TIDMITRK
RNS Number : 9899G
Intertek Group PLC
30 July 2021
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2021 HALF YEAR RESULTS ANNOUNCEMENT
30 July 2021
Strong Performance in Revenue, Earnings, Cash and ROIC
-- Revenue of GBP1,317.6m: +4.8% at constant rates; -1.0% at actual
rates
-- Robust L4L revenue of +5.8% at constant rates: Products +9.7%; Trade
+1.1%; Resources -1.6%
-- L4L revenue growth accelerated in May and June to 12.0%: Products
+13.9%; Trade +8.5%; Resources +9.5%
-- Adjusted operating profit of GBP201.7m with operating margin increasing
260bps at constant rates to 15.3%
-- Adjusted diluted EPS of 78.2p: +31.4% at constant rates; +23.9% at
actual rates; statutory diluted EPS of 70.9p
-- Strong Cash conversion of 135%, robust balance sheet with net debt
of GBP435m
-- Investments to seize attractive organic and inorganic growth opportunities
-- Interim dividend payment of 34.2p; unchanged on prior year
-- Return on invested capital of 23.4%, +400bps YoY and +360bps at constant
rates
-- Well positioned to benefit from the growth acceleration in the global
Quality Assurance industry
André Lacroix: Chief Executive Officer S tatement
" I would like to thank all of our colleagues for having
delivered a strong performance in the first half of 2021. Group
revenue was GBP 1,317.6m, up a robust 5.8% like-for-like at
constant rates with growth accelerating through the period. We have
made continued progress on margin, profitability and free cash
flow, with margins increasing to 15.3%, EPS growth of 2 3.9 % and
strong cash conversion of 135% at actual rates. We have announced
an unchanged interim dividend of 34.2p.
The Group is on track to deliver a strong 2021 with robust
like-for-like revenue growth, year on year margin progression and a
strong free cashflow performance, notwithstanding the lockdown
restrictions in several of our markets impacting the supply chains
of our clients and mobility. We expect our Products division to
deliver robust like-for-like revenue growth and both Trade and
Resources to deliver good like-for-like revenue growth.
We are investing to seize the attractive growth opportunities in
the global Q uality A ssurance market which we expect to grow
faster in the post-Covid world, as companies have realised the need
to increase investmen ts to reduce risk in their supply chain. In
May, we entered into an agreement to acquire SAI Global Assurance
which will expand our global industry leading assurance offering to
access the high growth opportunities in the high margin and capital
light A ssurance market. Most recently, in July we announced the
acquisition of JLA to enter the fast-growing Food testing industry
in Brazil, an industry segment with strong, secular growth
trends.
We are investing in scaling up our winning innovations to
support the emerging needs of our clients to help them address
their operational and supply chain challenges. In the first half:
we launched Intertek CarbonZero certification which enables
companies worldwide to confidently market qualifying carbon neutral
products and services, issuing the first certificate to Lundin
Energy; we launched WindAware, a data intelligence solution to help
wind asset owners and operators optimize asset performance; and we
introduced Rice Inspection on the blockchain-based Sustainable Rice
Exchange. Our passionate commitment to innovation is what enables
us to deliver sustainable shareholder value through the cycle.
All of us at Intertek are truly excited about the Quality
Assurance growth opportunities as the Covid-19 global pandemic has
made the case for Total Quality Assurance (TQA) clearer and
stronger for our clients. The structural growth drivers in the $250
billion global Quality Assurance Market pre-Covid-19 now include a
wide array of new opportunities to help foster a better and safer
world for all post-Covid-19 and are compelling, ranging 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
With our industry leading ATIC (Assurance, Testing, Inspection
and Certification) capability and expertise, innovation and
insight, Intertek is uniquely positioned to seize the 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 2021 2020 H1 Change Change at
H1 at actual constant
rates rates(1)
Revenue GBP1,317.6m GBP1,330.6m (1.0%) 4.8%
============ ============ =========== ==========
L4L revenue(2) GBP1,317.6m GBP1,319.0m (0.1%) 5.8%
============ ============ =========== ==========
Operating profit(3) GBP201.7m GBP168.2m 19.9% 26.2%
============ ============ =========== ==========
Operating margin(3) 15.3% 12.6% 270bps 260bps
============ ============ =========== ==========
Profit before tax(3) GBP186.3m GBP151.5m 23.0% 30.3%
============ ============ =========== ==========
Diluted earnings per
share(3) 78.2p 63.1p 23.9% 31.4%
============ ============ =========== ==========
Interim dividend per
share 34.2p 34.2p -
============ ============ ===========
Cash flow from operations
less net capex(3) GBP213.9m GBP236.9m (9.7%)
============ ============ ===========
Free Cash Flow(3) GBP122.6m GBP141.9m (13.6%)
============ ============ ===========
Financial net debt(4) GBP434.9m GBP650.1m (33.1%)
============ ============ ===========
Financial net debt
/ L12M EBITDA(3, 4) 0.7x 1.1x
============ ============ ----------
Key Statutory Financials 2021 H1 2020 H1 Change 1. Constant rates
at actual are calculated by translating
rates H1 20 results at H1
21 exchange rates.
2. L4L revenue includes
acquisitions following
their 12-month anniversary
of ownership and excludes
the historical contribution
of any business disposals/closures.
H1 20 L4L revenue has
been adjusted to present
certain rebates net
within revenue to permit
comparability period
to period where H1
21 L4L revenue is also
presented net of rebates.
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 20.
4. Financial net debt
excludes the IFRS 16
lease liability of
GBP265.3m. Total net
debt is GBP700.2m.
Reflects prior 12 months
EBITDA for relevant
period. See note 7
on page 34.
Revenue GBP1,317.6m GBP1,330.6m (1.0%)
============ ============ ===========
Operating profit GBP184.5m GBP146.9m 25.6%
============ ============ ===========
Operating margin 14.0% 11.0% 300bps
============ ============ ===========
Profit before tax GBP169.1m GBP130.8m 29.3%
============ ============ ===========
Profit after tax GBP125.1m GBP105.5m 18.6%
============ ============ ===========
Diluted earnings per
share 70.9p 58.6p 21.0%
============ ============ ===========
Net cash flows generated
from operating activities GBP187.0m GBP201.8m (7.3%)
============ ============ ===========
The Directors have approved an interim dividend of 34.2 p per
share (H1 20: 34.2p) to be paid on 7 October 2021 to shareholders
on the register at close of business on 17 September 2021.
Contacts
For further information, please contact:
Denis Moreau, Investor Relations
Telephone: +44 (0) 20 7396 3415 investor@intertek.com
James Styles , 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 London time. 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 is a purpose-led company to Bring Quality, Safety and
Sustainability to Life . We provide 24/7 mission-critical quality
assurance solutions to our clients to ensure that they can operate
with well-functioning supply chains in each of their operations
.
Our Customer Promise is: Intertek Total Quality Assurance
expertise, delivered consistently, with precision, pace and
passion, enabling our customers to power ahead safely.
intertek.com
HALF YEAR REPORT 2021
GROUP CEO REVIEW
"I would like to thank all of our colleagues for having
delivered a strong performance in the first half of 2021 . Group
revenue was GBP 1,317.6m, up a robust 5.8% like-for-like at
constant rates with growth accelerating through the period . We
have made continued progress on margin, profitability and free cash
flow, with margin s increasing to 15.3% , EPS growth of 2 3.9 % and
strong cash conversion of 135% at actual rates . We have announced
an unchanged interim dividend of 34.2p .
