TIDMITRK
RNS Number : 4658H
Intertek Group PLC
01 August 2019
For a printer friendly version of this announcement, please
click on the link below:
http://www.rns-pdf.londonstockexchange.com/rns/4658H_1-2019-7-31.pdf
2019 HALF YEAR RESULTS ANNOUNCEMENT
1 AUGUST 2019
CONTINUOUS PROGRESS ON REVENUE, MARGIN AND CASH
-- Robust group revenue of GBP1.443bn: +4.9% at constant rates, +7.0% at actual rates
-- Broad based organic revenue growth of +3.0% at constant
rates: Products +2.1%, Trade +5.1%, Resources +3.5%
-- 1.9% revenue growth from acquisitions in attractive growth and margin sectors
-- 6.8% increase in adjusted operating profit at constant rates, +7.9% at actual rates
-- Continuous adjusted margin progression: +30bps at constant rates, +10bps at actual rates
-- Robust adjusted diluted EPS growth: +6.0% at constant rates, +7.2% at actual rates
-- Diluted EPS growth of +2.9% at constant rates, +4.8% at actual rates
-- Strong operating cash flow of GBP218.9m, +11.9% vs. last year
-- 7.2% increase in half year dividend payment
André Lacroix: Chief Executive Officer statement
"In the first six months of the year, the Group has delivered
revenue of GBP1,442.6m, up 7.0% year-on-year at actual rates and
4.9% at constant rates, driven by broad-based organic growth of
3.0% at constant rates, by the contribution of the acquisitions we
made recently in attractive growth and margin sectors and by a
210bps benefit due to FX translation.
For the fifth consecutive year, the Group delivered margin
progression in H1 with an increase year-on-year of 30bps at
constant currency, that was broad based: Products +20bps, Trade
+10bps, Resources +70bps.
Our strong operating cash flow performance with double-digit
growth year-on-year reflects our day-to-day operational discipline
on cash.
In-line with our dividend policy that targets a payout ratio of
circa 50%, and underpinned by our high margin and highly cash
generative earnings model, we have announced a half year dividend
of 34.2p per share, an increase of 7.2%.
We are on track to deliver our 2019 targets of good organic
revenue growth at constant rates, with moderate margin expansion
and strong cash conversion. We expect good organic revenue growth
at constant currency rates in each of our three divisions:
Products, Trade and Resources.
The $250 billion global Quality Assurance industry has
attractive structural growth prospects driven by an increased focus
of corporations on risk management, global trade flows, global
demand for energy, expanding regulations, more complex sourcing and
distribution operations, technological innovations, government
investments in large infrastructure projects, and increased
consumer demand for higher quality and more sustainable
products.
We are uniquely positioned to seize these exciting growth
opportunities with our Total Quality Assurance (TQA) Value
Proposition that provides leading Assurance, Testing, Inspection
and Certification solutions that are mission-critical to our
customers across multiple industries through our global network of
subject-matter experts and over 1,000 state-of-the-art facilities
in over 100 countries. We operate a high quality and highly cash
generative earnings model delivering strong returns.
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 policy that delivers sustainable shareholder value
creation."
IFRS 16 reporting update
IFRS 16 was adopted on 1 January 2019 for our statutory
reporting, without restating prior year figures. As a result, the
discussion of our operating results is on an IAS 17 basis for all
periods presented, unless otherwise stated. Under IFRS 16, the
Group delivered adjusted operating profit of GBP248.9m, generating
a margin of 17.3% and adjusted diluted EPS of 98.2p. Statutory
operating profit was GBP228.7m and statutory diluted EPS was
88.1p.
Key Adjusted Financials 2019 H1 2018 H1 Change Change at 2019 H1
IAS 17(1) IAS 17(1) at actual constant IFRS 16(1)
rates rates(2)
IAS 17 IAS 17
Revenue GBP1,442.6m GBP1,347.7m 7.0% 4.9% GBP1,442.6m
============ ============ =========== ========== ============
Organic revenue(3) GBP1,415.0m GBP1,346.0m 5.1% 3.0% GBP1,415.0m
============ ============ =========== ========== ============
Operating profit(4) GBP243.6m GBP225.8m 7.9% 6.8% GBP248.9m
============ ============ =========== ========== ============
Operating margin(4) 16.9% 16.8% 10bps 30bps 17.3%
============ ============ =========== ========== ============
Profit before tax(4) GBP226.1m GBP213.6m 5.9% 4.9% GBP227.1m
============ ============ =========== ========== ============
Diluted earnings per
share(4) 97.8p 91.2p 7.2% 6.0% 98.2p
============ ============ =========== ========== ============
Interim dividend per
share 34.2p 31.9p 7.2%
============ ============ =========== ---------- ------------
Key Statutory Financials 2019 H1 2018 H1 Change 2019
IAS 17(1) IAS 17(1) at actual H1
rates IFRS
IAS 17 16(1)
Revenue GBP1,442.6m GBP1,347.7m 7.0% GBP1,442.6m
============ ============ =========== ============
Operating profit GBP223.4m GBP209.3m 6.7% GBP228.7m
============ ============ =========== ============
Operating margin 15.5% 15.5% - 15.9%
============ ============ =========== ============
Profit before tax GBP205.3m GBP196.6m 4.4% GBP206.3m
============ ============ =========== ============
Profit after tax GBP154.3m GBP147.4m 4.7% GBP155.1m
============ ============ =========== ============
Diluted earnings per
share 87.7p 83.7p 4.8% 88.1p
============ ============ =========== ============
1. Following the adoption of IFRS 16 "Leases" on 1 January 2019,
the Group's statutory results for the six months ended 30 June 2019
are on an IFRS 16 basis, whereas the statutory results for the six
months ended 30 June 2018 are on an IAS 17 basis as previously
reported. For comparability, we have also presented the Group's
results for the six months ended 30 June 2019 on an IAS 17 basis
and the associated growth rates are on this basis. Additional
detail is provided in notes 1 and 11 of this release.
2. Constant currency is calculated by translating H1 18 results at H1 19 exchange rates.
3. Organic revenue growth excludes the impact of acquisitions and disposals in 2018 and 2019.
4. Adjusted results are stated before Separately Disclosed Items
('SDIs'), see note 3 to the Condensed Consolidated Interim
Financial Statements. A reconciliation between reported and
adjusted measures is shown in the Presentation of Results section
on page 20.
The Directors have approved an interim dividend of 34.2p per
share (H1 18: 31.9p) to be paid on 11 October 2019 to shareholders
on the register at close of business on 27 September 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 will be held today
at 8.00am. 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.
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.
intertek.com
HALF YEAR REPORT 2019
GROUP CEO REVIEW
In the first six months of the year, the Group has delivered
revenue of GBP1,442.6m, up 7.0% year-on-year at actual rates and
4.9% at constant rates, driven by an organic growth of 3.0% at
constant rates, by the contribution of the acquisitions we made
recently in attractive growth and margin sectors and by a 210bps
benefit due to FX translation.
We continue to make progress on revenue and delivered 3% organic
growth at constant currency that was broad-based: +2.1% in
Products, +5.1% in Trade and +3.5% in Resources.
The acquisitions made since January 2018 in attractive growth
and margin sectors are performing well and have added 1.9% to our
revenues in H1. I am particularly pleased with the progress Alchemy
is making, offering our leading People Assurance services to our
clients in North America.
We delivered a robust operating profit performance of 6.8%
growth at constant rates and 7.9% growth at actual rates. For the
fifth consecutive year, the Group delivered consistent margin
progression in H1 with an increase year-on-year of 30bps at
constant currency, that was broad based: Products +20bps, Trade
+10bps, Resources +70bps.
Our strong operating cash flow performance with double-digit
growth year-on-year reflects our day-to-day operational discipline
on cash.
In-line with our dividend policy that targets a payout ratio of
circa 50%, and underpinned by our high margin and highly cash
generative earnings model, we have announced a half year dividend
of 34.2p per share, an increase of 7.2%.
We are on track to deliver our 2019 targets of good organic
revenue growth at constant rates, with moderate margin expansion
and strong cash conversion. We expect good organic revenue growth
at constant currency rates in each of our three divisions:
Products, Trade and Resources.
Attractive opportunities for growth
The total value of the global quality assurance market is, we
estimate, $250 billion of which 'only' $50 billion is currently
outsourced. That means there is an opportunity to capture a share
of the $200 billion that is currently managed in-house.
Companies are certainly doing far more today to improve quality
and safety than they were even five years ago, but there is much
that needs to be done to establish a robust, reliable, end-to-end
TQA approach that reduces risk. That is what we offer to our
clients, leveraging our broad service portfolio, our technical
expertise, our global laboratory network, and our passionate
customer centric colleagues to allow corporations to concentrate on
their core value-generating activities.
We see four growth opportunities.
First, we will be looking to leverage 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 TQA 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, our industry is highly fragmented and we will look at
seizing the right M&A opportunities to enable us to expand our
geographic coverage where needed, providing access to a new kind of
offering and strengthening our existing operations. 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 been the pioneer of our industry across the world
for 130 years. We have a proven track record of innovating and
anticipating the growing needs of our clients, constantly evolving
and improving our customer proposition to meet their changing
needs. Importantly, this entrepreneurial spirit among our people is
a fundamental aspect of our differentiated '5x5' strategy for
growth.
In identifying that for corporations to deliver sustainable
performance, our customers need to take a risk-based approach to
quality assurance across their entire supply and distribution
chain, we evolved our service offering beyond Testing, Inspection
and Certification of our clients' physical components, products and
assets to also assist them the reliability of their operating
processes and quality management systems; Assurance is at the
cutting edge of our value proposition.
Further, Intertek has continued to lead the industry as we
expanded our Assurance services into People Assurance. In a world
of increasingly complex supply chains and distribution channels,
employees are key in driving operational excellence in multi-site
organisations and we identified that there is a growing demand for
bespoke People Assurance solutions to monitor and efficiently close
critical skills gaps amongst frontline employees.
Today, our truly systemic, end-to-end Assurance, Testing,
Inspection and Certification services (ATIC) enable our clients to
operate safely and with complete peace of mind. This is what we
call Intertek Total Quality Assurance (TQA).
Intertek's differentiated TQA value proposition is set to
continue to lead the industry and sustain our growth trajectory in
the years ahead.
Our high-quality earnings model
Our high margin and strongly cash generative earnings model is
underpinned by the delivery of our TQA Value Proposition.
The Intertek earnings model is to provide ATIC 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 benefit from their 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, in the medium- to long-term we expect to
deliver GDP+ organic revenue growth 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 selected 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 currently delivers 76% of our profit,
comprises Softlines, Hardlines, Electrical & Connected World,
Building & Construction, Chemicals & Pharma, Transportation
Technologies, Food, and Business Assurance. We see the 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 higher regulatory burden.
Specifically, we see two key growth drivers for Intertek in this
sector:
-- growth in stock-keeping units ('SKUs') or brands, driven by
increasing numbers of products worldwide, shorter product
life-cycles and the rise of e-commerce. Consider the speed of
product development over the last 30 years in the mobile phone
sector, as companies have competed for consumer attention through
investments in technology, innovation, variety and brand
development; 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 as our ATIC services support customers in their determination
to:
-- innovate ahead of their competitors;
-- maintain or improve quality while expanding their supply chains;
-- meet more demanding regulatory standards;
-- raise the sustainability standards of their products and processes;
-- sharpen their risk-management focus; and
-- protect their reputations.
Our second key business sector is Trade, which comprises Caleb
Brett, AgriWorld and Government & Trade Services (GTS) and
accounts for 18% of our profit. By drawing on our services,
particularly in the inspection area, companies have the assurance
of knowing that their cargoes comply with all relevant regulations
and quality standards.
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 increases 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 profit, and consists of our Industry Services and Minerals
businesses, we anticipate long-term growth driven by increasing
demand for global energy to support GDP and population growth but
we recognise this is a cyclical business that is currently in the
challenging part of the cycle.
We offer both Capex and Opex Services, helping companies to
invest in new capacity and operating existing facilities.
