Intertek Group Regulatory News (ITRK)

3 Sep 2007 07:00

Intertek Group PLC03 September 2007 INTERIM 2007 RESULTS ANNOUNCEMENT3 SEPTEMBER 2007 Intertek Group plc ("Intertek"), a leading international provider of quality andsafety services, announces its interim results for the half year to 30 June2007. POSITIONED FOR CONTINUED GROWTH +----------------------------+-------------+--------------+--------------+|Half year ended 30 June |2007 |% change over |% change over || | |2006 |2006 at || | |as reported |constant || | | |currency |+----------------------------+-------------+--------------+--------------+|Revenue |£360.8m |+ 10.3% |+ 18.6% |+----------------------------+-------------+--------------+--------------+|Operating profit(1) |£54.5m |+ 7.5% |+ 18.5% |+----------------------------+-------------+--------------+--------------+|Profit before tax |£48.4m |+ 7.1% | |+----------------------------+-------------+--------------+--------------+|Adjusted profit before tax |£50.3m |+ 6.6% | ||(1) | | | |+----------------------------+-------------+--------------+--------------+|Basic earnings per share |21.5p |+ 7.0% | |+----------------------------+-------------+--------------+--------------+|Earnings per share (2) |22.5p |+ 5.6% | |+----------------------------+-------------+--------------+--------------+|Interim dividend per share |5.8p |+ 26.1% | |+----------------------------+-------------+--------------+--------------+ HIGHLIGHTS Organic revenue and operating profit growth at constant currency of 10.5% and10.1% respectively For the three main divisions, organic revenue and operating profit growth atconstant currency of 12.5% and 11.7% respectively Operating profit margin of 15.1% is maintained at constant currency Six businesses acquired in the first half of 2007, for net consideration of£58.0m Interim dividend increase of 26.1% (1) Excluding amortisation of intangible assets arising on acquisitions £1.9m(2006: £2.0m)(2) Diluted adjusted earnings per share based on profit before amortisation ofintangible assets arising on acquisitions Wolfhart Hauser, Chief Executive Officer, commented: "I am pleased to report good growth for the half year, continuing the strongmomentum we saw in 2006 despite the US dollar being approximately 11% weakeragainst sterling. Our underlying business has performed well, registering strongorganic growth in revenue and operating profit at constant currency. "We made six acquisitions in the period for a consideration of £58 million. Wewill continue to invest in external complementary businesses alongside internalinvestment in pursuit of new avenues of growth. In July and August, we made afurther four acquisitions making the year to date total consideration £74million, double the £37 million that we invested in the full year 2006. "The market for our services continues to expand and we expect a strongperformance in the second half of the year." CONTACTS For further information, please contactAston Swift, Investor RelationsTelephone: +44 (0) 20 7396 3400 aston.swift@intertek.com Richard Mountain, Financial DynamicsTelephone:+44 (0) 20 7269 7121 richard.mountain@fd.com ANALYSTS' MEETING There will be a meeting for analysts at 9.30am today at JPMorgan Cazenove, 20Moorgate, London EC2R 6DA. A copy of the presentation will be available on thewebsite later today. Corporate website: www.intertek.com High resolution images of Intertek Group plc businesses are available todownload, free of charge from www.intertek.com ABOUT INTERTEK Intertek (LSE: ITRK) is a leading international provider of quality and safetyservices to a wide range of global and local industries. Partnership withIntertek brings increased value to customers' products and processes, ultimatelysupporting their success in the global market place. Intertek has theexperience, expertise, resources and global reach to support its customersthrough its extensive network of laboratories and offices and over 20,000 peoplein 100 countries around the world. Chairman's statement Creating value for our customers and shareholders Results I am pleased to report that our revenue increased to £360.8m, up 10.3% over thesame period last year. This was achieved despite the US dollar being 10.9%weaker against sterling, which reduced reported revenue when translated intosterling. Operating profit was £52.6m, up 8.0% over the same period last year. Operatingprofit before the amortisation of intangible assets arising from acquisitions('adjusted operating profit') increased to £54.5m, up 7.5%. Basic earnings per share were 21.5p, up 7.0% over the same period last year. On a constant currency basis, revenue and operating profit grew 18.6% and 18.5%respectively, which reflects the strong growth in our underlying businesses. AcquisitionsIn line with the Group's policy of acquiring complementary businesses, wecompleted six acquisitions in the first half of 2007 for total consideration of£58.0m (H1 06: £9.4m). Details of the acquisitions are given in the performancereview by division. In July and August, we completed a further four acquisitionsfor total consideration of £15.9m. This brings our acquisition investment in theyear to date, to £73.9m, which is more than double the £36.9m that we investedin the full year 2006. We continue to see many further acquisition opportunitieswhich will widen the scope and range of the services we offer. DividendsThe Board has decided to pay, on 13 November 2007, an interim dividend of 5.8p(2006: 4.6p), an increase of 26.1% over last year's interim dividend. This is inline with the revised dividend policy announced in our last Annual Report andreflects the good performance in the first half of the year. The interimdividend will be paid to members on the register at 2 November 2007. Board