TIDMITRK
RNS Number : 8136R
Intertek Group PLC
05 March 2019
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2018 FULL YEAR RESULTS ANNOUNCEMENT
5 MARCH 2019
Revenue Acceleration, Robust EPS Growth and Strong Cash
2018 Year Highlights
-- Revenue growth: +4.7% at constant currency rates, +1.2% at actual rates
-- Good organic revenue growth of +3.7% at constant rates:
Products +5.2%, Trade +2.2%, Resources +0.3%
-- Record adjusted operating margin of 17.2%: +40bps at constant rates, +30bps at actual rates
-- Adjusted operating profit of GBP482m: +6.9% at constant rates, +3.0% at actual rates
-- Adjusted diluted EPS: +7.7% at constant rates, +3.5% at actual rates
-- Statutory net profit after tax of GBP305.2m: +3.8% at constant rates, -0.4% at actual rates
-- Free cash flow of GBP350.6m, +2.6% year on year driven by strong cash conversion
-- Full year dividend per share of 99.1p, an increase of 39%
-- Acquisitions in high growth and high margin sectors
A video outlining the Full Year Results is available on the
Group's website - http://www.intertek.com/
André Lacroix: Chief Executive Officer statement
"Intertek is going from strength to strength, making consistent
progress on strategy and performance. We are benefitting from
higher demand from our customers for our global Total Quality
Assurance solutions in our Products, Trade and Resources
divisions.
In 2018, we have seen revenue growth acceleration with 3.7%
organic revenue growth at constant rates with continuing robust
performance in our Products division, solid performance in Trade
and a performance improvement in Resources. Our recent acquisitions
in high margin and high growth areas performed well.
The Group has a high margin and highly cash generative earnings
model. In 2018, we made continued progress on margin, profitability
and free cash flow, with a record margin of 17.2% up 40bps, EPS
growth of 7.7% and a cash conversion of 126%. In line with our new
dividend policy, that targets a payout ratio of circa 50%, we have
announced a full year dividend of 99.1p, an increase of 39%.
We expect to deliver good organic revenue growth performance at
constant currency in 2019, with moderate Group margin expansion and
strong cash generation.
Our '5x5' differentiated strategy for growth will continue to
move the centre of gravity of our portfolio towards the attractive
growth and margin opportunities in the industry based on a
disciplined approach to revenue, margin, portfolio and cash
performance management, and an accretive disciplined capital
allocation to deliver sustainable returns for our shareholders.
Given the growing complexity faced by global corporations,
higher quality and sustainability expectations from consumers and
increased regulatory demand, Intertek's Total Quality Assurance
(TQA) services are mission-critical for clients to operate safely.
We are uniquely positioned to seize these exciting growth
opportunities and with our Total Quality Assurance differentiated
value proposition, we provide our clients with a superior customer
service based on the depth and breadth of our technical expertise,
our global network of 1,000+ state-of-the-art facilities in over
100 countries, our industry leading Assurance, Testing, Inspection
and Certification solutions, and our customer-centric culture
fueled by our passionate colleagues around the world."
Key Adjusted Financials 2018 2017 Change at Change at
actual rates constant rates(1)
Revenue GBP2,801.2m GBP2,769.1m 1.2% 4.7%
============ ============ ============== ===================
Organic revenue(2) GBP2,769.8m GBP2,764.2m 0.2% 3.7%
============ ============ ============== ===================
Operating profit GBP481.8m GBP467.7m 3.0% 6.9%
============ ============ ============== ===================
Operating margin 17.2% 16.9% 30bps 40bps
============ ============ ============== ===================
Profit before tax GBP456.5m GBP438.8m 4.0% 8.3%
============ ============ ============== ===================
Diluted earnings per
share 198.3p 191.6p 3.5% 7.7%
============ ============ ============== ===================
Dividend per share 99.1p 71.3p 39.0%
============ ============ ==============
1. Constant currency is calculated by translating 2017 results
at 2018 average exchange rates
2. Organic revenue growth excludes the impact of acquisitions
and disposals in 2017 and 2018
3. Adjusted results are stated before Separately Disclosed Items
('SDIs'), see note 3 to the Condensed Consolidated Financial
Statements
Key Statutory Financials 2018 2017
Revenue GBP2,801.2m GBP2,769.1m
============ ============
Operating profit GBP436.2m GBP422.7m
============ ============
Operating margin 15.6% 15.3%
============ ============
Profit before tax GBP404.5m GBP393.3m
============ ============
Net profit after tax GBP305.2m GBP306.4m
============ ============
Diluted earnings per
share 174.7p 176.3p
============ ============
The Directors will propose a final dividend of 67.2p per share
(2017: 47.8p) at the Annual General Meeting on 23 May 2019, to be
paid on 4 June 2019 to shareholders on the register at close of
business on 17 May 2019.
Contacts
For further information, please contact:
Denis Moreau, Investor Relations
Telephone: +44 (0) 20 7396 3415 investor@intertek.com
Jonathon Brill, FTI Consulting
Telephone: +44 (0) 20 3727 1000 intertek@fticonsulting.com
Analysts' Call
A live audiocast for analysts and investors for the 2018 Full
Year Results will be held today at 9.30 a.m. Details can be found
at http://www.intertek.com/investors/ together with presentation
slides and a pdf copy of this report. A recording of the audiocast
will be available later in the day.
Sustainability Report
The Sustainability Report for the year ended 31 December 2018 is
now available on the Company's website at www.intertek.com.
Intertek is a leading Total Quality Assurance provider to
industries worldwide.
Our network of more than 1,000 laboratories and offices and over
44,000 people in more than 100 countries, delivers innovative and
bespoke Assurance, Testing, Inspection and Certification solutions
for our customers' operations and supply chains.
Intertek Total Quality Assurance expertise, delivered
consistently, with precision, pace and passion, enabling our
customers to power ahead safely.
FULL YEAR REPORT 2018
GROUP CEO REVIEW
Attractive opportunities for growth
Companies are today more focused on improving quality and safety
than in the past, and our clients recognise there is much more that
needs to be done to establish a robust, reliable, end-to-end Total
Quality Assurance approach that reduces risk given the growing
complexity of their manufacturing and distribution operations. That
is what we offer our clients with our Total Quality Assurance value
proposition, leveraging our broad portfolio of Assurance, Testing,
Inspection and Certification, our technical expertise and our
global laboratory network.
We see four growth opportunities ahead.
First, we will continue to seize the growth opportunities
presented by our existing customers. We aim to increase customer
account penetration, both within the services we already provide to
each individual organisation and by cross-selling between the
various components of our integrated ATIC offering.
Second, we will continue to leverage our global portfolio of
industry leading solutions to win new customer relationships with
new and fast growing local, regional and global companies.
Third, as companies see the value in our Total Quality Assurance
approach, there will also be tremendous growth potential in
convincing corporations that currently conduct this work in-house
to outsource their quality assurance requirements to us.
Fourth, given our industry is highly fragmented, our M&A
activities are focused on prospects with strong IP and market
leading positions in new attractive growth areas, geographies and
services. Our highly cash generative earnings model and strong
balance sheet provides the flexibility to accelerate organic growth
with value enhancing acquisitions.
Intertek Total Quality Assurance
Intertek has a proven track record of innovating and
anticipating the growing needs of its clients. We have been the
pioneers of our industry across the world for 130 years and we
continue to constantly evolve and improve our offer to customers to
meet their changing needs.
In identifying that our customers now need systemic and in-depth
Assurance, Testing, Inspection and Certification services (ATIC),
in 2016 we added a new dimension to our traditional quality control
offering by adding Assurance as part of our value proposition.
The Total Quality Assurance (TQA) solutions we can deliver go
beyond assuring the quality and safety of a corporation's physical
components, products and assets to also look at the reliability of
their operating processes and quality management systems.
Globally across all of our businesses, we support the existing
and emerging Quality Assurance needs of our customers in each area
of their operations:
-- R&D;
-- Raw Materials Sourcing;
-- Components Suppliers;
-- Manufacturing;
-- Transportation;
-- Distribution and Channel Management; and
-- Consumer Management.
We offer superior customer service with a systemic end-to-end
Quality Assurance approach based on the depth and breadth of
Assurance + Testing + Inspection + Certification solutions,
delivered by our global subject matter experts.
Our clients have reacted very positively to our innovative
Quality Assurance approach with our TQA value proposition.
We are pleased with the progress we have made with our ATIC
sales in the last three years and we have seen excellent growth in
the capital-light, high-margin Assurance segment which has doubled
since 2015 and now represents 16% of our Group revenues compared to
10% in 2015.
Our high-quality earnings model
Our high-margin and strongly cash generative earnings model is
underpinned by the delivery of our Total Quality Assurance value
proposition.
The Intertek earnings model offers Assurance, Testing,
Inspection and Certification solutions with superior customer
service levels to businesses in the three economic sectors of
'Products', 'Trade' and 'Resources' across more than 100 countries.
These sectors provide the framework of our high-quality earnings
model, and each benefits from its own set of structural growth
drivers.
We operate a capital-light business model which, combined with
our entrepreneurial culture, enables us to react quickly to new
growth opportunities.
At the Group level, we expect to deliver GDP+ organic revenue
growth in real terms that is margin accretive and strongly cash
generative. This will enable us to allocate our resources in a
disciplined fashion, to create further value via carefully deployed
capital expenditure and M&A investments in high-margin and
high-growth areas that in turn feed further accelerated margin
accretive revenue growth.
The Products sector, which delivered 77% of our 2018 profit,
comprises Softlines & Hardlines, Electrical & Connected
World, Building & Construction, Chemicals & Pharma,
Transportation Technologies, Food and Business Assurance. We see
this sector as continuing to benefit from corporations' growing
investments in quality and innovation and anticipate continuing
growth in response to rising consumer demand and a more demanding
regulatory burden.
Specifically, we see two key growth drivers for Intertek in this
sector:
-- Growth in stock-keeping units ('SKUs') and brands, driven by
increasing numbers of products worldwide, shorter product
life-cycles and the rise of e-commerce; and
-- Growth in the number of tests that need to be taken for each
SKU or brand, driven by rising regulatory standards, concerns for
safety, demand for higher quality and continuous innovation.
We expect our Products sector to continue growing faster than
GDP.
Our second key business sector is Trade, which comprises Caleb
Brett, AgriWorld and Government & Trade Services and accounted
for 17% of our 2018 profit.
Our Trade business will continue to benefit from ongoing growth
in global trade and the development of stronger regional trade in
Asia, the Indian Ocean, the Mediterranean and the Americas. We
expect this growth to be at a rate similar to global GDP through
the cycle, driven by the increase in global population and demand
from Emerging Markets that are causing cargo tonnage, shipping
numbers and trading routes to grow.
