Intertek Group Regulatory News (ITRK)

5 Sep 2005 07:01

Intertek Group PLC05 September 2005 INTERIM 2005 RESULTS ANNOUNCEMENT 5 SEPTEMBER 2005 Intertek Group plc ("Intertek"), the global testing, inspection andcertification company, today announces its interim results for the half year to30 June 2005. FINANCIAL HIGHLIGHTS Revenue £272.3m Up 14.5% at actual exchange rates Up 15.7% at constant exchange rates Up 13.2% organically (Note 1)Operating profit (Note 2) £43.5m Up 11.5% at actual exchange rates Up 13.3% at constant exchange rates Up 7.9% organically (Note 1) Up 9.1% organically, excluding IFRS share option charge (Note 1)Operating margin (Note 1) 16.0% Down from 16.3%Operating cash flow £20.0m Down 34.2% from £30.4mProfit before tax £38.5m Up 4.3% from £36.9mEarnings per share (Note 3) 18.7p Up 14.0% from 16.4pBasic earnings per share 17.0p Up 4.3% from 16.3pInterim dividend per share 3.9p Up 14.7% from 3.4p 1. At constant exchange rates2. Excluding amortisation of intangibles £0.8m (H1 04: £0.3m) and goodwill impairment £2.0m (H1 04: £nil)3. Diluted adjusted earnings per share based on profit before amortisation of intangibles and goodwill impairment CHIEF EXECUTIVE OFFICER, WOLFHART HAUSER commented: The Group once again performed well in the first half of 2005. Revenue grew at14.5% at actual exchange rates and 15.7% at constant exchange rates. Organicrevenue growth was 13.2% and all four divisions achieved organic revenue growthin excess of 10%. Profit before tax at £38.5m was up 4.3% and adjusted EPS wasup 14.0%. We are confident that we are well placed to be able to continue to capitalise onthe strong drivers in our business. In consideration of our confidence in the future prospects for the group, wehave declared an interim dividend of 3.9p, an increase of 14.7% over last year. ANALYSTS' MEETINGThere will be a meeting for analysts at 9.30am today at Goldman SachsInternational, Peterborough Court, 133 Fleet Street, London EC4A 2BB. A copy ofthe presentation will be available on the website later today. For further information, please contact Aston Swift, Treasurer and Investor RelationsTelephone: +44 (0) 20 7396 3400 aston.swift@intertek.com Tim Lynch, Tulchan CommunicationsTelephone: +44 (0) 20 7353 4200 intertekteam@tulchangroup.comCorporate website: www.intertek.com High resolution images of Intertek Group plc businesses are available todownload, free of charge from www.vismedia.co.uk. ABOUT INTERTEKIntertek is a leading international testing, inspection and certificationorganisation which assesses customers' products and commodities against a widerange of safety, regulatory, quality and performance standards and certifies themanagement systems of customers. Intertek has 307 laboratories and over 14,500people around the world and is increasingly undertaking outsourced testing workfor its customers. Chairman's statement Results overviewOn behalf of the Board, I am pleased to announce a very good result for thefirst half of 2005, with each division reporting organic revenue growth of over10%. At constant exchange rates, revenue for the Group increased 15.7% andoperating profit before amortisation of intangibles and goodwill impairmentincreased 13.3%. On an organic basis, revenue grew 13.2% and operating profitgrew 9.1%, before the share option charges required under IFRS. Approximately80% of the Group's earnings are in US dollars or related currencies. At actualexchange rates, revenue increased 14.5% and operating profit increased 11.5%over the same period last year, reflecting a 3% weakening in the value of the USdollar against sterling. New business The Group continued its policy of making acquisitions to complement existingbusinesses. On 29 April 2005, we acquired Omega Point Laboratories Inc (OPL), afire testing laboratory in Texas, USA, for £2.5m. As announced on 3 August 2005,we also acquired PARC Technical Services Inc (PARC), a US petroleum and chemicalprocess testing company for £3.9m. Further acquisitions are being pursued. Dividends The Board has decided to pay, on 15 November 2005, an interim dividend of 3.9p(2004: 3.4p), an increase of 14.7% over last year. The interim dividend willpaid to members on the register at 4 November 2005. In accordance withInternational Accounting Standard 10, dividends payable are no longer accruedbut are recognised when they are paid. Accounting standardsTo date, the Group has prepared its accounts in compliance with UK GenerallyAccepted Accounting Principles (UK GAAP). European Union (EU) regulationsrequire the Group to adopt International Financial Reporting Standards (IFRS)and International Accounting Standards (IAS) in its financial statements from2005. IFRS and IAS have been applied to the Group's consolidated interimfinancial statements from 1 January 2005 and the 2004 comparatives have beenrestated where applicable. The adoption of international standards has someimpact on the presentation of our financial statements but does notfundamentally change our strategy, business and economic risks, financialposition or our cash flows. A reconciliation of the impact on the incomestatement is given in note 14 to the interim report and full disclosure of thebalance sheet impact is given in Appendix A. The policies adopted by the Groupare detailed in