changesAfter 34 years with the Group, Raymond Kong retired on 11 May 2007. I would liketo express my deep gratitude to him, on behalf of all his fellow directors,employees and customers, for his outstanding contribution towards building theConsumer Goods division into the successful business it is today and for hisexcellent contribution to the Board, on which he served as a Non-ExecutiveDirector for the past three years. We wish him a happy and healthy retirement. OutlookThe market for our services continues to expand and we expect a strongperformance in the second half of the year. Vanni TrevesChairman Chief Executive Officer's review Strategic acquisitions have extended the breadth and depth of our expertise Growth in revenue £m Growth (2)June 06 327.1Currency translation (22.8)June 06 at constant currency 304.3Organic growth 35.7 11.7%Contract cessation (1) (3.8) (1.2)%Acquisitions 24.6 8.1%June 07 360.8 18.6% (1) Government Services pre-shipment inspection contract in Nigeria ceased March06.(2) At constant currency. Overview of resultsRevenue for the Group increased to £360.8m, up 10.3% (18.6% constant currencybasis). The three larger divisions - Oil, Chemical & Agri, Commercial &Electrical and Consumer Goods- which accounted for 93% of the Group's revenue,grew by 12.6% (21.3% constant currency basis). Excluding revenues from thediscontinued Nigerian contract (shown in the table above), revenue in GovernmentServices increased by 5.4% on a constant currency basis. The growth was achievedboth organically and through the contribution from acquisitions. Operating profit for the Group before the amortisation of intangible assetsarising on acquisitions was £54.5m, up 7.5% (18.5% constant currency basis). TheGroup's operating profit margin was 15.1% which was unchanged from the marginfor the first half of 2006 on a constant currency basis. On an actual basis, thereported margin for the first half of 2006 was 15.5% compared to 15.1% on aconstant currency basis. This decline was due to the mix of currencies in theGroup and the relatively high level of costs denominated in sterling. Approximately 80% of the Group's earnings are denominated in US dollars orcurrencies linked to the US dollar, therefore the Group's results whentranslated into sterling are exposed to changes in the value of the US dollar.In the 12-month period to 30 June 2007, the US dollar to sterling exchange ratethat we use to report our results declined by 10.9% therefore the Group'searnings have been negatively impacted. Group operating profit, after charging amortisation of intangible assets arisingon acquisitions of £1.9m (H1 06: £2.0m) was £52.6m, up 8.0% over H1 06. The netfinancing costs were £4.2m in H1 07, compared to £3.5m in H1 06, principally dueto higher borrowings and interest rates. The tax rate of 25.4% for H1 07 isbased on the estimated tax rate the Group expects for the full year. Profit forthe period was £36.1m, up 6.2%. The operating results are discussed in more detail in the performance review bydivision. Cash flowCash from operating activities for H1 07 was £43.0m which was 9.1% lower than H106. The decrease was due to a number of factors, including increased workingcapital in businesses acquired during H1 07 and increased receivables resultingfrom our revenue growth. Part of the decrease was due to the timing of cashreceipts and payments. An amount representing four months sales of a GovernmentServices contract was received in July 2007. Prepayments and other receivableswere unusually high at 30 June 2007 and significant payments relating to thesewere also received in July. The net cash outflow from investing activities was £61.2m (H1 06: £29.4m),comprising interest received £0.5m (H1 06: £0.6m), net capital expenditure of£17.8m (H1 06: £20.2m) and acquisitions of £43.9m (H1 06: £9.8m). Theacquisitions were partly funded by increased borrowings. Financing activitiesgenerated cash inflow of £40.1m (H1 06: £2.1m) due to the net drawdown of debtof £52.7m (H1 06: £13.6m) offset by the payment of dividends of £17.0m (H1 06:£14.2m). Performance review by divisionFor management purposes the Group is organised into four operating divisions,each covering certain industry sectors. A review of the performance of each division in the six months to 30 June 2007compared to the six months to 30 June 2006 is given below. DefinitionsConstant currency basisFor statutory reporting purposes the results for H1 07 and H1 06 are translatedinto sterling using the average exchange rates for the six months to 30 June2007 and the six months to 30 June 2006 respectively. In order to compare theperformance on a like-for-like basis, for management purposes we measure theperformance of each of the divisions at constant exchange rates. In theperformance review that follows, the revenue and operating profit for H1 07 andH1 06 have been translated at the average exchange rates for the six months to30 June 2007. Operating profitFor statutory reporting purposes, operating profit is stated after the deductionof the amortisation of intangible assets arising on acquisitions and goodwillimpairment. For management purposes, we calculate the operating profit of thedivisions before deducting these charges. In the commentary that follows,operating profit is stated before amortisation of intangible assets arising onacquisitions and goodwill impairment. +----------------------------------------------------+|Oil, Chemical & Agri || |+----------------+--------+--------+--------+--------+| |H1 07 | |Change |Organic || | | | |change |+----------------+--------+--------+--------+--------+| |£m | | | |+----------------+--------+--------+--------+--------+|Revenue |168.1 | |33.7% |15.2% |+----------------+--------+--------+--------+--------+|Operating