We will also 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 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 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
-- 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 TQA 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 focussed growth among the business lines, countries
and services with good growth and margin prospects
-- 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
-- Achieving sustainable growth for customers, employees,
shareholders, suppliers and communities and ensuring we have the
right balance between performance and sustainability
Focussed portfolio strategy
Pursuing a growth- and margin-accretive portfolio is one of our
five strategic priorities. When managing our day-to-day performance
and allocating our capital and people resources, we will pursue a
three-tier portfolio strategy:
First, we will focus on our large businesses with good growth
and margin prospects. These areas of focus are:
-- at the Business Line level: Softlines, Hardlines, Electrical
& Connected World, Caleb Brett and Government & Trade
Services
-- at the Geographic level: North America and Greater China
Second, we will invest in the fast-growing businesses with good
margin prospects where the focus areas are:
-- at the Business Line level: Business Assurance, AgriWorld,
Building & Construction, Transportation Technology and Food
-- at the Geographic level: South Asia, South East Asia, South America, Middle East and Africa
Third, we will focus on improving the performance:
-- at the Business Line level: Industry Services and Minerals
-- at the Geographic level: Europe and Australasia
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 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 with a
dividend payout ratio of circa 50% of earnings.
The third priority for capital is M&A activity to strengthen
our portfolio in the right growth areas, provided we can deliver
good returns. This means focussing on those existing business lines
or countries with good growth and margin prospects, where we have
leading market positions, or entering new exciting growth areas, be
that geographically or for services.
The fourth priority is to maintain an efficient balance sheet
that gives us the flexibility to invest in growth with a financial
net debt to EBITDA ratio of 1.5 to 2 times on an IAS 17 basis.
Looking ahead
We believe that the strength of our 2019 Half Year Results
demonstrate 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 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.
Based on our industry-leading expertise and innovative and
entrepreneurial culture, we provide a superior customer service to
a diversity of industries, geographies and customers with multiple
TQA solutions with our global network enabling us to follow the
supply chains of our customers wherever they are in the world.
We have a strong track record of creating sustainable growth and
shareholder value, leveraging our high-margin and highly cash
generative earnings model.
We are moving the Company's centre of gravity towards our
industry's most attractive growth and margin areas supporting the
increasing need of our clients for end-to-end quality assurance
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.
André Lacroix
Chief Executive Officer
Operating Review
For the six months ended 30 June 2019
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') and on an IAS
17 basis for both 2019 and 2018 unless otherwise stated.
Overview of performance
Change at H1 19
H1 19 H1 18 Change at constant IFRS 16(1)
IAS 17(1) IAS 17(1) actual rates rates(2) GBPm
GBPm GBPm IAS 17 IAS 17
Revenue 1,442.6 1,347.7 7.0% 4.9% 1,442.6
Organic revenue(3) 1,415.0 1,346.0 5.1% 3.0% 1,415.0
Operating profit(4) 243.6 225.8 7.9% 6.8% 248.9
Margin(4) 16.9% 16.8% 10bps 30bps 17.3%
Net financing costs(4) (17.5) (12.2) (43.4%) (38.9%) (21.8)
Income tax expense(4) (55.4) (54.0) (2.6%) (1.7%) (55.6)
Earnings for the period(4) 170.7 159.6 7.0% 6.0% 171.5
Diluted earnings per
share(4) 97.8p 91.2p 7.2% 6.0% 98.2p
=========== =========== ============== ========== ============
1. Following the adoption of IFRS 16 "Leases" on 1 January 2019,
the Group's results for the six months ended 30 June 2019 are on an
IFRS 16 basis, whereas the results for the six months ended 30 June
2018 are on an IAS 17 basis as previously reported. For
comparability, we have also presented the Group's results for the
six months ended 30 June 2019 on an IAS 17 basis and the associated
growth rates are on this basis. Additional detail is provided in
notes 1 and 11 of this release.
2. Constant currency is calculated by translating H1 18 results at H1 19 exchange rates.
3. Organic revenue growth excludes the impact of acquisitions
and disposals in 2018 and 2019.
4. Adjusted results are stated before SDIs, see note 3 to the
Condensed Consolidated Interim Financial Statements on page 33.
Total reported Group revenue growth was 7.0%, made of 1.9%
growth contributed by acquisitions, organic revenue of 3.0% and an
increase of 2.1% from foreign exchange where sterling depreciated
against most of the Group's trading currencies.
The Group's organic revenue at constant rates reflected a
broad-based organic growth of 2.1% in Products, 5.1% in Trade and
3.5% in Resources.
We delivered an adjusted operating profit of GBP243.6m, up 6.8%
at constant exchange rates year-on-year and up 7.9% at actual
rates, driven by a broad-based operating profit growth at constant
currency of 6.0% in Products, 6.8% in Trade and 16.9% in Resources.
On an IFRS 16 basis, operating profit was GBP248.9m.
The Group remains very focussed on cost and margin management.
The adjusted operating margin was 16.9%, an increase of 30bps from
the prior year at constant exchange rates as we benefited from
positive operating leverage, margin accretive divisional mix, our
portfolio review and margin accretive acquisitions. We delivered
margin accretion in each of our three divisions: +20bps in
Products, +10bps in Trade and +70bps in Resources at constant
currency. On an IFRS 16 basis, adjusted operating margin was
17.3%.
Consistent with the disclosure in our FY18 Annual Report, we
continue to make progress with the implementation of our business
unit portfolio review, part of our 5x5 strategy announced in March
2016. In-line with this, an GBP8.8m restructuring cost has been
recognised in SDIs in the period, which impacted 10 business units
in the half year, taking the total programme to 86.
The Group's operating profit after SDIs for the period was
GBP223.4m (H1 18: GBP209.3m). On an IFRS 16 basis the Group's
statutory operating profit for the period was GBP228.7m.
Net Financing Costs
Net financing costs were GBP17.5m, an increase of GBP5.3m on H1
18 primarily resulting from the acquisition of Alchemy and the
impact of foreign exchange rates. This comprised GBP0.6m (H1 18:
GBP0.7m) of finance income and GBP18.1m (H1 18: GBP12.9m) of
finance expense. On an IFRS 16 basis, net financing costs were
GBP21.8m in H1 19.
Tax
The adjusted effective tax rate was 24.5%, broadly stable with
the prior year (H1 18: 25.3%, FY 18: 24.7%). The tax charge,
including the impact of SDIs, of GBP51.0m (H1 18: GBP49.2m),
equates to an effective rate of 24.8% (H1 18: 25.0%, FY 18: 24.5%).
On an IFRS 16 basis the statutory tax charge of GBP51.2m equates to
an effective rate of 24.8%.
Earnings per share
Adjusted diluted earnings per share at actual exchange rates was
7.2% higher at 97.8p. Diluted earnings per share after SDIs was
87.7p (H1 18: 83.7p) per share and basic earnings per share after
SDIs was 88.7p (H1 18: 84.9p). On an IFRS 16 basis, adjusted
diluted earnings per share was 98.2p, statutory diluted earnings
per share was 88.1p per share and statutory basic earnings per
share was 89.1p.
Dividend
In-line with our dividend policy of a targeted payout ratio of
circa 50% of earnings, the Board has approved a 7.2% increase in
the interim dividend to 34.2p per share (H1 18: 31.9p). The
dividend will be paid on 11 October 2019 to shareholders on the
register at 27 September 2019.
Investments
The Group invested GBP46.2m (H1 18: GBP47.0m) organically in
laboratory expansions, new technologies and equipment to expand our
market coverage and develop innovative ATIC solutions. The Group
did not complete any acquisitions in the first six months of
2019.
Cash Flow
The Group's cash performance in the period was strong with free
cash flow of GBP94.1m (H1 18: GBP90.6m), driven by disciplined
working capital management and strong cash conversion. Adjusted
cash generated from operations was GBP229.4m (H1 18: GBP204.1m).
Cash generated from operations was GBP218.9m (H1 18: GBP195.6m). On
an IFRS 16 basis, free cash flow was GBP94.1m, adjusted cash
generated from operations was GBP274.0m and statutory cash
generated from operations was GBP263.5m. Free cash flow is defined
on page 28 and 42 and reflects the adoption of IFRS 16.
Financial position
The Group ended the period in a strong financial position. Net
debt was GBP826.3m, an increase of GBP48.1m on 31 December 2018 and
an increase of GBP258.2m on 30 June 2018. On an IFRS 16 basis, net
debt was GBP1,081.8m including the impact of the lease
liability.
Outlook
The Group is well positioned to deliver good organic revenue
growth with moderate margin progression at constant currency and
strong cash conversion in 2019.
We expect our Products related businesses to deliver good
organic revenue growth, our Trade related businesses to report good
organic revenue growth performance, while we expect our Resources
related businesses to deliver a good organic revenue performance.
We will continue to benefit from the acquisitions made since
January 2018.
Looking further ahead, the global Quality Assurance market will
benefit from attractive growth prospects driven by an increased
focus of corporations on risk management, global trade flows,
global demand for energy, expanding regulations, more complex
sourcing and distribution operations, technological innovations,
government investments in large infrastructure projects, and
increased consumer demand for higher quality and more sustainable
products.
We provide our customers with a TQA differentiated Value
Proposition based on the depth and breadth of our technical
expertise, our global network of over 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.
We continue to be uniquely positioned to benefit from the GDP+
organic revenue growth prospects in the Quality Assurance Industry
in the medium- to long-term, leveraging our high quality and highly
cash generative earnings model.
Operating Review by Division
Revenue Adjusted operating profit
H1 19 H1 Change Change H1 H1 Change Change H1 19
GBPm 18 at actual at 19 18 at actual at IFRS
GBPm rates constant IAS IAS rates constant 16
rates 17 17 IAS rates GBPm
GBPm GBPm 17 IAS 17
Products 866.8 805.6 7.6% 4.9% 184.9 171.6 7.8% 6.0% 188.0
Trade 332.7 310.5 7.1% 5.8% 44.2 41.5 6.5% 6.8% 46.0
Resources 243.1 231.6 5.0% 3.5% 14.5 12.7 14.2% 16.9% 14.9
======== ======== ========== ========== ====== ====== =========== ========== ==========
Group 1,442.6 1,347.7 7.0% 4.9% 243.6 225.8 7.9% 6.8% 248.9
======== ======== ========== ========== ====== ====== =========== ========== ==========
A review of the adjusted results of each division in the six
months ended 30 June 2019 compared to the six months ended 30 June
2018 is set out below. Revenue, operating profit and growth rates
are presented at actual exchange rates. In addition, both total and
organic growth at constant exchange rates is presented. Organic
growth figures are calculated by excluding the results of
acquisitions and disposals made since 1 January 2018. Operating
profit and operating margin are stated before SDIs. 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
H1 19 H1 18 Change at Change at H1 19
IAS 17 IAS 17 actual rates constant rates IFRS 16
GBPm GBPm IAS 17 IAS 17 GBPm
======== ==============
Revenue 866.8 805.6 7.6% 4.9% 866.8
Organic revenue 843.1 805.4 4.7% 2.1% 843.1
Adjusted operating
profit 184.9 171.6 7.8% 6.0% 188.0
Adjusted operating
margin 21.3% 21.3% - 20bps 21.7%
======== ======== ============== ================ =========
Intertek Value Proposition
Our Products-related businesses consist of business lines that
are focussed 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, process performance analysis,
facility plant & equipment verification and third-party
certification.
Strategy
Our TQA 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 ATIC innovations to deliver a superior
customer service in our Products related businesses:
Virtual Audits
-- Business Assurance innovation: Intertek has developed a
pioneering Virtual Audit solution, through which our TQA Experts
are able to audit remotely. This allows us to deliver our audits
faster and with a wider audience of observers.
-- Customer benefit: As the world of our clients becomes
increasingly complex, our customers can now benefit from real time
quality audits, delivering robust assurance against key risk areas
across their supply chains.
Intertek STEM Toy Mark
-- Hardlines innovation: Intertek has developed a unique STEM
(Science, Technology, Engineering and Mathematics) Toy Mark,
verifying that our customers' STEM Toys have met stringent quality
and safety standards, as well as bringing educational benefits in
STEM skills development.