We expect our Products division to deliver robust like-for-like
revenue growth and Trade and Resources good like-for-like revenue
growth. The Group is on track to deliver a good 2021 with robust
like-for-like r evenue growth, year on year m argin progression and
a strong free cashflow performance, notwithstanding the lockdown
restrictions in several of our markets impacting the supply chains
of our clients and mobility.
A P urpose- L ed O rganisation
Through our unique range of products and services, our
high-margin, cash-generative earnings model consistently delivers
value for all of our stakeholders.
This success is based on the energy and enthusiasm with which
our people react to our meaningful Purpose of Bringing Quality,
Safety and Sustainability to Life .
Our Vision is to be the world's most trusted partner for Quality
Assurance, underpinned by our shared Values:
-- We are a global family that values diversity
-- We always do the right thing. With precision, pace and passion
-- We trust each other and have fun winning together
-- We own and shape our future
-- We create sustainable growth. For all
Attractive O pportunities for G rowth
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. Beyond
this, increased complexities of corporate supply chains and the
associated challenges of maintaining a high level of quality
assurance end-to-end mean that there are further growth
opportunities ahead which currently remain untapped.
Companies are certainly doing far more today to improve quality
and safety than they were even five years ago, but there is much
that needs to be done to establish a robust, reliable, end-to-end
Total Quality Assurance ( TQA ) approach that reduces risk. That is
what we offer to our clients, leveraging our broad service
portfolio, our technical expertise, our global laboratory network,
and our passionate customer-centric colleagues to allow
corporations to concentrate on their core value-generating
activities.
All of us at Intertek are truly excited by the Quality Assurance
growth potential as the Covid-19 global pandemic has made the case
for Total Quality Assurance (TQA) clearer and stronger for our
clients. The structural growth drivers in the $250 billion global
Quality Assurance Market pre-Covid-19 now include a wide array of
new opportunities to help foster a better and safer world for all
post-Covid-19 and are compelling, ranging 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
We see five growth opportunities.
First, we will be looking to leverage the growth opportunities
presented by our existing customers. We aim to increase customer
account penetration, both within the services we already provide to
each individual organisation and by cross-selling between the
various components of our integrated A ssurance, T esting,
Inspection and C ertification (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, we are well positioned to capture growth opportunities
that are currently untapped, as the industry continues to evolve
from TIC to ATIC and increase their investments in Risk-based
Quality Assurance.
Fourth, 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.
Fifth, 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 new kind s of
offering s and strengthening our existing operations. Our highly
cash-generative earnings model and strong balance sheet provides
the flexibility to accelerate organic growth with value enhancing
acquisitions.
Intertek Total Quality Assurance
Intertek has been the pioneer of our industry across the world
for 130 years. We have a proven track record of innovating and
anticipating the growing needs of our clients, constantly evolving
and improving our customer proposition to meet their changing
needs.
In identifying that for corporations to deliver sustainable
performance, our customers need to take a risk-based approach to
quality assurance across their entire supply and distribution
chain, we evolved our service offering beyond Testing, Inspection
and Certification of our clients' physical components, products and
assets to also assist them with the reliability of their operating
processes and quality management systems; Assurance is at the
cutting edge of our value proposition.
Further, Intertek has continued to lead the industry as we
expanded our Assurance services into People Assurance. In a world
of increasingly complex supply chains and distribution channels,
employees are key in driving operational excellence in multi-site
organisations and we identified that there is a growing demand for
bespoke People Assurance solutions to monitor and efficiently close
critical skills gaps amongst frontline employees.
Today, our truly systemic, end-to-end Assurance, Testing,
Inspection and Certification services enable our clients to operate
safely and with complete peace of mind. This is what we call
Intertek Total Quality Assurance.
Intertek's differentiated TQA value proposition is set to
continue to lead the industry and sustain our growth trajectory in
the years ahead.
Our High-Quality Earnings Model
Our high-margin, capital-light, carbon-light and strongly
cash-generative earnings model is underpinned by the delivery of
our TQA Value Proposition.
The Intertek earnings model is to provide ATIC solutions with
superior customer service levels to businesses in the three
economic sectors of 'Products', 'Trade' and 'Resources' across more
than 100 countries. These sectors provide the framework of our
high-quality earnings model, and each benefit from their own set of
structural growth drivers.
We operate a capital-light business model which, combined with
our entrepreneurial culture, enables us to react quickly to new
growth opportunities.
At the Group level, in the medium- to long-term we expect to
deliver GDP+ organic revenue growth that is margin- accretive and
strongly cash-generative. This will enable us to allocate our
resources in a disciplined fashion, to create additional value via
carefully selected capital expenditure and M&A investments in
high-margin and high-growth areas that in turn accelerate margin
accretive revenue growth.
The Products sector, which currently delivers 85% of our
earnings, comprises Softlines, Hardlines, Electrical &
Connected World, Building & Construction, Chemicals &
Pharma, Transportation Technologies, Food, and Business Assurance.
We see the sector as continuing to benefit from corporations'
growing investments in quality and innovation and anticipate
continuing growth in response to rising consumer demand and a
higher regulatory burden.
Specifically, we see two key growth drivers for Intertek in this
sector:
-- growth in stock-keeping units ('SKUs') or brands, driven by
increasing numbers of products worldwide, shorter product
life-cycles and the rise of e-commerce. Consider the speed of
product development over the last 30 years in the mobile phone
sector, as companies have competed for consumer attention through
investments in technology, innovation, variety and brand
development; and
-- growth in the number of tests that need to be taken for each
SKU or brand, driven by rising regulatory standards, concerns for
safety, demand for higher quality and continuous innovation.
We expect our Products sector to continue growing faster than
GDP as our ATIC services support customers in their determination
to:
-- innovate ahead of their competitors;
-- maintain or improve quality while expanding their supply chains;
-- meet more demanding regulatory standards;
-- raise the sustainability standards of their products and processes;
-- sharpen their risk-management focus; and
-- protect their reputations.
Our second key business sector is Trade, which comprises Caleb
Brett, AgriWorld and Government & Trade Services (GTS) and
accounts for 10% of our earnings. By drawing on our services,
particularly in the inspection area, companies have the assurance
of knowing that their cargoes comply with all relevant regulations
and quality standards.
Our Trade business will continue to benefit from ongoing growth
in global trade and the development of stronger regional trade in
Asia, the Indian Ocean, the Mediterranean and the Americas. We
expect this growth to be at a rate similar to global GDP through
the cycle, driven by the increase in global population and demand
from emerging markets that are causing cargo tonnage, shipping
numbers and trading routes to grow.
In Resources, our third business sector which contributed 5% of
our earnings, and consists of our Industry Services and Minerals
businesses, we anticipate long-term growth driven by increasing
demand for global energy to support GDP and population growth, but
we recognise this is a cyclical business that is currently in the
challenging part of the cycle.
We offer both Capex and Opex Services, helping companies to
invest in new capacity and operating existing facilities.
We will also see continued expansion in the different types of
energy consumed, with an increasing role for renewables in driving
sustainability, carbon reduction and cleanliness of supply.
We expect our Corporate Assurance activities, which are industry
agnostic, to become ever stronger given the increased importance of
risk-based Quality Assurance, increased regulation, the importance
of health, safety and wellbeing, the growth in People Assurance and
the investments in supply intelligence, sustainability and cyber
security.
