TIDMITRK
RNS Number : 6775U
Intertek Group PLC
31 July 2020
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2020 HALF YEAR RESULTS ANNOUNCEMENT
31 July 2020
Strongly Cash Generative Earnings Model: Free cash flow +36%
-- Strong response to Covid-19 with uninterrupted customer
service and industry leading innovations
-- Resilient revenue performance of GBP1,331m: (7.8%) at
constant rates, (7.8%) at actual rates
-- Like-for-Like revenue: (8.0%) at constant rates: Products
(8.7%); Trade (10.2%); Resources (2.1%)
-- Adjusted operating profit of GBP168.2m: (32.2%) at constant rates, (32.4%) at actual rates
-- Robust adjusted operating margin of 12.6%: (460bps) at
constant rates; (470bps) at actual rates
-- Adjusted diluted EPS of 63.1p: (35.5%) at constant rates,
(35.7%) at actual rates; Statutory diluted EPS of 58.6p
-- Strong cash generation with adjusted FCF of GBP142m, +35.7%
-- Robust balance sheet with financial net debt of GBP650m;
financial net debt to adjusted EBITDA of 1.1x
-- Interim dividend payment of 34.2p; unchanged on prior year
-- Well placed to benefit from the post Covid-19 recovery and
the increased needs for quality assurance
André Lacroix: Chief Executive Officer statement
"Over the first six months of the year, the Group delivered a
resilient revenue performance , a robust margin and strong cash
flow reflecting the strengths of our business model in providing
mission-critical services to companies around the world, our
disciplined performance management and our strongly cash generative
earnings model.
We have announced an unchanged half year dividend of 34.2p per
share, based on our strong cash generation, robust balance sheet,
the strength of our earnings model and our confidence in the
Group's future growth opportunities.
During the period, we provided uninterrupted customer service to
our 300,000+ clients. I am very proud of the way our people have
risen to the challenge of supporting our clients through the
temporary disruption to their supply chains , while putting the
safety of our colleagues and customers first . As an agile and
responsive business, we were able to put in place the correct
measures on health and safety, customer service, cost controls,
cash management and employee engagement during a rapidly evolving
situation.
The speed at which the pandemic has unfolded and the lack of
visibility on the lifting of lockdown restrictions around the world
today continues to make it difficult to assess the full impact of
Covid - 19 and to provide guidance for 2020.
However, looking to the future, r ecent months have demonstrated
that the exciting structural growth drivers in the $250 billion g
lobal Quality Assurance Market pre-Covid-19 , now include a wide
array of new opportunities in many areas. These opportunities to
help foster a better and safer world for all post-Covid-19 are
compelling and range from:
-- Safer, more diversified supply chains with greater
traceability, improved intelligence and increased resilience
-- A lower carbon economy, stay-local lifestyles, more remote
working, distance learning and online shopping
-- Better personal safety, higher health, hygiene and wellbeing
standards and greater investment in healthcare
That is why we have invested in attractive growth segments and
rapidly brought to market a range of innovations to support the
emerging needs of our clients to help them address their
operational and supply chain challenges. From the launch of Protek
, the world's first industry-agnostic end-to-end Health, Safety and
Wellbeing assurance program , to CarbonClear , the world's first
assurance program that certifies the upstream carbon intensity per
barrel of oil, our passionate commitment to innovation is what
enables us to deliver sustainable shareholder value through the
cycle.
The first pandemic in a global, highly connected world has shown
the increased need for risk-based quality assurance and the
solutions that Intertek offers help make the world a better and
safer place.
With our industry leading ATIC capability and expertise,
innovation and insight, Intertek is uniquely positioned to seize
these compelling growth opportunities and to benefit from the GDP+
like-for-like revenue growth prospects in the Quality Assurance
Industry in the medium to long-term. In short, the pandemic has
brought to life as never before the importance of Intertek's
purpose-led role in society."
Key Adjusted Financials 2020 2019 H1 Change Change at
H1 at actual constant
rates rates(1)
Revenue GBP1,330.6m GBP1,442.6m (7.8%) (7.8%)
============ ============ =========== ==========
Like-for-like revenue(2) GBP1,326.7m GBP1,440.9m (7.9%) (8.0%)
============ ============ =========== ==========
Operating profit(3) GBP168.2m GBP248.9m (32.4%) (32.2%)
============ ============ =========== ==========
Operating margin(3) 12.6% 17.3% (470bps) (460bps)
============ ============ =========== ==========
Profit before tax(3) GBP151.5m GBP227.1m (33.3%) (33.1%)
============ ============ =========== ==========
Diluted earnings per
share(3) 63.1p 98.2p (35.7%) (35.5%)
============ ============ =========== ==========
Interim dividend per
share 34.2p 34.2p 0.0%
============ ============ ===========
Cash flow from operations
less net capex(3) GBP236.9m GBP228.3m 3.8%
============ ============ ===========
Free Cash Flow(3) GBP141.9m GBP104.6m 35.7%
============ ============ ===========
Financial net debt(4) GBP650.1m GBP826.3m (21.3%)
============ ============ ===========
Financial net debt 1.1x 1.4x (IAS
/ L12M EBITDA(3, 4) 17)
============ ============ ----------
Key Statutory Financials 2020 H1 2019 H1 Change (1) Constant rates
at actual are calculated by translating
rates H1 19 results at H1
20 exchange rates.
(2) Like-for-like
revenue includes acquisitions
following their 12-month
anniversary of ownership
and removes the historical
contribution of any
business disposals/closures
.
(3) Adjusted results
are stated before Separately
Disclosed Items ('SDIs'),
see note 3 to the Condensed
Consolidated Interim
Financial Statements.
(1,2,3) Reconciliations
for these measures
are shown in the Presentation
of Results section
on page 24.
(4) Financial net
debt excludes the IFRS
16 lease liability
of GBP245.8m. Total
net debt is GBP895.9m.
Reflects prior 12 months
EBITDA for relevant
period. See note 8
on page 37.
Revenue GBP1,330.6m GBP1,442.6m (7.8%)
============ ============ ===========
Operating profit GBP146.9m GBP228.7m (35.8%)
============ ============ ===========
Operating margin 11.0% 15.9% (490bps)
============ ============ ===========
Profit before tax GBP130.8m GBP206.3m (36.6%)
============ ============ ===========
Profit after tax GBP105.5m GBP155.1m (32.0%)
============ ============ ===========
Diluted earnings per
share 58.6p 88.1p (33.5%)
============ ============ ===========
Net cash flows generated
from operating activities GBP201.8m GBP179.6m 12.4%
============ ============ ===========
The Directors have approved an interim dividend of 34.2 p per
share (H1 19: 34.2p) to be paid on 8 October 2020 to shareholders
on the register at close of business on 18 September 2020.
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 scintertek @fti consulting .com
Analysts' Call
A live audiocast for analysts and investors will be held today
at 7.45am. 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 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 2020
GROUP CEO REVIEW
During the first six months of the year we witnessed an
unprecedented global pandemic which surpassed all other events in
the period.
On behalf of everyone at Intertek, I would like to pay tribute
to healthcare and frontline workers around the world for their
magnificent response and to express my pride in the way our own
people have risen to the challenge of delivering a superior service
to our customers at all times whilst also supporting their families
and communities.
As I said at the time of our Trading Statement in May, I lead a
business that, at its core, is about Bringing Quality, Safety and
Sustainability to Life.
Intertek has been delivering pioneering safety solutions to
companies for 130 years and in that time has had to navigate
multiple challenges on a local and global basis. As a business, we
have learned a lot over the past six months and by acting with
speed, flexibility and innovation to support our clients, we have
lived up to our philosophy of becoming Ever Better in everything we
do.
It has become clear to all of us that our role at Intertek has
never been more relevant in making the world a better, safer and
more sustainable place. In short, the pandemic has brought to life,
as never before, the great importance of Intertek's purpose-led
role in society.
We are, of course, not immune to the impact of the global
pandemic. However, I am confident in our ability to navigate a
challenging 2020 and to benefit post Covid-19 from more attractive
growth opportunities as the world will need more of Intertek's
fully integrated Assurance, Testing, Inspection and Certification
('ATIC') services.
The ATIC solutions we deliver go beyond the quality and safety
of a corporation's physical components, products and assets to also
look at the reliability of their operating processes and quality
management systems. This is our Total Quality Assurance offering,
enabling our clients to mitigate risk at every stage of their
operations.
TRADING PERFORMANCE
Over the first six months of the year, the Group delivered a
resilient revenue performance, a robust margin and strong cash flow
. This performance reflects the strengths of our business model in
providing mission-critical services to companies around the world,
our disciplined performance management and our strongly cash
generative earnings model.
Revenue of GBP1,330.6m, was down 7.8% year-on-year (YoY) at
actual rates and 7.8% at constant rates . R evenue on a
like-for-like (LfL) basis decline d 8.0% at constant rates.
We delivered an adjusted operating profit performance of
GBP168.2m, down 32.2% at constant rates and 32.4% at actual rates.
The Group's adjusted operating margin was 12.6%, a decrease of
460bps from the prior year at constant exchange rates.
The Group's cash performance in the period was strong with
adjusted free cash flow of GBP141.9m (H1 19: GBP104.6m), driven by
disciplined working capital management and strong cash conversion.
The Group ended the period in a strong financial position with net
financial debt of GBP650.1m (H1 19: GBP826.3m), resulting in a
financial net debt / adjusted L12M EBITDA ratio of 1.1x (H1 19:
1.4x (IAS 17)).
W e have announced a half year dividend of 34.2 p per share ,
unchanged on the prior year, based on the Group's strong cash
generation in the first six months, robust balance sheet, the
strength of our earnings model and our confidence in the Group's
future growth opportunities.
Our high-quality, broad-based Products portfolio with industry
leading positions delivered a resilient trading result with an
(8.7%) LfL revenue performance at constant rates and robust
adjusted operating margins of 16.9%, down 470bps YoY at constant
rates.
Our Trade division benefited from the defensive strengths of our
AgriWorld business and delivered a LfL revenue performance at
constant rates of (10.2%) YoY and an adjusted margin of 6.8%, down
670bps YoY at constant rates.
Our strong business model in Resources enabled us to deliver a
commendable result with a LfL revenue performance at constant rates
of (2.1%) and an adjusted margin of 5.3%, down 90bps YoY at
constant rates.
