Interim Results
Intertek Group PLC
04 September 2003
INTERIM 2003 Results Announcement
4 September 2003
Intertek Group plc (Intertek), the global testing, inspection and certification
company, today announces its interim results for the half year to 30 June 2003.
FINANCIAL HIGHLIGHTS and the comparison with the same period last year
Turnover £229.4m Unchanged at actual exchange rates
Up 6.5% at constant exchange rates
Operating profit (1) £37.7m Unchanged at actual exchange rates
Up 9.3% at constant exchange rates
Operating margin 16.4% Unchanged
Operating cash flow (2) £36.9m Up from £35.9m
Profit before tax £37.2m Up from £23.3m
Earnings per share (3) 13.9p Up from 12.4p (2002 proforma(4)13.4p)
Interim dividend per share 2.9p First interim dividend since flotation in May
2002
(1) Before goodwill amortisation and exceptional items
(2) Before exceptional items
(3) Fully diluted underlying earnings per share before goodwill amortisation
and exceptional items
(4) Showing the effect of the new capital structure on EPS, following the
Group's IPO in May 2002.
CHIEF EXECUTIVE OFFICER, RICHARD NELSON commented:
I am pleased to announce a good set of results for the six months to 30 June
2003. Turnover and operating profit were up on a constant currency basis. With
80% of the Group's earnings in US dollars or related currencies and the US
dollar 12% weaker in the first half of 2003 than the first half of 2002, at
actual exchange rates both turnover and operating profit were equal to the same
period last year.
The Labtest division, which tests and inspects textiles, toys and other consumer
goods and also certifies systems, delivered an excellent performance and was not
affected by the problems related to the SARS virus. The Caleb Brett division,
which inspects and tests oil and chemicals, experienced difficult market
conditions in the first four months in its cargo inspection business, mainly due
to the Iraq war and record low oil stock levels. The outsourcing business in
Caleb Brett increased from 23% of the division's turnover to 25%, and the
prospects have improved. ETL SEMKO, our electrical testing business benefited
from excellent growth in Asia offset by a decline in USA. Our Foreign Trade
Standards (FTS) business had reduced turnover in its two key contracts in Saudi
Arabia and Nigeria due to the political situations in those countries. Although
we are concerned about the future of the Nigerian programme after 2003, new
contracts with Rwanda and Kuwait commenced in the period and a contract in
Venezuela is starting this month.
We remain confident of the continuing growth of our business and we expect a
satisfactory outcome for the year.
ANALYSTS' MEETING
There will be a meeting for analysts at 9.00am 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 aston.swift@intertek.com
Katie Macdonald-Smith, Tulchan Communications
Telephone: +44 (0) 20 7353 4200 kmacdonald-smith@tulchangroup.com
Corporate website: www.intertek.com
High resolution images of Intertek Group plc businesses are available to
download, free of charge from www.vismedia.co.uk.
REVIEW OF RESULTS FOR 2003
Chairman's statement
On behalf of the Board I am pleased to announce the Intertek Group's financial
results for the first six months of 2003 which show that we have continued to
make good progress. There have been many positive developments in our business
during this period.
Financial performance
At constant exchange rates, compared with the same period last year, turnover
grew 6.5% and operating profit before goodwill amortisation and exceptional
items grew 9.3%. Approximately 80% of the Group's earnings are in US dollars or
related currencies. In consequence, with the US dollar 12% weaker in the first
half of 2003 than the first half of 2002, at actual exchange rates both turnover
and operating profit were equal to the same period last year. Following the
flotation of the Group in May 2002, our interest costs have reduced
significantly, our profit before tax has increased by 60% to £37.2m and our
earnings per share have increased 12.1% to 13.9p.
Divestments
In May 2003, the Group sold its 50% shareholding in a company operating in China
in the Labtest division to the other 50% shareholder. The disposal raised £6.6m
and generated a non-operating exceptional profit of £5.6m. The disposal will
allow Labtest to develop its systems certification business within a wholly
owned subsidiary of the Group.
Dividends
The Board has declared an interim dividend of 2.9 pence per share which is
payable on 18 November 2003 to members on the register at 7 November 2003. No
interim dividend was paid last year.
Prospects for 2003
We feel confident in the continuing growth of our business and we expect a
satisfactory outcome for the year. We continue to generate strong operating cash
flow, which we plan to use to make acquisitions to complement the Group's
existing operations.
Vanni Treves
Chairman
3 September 2003
Chief Executive Officer's review
Business performance
Turnover for the Group for the first half of 2003 was £229.4m, an increase of
6.5% over the first half of 2002 at constant exchange rates. At actual exchange
rates, turnover remained constant, reflecting a 12% decline in the value of the
US dollar. Sales were very strong in Asia where Labtest delivered over 20%
growth at constant exchange rates and where ETL SEMKO performed well. Growth was
modest in the Americas with increased turnover in Caleb Brett and Labtest
reduced by a decline in ETL SEMKO caused by more difficult trading conditions.
Turnover in Europe, Middle East and Africa declined slightly due to reduced
turnover from the Nigerian and Saudi Arabian contracts in FTS.
Total operating profit before goodwill amortisation and exceptional items
improved by £3.2m to £37.7m, an increase of 9.3% at constant exchange rates. At
actual exchange rates, operating profit was the same as the first half last
year. Strong growth in Labtest and FTS was reduced by declines in Caleb Brett
and ETL SEMKO, both of which suffered from weak trading conditions, mainly in
the early part of the year. The Caleb Brett division was restructured at the end
of the first half of 2003 to focus it more on the fast growing outsourcing
market and trading conditions have also started to improve. ETL SEMKO suffered
from a weak market in the United States and Europe, but there was good growth in
Asia. The Group profit margin was maintained at 16.4%.