-- Customer benefit: With the STEM Toy Mark, our customers are
able to give consumers the peace of mind that their STEM Toy is
safe, as well as educational.
Global Sanitation Authorised Materials Database
-- Electrical innovation: Intertek has developed a proprietary
global database of Sanitation Authorised Materials, materials which
have been evaluated by Intertek and determined to be safe to come
into contact with food.
-- Customer benefit: Through this unique solution our customers
can save substantial time in providing the required information
while making sure their products comply with safety standards.
H1 2019 performance
In the first six months of 2019 our Products business delivered
continuous margin accretive revenue growth.
Our revenue growth at constant rates was 4.9% and our organic
revenue growth was 2.1%, driven by broad-based revenue growth
across business lines and geographies. We delivered robust
operating profit of GBP184.9m, up 6.0% at constant currency
enabling us to deliver a margin of 21.3%, up 20bps versus last year
as we benefited from positive operating leverage and continued to
remain disciplined on cost.
-- 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 solid organic
revenue growth performance across our main markets of China, Hong
Kong, India and Vietnam.
-- We delivered robust organic revenue growth in our Electrical
& Connected World business driven by higher regulatory
standards in energy efficiency and by the increase demand for
wireless devices and cybersecurity.
-- Our Business Assurance business delivered good 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.
-- Driven by the growing demand for more environmentally
friendly and higher quality buildings and infrastructure in the US
market, our Building & Construction business reported solid
organic revenue growth.
-- Our Transportation Technology business delivered robust
organic revenue growth as we capitalize on our clients' investments
in new powertrains to lower emissions and increase fuel
efficiency.
-- We continue to benefit from the increased focus of
corporations on food safety and delivered good organic revenue
growth in our Food business.
-- We delivered organic revenue performance below last year in
our Chemicals & Pharma business due to a base line effect in
2018 as we saw robust demand from our clients to meet the 1 June
2018 REACH registration deadline. Moving forward we will continue
to benefit from the structural growth opportunities in the
healthcare markets in both developed and emerging economies.
H2 2019 growth outlook
We expect our Products division, which represents 76% of our
profit, 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
H1 19 H1 18 Change at Change at H1 19
IAS 17 IAS 17 actual rates constant rates IFRS 16
GBPm GBPm IAS 17 IAS 17 GBPm
======== ======== ==============
Revenue 332.7 310.5 7.1% 5.8% 332.7
Organic revenue 328.8 309.0 6.4% 5.1% 328.8
Adjusted operating
profit 44.2 41.5 6.5% 6.8% 46.0
Adjusted operating
margin 13.3% 13.4% (10bps) 10bps 13.8%
======== ======== ============== ================ =========
Intertek Value Proposition
Our Trade division consists of three Global Business Lines with
global and regional trade flow based on similar mid- to long-term
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 TQA 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 ATIC innovations to deliver a superior
customer service in our Trade related businesses:
Oceanlab
-- Caleb Brett innovation: We have developed self-contained
Oceanlab Oil Quality Testing Laboratories, staffed by Intertek TQA
Experts and have partnered with our customers to install these on
their ships.
-- Customer benefit: Our Oceanlab initiative has substantially
reduced turnaround time and allowed our customers to introduce more
flexibility into their sample testing processes.
Intertek Pioneers Hydrocarbon Testing
-- Caleb Brett innovation: Intertek's entrepreneurial,
customer-centric outlook has led us to open Iraq's first commercial
hydrocarbon testing lab, with state-of-the-art technology enabling
our TQA experts to deliver industry leading hydrocarbon testing
services.
-- Customer benefit: Our customers benefit from rapid turnaround
times and from mission critical services which were not previously
available in the country.
Rapid Protein Analysis for Soya Exports
-- AgriWorld innovation: Our AgriWorld TQA Experts' deep
technical expertise on soya protein analysis has now been augmented
with new state-of-the-art protein analysers.
-- Customer benefit: Using the new technology, our Experts have
been able to reduce the turnaround time of soya protein tests from
several hours down to a few minutes.
H1 2019 performance
Our Trade related businesses benefited from an acceleration in
revenue momentum with 5.8% growth and 5.1% organic revenue growth
at constant rates, driven by broad-based revenue growth across
business lines and geographies. We delivered a robust operating
profit of GBP44.2m, up 6.8% at constant currency, enabling us to
deliver an operating margin of 13.3%, up 10bps versus last year as
we benefited from positive operating leverage and continued to
remain disciplined on cost.
-- Our Caleb Brett business reported good organic revenue
growth, reflecting the structural growth drivers in the Crude Oil
and Refined Product global trading market.
-- Our Government & Trade Services business delivered
double-digit organic revenue growth driven by growth with existing
contracts and benefits of new contracts.
-- Our AgriWorld business delivered good organic revenue growth.
H2 2019 growth outlook
We expect our Trade related businesses, which represent 18% of
our profit, to deliver good organic revenue growth performance at
constant currency.
Mid- to long-term growth outlook
Our Trade division will continue to benefit from 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
H1 19 H1 18 Change at Change at H1 19
IAS 17 IAS 17 actual rates constant rates IFRS 16
GBPm GBPm IAS 17 IAS 17 GBPm
======== ======== ==============
Revenue 243.1 231.6 5.0% 3.5% 243.1
Organic revenue 243.1 231.6 5.0% 3.5% 243.1
Adjusted operating
profit 14.5 12.7 14.2% 16.9% 14.9
Adjusted operating
margin 6.0% 5.5% 50bps 70bps 6.1%
======== ======== ============== ================ =========
Intertek Value Proposition
Our Resources division consists of two Business Lines with
similar mid- to long- term structural growth drivers:
Our Industry Services business uses in-depth knowledge of the
oil, gas, nuclear and power industries to provide a diverse range
of TQA 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 TQA 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 ATIC innovations to deliver a superior
customer service in our Resources related businesses:
DeepView 3D (TM)
-- Industry services innovation: Intertek has developed DeepView
3D, a new inspection methodology that combines 3D laser scanning
and precise metrology data with advanced Non-Destructive Testing
results in 3D space to give an accurate representation of current
condition and mechanical integrity of critical assets.
-- Customer benefit: DeepView 3D allows our customers to take a
smarter approach to maintenance, allowing them to move from Time
Based Maintenance to highly-efficient Condition Based Maintenance
Programmes, reducing expensive operational downtime.
Pioneering the use of Spectroscopy
-- Minerals innovation: Intertek's TQA experts, based on-site at our customers operations, use state-of-the-art infrared spectroscopy to analyse samples quickly and proprietary software to create highly accurate quantitative models for predicting a range of chemical and physical properties.
-- Customer benefit: Customers benefit from Intertek's on-site
experts, delivering best in class analytics that are customised to
their needs and saving them much-valued time.
Helicopter Underwater Escape Simulations
-- Intertek innovation: Our entrepreneurial Intertek experts
addressed our customers' safety risks by developing a Helicopter
Underwater Escape Simulation programme under international
standards.
-- Customer benefit: Our Exploration and Production customers
now have peace of mind that their staff are best prepared for the
most dangerous situation they can face.
H1 2019 performance
We benefited from an improved revenue momentum in our Resources
related businesses and delivered a strong margin accretion. We
reported good organic revenue, up year-on-year of 3.5% at constant
rates and we delivered an operating profit of GBP14.5m, which was
up year-on-year by 16.9% enabling us to deliver a margin of 6.0%,
up year-on-year by 70bps.
-- We delivered good organic revenue growth in our Capex
Inspection Services business which benefited from the increased
investment of our customers in exploration and production, while
the demand for Opex Maintenance Services remained stable.
-- We benefited from robust organic revenue growth in our Minerals business.
H2 2019 growth outlook
Overall, we expect our Resources related businesses, which
represent 6% of our profit, to deliver a good revenue performance
at constant currency.
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 half year ended 30 June 2019
Adjusted results
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).
Organic growth
Organic growth figures are calculated by excluding the results
of acquisitions and disposals made since 1 January 2018.
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 H1 18 results at
H1 19 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 Reported 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 related to acquisition activity, 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 gains/losses on financial
assets/liabilities.
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 as part
of our '5x5' differentiated strategy for growth are excluded from
adjusted operating profit where they represent fundamental changes
in individual operations around the Group, and are not expected to
recur in those operations. The impairment of goodwill and other
assets that by their nature or size are not expected to recur, 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 to provide
useful information regarding the underlying performance of the
Group's operations.
Details of the SDIs for the six months ended 30 June 2019 and
the comparative period are given in note 3 to the Condensed
Consolidated Interim Financial Statements.
Reconciliation of Results 2019 H1 2019 H1 2019 H1 2018 H1 2018 H1 2018 H1
to Adjusted Performance Results SDIs Adjusted Reported SDIs Adjusted
Measures (GBPm) IAS 17 IAS 17 IAS 17 IAS 17 IAS 17 IAS 17
Operating profit 223.4 20.2 243.6 209.3 16.5 225.8
========= ======== ========== ========== ======== ==========
Operating margin 15.5% 1.4% 16.9% 15.5% 1.3% 16.8%
========= ======== ========== ========== ======== ==========
Net financing costs (18.1) 0.6 (17.5) (12.7) 0.5 (12.2)
========= ======== ========== ========== ======== ==========
Profit before tax 205.3 20.8 226.1 196.6 17.0 213.6
========= ======== ========== ========== ======== ==========
Income tax expense (51.0) (4.4) (55.4) (49.2) (4.8) (54.0)
========= ======== ========== ========== ======== ==========
Profit for the year 154.3 16.4 170.7 147.4 12.2 159.6
========= ======== ========== ========== ======== ==========
Cash flow from operations 218.9 10.5 229.4 195.6 8.5 204.1
========= ======== ========== ========== ======== ==========
Basic earnings per
share 88.7p 10.2p 98.9p 84.9p 7.6p 92.5p
========= ======== ========== ========== ======== ==========
Diluted earnings per
share 87.7p 10.1p 97.8p 83.7p 7.5p 91.2p
========= ======== ========== ========== ======== ==========
Reconciliation of Reported 2019 H1 2019 H1 2019 H1 2018 H1 2018 H1 2018 H1
to Adjusted Performance Reported SDIs Adjusted Reported SDIs Adjusted
Measures (GBPm) IFRS 16 IFRS 16 IFRS 16 IAS 17 IAS 17 IAS 17
Operating profit 228.7 20.2 248.9 209.3 16.5 225.8
========== ========= ========== ========== ======== ==========
Operating margin 15.9% 1.4% 17.3% 15.5% 1.3% 16.8%
========== ========= ========== ========== ======== ==========
Net financing costs (22.4) 0.6 (21.8) (12.7) 0.5 (12.2)
========== ========= ========== ========== ======== ==========
Profit before tax 206.3 20.8 227.1 196.6 17.0 213.6
========== ========= ========== ========== ======== ==========
Income tax expense (51.2) (4.4) (55.6) (49.2) (4.8) (54.0)
========== ========= ========== ========== ======== ==========
Profit for the year 155.1 16.4 171.5 147.4 12.2 159.6
========== ========= ========== ========== ======== ==========
Cash flow from operations 263.5 10.5 274.0 195.6 8.5 204.1
========== ========= ========== ========== ======== ==========
Basic earnings per
share 89.1p 10.2p 99.3p 84.9p 7.6p 92.5p
========== ========= ========== ========== ======== ==========
Diluted earnings per
share 88.1p 10.1p 98.2p 83.7p 7.5p 91.2p
========== ========= ========== ========== ======== ==========
Reconciliation of revenue Six months Six months Change
to to
30 June 30 June
2019 2018 %
GBPm GBPm
Reported revenue 1,442.6 1,347.7 7.0%
=========== =========== =======
Less: Acquisitions
/ disposals revenue (27.6) (1.7)
=========== =========== =======
Organic revenue 1,415.0 1,346.0 5.1%
=========== =========== =======
Impact of foreign exchange
movements - 27.7
=========== =========== =======
Organic revenue at
constant currency 1,415.0 1,373.7 3.0%
=========== =========== =======
Constant currency reconciliations Six months Six months Change
to to
30 June 30 June
2019 2018 %
IAS 17 IAS 17
GBPm GBPm
Adjusted operating profit
at actual rates 243.6 225.8 7.9%
=========== =========== =======
Impact of foreign exchange
movements - 2.3
=========== =========== =======
Adjusted operating profit
at constant rates 243.6 228.1 6.8%
=========== =========== =======
Adjusted diluted EPS at
actual rates 97.8 91.2 7.2%
=========== =========== =======
Impact of foreign exchange
movements - 1.1
=========== =========== =======
Adjusted diluted EPS at
constant rates 97.8 92.3 6.0%
=========== =========== =======
Diluted EPS at actual
rates 87.7 83.7 4.8%
=========== =========== =======
Impact of foreign exchange
movements - 1.5
=========== =========== =======
Diluted EPS at constant
rates 87.7 85.2 2.9%
=========== =========== =======
Principal risks and uncertainties
The Board has overall responsibility for the establishment and
oversight of the Group's risk management framework. The Board has
an established, structured approach to risk management, which
includes continuously assessing and monitoring the key risks and
uncertainties of the business. Based on this review, the Board
identified the below risks outlined on pages 54 to 59 of the
Group's Annual Report for 2018, which is available from our website
at www.intertek.com:
Operational
-- Reputation
-- Customer Service
-- People Retention
-- Operational Health, Safety & Security
-- Industry and Competitive Landscape
-- UK Withdrawal from the EU (Brexit)
-- IT Systems and Data Security
Legal and Regulatory
-- Business Ethics
-- Regulatory and Political Landscape
Financial
-- Financial Risk
The Board does not consider that there has been any significant
change to the nature of these risks and the key mitigating actions
since the publication of the Group's Annual Report for 2018.
