in finding acquisitions which extend our range of services. Whilst we deliberately reduced the number of acquisitions completed in 2009, we still maintain a pipeline of opportunities which we are pursuing, and we expect to continue our strategy of growing our business through acquisitions in the future.
Consumer Goods
What we do
The Consumer Goods division is a market leading provider of 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 also include manufacturers and suppliers within a global supply chain.
The market for the services of the Consumer Goods division is diverse. Demand is driven by retailers who require the goods they sell to be produced to a quality set by either their own internal standards or by standards applicable in a particular country or region. Increasingly, materials are sourced and goods are manufactured in locations that are remote from the consumer, causing supply chains to be longer and more complex. The market is also being driven by regulations issued to address safety and environmental concerns over such issues as carcinogenic dyes in textiles and chemicals in children's products toys and cosmetics.
Our performance in 2009
|
| 2009 | Change | Change |
| Consumer Goods | £m | at actual rates | at constant rates |
| Revenue | 320.9 | 32.3% | 12.4% |
| Adjusted operating profit | 105.5 | 40.5% | 16.8% |
| Adjusted operating margin | 32.9% | 190bp | 120bp |
The Consumer Goods division delivered very strong results with total revenue of £320.9m up 32.3% (12.4% at constant exchange rates) and organic revenue up 29.0% (9.3% at constant exchange rates).
Textiles, Apparel & Footwear, which is the largest sector in the division, grew well, with excellent results in China supported by growth in Turkey, Taiwan, India and Vietnam. The first half of 2009 benefited from the surge in volume of children's products requiring testing to comply with the US Consumer Product Safety Improvement Act (CPSIA), which started in the second half of 2008. This increase was not sustained in the second half of 2009 as customers had cleared their inventory back logs and volumes became normalised. Intertek has 26 laboratories accredited under CPSIA, located in the Americas, Europe and Asia.
Although still relatively small, revenue from the food sector increased considerably, helped by good results from businesses we acquired in 2008. Our strategy of investing in the food industry continued with the establishment of new food testing laboratories in India and Thailand.
Total adjusted operating profit was £105.5m, up 40.5% (16.8% at constant exchange rates). Organic adjusted operating profit increased by 40.5% (16.6% at constant exchange rates). The total adjusted operating margin increased 190 basis points to 32.9% from 31.0% in 2008.
On 13 October 2009, we celebrated the 20th anniversary of Intertek's operations in mainland China. The Group commenced its operations in China in 1989 with a consumer goods testing joint venture in Shenzhen, making it the first international provider of quality and safety solutions to enter China. Since then we have significantly expanded the range of services we offer and the industries we support. We continue to invest in our operations and facilities in China in all our divisions and today we have more than 6,000 employees in China and over 100 offices and laboratories.
The key growth drivers in Consumer Goods remain strong, principally the sourcing of products from lower cost manufacturers in countries such as China, the increasingly wide range of products being sold by retailers and shorter product lifecycles. Concern over the safety of consumer products has increased demand from consumers and regulatory bodies for independent assurance of quality and safety.
Although two-thirds of revenue is derived from toys and textiles testing, the remainder is from our expanding service lines such as consultancy, inspection, supply chain services, food and corporate social responsibility where margins are not always as high as those earned by the established services. As many economies are currently entering a recessionary phase, consumer spending is declining. Whilst our business is dependent on the variety of goods produced and new product development rather than the volume sold, a prolonged decline in consumer spending could result in a reduction in product development. We aim to grow our revenue by developing new services, integrating our services and providing innovative supply chain solutions to our customers.
Commercial & Electrical
What we do
The Commercial & Electrical division provides services including testing and certification, electromagnetic compatibility testing (EMC), outsourcing, benchmark and performance testing and environmental testing. These are provided to a wide range of industries including the home appliance, lighting, medical, building, industrial and HVAC/R (heating, ventilation, air conditioning and refrigeration), IT, telecom, renewable energy and automotive industries. Our customers are mostly manufacturers but also retailers, industry organisations and government departments. Intertek has the widest range of owned marks and accreditations, including the ETL listed mark, the Warnock Hersey mark for North America and the S mark, Asta mark and BEAB mark for Europe, as well as being a leader in providing CB certification and the CE mark and GS mark for Europe.
The market for our Commercial & Electrical services is driven primarily by increasing regulations over the safety of products, product variety and growing environmental concerns. This includes current concerns over climate change and the impact on the environment of electrical products.
Our performance in 2009
| Commercial & Electrical | 2009 | Change | Change |
|
| £m | at actual rates | at constant rates |
| Revenue | 244.8 | 20.3% | 2.3% |
| Adjusted operating profit | 34.7 | 18.8% | (2.0)% |
| Adjusted operating margin | 14.2% | (10)bp | (70)bp |
Total revenue increased to £244.8m, up 20.3% (2.3% at constant exchange rates) and organic revenue increased by 18.0% (0.4% at constant exchange rates). Performance in the Commercial & Electrical division was strong in some sectors such as the core electrical testing business, which reported good results worldwide, particularly in lighting, and heating, ventilation and air conditioning (HVAC). We also reported good growth in the renewable energy sector where we guide clients through the complex regulatory issues affecting renewable energies including photovoltaic and wind power equipment. Growth in the building products sector was limited by delays in new construction projects and the automotive industry continued to be depressed.
Total adjusted operating profit was £34.7m, up 18.8% (down 2.0% at constant exchange rates). Organic adjusted operating profit increased by 10.9% (down 8.7% at constant exchange rates). The total adjusted operating margin decreased 10 basis points to 14.2%.
Despite difficult trading conditions in certain markets, the adjusted operating profit at constant exchange rates did not decline significantly. Underperforming sectors were reorganised to improve opportunities, maximise synergies and contain costs.
In April 2009, the Group acquired Sagentia Catella, a globally renowned battery testing business based in Sweden. This business has been integrated with Intertek's global energy services laboratories throughout Europe, the USA and Asia and benefits global customers who are developing more efficient energy storage technologies and more reliable and environmentally friendly products. Since acquisition, we have extended the service offering into the hybrid and electrical vehicles market, which we expect to be a future growth area.
Customer demand for safe, reliable, energy-efficient products continues to increase and the market for Commercial & Electrical continues to evolve, presenting opportunities for growth. Market drivers in the medical and renewable energy sectors remain strong. Concerns over climate change are driving new directives regarding the energy usage of products, particularly in the HVAC industry and this is expected to extend to other industries. The consumer market for home appliances and electronics is under pressure and the growth of information, communication and technology products is also slowing down. This may provide us with opportunities as customers seek to maintain or increase their market share through product innovation, improvements in quality and durability, and performance comparisons, and cut their costs by improving efficiency. The issues in the automotive industry are well documented but we do not anticipate a significant further decline. We are closely monitoring our business in this sector and will reduce costs if revenue continues to decline.
Market conditions in 2009 provided both challenges and opportunities for the Commercial & Electrical division. The renewable energy industries are expected to grow rapidly and we are well placed to support this growth. The automotive sector remains a concern although there are signs that the decline will not worsen.We will continue to strive for operational excellence and aim to strengthen our market share by offering superior service. There are many small niche players in the market and this provides opportunities for us to continue adding infill acquisitions.
Oil, Chemical & Agri
What we do
The Oil, Chemical & Agri division provides independent cargo inspection as well as non-inspection related laboratory testing, calibration and related technical services. Our customers include the world's energy, petroleum, chemical and agricultural industries. Cargo inspection and testing is a well established global market in which Intertek is one of the leading service providers. High barriers to entry are principally due to the fixed costs of establishing a global network of operations and laboratories and our excellent reputation and experience earned through decades of service in the industry. The division also provides cargo scanning, fiscal support services and standards programmes to governments, national standards organisations and customs authorities. These services were previously reported separately as the Government Services division.
Our performance in 2009
| Oil, Chemical & Agri | 2009 | Change | Change |
|
| £m | at actual rates | at constant rates |
| Revenue | 406.7 | 16.7% | 2.2% |
| Adjusted operating profit | 43.7 | 11.2% | (7.2)% |
| Adjusted operating margin | 10.7% | (60)bp | (110)bp |
Revenue increased to £406.7m, up 16.7% (2.2% at constant exchange rates). There were no acquisitions in this division so all growth is organic. Double digit revenue growth in the Middle East, Asia and South America was reduced by a decline in revenues in North America. The reduction in growth was mainly in the East Coast and the East Gulf Coast regions of the USA where trading conditions have been particularly badly affected by the economic downturn. Several refineries have closed and customers have reduced their development expenditure and retained more analytical work in-house. The recession also slowed the growth in demand for biofuels market, although we expect this to recover as soon as confidence in the economy returns.
Total adjusted operating profit increased to £43.7m, up 11.2% (down 7.2% at constant exchange rates). The adjusted operating margin declined by 60 basis points to 10.7%. The margin decline was mainly due to a change in the mix of services provided and increased pricing pressure. The revenue growth was mostly in inspection and inspection related testing which earns a lower margin than more complex non-inspection related testing. Underperforming operations have been reorganised and some small non-core businesses will be divested.
The core inspection business is steady and we expect the demand for higher-margin complex testing services to increase once the global recession recedes and investment resumes. We also expect the demand for biofuels to grow, leading to the development of new technologies and production methods. Once market conditions improve we expect the margin for this division to increase.
Analytical Services
What we do
Analytical Services provides expert laboratory measurement and consultancy services to a broad range of industries including chemical, pharmaceutical, oil and gas, and automotive and aerospace. We have an established track record of success in laboratory outsourcing with many large internationally recognised companies.
Our performance in 2009
| Analytical Services | 2009 | Change | Change |
|
| £m | at actual rates | at constant rates |
| Revenue | 137.5 | 15.1% | 4.3% |
| Adjusted operating profit | 14.6 | 10.6% | (2.0)% |
| Adjusted operating margin | 10.6% | (40)bp | (70)bp |
Total revenue in 2009 was £137.5m, up 15.1% (4.3% at constant exchange rates) over the prior year. Organic revenue increased 14.9% (4.0% at constant exchange rates).
Results in Analytical Services were mixed, with some operating segments delivering good results and others performing less well. Revenue increased in upstream oil and gas services, and in downstream chemicals and materials testing, but declined in pharmaceutical and speciality chemicals.
