Intertek Group Regulatory News (ITRK)

4 Sep 2006 07:02

Intertek Group PLC04 September 2006 INTERIM 2006 RESULTS ANNOUNCEMENT 4 SEPTEMBER 2006 Intertek Group plc ("Intertek"), a leading international provider of quality andsafety services, announces its interim results for the half year to 30 June2006. FINANCIAL RESULTS Half Year ended 30 June 2006 HY 2006 HY 2005 % change % change (constant currency)Revenue £327.1m £272.3m +20.1% +15.1%Operating profit (1) £50.7m £43.5m +16.6% +10.0%Operating cash flow £47.3m £30.0m +57.7%Profit before tax £45.2m £38.5m +17.4%Earnings per share (2) 21.3p 18.7p +13.9%Basic earnings per share 20.1p 17.0p +18.2%Interim dividend per share 4.6p 3.9p +17.9% 1 Excluding amortisation of intangibles £2.0m (H1 05: £0.8m) and goodwillimpairment £nil (H1 05: £2.0m)2 Diluted adjusted earnings per share based on profit before amortisation ofintangibles and goodwill impairment Wolfhart Hauser, Chief Executive Officer, commented: "I am pleased to report a strong set of numbers today. Our three main divisionswhich account for over 90% of group revenues, reported organic revenue growth of11.9%. Our Oil, Chemical & Agri division, the largest division by revenue,achieved organic revenue growth of over 15% driven by favourable conditions inthe oil and chemical market." "This strong growth was partially offset by the previously announced terminationin 2005 of two contracts in our smallest division, Government Services. Thisreduced overall organic revenue growth to 7.4% and the margin by 50 basis pointsto 15.5%." "Our strategy of focusing on key industry segments and leveraging crossdivisional activities and execution is helping to drive the revenue growth andwill result in margin improvements over the medium term." "We remain confident that Intertek will maintain its market leading position inthe industries it serves, and we expect the good progress to continue in thesecond half." CONTACTS For further information, please contact Aston Swift, Investor RelationsTelephone: +44 (0) 20 7396 3400 aston.swift@intertek.com Richard Mountain, Financial DynamicsTelephone: +44 (0) 20 7831 3113 richard.mountain@fd.com ANALYSTS' MEETING There will be a meeting for analysts at 9.30am today at JPMorgan Cazenove, 20Moorgate, London EC2R 6DA. A copy of the presentation will be available on thewebsite later today. Corporate website: www.intertek.com High resolution images of Intertek Group plc businesses are available todownload, free of charge from www.vismedia.co.uk ABOUT INTERTEK Intertek is a leading international provider of quality and safety services to awide range of global and local industries. Partnership with Intertek bringsincreased value to customers' products and processes, ultimately supportingtheir success in the global market place. Intertek has the experience,expertise, resources and global reach to support its customers through theirnetwork of 910 laboratories and offices, 16,600 people in 110 countries aroundthe world. Chairman's statement Results at actual exchange rates I am pleased to report that revenue for the Group grew to £327.1m, up 20.1%.Strong growth was achieved in all divisions apart from Government Services, oursmallest division, which declined as expected, due to the discontinuation ofpre-shipment inspection contracts in Nigeria and Venezuela. Organic revenuegrowth was 12.2%. Operating profit was £48.7m, up 19.7% over the same period last year. Operatingprofit before amortisation of intangible assets and goodwill impairment('adjusted operating profit') increased to £50.7m, up 16.6%. Organic growth inadjusted operating profit was 8.0%. Acquisitions In line with the Group's policy of making complementary acquisitions, inFebruary 2006, the Group acquired Akzo Nobel's electromagnetic compatibilitybusiness and assets in Japan for £9.4m. This acquisition enables the Commercial& Electrical division to extend its service offering into a territory where theGroup was under represented. On 1 September 2006, the Group acquired for £6.2m the business and assets of ananalytical chemical testing laboratory in the Netherlands, from Chemelot BV, a subsidiary of DSM N.V. Dividends The Board has decided to pay, on 14 November 2006, an interim dividend of 4.6p(2005: 3.9p), an increase of 17.9% over last year's interim dividend. Theinterim dividend will be paid to members on the register at 3 November 2006. Earnings per share Basic earnings per share were 20.1p, up 18.2% over the same period last year.Diluted earnings per share were 21.3p, up 13.9%. Board changes I am pleased to welcome Christopher Knight who was appointed a Non-ExecutiveDirector on 30 March 2006. A Chartered Accountant and former investment banker,he will, I am confident, make a valuable contribution to the Board'sdeliberations and to the continued growth of Intertek. After leading the Consumer Goods division for most of his 33 years withIntertek, Raymond Kong retired as Chief Executive of the division on 1 July 2006and became a Non-Executive Director of Intertek Group plc. Raymond continues asPresident of Asia and China, using his knowledge and experience to advance theGroup's interests in that region. On behalf of everyone at Intertek, I wouldlike to express our deep gratitude to Raymond for his outstanding contributiontowards building the Consumer Goods division into the successful business thatit is today. Paul Yao, formerly the Chief Operating Officer of the ConsumerGoods