The Business Review and Operating Review by Division include
consideration of the significance of key uncertainties affecting
the Group in the remaining six months of the year.
Management Reports and Trading Updates
Intertek will issue a Trading Update in the fourth quarter of
2019. The 2019 Full Year Results will be announced on 3 March
2020.
Half Year Results
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 Half 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.
Responsibility Statement of the Directors in Respect of the Half
Year Report
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union;
-- The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last Annual report that could do so.
By order of the Board of Intertek Group plc
André Lacroix Ross McCluskey
Chief Executive Officer Chief Financial Officer
31 July 2019 31 July 2019
Independent review report to Intertek Group plc
REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Our conclusion
We have reviewed Intertek Group plc's condensed consolidated
interim financial statements (the "interim financial statements")
in the Half Year report of Intertek Group plc for the six-month
period ended 30 June 2019. Based on our review, nothing has come to
our attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed Consolidated Interim Statement of Financial Position as at 30 June 2019;
-- the Condensed Consolidated Interim Income Statement and
Condensed Consolidated Interim Statement of Comprehensive Income
for the period then ended;
-- the Condensed Consolidated Interim Statement of Cash Flows for the period then ended;
-- the Condensed Consolidated Interim Statement of Changes in
Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year
Report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
RESPONSIBILITIES FOR THE INTERIM FINANCIAL STATEMENTS AND THE
REVIEW
Our responsibilities and those of the Directors
The Half Year Report, including the interim financial
statements, is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the Half
Year Report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Half Year Report based on our review.
This report, including the conclusion, has been prepared for and
only for Intertek Group plc for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Year
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
31 July 2019
IFRS 16 was adopted on 1 January 2019 for our statutory
reporting, without restating prior year figures. As a result, the
primary statements are shown on an IFRS 16 basis for 2019 and an
IAS 17 basis for 2018. Note 11 provides a reconciliation of the two
measures.
Condensed Consolidated Interim Income Statement
For the six months ended 30 June 2019
Six months to 30 June 2019 Six months to 30 June 2018
(Unaudited) (Unaudited)
IFRS 16 IAS 17
Adjusted Separately Disclosed Total Adjusted Separately Disclosed Total
Results Items* 2019 results Items* 2018
Notes GBPm GBPm GBPm GBPm GBPm GBPm
===================== ===== ========= ===================== ========= ========= ===================== =========
Revenue 2 1,442.6 - 1,442.6 1,347.7 - 1,347.7
Operating costs (1,193.7) (20.2) (1,213.9) (1,121.9) (16.5) (1,138.4)
===================== ===== ========= ===================== ========= ========= ===================== =========
Group operating
profit/(loss) 2 248.9 (20.2) 228.7 225.8 (16.5) 209.3
===================== ===== ========= ===================== ========= ========= ===================== =========
Finance income 0.6 - 0.6 0.7 - 0.7
Finance expense (22.4) (0.6) (23.0) (12.9) (0.5) (13.4)
===================== ===== ========= ===================== ========= ========= ===================== =========
Net financing costs (21.8) (0.6) (22.4) (12.2) (0.5) (12.7)
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) before
income tax 227.1 (20.8) 206.3 213.6 (17.0) 196.6
Income tax
(expense)/credit 4 (55.6) 4.4 (51.2) (54.0) 4.8 (49.2)
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) for the
period 2 171.5 (16.4) 155.1 159.6 (12.2) 147.4
===================== ===== ========= ===================== ========= ========= ===================== =========
Attributable to:
Equity holders of the
Company 159.7 (16.4) 143.3 148.7 (12.2) 136.5
Non-controlling
interest 11.8 - 11.8 10.9 - 10.9
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) for the
period 171.5 (16.4) 155.1 159.6 (12.2) 147.4
===================== ===== ========= ===================== ========= ========= ===================== =========
Earnings per share**
===================== ===== ========= ===================== ========= ========= ===================== =========
Basic 5 99.3p 89.1p 92.5p 84.9p
===================== ===== ========= ===================== ========= ========= ===================== =========
Diluted 5 98.2p 88.1p 91.2p 83.7p
===================== ===== ========= ===================== ========= ========= =====================
Dividends in respect of
the period 34.2p 31.9p
============================ ========= ===================== ========= ========= ===================== =========
* See note 3.
** Earnings per share on the adjusted results is disclosed in note 5.
Condensed Consolidated Interim Statement of Comprehensive
Income
For the six months ended 30 June 2019
Six months to Six months to
30 June 30 June
2019 2018
(Unaudited) (Unaudited)
IFRS 16 IAS 17
Notes GBPm GBPm
Profit for the period 2 155.1 147.4
============================================================================ ===== ============= =============
Other comprehensive income
Remeasurements on defined benefit pension schemes (4.9) 7.4
Tax on items that will never be reclassified subsequently to profit or loss 0.2 0.8
Items that will never be reclassified to profit or loss (4.7) 8.2
Foreign exchange translation differences of foreign operations (3.5) 7.6
Net exchange gain/(loss) on hedges of net investments in foreign operations 9.6 (8.9)
Gain on fair value of cash flow hedges 0.5 0.4
Items that are or may be reclassified subsequently to profit or loss 6.6 (0.9)
============================================================================ ===== ============= =============
Total other comprehensive income for the period 1.9 7.3
============================================================================ ===== ============= =============
Total comprehensive income for the period 157.0 154.7
============================================================================ ===== ============= =============
Total comprehensive income for the period attributable to:
Equity holders of the Company 146.0 146.9
Non-controlling interest 11.0 7.8
============================================================================ ===== ============= =============
Total comprehensive income for the period 157.0 154.7
============================================================================ ===== ============= =============
Condensed Consolidated Interim Statement of Financial
Position
As at 30 June 2019
At 30 June At 30 June At 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
IFRS 16 IAS 17 IAS 17
GBPm GBPm GBPm
Notes
Assets
Property, plant and equipment 10 671.9 424.3 441.2
Goodwill 9 874.9 596.8 874.9
Other intangible assets 314.2 174.2 329.5
Investments in associates - 0.3 0.3
Deferred tax assets 59.2 61.4 58.4
==================================================== ====== ============ ============ ==============
Total non-current assets 1,920.2 1,257.0 1,704.3
==================================================== ====== ============ ============ ==============
Inventories* 20.6 19.4 18.3
Trade and other receivables* 730.9 681.1 684.4
Cash and cash equivalents 8 220.5 172.7 206.9
Current tax receivable 19.6 17.2 19.7
==================================================== ====== ============ ============ ==============
Total current assets 991.6 890.4 929.3
==================================================== ====== ============ ============ ==============
Total assets 2,911.8 2,147.4 2,633.6
==================================================== ====== ============ ============ ==============
Liabilities
Interest bearing loans and borrowings 8 (118.1) (32.9) (138.3)
Current taxes payable (48.4) (51.9) (62.5)
Trade and other payables* (482.8) (416.8) (515.1)
Lease liabilities (66.0) - -
Provisions* (21.3) (33.2) (26.8)
==================================================== ====== ============ ============ ==============
Total current liabilities (736.6) (534.8) (742.7)
==================================================== ====== ============ ============ ==============
Interest bearing loans and borrowings 8 (928.7) (707.9) (846.8)
Deferred tax liabilities (79.4) (50.7) (80.8)
Net pension liabilities 6 (9.7) (4.1) (12.5)
Lease liabilities (189.3) - -
Other payables* (33.4) (22.4) (26.5)
Provisions* (16.8) (9.7) (16.0)
==================================================== ====== ============ ============ ==============
Total non-current liabilities (1,257.3) (794.8) (982.6)
==================================================== ====== ============ ============ ==============
Total liabilities (1,993.9) (1,329.6) (1,725.3)
==================================================== ====== ============ ============ ==============
Net assets 917.9 817.8 908.3
==================================================== ====== ============ ============ ==============
Equity
Share capital 1.6 1.6 1.6
Share premium 257.8 257.8 257.8
Other reserves 14.5 (7.3) 7.1
Retained earnings 609.8 527.8 607.5
==================================================== ====== ============ ============ ==============
Total attributable to equity holders of the Company 883.7 779.9 874.0
Non-controlling interest 34.2 37.9 34.3
==================================================== ====== ============ ============ ==============
Total equity 917.9 817.8 908.3
==================================================== ====== ============ ============ ==============
Working capital of GBP185.3m (H1 18: GBP210.8m) comprises the
asterisked items in the above Statement of Financial Position less
refundable deposits aged over 12 months of GBP11.9m (H1 18:
GBP7.6m).
Condensed Consolidated Interim Statement of Changes in
Equity
For the six months ended 30 June 2019
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
2018 1.6 257.8 (13.8) 4.3 459.8 709.7 34.5 744.2
Total
comprehensive
income for the
period
Profit - - - - 136.5 136.5 10.9 147.4
Other
comprehensive
income - - 1.8 0.4 8.2 10.4 (3.1) 7.3
================ ========= ========= ============ ====== ========== ================ ================ ========
Total
comprehensive
income for the
period - - 1.8 0.4 144.7 146.9 7.8 154.7
================ ========= ========= ============ ====== ========== ================ ================ ========
Transactions
with
owners of the
company
recognised
directly
in equity
Contributions
by and
distributions
to the
owners of the
company
Dividends paid - - - - (76.9) (76.9) (4.4) (81.3)
Purchase of own
shares - - - - (8.6) (8.6) - (8.6)
Tax paid on
share
awards vested* - - - - (2.9) (2.9) - (2.9)
Equity-settled
transactions - - - - 11.9 11.9 - 11.9
Income tax on
equity-settled
transactions - - - - (0.2) (0.2) - (0.2)
================ ========= ========= ============ ====== ========== ================ ================ ========
Total
contributions
by and
distributions
to the owners
of the
company - - - - (76.7) (76.7) (4.4) (81.1)
================ ========= ========= ============ ====== ========== ================ ================ ========
At 30 June 2018
(unaudited) 1.6 257.8 (12.0) 4.7 527.8 779.9 37.9 817.8
================ ========= ========= ============ ====== ========== ================ ================ ========
At 31 December
2018 1.6 257.8 1.7 5.4 607.5 874.0 34.3 908.3
Adoption of
IFRS 16 - - - - (12.3) (12.3) - (12.3)
IFRIC 23
Uncertainty
over income
tax treatments - - - - 0.2 0.2 - 0.2
1 January 2019
b/f 1.6 257.8 1.7 5.4 595.4 861.9 34.3 896.2
Total
comprehensive
income for the
period
Profit - - - - 143.3 143.3 11.8 155.1
Other
comprehensive
income - - 6.9 0.5 (4.7) 2.7 (0.8) 1.9
================ ========= ========= ============ ====== ========== ================ ================ ========
Total
comprehensive
income for the
period - - 6.9 0.5 138.6 146.0 11.0 157.0
================ ========= ========= ============ ====== ========== ================ ================ ========
Transactions
with
owners of the
company
recognised
directly
in equity
Contributions
by and
distributions
to the
owners of the
company
Dividends paid - - - - (108.2) (108.2) (11.1) (119.3)
Purchase of own
shares - - - - (19.8) (19.8) - (19.8)
Tax paid on
share
awards vested* - - - - (10.3) (10.3) - (10.3)
Equity-settled
transactions - - - - 13.2 13.2 - 13.2
Income tax on
equity-settled
transactions - - - - 0.9 0.9 - 0.9
================ ========= ========= ============ ====== ========== ================ ================ ========
Total
contributions
by and
distributions
to the owners
of the
company - - - - (124.2) (124.2) (11.1) (135.3)
================ ========= ========= ============ ====== ========== ================ ================ ========
At 30 June 2019
(unaudited) 1.6 257.8 8.6 5.9 609.8 883.7 34.2 917.9
================ ========= ========= ============ ====== ========== ================ ================ ========
* The tax paid on share awards vested is related to settlement
of the tax obligation by the Group via the sale of a portion of the
equity-settled shares.