Much of Intertek's upstream services support the exploration, production and transportation of hydrocarbon reserves. Although crude oil prices remained fairly steady in 2009, most production facilities implemented aggressive cost reduction programmes where discretionary expenditure on all non-production critical projects was curtailed or delayed, causing our revenue growth to be lower than expected in one service line. Downstream chemicals and materials testing which accounted for almost half of the division's revenue, had a strong finish to the year with several manufacturing plants returning to normal production rates, from their previous 12-month record low. Our results also benefited strongly from our efforts to generate sales in new materials research and development projects and from the impact of impending new regulatory programmes in automotive lubricants. Overall, the pharmaceutical and speciality chemicals sector continued to be challenging. Sales erosion was experienced mostly in the USA, due to the merger of large pharmaceutical companies and the shortage of investment capital available to the smaller biotech companies. The Intertek pharmaceutical services business was restructured to consolidate resources and reposition its business growth opportunity into wider markets.
Total adjusted operating profit increased to £14.6m, up 10.6% (down 2.0% at constant exchange rates). Organic adjusted operating profit increased by 13.0% (down 1.5% at constant exchange rates). Despite the volatility in revenue which made it difficult to manage costs, the division reported an adjusted operating profit margin of 10.6%, down 40 basis points on the prior year.
The overall reduction in manufacturing volumes in the downstream chemicals and materials markets, combined with the upheaval in the global pharmaceuticals markets, made 2009 a particularly challenging and volatile year. We see signs of improvement in 2010, with evidence of recovering manufacturing volumes and larger projects being commissioned and clients reawakening their interest in outsourcing. We are currently considering a number of strategic opportunities which will enhance our future growth.
Industrial Services
What we do
Industrial Services is a global provider of inspection, testing and auditing services. This includes management systems certification, second-party auditing, supplier evaluation, technical verification, conformity assessment, asset integrity management, 3D laser scanning and dimensional control management, training, health and safety consulting and greenhouse gas services. We serve a wide variety of industries including oil, gas, petrochemical, power, renewable energy, civil and infrastructure, aerospace and medical.
Our performance in 2009
| Industrial Services | 2009 | Change | Change |
|
| £m | at actual rates | at constant rates |
| Revenue | 80.7 | 77.0% | 53.1% |
| Adjusted operating profit | 6.5 | 132.1% | 91.2% |
| Adjusted operating margin | 8.1% | 200bp | 160bp |
Total revenue in 2009 was £80.7m, up 77.0% (53.1% at constant exchange rates) over the prior year. Organic revenue increased 22.8% (6.2% at constant exchange rates). Total adjusted operating profit increased to £6.5m, up 132.1% (91.2% at constant exchange rates). Organic adjusted operating profit increased 80.0% (38.5% at constant exchange rates).The adjusted operating margin was 8.1%, up 200 basis points on the prior year.
The Industrial Services division reported good organic growth which was further enhanced by successful acquisitions. In February 2009, the Group acquired the WISco group of companies, which provide global technical inspection and expediting support to a wide range of customers in the oil, gas, petrochemical and power generation industries and their supplier markets. The successful integration of the acquisition has had a positive impact on organic growth through enhanced management and economies of scale.
Also in February, the Group acquired Aptech Engineering Services which is a US based engineering consulting company specialising in the life management of infrastructure, facilities and equipment. This business has also performed very well in 2009.
Towards the end of 2009, the market for industrial services was affected by the lack of funding available for capital projects. Customers either cancelled or delayed projects pending the stabilisation of world economies and the global capital markets. There are signs that confidence is returning and investment is increasing but there is little certainty of significant improvement in 2010.
The market for systems certification was challenging, especially in the automotive sector, resulting in reduced demand for our services. The development of the systems certification businesses depends on acquiring scale.
Although still relatively small, revenue in the health and environmental sector grew by over 30%. The impact of the REACH legislation has been minimal to date as only pre-registration has been required. However the next registration deadline is 1 December 2010 so, providing this is complied with, we expect growth in 2010. The compliance requirements are complicated and we anticipate a surge in interest ahead of the deadline. Other green initiatives from government to reduce greenhouse gas emissions will also create further opportunities for Intertek to advise clients on how best to meet these regulatory challenges.
Minerals
What we do
The Minerals division offers analytical testing, inspection and mine-site laboratory services to the world's minerals, exploration, ore and mining industries. We provide a wide range of analytical services for materials including precious metals, base metals and their raw content, such as iron ore, bauxite, coal and coke, as well as bulk commodities. We also provide marine and inspection services of minerals shipments.
Our performance in 2009
| Minerals | 2009 | Change | Change |
|
| £m | at actual rates | at constant rates |
| Revenue | 46.7 | 6.6% | (4.9)% |
| Adjusted operating profit | 4.0 | (21.6)% | (32.2)% |
| Adjusted operating margin | 8.6% | (300)bp | (350)bp |
In 2009, total revenue was £46.7m, up 6.6% (down 4.9% at constant exchange rates) over the prior year and organic revenue increased by 3.8% (down 7.4% at constant exchange rates). Total adjusted operating profit decreased to £4.0m, down 21.6% (down 32.2% at constant exchange rates). Organic adjusted operating profit decreased by 18.8% (down 29.1% at constant exchange rates). The adjusted operating margin was 8.6%, down 300 basis points on the prior year.
The difficult trading conditions in the minerals and industrial markets which started in the second half of 2008, continued through 2009. Although volumes have returned to almost pre-recession levels in some locations, overcapacity in the industry has resulted in increased price pressure. The revenue growth in facilities we established in 2008 has been steadily increasing, albeit at a slower rate than originally anticipated.
The price of commodities such as gold, uranium and other strategic metals remains high and this should encourage increased exploration by the established mining companies. The junior companies are likely to remain inactive until the capital markets recover and funding restrictions are eased. We have the expertise and capacity to take advantage of an upturn in activity and as we currently have a very small share of the available market in the minerals industry, even in a declining market we anticipate being able to grow revenues by gaining market share from competitors. We have reduced our costs and will concentrate on improving our margin in those areas which are underperforming.
Financial Review
Results for the year
Profit before income tax increased by 22.1% to £169.2m (2008: £138.6m) and diluted adjusted earnings per share were 81.5p (2008: 67.1p). Basic earnings per share were 72.4p (2008: 59.5p).
Key financial performance indicators
We use a variety of key performance indicators (KPIs) to monitor the performance of the Group. Similar indicators are used to review the performance of the operating divisions. These KPIs are reviewed by the Board and management on a monthly basis and are used to assess past performance and set targets for the future. Many of the KPIs also form part of the management incentive scheme whereby managers may receive annual bonus payments on achieving or exceeding a range of targets set for the year.
| Key financial performance indicators | |
| Revenue | Up 23.3% |
| Organic revenue | Up 19.4% |
| Adjusted operating profit | Up 26.9% |
| Organic adjusted operating profit | Up 24.4% |
| Adjusted operating margin | Up 50bp |
| Operating cash flow | Up 43.5% |
| Operating cash flow/operating profit | 121.0% |
| Diluted adjusted earnings per share | Up 21.5% |
| Dividend per share | Up 22.6% |
| Return on invested capital | 26.5% |
Growth in revenue
Top line revenue growth is a key performance measure. In 2009, revenue was £1,237.3m up 23.3% over the prior year (7.0% at constant exchange rates).
Impact of currency movements
The Group operates in 74 different currencies. The majority of the Group's earnings are denominated in US dollars or currencies linked to the US dollar or which historically have moved in line with the dollar. Other currencies such as the Euro and the Chinese renminbi are also important constituents of our overseas earnings. Therefore the Group's results, when translated into sterling, are exposed to changes in the value of the US dollar and other currencies.
We show below the main currencies that make up the Group's earnings and the cumulative average exchange rates that we have used when translating results into sterling in 2009 and 2008.
Impact of currency movements
| Value of £1 | 2009 | 2008 |
| US dollar | 1.56 | 1.87 |
| Euro | 1.12 | 1.26 |
| Chinese renminbi | 10.63 | 13.03 |
| Hong Kong dollar | 12.06 | 14.59 |
The weak value of sterling compared to most of the currencies in which we operate had a significant effect on our results in 2009. Our revenue growth was 23.3% at actual rates but 7.0% at constant exchange rates. Growth in adjusted operating profit was 26.9% at actual rates but 6.1% at constant exchange rates.
Growth in adjusted operating profit and margin
|
| 2009 | 2008 |
|
|
| £m | £m | Change |
| Operating profit | 186.7 | 147.9 | 26.2% |
| Amortisation of acquisition intangibles | 12.8 | 9.6 | 33.3% |
| Impairment of goodwill | - | 0.5 | - |
| Non-recurring costs | 9.5 | 6.7 | 41.8% |
| Adjusted operating profit | 209.0 | 164.7 | 26.9% |
| Adjusted operating margin | 16.9% | 16.4% | Up 50bp |
In 2009, adjusted operating profit was £209.0m, up 26.9% over the previous year. The adjusted operating margin was 16.9%, up 50 basis points from 16.4%.
Amortisation of acquisition intangibles
Amortisation of acquisition intangibles is provided on a straight line basis over the life of the assets, which is normally five years but can be up to ten years. The charge was £12.8m in 2009, up from £9.6m in 2008 due to the accumulation of intangible assets acquired in the past five years.
Impairment of goodwill
We perform a detailed review of goodwill each year to consider whether there is any impairment in its carrying value. The capitalised goodwill at 31 December 2009 was £257.8m (2008: £242.1m) which relates to acquisitions made since 1998. As a result of the "Intertek as One" internal Group-wide initiative, various levels of restructuring occurred during 2008 and 2009. This restructuring was considered as part of the annual goodwill impairment test which included a re-assessment of not only the constitution of the CGUs but also the allocation of goodwill across those CGUs and operating segments (as required under the newly adopted standard, IFRS 8 - Operating Segments).The impact of the restructuring has led to greater global operational control across divisions, improved management of global customer accounts, and more effective integration of acquired businesses into existing Intertek operations (which previously had more local, independent control over decision-making).The above review has led to a change in the composition of the CGUs and also to a change in the level at which we monitor goodwill. There are now eight CGUs which generate cash inflows which are largely independent of other CGUs and to which goodwill has been allocated. These CGUs have been tested for impairment in accordance with the Group's accounting policy. This review revealed no requirement for any impairment in 2009 (2008: £0.5m).