The speed at which the global pandemic has unfolded, the
broad-based nature of lockdown initiatives in every country, the
lack of visibility on when the lockdown restrictions will be fully
lifted around the world, and the complexity faced by our clients to
resume their operations fully with well-functioning supply chains,
makes it difficult to assess the full impact of Covid-19 on our
business and to provide guidance for 2020.
OUTLOOK
Despite the challenging circumstances, we believe that the
resilience of our results demonstrates the attractive nature of our
industry, Intertek's high-quality earnings model and the
effectiveness of our '5x5' differentiated strategy for growth.
We are confident about the structural growth prospects in the
global Quality Assurance market, which have become even more
compelling over recent months as health, safety, wellbeing and
sustainability grow in importance for companies and individuals
alike.
Moving forward, we are well 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.
The speed at which the global pandemic has unfolded, the
broad-based nature of the lockdown initiatives in every country,
the lack of visibility on when the lockdown restrictions will be
fully lifted around the world, and the complexity faced by our
clients to resume their operations fully with well-functioning
supply chains makes it difficult to assess the full impact of
Covid-19 and to provide guidance for 2020, although we expect the
second half of the year to be better than the first half.
STRENGTHS
Whilst the global pandemic has impacted every business across
all industries, Intertek's core strengths - from our passionate
customer-centric organisation to the mission-critical nature of the
services we provide - leave us well placed to build on our strong
track record of value creation over the long term.
We are a global leader in the $250 billion Quality Assurance
market operating with a high-quality business model:
-- We operate a global network of well invested state-of-the-art
operations in 100 + countries run by innovative subject matter
experts - a significant pool of intellectual capital
-- We benefit from diversified revenue streams, both
geographically and across several end-market verticals in the
Products, Trade and Resources sectors where we operate at scale
with market-leadership positions
-- We provide our clients with a real depth and breadth of our
ATIC Quality Assurance solutions that will be ever more
mission-critical to society
-- We run a high-performance and passionate organisation, with
strong and engaged talent operating with an Ever Better mindset
-- We operate a high-margin and strongly cash generative
earnings model following a disciplined capital allocation
policy
The consistent delivery of value for all stakeholders, inspired
by our purpose of Bringing Quality, Safety and Sustainability to
Life, clearly demonstrates the core strengths of Intertek:
-- Our Total Quality Assurance superior customer service
-- Our powerful portfolio
-- Our high-quality compounder earnings model
-- Our passionate customer-centric organisation
-- Our disciplined performance management
RESPONSIVE
Since the onset of the pandemic, we have been very responsive to
a fast-changing environment and have established five critical
priorities.
Our first priority is health and safety.
The specific Covid-19 HSE policy we have covers the following
areas globally:
1. The use of personal protection equipment, including face masks
2. Hygiene, control and prevention measures
3. Social distancing and restrictions on gatherings
4. The sanitisation of facilities
5. Guidance for visitors to our facilities
6. Guidance for those of our employees who work at client premises
7. Restrictions on international travel
8. Guidance on what to do if you feel unwell
9. Working from home for non-billable employees
10. Health monitoring for employees who are unwell
Our second priority is customer service.
We are a passionate and customer-centric organisation. We always
do everything we can to provide our customers with the best
possible service. What we do every day to make sure the supply
chains of our clients operate safely in all countries is mission
critical.
The Covid-19 lockdown measures have created huge operational
challenges for all of our clients. We have kept all of our
operations open - with the exception of China, Hong Kong and India,
for a few weeks - to provide maximum support to our clients during
these very difficult times.
Our third overriding priority is margin management.
Over the years, we have built a very disciplined approach to
margin management. We continue to observe our strict controls on
pricing and cost discipline. We have also taken a number of
additional steps to protect our margin during the pandemic. These
include a pause on all recruitment, a delay of six months to the
2020 annual salary increase and participating in government support
in the UK, France, Italy and China.
Clients have been facing temporary disruptions in their
operations and all of our margin initiatives ensure that we have
the ability to service our clients fully when their operations are
back to normal.
Fourth is cash management.
All our stringent controls on working capital and cash
collection remain in place. We have also conducted a Capex review
to delay those investments that are not time critical , reducing
our planned expenditure this year by around one-third.
In addition, we are running a voluntary salary-deferral scheme
for management, running from March to October.
This involves a 50% deferral for our Board Members and Executive
Vice Presidents, 30% for our Senior Vice Presidents and 20% for
management. I have been extremely impressed by approximately 1,200
individuals' willingness to support the business in this way.
We have also benefitted from local authorities' tax deferrals,
where available.
Our fifth priority is employee engagement.
With a high proportion of our people working remotely, it has
never been more important to stay connected every day. Our
world-class digital communication platform has been instrumental in
this, enabling us to reach out frequently to everybody in the
organisation. We have our own internal social media channel WhatsIn
and we regularly feature an Intertek Hero video to recognise
Intertek colleagues who have gone beyond normal expectations to
help their customers and people.
I have been posting personal audio messages on WhatsIn to the
whole organisation and have daily calls with our regional teams
around the world.
INNOVATIONS
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
and the changing world around us. Importantly, this entrepreneurial
spirit among our people is a fundamental aspect of our
differentiated '5x5' strategy for growth.
Today, our truly systemic, end-to-end Assurance, Testing,
Inspection and Certification services enable our clients to operate
safely and with complete peace of mind. This is what we call
Intertek Total Quality Assurance and it is this approach which has
ideally placed us to support our clients in recent months.
Since day one of the pandemic, we have focused on both our
defensive and offensive initiatives, increasing the frequency of
communication with our clients to make sure we quickly understand
their needs. We have rapidly brought to market a range of
innovations to support the emerging needs of our clients, along
with innovative customer services across many industries to help
our clients address their operational and supply chain
challenges.
In our Products business, we recently launched a truly
pioneering innovation called Protek, the world's first
industry-agnostic, end-to-end health, safety and wellbeing
assurance programme for people, workplaces and public spaces,
offering audits, training, inspection, verification and
certification solutions.
Our view, supported by our most recent research, is that Health,
Safety and Wellbeing in the workplace, in public places, on public
transport, and at home is the number one concern for the entire
world. Based on Intertek's unique approach to total quality, Protek
safeguards people, systems and processes, facilities, materials and
surfaces, and products.
Protek People Assurance provides an on-demand, e-Learning and
certification programme to help our clients deliver essential
employee training on key health and safety topics. Specific
learning and certification solutions include modules on how to use
face masks, gloves and PPE, and courses on food safety, hygiene,
cleaning and prevention.
Our Protek Business Assurance solutions provide an end to end
audit of operating procedures and systems enabling our clients to
demonstrate their commitment to the wellbeing of their employees
and their consumers.
Protek Facilities Assurance offers HSE Audit and Inspection
solutions for all types of facilities, from hotels, restaurants and
retail outlets to schools, transportation hubs and manufacturing
sites where consumers and employees will look for visible safety
verification.
Protek Materials & Surfaces provides complete testing
solutions to ensure spaces, materials and surfaces are safe for
employees and customers in the workplace and public spaces.
The reactions of our clients around the world to Protek has been
very strong, as Protek is very much in line with what the world
needs, right now. For example, earlier this month the CEO of Club
Med, specialists in luxury all-inclusive holidays, posted a
personal "welcome back" video message to its guests, reassuring
them of the health and safety measures which have been implemented
at their resorts by Intertek's Protek solution, Cristal
International Standards.
In addition to Protek, we have introduced Intertek InLight 2.0,
a unique platform that adds new and enhanced features to our
market-leading supply chain compliance solution, enabling
organisations to manage increasingly complex supply chain risks.
With the support of Inlight 2.0, customers can turn potential
disruptions and compliance irregularities to their competitive
advantage with captured market share and operational
efficiencies.
We have also created the Alchemy Playbook app, which can be used
on any mobile device, making it incredibly easy to deliver
consistent and accurate training, while helping clients to optimise
their resources and increase productivity.
As more industries undergo profound shifts at an even faster
pace, the need for creative solutions underpinned by research,
design and quality assurance expertise, has never been more
relevant. This can be seen within the global premium and luxury
fashion world and in an industry first, Intertek brought together
some of the sector's leading commentators as part of a one-off
virtual event to discuss the major structural mega trends that are
set to reshape the industry.
This event was hosted from our new Maison Centre of Excellence
in Italy, an innovative experiential space where science meets
luxury, bringing together forward-thinking fashion brands, industry
leaders, academics and a host of textile industry participants to
collaborate and to take bold new ideas and turn them into
reality.
In our Trade business, where speed is of the essence, Intertek
Inview is our unique remote auditing and inspection solution, which
connects clients in real-time via a live video stream to our team
of technical experts. And we have developed Fast Tek, a
comprehensive Trade solution for our key global accounts, providing
expedited certification enabling clients to move their goods more
quickly through global supply chains.
Our Caleb Brett business, which provides cargo inspection,
analytical assessment, calibration and related research and
technical services to the world's petroleum and biofuels
industries, has joined VAKT, an innovative post trade management
platform. W e have increased the availability of our Remote Video
Inspection solution for our oil and gas customers to ensure
business continuity of critical vendor inspection services during
the current health and safety site restrictions.
Our clients will also benefit from our state-of-the-art fuel
testing technology as environmental regulations become more
demanding, with Caleb Brett's new Cetane Rating Engine, the only
one of its kind in China for determining and certifying the
ignition quality of diesel fuel.
In our Resources business, in a ground-breaking development for
the Oil & Gas industry, we recently launched CarbonClear, the
world's first assurance program that certifies the upstream carbon
intensity per barrel of oil. Bringing unique and independent
clarity on the carbon impact of cradle-to-gate operations across
all aspects of Oil & Gas exploration and production,
CarbonClear provides producers with continuous opportunities to
reduce their carbon emissions and participate in the transition to
a low carbon economy.
As the contribution of alternative energy sources increases, we
have also developed an end-to-end assurance solution dedicated to
offshore windfarm projects, supporting with site selection and
characterisation, feasibility studies, survey and installation
oversight, environmental impact assessments (EIAs) and scoping
studies, metocean assessments, and risk management for a variety of
offshore developments.
Our Minerals team has also developed a unique batching method to
considerably speed up the X-Ray diffraction assessments of iron
ores by processing the ores with set phases and a pre-set
refinement strategy, delivering faster and more cost-effective
results for our customers.