profit|20.1 | |63.4% |33.3% |+----------------+--------+--------+--------+--------+|Operating margin|12.0% | |220bp |150bp |+----------------+--------+--------+--------+--------+ The Oil, Chemical & Agri division offers independent cargo inspection, testingand analytical services to the oil and chemical, agricultural, mineral andpharmaceutical sectors. Oil, Chemical & Agri had an excellent performance in the first half of the yearwith strong organic growth across all regions, enhanced by a number ofacquisitions. Total revenue increased by 33.7% to £168.1m and total operatingprofit increased by 63.4% to £20.1m. The operating margin improved by 220 basispoints to 12.0%. The organic growth was driven by favourable market conditions,increased demand for alternative fuels and increased regulation, which resultedin an increased demand for testing and inspection services. The demand foroutsourced analytical services also continued to grow. This sector accounted for50% of the division's revenue in the first half of 2007, up from 41% for thefirst half of 2006. We continue to extend the breadth and depth of the services we can offer ourcustomers by acquiring businesses which complement our existing services. Thethree largest acquisitions made by the Group in the first six months of the yearwere in this division. In January 2007, upstream services were extended by theacquisition of UK based Umitek Ltd and its subsidiaries, CAPCIS and SREL, whichprovide specialist testing and consultancy services to the oil and gasindustries in the North Sea and globally. These businesses allow the Group toextend the range of services provided by upstream operations to Europe and theMiddle East. The global demand for minerals is accelerating due to rapid industrialisationand growing numbers of new consumers in emerging economies. This growth leads toincreased demand for testing and inspection services and in April 2007, theGroup acquired Genalysis minerals laboratories in Australia which gives us anincreased international presence in this sector and complements our existingminerals operations in Asia and the Americas. The Group is increasing the range of services offered to the pharmaceuticalindustry and in June 2007, we acquired New Jersey based QuantitativeTechnologies Inc. (QTI) which provides product quality testing services topharmaceutical, medical device and biotechnology companies. This acquisitionfurther extends our growth in the provision of expert analytical support to theglobal pharmaceutical, medical device and drug delivery industries. It joins ourexisting pharmaceutical network across the UK and Europe and complements Alta'sbio-analytical laboratories in California, US which were acquired last year. In June 2007, we acquired Union Lab which is a key local petroleum testing andinspection company in Singapore. The business will be absorbed into our existingoperations in Singapore and further strengthens our market position in thisstrategically important country. We continue making infill and bolt-on acquisitions in this division and in July2007, we acquired VIP Cargo Surveys Inc., a petroleum inspection and testingcompany based in Texas, US and Geotechnical Services Pty Ltd, a petroleumlaboratory services company located near Perth, Australia. In August 2007, we announced two new outsourcing deals. One of these is inTeesside, UK, where ICI has outsourced its Measurement Science Group (MSG) toIntertek under a four-year contract for analytical laboratory services. As partof this agreement, MSG sold its business assets to Intertek and transferred all42 of its employees. The other contract is in Massachusetts, US, where Kodak'sEastman Gelatine Corporation has outsourced its analytical laboratory servicesto Intertek for three years. The market is expected to remain favourable for the rest of the year and thereare good prospects for new outsourcing contracts and acquisitions. +-------------------------------------------------------+|Commercial & Electrical || |+----------------+--------+--------+---------+----------+| |H1 07 | |Change |Organic || | | | |Change |+----------------+--------+--------+---------+----------+| |£m | | | |+----------------+--------+--------+---------+----------+|Revenue |86.0 | |9.4% |7.9% |+----------------+--------+--------+---------+----------+|Operating profit|13.2 | |11.9% |10.5% |+----------------+--------+--------+---------+----------+|Operating margin|15.3% | |30bp |30bp |+----------------+--------+--------+---------+----------+ The Commercial & Electrical division provides services to a wide range ofindustries including those in the home appliances, lighting, medical, building,industrial and HVAC/R (heating, ventilation and air conditioning andrefrigeration), IT and telecom and automotive sectors. On 1 January 2007, theElectrical and Electronic retail inspection (E&E) business was transferred fromCommercial & Electrical to Consumer Goods. Revenue and operating profit forprior periods has been restated to show a like-for-like comparison. The division performed well in the first half of the year, with revenue andoperating profit growth of 9.4% and 11.9% respectively. The operating marginincreased 30 basis points to 15.3%. All service sectors apart from systemscertification contributed to this growth. In March 2007, the Group acquired the Finnish company Natlabs Oy which provideselectro-magnetic compatibility and electrical safety testing. This gives us asignificant presence in Finland and allows us to improve service to ourcustomers in the Baltic region. In June 2007, we acquired UK based ASTA BEAB, which provides product and systemscertification services and is the owner of the ASTA and BEAB certificationmarks. These marks are an important addition to our leading portfolio of markswhich are recognised around the world, giving us a competitive advantage andproviding manufacturers with seamless global market access. We have madeprogress in gaining acceptance of the ETL mark by retailers in the US and thishas helped to drive revenue growth in Asia and the rest of the world. In August 2007, we acquired Product Quality Partners Inc., which is a leader inNorth America in wireless device and application testing. 