The GBP108.2m dividend paid on 4 June 2019 represented a final
dividend of 67.2p per ordinary share in respect of the year ended
31 December 2018. The GBP76.9m dividend paid on 6 June 2018
represented a final dividend of 47.8p per ordinary share in respect
of the year ended 31 December 2017. No ordinary shares were issued
in the period to satisfy the vesting of share awards.
Condensed Consolidated Interim Statement of Cash Flows
For the six months ended 30 June 2019
Six months to Six months to
30 June 2019 30 June 2018
(Unaudited) (Unaudited)
IFRS 16 IAS 17
Notes GBPm GBPm
Cash flows from operating activities
Profit for the period 2 155.1 147.4
Adjustments for:
Depreciation charge 79.2 37.9
Amortisation of software 7.4 5.9
Amortisation of acquisition intangibles 14.4 9.0
Equity-settled transactions 13.2 11.9
Net financing costs 22.4 12.7
Income tax expense 4 51.2 49.2
Gain on disposal of associate (1.8) -
Loss on disposal of property, plant, equipment and software 3.5 -
============================================================================= ===== ============= =============
Operating cash flows before changes in working capital and operating
provisions 344.6 274.0
============================================================================= ===== ============= =============
Change in inventories (2.3) (0.8)
Change in trade and other receivables (47.2) (35.4)
Change in trade and other payables (27.5) (38.3)
Change in provisions (2.1) (1.9)
Special contributions into pension schemes (2.0) (2.0)
============================================================================= ===== ============= =============
Cash generated from operations 263.5 195.6
============================================================================= ===== ============= =============
Interest and other finance expense paid (23.4) (14.2)
Income taxes paid (60.5) (45.2)
============================================================================= ===== ============= =============
Net cash flows generated from operating activities* 179.6 136.2
============================================================================= ===== ============= =============
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and software* 0.5 0.7
Interest received* 0.5 0.7
Acquisition of subsidiaries, net of cash acquired 9 - (10.6)
Consideration paid in respect of prior year acquisitions (0.6) -
Sale of an associate 2.1 -
Acquisition of property, plant, equipment, software* 10 (46.2) (47.0)
============================================================================= ===== ============= =============
Net cash flows used in investing activities (43.7) (56.2)
============================================================================= ===== ============= =============
Cash flows from financing activities
Purchase of own shares (19.8) (8.6)
Tax paid on share awards vested (10.3) (2.9)
Drawdown of borrowings 196.2 107.8
Repayment of borrowings (131.1) (75.4)
Repayment of lease liabilities* (40.3) -
Dividends paid to non-controlling interest (11.1) (4.3)
Equity dividends paid (108.2) (76.9)
============================================================================= ===== ============= =============
Net cash flows used in financing activities (124.6) (60.3)
============================================================================= ===== ============= =============
Net increase in cash and cash equivalents 8 11.3 19.7
============================================================================= ===== ============= =============
Cash and cash equivalents at 1 January 8 203.2 135.9
Effect of exchange rate fluctuations on cash held 8 (2.5) -
============================================================================= ===== ============= =============
Cash and cash equivalents at end of period 8 212.0 155.6
============================================================================= ===== ============= =============
Adjusted cash flow from operations of GBP274.0m (H1 18:
GBP204.1m) comprises statutory cash generated from operations of
GBP263.5m (H1 18: GBP195.6m) before cash outflows relating to
Separately Disclosed Items of GBP10.5m (H1 18: GBP8.5m).
Free cash flow of GBP94.1m (H1 18: GBP90.6m) comprises the
asterisked items in the above Statement of Cash Flows.
Notes to the Condensed Consolidated Interim Financial
Statements
1. Basis of preparation
Reporting entity
Intertek Group plc (the 'Company') is a company incorporated and
domiciled in the United Kingdom. The Condensed Consolidated Interim
Financial Statements of the Company as at and for the six months
ended 30 June 2019 comprise the Company and its subsidiaries
(together referred to as the 'Group').
The Consolidated Financial Statements of the Group as at, and
for the year ended, 31 December 2018 are available upon request
from the Company's registered office at 33 Cavendish Square, London
W1G 0PS. An electronic version is available from the Investors
section of the Group website at www.intertek.com.
Statement of compliance
These Condensed Consolidated Interim Financial Statements are
prepared in accordance with IAS 34: Interim Financial Reporting, as
endorsed and adopted for use in the European Union, and the
Disclosure and Transparency Rules (DTR) of the Financial Conduct
Authority. They do not include all of the information required for
full annual financial statements, and should be read in conjunction
with the Consolidated Financial Statements of the Group as at and
for the year ended 31 December 2018.
The comparative figures for the financial year ended 31 December
2018 are the Company's statutory accounts for that financial year.
Those accounts have been reported on by the Company's auditors and
delivered to the Registrar of Companies. The report of the auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
Significant accounting policies
These Condensed Consolidated Interim Financial Statements are
unaudited and, except as described below, have been prepared on the
basis of accounting policies consistent with those applied in the
Consolidated Financial Statements for the year ended 31 December
2018.
IFRS 16 Leases came into effect on 1 January 2019. During the
year ended 31 December 2018 management completed a data collection
exercise to determine the estimated quantitative impact of IFRS 16
on the Group's net assets and income statement as a result of IFRS
16 coming into effect from 1 January 2019.
The adoption of IFRS 16 on 1 January 2019 had the following
effect on the Group:
GBPm Total assets Total liabilities Net assets
31 December 2018 2,633.6 (1,725.3) 908.3
============= ================== ===========
Impact of IFRS
16 256.9 (273.4) (16.5)
============= ================== ===========
Deferred tax impact 4.2 - 4.2
============= ================== ===========
1 January 2019 2,894.7 (1,998.7) 896.0
============= ================== ===========
The Group has applied the modified retrospective approach, where
the cumulative effect of applying IFRS 16 is recognised in retained
earnings with no restatement to prior years. The majority of leases
were recognised under modified retrospective B on transition,
whereby the right-of-use asset was 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 were
deemed reasonably certain to be adopted. For certain leases the
modified retrospective A approach was 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.
For new leases entered into after 1 January 2019, the
right-of-use asset is measured initially at cost and includes the
amount of initial measurement of the lease liability, any initial
direct costs incurred including advance lease payments and an
estimate of the dismantling, removal and restoration costs required
in the terms of the lease.
Depreciation is charged to the consolidated income statement to
depreciate the right-of-use asset from the commencement date to the
earlier of the end of the useful life of the right-of-use asset or
the end of the lease term. The lease term shall include the period
of an extension option where it is reasonably certain that the
option will be exercised.
The lease liability is measured at the present value of the
future lease payments, including variable lease payments that
depend on an index, discounted using the incremental borrowing rate
based on information available at 1 January 2019.
Finance charges are recognised in the condensed consolidated
income statement over the period of the lease.
Where leases have a non-lease component that is separately
identifiable, this has been excluded from the right-of-use asset
and the cost taken to the Income Statement.
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.
The Group has elected to adopt one exemption proposed by the
standard. The Group has not recognised right-of-use assets and
lease liabilities for short term leases (less than 12 months
duration).
H1 2019 adjusted IAS Impact IFRS Commentary
results 17 16
No operating lease expense under
EBITDA 294.6 40.9 335.5 IFRS 16
======= ======= ======== ====================================
No operating lease expense offset
Operating profit 243.6 5.3 248.9 by IFRS 16 depreciation charge
======= ======= ======== ====================================
Net finance costs (17.5) (4.3) (21.8) IFRS 16 lease expense
======= ======= ======== ====================================
Profit before
tax 226.1 1.0 227.1
======= ======= ======== ====================================
Notional long-term loan created
on application of IFRS 16 which
Net debt 826.3 255.5 1,081.8 increases net debt
======= ======= ======== ====================================
Adjusted free No impact on free cash flow as
cash flow 104.6 - 104.6 lease cash payments are unaffected
======= ======= ======== ====================================
The impact on the Group's primary statements is disclosed in
note 11.
The Group has adopted IFRIC 23 Uncertainty over Income Tax
Treatments effective 1 January 2019. The interpretation clarifies
the application of the recognition and measurement requirements in
IAS 12 Income Taxes when there is uncertainty over income tax
treatment. Current tax liabilities decreased by GBP0.2m as a result
of the implementation of IFRIC 23, with a corresponding increase of
GBP0.2m to opening retained earnings.
Estimates and judgements
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these Condensed Consolidated Interim Financial
Statements, the nature of the significant judgements made by
management in applying the Group's accounting policies and the key
sources of estimation were the same as those that were applied to
the Consolidated Financial Statements as at and for the year ended
31 December 2018. During the six months ended 30 June 2019
management reassessed its estimates and judgements in respect of
taxation (notes 4 and 13(b)), pensions (note 6), contingent
consideration payable and fair value adjustments in respect of
acquisitions made in prior periods (note 9(b) and 9(c)), impairment
(note 9(d)), claims and litigation (note 13(a)) and also the
recoverability of trade receivables. Trade receivables are
reflected net of an estimated provision for impairment losses. This
provision considers the past payment history and the length of time
that the debts have remained unpaid.
Risks and uncertainties
The Operating Review includes consideration of the risks and
uncertainties affecting the Group in the remaining six months of
the year.
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 mid-term 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
================================
Actual rates Cumulative average rates
================== ================================ =============================
Value of GBP1 30 June 30 June 31 December H1 19 H1 18 FY 18
2019 2018 2018
================== ======== ======== ============ ========= ======== ========
US dollar 1.27 1.31 1.26 1.30 1.38 1.34
Euro 1.12 1.14 1.11 1.15 1.14 1.13
Chinese renminbi 8.73 8.69 8.69 8.79 8.78 8.84
Hong Kong dollar 9.91 10.29 9.90 10.16 10.79 10.47
Australian
dollar 1.82 1.79 1.80 1.83 1.79 1.79
================== ======== ======== ============ ========= ======== ========
2. Operating segments
Business analysis
The Group is organised into business lines, which are the
Group's operating segments and are reported to the CEO, the chief
operating decision maker. These operating segments are aggregated
into three divisions, which are the Group's reportable segments,
based on similar nature of products and services and mid- to
long-term structural growth drivers. When aggregating operating
segments into the three divisions we have applied judgement over
the similarities of the services provided, the customer-base and
the mid- to long-term structural growth drivers. The costs of the
corporate head office and other costs which are not controlled by
the three divisions are allocated appropriately. A description of
the activity in each division is given in the Operating Review by
Division.