Appendix B. Looking ahead Once again we expect another good outcome for the year. We feel confident in thecontinuing organic growth of the business, in the Group's ability to acquire andintegrate acquisitions and to continue its progressive dividend policy. Vanni TrevesChairman Chief Executive Officer's review Overview Revenue for the Group for the first half of 2005 (H1 05) was £272.3m, anincrease of 15.7% over the first half of 2004 (H1 04) at constant exchangerates. At actual exchange rates, revenue grew by 14.5%, reflecting a 3% declinein the value of the US dollar against sterling. Excluding acquisitions anddisposals organic growth was 13.2%. Strong revenue growth was achieved in ETLSEMKO, Caleb Brett and FTS which all delivered more than 17% growth over H1 04at constant rates. Revenue growth in Labtest was lower, partly due to disposalsmade in 2004. At constant exchange rates, total operating profit before amortisation ofintangibles and impairment of goodwill, increased by 13.3% to £43.5m. Excludingacquisitions, disposals and share option charges, organic growth was 9.1%. Atactual exchange rates, operating profit grew by 11.5% over H1 04. Operatingmargins improved in all the divisions apart from Labtest which declinedslightly, mainly due to investment in China, a market which has grown rapidlyand contraction in some countries. At constant exchange rates, the Group'sprofit margin after deducting central overheads, decreased from 16.3% to 16.0%. The performance of each of the divisions is shown below at constant exchangerates: Revenue Operating profit (Notes 1 & 2) H1 05 Change Organic change H1 05 Change Organic change Organic change excl. share option charge (Note 2) (Note 2) (Note 3) £m % % £m % % %------------------ -------- -------- -------- -------- -------- -------- --------At constantexchange rates (4) ------------------ -------- -------- -------- -------- -------- -------- --------By division:Labtest 65.9 4.9 10.1 20.6 1.0 (0.5) 1.0------------------ -------- -------- -------- -------- -------- -------- --------ETL SEMKO 69.3 20.1 11.1 11.1 24.7 12.8 13.8------------------ -------- -------- -------- -------- -------- -------- --------Caleb Brett 100.0 17.9 13.2 8.9 20.3 11.1 10.8------------------ -------- -------- -------- -------- -------- -------- --------Foreign TradeStandards 37.1 23.3 23.3 7.4 48.0 48.0 47.1------------------ -------- -------- -------- -------- -------- -------- --------Centraloverheads (4.5) (36.4) (36.4) (33.3)------------------ -------- -------- -------- -------- -------- -------- --------Total atconstantexchange rates 272.3 15.7 13.2 43.5 13.3 7.9 9.1------------------ -------- -------- -------- -------- -------- -------- -------- 1. Operating profit excludes the results of associates and is stated before amortisation of intangibles £0.8m (H1 04: £0.3m) and goodwill impairment H1 05: £2.0m (H1 04: nil).2. Operating profit for H1 04 has been restated under IFRS to include a share option charge of £0.5m and to exclude income from associates of £0.6m.3. Excluding IFRS share option charge of £1.0m for H1 05 (H1 04: £0.5m)4. Cumulative average exchange rates for the six months to 30 June 2005. Impact of international financial reporting standards (IFRS) Operating profit for H1 04, previously reported under UK GAAP, has been restatedunder IFRS. The table below shows the impact of the restatement together withthe equivalent H1 05 figures for comparative purposes. H1 05 H1 04 Change £m £m % Total operating profit before amortisation andimpairment under UK GAAP 45.1 40.1 12.5-------------------------------- --------- -------- --------Less share of operating profits of associates (0.6) (0.6)-------------------------------- --------- -------- --------IFRS share option charge (1.0) (0.5)-------------------------------- --------- -------- --------Group operating profit under IFRS beforeamortisation, impairment and profit from associates(note 2) 43.5 39.0 11.5-------------------------------- --------- -------- --------Amortisation of intangible assets (0.8) (0.3)-------------------------------- --------- -------- --------Impairment of goodwill (2.0) --------------------------------- --------- -------- --------Group operating profit under IFRS 40.7 38.7 5.2-------------------------------- --------- -------- -------- A detailed reconciliation of the impact on the income statement is given in note14 to the interim report and full disclosure of the balance sheet impact isgiven in Appendix A. The key areas of impact are described below: IFRS 2: Share-based paymentsA charge is made to the income statement for share options issued since November2002. The charge is based on the fair value of options at the grant date, withthe fair value being determined by an option pricing model. The charge was £1.0mfor H1 05 for options issued in 2003, 2004 and 2005 and £0.5m for H1 04 foroptions issued in 2003 and 2004. IFRS 3: Business combinationsGoodwill is no longer amortised and instead it is subject to annual impairmentreviews. Capitalised goodwill was 'frozen' at its UK GAAP carrying value at 1January 2004, and goodwill amortisation of £1.5m charged to the income statementin 2004 was reversed. This increased profit by £0.7m in H1 04, under IFRS. IFRS 3: Business combinations/ IAS 38: Intangible assetsAs required by IFRS, goodwill on acquisitions made after 31 March 2004, has beenre-examined and analysed into separately identifiable intangible assets whichare amortised over their estimated useful lives and capitalised goodwill whichis unamortised. Our review of acquisitions made in the period 1 April 2004 to 31December 2004, identified intangible assets such as covenants not to compete,patented technology and customer relationships with a value of £4.9m, thereforecapitalised goodwill has been reduced by this amount. In H1 05 we acquired £0.2mof intangible assets in the OPL business mentioned in the Chairman's statement.The income statements for H1 05 and H1 04 were charged with £0.8m and £0.3mrespectively for the amortisation of intangible assets. IAS 32/39: Financial instrumentsThe transitional arrangements for hedge accounting were adopted in full from 1January 2005, with no restatement of comparative information. A charge of £1.0mwas made to retained earnings in shareholders' funds to reflect the fair valueof the derivative financial instruments at 1 January 2005 (see note 7 to theInterim Report). Derivative financial instruments are brought onto the balancesheet at their fair value. At 30 June 2005, the fair value of the derivativefinancial instruments was £1.0m. This was included within net current assets onthe balance sheet. Hedge accounting has been adopted for four financial derivatives which qualifyas cash flow hedges under IAS 39. These financial derivatives hedge the variableinterest rate on the Group's external borrowings. The effective portions of themovement in the fair value of the financial derivatives that are hedge accountedwere recognised directly in equity. This movement in H1 05 was £1.9m (see page11). The ineffective portion of the movement in the fair value of the financialderivatives was taken to the income statement which in H1 05, resulted in acredit of £0.1m to finance income. Hedge accounting has also been adopted for the foreign currency externalborrowings which hedge the Group's net investment in its foreign subsidiaries.The effective portion of the gain or loss on the hedging instruments that arehedge accounted is recognised directly in retained earnings in shareholders'funds. The foreign exchange contracts undertaken by the Group to hedge foreign currencytransaction exposures were not hedge accounted under IAS 39. This is because thefair value movements are expected to be immaterial. The fair value movements onthese foreign exchange contracts is therefore charged or credited to the incomestatement. At 30 June 2005, there was no change in the fair value of thesecontracts. IAS 12: TaxAdjustments arising from the adoption of IFRS have been tax effected asappropriate. Under UK GAAP the pension fund deficit was disclosed net ofdeferred tax. Under IFRS the pension deficit is disclosed gross of tax and thetax is shown as a deferred tax asset. IAS 10: DividendsDividends are presented as a deduction in shareholders' equity when they havebeen declared or ratified by shareholders rather than as a deduction in theincome statement when they have been proposed. The income statement for H1 04has been adjusted to remove the proposed interim dividend of £5.2m. IAS 14: Segment analysisThe Group's primary basis of segmentation is by business and its secondary basisis by geography. Impairment of goodwillThe carrying value of capitalised goodwill was reviewed for impairment and acharge of £2.0m was made to operating profit in H1 05 (H1 04: £nil) to reducethe goodwill to its fair value. The impairment related to an acquisition made in2003 in Labtest in the UK. ProfitabilityGroup operating profit, after charging amortisation of intangibles of £0.8m (H104: £0.3m) and goodwill impairment of £2.0m (H1 04: £nil) was £40.7m, up 5.2%over H1 04. The net financing costs were £2.6m in H1 05, compared to £2.2m in H104, principally due to increased interest rates on the Group's borrowings. Thetax rate of 27.0% for H1 05 was based on the estimated tax rate the Groupexpects for the full year. Excluding amortisation of intangibles and goodwillimpairment, the effective rate was 25.2% Profit for the period was £28.1m, up2.2%. Cash flow Cash from operating activities for H1 05 was £20.0m down 34% on H1 04. Thedecrease was mainly due to a 21.3% increase in trade and other receivables,partly reflecting growth in the business. In H1 05, the Group spent £13.4m (H104: £27.1m) on net investments, including capital expenditure of £11.7m (H1 04:£8.3m) and acquisitions of £2.2m (H1 04: £19.9m), £16.8m (H1 04: £19.3m) onfinancing activities, including repayment of borrowings of £7.6m (H1 04: £8.8m)and £10.8m (H1 04: £9.1m) on payment of dividends. Divisional review In the divisional review that follows, the figures are stated at the cumulativeaverage exchange rates for the six months to 30 June 2005. Operating profit isstated before amortisation of intangibles and goodwill impairment. Labtest H1 05 Change Organic Organic change excl share option charge change £m % % % ------------- ------- ------- ------- -------Revenue 65.9 4.9 10.1 10.1------------- ------- ------- ------- -------Operatingprofit 20.6 1.0 (0.5) 1.0------------- ------- ------- ------- -------Operatingmargin 