Non-recurring costs
In 2009, the Group reported non-recurring costs of £9.5m which comprised acquisition costs of
£2.5m and restructuring and other costs of £7.0m, as per note 2 to this report. Although the Group has not early adopted IFRS 3 (Revised), acquisition-related costs have been incurred prior to the adoption of this standard in relation to acquisitions that will be accounted for in accordance with IFRS 3 (Revised). The Group has chosen to expense these acquisition-related costs as incurred. Notwithstanding that IFRS 3 (Revised) is not yet effective, it is expected to be effective at the time that the related business combinations are expected to occur. The restructuring and other costs were principally related to employment costs, including redundancies, retirement costs and settlements to former employees. There were also some closure costs and asset write downs in underperforming businesses. The majority of the restructuring was in the Oil, Chemical & Agri division.
In 2008, the Group incurred costs of £6.7m in relation to the integration of the Government Services division into the Oil, Chemical & Agri division.
Net financing costs
The Group reported finance income in 2009 of £7.7m (2008: £13.1m). This comprised the gain in the fair value of financial instruments held for trading, the expected return on pension assets, the net change in fair value of available-for-sale financial assets transferred from equity, and interest on bank balances. The decrease was mainly due to the absence of foreign exchange gains made on the revaluation of net monetary assets and liabilities in 2008.
The Group's finance expense for 2009 was £25.2m compared to £22.6m in 2008. The charge comprised interest on borrowings, pension interest cost, foreign exchange losses on revaluation of net monetary assets and liabilities and other financing fees.
Income tax expense
Income tax expense for 2009 was £45.5m (2008: £36.4m), comprising a current tax charge of £54.1m (2008: £41.9m) less a deferred tax credit of £8.6m (2008: £5.5m). The effective tax rate was 26.9%, up from 26.3% in 2008. The change in the effective tax rate was mainly due to changes in the mix of profits and an increasing dividend withholding tax burden.
Profit for the year
Profit for the year after income tax was £123.7m (2008: £102.2m) of which £114.7m (2008: £93.8m) was attributable to equity holders of the Company.
Minority interests
Profit attributable to minority shareholders was £9.0m in 2009 (2008: £8.4m). The increase was mainly due to the strong growth in the Group's non-wholly owned subsidiaries in Asia.
Earnings per share
Earnings per share are calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year. As set out in note 3 to this report, basic earnings per share at the end of the year were 72.4p (2008: 59.5p), an increase of 21.7%. A diluted adjusted earnings per share calculation is also shown, which removes the post-tax impact of amortisation of acquisition intangibles, impairment of goodwill and non-recurring costs from earnings, and includes potentially dilutive share options in the number of shares, to give diluted adjusted earnings per share of 81.5p (2008: 67.1p), an increase of 21.5%. We consider that growth in the diluted adjusted earnings per share figure gives a more representative measure of underlying performance and is one of the key performance targets that the Group uses to incentivise its managers.
Dividends
During the year, the Group paid total dividends of £34.7m (2008: £30.4m), which comprised £21.7m in respect of the final dividend for the year ended 31 December 2008, paid on 19 June 2009 at the rate of 13.7p per share and £13.0m being the interim dividend in respect of the year ended 31 December 2009, paid on 20 November 2009 at a rate of 8.2p per share. These amounts were charged to retained earnings. After the 31 December 2009, the Board recommended a 26.3% increase in the final dividend in respect of the year ended 31 December 2009, to 17.3p per share (2008: 13.7p), which together with the interim dividend will give a full year dividend of 25.5p per share (2008: 20.8p), an increase of 22.6% over last year. If approved, the final dividend will be paid to shareholders on 18 June 2010. The total cost of the final dividend is expected to be £27.5m, giving a total cost of £40.5m for the dividends paid in respect of the year ended 31 December 2009. This represents 32.7% of the profit for the year for 2009, or a dividend covered 3.2 times by earnings, based on diluted adjusted earnings per share.
Cash and liquidity
| Cash and liquidity | 2009 | 2008 | Change |
|
| £m | £m |
|
| Cash generated from operations | 278.4 | 194.0 | 43.5% |
| Less net acquisition of property, plant, equipment and software | (52.5) | (67.2) | (21.9)% |
| Operating cash flow after capital expenditure | 225.9 | 126.8 | 78.2% |
| Operating profit | 186.7 | 147.9 | 26.2% |
| Operating cash flow/operating profit | 121.0% | 85.7% | 3530bp |
The primary source of the Group's cash liquidity over the last two financial years has been cash generated from operations and the drawdown of debt. A portion of these funds has been used to fund acquisitions and capital expenditure and to pay interest, dividends and taxes.
The Group continued to generate good cash flow. Cash generated from operations was £278.4m for 2009, compared to £194.0m for 2008. The increase of 43.5% was due to favourable exchange rates, improved profitability and effective working capital management. One of the key performance indicators we use to measure the efficiency of our cash generation is the percentage of operating profit that is converted into cash. As shown in the table above, in 2009, 121.0% of operating profit was converted into cash compared to 85.7% in 2008. The significant increase in the conversion rate reflects a 21.9% reduction in the capital expenditure, increase in operating profit and a much improved working capital position. The reduction in capital expenditure was induced by the need to conserve cash during the difficult borrowing environment in 2009.
In order to support our growth strategy we need to invest continually in our operations. In 2009, net cash flows used in investing activities were £79.6m (2008: £156.6m), a reduction reflecting a policy to conserve cash during the difficult financial environment in 2009. We paid £23.9m net of cash acquired, (2008: £67.8m) for three new businesses, £10.2m (2008: £16.7m) for deferred consideration on prior year acquisitions, and £52.5m (2008: £67.2m) for the acquisition of property, plant and equipment and computer software, net of disposals. In 2009, we sold for £5.7m, shares in a listed investment acquired in 2008 for £4.4m and also divested our 40% interest in the associate Allium for £0.9m.
Cash flows from financing activities comprised proceeds from the issue of share capital following the exercise of employee share options of £3.6m (2008: £2.6m), the net repayment of debt of £58.7m (2008: drawdown of £79.5m), and cash outflows of dividends paid to minorities of £6.3m (2008: £6.1m) and dividends paid to Group shareholders of £34.7m (2008: £30.4m), which resulted in a net cash outflow from financing activities of £96.1m (2008: cash inflow £46.1m).
Interest bearing loans and borrowings were £335.6m at 31 December 2009, a decrease of 20.4% over 2008. The Group's borrowings are made in currencies which, as far as possible match its asset base. The decrease in borrowings comprised exchange adjustments of £27.3m due to the translation into sterling of borrowings denominated in other currencies and the net repayment of debt of £58.7m. Cash and cash equivalents at 31 December 2009, were £134.2m, an increase of 18.4% over 2008. This increase was due to a net cash inflow of £27.0m, partially offset by adverse exchange movements of £6.1m. Net debt at 31 December 2009 was substantially reduced to £201.4m (2008: £308.3m).
Borrowings
The Group has a sterling denominated multi-currency bank debt facility that was placed in December 2004. This facility was originally due to expire on 15 December 2009, however the Group exercised its option to extend the facility by a year in 2005 and by a further year in 2006, so the facility is now due to expire in December 2011. The margins currently paid on the borrowings in this facility are in the range of 0.3% to 1.5% over LIBOR. In June and July 2008, the Group raised a further £75.0m under this facility from three new banks who joined the existing syndicate of ten banks under the same terms and conditions and margin.
In 2008, the Group also raised a total of US$200.0m by way of senior note issues which have a blended fixed borrowing rate of 6.71%. This comprised US$100.0m with a fixed interest rate of 5.54%, repayable on 26 June 2015 and US$100.0m which is repayable in two tranches with US$25.0m at a fixed interest rate of 7.5%, repayable on 21 January 2014 and US$75.0m with a fixed interest rate of 8.0% repayable on 10 June 2016. These senior notes were applied against bank debt borrowings to increase the amount of liquidity headroom on the facility.
In January 2010, the Group successfully negotiated a US$60.0m bilateral, multi-currency revolving credit facility with the Bank of China, London Branch, available up to 25 January 2013.
The maturity of the Group's borrowings at 31 December 2009 is set out below:
| Borrowings | 2009 | 2008 |
|
| £m | £m |
| Due within one year | 8.2 | 14.0 |
| Due between one and two years | 198.5 | 44.3 |
| Due between two and five years | 19.0 | 222.0 |
| Due in over five years | 109.9 | 141.3 |
| Total | 335.6 | 421.6 |
The composition of the Group's gross borrowings by currency is as follows:
|
| 2009 | 2008 |
|
|
|
|
| US dollar | 63% | 63% |
| UK sterling | 28% | 12% |
| Australian dollar | 9% | 1% |
| Hong Kong dollar | - | 9% |
| Euro | - | 8% |
| Swedish kroner | - | 4% |
| Japanese yen | - | 3% |
The Group's policy is to ensure that a liquidity buffer is available in the short-term, to absorb the net effects of transactions made and expected changes in liquidity both under normal and stressed conditions without incurring unacceptable losses or risking damage to the Group's reputation. At 31 December the Group's liquidity position showed substantial improvement as shown below:
|
| 2009 | 2008 |
|
| £m | £m |
| Senior term debt facilities | 600.3 | 612.4 |
| Repayments to 31 December | (109.9) | (88.0) |
| Senior term borrowings | (331.9) | (417.7) |
| Letters of credit - senior term facility | (5.3) | (8.9) |
| Undrawn committed borrowing facilities | 153.2 | 97.8 |
| Cash and cash equivalents | 134.2 | 113.3 |
| Liquid funds | 287.4 | 211.1 |
Where appropriate, cash is managed in currency based cash pools and is put on overnight deposit, bearing interest at rates fixed daily in advance. At 31 December 2009, 81.1% of cash was on overnight deposit (2008: 91.3%).