The services we offer have never been more mission-critical than
now and in the years to come. Our position as one of the FTSE's
leading companies in terms of dividend growth emphasises our superb
performance throughout the 21st Century.
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 Group
towards high-growth, high-margin areas in our industry. This
strategy comprises five strategic priorities and five strategic
enablers, targeted at the achievement of five corporate goals that
help us measure progress.
Our five medium- to long-term corporate goals are:
-- Fully engaged employees working in a safe environment.
-- Superior customer service in Assurance, Testing, Inspection and Certification.
-- Margin-accretive revenue growth based on GDP+ organic growth.
-- Strong cash conversion from operations.
-- Accretive, disciplined capital-allocation policy.
Our five strategic priorities are:
-- A differentiated brand proposition that positions Intertek as the
market-leading provider of Quality Assurance services.
-- Delivering superior service with our TQA Value Proposition, building
customer loyalty and attracting new customers.
-- An effective sales strategy that develops our business by attracting
new clients and growing account penetration with existing customers,
through increasing the focus on the systematic cross selling of our
ATIC solutions.
-- Operating a growth- and margin-accretive portfolio strategy, that
delivers 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.
Innovation
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. Through the insights generated
from our TQA Experts and from our 6,000+ monthly NPS interviews
with customers, Intertek services are mission-critical for our
clients in helping them to address their needs for increased
support across quality, safety and sustainability.
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.
Increasing corporate complexity is presenting opportunities to
us to accelerate our growth in high-growth, high-margin sectors by
seizing the industry evolution towards risk-based Quality Assurance
and delivering pioneering solutions to our customers for today and
tomorrow, through our three-tiered approach to innovation:
-- Firstly, from our ' Core ' focus, we seek to build on the
strengths of our existing products and services, continually
improving them for our existing markets and customers. An example
of a core innovation is the launch of POSI-CHECK, part of our
Protek(TM) offering, which focuses on health, hygiene, safety and
risk management. Protek POSI-CHECK is a new audit solution to help
in the Prevention of the Spread of Infection ( 'POSI') in
restaurants, supermarkets, schools and other facilities.
We recently added new and enhanced features to our
market-leading supply chain compliance solution Inlight 2.0,
enabling organisations to manage increasingly complex supply chain
risks. The platform enables organisations to bring visibility to
the workings of their vendor partners and turn potential
disruptions and compliance irregularities to their competitive
advantage with captured market share and operational
efficiencies.
-- Second, we aim to develop new products and services for
rapid-growth, high-margin markets that are ' Adjacent' to those we
already serve. 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. Our Maison Centre of Excellence in Italy, is our new
innovative experiential space 'where science meets luxury' and
brings together - virtually and face-to-face - forward-thinking
fashion brands, industry leaders, academics and textile industry
experts to collaborate and to take bold new ideas and turn them
into reality.
In January 2021, we launched an actionable data mining SaaS
platform WindAware, a data intelligence solution that helps wind
asset owners and operators make informed and real-time decisions to
optimize performance and maximize their asset life cycle.
-- And thirdly, we aim to develop ' Breakthrough ' products and
services that enable us to create new attractive markets and target
emerging customer needs. These include CarbonClear(TM), the world's
first independent carbon-intensity certification programme, and
SourceClear(TM), a new technology platform that provides visibility
and traceability across the full range of supply chain
relationships.
In April 2021, we announced the launch of Intertek CarbonZero,
our new independent carbon neutral certification for products and
services and have issued the first Intertek CarbonZero Verified
certification to Lundin Energy, representing the world's first
certified carbon neutral oil trade.
Investment in Growth
We are investing organically and inorganically to seize the
attractive growth opportunities in the global quality assurance
market which we expect to grow faster in the post-Covid world, as
companies have realised that they need to increase their
investments to reduce risk in their supply chain.
On 13 May 2021, we announced that we have agreed to acquire SAI
Global Assurance for A$855m to expand our global industry leading
assurance offering and seize the high growth opportunities in the
high margin and capital light
assurance market. We expect the acquisition to complete in the third quarter of 2021.
SAI Global Assurance will further strengthen our Assurance
offering by providing additional scale, enhanced geographic
coverage and new capabilities. Specifically, we will benefit post
acquisition from a stronger market position in Australia , the USA
, Canada , the UK and China , and an expanded service capability in
the Food, AgriWorld, Quick Service Restaurants, Sustainability and
Global Market Access sectors .
On 19 July 2021, Intertek acquired JLA Brasil Laboratório de
Análises de Alimentos S.A. ("JLA"), a market-leading independent
provider of Food, Agri and Environmental testing solutions based in
Brazil. The acquisition of JLA presents a compelling opportunity to
enter the fast growing and highly attractive food testing sector in
Brazil, which is one of the largest markets globally in terms of
agri-food and beverage production value.
Established in 1990, JLA serves as a trusted partner to
approximately 800 customers including some of the world's leading
Fast Moving Consumer Goods (FMCG) companies, providing a range of
microbiological, chemical testing and inspection services from its
laboratories and sample collection points in Sao Paulo State.
We continue to look at M&A opportunities in attractive
high-margin and high-growth areas.
With our strong balance sheet, we are well positioned to seize
the attractive external growth opportunities in a highly fragmented
industry.
Accretive Disciplined Capital Allocation
In our view, to deliver shareholder returns on a consistent
basis, the right formula is sustainable earnings growth with
accretive disciplined allocation of capital that enables us to
reinvest our growing earnings and create long-term value and
sustainable shareholder returns. Our approach to capital allocation
has four priorities:
First, investment to support organic growth. In the medium- to
long-term, we will invest circa 5% of revenue in capital
expenditure.
Second, deliver sustainable returns for our shareholders through
the payment of progressive dividends with a dividend payout ratio
of circa 50% of earnings.
Third, M&A activity to strengthen our portfolio in the right
growth areas, provided we can deliver good returns. This means
focusing on those existing business lines or countries with good
growth and margin prospects, where we have leading market
positions, or entering new exciting growth areas, be that
geographically or for services.
Fourth, maintain an efficient balance sheet that gives us the
flexibility to invest in growth with a financial net debt to EBITDA
ratio of 1.3 to 1.8 times.
Sustainability E xcellence
Intertek is bringing quality, safety and sustainability to life
and delivering sustainable value for all stakeholders. We support
our clients' sustainability agenda with our operational
sustainability assurance solutions, our global audits to verify
their ESG disclosures and our industry leading corporate
certification program. Sustainability is central to everything we
do internally at Intertek, and I am pleased to report that the
Group was carbon neutral in 2020 and that we are committed to
further progress on our sustainability agenda moving forward,
including targeting Net Zero emissions by 2050.
Intertek has been a force for good for over 130 years, bringing
quality and safety to life with a pioneering spirit. Sustainability
is central to everything we do at Intertek and we are passionate
about making Intertek ever better, every day.
In H1 2021, we have made significant progress to deliver
sustainability excellence in every operation within the Group,
including:
-- driving our sustainability agenda deeper into the organisation by
inspiring our people to create local sustainability initiatives;
-- developing an Environmental Sustainability Dashboard down to site
level to give our people the visibility and ownership of their own
environmental data; and
-- continuing to evaluate ourselves against our own TSA standards and
improve our understanding of how we can be truly Best-in-Class.
Our C ommitment T o Net Zero E missions
In line with our commitment to reducing the carbon footprint of
our direct operations, we continue to focus on improving our energy
efficiency, purchasing energy from clean sources such as renewables
and investing in on-site renewable energy generation at our
locations.