The performance of each of the divisions and the geographic regions is shown
below at constant exchange rates with an adjustment to actual exchange rates.
Turnover Operating profit(2)
Six months to 30 June 2003 2002 Change 2003 2002 Change
By division: £m £m % £m £m %
_____________________________________________________________________________________________________________
Labtest 66.5 55.2 20.5 22.3 18.0 23.9
_____________________________________________________________________________________________________________
Caleb Brett 83.3 80.4 3.6 6.2 7.5 (17.3)
_____________________________________________________________________________________________________________
ETL SEMKO 52.1 49.8 4.6 6.0 6.8 (11.8)
_____________________________________________________________________________________________________________
Foreign Trade Standards 27.5 30.1 (8.6) 6.1 5.0 22.0
_____________________________________________________________________________________________________________
Central overheads - - - (2.9) (2.8) (3.6)
_____________________________________________________________________________________________________________
Continuing operations at constant exchange rates (1) 229.4 215.5 6.5 37.7 34.5 9.3
_____________________________________________________________________________________________________________
Exchange rate adjustment - 14.1 - - 3.2 -
_____________________________________________________________________________________________________________
As reported at actual average exchange rates (3) 229.4 229.6 - 37.7 37.7 -
_____________________________________________________________________________________________________________
By geographic region:
_____________________________________________________________________________________________________________
Americas 78.0 75.3 3.6 5.7 7.8 (26.9)
_____________________________________________________________________________________________________________
Europe, Middle East and Africa
_____________________________________________________________________________________________________________
Asia 79.5 67.1 18.5 25.9 20.7 25.1
_____________________________________________________________________________________________________________
Continuing operations at constant exchange rates (1) 229.4 215.5 6.5 37.7 34.5 9.3
_____________________________________________________________________________________________________________
(1) 2002 and 2003 figures are stated at average exchange rates for the first
half of 2003
(2) operating profit is stated before goodwill amortisation and exceptional
items
(3) see note 2 to the Interim Report
Divisional review
In the divisional review that follows, turnover and operating profit before
goodwill amortisation and exceptional items are stated at constant exchange
rates.
Labtest
2003 2002 Change
Six months to 30 June £m £m %
_____________________________________________________________________________________________________________
Turnover 66.5 55.2 20.5
_____________________________________________________________________________________________________________
Operating profit 22.3 18.0 23.9
_____________________________________________________________________________________________________________
Operating margin 33.5% 32.6%
_____________________________________________________________________________________________________________
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 and international traders.
Labtest's turnover and operating profit grew 20.5% and 23.9% respectively, with
most of the growth coming from Asia where textile testing, toy testing and
inspection activities continued to perform well. The growth is driven by
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 the established
operations in Shanghai and Shenzhen, in the new hardlines laboratory in Shanghai
and the new textile testing facilities in Guangzhou and Tianjin. The division's
profit margin increased from 32.6% to 33.5%, principally due to continued
improvement in operating procedures in Hong Kong and growth in China where
operating costs are lower than in Hong Kong.
In May 2003, the Group sold its 50% shareholding in a systems certification
business operating in China, to the other 50% shareholder. This business
contributed £1.8m to turnover and £0.3m to operating profit in the first half of
2003 up to the date to disposal. This disposal will allow Labtest to develop its
systems certification business within a wholly owned subsidiary of the Group.
Caleb Brett
2003 2002 Change
Six months to 30 June £m £m %
_____________________________________________________________________________________________________________
Turnover 83.3 80.4 3.6
_____________________________________________________________________________________________________________
Operating profit 6.2 7.5 (17.3)
_____________________________________________________________________________________________________________
Operating margin 7.4% 9.3%
_____________________________________________________________________________________________________________
Caleb Brett was founded in 1885 and is a leading international service provider
that tests and inspects petroleum and chemicals. Caleb Brett has an
international reputation for reliability and confidentiality. The traditional
business of Caleb Brett is to provide independent and internationally recognised
certification of the quality and quantity of cargoes of crude oil, petroleum
products, chemicals and agricultural produce. The main growth in the division is
the wide range of testing work it carries out for oil and chemical companies on
an outsourced basis.
Caleb Brett's turnover increased by 3.6% but operating profit decreased by £1.3m
or 17.3%. In the traditional and slow growth Caleb Brett business, trading
conditions were difficult and prices were under pressure in the early part of
2003. There was reduced activity in the markets because oil stocks were at very
low levels and there was a reduced level of trading activity due to uncertainty
over the price of oil caused by the situation in Iraq. Activity started to
increase in May and June, particularly in the United States.
The main growth opportunity in this division is outsourcing, which is the
testing required by oil and chemical companies that has traditionally been done
in their own laboratories. Turnover and operating profit from outsourcing
increased in the period and now accounts for about 25% of the total divisional
sales, up from 23% in the same period last year.
A new global management team for Caleb Brett was put in place at the start of
the year to facilitate co-ordination between the geographic regions and to
develop the outsourcing capabilities of the Group worldwide. At the end of the
first half of 2003, the division was reorganised to reduce costs in the
traditional business and accelerate the development of outsourcing. Several
small laboratories were consolidated to provide the size of facility required
for outsourcing and some employees were relocated or made redundant. The
restructuring cost was £2.8m and comprised severance payments, lease
terminations and fixed asset write offs. This was charged as an operating
exceptional expense in the period. The reduced cost base in the traditional
business will benefit results in the second half of 2003 and outsourcing will
grow faster.