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. +------------------------------------------+|Consumer Goods || |+----------------+--------+-------+--------+| |H1 07 | |Change |+----------------+--------+-------+--------+| |£m | | |+----------------+--------+-------+--------+|Revenue |81.5 | |12.7% |+----------------+--------+-------+--------+|Operating profit|24.9 | |8.7% |+----------------+--------+-------+--------+|Operating margin|30.6% | |(110)bp |+----------------+--------+-------+--------+ The Consumer Goods division provides services to the textiles, toys, footwear,hardlines, food and retail industries. Services include testing, inspection,auditing, advisory services, quality assurance and hazardous substance testing.On 1 January 2007, the Electrical and Electronic retail inspection (E&E)business was transferred from Commercial & Electrical to Consumer Goods. Revenueand operating profit for prior periods has been restated to show a like-for-likecomparison. The Consumer Goods division delivered revenue of £81.5m up 12.7% and operatingprofit of £24.9m, up 8.7%. The operating margin declined 110 basis points to30.6%. This decline was due to a change in market conditions in Restriction ofHazardous Substances (RoHS) testing and also the changing mix of services in thedivision. Revenue from RoHS testing declined in the first half of 2007 compared to thefirst half of 2006. The RoHS directive became mandatory in the European Union on1 July 2006, which prompted a peak in RoHS testing in 2006 as companies rushedto meet the deadline. However, subsequent limited enforcement of the legislationhas reduced the demand for testing in the first half of 2007. This volatility iscommon with new legislation and going forward we expect demand to stabilise. Toys and hardlines performed well with revenue growth of over 20%. The textile market was steady. Although there is ongoing discussion about quotarestrictions and there was a recent 2% reduction in tax rebates in China ongarments, we do not expect our businesses to be materially affected. Good growthwas reported in many countries, including China, and we continue to invest inthis sector. New facilities in Vietnam, Pakistan, Brazil, Colombia, Romania andEgypt are in start-up phase and are not expected to cover their costs untillater this year. The market for corporate social responsibility services is growing and ourrevenue in this sector, which accounted for 7% of the division's revenue, grewwell. We expect this sector to develop as the demand for sustainabilityreporting increases and environmental issues become more prominent. We alsoexpect regulation in this area to increase which will lead to increased demandfor our services. Revenue from inspection work increased, despite a reduction in the volume of E&Eretail inspections. The key growth drivers in Consumer Goods remain strong, principally the sourcingof products from China, the increasingly wide range of products being sold byretailers and shorter product lifecycles. Also, the recent concerns over thesafety of consumer products will increase demand from consumers and regulatorybodies for independent assurance of quality and safety. However, the mix ofbusinesses in this division is changing, with developing services such as RoHS,consultancy, inspection, food and corporate social responsibility not alwayshaving the high margins earned by the established services. +------------------------------------------+|Government Services || |+----------------+--------+-------+--------+| |H1 07 | |Change |+----------------+--------+-------+--------+| |£m | | |+----------------+--------+-------+--------+|Revenue |25.2 | |(9.0)% |+----------------+--------+-------+--------+|Operating profit|3.4 | |(8.1)% |+----------------+--------+-------+--------+|Operating margin|13.5% | |10bp |+----------------+--------+-------+--------+ The Government Services division offers a range of services to governments,national standards organisations, customs departments and industrial companies.Services include cargo scanning, fiscal support services, standards programmesand industrial services. Revenue in H1 06 included £3.8m for the final work performed on the discontinuedNigerian pre-shipment inspection (PSI) contract. Revenue from continuingbusiness increased by 5.4% in H1 07 compared to H1 06. The division's reliance on traditional PSI contracts has reduced and 64% ofrevenue is now generated by other services such as standards contracts, supplychain security and industrial services. The container scanning contract inGuinea is now fully operational and performing well. The PSI contract inMozambique was extended for a further two years. 