Capital structure and management
The Group is committed to enhancing shareholder value, both by investing in the business so as to improve the return on investment in the longer term and by managing our capital structure. The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management monitors both the demographic spread of shareholders, as well as the return on capital. The Group seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. Return on capital in 2009 was 26.5% compared to 19.9% in 2008. This substantial increase was primarily due to a higher level of operating profit, reduced capital expenditure and a better working capital position in 2009.
| Return on invested capital | 2009 | 2008 |
|
| £m | £m |
| Operating profit | 186.7 | 147.9 |
| Amortisation of acquisition intangibles | 12.8 | 9.6 |
| Impairment of goodwill | - | 0.5 |
| Non-recurring costs | 9.5 | 6.7 |
| Adjusted operating profit | 209.0 | 164.7 |
| Tax rate | 26.9% | 26.3% |
| Adjusted operating profit after tax | 152.8 | 121.4 |
|
|
|
|
| Property, plant and equipment | 220.9 | 234.8 |
| Goodwill | 257.8 | 242.1 |
| Other intangible assets | 46.9 | 55.2 |
| Inventories | 7.6 | 8.2 |
| Trade and other receivables | 265.9 | 284.4 |
| Trade and other payables | (190.5) | (187.8) |
| Provisions | (31.5) | (26.6) |
| Invested capital | 577.1 | 610.3 |
|
|
|
|
| Return on invested capital | 26.5% | 19.9% |
There were no changes to the Group's approach to capital management during the year and neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
Critical accounting policies
The consolidated financial statements are prepared in accordance with IFRS as adopted by the EU.
New accounting standards
The Group has adopted in the year the following new standards, amendments to standards and interpretations, which have had no material impact on the financial statements:
·; IFRS 8 Operating segments;
·; IAS 23 (Revised) Borrowing costs;
·; IAS 1 (Revised) Presentation of financial statements;
·; Improvements to International Financial Reporting Standards 2008.
IFRS 3 (Revised) Business combinations, was endorsed by the EU in June 2009 and is effective for annual periods on or after 1 July 2009. Although the Group has not early adopted IFRS 3 (Revised), acquisition-related costs have been incurred prior to the adoption of this standard in anticipation of acquisitions that will be accounted for in accordance with IFRS 3 (Revised). The Group has chosen to expense these acquisition-related costs as incurred. Notwithstanding that IFRS 3 (Revised) is not yet effective, it is expected to be effective at the time that the related business combinations are expected to occur.
Principal Risks and Uncertainties
This section sets out a description of the principal risks and uncertainties that could have a material adverse effect on the Intertek Group's strategy, performance, results, financial condition and/or reputation. The risks and uncertainties set out below, do not appear in any particular order of potential materiality or probability of occurrence.
Risk framework
The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. There is an established, structured approach to risk management, which is described in the Corporate Governance Report in the Annual Report. The Vice President of Risk Management and Internal Audit, who reports to the Chief Financial Officer and the Audit and Risk Committee, has accountability for reporting the key risks, controls and mitigating actions. Risks are formally identified and recorded in a risk matrix for each operating division and support function, which calculates gross risk and net risk after mitigating controls are applied. The risk matrix is updated annually and is used to plan the Group's internal audit and risk strategy. In addition to the risk matrix, all senior executives and their direct reports are required to complete an annual return to confirm that management controls have been effectively applied during the year. The return covers operations, compliance, risk management and finance. The Vice President of Risk Management and Internal Audit attends the meetings of the Audit and Risk Committee, and meets with the members of that committee alone at least once a year.
In common with all businesses, the Group is affected by a number of risk factors, some of which are outside our control. Although many of the risk factors influencing the Group's performance are macroeconomic and likely to affect the performance of the business generally, others are particular to Intertek's operations. Specific risks of which we are aware are detailed below, however there may be other risks that are currently unknown or are currently regarded as immaterial which could turn out to be material. Any of these risks could have the potential to impact the performance of the Group, its assets, liquidity and capital resources.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group's income or the value of its assets and liabilities. These risks are managed by the Group's treasury function as described below.
Treasury management
The Board is responsible for approving the treasury policy for the Group. The Group's treasury and funding activities are undertaken by a centralised treasury function which reports to the Chief Financial Officer. Its primary activities are to manage the Group's liquidity, funding requirements and financial risk, principally arising from movements in interest and foreign currency exchange rates. The Group's policy is to ensure that adequate liquidity and financial resource is available to support the Group's continuing activities and growth whilst managing these risks. The Group's policy is not to engage in speculative financial transactions. Generally, the Group seeks to apply hedge accounting in order to manage volatility in profit or loss. There have been no significant changes in the Group's policies in the last year. Group Treasury operates as a service centre within clearly defined objectives and controls and is subject to periodic review by internal audit.
Foreign currency risk
The Group operates in more than 100 countries and has 219 (2008: 217) subsidiaries, of which 185 (2008: 180) report in currencies other than sterling. The net assets of foreign subsidiaries represent a significant portion of the Group's shareholders' funds and a substantial percentage of the Group's revenue and operating costs are incurred in currencies other than sterling. Because of the high proportion of international activity, the Group's profit is exposed to exchange rate fluctuations. Two types of risk arise as a result: (i) translation risk, that is, the risk of adverse currency fluctuations in the translation of foreign currency operations and foreign assets and liabilities into sterling and (ii) transaction risk, that is, the risk that currency fluctuations will have a negative effect on the value of the Group's commercial cash flows in various currencies.
(i)Translation risk
The results of the Group's overseas activities are translated into sterling using the cumulative average exchange rates for the period concerned. The balance sheets of overseas subsidiaries are translated at actual exchange rates applicable at 31 December.
Key rates used during the year were as follows:
|
| Assets and liabilities | Income and expenses | ||
|
| Actual rates | Cumulative average rates | ||
| Value of £1 | 31 Dec 09 | 31 Dec 08 | 2009 | 2008 |
| US dollar | 1.60 | 1.46 | 1.56 | 1.87 |
| Euro | 1.12 | 1.02 | 1.12 | 1.26 |
| Chinese renminbi | 10.90 | 9.95 | 10.63 | 13.03 |
| Hong Kong dollar | 12.38 | 11.28 | 12.06 | 14.59 |
Material changes in the exchange rates can create volatility in the results when they are translated into sterling. In order to mitigate this translation exposure, the Group's policy is to match the currency of external borrowings to the currency of expected cash flows and the currency of net investments. At 31 December 2009, over 60% of the Group's borrowings were denominated in US dollars.
(ii)Transaction risk
The Group's policy requires overseas subsidiaries to hedge all significant transaction exposures with Group Treasury where they are managed centrally. Subsidiaries' transaction exposures include committed foreign currency sales and purchases together with the anticipated transactions reasonably expected to occur during future periods. The Group's policy is also to hedge transaction exposures arising from the remittance of overseas dividends and interest as soon as they are committed. Transaction exposures are hedged forward using forward currency contracts which mature in less than 12 months.
Interest rate risk and exposureThe Group's policy is to ensure that between 33% and 67% of its exposure to changes in interest rates on borrowings is on a fixed rate basis. This is achieved by entering into interest rate swaps. The balance between fixed and variable rate debt is periodically adjusted on the basis of prevailing and anticipated market conditions and the Group's gearing and interest cover, which are monitored by Group Treasury. Details of the interest rate hedges in place at 31 December 2009 are given in note 26 to the Annual Report.
Liquidity
Liquidity risk is the risk that the Group is unable to meet its financial obligations as and when they fall due. Managing liquidity risk is particularly important in the current economic environment where the availability of capital is limited.
The management of operational liquidity risk aims primarily at ensuring that the Group always has a liquidity buffer that is able, in the short term, to absorb the net effects of transactions made and expected changes in liquidity both under normal and stressed conditions without incurring unacceptable losses or risking damage to the Group's reputation. Group Treasury manages this liquidity risk through the use of daily headroom calculations as well as forecast headroom calculations. Group Treasury is in regular contact with the banks and capital debt markets, as well as other potential providers of debt to ensure a proper understanding of the availability and pricing of debt funding.
The Group has a sterling denominated multi-currency bank debt facility that was placed in December 2004. This facility was originally due to expire on 15 December 2009, however the Group exercised its option to extend the facility by a year in 2005 and by a further year in 2006, so the facility is now due to expire in December 2011. The margins currently paid on the borrowings in this facility are in the range of 0.3% to 1.5% over LIBOR. In 2008, the Group raised a further £75.0m under this facility under the same terms and conditions and margin and also raised US$200.0m by way of senior note issues which have a blended fixed borrowing rate of 6.71%. The notes are repayable in three tranches with US$100.0m due on 26 June 2015, US$25.0m due on 21 January 2014 and US$75.0m due on 10 June 2016.In January 2010, the Group successfully negotiated a US$60.0m bilateral, multi-currency revolving credit facility with the Bank of China, London Branch, available up to 25 January 2013.
The sterling equivalent of the gross available and drawn borrowings as at 31 December 2009 was £488.8m (2008: £519.4m) of which £335.6m (2008: £421.6m) was drawn and £153.2m (2008: £97.8m) was available when translated at the year end exchange rates. The Group also reported a cash balance of £134.2m at 31 December 2009 (2008: £113.3m). The borrowings and cash are mostly in currencies other than sterling and so the value of these can fluctuate when translated into sterling. The liquidity headroom is sterling denominated and so this can also fluctuate depending on the sterling value of the drawn borrowings. The Group has prepared forecasts, including scenarios adjusted for significantly worse economic conditions, and we have concluded that these facilities are expected to be adequate to support the Group's medium-term funding requirements.
The analysis of the debt and a description of the borrowings and their respective maturity dates is given in note 17 to the Annual Report and the currency of the debt is shown in note 26.
Surplus cash is placed on deposit with short-term maturities providing liquidity when required.
Credit riskCredit risk is the risk of a financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers.
(i) Trade receivables
There is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers which are internationally dispersed. All companies in the Group are required to operate a credit policy under which each new customer is analysed individually for creditworthiness before the company transacts any business with the customer. Each division has a range of targets for days sales outstanding and to encourage and reward good performance, these form part of the bonus criteria for divisional managers. The Group establishes an allowance for impairment that represents our estimate of likely losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Due to the current economic recession there is an increased risk that certain of our customers may face financial difficulties and as a result be unable to meet our credit terms or cease trading. We have reinforced our credit checking procedures and have increased our vigilance in monitoring and reacting to changes in our clients' circumstances.
