Interim Results
Intertek Testing Services PLC
2 September 2002
Interim announcement
ITS, the international testing, inspection and certification company, today
announces its first set of interim results since flotation in May 2002 for the
half year to 30 June 2002.
Financial Highlights
• Turnover increased by 3.5% to £229.6m
• Underlying operating profit before goodwill amortisation and
exceptional items increased by 16.7% to £37.7m from £32.3m
• Operating cash flow increased by 31.7% to £34.1m from £25.9m
• Underlying operating profit margin before goodwill amortisation and
exceptional items increased to 16.4% from 14.5%
IMPORTANT EVENTS
• Listing on London Stock Exchange
• Proceeds of £245m raised from share issue
• Repayment of all pre-flotation debt, debentures and preference
shares in June and July
• New multi-currency debt facility of £300m put in place.
CHIEF EXECUTIVE OFFICER, RICHARD NELSON commented:
'I am delighted to report a strong set of interim results following our
successful flotation in May 2002. The group continued to generate good growth
in Labtest, our textile and consumer products testing business, where the
increased demand for testing and the on-going migration of manufacturing
capacity to low-cost centres in China and the Far-East have further improved our
margins. Additional turnover from outsourcing in Caleb Brett, our petrochemical
division, continued to justify our confidence in its future growth prospects.
Turnover and operating profit in ETL SEMKO, our electrical testing business,
moved ahead despite the on-going difficulties in the telecommunication equipment
testing market which adversely affected these results but which had little
effect on the same period last year. Our Foreign Trade Standards business had a
good result, operating with a low and flexible cost base. The company remains
strongly cash generative and I look forward to our future as a public company
with confidence.'
ANALYSTS MEETING:
There will be a meeting for analysts at 9.30 am today at Goldman Sachs
International, Peterborough Court, 133 Fleet Street, London EC4A 2BB. A copy of
the presentation will be available on the website later today.
CONTACT
Richard Nelson, Chief Executive Officer
Bill Spencer, Chief Financial Officer
Aston Swift, Treasurer and Investor Relations
Telephone: +44 (0) 20 7396 3400
Corporate website: www.itsglobal.com
Katie Macdonald-Smith, Tulchan Communications
kmacdonald-smith@tulchangroup.com
Telephone: +44 (0) 20 7353 4200
CHIEF EXECUTIVE OFFICER'S REVIEW
OVERVIEW
We had a very successful first six months of the year during which we saw
continuing turnover growth coupled with rising margins as we focused on
profitable and expanding business areas. Each of our divisions performed to a
high standard, winning customers and developing new capabilities. We listed on
the London Stock Exchange on 29 May 2002 and put in place a major refinancing.
The new share and debt structure has strengthened our balance sheet and given us
greater financial resources to grow our business.
Operating review
Turnover increased to £229.6m, up 5.0% over the same period last year (3.5% at
actual exchange rates). The turnover growth was attributed mainly to the strong
performance delivered by Labtest and FTS. ETL SEMKO increased its turnover from
safety and performance testing but suffered a decline in telecommunications
equipment testing and Caleb Brett increased its turnover from outsourcing but
suffered a small decline overall due to a depressed oil and chemical market.
Operating profit grew 18.9% to £37.7m from £31.7 in the same period last year
(16.7% on an actual basis). This was mainly due to the strong performance of
Labtest and FTS which more than countered the modest performances by Caleb Brett
and ETL SEMKO and the small increase in central overheads. The increase in
operating margin from 14.5% to 16.4% was mainly due to Labtest and FTS where
revenues increased at a faster rate than operating costs.
Currency translation
We translate the results of our non-UK subsidiaries into pounds sterling using
the average exchange rates for the period ('actual rates'). About 50% of our
turnover is generated by subsidiaries that report in US dollars or currencies
that are pegged to the US dollar and a further significant proportion of our
turnover is generated in subsidiaries whose currencies move in line with the US
dollar when translated into pounds sterling. Movements in the US dollar exchange
rate therefore have a material impact on our reported results. Our policy is not
to hedge translation movements although we hedge some transaction exposure.
In order to compare the underlying results of the business without the impact of
currency fluctuations, the turnover and operating profit figures for the six
months to 30 June 2001 in the divisional review that follows, have been
translated using the average exchange rates for the first six months of 2002
('constant rates').