Some new outsourcing contracts have been won in the first half of 2003 and the
number of prospective contracts continues to increase.
ETL SEMKO
Six months to 30 June 2003 2002 Change
£m £m %
_____________________________________________________________________________________________________________
Turnover 52.1 49.8 4.6
_____________________________________________________________________________________________________________
Operating profit 6.0 6.8 (11.8)
_____________________________________________________________________________________________________________
Operating margin 11.5% 13.7%
_____________________________________________________________________________________________________________
ETL SEMKO tests and certifies electrical and electronic products,
telecommunications equipment, heating, ventilation and air conditioning (HVAC)
equipment, building products and other products against safety and performance
standards and then issues safety labels and certificates in respect of those
products.
ETL SEMKO's turnover increased by 4.6% but operating profit decreased by £0.8m
or 11.8%. Asia continued to perform strongly, particularly in the testing of
household appliances, but Europe and America suffered from the movement of
manufacturing to Asia and some depressed markets especially relating to
telecommunications. The Intertek owned safety label in the USA, 'ETL' (which
originally stood for the Edison electrical testing laboratory) is not as well
recognised by retailers of consumer electrical products in the United States as
the 'UL' mark issued by our main competitor. The sales team in the United States
has been strengthened to promote the ETL label to retailers and although sales
from this source are increasing, this is a long term initiative and the extra
profits are not expected to cover the additional marketing costs for at least a
year. Operating profit for the six months to 30 June 2003 was reduced by costs
of £0.5m associated with some rationalisation of testing facilities in the
United States.
Foreign Trade Standards
2003 2002 Change
Six months to 30 June £m £m %
_____________________________________________________________________________________________________________
Turnover 27.5 30.1 (8.6)
_____________________________________________________________________________________________________________
Operating profit 6.1 5.0 22.0
_____________________________________________________________________________________________________________
Operating margin 22.2% 16.6%
_____________________________________________________________________________________________________________
The Foreign Trade Standards division works for the standards bodies of different
countries helping to ensure that imports comply with national safety and other
requirements. It also works for Finance Ministries and Customs Departments
providing services that ensure import duties are properly declared and paid.
Furthermore, FTS provides services to major industrial and commercial clients to
ensure that equipment and goods they buy meet all their specifications.
FTS inspects shipments destined for the client country, in the country of
export. The service helps ensure that import duties are properly calculated and
paid, and that goods being imported meet other legal requirements of the client
country.
FTS's turnover decreased by 8.6% mainly due to reduced volumes of shipments to
Nigeria and Saudi Arabia due to the political situations in those countries in
the period. We expect the Nigerian programme to continue until at least the end
of the year but it is difficult to predict what will happen after that. The
Customs department of Nigeria is lobbying hard to take the programme back to
destination inspection. The loss of the Nigerian programme would have a material
effect on the trading of the FTS division but not on other parts of Intertek.
The Saudi Arabian programme is meeting the requirements of the government and
under the contract is expected to continue at least until August 2004. Operating
profit increased by 22%, mainly due to the release of bad debt provisions
previously charged against operating profits which are no longer required
because cash collection on contracts has improved.
In the first half of 2003, FTS gained a small contract for pre-shipment
inspection for customs duty verification purposes in Rwanda. A new contract in
Kuwait has started to check that imports meet their safety and other legal
standards and although this has made a loss due to start up costs, it is growing
quickly. A contract with the government of Venezuela for a shared customs duty
checking programme starting in September 2003 has also been signed.
Central overheads
Central overheads increased by 3.6% compared to the same period last year,
mainly due to additional compliance costs incurred in the period.
Outlook
Intertek's businesses operate across a broad spectrum of consumer and industrial
markets, and across a wide geographic spread. 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.
Richard Nelson
Chief Executive Officer
3 September 2003
Chief Financial Officer's review
In the financial review that follows, all figures are stated at actual exchange
rates.
Profitability
Total operating profit before goodwill amortisation and exceptional items for
the first six months of 2003 was £37.7m compared to £37.7m for the same period
last year. Strong underlying growth of 9.3% in the first half 2003 compared with
the same period in 2002, is masked by the impact of currency movements, in
particular a weaker US dollar, in which the Group's earnings are mainly
denominated.
As shown in note 3 to the Interim Report, we reported net operating exceptional
income of £0.1m. This comprised recoveries of £2.9m in respect of provisions
made in earlier periods against certain debtors in the FTS division and in
respect of fines payable by our discontinued Environmental Testing division and
a charge of £2.8m in respect of the global restructuring of the Caleb Brett
division. As shown in note 4 to the Interim Report, the non-operating
exceptional income of £4.6m comprised a profit of £5.6m made on the sale of our
50% interest in a business in Labtest and a loss of £1.0m on the disposal of a
trade investment.
As shown in note 5 to the Interim Report, the net interest cost before
exceptional charges for the six months to 30 June 2003 was £4.7m compared to
£17.1m in the same period last year. The reduction in interest cost reflected
the changed capital structure of the Group following its flotation in May 2002
and lower interest rates, especially on the US dollar borrowings which
constitute some 80% of our debt financing.
Tax on ordinary activities before exceptional items was £9.6m based on an
estimated effective tax rate, before exceptional items, of 29.5% for the full
year. There was tax relief of £0.4m in respect of the exceptional items.