31.3% (1.2) (3.3) (2.9)------------- ------- ------- ------- ------- The key growth drivers in Labtest remained strong, principally the sourcing ofproducts from China, the wide range of products being sold by retailers, shorterproduct lifecycles and the demand for quality and safety. Growth in the divisionvaried widely depending on location. Revenue from mainland China increased by47% in H1 05 over H1 04; sometimes at the expense of other locations whichsuffered a contraction in revenue due to the relocation of business to China.The operating margin declined from 32.5% to 31.3% due to expansion in China, thecost of downsizing in other locations and an increase in the IFRS share optioncharge from £0.1m in H1 04 to £0.4m in H1 05. Organic growth was calculatedafter removing the results of a loss-making business which was sold in 2004 anda small acquisition also made in 2004. ETL SEMKO H1 05 Change Organic Organic change excl share option charge change £m % % % ------------- ------- ------- ------- -------Revenue 69.3 20.1 11.1 11.1------------- ------- ------- ------- -------Operatingprofit 11.1 24.7 12.8 13.8------------- ------- ------- ------- -------Operatingmargin 16.0% 0.6 0.2 0.4------------- ------- ------- ------- ------- ETL SEMKO had an excellent start to the year with strong growth in revenues andoperating profit in H1 05 over H1 04. There was substantial organic growth inrevenue in mainland China, particularly in the safety testing of householdappliances manufactured for export. The Americas also performed well, withorganic growth in electrical and building products supplemented by growth in theautomotive component testing business which was acquired in May 2004.Further expansion of automotive component testing is planned in China for H2 05.The operating margin improved from 15.4% to 16.0%, mainly through tight costcontrol in the Americas. Caleb Brett H1 05 Change Organic Organic change excl share option charge change £m % % % ------------- ------- ------- ------- -------Revenue 100.0 17.9 13.2 13.2------------- ------- ------- ------- -------Operatingprofit 8.9 20.3 11.1 10.8------------- ------- ------- ------- -------Operatingmargin 8.9% 0.2 (0.2) (0.2)------------- ------- ------- ------- ------- Caleb Brett performed strongly, particularly in the traditional cargo inspectionmarket in the United States and in analytical services. The growth in the cargoinspection market in the United States was driven by increased demand forpetroleum products and chemicals. The Americas also benefited from theacquisition of Kelley Completion Services in December 2004. Revenue fromanalytical services, which accounted for 33% of revenue in H1 05 (28% in H1 04),increased by 39.2% in H1 05 over H1 04, mainly due to contracts which startedduring 2004 and to a new Rolls-Royce contract which started in January 2005.Operating margin increased from 8.7% to 8.9%. FTS H1 05 Change Organic change Organic change excl share option charge £m % % %------------- ------- ------- ------- -------Revenue 37.1 23.3 23.3 23.3------------- ------- ------- ------- -------Operatingprofit 7.4 48.0 48.0 47.1------------- ------- ------- ------- -------Operatingmargin 19.9% 3.3 3.3 3.3------------- ------- ------- ------- ------- The three key contracts in Nigeria, Saudi Arabia and Venezuela, which accountedfor 63% of the division's revenue, performed well in H1 05. The pre-shipmentinspection (PSI) contract in Venezuela terminated on 31 August 2005 which willreduce PSI revenue and profit in the short term. Provision for restructuring theoffice in Venezuela was made in the results for H1 05. A new cargo scanningcontract in Sierra Leone commenced in H1 05 and the PSI contract in Malawi hasbeen renewed for a further two years. Central overheads Central overheads were £4.5m for H1 05, an increase of £1.2m or 36.4% over H104, reflecting the growth in the business. The increase was primarily due toincreased staff, legal and IT costs and a donation of £0.1m to the Tsunamidisaster relief appeal. Outlook The first half of 2005, has been another period of good growth for the Group andthe main drivers of our business offer a wide range of opportunities for furthergrowth. The increasing variety of new products and the reduction in average productlifespan is leading our customers to develop a greater number of prototypeswhich are also being sold in a wider range of countries. This increases theirneed for services covering all aspects of quality and safety, from the designstage through the supply chain to the final product. Consumers are increasingly demanding safer, more reliable, higher qualityproducts. Environmental and social pressure from consumers and authorities isleading to more complex regulations. We help our customers meet consumerexpectations and comply with these regulations thus safeguarding their brandreputationin an increasingly competitive environment. Oil and chemical companies, manufacturers, retailers and traders, currentlyoutsource only a small part of their quality and safety needs. Our range oftechnical expertise on a world-wide basis in all divisions, means we can offercustomers a wider scope of quality services, to fulfil their individual needs.We believe our fast turn-around times and our tailored services will increasethe amount of work outsourced