Following the adoption of IFRS 16 'Leases' on 1 January 2019,
the Group's statutory results for the six months ended 30 June 2019
are on an IFRS 16 basis, whereas the statutory results for the six
months ended 30 June 2018 are on an IAS 17 basis as previously
reported, with any comparison between the two bases of reporting
not being meaningful. The segmental analysis set out below is
primarily on an IAS 17 basis for all periods presented, as this is
the basis on which the chief operating decision maker currently
allocates resources and assesses performance, with the expectation
that this will transition to an IFRS 16 basis in the financial year
ending 31 December 2020.
The results of the divisions are shown below:
Six months to 30 June Revenue Depreciation Adjusted Separately
2019 from external and software operating Disclosed Operating
IFRS 16 customers amortisation profit Items profit
GBPm GBPm GBPm GBPm GBPm
======================== =============== ============== =========== =========== ==========
Products 866.8 (53.3) 188.0 (10.7) 177.3
Trade 332.7 (21.7) 46.0 (3.7) 42.3
Resources 243.1 (11.6) 14.9 (5.8) 9.1
======================== =============== ============== =========== =========== ==========
Total 1,442.6 (86.6) 248.9 (20.2) 228.7
======================== =============== ============== =========== =========== ==========
Group operating profit 248.9 (20.2) 228.7
Net financing costs (21.8) (0.6) (22.4)
======================== =============== ============== =========== =========== ==========
Profit before income
tax 227.1 (20.8) 206.3
Income tax expense (55.6) 4.4 (51.2)
======================== =============== ============== =========== =========== ==========
Profit for the year 171.5 (16.4) 155.1
======================== =============== ============== =========== =========== ==========
Six months to 30 June Revenue Depreciation Adjusted Separately
2019 from external and software operating Disclosed Operating
IAS 17 customers amortisation profit Items profit
GBPm GBPm GBPm GBPm GBPm
======================== =============== ============== =========== =========== ==========
Products 866.8 (33.1) 184.9 (10.7) 174.2
Trade 332.7 (11.7) 44.2 (3.7) 40.5
Resources 243.1 (6.2) 14.5 (5.8) 8.7
======================== =============== ============== =========== =========== ==========
Total 1,442.6 (51.0) 243.6 (20.2) 223.4
======================== =============== ============== =========== =========== ==========
Group operating profit 243.6 (20.2) 223.4
Net financing costs (17.5) (0.6) (18.1)
======================== =============== ============== =========== =========== ==========
Profit before income
tax 226.1 (20.8) 205.3
Income tax expense (55.4) 4.4 (51.0)
======================== =============== ============== =========== =========== ==========
Profit for the year 170.7 (16.4) 154.3
======================== =============== ============== =========== =========== ==========
Six months to 30 June Revenue
2018 from external Depreciation Adjusted Separately
IAS 17 customers and software operating Disclosed Operating
GBPm amortisation profit Items profit
GBPm GBPm GBPm GBPm
======================== =============== ============== =========== ============= ============
Products 805.6 (29.1) 171.6 (6.8) 164.8
Trade 310.5 (9.3) 41.5 (3.6) 37.9
Resources 231.6 (5.4) 12.7 (6.1) 6.6
======================== =============== ============== =========== ============= ============
Total 1,347.7 (43.8) 225.8 (16.5) 209.3
======================== =============== ============== =========== ============= ============
Group operating profit 225.8 (16.5) 209.3
Net financing costs (12.2) (0.5) (12.7)
======================== =============== ============== =========== ============= ============
Profit before income
tax 213.6 (17.0) 196.6
Income tax expense (54.0) 4.8 (49.2)
======================== =============== ============== =========== ============= ============
Profit for the year 159.6 (12.2) 147.4
======================== =============== ============== =========== ============= ============
3. Separately Disclosed Items (SDIs)
Six months
Six months to
to 30 June
30 June 2019 2018
GBPm GBPm
============================================= ===== ============== ===========
Operating costs
Amortisation of acquisition intangibles (a) (14.4) (9.0)
Restructuring costs (b) (8.8) (3.9)
Acquisition costs (c) (1.4) (3.6)
Material claims and settlements (d) 2.6 -
Gain on disposal of investment in associate 1.8 -
Total operating costs (20.2) (16.5)
Net financing costs (e) (0.6) (0.5)
============================================= ===== ============== ===========
Total before income tax (20.8) (17.0)
Income tax credit on Separately Disclosed
Items 4.4 4.8
==================================================== ============== ===========
Total (16.4) (12.2)
==================================================== ============== ===========
Refer to the Presentation of Results section for further details
on SDIs
(a) Of the amortisation of acquisition intangibles in the
current period, GBP4.3m (H1 18: GBPnil) relates to the customer
relationships, trade names, technology and non-compete covenants
acquired with the purchase of Alchemy Investment Holdings, Inc
("Alchemy").
(b) Restructuring costs of GBP8.8m were incurred in the period
(H1 18: GBP3.9m), relating to various fundamental restructuring
activities, resulting from the implementation of the new Company
structure and corporate 5x5 strategy announced in 2016. These
activities included site consolidations, closure of non-core
business units, re-engineering of underperforming businesses and
delayering of management structures.
(c) Transaction costs relating to acquisition activity in the
period and integration of prior period acquisitions were GBP1.4m
(H1 18: GBP3.6m).
(d) Material claims and settlements relate to a commercial claim
that is separately disclosable due to its size.
(e) Net financing costs of GBP0.6m (H1 18: GBP0.5m) relates to
the change in fair value of contingent consideration and the
unwinding of discount on put options related to acquisitions.
4. Income tax expense
Income tax expense is recognised based on management's best
estimate of the weighted average annual income tax rate expected
for the full financial year applied to the pre-tax income of the
interim period in respect of the adjusted results. On an IAS 17
basis the income tax expense for the adjusted results for the six
months ended 30 June 2019 is GBP55.4m (H1 18: GBP54.0m). The
Group's adjusted consolidated effective tax rate for the six months
ended 30 June 2019 is 24.5% (H1 18: 25.3%). The income tax expense
for the total results for the six months ended 30 June 2019 is
GBP51.0m (H1 18: GBP49.2m). The Group's consolidated effective tax
rate for the six months ended 30 June 2019 is 24.8% (H1 18: 25.0%).
On an IFRS 16 basis the statutory tax charge, including the impact
of SDIs, of GBP51.2m, equates to an effective rate of 24.8%.
Differences between the estimated adjusted effective rate of
24.5% and the weighted average notional statutory UK rate of 19.0%
include, but are not limited to, the mix of profits, the effect of
tax rates in foreign jurisdictions non-deductible expenses and
under/over provisions in previous periods.
5. Earnings per share (EPS)
Six months Six months Six months
to to to
30 June 30 June 2018 30 June 2019
2019 IAS 17 IFRS 16
IAS 17 GBPm GBPm
GBPm
Based on the profit for the period:
Profit attributable to ordinary
shareholders 142.7 136.5 143.3
Separately Disclosed Items after
tax (note 3) 16.4 12.2 16.4
====================================== =========== ============== ==============
Adjusted earnings 159.1 148.7 159.7
====================================== =========== ============== ==============
Number of shares (millions):
Basic weighted average number of
ordinary shares 160.9 160.8 160.9
Potentially dilutive share awards 1.8 2.2 1.8
====================================== =========== ============== ==============
Diluted weighted average number
of shares 162.7 163.0 162.7
====================================== =========== ============== ==============
Basic earnings per share 88.7p 84.9p 89.1p
Potentially dilutive share awards (1.0p) (1.2p) (1.0p)
====================================== =========== ============== ==============
Diluted earnings per share 87.7p 83.7p 88.1p
====================================== =========== ============== ==============
Adjusted basic earnings per share 98.9p 92.5p 99.3p
Potentially dilutive share awards (1.1p) (1.3p) (1.1p)
====================================== =========== ============== ==============
Adjusted diluted earnings per share 97.8p 91.2p 98.2p
====================================== =========== ============== ==============
6. Pension schemes
During the period, the Group made a special contribution of
GBP2.0m (H1 18: GBP2.0m) 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 2018. In addition to the special
contribution, a net actuarial loss before taxation of GBP4.9m (H1
18: GBP7.4m gain) has been recognised in the consolidated statement
of comprehensive income. The net pension liability stands at
GBP9.7m at 30 June 2019 (31 December 2018: GBP12.5m). In June 2019,
the Group recorded a pension curtailment gain of GBP5.8m (2018:
GBP5.4m). The 2019 gain relates to the closure of the Hong Kong
defined benefit scheme to future accruals.
7. Equity-settled transactions
During the six months ended 30 June 2019, the Group recognised
an expense of GBP13.2m in respect of the share awards made in 2016,
2017, 2018 and 2019. For the six months ended 30 June 2018, the
expense was GBP11.9m in respect of the share awards made in 2015,
2016, 2017 and 2018. Under the 2011 Long Term Incentive Plan in
2019, Deferred Share Awards granted had an average fair value of
4,588p and LTIP Share Awards had an average fair value of 2,131p.
Under the Deferred Share Plan in 2019, Deferred Share Awards
granted had an average fair value of 4,619p.
Under the 2011 Long-Term Incentive Plan, 299,641 Deferred Share
Awards (previously Share Awards) (H1 18: 303,557) and 363,580 LTIP
Share Awards (previously Performance Awards) (H1 18: 331,843) were
granted during the period and, under the Deferred Share Plan,
22,029 Deferred Share Awards (H1 18: 15,637) were granted during
the period.
8. Analysis of net debt
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
============================================= ======== ======== ============
Cash and cash equivalents per the Statement
of Financial Position 220.5 172.7 206.9
Overdrafts (8.5) (17.1) (3.7)
============================================= ======== ======== ============
Cash per the Statement of Cash Flows 212.0 155.6 203.2
============================================= ======== ======== ============
The components of net debt are outlined below:
1 January Cash flow Non-cash Exchange 30 June
2019 adjustments adjustments 2019
GBPm GBPm GBPm GBPm GBPm
=================================== ========== ========== ============= ============= ==========
Cash 203.2 11.3 - (2.5) 212.0
=================================== ========== ========== ============= ============= ==========
Borrowings:
Revolving credit facility US$800m
2021 (384.8) (86.2) - 3.1 (467.9)
Senior notes US$20m 2019 (15.8) 15.5 - 0.3 -
Senior notes US$150m 2020 (118.6) - - 0.4 (118.2)
Senior notes US$15m 2021 (11.8) - - - (11.8)
Senior notes US$140m 2022 (110.7) - - 0.4 (110.3)
Senior notes US$40m 2023 (31.6) - - 0.1 (31.5)
Senior notes US$125m 2024 (98.9) - - 0.4 (98.5)
Senior notes US$40m 2025 (31.7) - - 0.1 (31.6)
Senior notes US$75m 2026 (59.3) - - 0.2 (59.1)
Other* (118.2) 5.6 (0.4) 3.6 (109.4)
=================================== ========== ========== ============= ============= ==========
Total borrowings (981.4) (65.1) (0.4) 8.6 (1,038.3)
=================================== ========== ========== ============= ============= ==========
Total financial net debt (778.2) (53.8) (0.4) 6.1 (826.3)
=================================== ========== ========== ============= ============= ==========
Lease liability (IFRS 16) (273.4) (255.5)
=================================== ========== ========== ============= ============= ==========
Total net debt (1,051.6) (1,081.8)
=================================== ========== ========== ============= ============= ==========
* Includes other borrowings of GBP0.4m (2018: GBP1.3m) and
facility fees.
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
====================================== ======== ======== ============
Borrowings due in less than one year 109.6 15.8 134.6
Borrowings due in one to two years 586.0 - 118.2
Borrowings due in two to five years 236.3 524.9 538.9
Borrowings due in over five years 106.4 183.0 189.7
====================================== ======== ======== ============
Total borrowings 1,038.3 723.7 981.4
====================================== ======== ======== ============
Key facilities
Full details of the Group's borrowing facilities were disclosed
in note 14 to the Annual Report for 2018.
Fair values
The carrying value of the interest-bearing loans and borrowings
is GBP1,038.3m. The fair value, based on the present value of the
future principal and interest cash flows discounted at the market
rate at reporting date, was GBP1,046.7m. The carrying values of
trade and other payables are considered approximate to their fair
values.