In Resources, our third business sector which contributed 6% of
our 2018 profit, we anticipate long-term growth driven by
increasing demand for global energy to support GDP and population
growth.
We offer both Capex and Opex Services and we help companies to
invest in new capacity, as well as operating existing
facilities.
We operate a high-quality Minerals business benefitting from
attractive structural growth drivers in our markets.
We expect to see continued expansion in the different types of
energy consumed, with an increasing role for renewables in driving
sustainability, carbon reduction and cleanliness of supply.
Our '5x5' differentiated strategy for growth
Our earnings model supports our '5x5' differentiated strategy
for growth, which aims to move the centre of gravity of the Company
towards high-growth, high-margin areas in our industry. This
strategy comprises five strategic priorities and five strategic
enablers, targeted at the achievement of five corporate goals that
help us to measure progress.
Our five medium- to long-term corporate goals are:
-- Fully engaged employees working in a safe environment;
-- Superior customer service in Assurance, Testing, Inspection and Certification;
-- Margin accretive revenue growth based on GDP+ organic growth;
-- Strong cash conversion from operations; and
-- Accretive, disciplined capital-allocation policy.
Our five strategic priorities are:
-- A differentiated brand proposition that positions Intertek as
the market-leading provider of Quality Assurance services;
-- Delivering superior service with our Total Quality Assurance
value proposition, building customer loyalty and attracting new
customers;
-- An effective sales strategy that develops our business by
attracting new clients and growing account penetration with
existing customers, through increasing the focus on the systematic
cross-selling of our ATIC solutions;
-- Operating a growth and margin accretive portfolio strategy,
that delivers focused growth among the business lines, countries
and services with good growth and margin prospects; and
-- Delivering operational excellence in every operation to drive productivity.
The five enablers that will support the execution of our
strategy are:
-- Our entrepreneurial spirit and decentralised organisation
which underpins our customer-centric culture;
-- Disciplined performance management, driving margin accretive
revenue growth with strong cash conversion and strong returns on
capital;
-- Superior technology, increasing productivity and adding value to our customers;
-- Engaging our people through the appropriate reward strategy
and investing in the right capabilities to support our growth
agenda; and
-- Achieving sustainable growth for customers, employees,
shareholders, suppliers and communities and ensuring we have the
right balance between performance and sustainability.
Customer centric TQA expertise
Intertek is uniquely positioned to deliver a differentiated TQA
value proposition with its truly global network, as over 44,000 TQA
experts in more than 100 countries across the world, provide fast
and efficient Assurance, Testing, Inspection and Certification
solutions to local, regional and global clients.
The real strength of Intertek lies in its people, its global
team of TQA experts. Indeed, it is both humbling and exciting to
see at first-hand that our people have the most remarkable
subject-matter expertise, entrepreneurial capabilities and talent
for innovation.
Our people give us the foundation we need to support our
Customer Promise that sits at the heart of our value proposition.
In short, it is our people who consistently set us apart from our
competition - and they do so by demonstrating five powerful
differentiating attributes:
-- The consistent quality and precision of their findings, conclusions and reports;
-- Their speed of response, delivering the rapid, detailed and
accurate feedback that clients demand;
-- The ability to build trust-based customer relationships;
-- Deep expertise in their subject areas and incisive
understanding of customer requirements; and
-- A proven track record of innovating and anticipating the changing needs of our clients.
Accretive disciplined capital allocation
In our view, to deliver shareholder returns on a consistent
basis, the right formula is sustainable earnings growth with
accretive disciplined allocation of capital.
We pursue an accretive disciplined approach to capital
allocation, which enables us to reinvest our growing earnings and
create long-term value and sustainable shareholder returns.
The first priority when it comes to capital allocation is
investment to support organic growth in those parts of the
portfolio where we see the best growth and margin prospects. In the
medium- to long-term, we will invest circa 5% of revenue in capital
expenditure.
The second priority is to deliver sustainable returns for our
shareholders through the payment of progressive dividends, in line
with our dividend policy that targets a payout ratio of circa
50%.
The third priority for capital allocation is M&A activity to
strengthen our portfolio in the right growth areas, provided we can
deliver good returns. This means focusing on those existing
business lines or countries with strong growth and margin
prospects, where we hold leading market positions, or entering new
exciting growth areas, be that in terms of geography or services.
In 2018, Intertek completed four acquisitions in high-growth,
high-margin segments: AAS, Proasem, NTA Monitor and Alchemy.
Alchemy is an industry leader in People Assurance solutions for the
food industry. It has a strong growth track record and operates a
highly attractive business model: high-growth, high-margin, strong
cash-conversion, capital-light and scalable. This will further
accelerate the growth momentum of our high-margin and capital-light
Assurance business.
The fourth priority is to maintain a strong and efficient
balance sheet that provides the flexibility to invest in growth
while targeting a net debt to EBITDA ratio of circa 1.5 to 2 times.
As the Group's financial position continues to strengthen, we will
remain disciplined in our approach to deploying any surplus cash,
assessing a broad range of options with a continued focus on
maximising shareholder value.
Ever Better operational discipline makes Intertek Ever
Stronger
We have made continuous progress in 2015, 2016, 2017 and 2018,
capitalising on our strengths and implementing our '5x5'
differentiated strategy for growth. We have delivered superior
customer service with our unique ATIC value proposition, growing
our revenues by 34% between 2014 and 2018 while expanding our
adjusted operating profit by 49% and improving our margin by
170bps. Further, over the period we have consistently reduced our
working capital intensity and our free cash flow has increased by
90%. This progress, combined with disciplined capital allocation,
has delivered a strong average ROIC of 22.7% between 2015 and
2018.
The world of our clients is getting more and more complex and
companies are increasing their focus on risk, which creates ever
bigger growth opportunities for Intertek given our unique TQA value
proposition that offers systemic end-to-end ATIC services.
We are on a good-to-great journey and we firmly believe in
continuous improvement to take Intertek to greater heights. Said
differently, our 'Ever Better' operational discipline makes
Intertek 'Ever Stronger', every day.
Leveraging the ever bigger growth opportunities ahead with our
Ever Better operational discipline in everything we do, we are
confident in our ability to deliver sustained progress moving
forwards. From our strong base, we see opportunities to
continuously improve on our value creation levers: our
differentiated service offering with margin accretive innovations;
our customer-centric approach to sales; our discipline on
operational excellence; our systemic margin management; and our
daily focus on cash management.
We are confident that Intertek will continue to lead the
industry through our Ever Better operational discipline approach,
to make the company Ever Stronger.
Looking ahead
We believe that the strength of our results demonstrates the
attractive nature of our industry, Intertek's high-quality earnings
model and the effectiveness of our '5x5' differentiated strategy
for growth.
We are confident about the structural growth prospects in the
global Quality Assurance market.
We are uniquely positioned to seize these attractive growth
opportunities, underpinned by the increased complexities of
corporate supply chains and the associated challenges of
maintaining a high level of quality assurance end-to-end.
We are moving the Company's centre of gravity towards our
industry's most attractive growth and margin areas with a
disciplined approach to performance management and capital
allocation.
We are on track on our 'good-to-great' journey, making progress
on both performance and strategy and I am excited about the Group's
growth prospects ahead, both organically and inorganically.
André Lacroix
Chief Executive Officer
Operating Review
For the year ended 31 December 2018
To present the performance of the Group in a clear, consistent
and comparable format, certain items are disclosed separately on
the face of the income statement. These items, which are described
in the 'Presentation of Results' section of this report and in note
3, are excluded from the adjusted results. The figures discussed in
this review (extracted from the income statement and cash flow) are
presented before Separately Disclosed Items ('SDIs') unless
otherwise stated.
Overview of Performance
2018 2017 Change at Change at
actual rates constant
rates(1)
GBPm GBPm %/bps %/bps
=============================== ======== ======== ============== ==========
Revenue 2,801.2 2,769.1 1.2% 4.7%
======== ======== ============== ==========
Organic revenue(2) 2,769.8 2,764.2 0.2% 3.7%
======== ======== ============== ==========
Operating profit(3) 481.8 467.7 3.0% 6.9%
======== ======== ============== ==========
Operating margin(3) 17.2% 16.9% 30bps 40bps
======== ======== ============== ==========
Net financing costs(3) (25.3) (28.9) 12.5% 13.7%
======== ======== ============== ==========
Income tax expense(3) (112.8) (107.5) (4.9%) (9.2%)
======== ======== ============== ==========
Earnings for the period(3) 343.7 331.3 3.7% 8.0%
======== ======== ============== ==========
Diluted earnings per share(3) 198.3p 191.6p 3.5% 7.7%
======== ======== ============== ==========
1. Constant currency is calculated by translating 2017 results
at 2018 exchange rates.
2. Organic revenue growth excludes the impact of acquisitions
and disposals in 2017 and 2018.
3. Adjusted results are stated before Separately Disclosed
Items.
Total reported Group revenue growth was 1.2%, comprising 1.0%
growth contributed by acquisitions, organic revenue of 3.7% and a
decrease of 3.5% from foreign exchange where sterling appreciated
against most of the Group's trading currencies.
Adjusted operating profit at constant exchange rates increased
6.9%, driven by 9.5% growth in the Products division.
The adjusted operating margin was 17.2%, an increase of 40bps
from the prior year at constant exchange rates.
The Group's statutory operating profit for the period was
GBP436.2m (2017: GBP422.7m) after SDIs, but before interest and tax
of GBP131.0m (2017: GBP116.3m).
Net financing costs
Net financing costs were GBP25.3m (2017: GBP28.9m), a decrease
of GBP3.6m on 2017. This comprised GBP1.8m (2017: GBP1.2m) of
finance income and GBP27.1m (2017: GBP30.1m) of finance expense.
The statutory net financing cost of GBP31.7m (2017: GBP29.4m)
included GBP6.4m (2017: GBP0.5m) relating to SDIs.
Tax
The Group effective tax rate on adjusted profit before income
tax was 24.7% (2017: 24.5%). The tax charge, excluding the impact
of SDIs, is GBP112.8m (2017: GBP107.5m).
The statutory tax charge, including the impact of SDIs, of
GBP99.3m (2017: GBP86.9m), equates to an effective rate of 24.5%
(2017: 22.1%) and the cash tax on adjusted results is 20.4% (2017:
23.0%).
Earnings per share
The Group delivered adjusted diluted earnings per share ('EPS')
of 198.3p (2017: 191.6p). Diluted EPS after SDIs was 174.7p (2017:
176.3p), and basic EPS was 176.8p (2017: 178.6p).
Dividend
In line with our new dividend policy that targets a payout ratio
of circa 50%, the Board recommends a full year dividend of 99.1p
per share, an increase of 39.0%. This recommendation reflects the
Group's earnings progression, strong financial position and the
Board's confidence in the Group's structural growth drivers into
the future.