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. Looking forward We will continue to grow our business organically and improve our operatingprofit margin by offering our customers a combined service, which supports theirsuccess in the global marketplace by adding value to their products andprocesses, and creates value for our shareholders. We will also extend the breadth and depth of our expertise by developing newservices and through acquiring businesses with complementary skill sets to ourown. We are committed to investing in our global network by opening newfacilities and by acquiring businesses in new territories. Wolfhart HauserChief Executive Officer Independent review report by KPMG Audit Plc to Intertek Group plc IntroductionWe have been instructed by the Company to review the financial information forthe six months ended 30 June 2007 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' responsibilitiesThe 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 performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4: Review of interim financial information issued by the Auditing PracticesBoard for use in the UK. A review consists principally of making enquiries ofmanagement and applying analytical procedures to the financial information andunderlying financial data and, based thereon, assessing whether the accountingpolicies and presentation have been consistently applied unless otherwisedisclosed. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit performed in accordance with International Standards onAuditing (UK and Ireland) and therefore provides a lower level of assurance thanan audit. Accordingly, we do not express an audit opinion on the financialinformation. Review conclusionOn 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 2007. KPMG Audit PlcChartered Accountants8 Salisbury SquareLondon EC4Y 8BB31 August 2007 Consolidated interim income statement Six months Six months Year to to 30 June to 31 2007 30 June December 2006 2006 (Unaudited) (Unaudited) (Audited) Notes £m £m £m Revenue 2 360.8 327.1 664.5Cost of sales (288.0) (257.7) (523.6) Gross profit 72.8 69.4 140.9 Amortisation of intangible (1.9) (2.0) (3.8)assets arising on acquisitionsImpairment of goodwill - - (0.3) Other administrative expenses (18.3) (18.7) (38.7) Total administrative expenses (20.2) (20.7) (42.8) Group operating profit 2 52.6 48.7 98.1Finance income 2.2 2.4 4.5 Finance expense (6.4) (5.9) (11.5) Net financing costs (4.2) (3.5) (7.0)Share of profit of associates - - 0.3Profit before taxation 48.4 45.2 91.4Income tax expense 3 (12.3) (11.2) (22.5)Profit for the period 36.1 34.0 68.9Attributable to: Equity holders of the Company 33.7 31.3 63.8 Minority interest 2.4 2.7 5.1 Profit for the period 36.1 34.0 68.9 Earnings per share Basic 4 21.5p 20.1p 40.9pDiluted 4 21.3p 20.0p 40.6pDividends in respect of the 5.8p 4.6p 14.8pperiod Consolidated interim balance sheet At 30 June At 30 June At 31 December 2007 2006 2006 (Unaudited) (Unaudited) (Audited) Notes £m £m £mAssetsProperty, plant and equipment 131.2 123.1 123.7Goodwill 113.6 57.6 71.1Other intangible assets 27.4 11.1 19.6Investments in associates 0.7 0.5 0.7Deferred tax assets 13.8 14.2 13.3Total non-current assets 286.7 206.5 228.4 Inventories 3.9 3.4 3.2Trade and other receivables 183.5 153.2 151.9Derivative financial instruments 0.1 1.5 0.4Cash and cash equivalents 7 56.2 52.6 49.5Total current assets 243.7 210.7 205.0 Total assets 530.4 417.2 433.4 LiabilitiesInterest bearing loans and borrowings 7 (14.2) (14.6) (13.6)Current taxes payable (28.5) (25.9) (24.1)Trade and other payables (117.0) (90.0) (101.3)Provisions (6.2) (4.0) (4.5)Total current liabilities (165.9) (134.5) (143.5) Interest bearing loans and borrowings 7 (214.1) (181.0) (164.8)Deferred tax liabilities (3.7) (3.5) (3.8)Net pension liabilities (15.5) (17.8) (15.2)Other payables (1.4) (1.1) (0.9)Total non-current liabilities (234.7) (203.4) (184.7) Total liabilities (400.6) (337.9) (328.2) Net assets 129.8 79.3 105.2 EQUITYShare capital 8 1.6 1.6 1.6Share premium account 8 246.7 240.9 242.4Other reserves 8 6.8 11.1 6.0Retained earnings 8 (135.5) (182.9) (153.6) Total equity attributable to equity 8 119.6 70.7 96.4holders of the CompanyMinority interest 10.2 8.6 8.8 Total equity 129.8 79.3 105.2 Consolidated interim statement of cash flows Six months Six months Year to to 30 June to 30 June 31 Dec 2007 2006 2006 (Unaudited) (Unaudited) (Audited) £m £m £mCash flows from operating activitiesProfit for the period 36.1 34.0 68.9Adjustments for:Depreciation charge 13.3 12.1 24.1Amortisation of software 1.1 1.0 2.2Amortisation of intangible assets arising on 1.9 2.0 3.8acquisitionsImpairment of goodwill - - 0.3Share option expense (note 6) 1.4 1.2 2.4Share of profit of associates - - (0.3)Net financing costs 4.2 3.5 7.0Income tax expense (note 3) 12.3 11.2 22.5Profit on disposal of property, plant and - - (0.3)equipmentOperating profit before changes in working capital 70.3 65.0 130.6and provisionsIncrease in inventories (0.3) (0.4) (0.4)Increase in trade and other receivables (23.9) (11.3) (13.7)(Decrease)/increase in trade and other payables (4.8) (1.1) 12.3Increase/(decrease) in provisions 1.7 (4.9) (4.2)Cash generated from operations 43.0 47.3 124.6Interest paid (4.5) (3.9) (7.7)Income taxes paid (10.6) (12.2) (24.6)Net cash flows from operating activities 27.9 31.2 92.3 Investing activitiesProceeds from sale of property, plant and 0.1 0.3 0.9equipmentInterest received 0.5 0.6 1.1Acquisition of subsidiaries, net of cash acquired (43.9) (9.8) (36.9)(note 9)Additions to property, plant and equipment (16.8) (20.0) (42.0)Additions to software (1.1) (0.5) (1.2)Net cash flows from investing activities (61.2) (29.4) (78.1) Financing activitiesProceeds from the issue of share capital 4.4 2.7 4.2Drawdown of debt 59.4 20.7 22.1Repayment of debt (6.7) (7.1) (13.9)Dividends paid to minorities (1.0) (1.6) (3.8)Dividends paid (note 8) (16.0) (12.6) (19.8)Net cash flows from financing activities 40.1 2.1 (11.2) Net increase in cash and cash equivalents (note 7) 6.8 3.9 3.0Cash and cash equivalents at 1 January (note 7) 49.5 50.8 50.8Effect of exchange rate fluctuations on cash held (0.1) (2.1) (4.3)(note 7)Cash and cash equivalents at end of period (note 56.2 52.6 49.57) Consolidated interim statement of recognised income and expense Six months Six