In 2017, we set ourselves the target of reducing GHG emissions
per employee by 5% by 2023, and we are well on track to achieve
that.
We have a carbon-light earnings model. Our average carbon
intensity over the last three years was 4.5 tonnes of CO2 per
employee, which is low compared to the all-industry average of 12.3
tonnes of CO2 per employee (Intertek research based on publicly
available information for 2018/19).
In addition, we have bought carbon credits to offset our direct
operational Scope 1, 2 and 3 GHG emissions, making 2020 our first
carbon neutral year. The credits we have bought help to fund
verified carbon off-setting projects that have a meaningful benefit
to communities in which we operate, including a hydropower project
in Pakistan, an electricity generation project in Turkey, a wind
power project in India and a forest conservation project in
Brazil.
Further, w e have signed up to the science based targets
initiative which means that we are formally committed to setting
independently verified science-based GHG emission reduction
targets. Our aim is for our science-based targets to be aligned to
limiting global temperature rise to below 1.5degC and reaching
net-zero emissions no later than 2050.
Intertek has also joined the UN Race to Zero campaign - a global
effort from the United Nations Framework Convention on Climate
Change that calls for a resilient, zero-carbon recovery from the
COVID-19 pandemic and is aligned with our own ambitious agenda to
Build Back Ever Better.
Sustainability M eans M ore T han Net Zero
Sustainability is central to our 5x5 differentiated strategy for
growth. Internally, we are focused on sustainability excellence in
every operation. We believe that Doing Business the Right Way with
a systemic approach is the only way to deliver our corporate goals
and create sustainable value creation for all stakeholders. To do
that, we follow precise processes and standard operating procedures
in 10 areas which form our Corporate Sustainability Certification
standards.
They are:
-- Quality & safety
-- Environment
-- Governance
-- Risk management
-- Compliance
-- Financial
-- People & culture
-- Enterprise security
-- Communities
-- Communications & disclosures
In line with our Sustainability standard on Communications &
Disclosures, we have made the disclosures in our 2020 Annual Report
broad based to provide total transparency.
We have also set and embedded our targets to go beyond Net Zero
in those areas in our business model that are central to delivering
sustainable value for all our stakeholders. Our beyond Net Zero
sustainability targets are:
-- 6,000 NPS interviews per month
-- Women in 30% of senior management roles by 2025
-- Total Recordable Incidents below 0.5 per 200,000 hours worked
-- 100% attendance of all employees at Compliance training
-- Voluntary permanent turnover rate less than 15%
-- Group Engagement Index score of 90%
Well P ositioned M oving F orward
Our structural growth prospects appear ever-more compelling as
health, safety, wellbeing, transparency and sustainability grow in
importance for companies and individuals alike. Intertek's
continued strong performance during the pandemic and the associated
global economic downturn highlights the unprecedented importance of
our role.
Our success in launching innovative new products and services,
and the continuing emergence of powerful growth drivers, also
demonstrate the significant scale of the available growth
opportunities.
Our track record illustrates the heightened relevance of our
purpose, the underlying strength of our strategy and the resilience
of our high-quality and cash-generative compounder earnings
model.
In 2021 and the years ahead, we are committed to further
leveraging these strengths and targeting new opportunities to grasp
a greater share of the ATIC market. Society has changed. We are in
the 'new normal' and are observing new trends and behaviours and
demands for products and services that didn't exist prior to the
pandemic. Consumers want more sustainable products, supply chain
simplicity, visibility and traceability of goods, new solutions for
hygiene, health and wellbeing, as well as lower carbon emissions.
Employers are being tasked with developing and providing new tech
and virtual remote-working solutions.
The world needs Intertek more than ever, with the unrivalled
expertise of our people, our focus on delivering risk-based Total
Quality Assurance solutions, and our proven track record of
innovating and anticipating the growing needs of our clients as the
world around them grows more complex. We provide mission critical
ATIC solutions to enable the world's supply chains to operate fully
and safely, given the increased expectations from all stakeholders
to live in a better and safer society.
With our industry leading ATIC capability and expertise,
innovation and insight, Intertek is uniquely positioned to seize
the compelling structural 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. "
André Lacroix
Chief Executive Officer
Operating Review
For the six months ended 30 June 2021
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 21 H1 20
GBPm GBPm Change at actual rates Change at constant rates (1)
======================================= -------- -----------------------
Revenue 1,317.6 1,330.6 (1.0%) 4.8%
Like-for-like revenue (2) 1,317.6 1,319.0 (0.1%) 5.8%
Adjusted Operating profit (3) 201.7 168.2 19.9% 26.2%
Margin (3) 15.3% 12.6% 270bps 260bps
Net financing costs (3) (15.4) (16.7) 7.8% 8.3%
Income tax expense (3) (49.4) (38.7) (27.6%) (35.3%)
Adjusted Earnings for the period (3) 136.9 112.8 21.4% 28.5%
Adjusted diluted earnings per share (3) 78.2 p 63.1p 23.9% 31.4%
-------- -------- ----------------------- -----------------------------
1. Constant rates are calculated by translating H120 results at H1 21 exchange rates.
2. L4L revenue includes acquisitions following their 12-month
anniversary of ownership and removes the historical contribution of
any business disposals/closures. H1 2 0 L4L revenue has been
adjusted to present certain rebates net within revenue to permit
comparability period to period where H1 21 L4L revenue is also
presented net of rebates.
3. Adjusted results are stated before SDIs, see note 3 to the
Condensed Consolidated Interim Financial Statements on page 33.
Total reported Group revenue declined by 1.0%, a L4L revenue
increase of 5.8% more than offset by a 0.9% decline attributable to
business closures, disposals and rebates and a decrease of 5.9%
from foreign exchange.
The Group's L4L revenue at constant rates reflected changes of
+9.7% in Products, +1.1% in Trade and -1.6% in Resources.
We delivered operating profits of GBP201.7m, up 26.2% at
constant rates and +19.9% 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 15.3%, an increase of
260bps from the prior year at constant exchange rates. Margin
increased in Products by 390bps and in by Trade 50bps but declined
60bps in Resources.
The Group's statutory operating profit after SDIs for the period
was GBP184.5m (H1 20: GBP146.9m) and margin was 14.0% (H1 20:
11.0%).
Net Financing Costs
Net financing costs were GBP15.4m, comprising GBP0.8m (H1 20:
GBP0.1m) of finance income and GBP16.2m (H1 20: GBP16.8m) of
finance expense, declining GBP1.3m on H1 20 resulting from a
combination of lower interest expense and the impact of foreign
exchange rates.
Tax
The adjusted effective tax rate was 26.5%, an increase of 1% on
the prior year (H1 20: 25.5%, FY 20: 25.5%). The tax charge,
including the impact of SDIs, of GBP44.0m (H1 20: GBP25.3m),
equates to an effective rate of 26.0% (H1 20: 19.3%, FY 20: 23.6%).
The H1 2020 adjusted effective tax rate reflected a one-off prior
year adjustment credit to intangible and goodwill deferred tax
position.
Earnings per share
Adjusted diluted earnings per share at actual exchange rates was
23.9% higher at 78.2p. Diluted earnings per share after SDIs was
70.9p (H1 20: 58.6p) per share and basic earnings per share after
SDIs was 71.3p (H1 20 : 59.1p).