The full year dividend of 99.1p represents a total cost of
GBP159.9m or 50% of adjusted profit attributable to shareholders of
the Group for 2018 (2017: GBP115.1m and 37%). The dividend is
covered 2.0 times by earnings (2017: 2.7 times), based on adjusted
diluted earnings per share divided by dividend per share.
Portfolio activities
In March 2016, the Group announced its '5x5' differentiated
strategy for growth, with the aim to move the centre of gravity of
the Company towards high-growth, high-margin areas in its industry,
which included two strategic priorities relevant to the operational
structure of the business:
-- To operate a portfolio that delivers focused growth amongst
the business lines, countries and services, including a strategic
review of underperforming business units.
-- To deliver operational excellence in every operation to drive
productivity, including re-engineering of unnecessary processes and
layers.
During the year, the Group has continued to implement certain
non-recurring action plans identified through the portfolio review
in specific country and/or business line combinations, consistent
with the '5x5' strategy, and after three years we are now over
halfway through our portfolio review. In line with this, a GBP13.6m
restructuring charge has been recognised in SDIs in the year, which
impacted 18 business units in the year, taking the total programme
to 76. These activities included the termination of certain
business lines in some countries; the closure and consolidation of
business line locations in certain countries; the re-organisation
of various management structures either in-country, in-region or in
global business lines.
Restructuring charges are included in the SDIs, in instances
where they have been specifically identified as part of the
Portfolio review, are non-recurring and meet the IAS 37 criteria,
in contrast to restructuring costs for ongoing standard cost
efficiency and cost-saving opportunities, which are incurred within
Adjusted Results.
Separately Disclosed Items ('SDIs')
A number of items are separately disclosed in the financial
statements as exclusion of these items provides readers with a
clear and consistent presentation of the underlying operating
performance of the Group's business. Reconciliations of the
Statutory to Adjusted measures are given below.
When applicable, these SDIs include amortisation of acquisition
intangibles; impairment of goodwill and other assets; the profit or
loss on disposals of businesses or other significant fixed assets;
costs of acquiring and integrating acquisitions; the cost of any
fundamental restructuring of a business; material claims and
settlements; significant recycling of amounts from equity to the
income statement; and unrealised market or fair value gains or
losses on financial assets or liabilities, including contingent
consideration.
Adjusted operating profit excludes the amortisation of acquired
intangible assets, primarily customer relationships, as we do not
believe that the amortisation charge in the Income Statement
provides useful information about the cash costs of running our
business as these assets will be supported and maintained by the
ongoing marketing and promotional expenditure, which is already
reflected in operating costs. Amortisation of software, however, is
included in adjusted operating profit as it is similar in nature to
other capital expenditure. The costs of any restructuring are
excluded from adjusted operating profit where they represent
fundamental changes in individual operations around the Group as a
result of the portfolio activities discussed above and are not
expected to recur in those operations. The profit and loss on
disposals of businesses or other significant assets and the costs
associated with successful, active or aborted acquisitions are
excluded from adjusted operating profit in order to provide useful
information regarding the underlying performance of the Group's
operations.
The SDIs charge for 2018 comprises amortisation of acquisition
intangibles of GBP24.6m (2017: GBP16.0m); acquisition costs
relating to successful, active or aborted acquisitions of GBP8.5m
(2017: GBP3.2m); restructuring costs (as described above) of
GBP13.6m (2017: GBP12.4m); gain on disposal of subsidiaries and
associates of GBP1.1m (2017: GBPnil); impairment of assets of
GBPnil (2017: GBP16.8m); and a credit for material claims and
settlements of GBPnil (2017: GBP3.4m).
Acquisitions and investments
Intertek is well positioned to seize the attractive external
growth opportunities in a very fragmented industry and we continue
to make progress with our M&A strategy. In addition, the Group
entered into an exclusive agreement with the Certified Automotive
Parts Association (CAPA) in March 2018, to operate their automotive
certification programme.
The Group completed four (2017: two) acquisitions and
investments in the year with a 2018 cash consideration of
GBP387.9m, net of cash acquired of GBP5.6m.
In March 2018, the Group acquired Aldo Abela Surveys (AAS), a
leading provider of quality and quantity cargo inspection services
based in Malta.
In April 2018, the Group acquired Proasem, a leading provider of
laboratory testing, inspection, metrology and training services
based in Colombia.
In June 2018, the Group acquired NTA Monitor, a leading network
security and assurance services provider based in the UK and
Malaysia.
In August 2018, the Group acquired Alchemy Investment Holdings,
an industry leader in People Assurance solutions for the food
industry.
The Group also invested GBP113.2m (2017: GBP112.9m) organically
in laboratory expansions, new technologies and equipment and other
facilities. This investment represented 4.0% of revenue (2017:
4.1%).
Cash Flow
The Group's cash performance was strong with free cash flow of
GBP350.6m (2017: GBP341.6m), driven by disciplined working capital
management and strong cash conversion. Adjusted cash flow from
operations was GBP602.9m (2017: GBP596.1m). Statutory cash flow
from operations was GBP580.9m (2017: GBP579.2m).
Financial position
The Group ended the period in a strong financial position. Net
debt was GBP778m, an increase of GBP234m on 31 December 2017,
reflecting net drawdown of facilities to fund acquisitions, the
translation impact of our foreign currency denominated debt at the
end of December 2018, offset by the Group's strong operating cash
generation in the year.
Outlook
We expect to deliver good organic revenue growth performance at
constant currency in 2019, with moderate Group margin expansion and
strong cash generation.
We expect our Products related businesses to deliver good
organic growth, our Trade related businesses to deliver good
organic growth and our Resources related businesses to deliver
solid organic growth.
Looking further ahead, the global Assurance, Testing, Inspection
and Certification industry will continue to benefit from exciting
growth prospects driven by an increased focus of corporations on
risk management, global trade flows, global demand for energy,
expanding regulations, more complex supply chains, technological
innovations and increased demand for higher quality and more
sustainable products.
Intertek is well positioned to take advantage of these growth
opportunities in the Quality Assurance market. We offer a
high-quality Assurance, Testing, Inspection and Certification
service to our clients based on the depth and breadth of our
technical expertise, our global network of state-of-the-art
facilities and our customer centric culture.
Operating Review by Division
Revenue Adjusted operating profit
2018 2017 Change Change 2018 2017 Change Change
at actual at constant at actual at constant
rates rates rates rates
======== ====== =========== =============
GBPm GBPm % % GBPm GBPm % %
======== ======== =========== ============= ====== ====== =========== =============
Products 1,680.2 1,625.5 3.4 6.6 371.0 350.5 5.8 9.5
======== ======== =========== ============= ====== ====== =========== =============
Trade 642.1 647.8 (0.9) 3.1 83.4 88.7 (6.0) (1.3)
======== ======== =========== ============= ====== ====== =========== =============
Resources 478.9 495.8 (3.4) 0.3 27.4 28.5 (3.9) (0.4)
======== ======== =========== ============= ====== ====== =========== =============
Group 2,801.2 2,769.1 1.2 4.7 481.8 467.7 3.0 6.9
======== ======== =========== ============= ====== ====== =========== =============
A review of the adjusted results of each division in the twelve
months ended 31 December 2018 compared to the twelve months ended
31 December 2017 is set out on the following pages. Revenue,
operating profit and growth rates are presented at actual exchange
rates. In addition, both total and organic growth at constant
exchange rates are presented. Organic growth figures are calculated
by excluding the results of acquisitions and disposals made since 1
January 2017. Operating profit and operating margin are stated
before Separately Disclosed Items. Statutory profit numbers are
shown in note 2.
All comments below reflect adjusted results and growth rates at
constant currency, unless otherwise stated.
Products Divisional Review
2018 2017 Change at Change at
GBPm GBPm actual rates constant rates
======== ======== ==============
Revenue 1,680.2 1,625.5 3.4% 6.6%
Organic revenue 1,654.4 1,620.6 2.1% 5.2%
Operating profit 371.0 350.5 5.8% 9.5%
Operating margin 22.1% 21.6% 50bps 60bps
================== ======== ======== ============== ================
Intertek Value Proposition
Our Products related businesses consist of business lines that
are focused on ensuring the quality and safety of physical
components and products, as well as minimising risk through
assessing the operating processes and quality management systems of
our customers.
As a trusted partner to the world's leading retailers,
manufacturers and distributors, the division supports a wide range
of industries including textiles, footwear, toys, hardlines, home
appliances, consumer electronics, information and communication
technology, automotive, aerospace, lighting, building products,
industrial and renewable energy products, food and hospitality,
healthcare and beauty, and pharmaceuticals.
Across these industries we provide a wide range of ATIC services
including, laboratory safety, quality and performance testing,
second-party supplier auditing, sustainability analysis, product
assurance, vendor compliance, people assurance, process performance
analysis, facility plant & equipment verification and
third-party certification.
Strategy
Our Total Quality Assurance value proposition provides a
systemic approach to support the Quality Assurance efforts of our
Products related customers in each of the areas of their
operations. To do this we leverage our global network of accredited
facilities and world leading technical experts to help our clients
meet high quality safety, regulatory and brand standards, develop
new products, materials and technologies and ultimately assist them
in getting their products to market quicker, in order to
continually meet evolving consumer demands.
Innovations
We continue to invest in innovation to deliver a superior
customer service in our Products related businesses:
360deg Brand Assurance and E-Reputation
-- Customer insight: Our Food Industry customers are taking an
increasingly holistic approach to risk in their supply chain and
organisation; and with the rise of social media, detailed
E-Reputation monitoring is becoming a key part of their risk
management and mitigation strategies
-- Food innovation: Intertek has developed a unique TQA solution
providing an end-to-end mapping of our customers' E-Reputation and
Operational data to deliver tailored 360(o) Brand Assurance
Reports
-- Customer benefit: Our customers now have a 360(o) view of the
risk areas across their food service site networks, as well as ATIC
action plans to mitigate those risks
First and Only Oligonucleotide Expert Centre Globally
-- Customer insight: Our customers' ground-breaking research and
development into DNA or RNA based therapeutics (oligonucleotides)
needs highly experienced analytical scientists and state-of-the-art
technology to enable efficient drug development for the treatment
of diseases including cancer, neurodegenerative disorder and
cardiovascular diseases
-- Chemicals and Pharma innovation: In the UK, Intertek has
established a unique, dedicated centre for regulatory-driven
analytical development and quality control support for
oligonucleotide therapeutics, offering unrivalled product specific
expertise to our global clients. Our world leading oligonucleotide
scientists provide innovative and comprehensive analytical support
throughout the pharmaceutical development lifecycle
-- Customer benefit: With access to Intertek's world leading
subject matter experts and specialist analytical technology, we
empower our clients to ensure the safety, purity and quality of
their oligonucleotide products through highly efficient development
support, helping them to bring their treatments to the market, and
to the patients that need it, faster
Accelerated Screening of Restricted Substances
-- Customer insight: Our customer, a luxury watch manufacturer,
urgently needed to determine whether their product contained any of
950+ banned substances before they could enter a new market
-- Assurance innovation: We provide an accelerated screening
program, supported by our proprietary Material Risk Database, which
contains 50,000+ data points. Through the programme, we assessed
each product component's risk of containing a banned substance. We
then mobilised our extensive lab network to rapidly assess the
material risk components
-- Customer benefit: Thanks to our accelerated screening
programme, our customer was able to enter the new market
successfully and faster than they had expected, benefitting from
Intertek's proprietary technology, lab network and efficient
assurance approach
2018 performance
In 2018 our Products business delivered an excellent performance
with strong margin accretive revenue growth.