Retained profit for the six months to 30 June 2003 was £21.6m, after a proposed
dividend of £4.5m. The Company floated in May 2002 and no dividend was paid in
respect of the six months to 30 June 2002. As shown in note 8 to the Interim
Report, the diluted underlying earnings per share, before amortisation and
exceptional items, was 13.9p compared to 12.4p for the same period last year.
Cash generation
As shown in note 14 to the Interim Report, operating cash flow before
exceptional items was £36.9m for the first six months of 2003, up £1.0m over the
same period last year. Exceptional cash outflow was £3.7m compared to £1.8m in
the same period last year. Interest payments were much lower, down £10.0m to
£4.3m because of the change in capital structure mentioned above. Dividends paid
to minority shareholders were £1.3m compared to £2.5m, mainly due to the
disposal referred to below. The amount of tax paid remained the same as the same
period last year at £6.1m. Capital expenditure was £9.1m (30 June 2002: £8.6m)
and the disposal of our 50% interest in a Labtest company generated cash
proceeds of £6.6m. The final dividend of £8.0m in respect of 2002 was paid in
the period. After capital expenditure, disposals, interest, taxation and
dividends to shareholders, net cash inflow was £11.0m in the six months to 30
June 2003 compared to an outflow of £1.3m in the same period last year.
Balance sheet
The cash balance at 30 June 2003 was £72.5m compared to £261.6m at 30 June 2002
and £70.6m at 31 December 2002. In July 2002, the majority of the cash at 30
June 2002 was used to repay debt, debentures and preference shares. As shown in
note 9 to the Interim Report, borrowings at 30 June 2003 were £224.5m compared
to £341.2m at 30 June 2002 and £237.5m at 31 December 2002. We repaid £8.2m of
borrowings in June 2003.
There has been no significant change in the net liabilities of the Group's
defined benefit pension schemes since 31 December 2002. As permitted by FRS 17,
actuarial valuations of the assets and liabilities of the defined benefit
pension schemes were not performed at 30 June 2003.
Shareholders' funds improved by £26.0m in the period from 31 December 2002 and
showed a deficit of £64.5m at 30 June 2003. As stated in my previous reviews, we
continue to carry a large negative profit and loss reserve in the consolidated
group accounts. This is mainly due to goodwill of £256.3m that was written off
to reserves before 1998 in accordance with the accounting standard applicable at
that time. This goodwill arose primarily from the acquisition of Intertek
Testing Services Limited from Inchcape plc in 1996. The negative consolidated
reserves do not impact the ability of the Company to pay dividends in the
future.
Bill Spencer
Chief Financial Officer
3 September 2003
Group profit and loss account
Six months to 30 June 2003 Six months to 30 June 2002
(Unaudited) (Unaudited)
Pre exceptional Exceptional Pre exceptional Exceptional
items items Total items items Total
Notes £m £m £m £m £m £m
________________________________________________________________________________________________________________________
Turnover - continuing operations 2 229.4 - 229.4 229.6 - 229.6
Cost of sales (176.7) - (176.7) (178.3) - (178.3)
________________________________________________________________________________________________________________________
Gross profit 52.7 - 52.7 51.3 - 51.3
Administrative expenses (15.6) 0.1 (15.5) (14.1) 6.7 (7.4)
Goodwill amortisation 2 (0.5) - (0.5) (0.5) - (0.5)
Total administrative expenses (16.1) 0.1 (16.0) (14.6) 6.7 (7.9)
________________________________________________________________________________________________________________________
Group operating profit 36.6 0.1 36.7 36.7 6.7 43.4
Share of operating profits of associates 0.6 - 0.6 0.5 - 0.5
________________________________________________________________________________________________________________________
Total operating profit 2 37.2 0.1 37.3 37.2 6.7 43.9
________________________________________________________________________________________________________________________
Continuing operations 37.2 (1.1) 36.1 37.2 3.3 40.5
Discontinued operations - 1.2 1.2 - 3.4 3.4
Total operating profit 37.2 0.1 37.3 37.2 6.7 43.9
Non operating exceptional items
Net profit on disposal of businesses 4 - 4.6 4.6 - - -
________________________________________________________________________________________________________________________
Profit on ordinary activities before interest 37.2 4.7 41.9 37.2 6.7 43.9
Net interest and similar charges 5 (4.7) - (4.7) (17.1) (3.5) (20.6)
________________________________________________________________________________________________________________________
Profit on ordinary activities before taxation 32.5 4.7 37.2 20.1 3.2 23.3
Taxation on profit on ordinary activities 6 (9.6) 0.4 (9.2) (6.3) - (6.3)
________________________________________________________________________________________________________________________
Profit on ordinary activities after taxation 22.9 5.1 28.0 13.8 3.2 17.0
Attributable to minorities (1.9) - (1.9) (1.7) - (1.7)
________________________________________________________________________________________________________________________
Profit for the period 21.0 5.1 26.1 12.1 3.2 15.3
Dividends 7 (4.5) - (4.5) - - -
________________________________________________________________________________________________________________________
Retained profit for the period 16.5 5.1 21.6 12.1 3.2 15.3
________________________________________________________________________________________________________________________
Earnings per share 8
________________________________________________________________________________________________________________________
Basic 13.7p 3.3p 17.0p 12.9p 3.5p 16.4p
________________________________________________________________________________________________________________________
Diluted 13.6p 3.3p 16.9p 11.9p 3.2p 15.1p
________________________________________________________________________________________________________________________
Group profit and loss account (continued)
Year to 31 December 2002
(Audited)
Pre exceptional Exceptional
items items Total
Notes £m £m £m
_______________________________________________________________________________________________________________
Turnover - continuing operations 2 461.1 - 461.1