Dividend
The Board has approved an interim dividend of 34.2p per share,
which is in-line with both prior year (H1 20: 34.2p) and H1 19. The
dividend will be paid on 7 October 2021 to shareholders on the
register at 17 September 2021.
Investments
The Group invested GBP40.0m (H1 20: GBP33.9m) 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 2021.
Cash Flow
The Group's cash performance in the period was strong with free
cash flow of GBP122.6m (H1 20: GBP141.9m), driven by disciplined
working capital management and strong cash conversion. Adjusted
cash generated from operations was GBP253.4m (H1 20: GBP268.1m).
Cash generated from operations was GBP246.1m (H1 20:
GBP261.4m).
Financial Position
The Group ended the period in a strong financial position.
Financial net debt was GBP434.9m, an increase of GBP15.0m on 31
December 2020 and a decrease of GBP215.2m on 30 June 2020. The
undrawn headroom on the Group's existing committed borrowing
facilities at 30 June 2021 was GBP936.3m. This includes a new
US$692m facility secured to facilitate the SAI Global Assurance
transaction, where the funds are restricted for use to this
transaction.
Financial guidance
Given our industry-leading position across our business lines
and excellent customer relationships, we will continue to benefit
in 2021 from the post COVID-19 recovery and the attractive
structural TQA growth opportunities, as clients continue to
increase their investments to improve their quality, safety and
sustainability performance.
We remain confident that the Group will deliver robust
like-for-like revenue growth at constant currencies with margin
progression year on year and a strong free cash flow performance,
notwithstanding the continuing lockdown restrictions in several
markets impacting the supply chains of our clients and
mobility.
Our financial guidance for 2021, assuming constant FX rates for
the rest of 2021, expects:
-- Capital expenditure in the range of GBP110-120m
-- Net Finance Costs of around GBP29-33m
-- Effective tax rate in the 26.5-27.0% range
-- Minority interest of between GBP17-19m
-- Financial net debt at December 2021 of between GBP350-GBP
400m (prior to any material movements in FX or M&A) and of
GBP835- GBP885m, assuming closing the SAI transaction on 1
September 2021
Based on YTD performance and the average FX rate in the last
month applied for the remainder of the year, currencies would have
a c.500 BPS negative impact at both the revenue and earnings
level.
Operating Review by Division
Revenue Adjusted operating profit
H1 202 1 H1 2020 Change Change at H1 2021 H1 2020 Change Change at
GBPm GBPm at actual constant GBPm GBPm at actual constant
rates rates rates rates
Products 8 19.5 800.3 2.4% 8.3% 1 70.9 135.5 26.1% 32.5%
Trade 278. 2 294.7 (5.6%) 0.9% 2 0.1 20.1 (0.0%) 8.6%
Resources 219.9 235.6 (6.7%) (1.8%) 10.7 12.6 (15.1%) (13.0%)
========= ======== ============= ============= ======== ======== ============== =============
Group 1,317.6 1,330.6 (1.0%) 4.8% 2 01.7 168.2 19.9% 26.2%
========= ======== ============= ============= ======== ======== ============== =============
Products Divisional Review
H1 2021 H1 2020 Change at Change at
GBPm GBPm actual rates constant rates
======== ==============
Revenue 819.5 800.3 2.4% 8.3%
Like-for-like
revenue 819.5 790.0 3.7% 9.7%
Adjusted operating
profit 170.9 135.5 26.1% 32.5%
Adjusted operating
margin 20.9% 16.9% 400bps 390bps
======== ======== ============== ================
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.
During 2020 we launched our truly pioneering innovation Protek .
Based on Intertek's unique approach to total quality, Protek
solutions safeguard people, systems and processes, facilities,
materials and surfaces, and products. Our clients around the world
have welcomed this innovation, as our Protek solutions are very
much in line with major concerns of so many businesses today, as
well as wider society.
As the world of hospitality and tourism re-opens, Intertek is
supporting customers with our industry leading Protek POSI Check
audit solution that helps in the prevention of spread of infectious
diseases. T he recent release of new ISO 5643 Guidance for the
Tourism Industry aims to promote best practice across the board,
and t he combination of our POSI-Check and E-Cristal management
system solutions allows our clients to meet and exceed ISO 5643,
providing their guests total peace of mind in a post-Covid travel
world.
Our Intertek Cristal business launched AccessCheck , a solution
that provides independent verification of the degree to which
hotels, restaurants, and other participants in the travel, tourism,
and hospitality industry meet the accessibility needs of the
disabled community.
Additionally, Intertek has been supporting manufacturers with
our Protek Germicidal Products Solution to bring these products to
the marketplace faster than ever before, to reduce bacteria and
virus concerns. As the world continues to retu rn to the workplace
and public spaces, where safety and peace of mind is paramount,
these products will only grow more important.
In May 2021 Intertek Alchemy , a leader in workforce
performance, launched Zosi , a new dynamic digital learning
platform for individuals and companies. Zosi is the first global
marketplace of its kind, providing unique access to a wealth of
on-demand food and workplace safety content and expertise.
Across the supply chain, with the rise in demand for more
sustainable materials in many sectors to mitigate climate change
risks, Intertek's SourceClear platform helps organizations track
sustainable material claims across all stages of the trade and
production supply chain. We provide independent certification of
product sustainability claims against accredited Textile Exchange
Standards, e nabling our customers to make sustainability
commitments with confidence.
H1 2021 Performance
Our Products business delivered a strong performance in H1
2021.
Revenue of GBP819.5m was up 8.3% at constant rates and +9.7% on
a L4L basis, with growth accelerating in May and June to 13.9% on a
L4L basis. We delivered an adjusted operating profit of GBP170.9m
with adjusted operating profit margins of 20.9%.
-- Our Softlines business delivered double-digit L4L revenue
growth benefiting from the improved trading situation for retailers
in North America and Europe as well as from the continuous growth
in e-commerce, increased demand for testing protective equipment
and the greater focus of our clients on their sustainability
agenda.
-- Our Hardlines business reported a double-digit L4L revenue
increase reflecting better trading conditions for retailers in
North America and Europe in addition to the continuing growth in
e-commerce and higher consumer demand for home furniture and
toys.
-- Electrical and Connected World delivered double-digit L4L
revenue growth as we saw increased demand for higher regulatory
standards in energy efficiency, strong growth in testing and
certifications of medical devices, increased testing requirements
for 5G and a greater corporate focus on Cyber security.
-- Our Business Assurance business reported double-digit L4L
revenue growth as clients caught up on ISO audits and increased
investment in supply chain resilience . D emand remained strong for
our operational and corporate sustainability solutions.
-- Our Building and Construction L4L revenues declined
low-single digit. While we continue to benefit from the growing
demand for more environmentally friendly and higher quality
buildings as well as the strong investments in large infrastructure
project, our performance was impacted by the lock down restrictions
in certain parts of North America and the snow and ice storm in
Texas in February.
-- L4L Revenue in our Transportation Technology business fell
mid-single digit. We saw a lower level of t esting by OEMs and our
b usiness in North America was also impacted by the Texas weather
event.
-- The L4L d ouble-digit revenue increase in our Food business
came from the strong growth in the global food industry, a higher
level of food safety testing activities as well as from increase d
demand for hygiene and safety audits in factories, hospitality and
retail locations.
-- Our Chemicals & Pharma business delivered double-digit
L4L revenue growth benefiting from greater focus on regulatory
assurance and chemical testing as well as from R&D investments
by the Pharma industry.