division, was appointed Chief Executive of the division to replaceRaymond. I wish both colleagues success in their new roles. Outlook We remain confident that Intertek will maintain its market leading position inthe industries it serves, and we expect the good progress to continue in thesecond half. Vanni Treves Chairman Chief Executive Officer's review Overview of results at constant exchange rates Overall, the revenue growth was strong. Total revenue for the Group for thefirst half of 2006 (H1 06) was £327.1m, an increase of 15.1% over the first halfof 2005 (H1 05). The three larger divisions - Consumer Goods, Commercial &Electrical, and Oil, Chemical & Agri, which accounted for 91% of the Group'srevenue, grew by 20.6%. Many factors contributed to this growth including thenew RoHS (Restriction of Hazardous Substances) legislation, the favourableconditions in the oil and chemical market and the good performance of ouracquisitions. We include the results of acquisitions from the date that we acquire them,therefore they distort the period- on-period comparison. In order to compare theGroup's performance for H1 06 and H1 05 without this distortion, we calculateorganic growth by excluding the revenue and operating profit from acquisitionsmade in 2005 and 2006. On this basis, organic revenue growth for H1 06 over H105 was 7.4%. Excluding Government Services, organic growth in revenue was 11.9%. Adjusted operating profit for the Group for H1 06 was £50.7m, up 10.0% over H105 and the Group's operating profit margin was 15.5%. The decline in margin wasmainly attributable to the discontinued contracts in the Government Servicesdivision. Constant currency basis For statutory reporting purposes the results for H1 06 are translated intosterling using the average exchange rates for the six months to 30 June 2006 andthe results for H1 05 are translated into sterling using the average exchangerates for the six months to 30 June 2005. In order to compare the performance ofeach division on a like-for-like basis, for management purposes we measure theperformance of each of the divisions at constant exchange rates. In the tablebelow and in the discussion of performance by division, the revenue andoperating profit for H1 05 have been translated at the average exchange ratesfor the six months to 30 June 2006. Definition of operating profit For statutory reporting, operating profit is stated after the deduction ofamortisation of intangible assets and goodwill impairment. For managementpurposes, we calculate the operating profit of the divisions before deductingthese charges. In the commentary that follows, unless otherwise stated, themanagement definition of operating profit is used. Performance by division Revenue Operating profit(1) H1 06 Change Organic H1 06 Change Organic change(2) change(2) £m £mConsumer Goods 74.9 12.5% 8.9% 24.1 11.1% 10.6% Commercial &Electrical 88.3 16.6% 9.3% 13.6 12.4% 0.8%Oil, Chemical& Agri 134.8 28.7% 15.7% 13.5 45.2% 21.5% GovernmentServices 29.1 (22.0)% (22.0)% 4.2 (44.0)% (44.0)%Centraloverheads - - - (4.7) (4.4)% (4.4)% Total atconstantexchangerates(3) 327.1 15.1% 7.4% 50.7 10.0% 2.0% 1 Operating profit is adjusted to remove amortisation of intangible assets£2.0m (H1 05: £0.8m) and goodwill impairment of £nil (H1 05: £2.0m). 2 Organic growth figures exclude the results of acquisitions made in 2005 and2006. 3 Cumulative average exchange rates for the six months to 30 June 2006. Profitability Group operating profit, after charging amortisation of intangibles of £2.0m (H105: £0.8m) and goodwill impairment of £nil (H1 05: £2.0m) was £48.7m, up 19.7%over H1 05. The net financing costs were £3.5m in H1 06, compared to £2.6m in H105, principally due to higher borrowings and interest rates. The tax rate of24.8% for H1 06 was based on the estimated tax rate the Group expects for thefull year. Profit for the period was £34.0m, up 21.0%. Cash flow Cash from operating activities for H1 06 was £47.3m, up 57.7% on H1 05. Thegrowth was due to the growth in operating profit in the Group and also to animproved working capital position. The cash inflow was used to fund investingactivities of £29.4m (H1 05: £13.4m) including capital expenditure of £20.5m (H105: £11.7m) and acquisitions of £9.8m (H1 05: £2.2m). Financing activitiesgenerated cash inflow of £2.1m (H1 05: £16.8m outflow) due to the net drawdownof debt of £13.6m (H1 05: £7.6m repayment) offset by the payment of dividends of£14.2m (H1 05: £11.8m). Litigation From time to time, the Group is involved in claims and lawsuits incidental tothe ordinary course of business. None of the cases has resulted in any materialfinancial impact on the Group's reported income statement for the six months to30 June 2006. Based on information currently available, the Directors considerthat the cost to the Group of an unfavourable outcome arising from suchlitigation is unlikely to have a material effect on the financial position ofthe Group in the foreseeable future. More detail of key claims is given in note11 to the interim financial information. Review of performance by division Consumer Goods (Labtest) H1 06 Change Organic change £mRevenue 74.9 12.5% 8.9%Operating profit 24.1 11.1% 10.6%Operating margin 32.2% (40)bp 50bp The Consumer Goods division performed well in the first half of 2006, withrevenue growth of 12.5% and operating profit growth of 11.1%. The toy sector,which includes toys, footwear and