These exciting innovations are in addition to the many services
we have developed rapidly in response to the pandemic:
-- Priority testing service for life-saving medical equipment
like ventilators, leveraging our global leadership
-- End-to-end testing and certification capacity for protective clothing and other PPE equipment
-- Increased testing capacity and express service for hand sanitisers and surface disinfectants
-- Support to the Pharma industry for Vaccine development
-- Support to the Oil & Gas industry addressing the Covid-19 related challenges
-- Cyber security audit solution related to home working conditions
-- Support to various governments in their Covid-19 safety efforts
I am tremendously proud of our teams and in addition to the
development and launch of attractive Covid-19 related innovations,
our people have taken the time to support their communities around
the world. For example:
-- Across the world, from China, HK, India and Philippines to
UK, Turkey and Netherlands, colleagues have produced hand sanitiser
according to WHO guidelines to keep customers and colleagues
safe
-- Intertek Indonesia has provided 200,000 face masks to our
colleagues in countries greatly affected by Covid-19
-- Our Food team in the UK worked seven days a week to collect,
register and process samples for clients in a safe and secure way -
supporting our customers' tight deadlines, given the strong
demand
-- Many families in Azerbaijan were left without income or basic
needs. Our team initiated an open crowdfunding which resulted in
many families receiving relief packages
-- In Bangladesh, our facilities team set up a virtual hospital
and have been delivering oxygen cylinders to the homes of
colleagues and their family members in times of distress
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,
health, safety, wellbeing and sustainability than they were even
five years ago, and these existing trends have been accelerated as
a result of the events of recent months. But there is much that
needs to be done to establish a robust, reliable, end-to-end TQA
(Total Quality Assurance) 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
organization, 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 like-for-like growth with value enhancing
acquisitions.
OUR HIGH-QUALITY EARNINGS MODEL
Our high margin and strongly cash generative earnings model is
underpinned by the delivery of our TQA Value Proposition, providing
our ATIC solutions with superior customer service levels to
businesses in the three economic sectors of 'Products' , ' Trade '
and ' Resources ' across more than 100 countries. Each of these
sectors 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+ like-for-like 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.
2020 will be remembered as the year when a global external event
forced everyone to rethink how to operate and make the world a
safer place.
We are convinced that the world will be a better and safer place
post Covid-19.
We expect the theme of " Build Back Ever Better " to guide the
actions of governments, companies, investors, regulators and
consumers. The learnings of the global pandemic we faced in 2020
will be in three areas:
-- Managements, Boards and shareholders will want to see their
companies operate with a safer supply chain
-- Consumers, governments, companies and regulators will want better personal safety
-- The way we will operate and invest post Covid-19 will help build a lower carbon society
These expected changes in society will make the attractiveness
of the $250 billion Total Quality Assurance Market even
greater.
We see strong growth opportunities with existing and new
customers.
We also see attractive growth opportunities from winning access
to the quality assurance work that corporations currently do
in-house. The global operations of corporations have become more
complex, which has created the need for end-to-end quality
assurance services as corporations increase their focus on systemic
operational risk.
This untapped market potential is really exciting as this is all
about what companies do not do today and will start doing to
improve the quality, safety and sustainability of their
operations.
The Quality Assurance structural growth drivers are very
attractive and our growth outlook in the medium to long term is
GDP+ like-for-like revenue growth in real terms.
We expect our Products division that represents 81% of the Group
' s earnings to grow ahead of global GDP, benefiting from brand and
SKU expansion, faster innovation cycle, increased demand for smart
products and an increased focus of corporations on safety, quality
and sustainability.
We expect our Trade division that represents 12% of the Group '
s earnings to grow at a rate broadly similar to GDP through the
cycle.
Our Trade businesses will benefit from the development of
regional and global trade routes, an increased focus on
traceability and sustainability as well as infrastructure
expansion
The growth prospects of our Resources division which represents
7% of the Group ' s earnings are linked to the global growth
drivers in the energy sector.
Investments in Exploration and Production for essential
resources like oil and minerals will grow to meet the demand of the
growing population around the world. Our Resources business will
also benefit from the transition of our clients toward a
diversified portfolio with increased focus on renewables,
sustainability and digital data management
We expect the Corporate Assurance activities, which operate
across each division, to continue to get stronger and stronger
given:
-- The increased importance of risk-based quality assurance;
-- Increased regulation;
-- The increased need for Health, Safety and Wellbeing;
-- The growth in people assurance;
-- The growth in supply intelligence; and
-- The increased corporate focus on sustainability and cyber security.
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+ like-for-like 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 focused 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
SUSTAINABILITY
At Intertek we believe that we are Born to Make the World Ever
Better and for more than 100 years, sustainability services have
been core to our global business. We continue to innovate these
services, and in 2019 we launched Total Sustainability Assurance,
an industry-leading, independent assurance solution enabling
businesses to demonstrate their end-to-end commitment to
sustainability.
In addition, Covid-19, and its devastating impact on the world,
has sharpened the world's focus on other global threats such as
climate change, and companies are seeking to improve their
sustainability performance. The energy sector is a key part of this
movement, working to supply the world with low carbon solutions
whilst building resilience into the value chain to secure
sustainable energy for future generations.
As the industry-leader in Sustainability Assurance solutions, as
mentioned, we have launched CarbonClear, the world's first
assurance program that certifies the upstream carbon intensity per
barrel of oil . CarbonClear provides a unique platform to not only
evaluate emissions across all stages of exploration and production
but also deliver a consistent cradle-to-gate validation of the
carbon impact of producing one barrel of Oil equivalent (BOE) per
field or across a company's portfolio .
This innovative program brings unique clarity on the carbon
impact of upstream exploration and production which will provide
Oil & Gas producers with opportunities to disclose net carbon
emissions reductions and lead their peers in the transition to a
low carbon economy.
Oil & Gas production companies will be able to track their
performance improvements year-over-year, facilitating meaningful
portfolio decisions that reduce carbon impact across their
operations and provide data-driven insights that support their
strategic carbon reduction goals.
Our extensive knowledge of the Oil & Gas sector's drive
toward sustainable energy leaves us uniquely positioned, through
CarbonClear, to help producers achieve the lowest carbon Oil &
Gas production in the world.
TRACK RECORD OF SUSTAINABLE VALUE CREATION
We are a strong company with a track record of consistent value
creation.
We entered 2020 with a strong momentum and a track record of
consistent value creation over the last 5 years. Indeed, between
2014 and 2019:
-- Our revenue grew by 43%
-- Our adjusted operating margin increased from 15.5% to 17.2%
-- Our adjusted diluted EPS grew by 60%
-- Our adjusted FCF cash generation more than doubled
-- Our ROIC progressed from 16.3% to 22.8%
-- Our employee productivity increased 21%
We operate a high-quality earnings model and our approach to
value creation for the mid to long term is based on Global GDP+
like-for-like growth in real terms + Margin accretion + Strong cash
conversion + Disciplined capital allocation.
The compounding effect of the virtuous economics of our earnings
model year after year will continue to deliver shareholder value
creation and indeed Intertek ranks 1(st) in the FTSE100 in terms of
dividend progression between 2003 and 2019, with a CAGR of 17%,
reflecting the Group's highly cash generative earnings model.
SUMMARY
Quite simply, our role of bringing quality, safety and
sustainability to life has never been more important. We are
mission-critical to making the world ever-better and ever-safer.
The global pandemic is demonstrating that the world needs Intertek
more than ever - our insight, our innovation, our expertise and our
passion.
By staying open for business during the pandemic, we have
enabled companies to operate safely, wherever they are.
Of course, we do not yet know how long it will take for all
lockdown measures to be lifted and how long we will have to wait
for a vaccine or a cure. But just consider for a minute how the
pandemic will continue to affect the way people lead their everyday
lives.
How will we know if a home delivery is clean, if it will be safe
to eat in a restaurant, if our children are risk-free at school -
if it is even safe to have a family reunion? In short, Health,
Safety and Wellbeing issues are now the number one concern for the
entire world. This is not going to go away anytime soon.
So, what does this mean for Intertek?
Before any of us had heard of Covid-19, the global structural
growth drivers in the Quality Assurance space were already very
attractive for Intertek:
-- The Total Quality Assurance market is worth $250 billion, yet
only 20% of this market is currently outsourced
-- The global operations of corporations are complex, and this
is driving more demand for end-to-end quality assurance services as
companies increase their focus on systemic operational risk
-- This untapped market potential is really exciting, as this is
all about what companies do not do today and will start doing to
improve the quality, safety and sustainability of their
operations.
Now, following the first pandemic to take place in a highly
connected global world, the case for risk-based Quality Assurance
is even greater for all stakeholders, positioning Intertek strongly
for growth moving forward with our people truly energised about the
attractive growth opportunities ahead.
The exciting structural growth drivers pre-Covid-19 have now
been joined by a wide array of new Quality Assurance opportunities
in many areas:
-- Health, Safety and Wellbeing-oriented quality assurance in
the workplace, in public spaces and in the home
-- Growing demand in the healthcare sector for PPE, for new
medical devices and stronger infrastructure
-- An increasing need for risk management in the supply chain to
diversify the approach to sourcing
-- An increased focus on operational sustainability
-- Great demand for healthy, convenient and sustainably sourced products
-- A changing corporate environment where working remotely will create new operational risks
-- A changing retail landscape where the growth of e-commerce
will create supply chain management challenges
-- A changing approach to investments and research in the healthcare sector
-- An accelerated transition to renewable energy sources and clean technology
It is clear that the need for solutions that make the world a
better and safer place is much greater than anybody had previously
imagined. Intertek is uniquely positioned to seize these compelling
growth opportunities and to benefit from the GDP+ like-for-like
revenue growth prospects in the Quality Assurance Industry in the
medium- to long-term, leveraging our high quality, highly
cash-generative earnings model and innovative ATIC solutions.
The world will need Intertek services more than ever and we
stand to benefit from all of these opportunities. We are truly
mission-critical in delivering quality, safety and sustainability
in a post-Covid-19 world.
André Lacroix
Chief Executive Officer
Operating Review
For the six months ended 30 June 2020
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').