Cost of sales (356.3) - (356.3)
_______________________________________________________________________________________________________________
Gross profit 104.8 - 104.8
Administrative expenses (28.8) 15.6 (13.2)
Goodwill amortisation 2 (0.9) - (0.9)
Total administrative expenses (29.7) 15.6 (14.1)
_______________________________________________________________________________________________________________
Group operating profit 75.1 15.6 90.7
Share of operating profits of associates 0.9 - 0.9
_______________________________________________________________________________________________________________
Total operating profit 2 76.0 15.6 91.6
_______________________________________________________________________________________________________________
Continuing operations 76.0 5.9 81.9
Discontinued operations - 9.7 9.7
Total operating profit 76.0 15.6 91.6
Non operating exceptional items
Net profit on disposal of businesses 4 - - -
_______________________________________________________________________________________________________________
Profit on ordinary activities before interest 76.0 15.6 91.6
Net interest and similar charges 5 (22.2) (15.5) (37.7)
_______________________________________________________________________________________________________________
Profit on ordinary activities before taxation 53.8 0.1 53.9
Taxation on profit on ordinary activities 6 (16.0) - (16.0)
_______________________________________________________________________________________________________________
Profit on ordinary activities after taxation 37.8 0.1 37.9
Attributable to minorities (4.3) - (4.3)
_______________________________________________________________________________________________________________
Profit for the period 33.5 0.1 33.6
Dividends 7 (8.0) - (8.0)
Retained profit for the period 25.5 0.1 25.6
_______________________________________________________________________________________________________________
Earnings per share 8
_______________________________________________________________________________________________________________
Basic 27.1p 0.1p 27.2p
_______________________________________________________________________________________________________________
Diluted 26.0p 0.2p 26.2p
_______________________________________________________________________________________________________________
Group balance sheet
At 30 June At 30 June At 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
__________________________________________________________________________________________________________________
Notes £m £m £m
Fixed assets
Intangible assets -
goodwill 11.6 12.3 12.1
Tangible fixed assets 75.5 74.6 76.7
Investments 1.5 2.4 2.0
__________________________________________________________________________________________________________________
88.6 89.3 90.8
__________________________________________________________________________________________________________________
Current assets
Stocks 1.4 1.7 1.5
Debtors 104.7 109.9 101.0
Cash 72.5 261.6 70.6
__________________________________________________________________________________________________________________
178.6 373.2 173.1
Creditors due within one year __________________________________________
Borrowings 9 (15.7) (240.5) (15.0)
Other creditors (82.9) (96.2) (89.6)
__________________________________________
(98.6) (336.7) (104.6)
__________________________________________________________________________________________________________________
Net current assets 80.0 36.5 68.5
__________________________________________________________________________________________________________________
Total assets less current liabilities 168.6 125.8 159.3
Creditors due after more than one year
Borrowings 9 (208.8) (100.7) (222.5)
Other creditors (1.4) (3.5) (4.1)
(210.2) (104.2) (226.6)
Provisions for liabilities and charges 10 (8.6) (5.9) (8.7)
__________________________________________________________________________________________________________________
Net (liabilities)/assets before pension (liabilities)/assets (50.2) 15.7 (76.0)
Pension assets/(liabilities)
Schemes with net assets 11 - 0.8 -
Schemes with net liabilities 11 (7.4) (1.2) (7.4)
__________________________________________________________________________________________________________________
Net (liabilities)/assets (57.6) 15.3 (83.4)
__________________________________________________________________________________________________________________
Capital and reserves
Called up share capital 12 1.5 107.0 1.5
Share premium 13 231.7 231.4 231.6
Merger reserve 13 3.6 3.6 3.6
Other reserve 13 2.8 2.8 2.8
Profit and loss account 13 (304.1) (335.8) (330.0)
__________________________________________________________________________________________________________________
Shareholders' (deficit)/funds - equity (64.5) 9.0 (90.5)
Equity minority interests 6.9 6.3 7.1
__________________________________________________________________________________________________________________
Capital employed (57.6) 15.3 (83.4)
__________________________________________________________________________________________________________________
Group cash flow
Six months to Six months to Year to
Notes 30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
__________________________________________________________________________________________________________________
Net cash inflow from operating activities 14 33.2 34.1 97.4
Dividends from associates - - 0.5
Returns on investments and servicing of finance (5.6) (16.8)* (34.4)
Taxation (6.1) (6.1) (12.7)
Capital expenditure and financial investment (9.1) (8.6) (23.3)
Acquisitions and disposals 6.6 (3.9) (4.3)
Equity dividends paid to shareholders (8.0) - -
__________________________________________________________________________________________________________________
Cash inflow/(outflow) before financing 11.0 (1.3) 23.2
Financing:
Net issue of shares 0.1 241.0 127.2
(Decrease)/increase in debt (8.2) 1.9 (97.1)
__________________________________________________________________________________________________________________
Increase in cash in the period 15 2.9 241.6 53.3
__________________________________________________________________________________________________________________
*includes £4.2m fees paid for the arrangement of the new Senior Term Loan.