DIVISIONAL REVIEW
Labtest
Labtest is a leading global provider of testing and inspection services for a
range of consumer goods including textiles, footwear, toys, hardlines (such as
ceramics, bicycles, cosmetic products, sporting goods, juvenile products and
furniture) and systems certification. Its clients include some of the world's
largest retail organisations, manufacturers, international traders and brands.
At constant rates, Labtest's turnover and operating profit grew 12.2% and 29.3%
respectively, with most of the growth coming from Asia where textile testing,
toy testing, inspection and code of conduct activities continued to perform well
as a result of increasingly stringent quality and safety standards, more product
variants, shorter product life cycles and the continuing migration of
manufacturing from developed countries to Asia. Turnover in China grew strongly
in both the established operations in Shanghai and Shenzhen and the new
hardlines laboratory in Shanghai, and the new textile testing facilities in
Guangzhou and Tianjin. The division's profit margin increased from 28.8% to
33.2% principally due to continued improvement in operating procedures in Hong
Kong and growth in China where operating costs are lower than in Hong Kong.
Caleb Brett
Caleb Brett is a leading global provider of inspection, testing and outsourcing
of analytical services for the petroleum, chemical and agricultural industries.
It provides independent verification and globally recognised certification of
the quality and quantity of those products.
At constant rates, Caleb Brett's turnover and operating profit decreased by 0.5%
and 2.3% respectively, reflecting a decline in fuel oil shipments in the US as a
result of the relatively warm winter and low natural gas prices which led to
reduced oil shipments to power stations. Other contributory factors included a
reduction in chemical work due to chemical industry restructuring and a
competitive market environment which has led to pressure on prices and lower
margins.
Turnover in the outsourcing segment of Caleb Brett increased from 21% of the
division's business to 23%. Growth in operating profit from outsourcing was
restricted due to oil company cutbacks and the costs associated with bidding for
new work. The number of prospective outsourcing contracts that we are actively
pursuing continued to increase.
In March 2002, the Group paid £1.1m for a 17% investment in Neolytica Inc., a
web-enabled, single point of contact for outsourcing analytical testing
services. This is expected to generate new outsourcing opportunities for Caleb
Brett.
ETL SEMKO
ETL SEMKO provides manufacturers, manufacturers' associations and retailers
worldwide with a complete range of safety and performance testing and
certification services in the electrical, electronic, telecommunications
equipment, building products and heating, ventilation and air conditioning
equipment sectors.
At constant rates, ETL SEMKO's turnover and operating profit grew 1.8% and 2.5%
respectively. This was attributable to growth in the market for the safety
testing of household appliances manufactured in Asia for export to North America
and Europe, increased safety and electrical testing in Sweden, and increased
testing of building products and heating, ventilation and air conditioning
equipment in North America.
Telecom testing in the US and Europe (which represents some 10% of the
division's turnover) declined due to the depression in that sector which started
in mid 2001 and continued for the rest of that year until it stabilised at a
lower level. The restructuring of this division at the end of 2001 reduced the
cost base in 2002 and led to a more focused marketing programme and better
utilisation of our global laboratory network.
In April 2002 the Consumers' Association Research and Testing Centre in the UK
outsourced its testing work to ETL SEMKO. This increased turnover by £0.6m and
made a small contribution to operating profit in the period.
Foreign Trade Standards
FTS assists governments, standards bodies and customs departments to check that
import duty is properly declared and paid and that imports comply with their
safety and other standards.
At constant rates, FTS' turnover and operating profit grew 15.8% and 75.9%
respectively. The increase in operating profit was primarily driven by the
expansion of the pre-shipment inspection programme in Nigeria in the latter part
of last year. The Nigerian programme in its present form was due to terminate in
June 2002 but has been extended. Turnover from the standards testing programme
in Saudi Arabia grew due to the addition of new products to the programme, but
there were increased operating costs. On 29 May 2002 we announced that we had
received notification from the Saudi Arabian Standards Organisation that the
programme may not be renewed. However, we have a relationship with SASO of over
six years and we believe that the programme will be extended until at least
August next year and there is no sign at this stage of it being cancelled.
The pre-shipment inspection programmes in Mozambique, Kenya and Iran generated
growth in operating profit but closure costs were incurred in connection with
discontinued programmes in Uganda and Argentina.