to us in all markets. We have the resources to take advantage of these and other opportunities and weare confident that we will continue to develop and grow our business. Wolfhart HauserChief Executive Officer Consolidated interim income statement Six months to Six months to Year to 30 June 2005 30 June 2004 31 December 2004 (Unaudited) (Unaudited) (Unaudited) Notes £m £m £m--------------------- ----- -------- -------- ---------Revenue 2 272.3 237.8 499.6Cost of sales (210.3) (183.2) (385.0)--------------------- ----- -------- -------- ---------Gross profit 62.0 54.6 114.6--------------------- ----- -------- -------- ---------Administrativeexpenses (18.5) (15.6) (31.6)Amortisation ofintangible assets (0.8) (0.3) (1.4)Impairment ofgoodwill 2 (2.0)--------------------- ----- -------- -------- ---------Total administrativeexpenses (21.3) (15.9) (33.0)--------------------- ----- -------- -------- ---------Group operatingprofit 2 40.7 38.7 81.6--------------------- ----- -------- -------- ---------Finance income 1.9 2.1 4.2Finance expense (4.5) (4.3) (12.1)--------------------- ----- -------- -------- ---------Net financing costs (2.6) (2.2) (7.9)------------------------ -------- -------- ---------Share of profit ofassociates 0.4 0.4 0.7------------------------ -------- -------- ---------Profit beforetaxation 38.5 36.9 74.4Income tax expense 3 (10.4) (9.4) (19.6)--------------------- ----- -------- -------- ---------Profit for theperiod 28.1 27.5 54.8------------------------ -------- -------- --------- ---------Attributable to:Equity holders ofthe Company 26.4 25.2 52.0Minority interest 1.7 2.3 2.8--------------------- ----- -------- -------- ---------Profit for theperiod 28.1 27.5 54.8--------------------- ----- -------- -------- --------- Earnings per share 4--------------------- ----- -------- -------- ---------Basic 17.0p 16.3p 33.7p--------------------- ----- -------- -------- ---------Diluted 16.9p 16.2p 33.4 p--------------------- ----- -------- -------- --------- Consolidated interim balance sheet At 30 June At 30 June At 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Unaudited) Notes £m £m £m------------------------------ ------ --------- ---------- ----------ASSETSProperty, plant and equipment 93.1 78.7 88.5Goodwill 33.9 28.8 33.5Other intangible assets 9 2.9 4.6 3.5Investments in associates 1.9 1.5 1.8Deferred tax assets 5.5 2.8 5.5------------------------------ ------ --------- ---------- ----------Total non-current assets 137.3 116.4 132.8------------------------------ ------ --------- ---------- ---------- Inventories 1.7 1.6 1.5Trade and other receivables 135.3 111.5 109.8Cash and cash equivalents 8 43.3 64.0 52.5------------------------------ ------ --------- ---------- ----------Total current assets 180.3 177.1 163.8------------------------------ ------ --------- ---------- ---------------------------------------- ------ --------- ---------- ----------Total assets 317.6 293.5 296.6------------------------------ ------ --------- ---------- ---------- LIABILITIESInterest- bearing loans andborrowings 8 (14.4) (21.5) (14.0)Current taxes payable (21.4) (19.9) (19.5)Trade and other payables (79.6) (69.3) (75.9)Provisions (3.6) (5.1) (5.4)------------------------------ ------ --------- ---------- ----------Total current liabilities (119.0) (115.8) (114.8)------------------------------ ------ --------- ---------- ---------- Interest-bearing loans andborrowings 8 (150.1) (175.6) (150.9)Deferred tax liabilities (0.6) (0.3) (0.6)Net pension liabilities (14.1) (7.5) (16.1)Other payables (0.4) (0.5)------------------------------ ------ --------- ---------- ----------Total non-current liabilities (164.8) (183.8) (168.1)------------------------------ ------ --------- ---------- ---------------------------------------- ------ --------- ---------- ----------Total liabilities (283.8) (299.6) (282.9)------------------------------ ------ --------- ---------- ---------------------------------------- ------ --------- ---------- ----------Net assets /(liabilities) 33.8 (6.1) 13.7------------------------------ ------ --------- ---------- ---------- EQUITYShare capital 7 1.6 1.5 1.5Share premium account 7 236.8 234.2 234.5Reserves 7 13.6 8.8 13.5Retained earnings 7 (224.9) (257.3) (241.5)------------------------------ ------ --------- ---------- ----------Total equity attributable toequity holders of the Company 7 27.1 (12.8) 8.0Minority interest 6.7 6.7 5.7------------------------------ ------ --------- ---------- ----------Total equity 33.8 (6.1) 13.7------------------------------ ------ --------- ---------- ---------- Consolidated interim statement of cash flows Notes Six months to Six months to Year to 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Unaudited) £m £m £m ---------------------------------- ------ -------- -------- --------Operating activitiesProfit for the period 28.1 27.5 54.8Adjustments for:Depreciation charge 9.9 8.9 18.4Amortisation of intangibles 0.8 0.3 1.4Impairment of goodwill 2.0Share option expense 1.0 0.5 1.0Share of profit of associates (0.4) (0.4) (0.7)Net financing costs 2.6 2.2 7.9Income tax expense 10.4 9.4 19.6Loss on disposal of fixed assets 0.1 0.2---------------------------------- ------ -------- -------- --------Operating profit before changes inworking capital and