Overview of performance
H1 20 H1 19
GBPm GBPm Change at actual rates Change at constant rates (1)
======================================= ======== -----------------------
Revenue 1,330.6 1,442.6 (7.8%) (7.8%)
Like-for-like revenue (2) 1,326.7 1,440.9 (7.9%) (8.0%)
Adjusted Operating profit (3) 168.2 248.9 (32.4%) (32.2%)
Margin (3) 12.6% 17.3% (470bps) (460bps)
Net financing costs (3) (16.7) (21.8) (23.4%) ( 23.4%)
Income tax expense (3) (38.7) (55.6) (30.4%) ( 30.3%)
Adjusted Earnings for the period (3) 112.8 171.5 (34.2%) (34.0%)
Adjusted d iluted earnings per share
(3) 63.1p 98.2p (35.7%) (35.5%)
-------- -------- ----------------------- -----------------------------
1. Constant rates are calculated by translating H1 19 results at H1 20 exchange rates.
2. Like-for-like revenue includes acquisitions following their
12-month anniversary of ownership and removes the historical
contribution of any business disposals/closures.
3. Adjusted results are stated before SDIs, see note 3 to the
Condensed Consolidated Interim Financial Statements on page 35.
Total reported Group revenue declined by 7.8%, made of 0.1%
growth contributed by acquisitions and a LfL revenue decline of
7.9%. The foreign exchange impact on revenue was broadly
neutral.
The Group's LfL revenue at constant rates reflected a decline of
8.7% in Products, 10.2% in Trade and 2.1% in Resources.
We delivered an operating profit performance of GBP168.2m, down
32.2% at constant rates and 32.4% at actual rates. Our disciplined
approach to performance management and capital allocation remained
in place and we have taken a number of steps to protect our margin
during the pandemic.
The Group's adjusted operating margin was 12.6%, a decrease of
460bps from the prior year at constant exchange rates. Margin
declined in each of our three divisions: (470bps) in Products,
(670bps) in Trade and (90bps) in Resources at constant rates.
Consistent with the disclosure in our FY19 Annual Report, we
continue to make progress with the final year implementation of our
business unit portfolio review, part of our 5x5 strategy announced
in March 2016. In-line with this, a GBP5.9m restructuring cost has
been recognised in SDIs in the period, which impacted seven
business units in the half year, taking the total programme to
96.
The Group's statutory operating profit after SDIs for the period
was GBP146.9m (H1 19: GBP228.7m) and margin was 11.0% (H1 19:
15.9%).
Net Financing Costs
Net financing costs were GBP16.7m, a decrease of GBP5.1m on H1
19 resulting from a combination of lower interest expense and the
impact of foreign exchange rates. This comprised GBP0.1m (H1 19:
GBP0.6m) of finance income and GBP16.8m (H1 19: GBP22.4m) of
finance expense.
Tax
The adjusted effective tax rate was 25.5%, an increase of 1.0%
on the prior year (H1 19: 24.5%, FY 19: 24.5%). The tax charge,
including the impact of SDIs, of GBP25.3m (H1 19: GBP51.2m),
equates to an effective rate of 19.3% (H1 19: 24.8%, FY 19: 25.1%),
the decrease mainly driven by an adjustment to goodwill and other
intangibles deferred tax.
Earnings per share
Adjusted diluted earnings per share at actual exchange rates was
35.7% lower at 63.1p. Diluted earnings per share after SDIs was
58.6p (H1 19: 88.1p) per share and basic earnings per share after
SDIs was 59.1p (H1 19 : 89.1p).
Dividend
Based on the Group's strong cash generation in the first six
months and robust balance sheet, the Board has approved an interim
dividend of 34.2p per share, which is in-line with prior year (H1
19: 34.2p). The dividend will be paid on 8 October 2020 to
shareholders on the register at 18 September 2020.
Investments
The Group invested GBP33.9m (H1 19: GBP46.2m) of organic net
capital investment 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 2020.
Cash Flow
The Group's cash performance in the period was strong with free
cash flow of GBP135.2m (H1 19: GBP94.1m), driven by disciplined
working capital management and strong cash conversion. Adjusted
cash generated from operations was GBP268.1m (H1 19: GBP274.0m).
Cash generated from operations was GBP261.4m (H1 19:
GBP263.5m).
Financial position
The Group ended the period in a strong financial position.
Financial net debt was GBP650.1m, an increase of GBP20.7m on 31
December 2019 and a decrease of GBP176.2m on 30 June 2019. The
undrawn headroom on the Group's existing committed borrowing
facilities at 30 June 2020 was GBP323.9m. To further enhance
liquidity, i n June, the Group secured an additional committed
$200m US Private Placement facility, which will be drawn down in
December 2020.
Financial guidance
The Group's current view for 2020, assuming constant FX rates
for the rest of 2020, is that we expect:
-- Capital expenditure in the range of GBP90-100m
-- Net Finance Costs of around GBP35-38m
-- Effective tax rate in the 25.5-26.0% range
-- Minority interests of between GBP19-21m
-- Financial net debt at December 2020 of between GBP625-675m
(prior to any material movements in FX or M&A)
Based on the year-to-date performance and the average FX rate in
the last three months applied for the remainder of the year,
currencies would be neutral both at the revenue and at the earnings
level.
Operating Review by Division
Revenue Adjusted operating profit
H1 202 0 H1 2019 Change Change at H1 2020 H1 2019 Change Change at
GBPm GBPm at actual constant GBPm GBPm at actual constant
rates rates rates rates
Products 800.3 866.8 (7.7%) (8.4%) 135.5 1 88.0 (27.9%) (28.3%)
Trade 294.7 3 32.7 (11.4%) (10.2%) 20.1 4 6.0 (56.3%) (54.6%)
Resources 235.6 243.1 (3.1%) (2.2%) 12.6 14.9 (15.4%) (15.4%)
========= ========= ============= ============= ======== ======== ============= =============
Group 1,330.6 1 ,442.6 (7.8%) (7.8%) 168.2 248.9 (32.4%) (32.2%)
========= ========= ============= ============= ======== ======== ============= =============
Products Divisional Review
H1 2020 H1 2019 Change at Change at
GBPm GBPm actual rates constant rates
Revenue 800.3 866.8 (7.7%) (8.4%)
Like-for-like
revenue 796.9 865.9 (8.0%) (8.7%)
Adjusted operating
profit 135.5 188.0 (27.9%) (28.3%)
Adjusted operating
margin 16.9% 21.7% (480bps) (470bps)
======== ======== ============== ================
Intertek Value Proposition
Our Products-related businesses consist of business lines that
are focused on ensuring the quality and safety of physical
components and products, as well as minimising risk through
assessing the operating processes and quality management systems of
our customers.
As a trusted partner to the world ' s leading retailers,
manufacturers and distributors, the division supports a wide range
of industries including textiles, footwear, toys, hardlines, home
appliances, consumer electronics, information and communication
technology, automotive, aerospace, lighting, building products,
industrial and renewable energy products, food and hospitality,
healthcare and beauty, and pharmaceuticals.
Across these industries we provide a wide range of ATIC services
including; laboratory safety, quality and performance testing,
second-party supplier auditing, sustainability analysis, product
assurance, vendor compliance, process performance analysis,
facility plant and 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 innovation to deliver a superior
customer service in our Products related businesses:
PROTEK
Innovation: It is the world's first industry-agnostic,
end-to-end health, safety and wellbeing assurance programme for
people, workplaces and public spaces, offering audits, training,
inspection, verification and certification solutions.
Customer Benefit: Based on Intertek's unique approach to total
quality, Protek safeguards people, systems and processes,
facilities, materials and surfaces, and products.
INLIGHT 2.0
Innovation: Intertek InLight 2.0 adds new and enhanced features
to its market-leading supply chain compliance solution, enabling
organisations to manage increasingly complex supply chain risks.
The main new features include enhanced analytics and the
integration of Wisetail(TM), an integrated dynamic online learning
platform.
Customer Benefit: This unique platform enables organisations
more flexibility and customisation of their unique supply chain
programmes to map their supply chain and bring visibility to the
workings of their vendor partners. With the support of Inlight 2.0,
customers can turn potential disruptions and compliance
irregularities to their competitive advantage with captured market
share and operational efficiencies.
ALCHEMY PLAYBOOK
Innovation: Alchemy Playbook is an app to create, deliver, and
validate job-specific training right on the production floor.
Playbook also tracks the job qualifications of the employees, so a
client can quickly find a qualified worker for any job for their
facility or operations.
Customer Benefit: Alchemy Playbook can be used on any mobile
device and makes it incredibly easy to deliver consistent accurate
training, while helping clients to optimise their resources and
increase productivity.
INTERTEK MAISON CENTRE OF EXCELLENCE FOR LUXURY
Softlines Innovation: The pandemic has changed the world we live
in and has accelerated a shift in attitudes with clients and
consumers paying more attention to the safety and quality and
sustainability of materials used in fashion and accessories, and
the risks associated with local and global supply chains.
Customer Benefit: The Maison Centre of Excellence for Luxury in
Florence, Italy is the new Intertek home for luxury and premium
brands. It offers a unique, technologically advanced venue for
events, ideas and collaboration - supported by the research, design
and quality assurance expertise of the adjacent world class
laboratories and cutting-edge technology. It is designed to take
new, original, ideas from inspiration to reality.
H1 2020 performance
In H1 2020, our Products business delivered a resilient revenue
performance and a robust margin, benefiting from its defensive
strengths, with a robust margin of 16.9%.
Our Product related businesses delivered a revenue performance
of GBP800.3m, down 8.4% at constant rates with a LfL revenue
performance of 8.7% below prior year. We delivered an operating
profit of GBP135.5m, and adjusted operating margin of 16.9%, down
470bps versus last year.
-- We saw a double-digit decline in LfL revenue in our Softlines
business due to the supply chain disruption in China and India and
the temporary closures of non-food retailers in Western Europe and
North America, which was partially offset by continuous growth in
e-commerce and increased demand for testing protective
equipment.
-- Our Hardlines business saw a double-digit negative LfL
revenue performance due to the supply chain disruption in China and
the temporary closures of non-food retailers in Western Europe and
North America which was partially offset by strong growth in
e-commerce, good demand for toys testing and increased demand for
the testing of protective material .
-- We delivered a low single-digit negative revenue performance
in our Electrical & Connected World business as the negative
impact of the supply chain disruption due to the lockdown measures
around the world has been partially offset by higher demand for
regulatory standards in energy efficiency, the increased demand for
testing and certification of medical devices, the increased testing
requirements for 5G and greater corporate focus on Cyber
security.