Central overheads
Central overheads increased by 20.8% to £2.9m in the first six months of 2002,
primarily due to increased rent at the Group's head office in London and
additional compliance costs.
NEW CAPITAL STRUCTURE
In May 2002, we raised new equity from the flotation of the company on the
London Stock Exchange and put in place new banking facilities. These new funds
were used to repay debt, debentures and preference shares that had been in place
since our management buyout from Inchcape plc in 1996. At 30 June 2002, this
restructuring of our balance sheet was only partially complete. In July 2002 we
successfully completed this restructuring which will be fully reflected in our
financial statements for the full year.
Cash generation
Total operating cash flow was £34.1m for the first six months of 2002, up 31.7%
over the same period last year. Capital expenditure in the six months to 30 June
2002 was down £2.1m to £8.6m. This was mainly due to the investment made last
year in a new computer system in ETL SEMKO. Acquisitions and disposals of £3.9m
comprised £1.1m paid for our investment in Neolytica Inc. and £2.8m for the
balance of outstanding fees incurred in connection with our acquisition from
Inchcape plc in 1996. We made interest payments of £16.8m, including
arrangement fees for the new bank facilities of £4.2m and paid tax of £6.1m.
After capital investment, acquisitions, interest and taxation, net cash outflow
was £1.3m in the six months to 30 June 2002 compared to an outflow of £4.5m in
the same period last year.
Balance Sheet
In May 2002 ITS received proceeds of £245m, net of underwriting fees, from the
issue of new shares. The cash balance at 30 June 2002 was £261.6m. In July the
majority of this cash was used to repay debt, debentures and preference shares.
After taking account of these repayments we estimate that the underlying cash
balance was approximately £34.0m. Borrowings at 30 June 2002 were £341.2m. This
included £106.7m of new bank facilities that had been drawn down at the balance
sheet date. In July all the remaining pre-flotation debt and preference shares
were repaid. The new borrowing facility is a five-year multi-currency facility
of £300m. To date we have drawn the sterling equivalent of £250m. The remaining
£50m is a revolving credit facility.
Profitability
If our new capital structure had been in place since the start of the year we
estimate that our interest charge would have been £5.5m for the six months to 30
June 2002 and our tax charge would have been £9.9m giving pro-forma underlying
shareholders earnings of £20.1m. Our underlying earnings per share based on this
figure divided by the number of shares in issue after the flotation would have
been 13.1 pence per share.
DIVIDEND
As stated in our Listing Particulars, in respect of the current financial year
ending 31 December 2002, the Board recommends payment only of a final dividend.
This is expected to be paid in June 2003. In respect of future financial years,
the Board intends to pay an interim dividend in November and a final dividend in
June of the following year. The Directors intend to follow a progressive
dividend policy and, in determining the level of future dividends, expect the
dividend cover to be at least three times earnings.
OUTLOOK
The global demand for safety performance and quality standards continues to
increase. The migration of manufacturing from developed countries to Asia and
other developing areas, shorter product life cycles and wider product ranges
create additional demand for testing, inspection and certification. The
increasing trend of companies to outsource their laboratory testing also
provides us with opportunities for growth.
In light of these trends, with our worldwide network of laboratories and offices
and our well-established client base, we remain confident in our prospects for
the year and for the future.
INTERIM RESULTS
Copies of the interim report will be posted to all shareholders on or about 2
September 2002 and copies will be available on the corporate website
www.itsglobal.com or from the Company Secretary at 25 Savile Row, London W1S
2ES.
NOTES TO EDITORS
Intertek Testing Services plc is a leading international testing, inspection and
certification organisation which assesses the products and commodities bought or
sold by its customers against a wide range of safety, regulatory, quality and
performance standards. The Group operates in a large number of market segments
and is organised into four operating divisions, each focusing on the testing,
inspection and certification of particular goods or commodities.