(ii) Counterparty
The Group monitors the distribution of cash deposits, borrowings and hedging instruments which are assigned to each of the Group's counterparties and which are subject to periodic review.
Tax risk
Tax risk is the risk that the value of tax assets and liabilities in the Group's Consolidated Statement of Financial Position is misstated, resulting in financial loss to the Group.
The Group operates in more than 100 countries and is subject to wide range of complex tax laws and regulations. At any point in time it is normal for there to be a number of open years in any particular territory which may be subject to enquiry by local authorities. Where the effect of the laws and regulations is unclear, estimates are used in determining the liability for the tax to be paid on past profits which are recognised in the financial statements. The Group considers the estimates, assumptions and judgements to be reasonable but this can involve complex issues which may take a number of years to resolve. The final determination of prior year tax liabilities could be different from the estimates reflected in the financial statements.
Risk of financial irregularities
Risk of financial irregularities is the risk that assets of the Group could be misappropriated resulting in financial loss to the Group, as well as the risk of management misrepresenting results.
The Group comprises 219 subsidiaries, operating in over 100 countries. Historically, the finance structure was organised on a divisional basis. In 2009, the function was reorganised on a geographic basis with a Chief Financial Officer allocated to each of the three regions. Country finance managers have been nominated in all major countries and the Group is migrating towards larger, multi-divisional accounting centres with common accounting systems and controls. These changes have further strengthened financial controls and support the Intertek as One programme.
The Group operates a rigorous programme of internal audits and management reviews, however, we cannot be certain that internal and external audit procedures will always identify any financial irregularity. The Group regularly reminds the operating company officers of their fiduciary responsibilities and maintains a culture of openness to promote disclosure. As described above, each of the senior executives and their direct reports are required to complete an annual return to confirm that management controls have been effectively applied during the year.
Risk of litigation
Risk of litigation is the risk that the Group could suffer a material financial loss resulting from a legal judgement against the Group or one of its subsidiaries. Such a judgement could also result in adverse publicity which could damage the reputation of the Group.
The Group is regularly notified of, or involved in, a number of claims and proceedings which are incidental to its ordinary course of business. Claims can arise in the context of a dispute between the parties to a commercial transaction in which the Group has provided testing, inspection or certification services. Often the Group's role in the transaction will be incidental to the underlying dispute, but the claim will be notified to the Group in order to toll the relevant statute of limitations in respect of such a claim. In certain situations, a claim may only be notified to the Group after resolution of the underlying commercial dispute and, in such cases, a considerable period of time may elapse between the performance of services by the Group and the assertion of a claim in respect of such services. In either case, because the underlying commercial transaction can be of significant value, the claims notified to the Group can allege substantial damages.
To reduce the likelihood of claims arising, the Group has extensive quality assurance and control procedures to ensure that work is performed in accordance with proper protocols. All incidents that could potentially result in a claim against the Group are reported to compliance officers and are logged in a database of incidents. The Company Secretary reports significant claims to the Audit and Risk Committee. Legal counsel is appointed if appropriate. The Group mitigates the risk of financial loss arising from litigation by maintaining insurance against potential claims, however there can be no assurance that claims brought against the Group will always be covered by insurance, or that such insurance, if available, will be sufficient to cover fully the damages or other expenses which the Group may be required to pay.
Legal and regulatory compliance
We are subject worldwide to laws and regulations that govern and/or affect where and how our business may be conducted. We have implemented internal compliance and audit systems to facilitate compliance with the requirements of the laws and regulations affecting our business conduct, and we believe that we have taken the appropriate steps to comply with these requirements. However, there can be no assurance that compliance issues under the above laws and regulations may not arise with respect to Intertek, our employees or the contractors acting on our behalf. Non-compliance with applicable laws and regulations could result in criminal liability on behalf of the Company and/or the Directors, imposition of significant fines, as well as negative publicity and reputational damage.
Dependence on accreditations
Intertek holds accreditations and affiliations that manufacturers need for the global market entry of their products. These accreditations are granted by governments, accreditation bodies, manufacturers, retailers and other bodies to the legal entities operating within Intertek. Each accreditation has a defined scope and is site specific. In order to maintain an accreditation, each site is subject to regular audits by the accreditation issuer and other associated parties. Intertek has extensive quality assurance procedures and routines embedded through the Group to ensure that accreditations are maintained and that we uphold the highest standards in both our testing methods and our business practices. Failure to retain an accreditation could lead to loss of business in the relevant industry sector and damage to our reputation.
Loss of key facilities
There is a risk that assets of the Group could be damaged or destroyed by an environmental incident and that the Group could incur loss of revenue as a result of the ensuing disruption to operations.
Intertek operates facilities in geographical locations which are subject to local, environmental and political factors. Disasters such as fire, hurricanes, floods and earthquakes can cause damage to property and personnel and can disrupt operations, causing loss of revenue. The Group maintains disaster recovery plans at key facilities for such events and endeavours to ensure that adequate insurance is in place.
Environmental health and safety risks
We are subject to worldwide laws and regulations governing activities that may have adverse environmental effects, such as discharges to air and water and handling, storage and disposal of hazardous wastes and chemicals. In many jurisdictions these laws are complex, change frequently, and have tended to become more stringent over time. Our operations are also subject to various health and safety laws and regulations. We believe that we are in material compliance with applicable environmental and health and safety laws where failure to comply would materially and adversely affect the Intertek Group. However, there can be no assurance that breaches of these laws have not occurred or will not occur or be identified, or that these laws will not change in the future in a manner that could materially and adversely affect the Group. Environmental laws and regulations may also impose obligations to investigate and remediate or pay for the investigation and remediation of environmental contamination, and compensate public and private parties for related damages. If an environmental issue arises in relation to a property and it is not remedied, or not capable of being remedied, this may result in such property either being sold at a reduced sale price or becoming unsaleable.
Political risk
Political risk is the risk that the Group could suffer financial losses due to the action of a government.
The Group operates in some countries where there is potential risk of political instability which can make it difficult to operate. In particular, government contracts in the Oil, Chemical & Agri division can be subject to change or termination at short notice. The Group manages this risk by maintaining close relationships with government representatives, however the risk cannot be entirely mitigated.
Reputational risk
Our continued success is dependent upon our ability to maintain our reputation in the marketplace as an independent and trustworthy entity. The Group's primary business objectives require adherence to local, national and international laws and require all the Group's employees to operate professionally, fairly and with integrity and honesty in all business dealings. Failure to follow these principles could result in adverse publicity which could harm our reputation among our customers, damage our brand and affect both our operational performance and financial position. A combination of awareness training and targeted controls is in place to encourage and monitor adherence to these principles and prevent such events occurring, however we cannot guarantee that our association with any negative publicity will not have an adverse effect upon public opinion and a consequential impact on our business.
Consolidated Income Statement
For the year ended 31 December 2009
|
|
| 2009 | 2008 |
|
| Notes | £m | £m |
| Revenue |
| 1,237.3 | 1,003.5 |
| Cost of sales |
| (965.4) | (792.6) |
| Gross profit |
| 271.9 | 210.9 |
| Administrative expenses |
| (85.2) | (63.0) |
| Group operating profit | 1 | 186.7 | 147.9 |
|
|
|
|
|
| Analysis of Group operating profit |
|
|
|
| Adjusted Group operating profit |
| 209.0 | 164.7 |
| Amortisation of acquisition intangibles* |
| (12.8) | (9.6) |
| Impairment of goodwill* |
| - | (0.5) |
| Non-recurring costs* | 2 | (9.5) | (6.7) |
| Group operating profit | 1 | 186.7 | 147.9 |
|
|
|
|
|
| Finance income |
| 7.7 | 13.1 |
| Finance expense |
| (25.2) | (22.6) |
| Net financing costs |
| (17.5) | (9.5) |
| Share of profit of associates |
| - | 0.2 |
| Profit before income tax |
| 169.2 | 138.6 |
| Income tax expense |
| (45.5) | (36.4) |
| Profit for the year |