months Year to to to 30 June 30 June 31 Dec 2007 2006 2006 (Unaudited) (Unaudited) (Audited) £m £m £mForeign exchange translation differences 1.0 (2.1) (6.1)Actuarial gains and losses on defined benefit - - 3.2pension schemesTax on income and expenses recognised directly in (1.0) (1.5) (1.9)equity effective portion of changes in fair value ofcash flow hedges, net of recycling (0.2) (0.2) (1.3)Net expense recognised directly in equity (0.2) (3.8) (6.1)Profit for the period 36.1 34.0 68.9Total recognised income and expense for the period 35.9 30.2 62.8 Total recognised income and expense for the periodattributable to:Equity holders of the Company 33.5 27.5 58.2Minority interest 2.4 2.7 4.6Total recognised income and expense for the period 35.9 30.2 62.8 Notes to the consolidated interim financial information 1. Reporting entity Intertek Group plc is a company incorporated in the United Kingdom. Theconsolidated interim financial information of the Company as at and for the sixmonths ended 30 June 2007, 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 2006. The comparative figures for the financial year ended 31 December 2006, 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 2006 are available upon request from the Company's registered officeat 25 Savile Row, London W1S 2ES. An electronic version is available from theInvestors section of the Group website at www.intertek.com. 2. Segment information Business analysis (Primary segment) The Group is organised into four operating divisions: Oil, Chemical & Agri,Commercial & Electrical, Consumer Goods, and Government Services. The costs ofthe corporate head office and other costs which are not controlled by theoperating divisions are reported as Central. On 1 January 2007, the Electrical and Electronic retail inspection (E&E)business was transferred from the Commercial & Electrical division to theConsumer Goods division and prior period figures for revenue and operatingprofit have been restated to show a like-for-like comparison. Revenue Oil, Commercial Consumer Government Total Chemical & Goods Services & Agri Electrical £m £m £m £m £m Six months to 30 June 168.1 86.0 81.5 25.2 360.82007Six months to 30 June 134.8 85.2 (1) 78.0 (1) 29.1 327.12006Year to 31 December 2006 281.5 167.9 (1) 161.7 (1) 53.4 664.5 (1) Restated to reflect the transfer of E&E business from Commercial &Electrical to Consumer Goods. For management purposes, the Group measures the performance of the divisions onoperating profit excluding amortisation of intangible assets arising onacquisitions and impairment of goodwill. These figures are given below togetherwith a reconciliation to Group operating profit. There was no impairment chargein the six months to 30 June 2007 or the six months to 30 June 2006. Operating profit Oil, Commercial Consumer Government Central Total Chemical & Goods Services & Agri Electrical £m £m £m £m £m £mSix months to 30 June2007Operating profit before 20.1 13.2 24.9 3.4 (7.1) 54.5amortisation andimpairmentAmortisation (2) (1.0) (0.6) (0.3) - - (1.9)Group operating profit 19.1 12.6 24.6 3.4 (7.1) 52.6 Six months to 30 June2006Operating profit before 13.5 12.9 (1) 24.8 (1) 4.2 (4.7) 50.7amortisation andimpairmentAmortisation (2) (0.7) (1.1) (0.2) - - (2.0)Group operating profit 12.8 11.8 (1) 24.6 (1) 4.2 (4.7) 48.7 Year to 31 December 2006Operating profit before 30.0 24.6 (1) 51.6 (1) 6.6 (10.6) 102.2amortisation andimpairmentAmortisation (2) (1.2) (2.0) (0.5) (0.1) - (3.8)Impairment of goodwill (0.3) - - - - (0.3)Group operating profit 28.5 22.6 (1) 51.1 (1) 6.5 (10.6) 98.1 (1) Restated to reflect the transfer of E&E business from Commercial &Electrical to Consumer Goods.(2) Amortisation of intangible assets arising on acquisitions. Geographic analysis (Secondary segment) Six months Six months Year to to to 30 June 30 June 31 Dec 2007 2006 2006 £m £m £mRevenueAmericas 128.9 123.8 245.1Europe, Middle East and Africa 112.1 92.8 190.3Asia Pacific 119.8 110.5 229.1Total 360.8 327.1 664.5Group operating profitAmericas 17.0 14.6 29.6Europe, Middle East and Africa 2.1 (0.4) (2.0)Asia Pacific 33.5 34.5 70.5Total 52.6 48.7 98.1 3. Income tax expense The tax charge, which is wholly overseas, on profits before tax for the sixmonths to 30 June 2007 of £12.3m (30 June 2006: £11.2m) is based on theestimated effective rate for the full year. The effective tax rate at 30 June2007 is 25.4% (30 June 2006: 24.8%). Differences between the estimated effective rate of 25.4% 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 Six months Year to to to 30 June 30 June 31 December 2007 2006 2006Based on the profit for the period: £m £m £mProfit attributable to equity shareholders 33.7 31.3 63.8Amortisation of intangible assets arising on 1.9 2.0 3.8acquisitionsImpairment of goodwill - - 0.3Adjusted earnings 35.6 33.3 67.9 Number of shares (millions):Basic weighted average number of shares 156.8 155.7 156.0Potentially dilutive share options (1) 1.3 0.9 1.2Diluted weighted average number of shares 158.1 156.6 157.2 Basic earnings per share 21.5p 20.1p 40.9pOptions (0.2)p (0.1)p (0.3)pDiluted earnings per share 21.3p 20.0p 40.6p Basic adjusted earnings per share 22.7p 21.4p 43.5pOptions (0.2)p (0.1)p (0.3)pDiluted adjusted earnings per share 22.5p 21.3p 43.2p (1) The weighted average number of shares used in the calculation of the dilutedearnings per share for the six months to 30 June 2007, excludes nil potentialshares (30 June 2006: 1,434,326; 31 December 2006: nil) as these were notdilutive in accordance with IAS 33: Earnings Per Share and 275,512 (30 June2006: 128,194; 31 December 2006: 128,194) contingently issuable shares as theperformance conditions were not met. 