END
Intertek Testing Services plc
Consolidated profit and loss account
for the six months to 30 June 2002
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited and (Audited)
restated)
Notes £m £m £m
Turnover - continuing operations 2 229.6 221.8 451.4
Cost of sales (178.3) (176.3) (354.9)
Gross profit 51.3 45.5 96.5
Net operating expenses including exceptional items (7.9) (14.4) (52.1)
Group operating profit 43.4 31.1 44.4
Operating profit from interests in associated undertakings 0.5 0.5 1.0
Total operating profit 2 43.9 31.6 45.4
Operating profit before exceptional items
Operating profit before goodwill amortisation 37.7 32.3 69.8
Goodwill amortisation (0.5) (0.7) (1.3)
Continuing operations including associates 37.2 31.6 68.5
Operating exceptional items
Continuing operations 3.3 - (10.7)
Discontinued operations 3.4 - (12.4)
3 6.7 - (23.1)
Operating profit after exceptional items
Continuing operations 40.5 31.6 57.8
Discontinued operations 3.4 - (12.4)
Profit on ordinary activities before interest 43.9 31.6 45.4
Interest and similar charges
Net interest before exceptional charges 4a (17.1) (18.7) (39.0)
Exceptional charges 4b (3.5) - -
(20.6) (18.7) (39.0)
Profit on ordinary activities before taxation 23.3 12.9 6.4
Taxation on profit on ordinary activities 5 (6.3) (6.3) (16.7)
Profit/(loss) on ordinary activities after taxation 17.0 6.6 (10.3)
Minority interests (1.7) (2.0) (4.4)
Retained profit/(loss) attributable to equity shareholders 15.3 4.6 (14.7)
Basic earnings/(loss) per share 6 16.4p 5.7p (18.2)p
Diluted earnings/(loss) per share 6 15.1p 5.1p (18.2)p
There is no material difference between the profit before taxation and retained
profit/(loss) for the financial period as stated above and their historical cost
equivalents.
Intertek Testing Services plc
Consolidated balance sheet
As at 30 June 2002
As at As at As at
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited and (Audited)
restated)
Notes £m £m £m
Fixed assets
Intangible assets: goodwill 12.3 16.3 12.1
Tangible fixed assets 74.6 72.3 75.6
Investments 2.4 1.2 0.9
89.3 89.8 88.6
Current assets
Stocks 1.7 1.8 1.8
Debtors 109.9 110.6 104.7
Cash at bank and in hand 261.6 21.2 23.7
373.2 133.6 130.2
Creditors: amounts falling due within one year
Borrowings 7 (240.5) (33.8) (37.1)
Other (96.2) (88.4) (97.2)
Net current assets/(liabilities) 36.5 11.4 (4.1)
Total assets less current liabilities 125.8 101.2 84.5
Creditors: amounts falling due after more than one year
Borrowings 7 (100.7) (311.3) (304.0)
Other (3.5) - (5.5)
(104.2) (311.3) (309.5)
Provisions for liabilities and charges 8 (5.9) (9.3) (9.1)
Net assets/(liabilities) before pension assets/(liabilities) 15.7 (219.4) (234.1)
Pension assets/(liabilities)
Schemes with net assets 13 0.8 1.4 0.1
Schemes with net liabilities 13 (1.2) (0.8) (1.7)
Net assets/(liabilities) 15.3 (218.8) (235.7)
Capital and reserves
Called up share capital 11 107.0 106.3 106.3
Shares to be issued 12 - 2.8 2.8
Share premium 12 231.4 - -
Merger reserve 12 3.6 3.6 3.6
Other reserve 12 2.8 - -
Profit and loss account 12 (335.8) (338.5) (355.6)
Shareholders' funds/(deficit) 9.0 (225.8) (242.9)
Equity minority interests 6.3 7.0 7.2
Capital employed 15.3 (218.8) (235.7)
Intertek Testing Services plc
Consolidated cash flow statement
for the six months to 30 June 2002
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited) (Audited)
Notes £m £m £m
Reconciliation of net cash inflow from operating
activities to increase in cash in the period
Net cash inflow from operating activities 9 34.1 25.9 70.0
Dividends from associated undertakings - 0.2 0.4
Returns on investments and servicing of finance (16.8)* (13.2) (28.4)
Taxation (6.1) (6.2) (13.6)
Capital expenditure and financial investment (8.6) (10.7) (25.5)
Acquisitions and disposals (3.9) (0.5) (1.5)
Net cash (outflow)/inflow before financing (1.3) (4.5) 1.4
Financing 242.9 4.8 1.8
Increase in cash in the period 241.6 0.3 3.2
Financing
Issue of shares (net of fees paid) 241.0 - -
Issue of short term debt 1.6 11.0 12.9
Issue of Senior Term Loan 108.7 - -
Repayment of Senior Loans (108.2) (6.2) (11.1)
Repayment of other loans (0.2) - -
242.9 4.8 1.8
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period 241.6 0.3 3.2
Cash inflow/(outflow) from (increase)/decrease in debt 2.3* (4.8) (1.8)
Decrease/(increase) in net debt resulting from cash 243.9 (4.5) 1.4
flows
Debt issued in lieu of interest payments (6.3) (5.6) (11.7)
Acquisitions and disposals - - 0.1
Other non-cash movements (4.4) (1.1) (2.2)
Exchange adjustments 4.6 (11.6) (3.9)
Movement in net debt 237.8 (22.8) (16.3)
Opening net debt 10 (317.4) (301.1) (301.1)
Closing net debt 10 (79.6) (323.9) (317.4)
*Includes £4.2m fees paid for the arrangement of the new Senior Term Loan.