The carrying value of derivative assets/liabilities (namely
interest rate cross currency swaps and foreign currency forwards)
is equal to their fair value. The fair value of interest rate cross
currency swaps is estimated using the present value of the
estimated future cash flows based on observable yield curves. The
fair value of foreign currency forwards is estimated using present
value of future cash flows based on the forward exchange rates at
the balance sheet date. Derivative liabilities of GBP6.4m are
included within trade and other payables (H1 18: derivative
liabilities of GBP11.0m included within trade and other
payables).
Interest bearing loans and borrowings and derivative
assets/liabilities are categorised as Level 2 under the fair value
hierarchy by which the fair value is measured using inputs other
than quoted prices observable for the liability either directly, or
indirectly. There have been no transfers between any levels within
the fair value hierarchy during the period. There have been no
reclassifications of financial assets as a result of a change in
purposes or use of those assets.
9. Acquisition of businesses
(a) Acquisitions
The Group completed no acquisitions in the first six months of
2019. In H1 2018, the Group completed three acquisitions for a cash
outflow of GBP10.6m.
(b) Prior period acquisitions
GBP0.6m (H1 18: GBPnil) was paid during the period in respect of
prior period acquisitions.
(c) Details of 2018 acquisitions
Full details of acquisitions made in the year ended 31 December
2018 are disclosed in note 10 to the Annual Report for 2018. The
provisional fair value adjustments disclosed in note 10 to the
Annual Report 2018 have been updated resulting in an increase in
goodwill of GBP2.1m and deferred tax asset of GBP0.7m.
(d) Impairment
Goodwill generated from past acquisitions has been tested
annually as required by accounting standards. No impairment was
required; however, considering prevailing market conditions, this
will be kept under review.
(e) Reconciliation of goodwill
GBPm
======================================= ======
Goodwill at 1 January 2019 874.9
Additions -
Transfer from acquisition intangibles 2.1
Foreign exchange (2.1)
======================================= ======
Goodwill at 30 June 2019 874.9
======================================= ======
10. Property, plant, equipment and software
(a) Additions
During the six months to 30 June 2019, the Group acquired fixed
assets with a cost of GBP46.2m (H1 18: GBP44.9m; year ended 31
December 2018: GBP113.2m). The Group did not acquire fixed assets
through business combinations (H1 18: GBP3.2m; year ended 31
December 2018: GBP4.8m). On adoption of IFRS 16, the Group
recognised a right of use asset of GBP256.9m at 1 January 2019. At
30 June 2019, the IFRS 16 right of use asset is GBP239.8m.
(b) Capital commitments
Contracts for capital expenditure which are not provided in
these accounts amounted to GBP11.0m (H1 18: GBP15.8m; year ended 31
December 2018: GBP5.2m).
11. Impact on application of IFRS 16
Condensed Consolidated Interim Income Statement - IAS 17 Basis
(unaudited)
For the six months ended 30 June 2019
Six months
to 30 June
2019 Six months to 30 June 2018
Adjusted Separately Adjusted Separately Total
Results Disclosed Items * Total 2019 Results Disclosed Items * 2018
IAS 17 IAS 17 IAS 17 IAS 17 IAS 17 IAS 17
Notes GBPm GBPm GBPm GBPm GBPm GBPm
=================== ===== =========== ================== ========== ========= =================== =========
Revenue 2 1,442.6 - 1,442.6 1,347.7 - 1,347.7
Operating costs (1,199.0) (20.2) (1,219.2) (1,121.9) (16.5) (1,138.4)
=================== ===== =========== ================== ========== ========= =================== =========
Group operating
profit/(loss) 2 243.6 (20.2) 223.4 225.8 (16.5) 209.3
=================== ===== =========== ================== ========== ========= =================== =========
Finance income 0.6 - 0.6 0.7 - 0.7
Finance expense (18.1) (0.6) (18.7) (12.9) (0.5) (13.4)
=================== ===== =========== ================== ========== ========= =================== =========
Net financing costs (17.5) (0.6) (18.1) (12.2) (0.5) (12.7)
=================== ===== =========== ================== ========== ========= =================== =========
Profit/(loss)
before income tax 226.1 (20.8) 205.3 213.6 (17.0) 196.6
Income tax
(expense)/credit 4 (55.4) 4.4 (51.0) (54.0) 4.8 (49.2)
=================== ===== =========== ================== ========== ========= =================== =========
Profit/(loss) for
the period 2 170.7 (16.4) 154.3 159.6 (12.2) 147.4
=================== ===== =========== ================== ========== ========= =================== =========
Attributable to:
Equity holders of
the Company 159.1 (16.4) 142.7 148.7 (12.2) 136.5
Non-controlling
interest 11.6 - 11.6 10.9 - 10.9
=================== ===== =========== ================== ========== ========= =================== =========
Profit/(loss) for
the period 170.7 (16.4) 154.3 159.6 (12.2) 147.4
=================== ===== =========== ================== ========== ========= =================== =========
Earnings per share
**
=================== ===== =========== ================== ========== ========= =================== =========
Basic 5 98.9p 88.7p 92.5p 84.9p
=================== ===== =========== ================== ========== ========= =================== =========
Diluted 5 97.8p 87.7p 91.2p 83.7p
=================== ===== =========== ================== ========== ========= =================== =========
Dividends in respect of
the period 34.2p 31.9p
========================== =========== ================== ========== ========= =================== =========
* See note 3.
** Earnings per share on the adjusted results is disclosed in note 5.
Condensed Consolidated Interim Income Statement - IFRS 16 Impact
(unaudited)
For the six months ended 30 June 2019
Six months to 30 June 2019
Adjusted Adjusted Statutory
Results Results Results Results
IAS 17 IFRS 16 Impact IFRS 16 IAS 17 IFRS 16 Impact IFRS 16
Notes GBPm GBPm GBPm GBPm GBPm GBPm
============================== ===== ========= ============== ========= ========= ============== ==========
Revenue 2 1,442.6 - 1,442.6 1,442.6 - 1,442.6
Operating costs (1,199.0) 5.3 (1,193.7) (1,219.2) 5.3 (1,213.9)
============================== ===== ========= ============== ========= ========= ============== ==========
Group operating profit 2 243.6 5.3 248.9 223.4 5.3 228.7
============================== ===== ========= ============== ========= ========= ============== ==========
Finance income 0.6 - 0.6 0.6 - 0.6
Finance expense (18.1) (4.3) (22.4) (18.7) (4.3) (23.0)
============================== ===== ========= ============== ========= ========= ============== ==========
Net financing costs (17.5) (4.3) (21.8) (18.1) (4.3) (22.4)
============================== ===== ========= ============== ========= ========= ============== ==========
Profit before income tax 226.1 1.0 227.1 205.3 1.0 206.3
Income tax (expense)/credit 4 (55.4) (0.2) (55.6) (51.0) (0.2) (51.2)
============================== ===== ========= ============== ========= ========= ============== ==========
Profit for the period 2 170.7 0.8 171.5 154.3 0.8 155.1
============================== ===== ========= ============== ========= ========= ============== ==========
Attributable to:
Equity holders of the Company 159.1 0.6 159.7 142.7 0.6 143.3
Non-controlling interest 11.6 0.2 11.8 11.6 0.2 11.8
============================== ===== ========= ============== ========= ========= ============== ==========
Profit for the period 170.7 0.8 171.5 154.3 0.8 155.1
============================== ===== ========= ============== ========= ========= ============== ==========
Earnings per share**
============================== ===== ========= ============== ========= ========= ============== ==========
Basic 5 98.9p 0.4p 99.3p 88.7p 0.4p 89.1p
============================== ===== ========= ============== ========= ========= ============== ==========
Diluted 5 97.8p 0.4p 98.2p 87.7p 0.4p 88.1p
============================== ===== ========= ============== ========= ========= ============== ==========
Dividends in respect of the period 34.2p - 34.2p
===================================== ========= ============== ========= ========= ============== ==========
** Earnings per share on the adjusted results is disclosed in note 5.
Condensed Consolidated Interim Statement of Comprehensive Income
- IAS 17 Basis (unaudited)
For the six months ended 30 June 2019
Six months to Six months to
30 June 2019 30 June 2018
IAS 17 IAS 17
Notes GBPm GBPm
============================================================================ ===== ============= =============
Profit for the period 2 154.3 147.4
============================================================================ ===== ============= =============
Other comprehensive income
Remeasurements on defined benefit pension schemes (4.9) 7.4
Tax on items that will never be reclassified subsequently to profit or loss 0.2 0.8
Items that will never be reclassified to profit or loss (4.7) 8.2
Foreign exchange translation differences of foreign operations (3.6) 7.6
Net exchange gain/(loss) on hedges of net investments in foreign operations 9.6 (8.9)
Gain on fair value of cash flow hedges 0.5 0.4
Items that are or may be reclassified subsequently to profit or loss 6.5 (0.9)
============================================================================ ===== ============= =============
Total other comprehensive income for the period 1.8 7.3
============================================================================ ===== ============= =============
Total comprehensive income for the period 156.1 154.7
============================================================================ ===== ============= =============
Total comprehensive income for the period attributable to:
Equity holders of the Company 144.9 146.9
Non-controlling interest 11.2 7.8
============================================================================ ===== ============= =============
Total comprehensive income for the period 156.1 154.7
============================================================================ ===== ============= =============
Condensed Consolidated Interim Statement of Comprehensive Income
- IFRS 16 Impact (unaudited)
For the six months ended 30 June 2019
Six months to Six months to
30 June 2019 30 June 2019
IAS 17 IFRS 16 Impact IFRS 16
Notes GBPm GBPm GBPm
================================================================= ===== ============= ============== =============
Profit for the period 2 154.3 0.8 155.1
================================================================= ===== ============= ============== =============
Other comprehensive income
Remeasurements on defined benefit pension schemes (4.9) - (4.9)
Tax on items that will never be reclassified subsequently to
profit or loss 0.2 - 0.2
Items that will never be reclassified to profit or loss (4.7) - (4.7)
Foreign exchange translation differences of foreign operations (3.6) 0.1 (3.5)
Net exchange gain on hedges of net investments in foreign
operations 9.6 - 9.6
Gain on fair value of cash flow hedges 0.5 - 0.5
Items that are or may be reclassified subsequently to profit or
loss 6.5 0.1 6.6
================================================================= ===== ============= ============== =============
Total other comprehensive income for the period 1.8 0.1 1.9
================================================================= ===== ============= ============== =============
Total comprehensive income for the period 156.1 0.9 157.0
================================================================= ===== ============= ============== =============
Total comprehensive income for the period attributable to:
Equity holders of the Company 144.9 1.1 146.0
Non-controlling interest 11.2 (0.2) 11.0
================================================================= ===== ============= ============== =============
Total comprehensive income for the period 156.1 0.9 157.0
================================================================= ===== ============= ============== =============
Condensed Consolidated Interim Statement of Financial Position -
IAS 17 Basis (unaudited)
As at 30 June 2019
At 30 June At 30 June
2019 2018
IAS 17 IAS 17
Notes GBPm GBPm
==================================================== ======= ========== ==========
Assets
Property, plant and equipment 10 432.1 424.3
Goodwill 9 874.9 596.8
Other intangible assets 314.2 174.2
Investments in associates - 0.3
Deferred tax assets 55.0 61.4
==================================================== ======= ========== ==========
Total non-current assets 1,676.2 1,257.0
==================================================== ======= ========== ==========
Inventories* 20.6 19.4
Trade and other receivables* 730.8 681.1
Cash and cash equivalents 8 220.5 172.7
Current tax receivable 19.6 17.2
==================================================== ======= ========== ==========
Total current assets 991.5 890.4
==================================================== ======= ========== ==========
Total assets 2,667.7 2,147.4
==================================================== ======= ========== ==========
Liabilities
Interest bearing loans and borrowings 8 (118.1) (32.9)
Current taxes payable (48.2) (51.9)
Trade and other payables* (482.8) (416.8)
Provisions* (21.3) (33.2)
==================================================== ======= ========== ==========
Total current liabilities (670.4) (534.8)
==================================================== ======= ========== ==========
Interest bearing loans and borrowings 8 (928.7) (707.9)
Deferred tax liabilities (79.4) (50.7)
Net pension liabilities 6 (9.7) (4.1)
Other payables* (33.4) (22.4)
Provisions* (16.8) (9.7)
==================================================== ======= ========== ==========
Total non-current liabilities (1,068.0) (794.8)
==================================================== ======= ========== ==========
Total liabilities (1,738.4) (1,329.6)
==================================================== ======= ========== ==========
Net assets 929.3 817.8
==================================================== ======= ========== ==========
Equity
Share capital 1.6 1.6
Share premium 257.8 257.8
Other reserves 14.0 (7.3)
Retained earnings 621.5 527.8
==================================================== ======= ========== ==========
Total attributable to equity holders of the Company 894.9 779.9
Non-controlling interest 34.4 37.9
==================================================== ======= ========== ==========
Total equity 929.3 817.8
==================================================== ======= ========== ==========
Working capital of GBP185.2m (H1 18: GBP210.8m) comprises the
asterisked items in the above Statement of Financial Position less
refundable deposits aged over 12 months of GBP11.9m (H1 18:
GBP7.6m).