| 123.7 | 102.2 |
| Attributable to: |
|
|
|
| Equity holders of the Company |
| 114.7 | 93.8 |
| Minority interest |
| 9.0 | 8.4 |
| Profit for the year |
| 123.7 | 102.2 |
|
|
|
|
|
| Earnings per share |
|
|
|
| Basic | 3 | 72.4p | 59.5p |
| Diluted | 3 | 71.2p | 58.9p |
* included in administrative expenses
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2009
|
|
| 2009 | 2008 |
|
|
| £m | £m |
| Profit for the year |
| 123.7 | 102.2 |
| Other comprehensive income |
|
|
|
| Foreign exchange translation differences of foreign operations |
| (35.4) | 138.4 |
| Net exchange gain/ (loss) on hedges of net investments in foreign operations |
| 27.2 | (110.9) |
| Effective portion of changes in fair value of cash flow hedges |
| 1.3 | (3.7) |
| Net change in fair value of cash flow hedges transferred to profit or loss |
| 0.2 | - |
| Net change in fair value of available-for-sale financial assets |
| 1.1 | - |
| Net change in fair value of available-for-sale financial assets transferred to profit or loss |
| (1.1) | - |
| Actuarial gains and losses on defined benefit pension schemes |
| (2.5) | (12.3) |
| Income tax recognised in other comprehensive income |
| (1.2) | 0.1 |
| Total other comprehensive income for the year |
| (10.4) | 11.6 |
| Total comprehensive income for the year |
| 113.3 | 113.8 |
| Total comprehensive income for the year attributable to: |
|
|
|
| Equity holders of the Company |
| 104.9 | 101.9 |
| Minority interest |
| 8.4 | 11.9 |
| Total comprehensive income for the year |
| 113.3 | 113.8 |
Consolidated Statement of Financial Position
As at 31 December 2009
|
|
| 2009 | 2008 |
|
|
| £m | £m |
| Assets |
|
|
|
| Property, plant and equipment |
| 220.9 | 234.8 |
| Goodwill |
| 257.8 | 242.1 |
| Other intangible assets |
| 46.9 | 55.2 |
| Investments in associates |
| 0.2 | 1.3 |
| Other investments |
| - | 4.4 |
| Deferred tax assets |
| 22.6 | 15.7 |
| Total non-current assets |
| 548.4 | 553.5 |
|
|
|
|
|
| Inventories |
| 7.6 | 8.2 |
| Trade and other receivables |
| 265.9 | 284.4 |
| Cash and cash equivalents |
| 134.2 | 113.3 |
| Total current assets |
| 407.7 | 405.9 |
|
|
|
|
|
| Total assets |
| 956.1 | 959.4 |
|
|
|
|
|
| Liabilities |
|
|
|
| Interest bearing loans and borrowings |
| (8.2) | (14.0) |
| Derivative financial instruments |
| (3.0) | (4.5) |
| Current taxes payable |
| (29.2) | (36.3) |
| Trade and other payables |
| (186.9) | (184.4) |
| Provisions |
| (30.3) | (26.4) |
| Total current liabilities |
| (257.6) | (265.6) |
|
|
|
|
|
| Interest bearing loans and borrowings |
| (327.4) | (407.6) |
| Deferred tax liabilities |
| (7.5) | (6.4) |
| Net pension liabilities |
| (19.5) | (18.5) |
| Other payables |
| (3.6) | (3.4) |
| Provisions |
| (1.2) | (0.2) |
| Total non-current liabilities |
| (359.2) | (436.1) |
|
|
|
|
|
| Total liabilities |
| (616.8) | (701.7) |
|
|
|
|
|
| Net assets |
| 339.3 | 257.7 |
|
|
|
|
|
| Equity |
|
|
|
| Share capital |
| 1.6 | 1.6 |
| Share premium |
| 253.5 | 249.9 |
| Other reserves |
| 25.9 | 32.0 |
| Retained earnings |
| 40.3 | (41.8) |
| Total equity attributable to equity holders of the Company |
| 321.3 | 241.7 |
| Minority interest |
| 18.0 | 16.0 |
|
|
|
|
|
| Total equity |
| 339.3 | 257.7 |
Consolidated Statement of Changes in Equity
For the year ended 31 December 2009
|
| Attributable to equity holders of the Company | ||||||||||
|
| Other reserves | ||||||||||
|
| Share capital | Share premium | Translation reserve | Hedging reserve | Fair value reserve | Other | Retained earnings* | Total before minority interest | Minority interest | Total equity | |
|
|
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| At 1 January 2008 |
| 1.6 | 247.3 | 6.1 | (0.8) | - | 6.4 | (96.4) | 164.2 | 11.6 | 175.8 |
| Total comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
| Profit |
| - | - | - | - | - | - | 93.8 | 93.8 | 8.4 | 102.2 |
| Other comprehensive income |
| - | - | 24.0 | (3.7) | - | - | (12.2) | 8.1 | 3.5 | 11.6 |
| Total comprehensive income for the year |
| - | - | 24.0 | (3.7) | - | - | 81.6 | 101.9 | 11.9 | 113.8 |
| Transactions with owners, recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
| Contributions by and distributions to owners: |
|
|
|
|
|
|
|
|
|
|
|
| Dividends paid |
| - | - | - | - | - | - | (30.4) | (30.4) | (6.1) | (36.5) |
| Issue of shares |
| - | 2.6 | - | - | - | - | - | 2.6 | - | 2.6 |
| Equity-settled transactions |
| - | - | - | - | - | - | 3.3 | 3.3 | -
| 3.3 |
| Income tax on equity-settled transactions |
| - | - | - | - | - | - | (0.1) | (0.1) | - | (0.1) |
| Total contributions by and distributions to owners |
| - | 2.6 | - | - | - | - | (27.2) | (24.6) | (6.1) | (30.7) |
| Changes in ownership interests in subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
| Additions to minority interest |
| - | - | - | - | - | - | - | - | 0.7 | 0.7 |
| Purchase of minority interest |
| - | - | - | - | - | - | 0.2 | 0.2 | (2.1) | (1.9) |
| Total changes in ownership interests in subsidiaries |
| - | - | - | - | - | - | 0.2 | 0.2 | (1.4) | (1.2) |
| Total transactions with owners |
| - | 2.6 | - | - | - | - | (27.0) | (24.4) | (7.5) | (31.9) |
| At 31 December 2008 |
| 1.6 | 249.9 | 30.1 | (4.5) | - | 6.4 | (41.8) | 241.7 | 16.0 | 257.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At 1 January 2009 |
| 1.6 | 249.9 | 30.1 | (4.5) | - | 6.4 | (41.8) | 241.7 | 16.0 | 257.7 |
| Total comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
| Profit |
| - | - | - | - | - | - | 114.7 | 114.7 | 9.0 | 123.7 |
| Other comprehensive income |
| - | - | (7.6) | 1.5 | - | - | (3.7) | (9.8) | (0.6) | (10.4) |
| Total comprehensive income for the year |
| - | - | (7.6) | 1.5 | - | - | 111.0 | 104.9 | 8.4 | 113.3 |
| Transactions with owners, recorded directly in equity |
|
|
|
|
|
|
|
|
|
|
|
| Contributions by and distributions to owners: |
|
|
|
|
|
|
|
|
|
|
|
| Dividends paid |
| - | - | - | - | - | - | (34.7) | (34.7) | (6.3) | (41.0) |
| Issue of shares |
| - | 3.6 | - | - | - | - | - | 3.6 | - | 3.6 |
| Equity-settled transactions |
| - | - | - | - | - | - | 4.9 | 4.9 | - | 4.9 |
| Income tax on equity- settled transactions |
| - | - | - | - | - | - | 1.4 | 1.4 | - | 1.4 |
| Total contributions by and distributions to owners |
| - | 3.6 | - | - | - | - | (28.4) | (24.8) | (6.3) | (31.1) |
| Changes in ownership interests in subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
| Purchase of minority interest |
| - | - | - | - | - | - | (0.5) | (0.5) | (0.1) | (0.6) |
| Total changes in ownership interests in subsidiaries |
| - | - | - | - | - | - | (0.5) | (0.5) | (0.1) | (0.6) |
| Total transactions with owners |
| - | 3.6 | - | - | - | - | (28.9) | (25.3) | (6.4) | (31.7) |
| At 31 December 2009 |
| 1.6 | 253.5 | 22.5 | (3.0) | - | 6.4 | 40.3 | 321.3 | 18.0 | 339.3 |
* After £244.1m for goodwill written off to retained earnings as at 1 January 2004 in relation to subsidiaries acquired prior to 31 December 1997. This figure has not been restated as permitted by IFRS 1.
Consolidated Statement of Cash Flows
For the year ended 31 December 2009
|
|
| 2009 | 2008 |
|
| Notes | £m | £m |
| Cash flows from operating activities |
|
|
|
| Profit for the year | 1 | 123.7 | 102.2 |
| Adjustments for: |
|
|
|
| Depreciation charge |
| 47.4 | 36.6 |
| Amortisation of software |
| 4.0 | 2.9 |
| Amortisation of acquisition intangibles |
| 12.8 | 9.6 |
| Impairment of goodwill |
| - | 0.5 |
| Equity-settled transactions |
| 4.9 | 3.3 |
| Share of profit of associates |
| - | (0.2) |
| Net financing costs |
| 17.5 | 9.5 |
| Income tax expense |
| 45.5 | 36.4 |
| Loss on disposal of property, fixtures, fittings, equipment and software |
| 0.4 | 0.6 |
| Operating profit before changes in working capital and operating provisions |
| 256.2 | 201.4 |
| Change in inventories |
| 0.3 | (1.1) |
| Change in trade and other receivables |
| 8.9 | (20.1) |
| Change in trade and other payables |
| 9.8 | 11.4 |
| Change in provisions |
| 5.2 | 5.4 |
| Special contributions into pension schemes |
| (2.0) | (3.0) |
| Cash generated from operations |
| 278.4 | 194.0 |
| Interest and other finance expense paid |
| (16.1) | (16.5) |
| Income taxes paid |
| (59.6) | (36.6) |
| Net cash flows generated from operating activities |
| 202.7 | 140.9 |
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
| Proceeds from sale of property, fixtures, fittings, equipment and software |
| 0.3 | 0.4 |
| Interest received |
| 1.0 | 1.5 |
| Acquisition of subsidiaries, net of cash acquired |
| (23.9) | (67.8) |
| Consideration paid in respect of prior year acquisitions |
| (10.2) | (16.7) |
| Purchase of minority interests |
| (0.6) | (1.9) |
| Sale/(purchase) of a listed investment |
| 5.7 | (4.4) |
| Sale/(purchase) of an associate |
| 0.9 | (0.1) |
| Acquisition of property, fixtures, fittings and equipment |
| (45.7) | (63.9) |
| Acquisition of software |
| (7.1) | (3.7) |
| Net cash flows used in investing activities |
| (79.6) | (156.6) |
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
| Proceeds from the issue of share capital |
| 3.6 | 2.6 |
| Issue of shares by subsidiary undertaking to minority |
| - | 0.5 |
| Drawdown of borrowings |
| 191.8 | 177.9 |
| Repayment of borrowings |
| (250.5) | (98.4) |
| Dividends paid to minorities |
| (6.3) | (6.1) |
| Equity dividends paid |
| (34.7) | (30.4) |
| Net cash flows (used in)/ from financing activities |
| (96.1) | 46.1 |
|
|
|
|
|
| Net increase in cash and cash equivalents |
| 27.0 | 30.4 |
| Cash and cash equivalents at 1 January |
| 113.3 | 58.6 |
| Effect of exchange rate fluctuations on cash held |
| (6.1) | 24.3 |
| Cash and cash equivalents at 31 December |
| 134.2 | 113.3 |
1 OPERATING SEGMENTS
From 1 January 2009, the Group is organised into six operating divisions each of which offer services to different industries and are managed separately: Consumer Goods, Commercial & Electrical, Oil, Chemical & Agri, Analytical Services, Industrial Services and Minerals. The costs of the corporate head office and other costs which are not controlled by the operating divisions are allocated to these divisions. Prior to 1 January 2009, Government Services was reported as a separate division. This division was restructured in 2008 and from 1 January 2009 was incorporated into the Oil, Chemical & Agri division. Following the restructuring, a small number of companies have changed division to ensure a good strategic fit. Segmental information previously reported for periods prior to 1 January 2009 has been restated to show a like-for-like comparison.