-- Our Business Assurance business delivered a resilient LfL
revenue performance with high single digit negative revenue
performance. The temporary factory and office closures in several
of our markets has triggered a delay and / or cancellation of
several audits, which was partially offset by the attractive growth
in Supply Chain Assurance, the continuous focus on ethical supply,
the increased needs of corporations for sustainability assurance,
the strong growth in our People Assurance segment and the launch of
remote audit solutions.
-- Our Building & Construction business delivered stable LfL
revenue. In the first quarter we delivered good LfL revenue growth
in North America as we continue to benefit from the growing demand
for more environmentally friendly and higher quality building as
well as the strong investments in large infrastructure project,
while we saw a temporary reduction of building and construction
activities in Q2 due to lockdown activities.
-- Our Transportation Technology business delivered a high
single-digit LfL revenue decline. The lower demand for testing in
April, May and June due to the lockdown activities in Western
Europe and North America was partially offset by the continuous
investments of our clients in new powertrains to lower CO2/NOx
emissions and increase fuel efficiency.
-- Our Food business delivered a resilient LfL revenue
performance with a mid-single digit decline in revenue. The supply
chain disruptions across several markets impacted the demand for
the testing of new products which was partially offset by the
sustained demand for food safety testing activities to keep food
supply chains functioning during the pandemic and by the increased
demand for Hygiene and Safety audits in factories.
-- We saw double-digit negative revenue in our Chemical &
Pharma business. The lockdown measures have reduced the demand for
regulatory assurance and chemical testing in our operations in
North America and Western Europe. Given the importance of Covid-19,
the Pharma industry is reprioritising their investments, delaying
projects for our laboratories. We are in contact with our clients
to support the development of Covid-19 vaccine.
Mid- to long-term growth outlook
Our Products division will benefit from mid- to long-term
structural growth drivers, including brand and SKU expansion, a
faster innovation cycle, increased focus on safety, performance
& quality, demands for smart products, a higher demand for
healthy and sustainably sourced products, and the growth middle
class of the emerging markets.
Trade Divisional Review
H1 2020 H1 2019 Change at Change at
GBPm GBPm actual rates constant rates
Revenue 294.7 332.7 (11.4%) (10.2%)
Like-for-like
revenue 294.7 332.7 (11.4%) (10.2%)
Adjusted operating
profit 20.1 46.0 (56.3%) (54.6%)
Adjusted operating
margin 6.8% 13.8% (700bps) (670bps)
======== ======== ============== ================
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:
INVIEW
Innovation: Intertek Inview is a unique remote inspection
solution, that brings state-of-the-art technology and Intertek
industry expertise together to provide faster and improved
inspections for customers. In a trade environment where speed is of
the essence, Inview allows real-time remote assessments via the
Inview app connecting with Intertek's technical inspection experts
via live video, and with leading capabilities offers augmented
reality annotations, and geo-tagged HD video and image
recording.
Customer Benefit: Inview reduces turnaround times and enhances
transparency with better and faster access to a team of technical
inspection experts and in the event that potential issues are
identified during the inspection, follow-up actions can be
discussed without delay. Where travel and access restrictions
prevent the conduct of in-person inspection services, Inview offers
greater flexibility and a more sustainable alternative.
BLOCKCHAIN POWERED POST-TRADE MANAGEMENT
Innovation: Intertek Caleb Brett has joined VAKT, an innovative
post trade management platform. VAKT's vision is to digitise the
global commodities trading industry, creating a secure, trusted
ecosystem, powered by blockchain technology.
Customer Benefit: The integration with the VAKT platform
contributes to de-risk quality issues related to transposition of
data and lead to a material improvement in turnaround time for the
clients.
DIGITAL CETANE TESTING
Innovation: Caleb Brett's new Cetane Rating Engine is the only
one of its kind in China for determining and certifying the
ignition quality of diesel fuel, and supports the government on its
nation-wide fuel quality program to prevent and control air
pollution to improve environmental and living standards.
Customer Benefit: Clients benefit from a state-of-the art fuel
testing technology as the environment regulations become
increasingly demanding.
H1 2020 performance
Our Trade business benefited from our strong customer
relationships and the defensive strengths of our agriculture
services.
W e delivered a resilient revenue of GBP 294.7 m with a LfL
revenue performance of 10.2 % below prior year at constant rates
and a n operating profit of GBP 20.1 m, enabling us to deliver an
operating margin of 6.8 %, down 67 0bps versus last year . Our
business lines remained open for business during the pandemic given
the mission - critical role we play in society to make sure that
the essential global trade activities are functioning safely and
fully.
-- Our Caleb Brett business delivered a high single-digit negative
LfL revenue performance. Caleb Brett is the global leader in the
Crude Oil and refined Products global trading markets with 7,600
employees and 275 operations. Our Caleb Brett operations remained
fully operational 24/7 to support the energy testing and inspection
needs of our clients which were lower than last year due to a lower
level of consumer demand.
-- Our Government & Trade Services business provides certification
services to governments in the Middle East and Africa to facilitate
the import of goods in their markets, based on acceptable quality
and safety standards. We saw a double-digit negative revenue decline
due to the disruption of manufacturing in China in February and
March and the lockdown activities in all countries impacting cross-borders
trade flow.
-- Our Agri World business delivered a stable LfL revenue performance
in the first six months of 2020. We provide inspection activities
globally and we remained open 24/7 during the pandemic to make sure
that the global food supply chain operates fully and safely.
Mid- to long-term growth outlook
Our Trade division will continue to benefit from population
growth and social mobility, GDP growth, the development of regional
trade, improvements in transport infrastructure, the increased need
for end-to-end traceability and the increased focus on Operational
Sustainability.
Resources Divisional Review
H1 2020 H1 2019 Change at Change at
GBPm GBPm actual rates constant rates
Revenue 235.6 243.1 (3.1%) (2.2%)
Like-for-like
revenue 235.1 242.3 (3.0%) (2.1%)
Adjusted operating
profit 12.6 14.9 (15.4%) (15.4%)
Adjusted operating
margin 5.3% 6.1% (80bps) (90bps)
======== ======== ============== ================
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 innovation to deliver a superior
customer service in our Resources related businesses:
CARBON CLEAR
Innovation : Carbon Clear is the world's fir st independent
carbon intensity certification program that delivers a consistent
cradle-to-gate validation of the carbon impact of producing one
barrel of oil equivalent (BOE) per
field or across a company's portfolio.
Customer Benefit : Carbon Clear allows customers to benchmark
performance, differentiate their product and drive
improvement in the transition to a low carbon economy .
WINDFARM PROJECT ASSURANCE
Innovation: It is an end-to-end solution dedicated to offshore
windfarm projects. Our many services include site selection and
characteri s ation, feasibility studies, survey and installation
oversight, Environmental Impact Assessments (EIAs) and scoping
studies, metocean assessments, and risk management for a variety of
offshore developments.
Customer Benefit: Our clients can proceed safely with the
deployment of their most complex projects in renewable energies
.
XRD BATCH FOR IRON ORES
Innovation: Our Minerals Team has developed a unique batching
method to considerably speed up the X-Ray Diffraction (XRD)
assessments of iron ores by processing the ores with set phases and
a pre-set refinement strategy .
Customer Benefit: Customisation of the XRD and introduction of
the batch process will lift capacity
significantly, delivering results faster to our clients and reducing the cost of analysis.
H1 2020 performance
We benefited from the strength of our business model in
Resources, enabling us to deliver a commendable performance in
revenue and margin.
Our resources-related businesses delivered a revenue performance
of GBP 235.6 m with a LfL revenue change of (2.1 % ) at constant
rates and an operating profit of GBP12.6m, enabling us to deliver a
margin of 5.3%, down year-on-year by 90bps.
-- We delivered good LfL growth in our Capex Inspection services business
as we benefited from the increased investments of our clients in
exploration and production as well as from the win of several new
contracts.
-- We saw double-digit negative revenue performance in Opex Maintenance
services as the lockdown initiatives impacted the demand for our
inspection services in the months of March, April, May and June.
-- We delivered robust revenue growth in our Minerals business as we
saw increased demand for testing and inspection activities.
Mid- to long-term growth outlook
Our Resources division will grow in the medium- to long-term as
we benefit from population growth and social mobility, investment
in E&P, Storage and Transportation, Total Energy and
diversified portfolios, accelerated transition to renewable
energies, increased focus on Operational Sustainability, and
digital supply chain management .
Presentation of Results
For the half year ended 30 June 2020
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).
Like-for-Like growth
As disclosed in the Group's FY19 preliminary results
announcement, to improve the understanding of the Group's
underlying growth performance, from 2020 we have adopted a
"Like-for-Like revenue" definition, replacing the previously used
"organic" revenue. LfL growth figures are calculated by including
acquisitions following their 12-month anniversary of ownership and
removing the historical contribution of any business disposals /
closures .
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 19 results at
H1 20 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 2020 and
the comparative period are given in note 3 to the Condensed
Consolidated Interim Financial Statements.