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 2006. Thereforeactuarial valuations of the assets and liabilities of the defined benefitpension schemes for IAS 19 purposes, were not performed at 30 June 2007. 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 2007, theGroup recognised a net expense of £1.2m (30 June 2006: £0.9m; 31 December 2006:£2.3m). 6. Share-based payments The Company has a share option scheme and a long-term incentive plan, details ofwhich were contained in the Annual Report for the year ended 31 December 2006.The share option scheme has been discontinued and the last options under thescheme were granted on 13 September 2005. The first awards under the long-termincentive plan called the Intertek Deferred Bonus Plan ('the Plan') were made inApril 2006. Under the Plan, in April 2007, 278,170 deferred shares (2006:244,222) and 156,386 matching shares (2006: 128,195) were awarded. In accordance with IFRS 2: Share Based Payments, the fair value of servicesreceived in return for shares and share options granted to employees, ismeasured by reference to the fair value of shares and share options 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 ofshares and share options. During the six months ended 30 June 2007, the Group recognised an expense of£1.4m in respect of outstanding share options issued in 2004 and 2005 and inrespect of the share awards made in April 2006 and 2007. For the six monthsended 30 June 2006, the charge was £1.2m for outstanding share options issued in2003, 2004 and 2005 and in respect of share awards made in April 2006. 7. Analysis of net debt At 1 Cash flow Exchange At 30 June January adjustments 2007 2007 £m £m £m £mCash 49.5 6.8 (0.1) 56.2Borrowings (178.4) (52.7) 2.8 (228.3)Total net debt (128.9) (45.9) 2.7 (172.1) 8. Shareholders' equity Other reserves Share Share Translation Hedging Other Retained Total capital premium reserve reserve earnings account (1) £m £m £m £m £m £m £mAt 1 January 2007 1.6 242.4 (0.7) 0.3 6.4 (153.6) 96.4Movement on cash flow - - - (0.2) - - (0.2)hedgesProfit for the period - - - - - 33.7 33.7attributable to equityholdersDividends paid - - - - - (16.0) (16.0)Issue of shares - 4.3 - - - - 4.3Equity settled - - - - - 1.4 1.4transactionsForeign exchange - - 1.0 - - - 1.0translation differencesTax on income and - - - - - (1.0) (1.0)expense recogniseddirectly in equityAt 30 June 2007 1.6 246.7 0.3 0.1 6.4 (135.5) 119.6 At 1 January 2006 1.6 238.2 5.4 1.6 6.4 (201.3) 51.9Movement on cash flow - - - (0.2) - - (0.2)hedgesProfit for the period - - - - - 31.3 31.3attributable to equityholdersDividends paid - - - - - (12.6) (12.6)Issue of shares - 2.7 - - - - 2.7Equity settled - - - - - 1.2 1.2transactionsForeign exchange - - (2.1) - - - (2.1)translation differencesTax on income and - - - - - (1.5) (1.5)expense recogniseddirectly in equityAt 30 June 2006 1.6 240.9 3.3 1.4 6.4 (182.9) 70.7 (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.As permitted by IFRS 1, this figure has not been restated. The dividend of £16.0m which was paid on 15 June 2007, represents a finaldividend of 10.2p per ordinary share in respect of the year ended 31 December2006. The dividend of £12.6m which was paid on 16 June 2006, represents a finaldividend of 8.1p per ordinary share in respect of the year ended 31 December2005.There was an issue of 886,920 ordinary shares during the period on exercise ofshare options. 9. Acquisition of businesses There were six acquisitions in the period, all of which were paid for in cash. The largest acquisition was the purchase on 18 April 2007, of 100% of the sharecapital of Genalysis Laboratory Services Pty Ltd, a company incorporated inWestern Australia. Genalysis provides analytical testing and sample preparationservices to mining, ore and minerals companies on a global basis. A payment of £17.1m, net of cash acquired of £0.2m, was made on 18 April 2007,and further payments, based on completion accounts, estimated to be £10.9m, willbe payable on or before March 2008, making a total estimated consideration forthis acquisition of £28.0m. Provisional details of net assets acquired and fair value adjustments are setout below. The analysis is provisional due to the timing of the acquisition andamendments may be made to these figures in the 12 months to 17 April 2008, witha corresponding adjustment to goodwill. Book value Accounting Fair value Fair value prior to policy adjustments to Group on acquisition alignment acquisition £m £m £m £mProperty, plant and equipment 3.8 (0.2) - 3.6Goodwill - - 18.1 18.1Other intangible assets - - 4.0 4.0Inventories 0.4 - - 0.4Trade and other receivables 4.0 - - 4.0Trade and other payables (1.4) - - (1.4)Tax payable (0.7) - - (0.7)Net assets acquired 6.1 (0.2) 22.1 28.0Net cash outflow (net of cash 17.1acquired)Deferred consideration 10.9Total consideration 28.0 The goodwill of £18.1m represents the value to the Group of acquiring a presencein an industry sector and country in which the Group did not have a significantmarket share. The other intangible assets of £4.0m represent contractual andnon-contractual client relationships. The accounting policy alignment relates to depreciation of £0.2m to bring theaccounting into line with Group policy. The profit of Genalysis for the period 1 January 2007 to 18 April 2007 was£0.5m. The profit attributable to the Group from the date of acquisition to 30June 2007 was £0.3m. b) The other five acquisitions were: (i) On 9 January 2007, purchase of 100% of the share capital of Umitek Limited,a company incorporated in the UK, for £10.4m, of which £0.5m is deferred. Thenet cash acquired was £0.6m. The company and its subsidiaries provide specialisttesting and consultancy services to the oil and gas industries in the North Seaand globally. (ii) On 12 March 2007, purchase of 100% of the share capital of Natlabs Oy, acompany incorporated in Finland, for £0.7m. The net cash acquired was £0.2m. Thecompany provides electro-magnetic compatibility and electrical safety testing. (iii) On 1 June 2007, purchase of 100% of the share capital of Union LaboratoryPte Limited, a company incorporated in Singapore, for £1.9m of which £0.2m isdeferred. The company provides petroleum products testing and inspectionservices in the Asia Pacific region.