Intertek Testing Services plc
Consolidated statement of total recognised gains and losses
for the six months to 30 June 2002
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited and (Audited)
restated)
£m £m £m
Net profit/(loss) from group companies 14.9 4.3 (15.3)
Net profit from associates 0.4 0.3 0.6
Net profit/(loss) attributable to equity shareholders 15.3 4.6 (14.7)
Actuarial pension gains/(losses)* 1.1 (1.1) (3.3)
Exchange adjustments 3.4 (9.3) (4.9)
Total gains and losses relating to the period 19.8 (5.8) (22.9)
Prior year adjustment - (1.9) (1.9)
19.8 (7.7) (24.8)
Reconciliation of movements in shareholders' funds/(deficit)
for the six months to 30 June 2002
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
(Unaudited) (Unaudited and (Audited)
restated)
£m £m £m
Opening shareholder's deficit (242.9) (220.0) (220.0)
Issue of shares 232.1 - -
Profit/(loss) for the period 15.3 4.6 (14.7)
Actuarial pension gains/(losses)* 1.1 (1.1) (3.3)
Exchange adjustments 3.4 (9.3) (4.9)
Closing shareholders' funds/(deficit) 9.0 (225.8) (242.9)
*Actuarial pension gains/(losses) are stated net of deferred tax.
Included in shareholders' funds/(deficit) is £279.2m (30 June 2001: £294.1m, 31
December 2001: £286.1m) relating to goodwill written off to reserves in relation
to the acquisition of subsidiaries prior to 1 January 1998.
Notes to Interim Report
For the six months to 30 June 2002
1. Basis of preparation of interim financial information
The Group was created by a group reconstruction whereby, on 24 May 2002, the
shareholders exchanged the whole of the issued share capital of Intertek Testing
Services Holdings Limited ('ITSHL') (formerly Intertek Testing Services Limited)
to a newly formed holding company, Intertek Testing Services plc in return for
shares in Intertek Testing Services plc. The acquisition of ITSHL was accounted
for in accordance with the principles of merger accounting as set out in FRS 6
and Schedule 4A to the Companies Act 1985. By adopting this accounting treatment
the consolidated financial information of Intertek Testing Services plc included
in the Interim Report for the six months to 30 June 2002 have been presented to
show the results of the reconstructed group as though the reconstruction had
occurred prior to 1 January 2001.
These unaudited interim financial statements do not constitute statutory
accounts as defined in section 240 of the Companies Act 1985 and have been
prepared on the basis of the accounting policies set out in the statutory
accounts of ITSHL for the year to 31 December 2001. The results for the six
months to 30 June 2002 and 30 June 2001 have not been audited but have been
reviewed by KPMG Audit Plc, the company's auditors.
The financial information as at and for the six months to 30 June 2001 has been
restated from that previously published to reflect the adoption of new
accounting standards FRS 17: Pensions and retirement benefits and FRS 19:
Deferred tax adopted in the accounts of ITSHL for the year to 31 December 2001.
The implementation of these standards had no material impact on retained profit
for the period for the six months to 30 June 2001. The net pension asset reduced
by £0.3m at 30 June 2001.