These divisions are the operating segments that are reported to the chief operating decision maker and are the Group's reportable segments. Inter-segment pricing is determined on an arm's length basis. There is no significant seasonality in the Group's operations.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly borrowings, pension fund liabilities, corporate expenses and assets and tax.
Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and computer software.
Principal activities are as follows:
Consumer Goods 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.
Commercial & Electrical provides services including testing and certification, electromagnetic compatibility testing (EMC), outsourcing, benchmark and performance testing and environmental testing. These are provided to a wide range of industries including the home appliance, lighting, medical, building, industrial and HVAC/R (heating, ventilation, air conditioning and refrigeration), IT, telecom, renewable energy and automotive industries.
Oil, Chemical & Agri provides independent cargo inspection as well as non-inspection related laboratory testing, calibration and related technical services to the world's energy, petroleum, chemical and agricultural industries. It also provides cargo scanning, fiscal support services and standards programmes to governments, national standards organisations and customs authorities.
Analytical Services provides expert laboratory services and consultancy to a broad range of industries including chemical, pharmaceutical, oil and gas, and automotive and aerospace. We have an established track record of success in laboratory outsourcing with many large internationally recognised companies.
Industrial Services provides inspection, testing and auditing services, including management systems certification, second-party auditing, supplier evaluation, technical verification, conformity assessment, asset integrity management, dimensional control management, training, health and safety and risk consulting, and greenhouse gas services.
Minerals provides complete analytical solutions to the world's minerals, ore and mining industries.
Year ended 31 December 2009
|
| Revenue from external customers | Inter-segment revenue | Total revenue | Adjusted operating profit | Amortisation of acquisition intangibles | Non-recurring costs | Operating profit |
|
| £m | £m | £m | £m | £m | £m | £m |
| Consumer Goods | 320.9 | 0.8 | 321.7 | 105.5 | (0.8) | - | 104.7 |
| Commercial & Electrical | 244.8 | 2.9 | 247.7 | 34.7 | (3.1) | - | 31.6 |
| Oil, Chemical & Agri | 406.7 | 1.2 | 407.9 | 43.7 | (0.8) | (6.3) | 36.6 |
| Analytical Services | 137.5 | 1.7 | 139.2 | 14.6 | (4.1) | - | 10.5 |
| Industrial Services | 80.7 | 3.9 | 84.6 | 6.5 | (2.8) | - | 3.7 |
| Minerals | 46.7 | - | 46.7 | 4.0 | (1.2) | - | 2.8 |
| Eliminations | - | (10.5) | (10.5) | - | - | - | - |
| Total | 1,237.3 | - | 1,237.3 | 209.0 | (12.8) | (6.3) | 189.9 |
| Unallocated non - recurring costs |
|
|
|
|
|
| (3.2) |
| Group operating profit |
|
|
|
|
|
| 186.7 |
| Net financing costs |
|
|
|
|
|
| (17.5) |
| Profit before income tax |
|
|
|
|
|
| 169.2 |
| Income tax expense |
|
|
|
|
|
| (45.5) |
| Profit for the year |
|
|
|
|
|
| 123.7 |
| Year ended 31 December 2009 | Segment assets | Segment liabilities | Depreciation and software amortisation | Capital expenditure including software |
|
| £m | £m | £m | £m |
| Consumer Goods | 124.6 | 43.6 | 12.3 | 13.6 |
| Commercial & Electrical | 187.0 | 46.1 | 11.3 | 10.6 |
| Oil, Chemical & Agri | 180.8 | 65.5 | 16.2 | 15.4 |
| Analytical Services | 159.8 | 16.2 | 5.6 | 5.1 |
| Industrial Services | 62.2 | 11.9 | 0.7 | 0.4 |
| Minerals | 72.9 | 6.9 | 4.9 | 3.3 |
| Central | 9.9 | 14.7 | 0.4 | 4.4 |
| Total allocated | 797.2 | 204.9 | 51.4 | 52.8 |
| Investments | - | - | - | - |
| Unallocated | 158.9 | 411.9 | - | - |
| Total | 956.1 | 616.8 | 51.4 | 52.8 |
Year ended 31 December 2008
|
| Revenue from external customers | Inter-segment revenue | Total revenue | Adjusted operating profit | Amortisation of acquisition intangibles | Impairment of goodwill | Non-recurring costs | Operating profit |
|
| £m | £m | £m | £m | £m | £m |
| £m |
| Consumer Goods | 242.5 | 0.5 | 243.0 | 75.1 | (1.0) | - | - | 74.1 |
| Commercial & Electrical | 203.5 | 2.6 | 206.1 | 29.2 | (1.5) | (0.5) | - | 27.2 |
| Oil, Chemical & Agri* | 348.6 | 7.3 | 355.9 | 39.3 | (0.6) | - | (6.7) | 32.0 |
| Analytical Services | 119.5 | - | 119.5 | 13.2 | (3.9) | - | - | 9.3 |
| Industrial Services | 45.6 | 1.8 | 47.4 | 2.8 | (1.6) | - | - | 1.2 |
| Minerals | 43.8 | - | 43.8 | 5.1 | (1.0) | - | - | 4.1 |
| Eliminations | - | (12.2) | (12.2) | - | - | - | - | - |
| Total | 1,003.5 | - | 1,003.5 | 164.7 | (9.6) | (0.5) | (6.7) | 147.9 |
| Net financing costs |
|
|
|
|
|
|
| (9.5) |
| Share of profit of associates |
|
|
|
|
|
|
| 0.2 |
| Profit before income tax |
|
|
|
|
|
|
| 138.6 |
| Income tax expense |
|
|
|
|
|
|
| (36.4) |
| Profit for the year |
|
|
|
|
|
|
| 102.2 |
| Year ended 31 December 2008 | Segment assets | Segment liabilities | Depreciation and software amortisation | Capital expenditure including software |
|
| £m | £m | £m | £m |
| Consumer Goods | 139.2 | 47.3 | 9.3 | 14.3 |
| Commercial & Electrical | 198.8 | 47.2 | 8.8 | 16.3 |
| Oil, Chemical & Agri* | 202.4 | 61.5 | 13.6 | 17.0 |
| Analytical Services | 171.8 | 16.4 | 4.4 | 5.4 |
| Industrial Services | 33.9 | 4.8 | 0.4 | 0.5 |
| Minerals | 68.9 | 6.3 | 2.8 | 12.3 |
| Central | 6.5 | 8.0 | 0.2 | 1.8 |
| Total allocated | 821.5 | 191.5 | 39.5 | 67.6 |
| Investments | 5.7 | - | - | - |
| Unallocated | 132.2 | 510.2 | - | - |
| Total | 959.4 | 701.7 | 39.5 | 67.6 |
* Oil, Chemical & Agri includes Government Services which was previously reported as a separate division.
Geographic segments
All the business segments are managed on a worldwide basis but the main countries, which represent greater than 10% of either the Group's external revenues or non-current assets, are Australia, China ( including Hong Kong), the United Kingdom and the United States.
In presenting information on the basis of geographic segments, segment revenue is based on the location of the entity generating that revenue. Segment assets are based on the geographical location of the assets.
|
| Revenue from external customers | Non-current assets | ||
|
| 2009 | 2008 | 2009 | 2008 |
|
| £m | £m | £m | £m |
| China (including Hong Kong) | 273.7 | 210.1 | 38.4 | 46.4 |
| Australia | 44.7 | 41.0 | 58.5 | 52.8 |
| Other | 142.3 | 115.7 | 38.8 | 42.5 |
| Total Asia Pacific | 460.7 | 366.8 | 135.7 | 141.7 |
| United States | 342.6 | 272.3 | 207.2 | 205.4 |
| Other | 81.4 | 68.8 | 13.9 | 10.7 |
| Total Americas | 424.0 | 341.1 | 221.1 | 216.1 |
| United Kingdom | 120.6 | 108.9 | 91.9 | 93.3 |
| Other | 232.0 | 186.7 | 76.9 | 81.0 |
| Total Europe, Middle East and Africa | 352.6 | 295.6 | 168.8 | 174.3 |
| Unallocated | - | - | 22.8 | 21.4 |
| Total | 1,237.3 | 1,003.5 | 548.4 | 553.5 |
Major customers
No revenue from any individual customer exceeded 10% of total Group revenue in 2008 or 2009.
2 NON-RECURRING COSTS
The non-recurring costs of £9.5m in 2009 comprise acquisition costs of £2.5m and restructuring and other costs of £7.0m. Although the Group has not early adopted IFRS 3 (Revised), acquisition-related costs have been incurred prior to the adoption of this standard in relation to acquisitions that will be accounted for in accordance with IFRS 3 (Revised). The Group has chosen to expense these acquisition-related costs as incurred. Notwithstanding that IFRS 3 (Revised) is not yet effective, it is expected to be effective at the time that the related business combinations are expected to occur. The restructuring and other costs are principally related to employment costs, including redundancies, retirement costs and settlements to former employees. There are also some closure costs and asset write downs in underperforming businesses. The majority of the restructuring was in the Oil, Chemical & Agri division.
The tax impact for these costs is a tax credit of £1.6m.
The non-recurring costs of £6.7m in 2008 comprised employee redundancies and settlements, lease terminations and consultancy and legal fees. The tax impact was a tax credit of £1.2m. The costs related primarily to the integration of the Government Services division with the Oil, Chemical & Agri division, following the Group's strategic review of its operating segments.