hardlines, grew particularly well, driven inpart by an increase in RoHS (Restriction of Hazardous Substances) testing causedby a European Union directive, which became mandatory on 1 July 2006. The globaltextile market continued to be unsettled by the impact of changes in importquotas but despite these challenging market conditions, revenue from textiletesting grew well in key countries such as China and India. The volume oftextile testing in Europe remained stagnant as the market shifted increasinglyto Asia and Latin America. On an organic basis, the operating margin increased by 50 basis points.Including acquisitions, the overall 40 basis point decline in operating marginfrom 32.6% to 32.2% was attributable to the small equipment and buildinginspection business acquired by Consumer Goods last year. Whilst this businessis profitable, its operating margin is currently lower than other parts of theConsumer Goods division. Over 60% of the revenue in Consumer Goods is generated in China, Hong Kong andTaiwan. Revenue from these countries grew well and prospects continue to lookgood. The textile laboratory network was expanded with new facilities in India,Guatemala and Vietnam and three new laboratories in China. The key growth drivers in Consumer Goods remain strong, principally the sourcingof products from China, the increasingly wide range of products being sold byretailers, shorter product lifecycles and the growth in demand from consumersand regulatory bodies for assurance of quality and safety Commercial & Electrical (ETL SEMKO) H1 06 Change Organic change £mRevenue 88.3 16.6% 9.3%Operating profit 13.6 12.4% 0.8%Operating margin 15.4% (60)bp (130)bp Overall, the Commercial & Electrical division performed well in the first halfof the year, with revenue growth of 16.6% and operating profit growth of 12.4%.All service sectors apart from automotive component testing contributed to thisgrowth. Revenue from the automotive component testing sector, suffered a small declinein H1 06 compared to H1 05, mostly due to the slow down at the major domesticautomotive manufacturers in the United States. Our operations and facilities inthe US are being consolidated to achieve greater efficiency and lower costs inthe second half of the year. The decline in operating margin was also partly dueto investment in facilities in China. The automotive component testing facilityin Shanghai which was opened at the end of last year, is progressing and isexpected to be fully operational later in the year. The electrical, building products and HVAC (heating, ventilation and airconditioning) businesses grew strongly, with double digit organic revenuegrowth. Revenue from the operations in mainland China continued to grow stronglyand the network was extended by the opening of five offices and two laboratoriesin China. Two offices were also opened in India. In February 2006, the Japanese electromagnetic compatibility (EMC) testingbusiness of Akzo Nobel was acquired. Japan is an important market for Commercial& Electrical and this acquisition will allow quicker penetration of that marketfor both EMC testing and other services offered by the Group. There are good growth prospects for the rest of the year and we expect to widenthe scope and range of the services we offer, by continued investment in newsectors and regions. Oil, Chemical & Agri (Caleb Brett) H1 06 Change Organic change £mRevenue 134.8 28.7% 15.7%Operating profit 13.5 45.2% 21.5%Operating margin 10.0% 110bp 40bp Oil, Chemical & Agri had an excellent performance in the first half of the yearwith revenue growth of 28.7% and an increase in margin from 8.9% to 10.0%. Allservice sectors contributed to this growth. With high volumes of trade andincreased demand for petroleum products, market conditions were favourable andincreased trading activity was evident across all regions. Demand for analyticalservices also increased with new environmental regulations coming into force inthe United States for road and marine fuels. Revenue from analytical services asa percentage of total revenues grew to 41% in the first half of 2006, up from36% recorded for the full year 2005. In the Americas, revenues grew strongly led by the US cargo inspection businesswith market expansion in the West Coast, East Coast and Gulf of Mexico. Earlyinvestments in multiple facilities for testing ultra low sulphur diesel paid offas demand was strong, ahead of the new regulations coming into force in the USlater this year. Demand was also strong for ethanol testing due to a change inregulations regarding the permitted additives in petrol. In Europe, revenue growth was assisted by the full implementation of outsourcingcontracts for both inspection and analytical services awarded in 2005.Downstream, two new contracts for a bio fuels plant and a refinery in the UKwere won and a contract to provide upstream analytical services to all BP'soffshore and onshore oil and gas production facilities started. In Asia, new laboratories were opened in China, Thailand and Papua New Guineaduring the first half of 2006. New minerals testing and agri services wereestablished to take advantage of the growth in these sectors in the region.Upstream capabilities were expanded utilizing the support and technology fromour Westport laboratory in the US, which was acquired from Halliburton at theend of 2005. In July, the Group completed the acquisition of Louisiana Meter Services whichis a