Our organic revenue growth at constant rates was 5.2%, driven by
broad-based revenue growth across business lines and geographies.
We delivered a strong operating profit of GBP371.0m, up 9.5% at
constant currency enabling us to deliver a margin of 22.1%, up
60bps versus last year.
-- Our Softlines business reported solid organic growth
performance. We are leveraging the investments we have made to
support the expansion of our customers into new markets and to
seize the exciting growth opportunities in the footwear sector. We
continue to benefit from strong demand from our customers for
chemical testing as well as from a greater number of brands and
SKUs.
-- Our Hardlines and Toy business continues to take advantage of
our strong global account relationships, the expansion of our
customers' supply chains into new markets and our innovative
technology for factory inspections. We delivered good organic
revenue growth performance across our main markets of China, Hong
Kong, India and Vietnam.
-- Our Transportation Technologies business delivered double
digit organic revenue growth as we capitalise on our clients'
investments in new powertrains to lower emissions and increase fuel
efficiency.
-- Our Business Assurance business delivered strong organic
revenue growth as we continue to benefit from the increased focus
of corporations on risk management, resulting in strong growth in
Supply Chain Audits and increased consumer and government focus on
ethical and sustainable supply.
-- We delivered robust organic revenue growth in our Electrical
& Connected World business driven by higher regulatory
standards in energy efficiency and by the increased demand for
wireless devices and cybersecurity.
-- We continue to benefit from the increased focus of
corporations on food safety and delivered robust organic revenue
growth in our Food business.
-- We delivered robust organic revenue growth in our Chemicals
& Pharma business as we continue to leverage the structural
growth opportunities in the healthcare markets in both developed
and emerging economies and we benefited from the increased focus on
product safety and traceability.
-- Driven by the growing demand for more environmentally
friendly and higher quality buildings and infrastructure in the US
market, our Building & Construction business reported robust
organic revenue growth.
2019 growth outlook
We expect our Products division to benefit from good organic
revenue growth at constant currency.
Mid- to long-term growth outlook
Our Products division will benefit from mid- to long-term
structural growth drivers including product variety, brand and
supply chain expansion, product innovation and regulation, the
growing demand for quality and sustainability from developed and
emerging economies, the acceleration of e-commerce as a sales
channel, and the increased corporate focus on risk.
Trade Divisional Review
2018 2017 Change at Change at
GBPm GBPm actual rates constant rates
====== ====== ==============
Revenue 642.1 647.8 (0.9)% 3.1%
Organic revenue 636.5 647.8 (1.7)% 2.2%
Operating profit 83.4 88.7 (6.0)% (1.3)%
Operating margin 13.0% 13.7% (70)bps (60)bps
================== ====== ====== ============== ================
Intertek Value Proposition
Our Trade division consists of three Global Business lines with
similar mid-to long-term global and regional trade structural
growth drivers:
Our Caleb Brett business provides cargo inspection, analytical
assessment, calibration and related research and technical services
to the world's petroleum and biofuels industries.
Our Government & Trade Services ('GTS') business provides
inspection services to governments and regulatory bodies to support
trade activities that help the flow of goods across borders,
predominantly in the Middle East, Africa and South America.
Our AgriWorld business provides analytical and testing services
to global agricultural trading companies and growers.
Strategy
Our Total Quality Assurance value proposition assists our Trade
related customers in protecting the value and quality of their
products during their custody-transfer, storage and transportation,
globally, 24/7. Our expertise, service innovations and advanced
analytical capabilities allow us to optimise the return on our
customers' cargoes and help them resolve difficult technical
challenges. Our independent product assessments provide
peace-of-mind to our government clients that the quality of
products imported into the country meet their standards and import
processes.
Innovations
We continue to invest in innovation to deliver a superior
customer service in our Trade related businesses:
Rapid Response to Extreme Weather Events
-- Customer insight: With the increase in extreme weather events
and the effects of climate change, our Insurance Industry customers
are finding that large and complex 'Catastrophic Loss' claims are
becoming more frequent. The ability of our customers to manage
their risks quickly and safely is vital when dealing with these
claims
-- Trade innovation: Intertek has created a unique 'rapid
response' solution to requests for support on these large and
complex claims, attending the site within 24 hours and working to
assess safety, environmental impacts and to advise on remedial
strategies in mitigating the loss
-- Customer benefit: With Intertek's support, our Insurance
Industry customers are able to mitigate catastrophic losses faster
than ever before, while continuing to ensure safety and
compliance
ScanCal Laser Scanning
-- Customer insight: For Intertek's Caleb Brett customers,
accurate and timely storage tank stock measurement is key for
robust stock management, allowing them to identify stock losses and
loading issues. However, traditional volumetric approaches can
interrupt operations and cause safety risks
-- Caleb Brett innovation: Intertek's proprietary ScanCal
platform uses laser scanning technology to collect and analyse
minutely detailed calibration imaging in real time, avoiding
interrupting operations, cutting calibration time by over 90% and
reducing safety risks
-- Customer benefit: Our customers' newfound ability to identify
issues quickly, accurately and without stopping operations, has
allowed them to realise significant operational efficiency
gains
Scanning Electron Microscopy
-- Customer insight: When the extreme wear conditions of our
customers' mechanical equipment cause concern, they look to
Intertek to determine how this debris was produced and whether this
has implications for the life expectancy of the equipment
-- Caleb Brett innovation: Our experts have leveraged cutting
edge Scanning Electron Microscope technology, not normally used for
this purpose, in an innovative new way. Using this technology, our
experts can analyse the wear debris with unprecedented accuracy
-- Customer benefit: With this new level of accuracy, our
customers can take maintenance and replacement decisions with
confidence, with greater certainty on the condition of their
equipment and the potential impact of any damage on the quality of
the end product and safety of their staff
2018 performance
Our Trade related businesses delivered an organic revenue growth
of 2.2% at constant rates, driven by broad-based revenue growth
across business lines and geographies. Operating profit of GBP83.4m
was down 1.3% at constant currency driven by portfolio mix.
-- Our Caleb Brett business reported solid organic revenue
growth, reflecting the structural growth drivers in the Crude Oil
and Refined Product global trading market.
-- Benefiting from new contracts, our Government & Trade
Services business delivered robust organic revenue growth.
-- Our AgriWorld business delivered an organic revenue lower
than last year due to lower export activities in a few markets that
benefited from strong trading activity in 2017.
2019 growth outlook
We expect our Trade related businesses to benefit from good
organic growth performance at constant currency.
Mid- to long- term growth outlook
Our Trade division will continue to benefit from both regional
and global trade-flow growth, as well as the increased customer
focus on quality, quantity controls and supply chain risk
management.
Resources Divisional Review
2018 2017 Change at Change at
GBPm GBPm actual rates constant rates
====== ====== ==============
Revenue 478.9 495.8 (3.4)% 0.3%
Organic revenue 478.9 495.8 (3.4)% 0.3%
Operating profit 27.4 28.5 (3.9)% (0.4)%
Operating margin 5.7% 5.7% 0bps (10)bps
================== ====== ====== ============== ================
Intertek Value Proposition
Our Resources division consists of two Business Lines
demonstrating similar mid- to long-term structural growth drivers
closely linked to our end-customer capital investment:
Our Industry Services business uses in-depth knowledge of the
oil, gas, nuclear and power industries to provide a diverse range
of Total Quality Assurance solutions to optimise the use of
customers' assets and minimise the risk in their supply chains.
Some of our key services include technical inspection, asset
integrity management, analytical testing and ongoing training
services.
Our Minerals business provides a broad range of ATIC service
solutions to the mining and minerals exploration industries,
covering the resource supply chain from exploration and resource
development, through to production, shipping and commercial
settlement.
Strategy
Our Total Quality Assurance value proposition allows us to help
customers gain peace of mind that their projects will proceed on
time and their assets will continue to operate with a lower risk of
technical failure or delay. Our broad range of services allow us to
assist clients in protecting the quantity and quality of their
mined and drilled products, improve safety and reduce commercial
risk in the trading environment.
Innovations
We continue to invest in innovation to deliver a superior
customer service in our Resources related businesses:
Microwave Interferometry
-- Customer insight: A major petrochemical customer had a vast
network of fibre reinforced plastic piping systems in urgent need
of integrity assessments
-- Industry Services innovation: Intertek's experts developed a
new inspection solution based on an innovative application of the
advanced technique of Microwave Interferometry, allowing for rapid
and precise microwave scanning of the pipelines, delivering
substantial integrity assessment productivity gains
-- Customer benefit: Our customer gained assurance over the
integrity of their piping quickly and without having to stop
operations
Ultrasonic Sensors Incorporated into Intertek Aware
-- Customer insight: Our Oil and Gas customers monitor the
corrosion of their equipment to determine its life expectancy and
to prevent failures. Traditional inspection methods are manual,
involving shutting down equipment, and can present safety risks
when equipment is hard to reach
-- Industry Services innovation: Intertek's experts place remote
ultrasonic sensors on our customers' equipment in precisely the
right areas to measure the rate of corrosion with the greatest
accuracy. The data is automatically fed into Intertek's proprietary
Aware software, where it is analysed to predict when the equipment
should be replaced, before failures occur
-- Customer benefit: Intertek's innovative approach removes the
need for operations to be interrupted and the risk to safety. Our
Aware software empowers our customers to predict equipment
corrosion rates in real time, allowing for timely repairs or
replacement
Extreme Conditions Simulation
-- Customer insight: Our Oil Industry customers see managing
corrosion as vital in protecting our environment from damaging oil
spills. The injection of corrosion inhibitor chemicals is an
important corrosion control strategy
-- Industry Services innovation: To test whether our customers'
corrosion inhibitors will perform reliably, our experts have
developed advanced test methods and equipment to simulate worst
case operating conditions, through manipulating factors including
brine chemistries, flow rates, temperature, acid gas partial
pressures and pipeline condition
-- Customer benefit: Our customers can continue their production
operations with the confidence that the environment and their
equipment are protected
2018 performance
Our Resources related businesses reported an organic revenue
growth of 0.3% at constant currency. We delivered an operating
profit of GBP27.4m, and our disciplined approach to cost control
enabled us to report an operating margin that was broadly
stable:
-- The revenue from Capex Inspection Services was lower than
last year and our Opex Maintenance Services continued to benefit
from stable volume in a price competitive environment.