3 EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share is based on profit attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares in issue during the year. In addition to the earnings per share required by IAS 33: Earnings Per Share, an adjusted earnings per share has also been calculated and is based on earnings excluding the effect of amortisation of acquisition intangibles, goodwill impairment and non-recurring costs. It has been calculated to allow shareholders to have a better understanding of the trading performance of the Group. Details of the adjusted earnings per share are set out below:
|
| 2009 | 2008 |
|
| £m | £m |
| Profit attributable to ordinary shareholders | 114.7 | 93.8 |
| Adjusting items: |
|
|
| Amortisation of acquisition intangibles | 12.8 | 9.6 |
| Impairment of goodwill | - | 0.5 |
| Non-recurring costs | 9.5 | 6.7 |
| Adjusted earnings | 137.0 | 110.6 |
| Tax impact on adjusting items | (5.6) | (3.7) |
| Adjusted earnings after tax impact | 131.4 | 106.9 |
|
|
|
|
| Number of shares (millions) |
|
|
| Basic weighted average number of ordinary shares | 158.4 | 157.7 |
| Potentially dilutive share options* | 2.8 | 1.7 |
| Diluted weighted average number of shares | 161.2 | 159.4 |
|
|
|
|
| Basic earnings per share | 72.4p | 59.5p |
| Options | (1.2)p | (0.6)p |
| Diluted earnings per share | 71.2p | 58.9p |
|
|
|
|
| Basic adjusted earnings per share after tax impact | 83.0p | 67.8p |
| Options | (1.5)p | (0.7)p |
| Diluted adjusted earnings per share after tax impact | 81.5p | 67.1p |
*The weighted average number of shares used in the calculation of the diluted earnings per share for the year to 31 December 2009, excludes nil (2008: 780,343) contingently issuable shares as the performance conditions were not met.
4 ACQUISITIONS
The Group made three acquisitions during the year, all of which were paid for in cash.
Provisional details of net assets acquired and fair value adjustments are set out below. The analysis is provisional and amendments may be made to these figures in the 12 months following the date of each acquisition, with a corresponding adjustment to goodwill.
|
| Book value prior to acquisition | Fair value adjustments | Fair value to Group on acquisition |
|
| £m | £m | £m |
| Property, plant and equipment | 0.4 | - | 0.4 |
| Goodwill* | - | 20.4 | 20.4 |
| Other intangible assets | - | 4.5 | 4.5 |
| Trade and other receivables | 10.6 | - | 10.6 |
| Trade and other payables | (3.6) | - | (3.6) |
| Tax payable | (0.7) | - | (0.7) |
| Deferred tax liability | (0.4) | (0.4) | (0.8) |
| Net assets acquired | 6.3 | 24.5 | 30.8 |
| Cash outflow (net of cash acquired) |
|
| 23.9 |
| Contingent and deferred consideration |
|
| 6.9 |
| Total consideration |
|
| 30.8 |
* Total goodwill additions of £24.4m is made up of £20.4m in respect of 2009 acquisitions above and £4.0m in respect of the 2008 acquisitions.
(a) WISco Enterprises LP
The largest acquisition was the purchase on 13 February 2009, of 100% of the share capital of the WISco group of companies (WISco), the largest of which is registered in the USA. WISco specialises in providing third party inspection, expediting and coordination services to customers in the oil and gas industry.
Cash consideration, inclusive of expenses, was £20.5m. Cash acquired within the business was £0.4m. This acquisition expands the Intertek technical inspection business, providing it with a global platform and network.
Details of net assets acquired and fair value adjustments are set out below:
|
| Book value prior to acquisition | Fair value adjustments | Fair value to Group on acquisition |
|
| £m | £m | £m |
| Property, plant and equipment | - | - | - |
| Goodwill | - | 12.4 | 12.4 |
| Other intangible assets | - | 3.2 | 3.2 |
| Trade and other receivables | 6.2 | - | 6.2 |
| Trade and other payables | (1.7) | - | (1.7) |
| Net assets acquired | 4.5 | 15.6 | 20.1 |
| Cash outflow (net of cash acquired) |
|
| 20.1 |
| Contingent consideration |
|
| - |
| Total consideration |
|
| 20.1 |
The goodwill of £12.4m represents the benefit that Intertek expects to gain from leveraging the relationship with WISco customers and gain global contracts for a combined service offering. The other intangible assets of £3.2m represent the value placed on client relationships.
The profit after tax for the period 1 January 2009 to 12 February 2009 was £0.2m. The profit attributable to the Group from the date of acquisition to 31 December 2009 is £1.0m.
(b) Aptech Engineering Services, Inc.
The Group acquired 100% of the share capital of Aptech Engineering Services, Inc., (Aptech) a company based in California, USA, on 10 February 2009, for an initial cash consideration, inclusive of expenses, of £3.9m and additional consideration of up to £6.9m payable contingent on the achievement of specified profit targets. Cash acquired within the business was £0.4m. Aptech is a full-service engineering consultancy company that specialises in the life management of facilities, equipment, and infrastructure for clients in energy-related industries. This acquisition will strengthen the service offering of Intertek's Industrial Services division.
Details of net assets acquired and fair value adjustments are set out below:
|
| Book value prior to acquisition | Fair value adjustments | Fair value to Group on acquisition |
|
| £m | £m | £m |
| Property, plant and equipment | 0.2 | - | 0.2 |
| Goodwill | - | 8.0 | 8.0 |
| Other intangible assets | - | 1.2 | 1.2 |
| Trade and other receivables | 4.4 | - | 4.4 |
| Trade and other payables | (1.9) | - | (1.9) |
| Tax payable | (0.7) | - | (0.7) |
| Deferred tax liability | (0.4) | (0.4) | (0.8) |
| Net assets acquired | 1.6 | 8.8 | 10.4 |
| Cash outflow (net of cash acquired) |
|
| 3.5 |
| Contingent consideration |
|
| 6.9 |
| Total consideration |
|
| 10.4 |
The goodwill of £8.0m represents the opportunity for Intertek to enter the US market for risk based inspection and specialist asset integrity services. The other intangible assets of £1.2m represent value placed on client relationships and the deferred tax thereon was £0.4m.
The profit after tax for the period 1 January 2009 to 9 February 2009 was £0.1m. The profit attributable to the Group from the date of acquisition to 31 December 2009 is £0.9m.
(c) Other acquisitions
The other acquisition was that of the business and assets of Sagentia Catella AB (Sagentia). Sagentia, acquired on 30 April 2009, is an independent testing laboratory based in Sweden providing battery testing, battery forensics and battery application advisory services. The cash consideration was £0.3m representing acquisition of fixed assets for £0.2m and £0.1m for intangibles relating to the value placed on customer relationships. The profit after tax for the period 1 January 2009 to 29 April 2009 was £8,000. The profit attributable to the Group from the date of acquisition to 31 December 2009 was £30,000.
(d) Acquisition of minority interest
On 12 February 2009, the Group acquired an additional 34% interest in Intertek Metering and Measurement Limited (formerly known as Rhomax-ITS Limited) for £0.6m in cash, increasing its ownership from 66% to 100%. The carrying amount of the net assets of Rhomax on the date of acquisition was £0.4m. The Group recognised a decrease in minority interest of £0.1m and a decrease in retained earnings of £0.5m.
(e) Contribution of acquisitions to revenue and profits
The acquisitions made during the year contributed combined revenues of £24.1m and attributable profits of £1.9m to the Group from their respective dates of acquisition to 31 December 2009.
The Group revenue and attributable profit for the year ended 31 December 2009 would have been £1,247.0m and £124.0m respectively if all the acquisitions were assumed to have been made on 1 January 2009.
(f) Details of 2008 acquisitions
Refer to note 24 in the 2009 Annual Report for details of 2008 acquisitions.
5 ANALYSIS OF NET DEBT
|
| 1 January 2009 | Cash flow | Exchange adjustments | 31 December 2009 |
|
| £m | £m | £m | £m |
| Cash | 113.3 | 27.0 | (6.1) | 134.2 |
| Borrowings | (421.6) | 58.7 | 27.3 | (335.6) |
| Total net debt | (308.3) | 85.7 | 21.2 | (201.4) |
6 RELATED PARTIES
Identity of related parties
The Group has a related party relationship with its associates and with its key management.
Transactions between the Company and its subsidiaries and between subsidiaries have been eliminated on consolidation and are not discussed in this note.
Transactions with associates
The Group holds a 49% interest in the associate Euro Mechanical Instrument Services LLC (Abu Dhabi), a company registered in the United Arab Emirates. The Group disposed of its 40% interest in the associate, Allium LLC, a company registered in the US on 28 October 2009.
Allium LLC and its subsidiaries manufacture testing equipment which it sells to certain Intertek Group companies. In 2009 up to the date of sale on 28 October, sales by Allium Group companies to Intertek Group companies amounted to £0.3m (2008: £0.6m). Intertek Group companies had lent dollar equivalent £nil to Allium LLC as at 31 December 2009 (2008: £1.9m). Interest on these loans was charged during 2009 up to the date of disposal at an average rate of 5.2% (2008: 5.6%). Intertek Group companies owed £nil at 31 December 2009 (2008: £0.1m) to Allium LLC in respect of purchases of testing equipment.
Euro Mechanical Instrument Services LLC (Abu Dhabi) provides calibration services to the oil industry. This company had no material transactions with Intertek Group companies in the year.
Transactions with key management personnel
Key management personnel compensation, including the Group's Executive Directors, is shown in the table below:
|
| 2009 | 2008 |
|
| £m | £m |
| Short-term benefits | 5.6 | 4.6 |
| Post-employment benefits | 0.3 | 0.3 |
| Equity-settled transactions | 1.5 | 1.5 |
| Total | 7.4 | 6.4 |
More detailed information concerning Directors' remuneration, shareholdings, pension entitlements, share options and other long-term incentive plans is shown in the Remuneration Report in the Annual Report.
Apart from the above, no member of key management had a personal interest in any business transactions of the Group.
7 ANNUAL REPORT
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2009 and 2008 but is derived from the 2009 accounts. A full copy of the 2009 Annual Report is available online at www.intertek.com. Statutory accounts for 2008 have been delivered to the registrar of companies and those of 2009 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law, they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period.
In preparing each of the Group and Parent Company financial statements, the Directors are required to:
·; select suitable accounting policies and then apply them consistently;
·; make judgments and estimates that are reasonable and prudent;
·; for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
·; for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company financial statements; and
·; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.
The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy, at any time, the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Report that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Under the Disclosure and Transparency Rules the Directors confirm that to the best of their knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board of Intertek Group plc
Wolfhart Hauser
Chief Executive Officer
8 March 2010