2021 Outlook
In 2021, we expect our Products division, which represents c. 8
5% of our earnings, to deliver robust L4L revenue growth at
constant currency.
Mid to Long Term 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 of the
middle class in Emerging Markets.
Trade Divisional Review
H1 2021 H1 2020 Change at Change at
GBPm GBPm actual rates constant rates
======== ==============
Revenue 278.2 294.7 (5.6%) 0.9%
Like-for-like
revenue 278.2 294.0 (5.4%) 1.1%
Adjusted operating
profit 20.1 20.1 (0.0%) 8.6%
Adjusted operating
margin 7.2% 6.8% 40bps 50bps
======== ======== ============== ================
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.
Our Global Trade customers require that their goods are
certified fast and efficiently, with real-time visibility and
transparency across their supply chains. Intertek's new innovation
Fast-Tek is a customised global trade solution that provides
expedited inspection certification to get trade moving faster than
ever before, helping our customers achieve the fastest possible
turnaround time.
To support our Global Trade customers to manage supplier risks
and onboarding of new suppliers, we have developed Tradeable - a
portfolio of solutions to support validation of suppliers or
manufacturers as well as production, shipment and goods handling
processes across the international supply chain. Tr adeable helps
customers mitigate trade related risks enabling them to trade with
confidence.
In our Agri business, we are have introduced Intertek's Rice
Inspection offering on the Sustainable Rice Exchange platform,
extending traceability and certification along the value chain.
Rice Exchange is a blockchain-based commodity trading platform and
facilitates rice trade transactions so buyers and sellers can
connect and transact in an environment of trust.
H1 2021 Performance
Our Trade division delivered a solid performance in H1 2021.
W e delivered revenue of GBP278.2m with a L4L revenue
performance of +1.1% versus prior year at constant rates after
growth in May and June of 8.5%. Adjusted operating profit was
GBP20.1m with adjusted operating margin of 7.2% increasing 50bps at
constant rates compared to H1 20.
-- Caleb Brett reported a low-single digit negative L4L revenue
performance. We are seeing a gradual recovery of global mobility
although it is still below pre-Covid 19 levels while our North
American business was affected by the weather in Texas earlier in
the half.
-- Our Government and Trade Services business delivered a robust
L4L revenue performance benefiting from the growth in trade flows
in both Africa and the Middle East.
-- Our AgriWorld business posted a robust L4L revenue growth
benefiting from an increased demand for agri-products inspection
activities.
2021 Outlook
In 2021 we expect our Trade division, which represents c .10% of
our earnings , to deliver a good L4L revenue growth at constant
currency.
Mid to Long Term 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 2021 H1 2020 Change at Change at
GBPm GBPm actual rates constant rates
======== ==============
Revenue 219.9 235.6 (6.7%) (1.8%)
Like-for-like
revenue 219.9 235.0 (6.4%) (1.6%)
Adjusted operating
profit 10.7 12.6 (15.1%) (13.0%)
Adjusted operating
margin 4.9% 5.3% (40bps) (60bps)
======== ======== ============== ================
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.
In Global Minerals, we are launching a state-of-the art Global
Centre of Excellence in the heart of the mining world in Perth,
Australia, bringing advanced technology, automation and robotic
quality solutions to our Minerals customers. Within the facility we
have established MineralSpace, a unique multifunctional client
space that connects our technical experts with our clients globally
.
Intertek's Aware platform has supported the power industry for
over three decades to manage asset and reliability data, and in
2021, building on this platform, we launched WindAware, a data
intelligence solution that helps wind asset owners and operators
optimize their wind asset performance. And RiskAware, our
innovative and data analytics tool helps our custome rs to apply a
risk-based approach to their inspection activities to optimise
their supply chain strategy.
H1 2021 Performance
Our Resources division delivered a resilient performance in H1
2021.
We benefited from the strength of our business model in
Resources, enabling us to deliver a resilient performance in
revenue and margin.
Our Resources related businesses delivered a revenue performance
of GBP219.9m with a L4L revenues falling 1.6% at constant rates
although in May and June, revenue growth was 9.5%. Adjusted
operating profit of GBP10.7m was down 13.0% at constant rates with
margins of 4.9%, down YoY by 60bps.
-- Our Capex Inspection business reported a negative low-single
digit revenue performance. We saw an improvement in momentum in H1
2021 compared to the second half of 2020 when our clients reduced
investment in Exploration and Production.
-- Opex Inspection reported a stable L4L revenue performance.
The impact of the lockdown restrictions in some of our markets and
the cost saving initiatives from our clients seen in the first four
months of the year were offset by catch-up inspection activities in
May and June.
-- We delivered a good L4L revenue performance in our Minerals
business as we continue to benefit from increase d demand for our
testing and inspection services.
2021 Outlook
In 2021 we expect our Resources division, which represents c. 5
% of our earnings , to deliver a good L4L Revenue performance at
constant currency .
Mid to Long Term growth Outlook
Our Resources division , will grow in the medium to long-term as
we benefit from population growth and social mobility, investment
in Exploration & Production, 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 2021
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
L4L revenue includes acquisitions following their 12-month
anniversary of ownership and excludes the historical contribution
of any business disposals and closures. H1 20 L4L revenue has been
adjusted to present certain rebates net within revenue to permit
comparability period to period where H1 21 L4L revenue is also
presented net of all rebates .
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 20 results at
H1 21 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 2021 and
the comparative period are given in note 3 to the Condensed
Consolidated Interim Financial Statements.