-- Accelerating the trend seen in 2017, we saw robust growth in
demand for testing activities in the Minerals business.
2019 growth outlook
We expect to deliver a solid organic revenue growth in our
Resources division.
Mid- to long- term growth outlook
Our Resources division will grow in the medium- to long-term as
we benefit from investments in exploration and production of Oil
and Minerals, to meet the demand of the growing population around
the world.
Presentation of Results
For the year ended 31 December 2018
Adjusted Results
In order to present the performance of the Group in a clear,
consistent and comparable format, certain items are disclosed
separately on the face of the income statement. These Separately
Disclosed Items which are described below and in note 3 are
excluded from the adjusted results. The figures discussed in this
review (extracted from the income statement and cash flow) are
presented before Separately Disclosed Items ('SDIs'), except where
stated.
Organic growth
Organic measures are used in order to present the Group's
results excluding the effects of acquisitions and disposals since 1
January 2017.
Constant exchange rates
In order to remove the impact of currency translation from our
growth figures we present revenue and profit growth at constant
exchange rates. This is calculated by translating 2017 results at
2018 exchange rates.
Separately Disclosed Items
SDIs are items which by their nature or size, in the opinion of
the Directors, should be excluded from the adjusted results to
provide readers with a clear and consistent view of the business
performance of the Group and its operating divisions.
Reconciliations of the Statutory to Adjusted Performance Measures
are given below.
When applicable, these SDIs include amortisation of acquisition
intangibles; impairment of goodwill and other assets; the profit or
loss on disposals of businesses or other significant fixed assets;
costs of acquiring and integrating acquisitions; the cost of
fundamental restructuring of a business; material claims and
settlements; significant recycling of amounts from equity to the
income statement; and unrealised market or fair value gains or
losses on financial assets or liabilities, including contingent
consideration.
Adjusted operating profit excludes the amortisation of acquired
intangible assets, primarily customer relationships, as we do not
believe that the amortisation charge in the Income Statement
provides useful information about the cash costs of running our
business as these assets will be supported and maintained by the
ongoing marketing and promotional expenditure, which is already
reflected in operating costs. Amortisation of software, however, is
included in adjusted operating profit as it is similar in nature to
other capital expenditure.
The costs of restructuring are excluded from adjusted operating
profit where they represent fundamental changes in individual
operations around the Group as a result of the portfolio activities
discussed above and are not expected to recur in those operations.
The profit and loss on disposals of businesses or other significant
assets and the costs associated with successful, active or aborted
acquisitions are excluded from adjusted operating profit in order
to provide useful information regarding the underlying performance
of the Group's operations.
Details of the SDIs for the twelve months ended 31 December 2018
and the comparative period are given in note 3 to the Condensed
Consolidated Financial Statements.
Reconciliation of Statutory 2018 Statutory 2018 2018 Adjusted 2017 Statutory 2017 2017 Adjusted
to Adjusted Performance SDIs SDIs
Measures (GBPm)
Operating profit 436.2 45.6 481.8 422.7 45.0 467.7
=============== ======= ============== =============== ======= ==============
Operating margin (%) 15.6% 1.6% 17.2% 15.3% 1.6% 16.9%
=============== ======= ============== =============== ======= ==============
Net financing costs (31.7) 6.4 (25.3) (29.4) 0.5 (28.9)
=============== ======= ============== =============== ======= ==============
Profit before tax 404.5 52.0 456.5 393.3 45.5 438.8
=============== ======= ============== =============== ======= ==============
Income tax expense (99.3) (13.5) (112.8) (86.9) (20.6) (107.5)
=============== ======= ============== =============== ======= ==============
Profit for the year 305.2 38.5 343.7 306.4 24.9 331.3
=============== ======= ============== =============== ======= ==============
Cash flow from operations 580.9 22.0 602.9 579.2 16.9 596.1
=============== ======= ============== =============== ======= ==============
Basic earnings per
share (p) 176.8p 23.9p 200.7p 178.6p 15.5p 194.1p
=============== ======= ============== =============== ======= ==============
Diluted earnings per
share (p) 174.7p 23.6p 198.3p 176.3p 15.3p 191.6p
=============== ======= ============== =============== ======= ==============
Full Year Report
If you require a printed copy of this statement, please contact
the Group Company Secretary. This statement is available on
www.intertek.com.
Legal Notice
This Full Year Report and announcement contain certain forward-looking
statements with respect to the financial condition, results, operations
and business of Intertek Group plc. These statements and forecasts involve
risk and uncertainty because they relate to events and depend upon circumstances
that will occur in the future. There are a number of factors that could
cause actual results or developments to differ materially from those
expressed or implied by these forward-looking statements and forecasts.
Nothing in this announcement should be construed as a profit forecast.
Past performance cannot be relied upon as a guide to future performance.
Condensed Consolidated Income Statement
For the year ended 31 December 2018
Adjusted Separately Disclosed Total Adjusted Separately Disclosed Total
results Items* 2018 results Items* 2017
Notes GBPm GBPm GBPm GBPm GBPm GBPm
===================== ===== ========= ===================== ========= ========= ===================== =========
Revenue 2 2,801.2 - 2,801.2 2,769.1 - 2,769.1
Operating costs (2,319.4) (45.6) (2,365.0) (2,301.4) (45.0) (2,346.4)
===================== ===== ========= ===================== ========= ========= ===================== =========
Group operating
profit/(loss) 2 481.8 (45.6) 436.2 467.7 (45.0) 422.7
===================== ===== ========= ===================== ========= ========= ===================== =========
Finance income 1.8 - 1.8 1.2 - 1.2
Finance expense (27.1) (6.4) (33.5) (30.1) (0.5) (30.6)
===================== ===== ========= ===================== ========= ========= ===================== =========
Net financing costs (25.3) (6.4) (31.7) (28.9) (0.5) (29.4)
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) before
income tax 456.5 (52.0) 404.5 438.8 (45.5) 393.3
Income tax expense (112.8) 13.5 (99.3) (107.5) 20.6 (86.9)
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) for the
year 2 343.7 (38.5) 305.2 331.3 (24.9) 306.4
===================== ===== ========= ===================== ========= ========= ===================== =========
Attributable to:
Equity holders of the
Company 322.9 (38.5) 284.4 312.3 (24.9) 287.4
Non-controlling
interest 20.8 - 20.8 19.0 - 19.0
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) for the
year 343.7 (38.5) 305.2 331.3 (24.9) 306.4
===================== ===== ========= ===================== ========= ========= ===================== =========
Earnings per share
===================== ===== ========= ===================== ========= ========= ===================== =========
Basic 4 200.7p 176.8p 194.1p 178.6p
===================== ===== ========= ===================== ========= ========= ===================== =========
Diluted 4 198.3p 174.7p 191.6p 176.3p
===================== ===== ========= ===================== ========= ========= ===================== =========
Dividends in respect
of the year 99.1p 71.3p
===================== ===== ========= ===================== ========= ========= ===================== =========
* See note 3.
Condensed Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
Notes GBPm GBPm
============================================================================ ===== ====== =======
Profit for the year 2 305.2 306.4
============================================================================ ===== ====== =======
Other comprehensive income/(expense)
Remeasurements on defined benefit pension schemes (0.8) 12.6
Tax on items that will never be reclassified to profit or loss (0.5) (1.7)
============================================================================ ===== ====== =======
Items that will never be reclassified to profit or loss (1.3) 10.9
Foreign exchange translation differences of foreign operations 45.3 (107.3)
Net exchange (loss)/gain on hedges of net investments in foreign operations (32.6) 77.3
Gain/(loss) on fair value of cash flow hedges 1.1 (16.4)
Items that are or may be reclassified subsequently to profit or loss 13.8 (46.4)
============================================================================ ===== ====== =======
Total other comprehensive (expense)/income for the year 12.5 (35.5)
============================================================================ ===== ====== =======
Total comprehensive income for the year 317.7 270.9
============================================================================ ===== ====== =======
Total comprehensive income for the year attributable to:
Equity holders of the Company 299.7 252.2
Non-controlling interest 18.0 18.7
============================================================================ ===== ====== =======
Total comprehensive income for the year 317.7 270.9
============================================================================ ===== ====== =======
Condensed Consolidated Statement of Financial Position
For the year ended 31 December 2018
2018 2017
Notes GBPm GBPm
==================================================== ===== ========= =========
Assets
Property, plant and equipment 9 441.2 420.6
Goodwill 8 874.9 579.6
Other intangible assets 329.5 178.2
Investments in associates 0.3 0.3
Deferred tax assets 58.4 59.4
==================================================== ===== ========= =========
Total non-current assets 1,704.3 1,238.1
==================================================== ===== ========= =========
Inventories* 18.3 18.3
Trade and other receivables* 684.4 641.7
Cash and cash equivalents 7 206.9 137.0
Current tax receivable 19.7 17.3
==================================================== ===== ========= =========
Total current assets 929.3 814.3
==================================================== ===== ========= =========
Total assets 2,633.6 2,052.4
==================================================== ===== ========= =========
Liabilities
Interest bearing loans and borrowings 7 (138.3) (77.1)
Current taxes payable (62.5) (46.8)
Trade and other payables* (515.1) (452.2)
Provisions* (26.8) (32.2)
==================================================== ===== ========= =========
Total current liabilities (742.7) (608.3)
==================================================== ===== ========= =========
Interest bearing loans and borrowings 7 (846.8) (604.0)
Deferred tax liabilities (80.8) (47.4)
Net pension liabilities 5 (12.5) (17.8)
Other payables* (26.5) (21.6)
Provisions* (16.0) (9.1)
==================================================== ===== ========= =========
Total non-current liabilities (982.6) (699.9)
==================================================== ===== ========= =========
Total liabilities (1,725.3) (1,308.2)
==================================================== ===== ========= =========
Net assets 908.3 744.2
==================================================== ===== ========= =========
Equity
Share capital 1.6 1.6
Share premium 257.8 257.8
Other reserves 7.1 (9.5)
Retained earnings 607.5 459.8
==================================================== ===== ========= =========
Total attributable to equity holders of the Company 874.0 709.7
Non-controlling interest 34.3 34.5
==================================================== ===== ========= =========
Total equity 908.3 744.2
==================================================== ===== ========= =========
Working capital of GBP109.7m (2017: GBP138.3m) comprises the
asterisked items in the above Statement of Financial Position less
refundable deposits aged over 12 months of GBP8.6m (2017:
GBP6.6m).