Reconciliation of net cash flow to movement in net debt
Six months to Six months to Year to
Notes 30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
__________________________________________________________________________________________________________________
Increase in cash in the period 2.9 241.6 53.3
Cash outflow/(inflow) from decrease/(increase) in debt 8.2 2.3* 97.1
__________________________________________________________________________________________________________________
Reduction in net debt resulting from cash flows 11.1 243.9 150.4
Debt issued in lieu of interest payments - (6.3) (6.1)
Acquisitions and disposals (0.2) - -
Other movements (0.5) (4.4) (5.4)
Exchange adjustments 4.5 4.6 11.6
__________________________________________________________________________________________________________________
Reduction in net debt 15 14.9 237.8 150.5
Opening net debt (166.9) (317.4) (317.4)
__________________________________________________________________________________________________________________
Closing net debt (152.0) (79.6) (166.9)
__________________________________________________________________________________________________________________
*includes £4.2m fees paid for the arrangement of the new Senior Term Loan.
Statement of total group recognised gains and losses
Six months to Six months to Year to
30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
__________________________________________________________________________________________________________________
Net profit from Group companies 25.7 14.9 33.0
Net profit from associates 0.4 0.4 0.6
__________________________________________________________________________________________________________________
Profit for the financial period 26.1 15.3 33.6
Actuarial pension gains/(losses)* - 1.1 (6.5)
Exchange adjustments 3.6 3.4 6.5
__________________________________________________________________________________________________________________
Total recognised gains and losses relating to the period 29.7 19.8 33.6
__________________________________________________________________________________________________________________
*Actuarial pension gains/(losses) are stated net of deferred tax.
Reconciliation of movements in shareholders' (deficit)/funds
Six months to Six months to Year to
30 June 30 June 31 December
2003 2002 2002
(Unaudited) (Unaudited) (Audited)
£m £m £m
__________________________________________________________________________________________________________________
Opening shareholders' deficit (90.5) (242.9) (242.9)
Issue of ordinary shares 0.1 232.1 232.3
Redemption of preference shares - - (105.5)
Profit for the period 26.1 15.3 33.6
Dividends (4.5) - (8.0)
Goodwill on disposed business 0.7 - -
Actuarial pension gains/ (losses)* - 1.1 (6.5)
Exchange adjustments 3.6 3.4 6.5
__________________________________________________________________________________________________________________
Closing shareholders' (deficit)/funds (64.5) 9.0 (90.5)
__________________________________________________________________________________________________________________
*Actuarial pension gains/(losses) are stated net of deferred tax.
Included in shareholders' (deficit)/funds is £256.3m (30 June 2002: £279.2m, 31
December 2002: £264.7m) relating to goodwill written off to reserves in relation
to the acquisition of subsidiaries prior to 1 January 1998.
Historical cost profits and losses
A note of consolidated historical cost profits and losses is not presented as
there is no material difference between the profits of the Group as shown in
this interim financial information and those on a historical cost basis.
Notes to the interim report for the six months to 30 June 2003
1. Basis of preparation of interim financial information
This interim financial information has been prepared on the basis of the
accounting policies set out in the statutory accounts of Intertek Group plc
(formerly Intertek Testing Services plc) for the year ended 31 December
2002 and do not constitute statutory accounts as defined in section 240 of
the Companies Act 1985.
The results for the six months to 30 June 2003 and 30 June 2002 have not
been audited but have been reviewed by KPMG Audit Plc, the Company's
auditors.
The results for the year ended 31 December 2002 have been abridged from
the Group's financial statements, which have been reported on by the
Group'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. Segmental analysis
Business analysis
Six months to Six months to Year to
30 June 30 June 31 December
2003 2002 2002
Turnover £m £m £m
__________________________________________________________________________________________________________________
Labtest 66.5 60.1 123.8
Caleb Brett 83.3 85.6 172.8
ETL SEMKO 52.1 53.2 104.7
Foreign Trade Standards 27.5 30.7 59.8
__________________________________________________________________________________________________________________
229.4 229.6 461.1
__________________________________________________________________________________________________________________
Total operating profit
__________________________________________________________________________________________________________________
Labtest 22.3 19.9 41.5
Caleb Brett 6.2 8.3 16.3
ETL SEMKO 6.0 7.3 14.0
Foreign Trade Standards 6.1 5.1 11.3
Central overheads (2.9) (2.9) (6.2)
__________________________________________________________________________________________________________________
37.7 37.7 76.9
Goodwill amortisation (0.5) (0.5) (0.9)
Exceptional items 0.1 6.7 15.6
__________________________________________________________________________________________________________________
37.3 43.9 91.6
__________________________________________________________________________________________________________________
The Company and its subsidiaries 36.7 43.4 90.7
Associates 0.6 0.5 0.9
__________________________________________________________________________________________________________________
37.3 43.9 91.6
__________________________________________________________________________________________________________________
Goodwill amortisation
__________________________________________________________________________________________________________________
Caleb Brett 0.3 0.3 0.6
ETL SEMKO 0.1 0.1 0.2
Foreign Trade Standards 0.1 0.1 0.1
__________________________________________________________________________________________________________________
0.5 0.5 0.9
__________________________________________________________________________________________________________________
2 Segmental analysis (continued)
Geographic analysis by location of entity
Six months to Six months to Year to
30 June 30 June 31 December
2003 2002 2002
Turnover £m £m £m
__________________________________________________________________________________________________________________
Americas 78.0 84.8 166.0
Europe, Middle East and Africa 71.9 71.4 144.3
Asia 79.5 73.4 150.8
__________________________________________________________________________________________________________________
229.4 229.6 461.1
__________________________________________________________________________________________________________________
Total operating profit
__________________________________________________________________________________________________________________
Americas 5.7 8.7 16.4
Europe, Middle East and Africa 6.1 6.0 12.1
Asia 25.9 23.0 48.4
__________________________________________________________________________________________________________________
37.7 37.7 76.9