Reconciliation of
Results to Adjusted
Performance Measures 2020 H1 2019 H1
(GBPm) 2020 H1 Results SDIs 2020 H1 Adjusted 2019 H1 Reported SDIs 2019 H1 Adjusted
Operating profit 146.9 21.3 168.2 228.7 20.2 248.9
---------------- -------- ----------------- ----------------- -------- -----------------
Operating margin 11.0% 1.6% 12.6% 15.9% 1.4% 17.3%
---------------- -------- ----------------- ----------------- -------- -----------------
Net financing costs (16.1) (0.6) (16.7) (22.4) 0.6 (21.8)
---------------- -------- ----------------- ----------------- -------- -----------------
Profit before tax 1 3 0 .8 20.7 1 51.5 206.3 20.8 227.1
---------------- -------- ----------------- ----------------- -------- -----------------
Income tax expense (25.3) (13.4) (38.7) (51.2) (4.4) (55.6)
---------------- -------- ----------------- ----------------- -------- -----------------
Profit for the year 105.5 7.3 112.8 155.1 16.4 171.5
---------------- -------- ----------------- ----------------- -------- -----------------
Cash flow from
operations 261.4 6.7 268.1 263.5 10.5 274.0
---------------- -------- ----------------- ----------------- -------- -----------------
Cash flow from
operations less net
capex 230.2 6.7 236.9 217.8 10.5 228.3
---------------- -------- ----------------- ----------------- -------- -----------------
Free cash flow 135.2 6.7 141.9 94.1 10.5 104.6
---------------- -------- ----------------- ----------------- -------- -----------------
Basic earnings per
share 59.1p 4.6p 63.7p 89.1p 10.2p 99.3p
---------------- -------- ----------------- ----------------- -------- -----------------
Diluted earnings per
share 58.6p 4.5p 63.1p 88.1p 10.1p 98.2p
---------------- -------- ----------------- ----------------- -------- -----------------
Reconciliation of revenue Six months Six months Change
to to %
30 June 30 June
2020 2019
GBPm GBPm
Reported revenue 1,330.6 1,442.6 (7.8%)
----------- ----------- ---------
Less: Acquisitions / disposals
/ closures revenue ( 3.9 ) ( 1.7 )
----------- ----------- ---------
Like-for-like revenue 1,326.7 1,440.9 (7.9%)
----------- ----------- ---------
Impact of foreign exchange
movements - 0.6
----------- ----------- ---------
Like-for-like revenue at 1,3 26 .
constant currency 7 1,441.5 ( 8.0 %)
----------- ----------- ---------
Reconciliation of financial net debt to 30 June 2020 30 June 2019
adjusted EBITDA (GBPm) GBPm GBPm
--------- --------- -------- --------
Net debt 895. 9 1,081.8
--------- --------- ------------- -------- -------- -------------
IFRS 16 lease liability (245.8) (255.5)
--------- --------- ------------- -------- -------- -------------
Financial net debt 650.1 826.3
--------- --------- ------------- -------- -------- -------------
2019 H2 2020 H1 2020 LTM 2018 H2 2019 H1 2019 LTM
IFRS 16 IFRS 16 IFRS 16 IAS 17 IAS 17 IAS 17
--------- --------- ------------- -------- -------- -------------
Reported operating profit 257.1 146.9 404.0 226.9 223.4 450.3
--------- --------- ------------- -------- -------- -------------
Depreciation 77.0 78.5 155.5 38.3 43.6 81.9
--------- --------- ------------- -------- -------- -------------
Amortisation 7.9 8.8 16.7 6.6 7.4 14.0
--------- --------- ------------- -------- -------- -------------
EBITDA 342.0 234.2 576.2 271.8 274.4 546.2
--------- --------- ------------- -------- -------- -------------
SDIs 18.2 21.3 39.5 29.1 20.2 49.3
--------- --------- ------------- -------- -------- -------------
Adjusted EBITDA 360.2 255.5 615.7 300.9 294.6 595.5
--------- --------- ------------- -------- -------- -------------
Financial net debt / EBITDA 1.1x 1.4x
--------- --------- ------------- -------- -------- -------------
Constant currency reconciliations Six months Six months Change
to to %
30 June 30 June
2020 2019
GBPm GBPm
Adjusted operating profit
at actual rates 168.2 248.9 (32.4%)
----------- ----------- --------
Impact of foreign exchange
movements - (0.7)
----------- ----------- --------
Adjusted operating profit
at constant rates 168.2 248.2 (32.2%)
----------- ----------- --------
Adjusted diluted EPS at
actual rates 63.1 98.2 (35.7%)
----------- ----------- --------
Impact of foreign exchange
movements - (0.3)
----------- ----------- --------
Adjusted diluted EPS at
constant rates 63.1 97.9 (35.5%)
----------- ----------- --------
Diluted EPS at actual rates 58.6 88.1 (33.5%)
----------- ----------- --------
Impact of foreign exchange
movements - (0.2)
----------- ----------- --------
Diluted EPS at constant
rates 58.6 87.9 (33.3%)
----------- ----------- --------
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 50 to 55 of the
Group's Annual Report for 2019, which is available
from our website at www.intertek.com :
Operational
-- Reputation
-- Customer Service
-- People Retention
-- Operational Health, Safety & Security
-- Industry and Competitive Landscape
-- Third-party relationships
-- UK Withdrawal from the EU (Brexit)
-- IT Systems and Data Security
-- Coronavirus (Covid-19)
Legal and Regulatory
-- Regulatory and Political Landscape
-- Business Ethics
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 2019.
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
2020. The 2020 Full Year Results will be announced
on 2 March 2021.
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
30 July 2020 30 July 2020
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 2020. 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 2020;
-- 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
30 July 2020
Condensed Consolidated Interim Income Statement
For the six months ended 30 June 2020
Six months to 30 June 2020 Six months to 30 June 2019
(Unaudited) (Unaudited)
Adjusted Separately Disclosed Total Adjusted Separately Disclosed Total
Results Items* 2020 results Items* 2019
Notes GBPm GBPm GBPm GBPm GBPm GBPm
===================== ===== ========= ===================== ========= ========= ===================== =========
Revenue 2 1,330.6 - 1,330.6 1,442.6 - 1,442.6
Operating costs (1,162.4) (21.3) (1,183.7) (1,193.7) (20.2) (1,213.9)
===================== ===== ========= ===================== ========= ========= ===================== =========
Group operating
profit/(loss) 2 168.2 (21.3) 146.9 248.9 (20.2) 228.7
===================== ===== ========= ===================== ========= ========= ===================== =========
Finance income 0.1 0.6 0.7 0.6 - 0.6
Finance expense (16.8) - (16.8) (22.4) (0.6) (23.0)
===================== ===== ========= ===================== ========= ========= ===================== =========
Net financing
(costs)/income (16.7) 0.6 (16.1) (21.8) (0.6) (22.4)
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) before
income tax 151.5 (20.7) 130.8 227.1 (20.8) 206.3
Income tax
(expense)/credit 4 (38.7) 13.4 (25.3) (55.6) 4.4 (51.2)
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) for the
period 2 112.8 (7.3) 105.5 171.5 (16.4) 155.1
===================== ===== ========= ===================== ========= ========= ===================== =========
Attributable to:
Equity holders of the
Company 102.5 (7.3) 95.2 159.7 (16.4) 143.3
Non-controlling
interest 10.3 - 10.3 11.8 - 11.8
===================== ===== ========= ===================== ========= ========= ===================== =========
Profit/(loss) for the
period 112.8 (7.3) 105.5 171.5 (16.4) 155.1
===================== ===== ========= ===================== ========= ========= ===================== =========
Earnings per share
===================== ===== ========= ===================== ========= ========= ===================== =========
Basic 5 63.7p 59.1p 99.3p 89.1p
===================== ===== ========= ===================== ========= ========= ===================== =========
Diluted 5 63.1p 58.6p 98.2p 88.1p
===================== ===== ========= ===================== ========= ========= =====================
Dividends in respect of
the period 34.2p 34.2p
============================ ========= ===================== ========= ========= ===================== =========
* See note 3.
Condensed Consolidated Interim Statement of Comprehensive
Income
For the six months ended 30 June 2020
Six months to Six months to
30 June 30 June
2020 2019
(Unaudited) (Unaudited)
Notes GBPm GBPm
Profit for the period 2 105.5 155.1
============================================================================ ===== ============= =============
Other comprehensive income
Remeasurements on defined benefit pension schemes (4.3) (4.9)
Tax on items that will never be reclassified subsequently to profit or loss (0.8) 0.2
Items that will never be reclassified to profit or loss (5.1) (4.7)
Foreign exchange translation differences of foreign operations 85.0 (3.5)
Net exchange (loss)/gain on hedges of net investments in foreign operations (38.7) 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 46.8 6.6
============================================================================ ===== ============= =============
Total other comprehensive income for the period 41.7 1.9
============================================================================ ===== ============= =============
Total comprehensive income for the period 147.2 157.0
============================================================================ ===== ============= =============
Total comprehensive income for the period attributable to:
Equity holders of the Company 136.6 146.0
Non-controlling interest 10.6 11.0
============================================================================ ===== ============= =============
Total comprehensive income for the period 147.2 157.0
============================================================================ ===== ============= =============
Condensed Consolidated Interim Statement of Financial
Position
As at 30 June 2020
At 30 June At 30 June At 31 December
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Notes
Assets
Property, plant and equipment 10 634.3 671.9 644.2
Goodwill 9 896.8 874.9 859.8
Other intangible assets 313.6 314.2 302.4
Deferred tax assets 49.5 59.2 51.9
==================================================== ====== ============ ============ ==============
Total non-current assets 1,894.2 1,920.2 1,858.3
==================================================== ====== ============ ============ ==============
Inventories* 20.4 20.6 19.2
Trade and other receivables* 687.8 730.9 685.0
Cash and cash equivalents 8 194.6 220.5 227.4
Current tax receivable 22.1 19.6 28.5
==================================================== ====== ============ ============ ==============
Total current assets 924.9 991.6 960.1
==================================================== ====== ============ ============ ==============
Total assets 2,819.1 2,911.8 2,818.4
==================================================== ====== ============ ============ ==============
Liabilities
Interest bearing loans and borrowings 8 (128.7) (118.1) (238.9)
Lease liabilities (65.9) (66.0) (61.7)
Current taxes payable (41.7) (48.4) (57.2)
Trade and other payables * (531.9) (482 .8 ) (518.0)
Provisions * (35.9) (21.3) (24.2)
==================================================== ====== ============ ============ ==============
Total current liabilities (804.1) (7 36.6 ) (900.0)
==================================================== ====== ============ ============ ==============
Interest bearing loans and borrowings 8 (716.0) (928.7) (617.9)
Lease liabilities (179.9) (189.3) (184.3)
Deferred tax liabilities (64.3) (79.4) (68.2)
Net pension liabilities 6 (16.4) (9.7) (13.4)
Other payables * (27.7) (33.4) (29.2)
Provisions * (9.1) (16.8) (20.1)
==================================================== ====== ============ ============ ==============
Total non-current liabilities (1,013.4) (1,2 57.3 ) (933.1)
==================================================== ====== ============ ============ ==============
Total liabilities (1,817.5) (1,993.9) (1,833.1)
==================================================== ====== ============ ============ ==============
Net assets 1,001.6 917.9 985.3
==================================================== ====== ============ ============ ==============
Equity
Share capital 1.6 1.6 1.6
Share premium 257.8 257.8 257.8
Other reserves 15.3 14.5 (31.2)
Retained earnings 690.4 609.8 727.7
==================================================== ====== ============ ============ ==============
Total attributable to equity holders of the Company 965.1 883.7 955.9
Non-controlling interest 36.5 34.2 29.4
==================================================== ====== ============ ============ ==============
Total equity 1,001.6 917.9 985.3
==================================================== ====== ============ ============ ==============
* Working capital of GBP97.5m (H1 19: GBP185.3m) comprises the
asterisked items in the above Statement of Financial Position less
refundable deposits aged over 12 months of GBP6.1m (H1 19:
GBP11.9m).