The results for the year to 31 December 2001 have been abridged from ITSHL's
financial statements, which have been reported on by ITSHL's auditors and filed
with the Registrar of Companies. The report of the auditors was unqualified and
did not contain a statement under section 237 (2) or (3) of the Companies Act
1985.
2(a). Segmental analysis by activity
Turnover
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
£m £m £m
Labtest 57.2 52.0 108.5
Caleb Brett 85.6 87.5 176.0
ETL SEMKO 56.1 55.5 109.0
Foreign Trade Standards 30.7 26.8 57.9
229.6 221.8 451.4
Operating profit
Labtest 19.0 15.1 34.2
Caleb Brett 8.3 8.6 17.5
ETL SEMKO 8.2 8.1 14.3
Foreign Trade Standards 5.1 2.9 9.4
Central overheads (2.9) (2.4) (5.6)
37.7 32.3 69.8
Goodwill amortisation (0.5) (0.7) (1.3)
Exceptional items (Note 3) 6.7 - (23.1)
43.9 31.6 45.4
The Company and its subsidiaries 43.4 31.1 44.4
Associates 0.5 0.5 1.0
43.9 31.6 45.4
Goodwill amortisation
Caleb Brett 0.3 0.4 0.9
ETL SEMKO 0.1 0.2 0.3
Foreign Trade Standards 0.1 0.1 0.1
0.5 0.7 1.3
2(b). Segmental analysis by geographical region
Turnover
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
£m £m £m
Americas 84.8 91.2 177.8
Europe, Africa and Middle East 71.4 65.9 136.4
Asia and Far East 73.4 64.7 137.2
229.6 221.8 451.4
Operating profit
Americas 8.7 8.0 14.6
Europe, Africa and Middle East 6.0 4.9 11.1
Asia and Far East 23.0 19.4 44.1
37.7 32.3 69.8
Goodwill amortisation (0.5) (0.7) (1.3)
Exceptional items (Note 3) 6.7 - (23.1)
43.9 31.6 45.4
Goodwill amortisation
Americas 0.1 0.1 0.9
Europe, Africa and Middle East 0.3 0.5 0.2
Asia and Far East 0.1 0.1 0.2
0.5 0.7 1.3
3. Operating exceptional items
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
£m £m £m
Caleb Brett:
EPA fine and costs - - (1.2)
Goodwill impairment - - (3.1)
ETL SEMKO:
Restructuring - - (2.3)
Foreign Trade Standards:
Provision against Argentina debt - - (4.1)
Receipts from Nigeria and Argentina (a) 3.3 - -
Total continuing 3.3 - (10.7)
Environmental Testing:
Fines - - (12.3)
Legal costs - - (3.5)
Insurance recoveries (b) 3.4 - 3.4
Total discontinued 3.4 - (12.4)
Total operating exceptional items 6.7 - (23.1)
Americas 3.9 - (19.1)
Europe, Africa and Middle East 2.8 - (4.0)
Asia and Far East - - -
Total operating exceptional items 6.7 - (23.1)
(a) In the first six months of 2002, £2.8m was received from the government of
Nigeria and £0.5m from the government of Argentina in respect of FTS debts which
had previously been fully provided against.
(b) In May 2002, an insurance refund of £3.4m was received in reimbursement of
the first instalment of the civil fine levied by the Environmental Protection
Agency in the USA in respect of its investigation into the discontinued
Environmental Testing division.
4. Interest and similar charges
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
£m £m £m
4(a). Net interest before exceptional charges
Senior Subordinated Notes 7.2 7.2 14.5
Parent Subordinated PIK Debentures 6.5 5.7 12.2
Senior Term Loan A 1.4 2.4 4.6
Senior Term Loan B 1.1 1.5 3.0
Senior Term Loan C 0.1 - 0.1
Senior Revolver 0.5 0.5 1.3
Other 0.4 1.5 3.5
17.2 18.8 39.2
Other finance income
Pension interest cost 0.5 0.5 2.4
Expected return on pension assets (0.6) (0.6) (2.6)
(0.1) (0.1) (0.2)
Net interest charge before exceptional charges 17.1 18.7 39.0
4(b). Exceptional charges
Unamortised costs in connection with:
Warrants converted into shares 2.2 - -
Debt issuance costs on repaid Senior Loans 1.3 - -
3.5 - -
5. Taxation
The tax charge for the six months to 30 June 2002 was based on the estimated
effective rate for the full year before exceptional items of 31.3%. There is no
tax attributed to exceptional items.