Condensed Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Attributable to equity holders of the
Company
======================================================================
Other Reserves
=====================
Total
before
Share Share Translation Retained non-controlling Non-controlling Total
capital premium reserve Other earnings interest interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======== ======== ============ ======= ========= ================ ================ ========
At 1 January
2017 1.6 257.8 14.6 20.7 273.0 567.7 34.7 602.4
Total
comprehensive
income for the
year
Profit - - - - 287.4 287.4 19.0 306.4
Other
comprehensive
income - - (28.4) (16.4) 9.6 (35.2) (0.3) (35.5)
================= ======== ======== ============ ======= ========= ================ ================ ========
Total
Comprehensive
income for the
year - - (28.4) (16.4) 297.0 252.2 18.7 270.9
================= ======== ======== ============ ======= ========= ================ ================ ========
Transactions
with owners
of the company
recognised
directly in
equity
Contributions by
and
distributions to
the
owners of the
company
Dividends paid - - - - (107.0) (107.0) (18.7) (125.7)
Adjustments
arising
from changes in
non-controlling
interest - - - - - - (0.2) (0.2)
Issue of share - - - - - - - -
capital
Purchase of own
shares - - - - (15.6) (15.6) - (15.6)
Tax paid on
share awards
vested* - - - - (6.8) (6.8) - (6.8)
Equity-settled
transactions - - - - 17.5 17.5 - 17.5
Income tax on
equity-settled
transactions - - - - 1.7 1.7 - 1.7
================= ======== ======== ============ ======= ========= ================ ================ ========
Total
contributions
by and
distributions
to the owners
of the
company - - - - (110.2) (110.2) (18.9) (129.1)
================= ======== ======== ============ ======= ========= ================ ================ ========
At 31 December
2017 1.6 257.8 (13.8) 4.3 459.8 709.7 34.5 744.2
================= ======== ======== ============ ======= ========= ================ ================ ========
At 1 January
2018 1.6 257.8 (13.8) 4.3 459.8 709.7 34.5 744.2
Total
comprehensive
income for the
year
Profit - - - - 284.4 284.4 20.8 305.2
Other
comprehensive
income - - 15.5 1.1 (1.3) 15.3 (2.8) 12.5
================= ======== ======== ============ ======= ========= ================ ================ ========
Total
Comprehensive
income for the
year - - 15.5 1.1 283.1 299.7 18.0 317.7
================= ======== ======== ============ ======= ========= ================ ================ ========
Transactions
with owners
of the company
recognised
directly in
equity
Contributions by
and
distributions to
the
owners of the
company
Dividends paid** - - - - (128.3) (128.3) (18.2) (146.5)
Adjustments - - - - - - - -
arising
from changes in
non-controlling
interest
Issue of share - - - - - - - -
capital
Purchase of own
shares - - - - (16.7) (16.7) - (16.7)
Tax paid on
share awards
vested* - - - - (9.9) (9.9) - (9.9)
Equity-settled
transactions - - - - 20.9 20.9 - 20.9
Income tax on
equity-settled
transactions - - - - (1.4) (1.4) - (1.4)
================= ======== ======== ============ ======= ========= ================ ================ ========
Total
contributions
by and
distributions
to the owners
of the
company - - - - (135.4) (135.4) (18.2) (153.6)
================= ======== ======== ============ ======= ========= ================ ================ ========
At 31 December
2018 1.6 257.8 1.7 5.4 607.5 874.0 34.3 908.3
================= ======== ======== ============ ======= ========= ================ ================ ========
* The tax paid on share awards vested is related to settlement
of the tax obligation on behalf of employees by the Group via the
sale of a portion of the equity-settled shares.
** A dividend of GBP76.9m paid on 6 June 2018 represented the
final dividend of 47.8p per ordinary share in respect of the year
ended 31 December 2017. An interim dividend of GBP51.4m paid on 4
October 2018 represented the interim dividend of 31.9p per ordinary
share in respect of the year ended 31 December 2018.
Condensed Consolidated Statement of Cash Flows
For the year ended 31 December 2018
2018 2017
Notes GBPm GBPm
================================================================================ ===== ======= =======
Cash flows from operating activities
Profit for the year 2 305.2 306.4
Adjustments for:
Depreciation charge 76.2 81.2
Amortisation of software 12.5 12.2
Amortisation of acquisition intangibles 24.6 16.0
Impairment of goodwill and other assets - 18.2
Equity-settled transactions 20.9 17.5
Net financing costs 31.7 29.4
Income tax expense 2 99.3 86.9
Profit on disposal of subsidiary (1.1) -
Profit on disposal of property, plant, equipment and software 0.4 (0.8)
================================================================================ ===== ======= =======
Operating cash flows before changes in working capital and operating provisions 569.7 567.0
Change in inventories 1.0 (0.5)
Change in trade and other receivables (16.0) (22.7)
Change in trade and other payables 35.2 46.0
Change in provisions (7.0) (7.8)
Special contributions into pension schemes (2.0) (2.8)
================================================================================ ===== ======= =======
Cash generated from operations 580.9 579.2
Interest and other finance expense paid (29.3) (28.3)
Income taxes paid (93.1) (100.8)
================================================================================ ===== ======= =======
Net cash flows generated from operating activities * 458.5 450.1
================================================================================ ===== ======= =======
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and software * 3.5 3.2
Interest received * 1.8 1.2
Acquisition of subsidiaries, net of cash acquired 8 (387.9) (27.4)
Consideration paid in respect of prior period acquisitions 8 0.1 (7.8)
Acquisition of property, plant, equipment and software * 9 (113.2) (112.9)
================================================================================ ===== ======= =======
Net cash flows used in investing activities (495.7) (143.7)
================================================================================ ===== ======= =======
Cash flows from financing activities
Purchase of own shares (16.7) (15.6)
Tax paid on share awards vested (9.9) (6.8)
Drawdown of borrowings 341.4 -
Repayment of borrowings (75.9) (151.3)
Dividends paid to non-controlling interest (18.2) (18.7)
Equity dividends paid (128.3) (107.0)
================================================================================ ===== ======= =======
Net cash flows used in financing activities 92.4 (299.4)
================================================================================ ===== ======= =======
Net increase in cash and cash equivalents 7 55.2 7.0
Cash and cash equivalents at 1 January 7 135.9 158.8
Exchange adjustments 7 12.1 (29.9)
================================================================================ ===== ======= =======
Cash and cash equivalents at 31 December 7 203.2 135.9
================================================================================ ===== ======= =======
Adjusted Cash flow from operations of GBP602.9m (2017:
GBP596.1m) comprises statutory cash generated from operations of
GBP580.9m (2017: GBP579.2m) before cash outflows relating to
Separately Disclosed Items of GBP22.0m (2017: GBP16.9m). Free cash
flow of GBP350.6m (2017: GBP341.6m) comprises the asterisked items
in the above Statement of Cash Flows.
1 Basis of preparation
Reporting entity
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2018
and 2017, but is derived from the 2018 accounts. A full copy of the
2018 Annual Report will be available online at www.intertek.com in
April 2019. Statutory accounts for 2017 have been delivered to the
Registrar of Companies, and those for 2018 will be delivered in due
course. The auditors have reported on those accounts; their reports
were (i) unqualified, (ii) did not include references to any
matters to which the auditors drew attention by way of emphasis
without qualifying their reports and (iii) did not contain
statements under Sections 498(2) or 498(3) of the Companies Act
2006.
The preparation of the financial statements requires management
to make estimates and assumptions that affect the reported amount
of revenues, expenses, assets and liabilities at the date of the
financial statements. If in the future such estimates and
assumptions, which are based on management's best judgement at the
date of the financial statements, deviate from the actual
circumstances, the original estimates and assumptions will be
modified as appropriate in the year in which the circumstances
change.
Significant new accounting policies
IFRS 9 Financial Instruments came into effect on 1 January 2018.
Management has performed its reviews of the standard, and
identified the following areas of note, although there is no
material impact in the year ending 31 December 2018 as a result of
implementing the new standard. The Group has applied the limited
exemption in IFRS 9 and has elected not to restate comparative
information in the year of adoption. As a result, the comparative
information provided has been accounted for in accordance with
Group's previous accounting policy.
-- Classification and measurement of financial assets - the
Group's financial assets comprise trade receivables, accrued income
and cash and cash equivalents. The disclosures relating to both
trade receivables, accrued income and cash and cash equivalents
continue to be applicable and have not been affected by the
adoption of IFRS 9. There are no changes to the measurement of
financial assets.
-- Impairment of financial assets, by introducing a
forward-looking expected loss impairment model - the Group's
primary types of financial assets subject to IFRS 9's new expected
credit loss model are trade receivables and accrued income. For
trade receivables and accrued income, the Group has applied the
simplified approach permitted by IFRS 9, which requires the use of
the lifetime expected loss provision for all receivables, whereas
IAS 39 operated under an incurred loss model and would only
recognise impairments when there was objective evidence. There has
been no material change to the impairment provision of
receivables.
-- Hedge accounting - the Group has continued to apply its
current IAS 39 accounting and has provided additional IFRS 7
disclosures required for taking that option.
IFRS 15 Revenue from contracts with customers came into effect
on 1 January 2018. During the year ended 31 December 2017 the Group
carried out a detailed review of the recognition criteria for
revenue applying the requirements of IFRS 15 and to ensure that the
same principles were being applied consistently across the Group.
Management assessed the potential impact of IFRS 15 by i)
discussing the changes in accounting for revenue under the new
standard with major countries and business lines; ii) reviewing a
cross section of different revenue contracts across the Group; and
iii) considering the impact of IFRS 15 on both short-term and
long-term contracts. Specifically, the Group's revenue streams are
two-fold:
-- Revenue from services rendered on short-term projects is
generally recognised in the income statement when the relevant
service is completed, usually when the report of findings or
test/inspection certificate is issued. The adoption of IFRS 15 has
no material impact on the recognition of such revenue.
-- On long-term projects the Group records transactions as
revenue on the basis of value of work done, with the corresponding
amount being included in trade receivables if the customer has been
invoiced, or in contract assets if billing has yet to be completed.
Long-term projects consist of two main types:
- time incurred is billed at agreed rates on a periodic basis,
such as monthly. The current recognition approach is based on
timesheets evidencing work done, this is consistent with the "over
time" recognition criteria under IFRS 15 using those timesheets as
the input basis; or
- staged payment invoicing occurs, requiring an assessment of
percentage completion, based on services provided and revenue
accrued accordingly. Assessment of percentage completion has
continued in the same way, this is in line with the "over time"
recognition under IFRS 15.