Condensed Consolidated Interim Statement of Changes in
Equity
For the six months ended 30 June 2020
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
2019 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
award s
vested(1) - - - - (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
================ ========= ========= ============ ====== ========== ================ ================ ========
At 1 January
2020 1.6 257.8 (37.3) 6.1 727.7 955.9 29.4 985.3
Total
comprehensive
income for the
period
Profit - - - - 95.2 95.2 10.3 105.5
Other
comprehensive
income - - 46.0 0.5 (5.1) 41.4 0.3 41.7
================ ========= ========= ============ ====== ========== ================ ================ ========
Total
comprehensive
income for the
period - - 46.0 0.5 90.1 136.6 10.6 147.2
================ ========= ========= ============ ====== ========== ================ ================ ========
Transactions
with
owners of the
company
recognised
directly
in equity
Contributions
by and
distributions
to the
owners of the
company
Dividends paid - - - - (115.3) (115.3) (3.5) (118.8)
Purchase of own
shares - - - - (12.2) (12.2) - (12.2)
Tax paid on
share
award s
vested(1) - - - - (8.1) (8.1) - (8.1)
Equity-settled
transactions - - - - 8.3 8.3 - 8.3
Income tax on
equity-settled
transactions - - - - (0.1) (0.1) - (0.1)
================ ========= ========= ============ ====== ========== ================ ================ ========
Total
contributions
by and
distributions
to the owners
of the
company - - - - (127.4) (127.4) (3.5) (130.9)
================ ========= ========= ============ ====== ========== ================ ================ ========
At 30 June 2020
(unaudited) 1.6 257.8 8.7 6.6 690.4 965.1 36.5 1,001.6
================ ========= ========= ============ ====== ========== ================ ================ ========
(1) 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 GBP115.3m dividend paid on 11 June 2020 represented a final
dividend of 71.6p per ordinary share in respect of the year ended
31 December 2019. 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. 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 2020
Six months to Six months to
30 June 2020 30 June 2019
(Unaudited) (Unaudited)
Notes GBPm GBPm
Cash flows from operating activities
Profit for the period 2 105.5 155.1
Adjustments for:
Depreciation charge 78.5 79.2
Amortisation of software 8.8 7.4
Amortisation of acquisition intangibles 14.3 14.4
Equity-settled transactions 8.3 13.2
Net financing costs 16.1 22.4
Income tax expense 4 25.3 51.2
G ain on disposal of a ssociate - (1.8)
( Gain)/loss on disposal of property, plant, equipment and software (0.6) 3.5
============================================================================= ===== ============= =============
Operating cash flows before changes in working capital and operating
provisions 256.2 344.6
============================================================================= ===== ============= =============
Change in inventories (0.3) (2.3)
Change in trade and other receivables 21.0 (47.2)
Change in trade and other payables (14.4) (27.5)
Change in provisions 0.9 (2.1)
Special contributions into pension schemes (2.0) (2.0)
============================================================================= ===== ============= =============
Cash generated from operations 261.4 263.5
============================================================================= ===== ============= =============
Interest and other finance expense paid (16.4) (23.4)
Income taxes paid (43.2) (60.5)
============================================================================= ===== ============= =============
Net cash flows generated from operating activities* 201.8 179.6
============================================================================= ===== ============= =============
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and software* 2.7 0.5
Interest received* 0.6 0.5
Consideration paid in respect of prior year acquisitions (0.2) (0.6)
S ale of an associate - 2.1
Acquisition of property, plant, equipment, software* 10 (33.9) (46.2)
============================================================================= ===== ============= =============
Net cash flows used in investing activities (30.8) (43.7)
============================================================================= ===== ============= =============
Cash flows from financing activities
Purchase of own shares (12.2) (19.8)
Tax paid on share awards vested (8.1) (10.3)
Drawdown of borrowings 68.0 196.2
Repayment of borrowings (110.1) (131.1)
R epayment of lease liabilities* (36.0) (40.3)
Dividends paid to non-controlling interest (3.5) (11.1)
Equity dividends paid (115.3) (108.2)
============================================================================= ===== ============= =============
Net cash flows used in financing activities (217.2) (124.6)
============================================================================= ===== ============= =============
Net (decrease)/increase in cash and cash equivalents 8 (46.2) 11.3
============================================================================= ===== ============= =============
Cash and cash equivalents at 1 January 8 213.0 203.2
Effect of exchange rate fluctuations on cash held 8 20.3 (2.5)
============================================================================= ===== ============= =============
Cash and cash equivalents at end of period 8 187.1 212.0
============================================================================= ===== ============= =============
* Free cash flow of GBP135.2m (H1 19: GBP94.1m) comprises the
asterisked items in the above Statement of Cash Flows.
Adjusted cash flow from operations of GBP268.1m (H1 19:
GBP274.0m) comprises statutory cash generated from operations of
GBP261.4m (H1 19: GBP263.5m) before cash outflows relating to
Separately Disclosed Items of GBP6.7m (H1 19: GBP10.5m).
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 2020 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 2019 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 2019.
The comparative figures for the financial year ended 31 December
2019 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
2019.
There are no significant new accounting policies that have a
material effect on the results of the Group.
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 2019. During the six months ended 30 June 2020
management reassessed its estimates and judgements in respect of
taxation (notes 4 and 12(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 12(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 the Group's financial forecasts up to 31
December 2021, which have been updated for the impact of Covid-19,
including management actions taken to date, to assess both
liquidity requirements and debt covenants. In addition, these have
been sensitised for a severe decline in economic conditions (e.g.
extended impact of Covid-19) and the Board remains satisfied with
the Group's funding and liquidity position. The sensitivity
modelling excludes additional mitigating actions that are within
management control and could be initiated if deemed required. The
undrawn headroom on the Group's committed borrowing facilities at
30 June 2020 was GBP323.9m. To supplement the current facilities,
in June, the Group signed a new committed $200m US Private
Placement. The facility will be drawn down in December 2020 to
align with the repayment of an existing $150m USPP facility, hence
is excluded from the Group's borrowing and headroom analysis at 30
June 2020. The $200m facility matures in two tranches, $120m in
2023 and $80m in 2025. Full details of the Group's borrowing
facilities and maturity profile are outlined in note 8.
On the basis of its forecasts to 31 December 2021, both base
case and stressed, and available facilities, the Board has
concluded that there are no material uncertainties over going
concern, including no anticipated breach of covenants, and
therefore 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 3 1 December H1 2 0 H1 19 F Y 19
2020 2019 2019
================== ======== ======== ============= ========= ======== ========
US dollar 1.23 1.27 1.31 1.26 1.30 1.28
Euro 1.10 1.12 1.17 1.15 1.15 1.14
Chinese renminbi 8.73 8.73 9.17 8.89 8.79 8.82
Hong Kong dollar 9.56 9.91 10.18 9.81 10.16 10.00
A ustralian
dollar 1.80 1.82 1.87 1.92 1.83 1.84
================== ======== ======== ============= ========= ======== ========
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.
The results of the divisions are shown below:
Six months to 30 June Revenue Depreciation Adjusted Separately
2020 from external and software operating Disclosed Operating
customers amortisation profit Items profit
GBPm GBPm GBPm GBPm GBPm
============================== =============== ============== =========== =========== ==========
Products 800.3 (54.3) 135.5 (11.8) 123.7
Trade 294.7 (22.5) 20.1 (2.0) 18.1
Resources 235.6 (10.5) 12.6 (7.5) 5.1
============================== =============== ============== =========== =========== ==========
Total 1,330.6 (87.3) 168.2 (21.3) 146.9
============================== =============== ============== =========== =========== ==========
Group operating profit 168.2 (21.3) 146.9
Net financing (costs)/income (16.7) 0.6 (16.1)
============================== =============== ============== =========== =========== ==========
Profit before income
tax 151.5 (20.7) 130.8
Income tax (expense)/credit (38.7) 13.4 (25.3)
============================== =============== ============== =========== =========== ==========
Profit for the year 112.8 (7.3) 105.5
============================== =============== ============== =========== =========== ==========
Six months to 30 June Revenue
2019 from external Depreciation Adjusted Separately
customers and software operating Disclosed Operating
GBPm amortisation profit Items profit
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)/credit (55.6) 4.4 (51.2)
============================= =============== ============== =========== ============= ============
Profit for the year 171.5 (16.4) 155.1
============================= =============== ============== =========== ============= ============
3. Separately Disclosed Items (SDIs)
Six months
Six months to
to 30 June
30 June 2020 2019
GBPm GBPm
============================================= ===== ============== ===========
Operating costs
Amortisation of acquisition intangibles (a) (14.3) (14.4)
Restructuring costs (b) (5.9) (8.8)
Acquisition costs (c) (1.1) (1.4)
Material claims and settlements (d) - 2.6
Gain on disposal of investment in associate - 1.8
Total operating costs (21.3) (20.2)
Net financing income/(costs) (e) 0.6 (0.6)
============================================= ===== ============== ===========
Total before income tax (20.7) (20.8)
Income tax credit on Separately Disclosed
Items (f) 13.4 4.4
============================================= ===== ============== ===========
Total (7.3) (16.4)
==================================================== ============== ===========
Refer to the Presentation of Results section for further details
on SDIs
(a) T he amortisation of acquisition intangibles relates to the
customer relationships, trade names, technology and non-compete
covenants acquired.
(b) Restructuring costs of GBP5.9m were incurred in the period
(H1 19: GBP8.8m), 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 GBP1.1m
(H1 19: GBP1.4m).
(d) The 2019 material claims and settlements related to a
commercial claim that was separately disclosable due to its
size.
(e) Net financing income of GBP 0.6m (H1 19: GBP0.6m cost)
relates the unwinding of discounts and changes in fair value of
contingent consideration related to acquisitions.