__________________________________________________________________________________________________________________
Goodwill amortisation (0.5) (0.5) (0.9)
Exceptional items 0.1 6.7 15.6
__________________________________________________________________________________________________________________
37.3 43.9 91.6
__________________________________________________________________________________________________________________
Goodwill amortisation
__________________________________________________________________________________________________________________
Americas 0.1 0.1 0.1
Europe, Middle East and Africa 0.3 0.3 0.7
Asia 0.1 0.1 0.1
__________________________________________________________________________________________________________________
0.5 0.5 0.9
__________________________________________________________________________________________________________________
3 Operating exceptional items
Six months to Six months to Year to
30 June 30 June 31 December
2003 2002 2002
£m £m £m
__________________________________________________________________________________________________________________
Caleb Brett - restructuring (a) (2.8) - -
Caleb Brett - EPA cost recovery - - 2.0
Foreign Trade Standards - (b) government contracts 1.7 3.3 3.9
__________________________________________________________________________________________________________________
Total continuing operations (1.1) 3.3 5.9
Discontinued operations - (c) recoveries 1.2 3.4 9.7
__________________________________________________________________________________________________________________
Total operating exceptional items 0.1 6.7 15.6
__________________________________________________________________________________________________________________
By geographic region:
Americas - 3.9 12.7
Europe, Middle East and Africa 0.4 2.8 2.9
Asia (0.3) - -
__________________________________________________________________________________________________________________
Total operating exceptional items 0.1 6.7 15.6
__________________________________________________________________________________________________________________
(a) The charge of £2.8m relates to the global restructuring of the Caleb Brett
division and comprises severance payments, lease terminations and fixed
asset write offs. There is tax relief of £0.4m attributable to these
items.
(b) The £1.7m represents the release of a debt provision relating to Nigeria.
The tax effect of this exceptional item was nil.
(c) In April 2003, an insurance refund of £0.9m was received in reimbursement
of the second 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. On 7 July 2003, an insurance
refund of £0.3m was received in reimbursement of legal costs incurred with
this investigation. This amount was recognised as a debtor at 30 June 2003.
4 Non operating exceptional items
The net profit of £4.6m on disposal of businesses is made up as follows:
In May 2003, the Group disposed of its 50% share of a company operating in
China in the Labtest division for net cash consideration of £6.6m. After
deducting the Group's share of net assets of £0.3m and goodwill of £0.7m,
which was previously written off to reserves, the profit on disposal was
£5.6m. There is no tax payable on this profit.
A loss of £1.0m was recognised during the six months ended 30 June 2003 in
respect of the disposal of a trade investment for a nominal sum in August
2003. There is no tax relief for this loss.
5 Net interest and similar charges
Six months to Six months to Year to
30 June 30 June 31 December
2003 2002 2002
£m £m £m
__________________________________________________________________________________________________________________
Senior Term Loans 4.7 2.6 8.0
Senior Subordinated Notes - 7.2 7.3
Parent Subordinated PIK - 6.5 6.5
Debentures
Senior Revolver - 0.5 0.5
Other - 0.3 (0.1)
__________________________________________________________________________________________________________________
Net interest before exceptional charges 4.7 17.1 22.2
__________________________________________________________________________________________________________________
Unamortised costs in connection with:
Warrants converted into shares - 2.2 2.2
Repaid Senior Term Loans - 1.3 6.1
Premium on the redemption of Senior Notes - - 7.2
__________________________________________________________________________________________________________________
Exceptional charges - 3.5 15.5
__________________________________________________________________________________________________________________
Total net interest and similar charges 4.7 20.6 37.7
__________________________________________________________________________________________________________________
6 Taxation
The tax charge on profits before exceptional items for the six months to 30
June 2003 of £9.6m (30 June 2002: £6.3m) is based on the estimated
effective rate for the full year of 29.5% (30 June 2002: 31.3%, 31 December
2002: 29.7%). There is tax relief of £0.4m attributable to exceptional
items.
7 Dividends
The interim dividend of 2.9 pence per ordinary share (30 June 2002: nil)
is payable on 18 November 2003 to members on the register at 7 November
2003.
8 Earnings per ordinary share
Six months to Six months to Year to
30 June 30 June 31 December
2003 2002 2002
£m £m £m
Based on the profit for the period:
__________________________________________________________________________________________________________________
Underlying profit before tax 33.0 20.6 54.7
Taxation on underlying profit (9.6) (6.3) (16.0)
Minority interest in underlying profit (1.9) (1.7) (4.3)
__________________________________________________________________________________________________________________
Underlying earnings 21.5 12.6 34.4
Goodwill amortisation (0.5) (0.5) (0.9)
Exceptional items 5.1 6.7 15.6
Exceptional finance charges - (3.5) (15.5)
__________________________________________________________________________________________________________________
Basic earnings 26.1 15.3 33.6
__________________________________________________________________________________________________________________
Number of shares (millions):
Basic weighted average number of shares 153.6 93.6 123.7
Potentially dilutive share options 0.8 1.9 1.5
Potentially dilutive share warrants - 5.8 2.9
__________________________________________________________________________________________________________________
Diluted weighted average number of shares 154.4 101.3 128.1
__________________________________________________________________________________________________________________
Basic underlying earnings per share 14.0p 13.5p 27.8p
Options (0.1)p (0.3)p (0.3)p
Warrants - (0.8)p (0.6)p
__________________________________________________________________________________________________________________
Diluted underlying earnings per share 13.9p 12.4p 26.9p
__________________________________________________________________________________________________________________
Basic earnings per share 17.0p 16.4p 27.2p
Options (0.1)p (0.4)p (0.4)p
Warrants - (0.9)p (0.6)p
__________________________________________________________________________________________________________________
Diluted earnings per share 16.9p 15.1p 26.2p
__________________________________________________________________________________________________________________
The weighted average number of shares used in the calculation of the diluted
loss per share for the six months to 30 June 2003 excludes 2,906,610 potential
shares (31 December 2002: 1,378,500, 30 June 2002: nil) as these were not
dilutive on accordance with FRS 14: Earnings per share.