small company providing liquid and gas measurement services to thepetroleum and petrochemical industries in the United States. From 1 September, under an outsourcing agreement, Intertek will provide all theanalytical service support to the manufacturing operations of Sabic and DSM inGeleen, Netherlands. This is one of the largest outsourcing contracts foranalytical services within the chemical industry to date, with over 170 chemistsand technicians joining Intertek. The market is expected to remain favourable for the rest of the year and thereare good prospects for new outsourcing contracts and acquisitions. Government Services (FTS) H1 06 Change Organic change £mRevenue 29.1 (22.0)% (22.0)%------------- ------- ------- -------Operating profit 4.2 (44.0)%.0 (44.0)%.0------------- ------- ------- -------Operating margin 14.4% (570)bp (570)bp As expected, revenue for Government Services declined 22.0% in H1 06 over H1 05due to the discontinuation of pre-shipment inspection (PSI) contracts inVenezuela and Nigeria. These contracts ceased in May 2005 and December 2005respectively, although revenues from Nigeria ran on through March 2006 to clearwork in progress. Operating profit declined 44.0% due mainly to the lost profitfrom the discontinued contracts and the lost contribution towards the divisionaloverheads. The division was restructured following the decline in revenue. Excluding the discontinued contracts, revenue increased by 9.9% in H1 06compared to H1 05. This growth was due to the good performance of the standardsprogrammes, the container scanning contract in Sierra Leone and technicalinspections on construction materials. A new scanning contract in Guinea isexpected to commence operations in the second half of the year. In April, the Government Services division acquired certain assets of PortMaritime Security International Limited (PMSI), a wholly owned subsidiary ofEurotunnel plc. PMSI provides training and consultancy services in cargoscanning and port security. This acquisition strengthens the Group's commitmentto the cargo scanning market. The Government Services division continues to seek new opportunities in the PSImarket and is committed to developing innovative solutions to the cargo securityissues facing international trade. Central overheads Central overheads were £4.7m for H1 06, an increase of 4.4% over H1 05. Theincrease reflects the cost of strengthening the procedures and resources in headoffice to manage the 15% growth in revenue of the Group. Looking forward Our commitment to supporting and adding value for our customers driveseverything we do. The issues facing our customers - product variety, shorterproduct life spans, complexity of supply chains, consumer demand for quality andsafety, increasing legislation, environmental and social pressure, increasingcompetition and price pressure - are the key growth drivers for our business.These remain strong and we are well placed to benefit from them. We believe that global trade will continue to grow and become more complex andthat with the expertise and commitment of our people and our network ofresources, we will continue to grow our business to support that trade. Ourstrategy of focussing on global industries and combining our services, addsvalue to our customers and has helped to drive the strong growth in our businessin the first half of the year. We will continue with this strategy andanticipate further good growth in the second half. Wolfhart Hauser Chief Executive Officer Consolidated interim income statement Six months to Six months to Year to 30 June 2006 30 June 2005 31 December 2005 (Unaudited) (Unaudited) (Audited) Notes £m £m £m --------------------- ----- -------- -------- ---------Revenue 2 327.1 272.3 580.1Cost of sales (257.7) (210.3) (447.6)--------------------- ----- -------- -------- ---------Gross profit 69.4 62.0 132.5--------------------- ----- -------- -------- ---------Amortisation ofintangible assets (2.0) (0.8) (2.1)Impairment of goodwill - (2.0) (2.0)Other administrative expenses (18.7) (18.5) (45.4)--------------------- ----- -------- -------- ---------Total administrativeexpenses (20.7) (21.3) (49.5)--------------------- ----- -------- -------- ---------Group operating profit 2 48.7 40.7 83.0--------------------- ----- -------- -------- ---------Finance income 2.4 1.9 3.5Finance expense (5.9) (4.5) (9.4)--------------------- ----- -------- -------- ---------Net financing costs (3.5) (2.6) (5.9)------------------------ -------- -------- ---------Share of profit ofassociates - 0.4 0.7Profit on sale ofinterest in associate - - 1.6------------------------ -------- -------- ---------Profit before taxation 45.2 38.5 79.4Income tax expense 3 (11.2) (10.4) (18.7)--------------------- ----- -------- -------- ---------Profit for the period 34.0 28.1 60.7------------------------ -------- -------- --------- ---------Attributable to:Equity holders ofthe Company 31.3 26.4 57.1Minority interest 2.7 1.7 3.6--------------------- ----- -------- -------- ---------Profit for the period 34.0 28.1 60.7--------------------- ----- -------- -------- --------- Earnings per share 4--------------------- ----- -------- -------- ---------Basic 20.1p 17.0p 36.8p--------------------- ----- -------- -------- ---------Diluted 20.0p 16.9p 36.5p--------------------- ----- -------- -------- ---------Dividends in respectof the period 4.6p 3.9p 12.0p--------------------- ----- -------- -------- --------- Consolidated