(f) Income tax credit on SDIs of GBP13.4m (H1 19: GBP4.4m)
includes an adjustment to goodwill and other intangibles deferred
tax (see note 4).
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. The income tax
expense for the adjusted results for the six months ended 30 June
2020 is GBP38.7m (H1 19: GBP55.6m). The Group's adjusted
consolidated effective tax rate for the six months ended 30 June
2020 is 25.5% (H1 19: 24.5%). The income tax expense for the total
results for the six months ended 30 June 2020 is GBP25.3m (H1 19:
GBP51.2m). The Group's consolidated effective tax rate for the six
months ended 30 June 2020 is 19.3% (H1 19: 24.8%), the decrease
mainly driven by an adjustment to goodwill and other intangibles
deferred tax of GBP8.1m.
Differences between the estimated adjusted effective rate of
25.5% 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
to to
30 June 2020 30 June
GBPm 2019
GBPm
Based on the profit for the period:
Profit attributable to ordinary shareholders 95.2 143.3
Separately Disclosed Items after tax (note
3) 7.3 16.4
=============================================== ============== ===========
Adjusted earnings 102.5 159.7
=============================================== ============== ===========
Number of shares (millions):
Basic weighted average number of ordinary
shares 161.0 160.9
Potentially dilutive share awards 1.4 1.8
=============================================== ============== ===========
Diluted weighted average number of shares 162.4 162.7
=============================================== ============== ===========
Basic earnings per share 59.1p 89.1p
Potentially dilutive share awards (0.5p) (1.0p)
=============================================== ============== ===========
Diluted earnings per share 58.6p 88.1p
=============================================== ============== ===========
Adjusted basic earnings per share 63.7p 99.3p
Potentially dilutive share awards (0.6p) (1.1p)
=============================================== ============== ===========
Adjusted diluted earnings per share 63.1p 98.2p
=============================================== ============== ===========
6. Pension schemes
During the period, the Group made a special contribution of
GBP2.0m (H1 19: GBP2.0m) into The Intertek Pension Scheme in line
with a Minimum Funding Requirement agreement.
The Group obtained updated actuarial valuations to 31 May 2020,
the asset and liability values have been reviewed and have not
moved materially in the month to 30 June 2020. In addition to the
special contribution, a net actuarial loss before taxation of
GBP4.3m (H1 19: GBP4.9m) has been recognised in the consolidated
statement of comprehensive income. The net pension liability stands
at GBP16.4m at 30 June 2020 (31 December 2019: GBP13.4m).
7. Equity-settled transactions
During the six months ended 30 June 2020, the Group recognised
an expense of GBP8.3m in respect of the share awards made in 2017,
2018, 2019 and 2020. For the six months ended 30 June 2019, the
expense was GBP13.2m in respect of the share awards made in 2016,
2017, 2018 and 2019. Under the 2011 Long Term Incentive Plan in
2020, Deferred Share Awards granted had an average fair value of
4,703p and LTIP Share Awards had an average fair value of 3,295p.
Under the Deferred Share Plan in 2020, Deferred Share Awards
granted had an average fair value of 4,493p.
Under the 2011 Long-Term Incentive Plan, 275,772 Deferred Share
Awards (previously Share Awards) (H1 19: 299,641) and 310,362 LTIP
Share Awards (H1 19: 363,580) were granted during the period and,
under the Deferred Share Plan 6,925 Deferred Share Awards (H1 19:
22,029) were granted during the period.
8. Analysis of net debt
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
============================================= ======== ======== ============
Cash and cash equivalents per the Statement
of Financial Position 194.6 220.5 227.4
Overdrafts (7.5) (8.5) (14.4)
============================================= ======== ======== ============
Cash per the Statement of Cash Flows 187.1 212.0 213.0
============================================= ======== ======== ============
The components of net debt are outlined below:
1 January Cash flow Non-cash Exchange 30 June
2020 adjustments adjustments 2020
GBPm GBPm GBPm GBPm GBPm
=================================== ========== ========== ============= ============= ========
Cash 213.0 (46.2) - 20.3 187.1
=================================== ========== ========== ============= ============= ========
Borrowings:
Revolving credit facility US$850m
2025* (285.5) (68.0) - (11.6) (365.1)
Senior notes US$150m 2020 (114.7) - - (6.9) (121.6)
Senior notes US$15m 2021 (11.5) - - (0.7) (12.2)
Senior notes US$140m 2022 (107.0) - - (6.5) (113.5)
Senior notes US$40m 2023 (30.6) - - (1.8) (32.4)
Senior notes US$125m 2024 (95.6) - - (5.7) (101.3)
Senior notes US$40m 2025 (30.6) - - (1.8) (32.4)
Senior notes US$75m 2026 (57.4) - - (3.5) (60.9)
Other** (109.5) 110.1 2.1 (0.5) 2.2
=================================== ========== ========== ============= ============= ========
Total borrowings (842.4) 42.1 2.1 (39.0) (837.2)
=================================== ========== ========== ============= ============= ========
Total financial net debt (629.4) (4.1) 2.1 (18.7) (650.1)
=================================== ========== ========== ============= ============= ========
Lease liability (246.0) 36.0 (27.2) (8.6) (245.8)
=================================== ========== ========== ============= ============= ========
Total net debt (875.4) 31.9 (25.1) (27.3) (895.9)
=================================== ========== ========== ============= ============= ========
* In January 2020, the $800m revolving credit facility that was
due to mature in 2021, was refinanced with a $850m revolving credit
facility maturing in 2025.
** Other borrowings include facility fees of GBP2.1m (1 Jan
2020: GBP0.7m), GBP110.1m of other uncommitted borrowings were
repaid in January 2020.
Total undrawn committed borrowing facilities as at 30 June 2020
were GBP323.9m (31 December 2019: GBP326.2m).
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
====================================== ======== ======== ============
Borrowings due in less than one year 121.2 109.6 224.5
Borrowings due in one to two years 125.1 586.0 296.9
Borrowings due in two to five years 530.1 236.3 233.1
Borrowings due in over five years 60.8 106.4 87.9
====================================== ======== ======== ============
Total borrowings 837.2 1,038.3 842.4
====================================== ======== ======== ============
Key facilities
In January 2020, the $800m revolving credit facility that was
due to mature in 2021, was refinanced with a $850m revolving credit
facility maturing in 2025.
To supplement the current facilities, in June, the Group signed
a new $200m US Private Placement. The facility will be drawn down
in December 2020 to align with the repayment of the current $150m
facility. It cannot be drawn down any earlier hence is excluded
from the Group's balance sheet and borrowings analysis as at 30
June 2020. The facility is in two tranches, $120m maturing in 2023
and $80m maturing in 2025.
Further details of the Group's borrowing facilities were
disclosed in note 14 to the Annual Report for 2019.
Fair values
The carrying value of the interest-bearing loans and borrowings
is GBP837.2m. 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 GBP857.2m. 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 GBP3.7m are
included within trade and other payables (H1 19: GBP6.4m).
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
2020 and 2019.
(b) Prior period acquisitions
GBP0.2m (H1 19: GBP0.6m) was paid during the period in respect
of prior period acquisitions.
(c) Details of 2019 acquisitions
Full details of acquisitions made in the year ended 31 December
2019 are disclosed in note 10 to the Annual Report for 2019. The
provisional fair value adjustments disclosed in note 10 to the
Annual Report 2019 have been updated resulting in a decrease in
goodwill of GBP4.3m, comprising of an increase in intangibles of
GBP5.4m and a decrease in deferred tax asset of GBP1.1m.
(d) Impairment
Goodwill generated from past acquisitions is required by
accounting standards to be tested annually. Typically, the Group
performs this test at the year-end but given the negative impact of
Covid-19, the Group's impairment analysis has been updated at the
half year. The analysis has been updated to reflect more recent
asset carrying values (30 June 2020) and the Group's revised
financial outlook. In addition, discount rates have been adjusted
to reflect latest market conditions. This analysis indicates no
impairment was required.
The same sensitivity analysis as performed at year-end was
performed at interim, being:
-- assuming revenues decline each year by 1% in 2021 to 2024
from the forecast revenues, with margins increasing with base
assumptions.
-- assuming zero growth in operating profit margins in 2020 to
2024 with revenues increasing per base assumptions.
-- assuming an increase in the discount rates used by 1%.
None of these individual downside sensitivity scenarios on key
assumptions would cause the carrying amount of each CGU to exceed
its recoverable amount. However, considering prevailing market
conditions, this will be kept under review.
(e) Reconciliation of goodwill
GBPm
===================================== ======
Goodwill at 1 January 2020 859.8
Additions -
Transfer to acquisition intangibles (4.3)
Foreign exchange 41.3
===================================== ======
Goodwill at 30 June 2020 896.8
===================================== ======
10. Property, plant, equipment and software
(a) Additions
During the six months to 30 June 2020, the Group acquired fixed
assets with a cost of GBP33.9m (H1 19: GBP46.2m; year ended 31
December 2019: GBP116.8m). The Group did not acquire fixed assets
through business combinations (H1 19: GBPnil; year ended 31
December 2019: GBP0.6m). At 30 June 2020, the IFRS 16 right of use
asset is GBP222.0m (H1 19: GBP239.8m; year ended 31 December 2019:
GBP222.4m).
(b) Capital commitments
Contracts for capital expenditure which are not provided in
these accounts amounted to GBP10.0m (H1 19: GBP11.0m; year ended 31
December 2019: GBP4.0m).
11. Related parties
There are no material changes in related parties or in related
party transactions from those described in the last Annual
Report.
12. 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.
The Group continues to monitor developments in relation to EU
State Aid investigations. On 25 April 2019, the EU Commission's
final decision regarding its investigation into the UK's Controlled
Foreign Company regime was published. It concludes that the
legislation up until December 2018 does partially represent State
Aid. The Group considers that the potential amount of additional
tax payable remains between GBPnil and GBP16.3m (excluding interest
and penalties) depending on the basis of calculation and the
outcome of HMRC's appeal to the EU Commission. Based on current
advice, the Group does not consider any provision is required in
relation to this investigation. This judgement is based on current
interpretation of legislation, management experience and
professional advice.
13. Post balance sheet events
There are no post balance sheet events to report.
14. Approval
The Condensed Consolidated Interim Financial Statements were
approved by the Board on 30 July 2020.
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 FLFERDLIIVII
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