provisions 54.4 48.5 102.6Increase in inventories (0.2) (0.2) (0.8)Increase in trade and otherreceivables (22.3) (8.5) (8.9)Increase in trade and other payables 1.9 2.8 11.9Decrease in provisions (3.8) (3.2) (2.9)---------------------------------- ------ -------- -------- --------Cash generated from operations 30.0 39.4 101.9Interest paid (2.9) (2.9) (6.9)Income taxes paid (7.1) (6.1) (16.0)---------------------------------- ------ -------- -------- --------Cash flows from operating activities 20.0 30.4 79.0---------------------------------- ------ -------- -------- --------Investing activitiesProceeds from sale of property,plant and equipment 0.1 0.2 0.2Interest received 0.2 0.9 1.6Dividends received from associatedundertakings 0.2 0.8Acquisition of subsidiaries, net of cash acquired 10 (2.2) (19.9) (26.6)Acquisition of property, plant andequipment (11.7) (8.3) (28.2)---------------------------------- ------ -------- -------- --------Cash flows from investing activities (13.4) (27.1) (52.2)---------------------------------- ------ -------- -------- --------Financing activitiesProceeds from the issue ofshare capital 2.6 0.8 1.1Issue of new debt 165.7Repayment of borrowings 8 (7.6) (8.8) (202.0)Dividends paid to minorities (1.0) (2.2) (4.1)Dividends paid 7 (10.8) (9.1) (14.4)---------------------------------- ------ -------- -------- --------Cash flows from financingactivities (16.8) (19.3) (53.7)---------------------------------- ------ -------- -------- --------Net decrease in cash and cashequivalents 8 (10.2) (16.0) (26.9)Cash and cash equivalents at1 January 8 52.5 81.5 81.5Effect of exchange rate fluctuations on cash held 8 1.0 (1.5) (2.1)---------------------------------- ------ -------- -------- --------Cash and cashequivalents at end of period 8 43.3 64.0 52.5---------------------------------- ------ -------- -------- -------- Consolidated interim statement of recognised income and expense Six months to Six months to Year to 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Unaudited) £m £m £m ------------------------------ ---------- --------- ---------Foreign exchange translationdifferences, net of tax (0.8) 2.4 7.1Actuarial pension loss (9.0)Deferred tax on actuarial loss 2.4First time adoption IAS 39, cashflow hedges:Fair values on adoption at 1January 2005 (1.0)Effective portion of changes infair value 1.9------------------------------ ---------- --------- ---------Net expense recognised directly inequity 0.1 2.4 0.5Profit for the period 28.1 27.5 54.8------------------------------ ---------- --------- ---------Total recognised income andexpense for the period 28.2 29.9 55.3------------------------------ ---------- --------- ---------Attributable to:------------------------------ ---------- --------- ---------Equity holders of the Company 26.5 27.6 52.5------------------------------ ---------- --------- ---------Minority interest 1.7 2.3 2.8------------------------------ ---------- --------- ---------Total recognised income andexpense 28.2 29.9 55.3------------------------------ ---------- --------- --------- Reconciliation of shareholders' equity Six months to Six months to Year to 30 June 30 June 31 December 2005 2004 2004 (Unaudited) (Unaudited) (Unaudited) £m £m £m ------------------------------ ---------- --------- ---------Opening equity under UK GAAP (3.6) (43.1) (43.1)Restatement for InternationalAccounting Standards (note 7) 11.6 9.2 9.2------------------------------ ---------- --------- ---------Restated opening equity prior toadoption of IAS 39 8.0 (33.9) (33.9)Adoption of IAS 39 (note 7) (1.0)------------------------------ ---------- --------- ---------Restated opening equity under IFRS 7.0 (33.9) (33.9)Issue of shares 2.4 2.1 2.4Equity settled transactions 1.0 0.5 1.0Tax on equity settled transactions 0.4Profit for the period attributableto equity holders 26.4 25.2 52.0Dividends (10.8) (9.1) (14.4)Foreign exchange translationdifferences, net of tax (0.8) 2.4 7.1Movement on cash flow hedges 1.9Actuarial pension loss (9.0)Deferred tax on actuarial pensionloss 2.4------------------------------ ---------- --------- ---------Closing equity under IFRS 27.1 (12.8) 8.0------------------------------ ---------- --------- --------- Notes to the interim report 1. Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the company, for the year ending 31 December 2005, beprepared in accordance with International Financial Reporting Standards (IFRS)adopted for use in the EU (adopted IFRS). This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRS in issue that either areendorsed by the EU and effective (or available for early adoption) at 31December 2005, or are expected to be endorsed and effective (or available forearly adoption) at 31 December 2005, the Group's first annual reporting date atwhich it is required to use the adopted IFRS. Based on these adopted andunadopted IFRS, the directors have made assumptions about the accountingpolicies expected to be applied, which are set out in Appendix B, when the firstannual IFRS financial statements are prepared for the year ending 31 December2005. In particular, the directors have assumed that 'Amendments to IAS 19' issued bythe International Accounting Standards Board will be adopted by the EU insufficient time to be available for use in