9 Borrowings
As at As at As at
30 June 30 June 31 December
2003 2002 2002
£m £m £m
__________________________________________________________________________________________________________________
Due within one year:
Senior Subordinated Notes - 135.3 -
Parent Subordinated PIK Debentures - 105.6 -
Senior Term Loans 16.4 4.3 15.5
Other borrowings 0.2 0.9 0.4
__________________________________________________________________________________________________________________
16.6 246.1 15.9
Debt issuance costs (0.9) (5.6) (0.9)
__________________________________________________________________________________________________________________
15.7 240.5 15.0
__________________________________________________________________________________________________________________
Due in more than one year:
Senior Term Loans 211.2 104.1 225.4
Debt issuance costs (2.4) (3.4) (2.9)
__________________________________________________________________________________________________________________
208.8 100.7 222.5
__________________________________________________________________________________________________________________
Total borrowings 224.5 341.2 237.5
__________________________________________________________________________________________________________________
10 Provisions for liabilities and charges
Deferred tax Restructuring Claims Total
£m £m £m £m
__________________________________________________________________________________________________________________
At 1 January 2003 1.1 - 7.6 8.7
Charged during the period - 2.8 1.2 4.0
Released during the period (0.3) - (0.2) (0.5)
Utilised during the period - (1.4) (2.2) (3.6)
__________________________________________________________________________________________________________________
At 30 June 2003 0.8 1.4 6.4 8.6
__________________________________________________________________________________________________________________
11 Pension schemes
There has been no significant change in the net liabilities of the Group's
defined benefit pension schemes since 31 December 2002. As permitted by FRS
17, actuarial valuations of the assets and liabilities of the defined
benefit pension schemes were not performed at 30 June 2003.
12 Called up share capital
As at As at As at
30 June 30 June 31 December
2003 2002 2002
£m £m £m
__________________________________________________________________________________________________________________
Equity: Ordinary shares of 1p each 1.5 1.5 1.5
Non equity: Redeemable preference shares of £1 each - 105.5 -
__________________________________________________________________________________________________________________
1.5 107.0 1.5
__________________________________________________________________________________________________________________
The Redeemable preference shares were repaid at par on 4 July 2002.
13 Shareholders' deficits
Share
Share premium Merger Other Profit and
capital account reserve reserves loss account Total
£m £m £m £m £m £m
__________________________________________________________________________________________________________________
At 1 January 2003 1.5 231.6 3.6 2.8 (330.0) (90.5)
Retained profit for the period - - - - 21.6 21.6
Goodwill on disposed business - - - - 0.7 0.7
Issue of shares - 0.1 - - - 0.1
Exchange adjustments - - - - 3.6 3.6
__________________________________________________________________________________________________________________
At 30 June 2003 1.5 231.7 3.6 2.8 (304.1)* (64.5)
__________________________________________________________________________________________________________________
* After charging £256.3m (31 December 2002: £264.7m) for goodwill written off to
reserves in relation to subsidiaries acquired prior to 31 December 1997.
14 Operating cash flow
Six months to Six months to Year to
30 June 30 June 31 December
2003 2002 2002
£m £m £m
__________________________________________________________________________________________________________________
Group operating profit after exceptional items 36.7 43.4 90.7
Depreciation charge 9.1 8.7 17.6
Goodwill amortisation 0.5 0.5 0.9
Loss on sale of fixed assets - 0.1 0.1
Decrease in stocks 0.1 0.1 0.3
Increase in debtors (6.8) (8.3) (2.6)
Decrease in creditors (6.8) (7.2) (8.9)
Increase/(decrease) in provisions 0.4 (3.2) (0.7)
__________________________________________________________________________________________________________________
Total operating cash inflow 33.2 34.1 97.4
__________________________________________________________________________________________________________________
Operating cash inflow before exceptional items 36.9 35.9 83.8
Exceptional cash (outflow)/inflow (3.7) (1.8) 13.6
__________________________________________________________________________________________________________________
Total operating cash inflow 33.2 34.1 97.4
__________________________________________________________________________________________________________________
15 Movement in net debt
At 1 January Non cash Business Exchange At 30 June
2003 Cash flow changes disposal adjustments 2003
£m £m £m £m £m £m
__________________________________________________________________________________________________________________
Cash at bank and in hand 70.6 2.9 - (0.2) (0.8) 72.5
Borrowings (237.5) 8.2 (0.5) - 5.3 (224.5)
__________________________________________________________________________________________________________________
Total net debt (166.9) 11.1 (0.5) (0.2) 4.5 (152.0)
__________________________________________________________________________________________________________________
16 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.
17 Approval
The interim financial statements were approved by the Board on 3 September
2003.
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