Reconciliation of
Results to Adjusted
Performance Measures 2021 H1 2020 H1
(GBPm) 2021 H1 Results SDIs 2021 H1 Adjusted 2020 H1 Reported SDIs 2020 H1 Adjusted
Operating profit 184.5 17.2 201.7 146.9 21.3 168.2
---------------- -------- ----------------- ----------------- -------- -----------------
Operating margin 14.0% 1.3% 15.3% 11.0% 1.6% 12.6%
---------------- -------- ----------------- ----------------- -------- -----------------
Net financing costs (15.4) - (15.4) (16.1) (0.6) (16.7)
---------------- -------- ----------------- ----------------- -------- -----------------
Profit before tax 169.1 17.2 186.3 130.8 20.7 151.5
---------------- -------- ----------------- ----------------- -------- -----------------
Income tax expense (44.0) (5.4) (49.4) (25.3) (13.4) (38.7)
---------------- -------- ----------------- ----------------- -------- -----------------
Profit for the year 125.1 11.8 136.9 105.5 7.3 112.8
---------------- -------- ----------------- ----------------- -------- -----------------
Cash flow from
operations 246.1 7.3 253.4 261.4 6.7 268.1
---------------- -------- ----------------- ----------------- -------- -----------------
Cash flow from
operations less net
capex 206.6 7.3 213.9 230.2 6.7 236.9
---------------- -------- ----------------- ----------------- -------- -----------------
Free cash flow 115.3 7.3 122.6 135.2 6.7 141.9
---------------- -------- ----------------- ----------------- -------- -----------------
Basic earnings per
share 71.3p 7.3p 78.6p 59.1p 4.6p 63.7p
---------------- -------- ----------------- ----------------- -------- -----------------
Diluted earnings per
share 70.9p 7.3p 78.2p 58.6p 4.5p 63.1p
---------------- -------- ----------------- ----------------- -------- -----------------
Reconciliation of revenue Six months Six months Change
to to %
30 June 30 June
2021 2020
GBPm GBPm
Reported revenue 1,317.6 1,330.6 (1.0%)
----------- ----------- -------
Less: Acquisitions / disposals
/ closures / rebates - (11.6)
----------- ----------- -------
Like-for-like revenue 1,317.6 1,319.0 (0.1%)
----------- ----------- -------
Impact of foreign exchange
movements - (73.2)
----------- ----------- -------
Like-for-like revenue at
constant currency 1,317.6 1,245.8 5.8%
----------- ----------- -------
Reconciliation of financial net debt to 30 June 2021 30 June 2020
adjusted EBITDA (GBPm) GBPm GBPm
--------- -------- -------- --------
Net debt 700.2 895.9
--------- -------- ------------- -------- -------- -------------
IFRS 16 lease liability (265.3) (245.8)
--------- -------- ------------- -------- -------- -------------
Financial net debt 434.9 650.1
--------- -------- ------------- -------- -------- -------------
202 0 H2 2021 H1 2021 LTM 2019 H2 2020 H1 2020 LTM
--------- -------- ------------- -------- -------- -------------
Reported operating profit 231.3 184.5 415.8 257.1 146.9 404.0
--------- -------- ------------- -------- -------- -------------
Depreciation 78.1 73.7 151.8 77.0 78.5 155.5
--------- -------- ------------- -------- -------- -------------
Amortisation 8.6 8.4 17.0 7.9 8.8 16.7
--------- -------- ------------- -------- -------- -------------
EBITDA 318.0 266.6 584.6 342.0 234.2 576.2
--------- -------- ------------- -------- -------- -------------
SDIs 28.2 17.2 45.4 18.2 21.3 39.5
--------- -------- ------------- -------- -------- -------------
Adjusted EBITDA 346.2 283.8 630.0 360.2 255.5 615.7
--------- -------- ------------- -------- -------- -------------
Financial net debt / EBITDA 0.7x 1.1x
--------- -------- ------------- -------- -------- -------------
Constant currency reconciliations Six months Six months Change
to to %
30 June 30 June
2021 2020
GBPm GBPm
Adjusted operating profit
at actual rates 201.7 168.2 19.9%
----------- ----------- -------
Impact of foreign exchange
movements - (8.4)
----------- ----------- -------
Adjusted operating profit
at constant rates 201.7 159.8 26.2%
----------- ----------- -------
Adjusted diluted EPS at
actual rates 78.2p 63.1p 23.9%
----------- ----------- -------
Impact of foreign exchange
movements - (3.6p)
----------- ----------- -------
Adjusted diluted EPS at
constant rates 78.2p 59.5p 31.4%
----------- ----------- -------
Diluted EPS at actual rates 70.9p 58.6p 21.0%
----------- ----------- -------
Impact of foreign exchange
movements - (3.7p)
----------- ----------- -------
Diluted EPS at constant
rates 70.9p 54.9p 29.1%
----------- ----------- -------
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 56 to 63 of the
Group's Annual Report for 2020, which is available
from our website at www.intertek.com :
Operational
-- Reputation
-- Customer Service
-- People Retention
-- Healthy, safety and wellbeing
-- Industry and Competitive Landscape
-- Third-party relations
-- 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 2020.
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
2021. The 2021 Full Year Results will be announced
on 1 March 2022.
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 interim financial statements have been prepared
in accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and gives a true and fair view of the assets,
liabilities, financial position and profit of the Group ;
-- 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.
On behalf of the Board of Intertek Group plc
André Lacroix Jonathan Timmis
Chief Executive Officer Chief Financial Officer
29 July 2021 29 July 2021
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 6 month
period ended 30 June 2021 (the "period").
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 UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
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 2021;
-- 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 of Intertek Group plc have been prepared in accordance with
UK adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
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 the company 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
29 July 2021
Condensed Consolidated Interim Income Statement
For the six months ended 30 June 2021
Six months to 30 June 2021 Six months to 30 June 202 0
(Unaudited) (Unaudited)
Adjusted Separately Total Adjusted Separately Total
Results Disclosed Items* 2021 results Disclosed Items* 2020
Notes GBPm GBPm GBPm GBPm GBPm GBPm
================== ===== ========= ================= ========= ========= ================= ====================
Revenue 2 1,317.6 - 1,317.6 1,330.6 - 1,330.6
Operating costs (1,115.9) (17.2) (1,133.1) (1,162.4) (21.3) (1,183.7)
================== ===== ========= ================= ========= ========= ================= ====================
Group operating
profit/(loss) 2 201.7 (17.2) 184.5 168.2 (21.3) 146.9
================== ===== ========= ================= ========= ========= ================= ====================
Finance income 0.8 - 0.8 0.1 0.6 0.7
Finance expense (16.2) - (16.2) (16.8) - (16.8)
================== ===== ========= ================= ========= ========= ================= ====================
Net financing
(costs)/income (15.4) - (15.4) (16.7) 0.6 (16.1)
================== ===== ========= ================= ========= ========= ================= ====================
Profit/(loss)
before income tax 186.3 (17.2) 169.1 151.5 (20.7) 130.8
Income tax
(expense)/credit 4 (49.4) 5.4 (44.0) (38.7) 13.4 (25.3)
================== ===== ========= ================= ========= ========= ================= ====================
Profit/(loss) for
the period 2 136.9 (11.8) 125.1 112.8 (7.3) 105.5
================== ===== ========= ================= ========= ========= ================= ====================
Attributable to:
Equity holders of
the Company 126.7 (11.8) 114.9 102.5 (7.3) 95.2
Non-controlling
interest 10.2 - 10.2 10.3 - 10.3
================== ===== ========= ================= ========= ========= ================= ====================
Profit/(loss) for
the period 136.9 (11.8) 125.1 112.8 (7.3) 105.5
================== ===== ========= ================= ========= ========= ================= ====================
Earnings per share
================== ===== ========= ================= ========= ========= ================= ====================
Basic 5 78.6p 71.3p 63.7p 59.1p
================== ===== ========= ================= ========= ========= ================= ====================
Diluted 5 78.2p 70.9p 63.1p 58.6p
================== ===== ========= ================= ========= ========= =================
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 2021
Six months to Six months to
30 June 30 June
2021 2020
(Unaudited) (Unaudited)
Notes GBPm GBPm
Profit for the period 2 125.1 105.5
============================================================================ ===== ============= =============
Other comprehensive income
Remeasurements on defined benefit pension schemes 6 10.1 (4.3)
Tax on comprehensive income items 3.0 (0.8)
Items that will never be reclassified to profit or loss 13.1 (5.1)
Foreign exchange translation differences of foreign operations (58.4) 85.0
Net exchange (loss)/gain on hedges of net investments in foreign operations 19.2 (38.7)
Gain on fair value of cash flow hedges - 0.5
Items that are or may be reclassified subsequently to profit or loss (39.2) 46.8
============================================================================ ===== ============= =============
Total other comprehensive income for the period (26.1) 41.7
============================================================================ ===== ============= =============