(iv) On 6 June 2007, purchase of the business and assets of UK based ASTA BEAB,for £4.6m. ASTA BEAB provides global product and systems certification servicesand is the owner of the ASTA and BEAB certification marks. (v) On 7 June 2007, purchase of 100% share capital of Quantitative TechnologiesInc (QTI), a US pharmaceutical testing company, for £13.1m of which £2.5m isdeferred. The net cash acquired was £0.3m. The company provides expertanalytical support services to the global pharmaceutical, medical device anddrug delivery industries. In addition there were cash costs of £0.4m relating to prior years'acquisitions. The table below sets out a provisional analysis of the net assets acquired andthe fair value to the Group in respect of the five acquisitions described above.The analysis is provisional due to the timing of some of the acquisitions andamendments may be made to these figures in the period up to 12 months from thedate each business was acquired, with a corresponding adjustment to goodwill. Book value Accounting Fair value Fair value prior to policy adjustments to Group on acquisition alignment acquisition £m £m £m £mProperty, plant and equipment 1.0 0.2 - 1.2Goodwill - - 24.7 24.7Other intangible assets - - 5.7 5.7Trade and other receivables 4.7 (0.2) - 4.5Trade and other payables (2.6) (0.3) - (2.9)Net pension liabilities - (2.8) - (2.8)Tax payable (0.4) - - (0.4)Net assets acquired 2.7 (3.1) 30.4 30.0Net cash outflow (net of cash 26.8acquired)Deferred consideration 3.2Total consideration 30.0 The accounting policy alignments relate to depreciation of £0.2m, additional baddebt provisions of £0.2m, additional accruals of £0.3m and a pension deficit of£2.8m, to bring the accounting for these items into line with Group policy. Theother intangible assets of £5.7m represent the value attributable to contractualand non-contractual client relationships and certification marks. The goodwill of £24.7m arises as follows: £mUmitek 10.1Natlabs 0.7Union Laboratory 1.4ASTA BEAB 3.0QTI 9.1Prior period acquisitions 0.4Total 24.7 UmitekThe goodwill of £10.1m represents the expertise and reputation acquired whichwill enable Intertek to improve the service offered to its existing customers.The acquired management team will develop the Upstream Testing sector withinIntertek. NatlabsThe goodwill of £0.7m represents the benefit to Intertek of acquiring anestablished business in a new territory, which will enhance Intertek's globalnetwork.Union LaboratoryThe goodwill of £1.4m represents the opportunity for Intertek to reinforce itsmarket leading position in petroleum services in Singapore, acquire keymanagement and achieve synergies by integrating the acquired business intoIntertek's existing operations. ASTA BEABASTA BEAB previously sub-contracted testing work to Intertek and the acquisitionsecures this work. The goodwill of £3.0m represents this security plus the valueof the workforce and the synergies obtained by combining Intertek's existingoperations with the ASTA BEAB business. QTIThe goodwill of £9.1m represents the opportunity for Intertek to expand itspharma services in North America, complementing and enhancing the capabilitiesacquired with Alta and ASG. These acquisitions contributed profits to the Group from their respective datesof acquisition to 30 June 2007 of £0.6m. c) The Group revenue and profit for the six months ended 30 June 2007 would havebeen £369.1m and £36.8m respectively if all the acquisitions were assumed tohave been made on 1 January 2007. Post balance sheet events In July 2007, the Group acquired VIP Cargo Surveys Inc., a petroleum inspectionand testing company based in Texas, US and Geotechnical Services Pty Ltd, apetroleum laboratory services company located near Perth, Australia. Thesebusinesses were acquired for approximately £4.0m. In August 2007, the Group acquired Product Quality Partners Inc., a companybased in the US which provides wireless device and application testing and undera four-year outsourcing contract, the Group also acquired the operating assetsof ICI's Measurement Science Group in Teesside, UK. These businesses wereacquired for approximately £11.9m. Contingent liabilities: claims and litigation From time to time, the Group is involved in various claims and lawsuitsincidental to the ordinary course of its business, including claims for damages,negligence and commercial disputes regarding inspection and testing and disputeswith former employees. The Group is not currently party to any legal proceedingsother than ordinary litigation incidental to the conduct of business. The outcome of the litigation to which Intertek Group companies are party cannotbe readily foreseen. Based on information currently available, the Directorsconsider that the cost to the Group of an unfavourable outcome arising from suchlitigation is unlikely to have a materially adverse effect on the financialposition of the Group in the foreseeable future. The Group holds a professional indemnity insurance policy that provides coveragefor certain claims from customers. The Directors consider this policy adequatefor normal commercial purposes. 12. ApprovalThe consolidated interim financial information was approved by the Board on 31August 2007. This information is provided by RNS The company news service from the London Stock Exchange