The effective rate before exceptional items was 48.5% in the six months to 30
June 2001. The decrease in the effective rate principally related to the change
in the capital structure of the Group following the refinancing. This has the
effect of reducing the full year interest charge. In the prior year, the
interest charge was not fully relieved in the tax charge.
6. Earnings per ordinary share
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
Based on the profit for the period: £m £m £m
Underlying profit before tax 20.6 13.6 30.8
Taxation on underlying profit (6.3) (6.3) (16.7)
Minority interest in underlying profit (1.7) (2.0) (4.4)
Underlying earnings 12.6 5.3 9.7
Goodwill amortisation (0.5) (0.7) (1.3)
Exceptional items - Note 3 6.7 - (23.1)
Exceptional interest - Note 4 (3.5) - -
Basic earnings 15.3 4.6 (14.7)
Number of shares (millions):
Basic weighted average no. of shares 93.6 80.8 80.8
Options 1.9 2.0 n/a
Warrants 5.8 7.1 n/a
Diluted weighted average no. of shares 101.3 89.9 80.8
Basic underlying earnings/(loss) per share 13.5p 6.6p 12.0p
Options (0.3)p (0.2)p n/a
Warrants (0.8)p (0.5)p n/a
Diluted underlying earnings per share 12.4p 5.9p 12.0p
Basic earnings/(loss) per share 16.4p 5.7p (18.2)p
Options (0.4)p (0.1)p n/a
Warrants (0.9)p (0.5)p n/a
Diluted earnings/(loss) per share 15.1p 5.1p (18.2)p
The weighted average number of shares used in the calculation of the diluted
loss per share for the year to 31 December 2001 excludes 9,303,809 potential
shares as these were not dilutive in accordance with FRS 14: Earnings per share.
7. Borrowings
As at As at As at
30 June 30 June 31 December
2002 2001 2001
£m £m £m
Due within one year:
Senior Subordinated Notes 135.3 - -
Parent Subordinated PIK Debentures 105.6 - -
Senior Term Loan A 4.3 14.5 15.4
Senior Revolver - 21.0 22.4
Other borrowings 0.9 0.3 1.0
246.1 35.8 38.8
Debt issuance costs (5.6) (2.0) (1.7)
240.5 33.8 37.1
Due in more than one year:
Senior Subordinated Notes - 144.0 140.0
Parent Subordinated PIK Debentures - 97.2 100.7
Senior Term Loan A 104.1 40.7 32.0
Senior Term Loan B - 35.2 34.7
Senior Term Loan C - - 1.8
104.1 317.1 309.2
Debt issuance costs (3.4) (5.8) (5.2)
100.7 311.3 304.0
Total borrowings 341.2 345.1 341.1
The Senior Subordinated Notes of £135.3m and Parent Subordinated PIK Debentures
of £105.6m were repaid on 3 July 2002 and the debt issuance costs associated
with these borrowings of £4.8m were fully amortised. An early redemption premium
of £7.3m was paid in connection with the Senior Subordinated Notes.
8. Provisions for liabilities and charges
Deferred tax Restructuring Claims Total
£m £m £m £m
At 1 January 2002 0.8 1.3 7.0 9.1
Exchange adjustment - - (0.1) (0.1)
Charged during the period 0.1 - 0.4 0.5
Released during the period - - (0.6) (0.6)
Utilised during the period - (1.0) (2.0) (3.0)
At 30 June 2002 0.9 0.3 4.7 5.9
9. Operating cash flow
Six months to Six months to Year to
30 June 30 June 31 December
2002 2001 2001
£m £m £m
Group operating profit after exceptional items 43.4 31.1 44.4
Depreciation 8.7 7.6 15.7
Goodwill amortisation 0.5 0.7 1.3
Goodwill impairment - - 3.1
Impairment of fixed assets - - 0.9
Loss on disposal of fixed assets 0.1 - 0.1
Decrease/(increase) in stocks 0.1 - (0.1)
Increase in debtors (8.3) (9.5) (6.1)
(Decrease)/increase in creditors* (7.2) 0.2 16.1
(Decrease)/increase in provisions (3.2) (4.2) (5.4)
Total operating cash flow 34.1 25.9 70.0
Operating cash inflow before exceptional items 35.9 29.3 78.7
Exceptional cash outflow (1.8) (3.4) (8.7)
Total operating cash flow 34.1 25.9 70.0
*The decrease in creditors in the six months to 30 June 2002 included £6.6m for
fines paid to the Environmental Protection Agency in the USA in connection with
the discontinued Environmental Testing division, which were accrued at 31
December 2001.