the annual IFRS financial statementsfor the year ending 31 December 2005. In addition, the adopted IFRS that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 December2005, are still subject to change and to additional interpretations andtherefore cannot be determined with certainty. Accordingly, the accountingpolicies for that annual period will be determined finally only when the annualfinancial statements are prepared for the year ending 31 December 2005. The comparative figures for the financial year ended 31 December 2004, are notthe Company's statutory accounts for that financial year. Those accounts, whichwere prepared under UK Generally Accepted Accounting Principles (UK GAAP), havebeen reported on by the company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was unqualified and did not containstatements under section 237(2) or (3) of the Companies Act 1985. An explanation of how the transition to IFRS has affected the reported financialperformance of the Group is provided in note 14. The impact of IFRS on theGroup's reported financial position is shown in Appendix A. A reconciliation of equity previously reported under UK GAAP to that reportedunder IFRS for the respective periods is shown on page 11. 2. SEGMENT ANALYSISBusiness analysis (Primary segment) Labtest ETL SEMKO Caleb Brett FTS Central Total overheads £m £m £m £m £m £m------------------ ------- --------- --------- --------- -------- ---------RevenueSix months to30 June 2005 65.9 69.3 100.0 37.1 - 272.3Six months to30 June 2004 64.0 58.4 85.1 30.3 - 237.8Year to 31December 2004 132.3 122.4 177.3 67.6 - 499.6------------------ ------- --------- --------- --------- -------- --------- Group operating Labtest ETL SEMKO Caleb Brett FTS Central Totalprofit overheads £m £m £m £m £m £m------------------ ------- --------- --------- --------- -------- ---------Six months to 30June 2005Groupoperatingprofit 18.6 10.5 8.7 7.4 (4.5) 40.7Add:impairment ofgoodwill* 2.0 - - - - 2.0Add:amortisationof intangibles - 0.6 0.2 - - 0.8------------------ ------- --------- --------- --------- -------- ---------Operatingprofit beforeimpairment andamortisation 20.6 11.1 8.9 7.4 (4.5) 43.5------------------ ------- --------- --------- --------- -------- --------- Six months to 30June 2004Groupoperatingprofit 20.8 8.8 7.4 5.0 (3.3) 38.7Add:amortisationof intangibles - 0.2 0.1 - - 0.3------------------ ------- --------- --------- --------- -------- ---------Operatingprofit beforeimpairment andamortisation 20.8 9.0 7.5 5.0 (3.3) 39.0------------------ ------- --------- --------- --------- -------- --------- Year to 31December 2004Groupoperatingprofit 43.5 16.5 14.7 13.8 (6.9) 81.6Add:amortisationof intangibles - 0.8 0.6 - - 1.4------------------ ------- --------- --------- --------- -------- ---------Operatingprofit beforeimpairment andamortisation 43.5 17.3 15.3 13.8 (6.9) 83.0------------------ ------- --------- --------- --------- -------- ---------* Relates to Fastech, a UK business, acquired in 2003. Geographic analysis (Secondary segment) Six months to Six months to Year to 30 June 30 June 31 December 2005 2004 2004Revenue £m £m £m------------------------- ----------- ---------- ----------Americas 94.4 80.2 169.0Europe, Middle East and Africa 90.7 77.7 166.3Asia 87.2 79.9 164.3------------------------- ----------- ---------- ----------Total 272.3 237.8 499.6------------------------- ----------- ---------- ---------- Group operating profitAmericas 10.8 8.6 16.6Europe, Middle East and Africa 2.9 4.5 12.0Asia 27.0 25.6 53.0-------------------------- ---------- ---------- ----------Total 40.7 38.7 81.6-------------------------- ---------- ---------- ---------- 3. Income tax expenseThe tax charge on profits before tax for the six months to 30 June 2005 of£10.4m (30 June 2004: £9.4m) is based on the estimated effective rate for thefull year. The effective tax rate at 30 June 2005 is 27.0% (30 June 2004: 25.5%,31 December 2004: 26.3%). Excluding amortisation of intangibles and goodwillimpairment, the effective rate at 30 June 2005 is 25.2% (30 June 2004: 25.3%, 31December 2004: 25.6%). Differences between the estimated effective rate of 27% 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 2005 2004 2004Based on the profit for the year: £m £m £m ---------- ---------- ------------------------------------------Basic earningsProfit attributable to ordinaryshareholders 26.4 25.2 52.0Amortisation of intangibles 0.8 0.3 1.4 Impairment of goodwill 2.0 Amortisation of debt issuancecosts 2.2on refinancing, less tax ---------- ---------- ------------------------------------------ Adjusted earnings 29.2 25.5 55.6--------------------------------- ---------- ---------- --------- Number of shares (millions):Basic weighted average number ofshares 154.9 154.3 154.4Potentially dilutive share options 1.5 0.7 1.1--------------------------------- ---------- ---------- ---------Diluted weighted average number ofshares 156.4 155.0 155.5--------------------------------- ---------- ---------- --------- Basic earnings per share 17.0p 16.3p 33.7pOptions (0.1)p (0.1)p (0.3)p--------------------------------- ---------- ---------- ---------Diluted earnings per share 16.9p 16.2p 33.4p--------------------------------- ---------- ---------- --------- Basic adjusted earnings per share 18.9p 16.5p 36.0pOptions (0.2)p (0.1)p (0.2)p--------------------------------- ---------- ---------- ---------Diluted adjusted earnings per 18.7p 16.4p 35.8pshare ---------- ---------- ------------------------------------------ The weighted average number of shares used in the calculation of the dilutedearnings per share for the six months to 30 June 2005, excludes 1,497,513potential shares (31 December 2004: 56,280, 30 June 2004: 1,414,765) as thesewere not dilutive in accordance with IAS 33: Earnings per share. 