interim balance sheet At 30 June At 30 June At 31 December 2006 2005 2005 (Unaudited) (Unaudited) (Audited) Notes £m £m £m ------------------------------ ------ -------- --------- --------ASSETSProperty, plant and equipment 123.1 93.1 115.9Goodwill 57.6 33.9 55.7Other intangible assets 11.1 2.9 12.8Investments in associates 0.5 1.9 0.7Deferred tax assets 14.2 5.5 14.4------------------------------ ------ -------- --------- --------Total non-current assets 206.5 137.3 199.5------------------------------ ------ -------- --------- -------- Inventories 3.4 1.7 3.1Trade and other receivables 153.2 135.3 146.3Derivative financial instruments 1.5 0.9 1.7Cash and cash equivalents 7 52.6 43.3 50.8------------------------------ ------ -------- --------- --------Total current assets 210.7 181.2 201.9------------------------------ ------ -------- --------- -------- Total assets 417.2 318.5 401.4------------------------------ ------ -------- --------- -------- LIABILITIESInterest bearing loans andborrowings 7 (14.6) (14.4) (15.3)Current taxes payable (25.9) (21.4) (25.8)Trade and other payables (90.0) (80.5) (93.9)Provisions (4.0) (3.6) (8.9)------------------------------ ------ -------- --------- --------Total current liabilities (134.5) (119.9) (143.9)------------------------------ ------ -------- --------- -------- Interest bearing loans andborrowings 7 (181.0) (150.1) (175.4)Deferred tax liabilities (3.5) (0.6) (3.4)Net pension liabilities (17.8) (14.1) (17.8)Other payables (1.1) - (1.2)------------------------------ ------ -------- --------- --------Total non-current liabilities (203.4) (164.8) (197.8)------------------------------ ------ -------- --------- --------Total liabilities (337.9) (284.7) (341.7)------------------------------ ------ -------- --------- --------Net assets 79.3 33.8 59.7------------------------------ ------ -------- --------- -------- EQUITYShare capital 8 1.6 1.6 1.6Share premium account 8 240.9 236.8 238.2Other reserves 8 11.1 12.1 13.4Retained earnings/(deficit) 8 (182.9) (223.4) (201.3)------------------------------ ------ -------- --------- --------Total equity attributable toequity holders of the Company 8 70.7 27.1 51.9Minority interest 8.6 6.7 7.8------------------------------ ------ -------- --------- --------Total equity 79.3 33.8 59.7------------------------------ ------ -------- --------- -------- Consolidated interim statement of cash flows Notes Six months to Six months Year to 30 June 2006 to 30 June 2005 31 December 2005 (Unaudited) (Unaudited) (Audited) £m £m £m ----------------------------- ------ --------- --------- ---------Operating activitiesProfit for the period 34.0 28.1 60.7Adjustments for:Depreciation charge 13.1 9.9 22.0Amortisation ofintangible assets 2.0 0.8 2.1Impairment of goodwill - 2.0 2.0Share based expense 6 1.2 1.0 1.9Share of profit ofassociates - (0.4) (0.7)Profit on sale ofinterest in associate - - (1.6)Net financing costs 3.5 2.6 5.9Income tax expense 3 11.2 10.4 18.7Loss on disposalof fixed assets - - 0.1----------------------------- ------ --------- --------- --------- 65.0 54.4 111.1(Increase)/decreasein inventories (0.4) (0.2) 0.1Increase in tradeand other receivables (11.3) (22.3) (23.7)(Decrease)/increasein trade andother payables (1.1) 1.9 5.9(Decrease)/increasein provisions (4.9) (3.8) 3.3----------------------------- ------ --------- --------- ---------Cash generatedfrom operations 47.3 30.0 96.7Interest paid (3.9) (2.9) (6.5)Income taxes paid (12.2) (7.1) (17.8)----------------------------- ------ --------- --------- ---------Cash flows fromoperating activities 31.2 20.0 72.4----------------------------- ------ --------- --------- --------- Investing activitiesProceeds from saleof property, plantand equipment 0.3 0.1 0.3Proceeds fromdisposal ofinterest inassociate - - 2.7Proceeds fromdisposal of ownshares by ESOT - - 0.4Interest received 0.6 0.2 0.6Dividends receivedfrom associatedundertakings - 0.2 0.8Acquisition ofsubsidiaries, netof cash acquired 9 (9.8) (2.2) (44.5)Acquisition ofproperty, plantand equipment (20.5) (11.7) (31.3)----------------------------- ------ --------- --------- ---------Cash flows frominvestingactivities (29.4) (13.4) (71.0)----------------------------- ------ --------- --------- --------- Financing activitiesProceeds from theissue of sharecapital 2.7 2.6 3.8Drawdown of debt 48.5 - 62.8Repayment of debt (34.9) (7.6) (53.1)Dividends paid tominorities (1.6) (1.0) (2.9)Dividends paid 8 (12.6) (10.8) (16.9)----------------------------- ------ --------- --------- ---------Cash flows fromfinancing activities 2.1 (16.8) (6.3)----------------------------- ------ --------- --------- ---------Netincrease/(decrease)in cash and cash equivalents 7 3.9 (10.2) (4.9)Cash and cashequivalents at 1 January 7 50.8 52.5 52.5Effect of exchangerate fluctuationson cash held 7 (2.1) 1.0 3.2----------------------------- ------ --------- --------- ---------Cash and cashequivalents at endof period 7 52.6 43.3 50.8----------------------------- ------ --------- --------- --------- Consolidated interim statement of recognised income and expense Six months to Six months to Year to 30 June 30 June 31 December 2006 2005 2005 (Unaudited) (Unaudited) (Audited) £m £m £m--------------------------------- ---------- -------- --------Foreign exchange translationdifferences (2.1) (2.3) (1.7)Actuarial gains and losses ondefined benefit pension schemes - - (3.7)Tax on income