Whilst IAS 18 is based on deliverables and risks and rewards of
transfer, IFRS 15 identifies performance obligations. There may be
more than one performance obligation per contract, for example
Alchemy Training Solutions contracts have multiple elements which
are split between recognising revenue at a point in time for
services such as software licences and over time for other services
delivered under the same contract. The application to the Group's
long and short-term contracts remains the same. IFRS 15 provides
guidance on variable consideration that was not included under IAS
18, however no material variable consideration exists within the
Group. IFRS 15 has been implemented retrospectively, but the
comparative figures have not been restated because the new standard
does not have a material impact on the timing of revenue
recognition based on the Group's current revenue streams. The
economic factors affecting revenue for both short-term and
long-term contracts are consistent within each. The operating
segment revenue disclosures (note 2) provided under IFRS 8 are
consistent with the disaggregated revenue disclosure and
recognition and measurement requirements of IFRS 15
IFRS 16 effective 1 January 2019
IFRS 16 Leases (effective 1 January 2019) - IFRS 16 requires
that, to the extent that a right-of-control exists over an asset
subject to a lease, with a lease term exceeding one year and
subject to exceptions for leases of low value assets, a
right-of-use asset, representing the Group's right to use the
underlying leased asset and a lease liability representing the
Group's obligation to make lease payments, are recognised in the
consolidated statement of financial position at the commencement of
the lease.
The Group will be applying the modified retrospective approach,
where the cumulative effect of applying IFRS 16 is recognised in
retained earnings with no restatement to prior years.
On transition, the majority of leases will be recognised using
modified retrospective B, whereby the right-of-use asset is equal
to the lease liability at 1 January 2019, being the present value
of the remaining future minimum lease payments at the date of
initial application, including any early termination or extension
options if they are deemed reasonably certain to be adopted. For
certain leases the modified retrospective A approach will be
applied, whereby the right-of-use asset recognised at 1 January
2019 is equal to the right-of-use asset had IFRS 16 been applied
since the beginning of the lease.
The Group has applied the practical expedient within the
standard whereby IFRS 16 has been applied to contracts that were
previously identified as leases when applying IAS 17 Leases and
IFRIC 4 Determining whether an Arrangement contains a Lease.
Management has completed the data collection exercise to
determine the estimated quantitative impact of IFRS 16 on the
Group's net assets and results as if IFRS 16 had been effective
from 1 January 2018:
-- The Group's assets would increase by between GBP230m and
GBP250m and liabilities would increase by between GBP250m and
GBP270m. The overall impact on the Group's statement of financial
position as at 31 December 2018 is expected to be a reduction in
the Group's net assets of GBP20m.
-- Operating lease rental charges for those leases accounted for
under IFRS 16 are replaced by depreciation and finance costs. The
impact on the Group's 2018 income statement is not material.
IFRS 16 will primarily affect the accounting for the Group's
operating leases, to which the Group had commitments of GBP304m at
31 December 2018 as reported in Note 8 of the Annual Report and
Accounts. This is the gross value and does not reflect a
discounting of the commitments to their present value, as required
by IFRS 16. IFRS 16 will not have any impact on the underlying
commercial performance of the Group, nor the cash flows generated
in the year. There are no other standards that are not yet
effective and that would be expected to have a material impact on
the entity in the current or future reporting periods and on future
transactions.
Risks and uncertainties
The Board has reviewed forecasts, including forecasts adjusted
for significantly worse economic conditions, and remains satisfied
with the Group's funding and liquidity position. On the basis of
its forecasts, both base case and stressed, and available
facilities, the Board has concluded that the going concern basis of
preparation continues to be appropriate.
Foreign exchange
The assets and liabilities of foreign operations, including
goodwill arising on acquisition, are translated to sterling at
foreign exchange rates ruling at the reporting date. The income and
expenses of foreign operations are translated into sterling at
cumulative average rates of exchange during the year.
The most significant currencies for the Group were translated at
the following exchange rates:
Assets and liabilities Income and expense
Value of GBP1 Actual rates Cumulative average rates
2018 2017 2018 2017
=================== ================== ===================== ===================== =====================
US dollar 1.26 1.34 1.34 1.29
Euro 1.11 1.13 1.13 1.14
Chinese renminbi 8.69 8.79 8.84 8.72
Hong Kong dollar 9.90 10.47 10.47 10.05
Australian dollar 1.80 1.72 1.79 1.68
=================== ================== ===================== ===================== =====================
2 Operating Segments
Business analysis
The Group is organised into business lines which are the Group's
operating segments. These operating segments are aggregated into
three divisions, which are the Group's reportable segments. These
three divisions, each of which offers services to different
industries are: Products, Trade and Resources. The costs of the
corporate head office and other costs which are not controlled by
the three divisions are allocated in an appropriate manner. These
divisions are the basis on which the Group reports its primary
segment information. A description of the activity in each division
is given in the Operating Review by Division. The results of the
divisions are shown below:
For the year ended 31 December 2018
Revenue from Depreciation and
external software Adjusted Separately
customers amortisation operating profit Disclosed Items Operating profit
GBPm GBPm GBPm GBPm GBPm
=================== ================== ================== ================== ================== =================
Products 1,680.2 (58.6) 371.0 (26.5) 344.5
Trade 642.1 (19.2) 83.4 (5.1) 78.3
Resources 478.9 (10.9) 27.4 (14.0) 13.4
Group total 2,801.2 (88.7) 481.8 (45.6) 436.2
=================== ================== ================== ================== ================== =================
Group operating
profit 481.8 (45.6) 436.2
Net financing
costs (25.3) (6.4) (31.7)
=================== ================== ================== ================== ================== =================
Profit before
income tax 465.5 (52.0) 404.5
Income tax expense (112.8) 13.5 (99.3)
=================== ================== ================== ================== ================== =================
Profit for the
year 343.7 (38.5) 305.2
=================== ================== ================== ================== ================== =================
For the year ended 31 December 2017
Revenue from Depreciation and
external software Adjusted Separately
customers amortisation operating profit Disclosed Items Operating profit
GBPm GBPm GBPm GBPm GBPm
=================== ================== ================== ================== ================== =================
Products 1,625.5 (60.3) 350.5 (15.0) 335.5
Trade 647.8 (19.9) 88.7 (5.9) 82.8
Resources 495.8 (13.2) 28.5 (24.1) 4.4
Group total 2,769.1 (93.4) 467.7 (45.0) 422.7
=================== ================== ================== ================== ================== =================
Group operating
profit 467.7 (45.0) 422.7
Net financing
costs (28.9) (0.5) (29.4)
=================== ================== ================== ================== ================== =================
Profit before
income tax 438.8 (45.5) 393.3
Income tax expense (107.5) 20.6 (86.9)
=================== ================== ================== ================== ================== =================
Profit for the
year 331.3 (24.9) 306.4
=================== ================== ================== ================== ================== =================
3 Separately Disclosed Items
2018 2017
GBPm GBPm
================================================= ===== ======= =======
Operating costs
Amortisation of acquisition intangibles (a) (24.6) (16.0)
Acquisition costs (b) (8.5) (3.2)
Restructuring costs (c) (13.6) (12.4)
Gain on disposal of businesses (d) 1.1 -
Impairment of goodwill and other assets (e) - (16.8)
Material claims and settlements (f) - 3.4
================================================= ===== ======= =======
Total operating costs (45.6) (45.0)
Net financing costs (g) (6.4) (0.5)
================================================= ===== ======= =======
Total before income tax (52.0) (45.5)
Income tax credit on Separately Disclosed Items 13.5 20.6
======================================================== ======= =======
Total (38.5) (24.9)
======================================================== ======= =======
(a) Of the amortisation of acquisition intangibles in the
current year, GBP3.6m (2017: GBPnil) relates to the customer
relationships, trade names, technology and non-compete covenants
acquired with the purchase of Alchemy Investment Holdings, Inc
("Alchemy") in 2018.
(b) Acquisition costs comprise GBP8.5m (2017: GBP3.6m) in
respect of successful, active and aborted acquisitions in the
current year and GBPnil income in respect of prior years'
acquisitions (2017: GBP0.4m income).
(c) During the year, the Group has implemented various
fundamental restructuring activities, consistent with the Group's
'5x5' strategy. These activities included site consolidations,
closure of non-core business units, re-engineering of
underperforming businesses and the delayering of management
structures.
(d) GBP1.1m of small non-core businesses were disposed of in
2018 (2017: GBPnil).
(e) No impairment charges have been recorded in 2018. Consistent
with the corporate '5x5' strategy objective of "Superior
Technology" announced in 2016, the Group recorded an impairment of
other assets of GBP8.0m in 2017 following a comprehensive strategic
review of the Global IT organisation structure and system finalised
in April 2017. In addition, in 2017 GBP8.8m of plant and equipment
was impaired in full, related to a specific service line in the
Resources division that is no longer an area of focus for the
Group.
(f) Material claims and settlements relates to a favourable
settlement of a commercial claim in 2017 that was separately
disclosable due to its size.
(g) Net financing costs of GBP6.4m (2017: GBP0.5m) relate to the
change in fair value of contingent consideration and the unwinding
of discount on put options related to acquisitions.
4 Earnings per share
2018 2017
GBPm GBPm
================================================== ======= =======
Based on the profit for the year:
Profit attributable to ordinary shareholders 284.4 287.4
Separately Disclosed Items after tax (note 3) 38.5 24.9
================================================== ======= =======
Adjusted earnings 322.9 312.3
================================================== ======= =======
Number of shares (millions):
Basic weighted average number of ordinary shares 160.9 160.9
Potentially dilutive share awards 1.9 2.1
================================================== ======= =======
Diluted weighted average number of shares 162.8 163.0
================================================== ======= =======
Basic earnings per share 176.8p 178.6p
Potentially dilutive share awards (2.1)p (2.3)p
================================================== ======= =======
Diluted earnings per share 174.7p 176.3p
================================================== ======= =======
Adjusted basic earnings per share 200.7p 194.1p
Potentially dilutive share awards (2.4)p (2.5)p
================================================== ======= =======
Adjusted diluted earnings per share 198.3p 191.6p
================================================== ======= =======
5 Pension schemes
During the year, the Group made a special cash contribution of
GBP2.0m (2017: GBP2.8m) into The Intertek Pension Scheme in line
with a Minimum Funding Requirement agreement.
The significant actuarial assumptions used in the valuation of
the Group's material defined benefit pension schemes as at 31
December 2018 have been reviewed. The discount and inflation rates
used to value the pension liabilities, as well as the updated asset
valuations and the net pension liabilities, have not moved
materially since 31 December 2017. In addition to the special
contribution, a net actuarial loss before taxation of GBP0.8m
(2017: actuarial gain of GBP12.6m) has been recognised in the
consolidated statement of comprehensive income. The net pension
liability stands at GBP12.5m at 31 December 2018 (31 December 2017:
GBP17.8m).
The expense recognised in the consolidated income statement for
the Group's material defined benefit pension schemes consists of
interest on the obligation for employee benefits and the expected
return on scheme assets. The Group recognised a net expense of
GBP0.4m in the year (2017: GBP0.7m).