5. Pension schemesThere has been no significant change in the net liabilities of the Group'sdefined benefit pension schemes since 31 December 2004. As permitted by IAS 19,actuarial valuations of the assets and liabilities of the defined benefitpension schemes were not performed at 30 June 2005. 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 plan assets. For the six months ended 30 June 2005, theGroup recognised a net expense of £1.2m (30 June 2004: £1.1m). 6. Share-based payments The Company has share option schemes, details of which were contained in theAnnual report and accounts for the year ended 31 December 2004. During the period, the company granted 1,499,197 options to employees at anexercise price of 778p which are exercisable between 7 April 2008 and 7 April2015. In accordance with IFRS 2, the fair values of services received in return forshare options granted to employees, is measured by reference to the fair valueof share options granted. The estimate of the fair value of the servicesreceived is measured based on the Black-Scholes formula, a financial model usedto calculate the fair value of options. During the six months ended 30 June2005, the Group recognised an expense of £1.0m in respect of outstanding shareawards issued in 2003, 2004 and 2005. For the six months ended 30 June 2004, thecharge was £0.5m for outstanding share awards issued in 2003 and 2004. Under UKGAAP, there was no expense since the exercise price represented the market valueof the shares at date of issue. 7. Reconciliation of shareholders' equity ----------------- Reserves -------- ------ ------- Share capital Share premium Translation Hedging Other reserves Retained Total account reserve reserve earnings £m £m £m £m £m £m £m------------------- ------- ------- -------- ------ ------- ------- -------At 31December 2004under UK GAAP 1.5 234.5 6.4 (246.0) (3.6)Restatement forIAS:GoodwillGoodwillamortisation 1.5 1.5Amortisationof intangibles (1.4) (1.4)Tax relief onshare optioncharge 0.7 0.7Dividendaccruals 10.8 10.8Foreignexchangetranslationdifferences,net of tax 7.1 (7.1)------------------- ------- ------- -------- ------ ------- ------- -------Restated 31December 2004 1.5 234.5 7.1 6.4 (241.5) 8.0Adoption ofIAS 39* (1.0) (1.0)------------------- ------- ------- -------- ------ ------- ------- -------At 1 January2005 underIFRS 1.5 234.5 7.1 (1.0) 6.4 (241.5) 7.0Movement oncash flowhedges 1.9 1.9Profit for theperiodattributableto equityholders 26.4 26.4Dividends paid (10.8) (10.8)Issue ofshares 0.1 2.3 2.4Equity settledtransactions 1.0 1.0Foreignexchangetranslationdifferences,net of tax (0.8) (0.8)At 30 June2005 1.6 236.8 6.3 0.9 6.4 *(224.9) 27.1------------------- ------- ------- -------- ------ ------- ------- ------- * After charging £244.1m for goodwill written off to reserves in relation tosubsidiaries acquired prior to 31 December 1997. IAS 39 'Financial instruments: Recognition and measurement' was adopted on 1January 2005. This resulted in fair values (negative) of hedged derivatives of£1.0m to be included in the Balance Sheet. The dividend of £10.8m represents the dividend declared on 6 May 2005, at therate of 7.0p per ordinary share. There was an issue of 503,426 ordinary shares during the period on exercise ofshare options. 8. Analysis of net debt At 1 January Cash flow Exchange At 30 June 2005 adjustments 2005 £m £m £m £m ----------------------- --------- --------- --------- --------- Cash 52.5 (10.2) 1.0 43.3Borrowings (164.9) 7.6 (7.2) (164.5)----------------------- --------- --------- --------- ---------Total net debt (112.4) (2.6) (6.2) (121.2)----------------------- --------- --------- --------- --------- 9. Other intangible assetsAs required by IFRS, goodwill on acquisitions made after 31 March 2004, has beenre-examined and analysed into separately identifiable intangible assets whichare amortised over their estimated useful lives and capitalised goodwill whichis unamortised. In 2004, intangible assets with a value of £4.9m werecapitalised and goodwill was reduced by this amount. In the six months to 30June 2005, £0.2m of intangible assets were acquired. Intangible assets comprisedcovenants not to compete, patented technology and customer relationships whichare being amortised over their contractual live. The amortisation charged in thesix months to 30 June 2005 was £0.8m (30 June 2004: £0.3m, 31 December 2004:£1.4m). 10. Acquisition of subsidiariesOn 29 April 2005, the Group acquired, on a cash free/debt free basis, all theshares in Omega Point Laboratories Inc (OPL), a company incorporated in the USA,for cash consideration of £2.2m. In addition, a further amount, which isestimated to be £0.3m, will be payable as deferred consideration. The company isengaged in the business of fire testing.