10. Movement in net debt
At Cash flow Debt issued Other non Exchange At
1 January in lieu of cash adjustments 30 June
2002 interest changes 2002
£m £m £m £m £m £m
Cash at bank and in hand 23.7 241.6 - - (3.7) 261.6
Borrowings (341.1) 2.3 (6.3) (4.4) 8.3 (341.2)
Total net debt (317.4) 243.9 (6.3) (4.4) 4.6 (79.6)
11. Called up share capital
At 30 June 2002 At 30 June 2001 and
31 December 2001
Authorised Allotted, called Authorised Allotted,
up and fully called up and
paid fully paid
£m £m £m £m
Equity:
Ordinary Shares of 200,000,000 of 1p each 2.0 1.5 - -
(issued: 153,379,478)
Ordinary 'A' shares of 69,172,061 of 1p each - - 0.7 0.7
Ordinary 'B' shares of 11,578,635 of 1p each - - 0.1 0.1
Ordinary 'C' shares of 2,951,417 of 1p each - - - -
Ordinary 'D' shares of 7,110,713 of 1p each - - 0.1 -
2.0 1.5 0.9 0.8
Non equity:
Zero coupon redeemable preference shares of
105,478,482 of £1 each 105.5 105.5 105.5 105.5
107.5 107.0 106.4 106.3
On 18 May 2002, the A, B, C and D ordinary shares were re-designated as
'Ordinary shares' of 1p each. The Zero coupon redeemable preference shares were
redeemed at par on 4 July 2002.
12. Shareholders' funds
Share Shares to Share Merger Other Profit and Total
capital be issued premium reserve reserve* loss account
account
£m £m £m £m £m £m
At 1 January 2002 106.3 2.8 - 3.6 - (355.6) (242.9)
Retained profit for the period - - - - - 15.3 15.3
Exchange adjustments - - - - - 3.4 3.4
Actuarial pension gains - - - - - 1.1 1.1
Shares issued 0.7 (2.8) - - 2.8 - 0.7
Premium on share issue - - 255.5 - - - 255.5
Costs of share issue - - (24.1) - - - (24.1)
At 30 June 2002 107.0 - 231.4 3.6 2.8 (335.8) 9.0
Equity (96.5)
Non-equity 105.5
*The 'other' reserve arose on the conversion of the share warrants into share
capital.
13. Pension schemes
The group operates a number of defined benefit and defined contribution schemes
throughout the world. There are significant funded defined benefit schemes in
the United Kingdom, United States, Hong Kong and Taiwan with assets held in
separate trustee administered funds. Actuarial valuations of these schemes were
performed by independent qualified actuaries at 30 September 2001 and were
updated to 31 December 2001 and 31 March 2002. The schemes were not revalued at
30 June 2002 and the assets and liabilities of each scheme are stated at their
31 March 2002 values in the balance sheet as at 30 June 2002. The assets and
liabilities as at 30 June 2001 are stated at their 31 March 2001 valuation.
Since the valuations were carried out at 31 March 2002, the value of equities
has fallen and this may have an impact on the valuation of the schemes which
will be carried out at 31 December 2002.
14. Contingent liabilities, claims and litigation
There have been no material developments concerning claims and litigation, which
in the opinion of the Directors would give rise to a material adverse effect on
the financial position of the Group in the foreseeable future.
15. Post balance sheet events
On 3 July 2002 the Group drew £143.3m, being the balance of its new Senior Term
Loan A facility. Also on 3 July 2002, the Senior Subordinated Notes of £135.3m
plus an early redemption premium of £7.3m were paid and the PIK Debentures of
£105.6m were redeemed.
On 4 July 2002 the preference shares were redeemed at their par value of
£105.5m.
16. Approval
The interim financial statements were approved by the Board on 30 August 2002.
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