Condensed Consolidated Interim Statement of Financial Position -
IFRS 16 Impact (unaudited)
As at 30 June 2019
At 30 June At 30 June
2019 2019
IAS 17 IFRS 16 Impact IFRS 16
Notes GBPm GBPm GBPm
==================================================== ======= ========== ============== ==========
Assets
Property, plant and equipment 10 432.1 239.8 671.9
Goodwill 9 874.9 - 874.9
Other intangible assets 314.2 - 314.2
Investments in associates - - -
Deferred tax assets 55.0 4.2 59.2
==================================================== ======= ========== ============== ==========
Total non-current assets 1,676.2 244.0 1,920.2
==================================================== ======= ========== ============== ==========
Inventories 20.6 - 20.6
Trade and other receivables 730.8 0.1 730.9
Cash and cash equivalents 8 220.5 - 220.5
Current tax receivable 19.6 - 19.6
==================================================== ======= ========== ============== ==========
Total current assets 991.5 0.1 991.6
==================================================== ======= ========== ============== ==========
Total assets 2,667.7 244.1 2,911.8
==================================================== ======= ========== ============== ==========
Liabilities
Interest bearing loans and borrowings 8 (118.1) - (118.1)
Current taxes payable (48.2) (0.2) (48.4)
Trade and other payables (482.8) - (482.8)
Lease liabilities - (66.0) (66.0)
Provisions (21.3) - (21.3)
==================================================== ======= ========== ============== ==========
Total current liabilities (670.4) (66.2) (736.6)
==================================================== ======= ========== ============== ==========
Interest bearing loans and borrowings 8 (928.7) - (928.7)
Deferred tax liabilities (79.4) - (79.4)
Net pension liabilities 6 (9.7) - (9.7)
Lease liabilities - (189.3) (189.3)
Other payables (33.4) - (33.4)
Provisions (16.8) - (16.8)
==================================================== ======= ========== ============== ==========
Total non-current liabilities (1,068.0) (189.3) (1,257.3)
==================================================== ======= ========== ============== ==========
Total liabilities (1,738.4) (255.5) (1,993.9)
==================================================== ======= ========== ============== ==========
Net assets 929.3 (11.4) 917.9
==================================================== ======= ========== ============== ==========
Equity
Share capital 1.6 - 1.6
Share premium 257.8 - 257.8
Other reserves 14.0 0.5 14.5
Retained earnings 621.5 (11.7) 609.8
==================================================== ======= ========== ============== ==========
Total attributable to equity holders of the Company 894.9 (11.2) 883.7
Non-controlling interest 34.4 (0.2) 34.2
==================================================== ======= ========== ============== ==========
Total equity 929.3 (11.4) 917.9
==================================================== ======= ========== ============== ==========
Condensed Consolidated Interim Statement of Cash Flows - IAS 17
Basis (unaudited)
For the six months ended 30 June 2019
Six months to Six months to
30 June 2019 30 June 2018
IAS 17 IAS 17
Notes GBPm GBPm
================================================================================= ===== ============= =============
Cash flows from operating activities
Profit for the period 2 154.3 147.4
Adjustments for:
Depreciation charge 43.6 37.9
Amortisation of software 7.4 5.9
Amortisation of acquisition intangibles 14.4 9.0
Equity-settled transactions 13.2 11.9
Net financing costs 18.1 12.7
Income tax expense 4 51.0 49.2
Profit on disposal of associate (1.8) -
Gain on disposal of property, plant, equipment and software (0.2) -
================================================================================= ===== ============= =============
Operating cash flows before changes in working capital and operating provisions 300.0 274.0
================================================================================= ===== ============= =============
Change in inventories (2.3) (0.8)
Change in trade and other receivables (47.2) (35.4)
Change in trade and other payables (27.5) (38.3)
Change in provisions (2.1) (1.9)
Special contributions into pension schemes (2.0) (2.0)
================================================================================= ===== ============= =============
Cash generated from operations 218.9 195.6
================================================================================= ===== ============= =============
Interest and other finance expense paid (19.1) (14.2)
Income taxes paid (60.5) (45.2)
================================================================================= ===== ============= =============
Net cash flows generated from operating activities* 139.3 136.2
================================================================================= ===== ============= =============
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and software* 0.5 0.7
Interest received* 0.5 0.7
Acquisition of subsidiaries, net of cash acquired 9 - (10.6)
Consideration paid in respect of prior year acquisitions (0.6) -
Sale of an associate 2.1
Acquisition of property, plant, equipment, software* 10 (46.2) (47.0)
================================================================================= ===== ============= =============
Net cash flows used in investing activities (43.7) (56.2)
================================================================================= ===== ============= =============
Cash flows from financing activities
Purchase of own shares (19.8) (8.6)
Tax paid on share awards vested (10.3) (2.9)
Drawdown of borrowings 196.2 107.8
Repayment of borrowings (131.1) (75.4)
Dividends paid to non-controlling interest (11.1) (4.3)
Equity dividends paid (108.2) (76.9)
================================================================================= ===== ============= =============
Net cash flows used in financing activities (84.3) (60.3)
================================================================================= ===== ============= =============
Net increase in cash and cash equivalents 8 11.3 19.7
================================================================================= ===== ============= =============
Cash and cash equivalents at 1 January 8 203.2 135.9
Effect of exchange rate fluctuations on cash held 8 (2.5) -
================================================================================= ===== ============= =============
Cash and cash equivalents at end of period 8 212.0 155.6
================================================================================= ===== ============= =============
Adjusted cash flow from operations of GBP229.4m (H1 18:
GBP204.1m) comprises statutory cash generated from operations of
GBP218.9m (H1 18: GBP195.6m) before cash outflows relating to
Separately Disclosed Items of GBP10.5m (H1 18: GBP8.5m). Free cash
flow of GBP94.1m (H1 18: GBP90.6m) comprises the asterisked items
in the above Statement of Cash Flows.
Condensed Consolidated Interim Statement of Cash Flows - IFRS 16
Impact (unaudited)
For the six months ended 30 June 2019
Six months to Six months to
30 June 2019 30 June 2019
IAS 17 IFRS 16 Impact IFRS 16
Notes GBPm GBPm GBPm
================================================================= ===== =============
Cash flows from operating activities
Profit for the period 2 154.3 0.8 155.1
Adjustments for:
Depreciation charge 43.6 35.6 79.2
Amortisation of software 7.4 - 7.4
Amortisation of acquisition intangibles 14.4 - 14.4
Equity-settled transactions 13.2 - 13.2
Net financing costs 18.1 4.3 22.4
Income tax expense 4 51.0 0.2 51.2
Profit on disposal of associate (1.8) - (1.8)
(Gain)/loss on disposal of property, plant, equipment and
software (0.2) 3.7 3.5
Operating cash flows before changes in working capital and
operating provisions 300.0 44.6 344.6
Change in inventories (2.3) - (2.3)
Change in trade and other receivables (47.2) - (47.2)
Change in trade and other payables (27.5) - (27.5)
Change in provisions (2.1) - (2.1)
Special contributions into pension schemes (2.0) - (2.0)
Cash generated from operations 218.9 44.6 263.5
Interest and other finance expense paid (19.1) (4.3) (23.4)
Income taxes paid (60.5) - (60.5)
Net cash flows generated from operating activities 139.3 40.3 179.6
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and software 0.5 - 0.5
Interest received 0.5 - 0.5
Acquisition of subsidiaries, net of cash acquired 9 - - -
Consideration paid in respect of prior year acquisitions (0.6) - (0.6)
Sale of an associate 2.1 - 2.1
Acquisition of property, plant, equipment, software 10 (46.2) - (46.2)
Net cash flows used in investing activities (43.7) - (43.7)
Cash flows from financing activities
Purchase of own shares (19.8) - (19.8)
Tax paid on share awards vested (10.3) - (10.3)
Drawdown of borrowings 196.2 - 196.2
Repayment of borrowings (131.1) - (131.1)
Repayment of lease liability - (40.3) (40.3)
Dividends paid to non-controlling interest (11.1) - (11.1)
Equity dividends paid (108.2) - (108.2)
Net cash flows used in financing activities (84.3) (40.3) (124.6)
Net increase in cash and cash equivalents 8 11.3 - 11.3
Cash and cash equivalents at 1 January 8 203.2 - 203.2
Effect of exchange rate fluctuations on cash held 8 (2.5) - (2.5)
Cash and cash equivalents at end of period 8 212.0 - 212.0
12. Related parties
There are no material changes in related parties or in related
party transactions from those described in the last Annual
report.
13. Contingent liabilities
(a) Claims and litigation
The Group is involved in various claims and lawsuits incidental
to the ordinary course of its business, including claims for
damages, negligence and commercial disputes regarding inspection
and testing, and disputes with employees and former employees.
The outcome of the litigation and the timing of any potential
liability cannot be readily foreseen. Based on information
currently available, the Directors consider that the cost to the
Group of an unfavourable outcome arising from such litigation is
unlikely to have a materially adverse effect on the financial
position of the Group in the foreseeable future.
(b) Tax
The Group operates in more than 100 countries with complex tax
laws and regulations. At any point in time it is normal for there
to be a number of open years which may be subject to enquiry by
local authorities. Where the effect of the laws and regulations is
unclear, estimates are used in determining the liability for the
tax to be paid. The Group considers the estimates, assumptions and
judgements to be reasonable; but this can involve complex issues
which may take a number of years to resolve.
In April 2019, the European Commission concluded that, in
certain circumstances, the Group Financing Exemption in the UK's
controlled foreign company legislation is not compliant with EU
State Aid rules. In June 2019, the UK tax authority filed an
application for annulment with the General Court on this
decision.
The Group had financing arrangements in line with the UK's Group
Finance Exemption legislation and therefore may be affected by this
decision.
We are assessing the potential impact of the Commission's
decision on the tax treatment of the Group's financing
arrangements. Based on that assessment, and the current level of
uncertainty, we consider that no provision is required at 30 June
2019. We will continue to consider the impact of the Commission's
decision on the Group and the potential requirement to record a
provision.
The Group has adopted IFRIC 23 Uncertainty over Income Tax
Treatments effective January 1, 2019. The interpretation clarifies
the application of the recognition and measurement requirements in
IAS 12 Income Taxes when there is uncertainty over income tax
treatment. Current tax liabilities decreased by GBP0.2m as a result
of the implementation of IFRIC 23, with a corresponding increase of
GBP0.2m to opening retained earnings.
14. Post balance sheet events
There are no post balance sheet events to report.
15. Approval
The Condensed Consolidated Interim Financial Statements were
approved by the Board on 31 July 2019.
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
IR LFFIIDEILVIA
(END) Dow Jones Newswires
August 01, 2019 02:01 ET (06:01 GMT)
Intertek (LSE:ITRK)
Historical Stock Chart
From Mar 2024 to Apr 2024
Intertek (LSE:ITRK)
Historical Stock Chart
From Apr 2023 to Apr 2024