The Group has noted the recent High Court ruling regarding
guaranteed minimum pension liabilities and our work to quantify the
impact is underway, although it is not expected to be meaningful.
In 2018, the Group recorded a GBP5.4m (2017: nil) pension
curtailment gain on the UK defined benefit scheme.
6 Equity-settled transactions
During the year, the Group recognised an expense of GBP20.9m in
respect of the share awards made in 2015, 2016, 2017 and 2018. For
2017, the charge was GBP17.5m in respect of the share awards made
in 2014, 2015, 2016 and 2017. Under the 2011 Long Term Incentive
Plan in 2018, Deferred Share Awards granted had an average fair
value of 4,751p and LTIP Share Awards EPS element and TRS element
had average fair values of 4,651p and 2,608p respectively. Under
the Deferred Share Plan in 2018, Deferred Share Awards granted had
an average fair value of 4,516p.
Under the 2011 Long-Term Incentive Plan, 308,885 Deferred Share
Awards (previously Share Awards) (2017: 317,302) and 338,386 LTIP
Share Awards (previously Performance Awards) (2017: 369,342) were
granted during the period and, under the Deferred Share Plan,
103,086 Deferred Share Awards (2017: 44,915) were granted during
the year.
7 Analysis of net debt
2018 2017
GBPm GBPm
=================================================================== ====== ======
Cash and cash equivalents per the Statement of Financial position 206.9 137.0
Overdrafts (3.7) (1.1)
=================================================================== ====== ======
Cash per the Statement of Cash Flows 203.2 135.9
=================================================================== ====== ======
The components of net debt are outlined below:
1 January 31 December
2018 Cash flow Non-cash movements Exchange adjustments 2018
GBPm GBPm GBPm GBPm GBPm
==================================== ========== ========== =================== ===================== ============
Cash 135.9 55.2 - 12.1 203.2
==================================== ========== ========== =================== ===================== ============
Borrowings:
Revolving credit facility US$800m
2021 (153.9) (223.8) - (7.1) (384.8)
Bilateral term loan facilities
US$100m 2018 (74.6) 74.6 - - -
Senior notes US$20m 2019 (15.0) - - (0.8) (15.8)
Senior notes US$150m 2020 (112.0) - - (6.6) (118.6)
Senior notes US$15m 2021 (11.1) - - (0.7) (11.8)
Senior notes US$140m 2022 (104.5) - - (6.2) (110.7)
Senior notes US$40m 2023 (29.8) - - (1.8) (31.6)
Senior notes US$125m 2024 (93.4) - - (5.5) (98.9)
Senior notes US$40m 2025 (29.9) - - (1.8) (31.7)
Senior notes US$75m 2026 (55.9) - - (3.4) (59.3)
Other* 0.1 (116.3) (0.8) (1.2) (118.2)
==================================== ========== ========== =================== ===================== ============
Total borrowings (680.0) (265.5) (0.8) (35.1) (981.4)
==================================== ========== ========== =================== ===================== ============
Total net debt (544.1) (210.3) (0.8) (23.0) (778.2)
==================================== ========== ========== =================== ===================== ============
* Includes other uncommitted borrowings of GBP118.6m and
facility fees of GBP0.9m (2017: GBP2.1m).
2018 2017
GBPm GBPm
====================================== ====== ======
Borrowings due in less than one year 134.6 76.0
Borrowings due in one to two years 118.2 14.2
Borrowings due in two to five years 538.9 380.9
Borrowings due in over five years 189.7 208.9
====================================== ====== ======
Total borrowings 981.4 680.0
====================================== ====== ======
Description of borrowings
Total undrawn committed borrowing facilities as at 31 December
2018 were GBP247.9m (2017: GBP443.2m).
US$800m revolving credit facility
The Group's principal bank facility comprises a US$800m
multi-currency revolving credit facility. In July 2016, US$672m of
the facility was extended to July 2021. Advances under the facility
bear interest at a rate equal to LIBOR, or their local currency
equivalent, plus a margin, depending on the Group's leverage.
Drawings under this facility at 31 December 2018 were GBP384.8m
(2017: GBP153.9m).
Bilateral term loan facility
On 21 December 2012 the Group signed a US$20m bilateral term
loan which was increased on 4 April 2014 to US$40m. This facility
was further increased in November 2015 to US$100m. This facility
was fully repaid in June 2018. Drawings under this facility at 31
December 2018 were GBPnil (2017: GBP74.6m).
Private placement bonds
In December 2010 the Group issued US$250m of senior notes. These
notes were issued in two tranches with US$100m repaid on 15
December 2017 at a fixed annual interest rate of 3.2% and US$150m
repayable on 15 December 2020 at a fixed annual interest rate of
3.91%.
In October 2011 the Group issued US$265m of senior notes. These
notes were issued in three tranches with US$20m repayable on 18
January 2019 at a fixed annual interest rate of 3.0%, US$140m
repayable on 18 January 2022 at a fixed annual interest rate of
3.75% and US$105m repayable on 18 January 2024 at a fixed annual
interest rate of 3.85%.
In February 2013 the Group issued US$80m of senior notes. These
notes were issued in two tranches with US$40m repayable on 14
February 2023 at a fixed annual interest rate of 3.10% and US$40m
repayable on 14 February 2025 at a fixed annual interest rate of
3.25%.
In July 2014 the Group issued US$110m of senior notes. These
notes were issued in four tranches with US$15m repayable on 31 July
2021 at a fixed annual interest rate of 3.37%, US$20m repayable on
31 July 2024 at a fixed annual interest rate of 3.86%, US$60m
repayable on 31 October 2026 at a fixed annual interest rate of
4.05% and US$15m repayable on 31 December 2026 at a fixed annual
interest rate of 4.10%.
8 Acquisition of businesses
(a) Acquisitions
The total cash consideration paid for the acquisitions in the
year was GBP387.9m (2017: GBP27.4m), net of cash and debt acquired
of GBP5.6m (2017: GBP2.1m), with further contingent consideration
payable of GBP0.7m. The estimated total purchase price net of cash
and debt acquired was GBP388.6m.
On 20 August 2018, the Group acquired Alchemy Investment
Holdings, Inc. ("Alchemy"), an industry leader in People Assurance
solutions for the food industry, for an estimated purchase price of
GBP378.5m, (GBP375.3m net of cash acquired), generating goodwill of
GBP270.6m.
On 6 March 2018, the Group acquired Aldo Abela Surveys Limited
("AAS"), a leading provider of quality and quantity cargo
inspection services, based in Malta. On 30 April 2018, the Group
acquired Proasem S.A.S. ("Proasem"), a leading provider of
laboratory testing, inspection, metrology and training services,
based in Colombia. On 5 June 2018, the Group acquired NTA Monitor
Limited ("NTA"), a leading network security and assurance services
provider, based in the UK and Malaysia. The purchase price for
these three acquisitions was of GBP15.7m (GBP13.3m net of cash
acquired, of which GBP0.7m has been paid in January 2019),
generating goodwill of GBP7.7m.
Provisional details of the net assets acquired and fair value
adjustments are set out in the following tables. These analyses are
provisional and amendments may be made to these figures in the 12
months following the date of acquisition.
Book value Provisional Fair value
Alchemy Investment Holdings, Inc prior to Fair value to Group
acquisition adjustments on acquisition
GBPm GBPm GBPm
===================================== ============= ============= ================
Property, plant and equipment 1.8 - 1.8
Goodwill 20.9 249.7 270.6
Other intangible assets 14.9 123.0 137.9
Inventories 2.1 (1.7) 0.4
Trade and other receivables 10.3 (0.6) 9.7
Trade and other payables (23.7) 10.1 (13.6)
Deferred tax liabilities 0.5 (32.0) (31.5)
===================================== ============= ============= ================
Net assets acquired 26.8 348.5 375.3
===================================== ============= ============= ================
Cash outflow (net of cash acquired) 375.3
Contingent consideration -
===================================== ============= ============= ================
Total consideration 375.3
===================================== ============= ============= ================
Others Book value Provisional Fair value
prior to Fair value to Group
acquisition adjustments on acquisition
GBPm GBPm GBPm
===================================== ============= ============= ================
Property, plant and equipment 3.2 (0.2) 3.0
Goodwill - 7.7 7.7
Other intangible assets - 6.2 6.2
Trade and other receivables 2.9 (0.4) 2.5
Trade and other payables (4.2) (0.3) (4.5)
Deferred tax liabilities - (1.6) (1.6)
===================================== ============= ============= ================
Net assets acquired 1.9 11.4 13.3
===================================== ============= ============= ================
Cash outflow (net of cash acquired) 13.3
Contingent consideration -
===================================== ============= ============= ================
Total consideration 13.3
===================================== ============= ============= ================
The total goodwill arising on acquisitions made during 2018 was
GBP278.3m, none of which is expected to be deductible for tax
purposes. Goodwill in respect of 2017 acquisitions decreased by
GBP6.5m. The goodwill arising represents the value of the assembled
workforce and the benefits the Company expects to gain from
increasing its presence in the relevant sectors in which the
acquired businesses operate. The intangible assets of GBP144.1m
primarily represent the value placed on customer relationships and
the deferred tax thereon was GBP33.1m.
(b) Acquisitions subsequent to the balance sheet date
There were no acquisitions subsequent to the balance sheet
date.
(c) Prior period acquisitions
GBP0.1m (2017: GBP7.8m) was paid during the year in respect of
prior period acquisitions.
(d) Impact of acquisitions on the Group results
In total, acquisitions made during 2018 contributed revenues of
GBP18.5m and a statutory net loss after tax of GBP4.3m from their
respective dates of acquisition to 31 December 2018. The Group
revenue and statutory profit after tax for the year ended 31
December 2018 would have been GBP2,829.6m and GBP298.7m
respectively if all the acquisitions were assumed to have been made
on 1 January 2018.
(e) Details of 2017 acquisitions
Full details of acquisitions made in the year ended 31 December
2017 are disclosed in note 10 to the Annual Report for 2017.
(f) Impairment
Past acquisitions generated goodwill, which has been tested
annually as required by accounting standards. No impairment was
required; however due to the prevailing market conditions, this
will be kept under review.
(g) Reconciliation of goodwill
GBPm
================================ ======
Goodwill at 1 January 2018 579.6
Additions 278.3
Foreign exchange and transfers 17.0
Goodwill at 31 December 2018 874.9
================================ ======
9 Property, plant, equipment and software
During the year ended 31 December 2018, the Group acquired fixed
assets with a cost of GBP111.0m (2017: GBP112.9m). In addition, the
Group acquired fixed assets of GBP5.0m (2017: GBP0.7m) through
business combinations (note 8).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR CKQDPDBKBONK
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