and expense recogniseddirectly in equity (1.5) 1.5 1.4Effective portion of changes in fairvalue of cash flow hedges (0.2) 1.9 2.6--------------------------------- ---------- -------- --------Net (expense)/income recogniseddirectly in equity (3.8) 1.1 (1.4)Profit for the period 34.0 28.1 60.7--------------------------------- ---------- -------- --------Total recognised income and expensefor the period 30.2 29.2 59.3--------------------------------- ---------- -------- -------- Total recognised income and expensefor the period attributable to:Equity holders of the Company 27.5 27.5 55.7Minority interest 2.7 1.7 3.6--------------------------------- ---------- -------- --------Total recognised income and expense 30.2 29.2 59.3--------------------------------- ---------- -------- -------- Notes to the consolidated interim financial information 1. Reporting entity Intertek Group plc is a company domiciled in the United Kingdom. Theconsolidated interim financial information of the Company as at and for the sixmonths ended 30 June 2006, comprise the Company and its subsidiaries (togetherreferred to as the 'Group') and the Group's interests in associates. This interim financial information has been prepared applying the accountingpolicies and presentation that were applied in the preparation of the Company'spublished consolidated financial statements for the year ended 31 December 2005. The comparative figures for the financial year ended 31 December 2005, are notthe Company's statutory accounts for that financial year. Those accounts havebeen reported on by the Company's auditors and delivered to the registrar ofcompanies. The report of the auditors was (i) unqualified; (ii) did not includea reference to any matters to which the auditors drew attention by way ofemphasis without qualifying their report; and (iii) did not contain a statementunder section 237(2) or (3) of the Companies Act 1985. The consolidated financial statements of the Group as at and for the year ended31 December 2005 are available upon request from the Company's registered officeat 25 Savile Row, London W1S 2ES or at www.intertek.com. 2. Segment information Business analysis (Primary segment) The Group is organised into four operating divisions: Consumer Goods (Labtest),Commercial & Electrical (ETL SEMKO), Oil, Chemical & Agri (Caleb Brett) andGovernment Services (FTS). On 1 January 2006, the systems certification businesswas transferred from Consumer Goods to Commercial & Electrical and prior periodfigures have been restated to show a like-for-like comparison. External revenue Consumer Goods Commercial & Oil, Chemical & Government Total Electrical Agri Services £m £m £m £m £m----------------- -------- --------- ---------- --------- ------- Six months to30 June 2006 74.9 88.3 134.8 29.1 327.1Six months to30 June 2005 63.2 72.0 100.0 37.1 272.3Year to 31December 2005 136.7 150.9 218.0 74.5 580.1----------------- -------- --------- ---------- --------- ------- For management purposes, the Group measures the performance of the divisions onoperating profit excluding amortisation of intangible assets and impairment ofgoodwill ('adjusted operating profit'). A reconciliation of operating profit toadjusted operating profit is set out below. Operating profit Consumer Goods Commercial & Oil, Chemical & Government Central Total Electrical Agri Services overheads £m £m £m £m £m £m---------------- -------- -------- -------- -------- ------- -------Six months to 30June 2006Group operatingprofit 23.9 12.5 12.8 4.2 (4.7) 48.7Amortisationof intangibleassets 0.2 1.1 0.7 - - 2.0---------------- -------- -------- -------- -------- ------- -------Adjusted operatingprofit 24.1 13.6 13.5 4.2 (4.7) 50.7---------------- -------- -------- -------- -------- ------- ------- Six months to 30June 2005Group operatingprofit 18.4 10.7 8.7 7.4 (4.5) 40.7Amortisationof intangibleassets - 0.6 0.2 - - 0.8Impairment ofgoodwill 2.0 - - - - 2.0---------------- -------- -------- -------- -------- ------- -------Adjusted operatingprofit 20.4 11.3 8.9 7.4 (4.5) 43.5---------------- -------- -------- -------- -------- ------- ------- Year to 31December 2005Group operatingprofit 42.1 21.4 17.2 16.3 (14.0) 83.0Amortisationof intangibleassets 0.2 1.2 0.7 - - 2.1Impairment ofgoodwill 2.0 - - - - 2.0---------------- -------- -------- -------- -------- ------- -------Adjustedoperatingprofit 44.3 22.6 17.9 16.3 (14.0) 87.1---------------- -------- -------- -------- -------- ------- ------- Geographic analysis (Secondary segment) Six months to Six months to Year to 30 June 30 June 31 December 2006 2005 2005 £m £m £m------------------------- ----------- ---------- ----------External revenueAmericas 123.8 94.4 203.6Europe, Middle East and Africa 92.8 90.7 186.8Asia 110.5 87.2 189.7------------------------- ----------- ---------- ---------- Total 327.1 272.3 580.1------------------------- ----------- ---------- ---------- Group operating profit-------------------------- ---------- ---------- ----------Americas 14.6 10.8 21.0Europe, Middle East and Africa (0.4) 2.9 2.5Asia 34.5 27.0 59.5-------------------------- ---------- ---------- ---------- Total 48.7 40.7 83.0-------------------------- ---------- ---------- ---------- 3. Income tax expense The tax charge, which is wholly overseas, on profits before tax for the sixmonths to 30 June 2006 of £11.2m (30 June 2005: £10.4m) is based on theestimated effective rate for the full year. The effective tax rate at 30 June2006 is 24.8% (30 June 2005: 27.0%). Differences between the estimated effective rate of 24.8% and the notionalstatutory UK rate of 30% include, but are not limited to, the effect of taxrates in foreign jurisdictions, non deductible expenses, the effect of taxlosses utilised and under/(over) provisions in previous years. 4. Earnings per ordinary share Six months to Six months to Year to 30 June 30 June 31 December 2006 2005 2005Based on the profit for the year: £m £m £m---------------------------- --------- --------- ---------Basic earnings -profit attributableto equity shareholders 31.3 26.4 57.1Amortisation of intangible assets 2.0 0.8 2.1 Impairment of goodwill - 2.0 2.0---------------------------- --------- --------- ---------Adjusted earnings 33.3 29.2 61.2---------------------------- --------- --------- --------- Number of shares (millions):Basic weighted average number ofshares 155.7 154.9 155.1Potentially dilutive share options 0.9 1.5 1.3---------------------------- --------- --------- ---------Diluted weighted average number ofshares 156.6 156.4 156.4---------------------------- --------- --------- --------- Basic earnings per share 20.1p 17.0p 36.8pOptions (0.1)p (0.1)p (0.3)p---------------------------- --------- --------- ---------Diluted earnings per share 20.0p 16.9p 36.5p---------------------------- --------- --------- --------- Basic adjusted earnings per share 21.4p 18.9p 39.5pOptions (0.1)p (0.2)p (0.4)p---------------------------- --------- --------- ---------Diluted adjusted earnings per share 21.3p 18.7p 39.1p---------------------------- --------- --------- --------- The weighted average number of shares used in the calculation of the dilutedearnings per share for the six months to 30 June 2006, excludes 1,434,326potential shares (30 June 2005: 1,497,513; 31 December 2005: 1,456,156) as thesewere not dilutive in accordance with IAS 33: Earnings per share. 5. Pension schemes The Directors are not aware of any significant change in the net liabilities ofthe Group's defined benefit pension schemes since 31 December 2005. Thereforeactuarial valuations of the assets and liabilities of the defined benefitpension schemes were not performed at 30 June 2006. The expense recognised in the consolidated interim income statement consists ofthe current service cost, interest on the obligation for employee benefits andthe expected return on scheme assets. For the six months ended 30 June 2006, theGroup recognised a net expense of £0.9m (30 June 2005: £1.2m). 6. Share-based payments The Company has share option schemes, details of which were contained in theAnnual Report for the year ended 31 December 2005. As discussed in the 2005Annual Report, the Company introduced a long term incentive plan called TheIntertek Deferred Bonus Plan ('the Plan') and the first awards under this planwere made in April 2006. During the period, no share options were granted. Under the Plan, 244,222deferred shares and 128,195 matching shares were awarded in April 2006. In accordance with IFRS 2: Share based payments, the fair value of servicesreceived in return for share options and share awards granted to employees, ismeasured by reference to the fair value of share options and shares granted. Theestimate of the fair value of the services received is measured based on theBlack-Scholes formula, a financial model used to calculate the fair value ofshare-based payments. During the six months ended 30 June 2006, the Grouprecognised an expense of £1.2m in respect of outstanding share options issued in2003, 2004 and 2005 and in respect of the share awards made in April 2006. Forthe six months ended 30 June 2005, the charge was £1.0m for outstanding shareoptions issued in 2003, 2004 and 2005. 7. Analysis of net debt At 1 January Cash flow Exchange At 30 June 2006 adjustments 2006 £m £m £m £m----------------------- --------- --------- --------- ---------Cash 50.8 3.9 (2.1) 52.6Borrowings (190.7) (13.6) 8.7 (195.6)----------------------- --------- --------- --------- ---------Total net debt (139.9) (9.7) 6.6 (143.0)----------------------- --------- --------- --------- --------- 8. Reconciliation of shareholders' equity Other reserves -------- ------- ------ Share Share premium Translation Hedging reserve Other Retained Total capital account reserve earnings* £m £m £m £m £m £m £m------------------- ------ ------- -------- ------- ------ -------- ------At 1 January 2006 1.6 238.2 5.4 1.6 6.4 (201.3) 51.9Movement oncash flow hedges - - - (0.2) - - (0.2)Profit for theperiod attributableto equity holders - - - - - 31.3 31.3Dividends paid - - - - - (12.6) (12.6)Issue of shares - 2.7 - - - - 2.7Equity settledtransactions - - - - - 1.2 1.2Foreign exchangetranslationdifferences - - (2.1) - - - (2.1)Tax on incomeand expenserecogniseddirectly inequity - - - - - (1.5) (1.5)------------------- ------ ------- -------- ------- ------ -------- ------At 30 June 2006 1.6 240.9 3.3 1.4 6.4 (182.9) 70.7------------------- ------ ------- -------- ------- ------ -------- ------ At 1 January 2005 1.5 234.5 7.1 (1.0) 6.4 (241.5) 7.0Movement oncash flow hedges - - - 1.9 - - 1.9Profit for theperiod attributableto equity holders - - - - - 26.4 26.4Dividends paid - - - - - (10.8) (10.8)Issue of shares 0.1 2.3 - - - - 2.4Equity settledtransactions - - - - - 1.0 1.0Foreign exchangetranslationdifferences - - (2.3) - - - (2.3)Tax on incomeand expenserecogniseddirectly in equity - - - - - 1.5 1.5------------------- ------ ------- -------- ------- ------ -------- ------At 30 June 2005 1.6 236.8 4.8 0.9 6.4 (223.4) 27.1------------------- ------ ------- -------- ------- ------ -------- ------ *After £244.1m for goodwill written off to retained earnings as at 1 January2004 in relation to subsidiaries acquired prior to 31 December 1997. Aspermitted by IFRS 1, this figure has not been restated. The dividend £12.6m which was paid on 16 June 2006, represents the finaldividend in respect of the year ended 31 December 2005, at the rate of 8.1p perordinary share. The dividend £10.8m which was paid on 17 June 2005, represents the finaldividend in respect of the year ended 31 December 2004, at the rate of 7.0p perordinary share. There was an issue of 722,394 ordinary shares during the period on exercise ofshare options. 9. Acquisition of businesses There were two acquisitions in the period. a) On 22 February 2006, the Group acquired Akzo Nobel's electromagneticcompatibility business and assets in Japan for £9.4m, including expenses. Thisbusiness contributed £0.5m to operating profits from the date of acquisition to30 June 2006. If the acquisition had occurred on 1 January 2006, managementestimates that Group turnover would have been £328.0m and Group operating profitwould have been £48.9m for the six months ended 30 June 2006. Details of net assets acquired and fair value adjustments are as follows: Book value Fair value Fair value prior to adjustments to Group acquisition £m £m £m --------- --------- ---------Intangible assets - 0.5 0.5Property, plantand equipment 4.9 (0.4) 4.5Trade and other receivables 1.2 - 1.2---------------------------- --------- --------- ---------Net identifiableassets and liabilities 6.1 0.1 6.2Goodwill on acquisition(provisional) 3.2---------------------------- --------- --------- ---------Cash paid (includingexpenses) 9.4---------------------------- --------- --------- --------- b) On 20 April 2006, the Group acquired the business of Port Maritime SecurityInternational Limited for £0.4m, including expenses. The purchase price was entirely attributed tointangible assets. There were no fair value adjustments. 10. Post balance sheet events On 1 July 2006, the Group completed the acquisition of Louisiana Meter Servicesfor £1.4m. This is a company providing liquid and gas measurement services tothe petroleum and petrochemical industries in the United States. On 1 September 2006, the Group acquired for £6.2m the business and assets of ananalytical chemical testing laboratory from Chemelot BV, a subsidiary of DSMN.V. 11. Contingent liabilities: claims and litigation From time to time the Group is involved in claims and lawsuits incidental to theordinary course of business. The majority of claims made against Intertek'ssubsidiary companies fall within the Oil, Chemical & Agri division (CalebBrett). In the 2005 Annual Report reference was made to three ongoing cases inCaleb Brett and the latest developments in each case are summarised below. In November 2005, one claim dating back to 1996, was contested in court andunexpectedly resulted in a judgment against Caleb Brett. An appeal hearing tookplace in May 2006. The appeal judgement is expected to be given in the secondhalf of 2006. A court trial took place in March 2006, in which claims were made by MarineCargo Underwriters against certain Caleb Brett subsidiary companies. The courtruled in favour of Caleb Brett. The claimant subsequently sought to appeal thecourt judgment. In August 2002, a lawsuit was filed against Caleb Brett in the district ofPuerto Rico. A process of fact and expert discovery began in earnest in thesecond half of 2005. This matter has now been resolved and the court dismissedthe lawsuit in May 2006. None of the above cases has resulted in any material financial impact on theGroup's reported income statement for the six months to 30 June 2006. Based oninformation currently available, the Directors consider that the cost to theGroup of an unfavourable outcome arising from such litigation is unlikely tohave a material effect on the financial position of the Group in the foreseeablefuture. 12. Approval The consolidated interim financial information was approved by the Board on 1September 2006. Independent review report by KPMG Audit Plc to Intertek Group plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 which comprises the consolidated balancesheet, income statement, statement of cash flows, statement of recognised incomeand expense and the related notes. We have read the other information containedin the Interim Report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the Company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted by law,we do not accept or assume responsibility to anyone other than the Company forour review work, for this report, or for the conclusions we have reached. Directors' responsibilities The Interim Report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the Interim Report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the UK. A review consistsprincipally of making enquiries of management and applying analytical proceduresto the financial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Statements on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. KPMG Audit Plc Chartered Accountants London 1 September 2006 This information is provided by RNS The company news service from the London Stock Exchange