Total comprehensive income for the period 99.0 147.2
============================================================================ ===== ============= =============
Total comprehensive income for the period attributable to:
Equity holders of the Company 91.0 136.6
Non-controlling interest 8.0 10.6
============================================================================ ===== ============= =============
Total comprehensive income for the period 99.0 147.2
============================================================================ ===== ============= =============
Condensed Consolidated Interim Statement of Financial
Position
As at 30 June 2021
At 30 June At 30 June At 31 December
2021 202 0 202 0
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Notes
Assets
Property, plant and equipment 9 607.2 634.3 585.8
Goodwill 8 813.7 896.8 835.9
Other intangible assets 258.6 313.6 279.7
Defined benefit pension scheme assets 6 3.1 - -
Deferred tax assets 46.0 49.5 48.6
==================================================== ====== ============ ============ ==============
Total non-current assets 1,728.6 1,894.2 1,750.0
==================================================== ====== ============ ============ ==============
Inventories* 16.9 20.4 15.5
Trade and other receivables* 616.5 687.8 621.2
Cash and cash equivalents 7 197.2 194.6 203.9
Current tax receivable 22.4 22.1 24.5
==================================================== ====== ============ ============ ==============
Total current assets 853.0 924.9 865.1
==================================================== ====== ============ ============ ==============
Total assets 2,581.6 2,819.1 2,615.1
==================================================== ====== ============ ============ ==============
Liabilities
Interest bearing loans and borrowings 7 (114.3) (128.7) (31.0)
Current taxes payable (47.1) (41.7) (53.8)
Lease liabilities (61.1) (65.9) (61.4)
Trade and other payables * (542.9) (531.9) (576.2)
Provisions * (28.9) (35.9) (28.8)
==================================================== ====== ============ ============ ==============
Total current liabilities (794.3) (804.1) (751.2)
==================================================== ====== ============ ============ ==============
Interest bearing loans and borrowings 7 (517.8) (716.0) (592.8)
Lease liabilities (204.2) (179.9) (162.8)
Deferred tax liabilities (55.6) (64.3) (59.7)
Defined benefit pension scheme liabilities 6 (2.8) (16.4) (12.1)
Other payables * (24.7) (27.7) (26.1)
Provisions * (5.0) (9.1) (7.4)
==================================================== ====== ============ ============ ==============
Total non-current liabilities (810.1) (1,013.4) (860.9)
==================================================== ====== ============ ============ ==============
Total liabilities (1,604.4) (1,817.5) (1,612.1)
==================================================== ====== ============ ============ ==============
Net assets 977.2 1,001.6 1,003.0
==================================================== ====== ============ ============ ==============
Equity
Share capital 1.6 1.6 1.6
Share premium 257.8 257.8 257.8
Other reserves (117.8) 15.3 (80.8)
Retained earnings 804.3 690.4 796.4
==================================================== ====== ============ ============ ==============
Total attributable to equity holders of the Company 945.9 965.1 975.0
Non-controlling interest 31.3 36.5 28.0
==================================================== ====== ============ ============ ==============
Total equity 977.2 1,001.6 1,003.0
==================================================== ====== ============ ============ ==============
* Working capital of GBP31.6m (H1 20: GBP97.5m) comprises the
asterisked items in the above Statement of Financial Position less
refundable deposits aged over 12 months of GBP0.3m (H1 20:
GBP6.1m).
Condensed Consolidated Interim Statement of Changes in
Equity
For the six months ended 30 June 2021
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
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
================ ========= ========= ============ ====== ========== ================ ================ ========
At 1 January
2021 1.6 257.8 (87.2) 6.4 796.4 975.0 28.0 1,003.0
Total
comprehensive
income for the
period
Profit - - - - 114.9 114.9 10.2 125.1
Other
comprehensive
income - - (37.0) - 13.1 (23.9) (2.2) (26.1)
================ ========= ========= ============ ====== ========== ================ ================ ========
Total
comprehensive
income for the
period - - (37.0) - 128.0 91.0 8.0 99.0
================ ========= ========= ============ ====== ========== ================ ================ ========
Transactions
with
owners of the
company
recognised
directly
in equity
Contributions
by and
distributions
to the
owners of the
company
Dividends paid - - - - (115.5) (115.5) (4.7) (120.2)
Purchase of own
shares - - - - (6.4) (6.4) - (6.4)
Tax paid on
share
award s
vested(1) - - - - (6.4) (6.4) - (6.4)
Equity-settled
transactions - - - - 8.2 8.2 - 8.2
Income tax on
equity-settled
transactions - - - - - - - -
================ ========= ========= ============ ====== ========== ================ ================ ========
Total
contributions
by and
distributions
to the owners
of the
company - - - - (120.1) (120.1) (4.7) (124.8)
================ ========= ========= ============ ====== ========== ================ ================ ========
At 30 June 2021
(unaudited) 1.6 257.8 (124.2) 6.4 804.3 945.9 31.3 977.2
================ ========= ========= ============ ====== ========== ================ ================ ========
(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 GBP115.5m dividend paid on 11 June 2021 represented a final
dividend of 71.6p per ordinary share in respect of the year ended
31 December 2020. 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. 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 2021
Six months to Six months to
30 June 2021 30 June 2020
(Unaudited) (Unaudited)
Notes GBPm GBPm
Cash flows from operating activities
Profit for the period 2 125.1 105.5
Adjustments for:
Depreciation charge 73.7 78.5
Amortisation of software 8.4 8.8
Amortisation of acquisition intangibles 13.3 14.3
Equity-settled transactions 8.2 8.3
Net financing costs 15.4 16.1
Income tax expense 4 44.0 25.3
( Profit)/loss on disposal of property, plant, equipment and software (0.3) (0.6)
============================================================================= ===== ============= =============
Operating cash flows before changes in working capital and operating
provisions 287.8 256.2
============================================================================= ===== ============= =============
Change in inventories (1.7) (0.3)
Change in trade and other receivables (15.0) 21.0
Change in trade and other payables (21.3) (14.4)
Change in provisions (1.7) 0.9
Special contributions into pension schemes (2.0) (2.0)
============================================================================= ===== ============= =============
Cash generated from operations 246.1 261.4
============================================================================= ===== ============= =============
Interest and other finance expense paid (13.9) (16.4)
Income taxes paid (45.2) (43.2)
============================================================================= ===== ============= =============
Net cash flows generated from operating activities* 187.0 201.8
============================================================================= ===== ============= =============
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and software* 0.5 2.7
Interest received* 0.8 0.6
Consideration paid in respect of prior year acquisitions - (0.2)
Acquisition of property, plant, equipment, software* 9 (40.0) (33.9)
============================================================================= ===== ============= =============
Net cash flows used in investing activities (38.7) (30.8)
============================================================================= ===== ============= =============
Cash flows from financing activities
Purchase of own shares (6.4) (12.2)
Tax paid on share awards vested (6.4) (8.1)
Drawdown of borrowings 45.2 68.0
Repayment of borrowings - (110.1)
R epayment of lease liabilities* (33.0) (36.0)
Dividends paid to non-controlling interest (4.7) (3.5)
Equity dividends paid (115.5) (115.3)
============================================================================= ===== ============= =============
Net cash flows used in financing activities (120.8) (217.2)
============================================================================= ===== ============= =============
Net (decrease)/increase in cash and cash equivalents 7 27.5 (46.2)
============================================================================= ===== ============= =============
Cash and cash equivalents at 1 January 7 183.4 213.0
Effect of exchange rate fluctuations on cash held 7 (17.1) 20.3
============================================================================= ===== ============= =============
Cash and cash equivalents at end of period 7 193.8 187.1
============================================================================= ===== ============= =============
* Free cash flow of GBP115.3m (H1 20: GBP135.2m) comprises the
asterisked items in the above Statement of Cash Flows.
Adjusted cash flow from operations of GBP253.4m (H1 20:
GBP268.1m) comprises statutory cash generated from operations of
GBP246.1m (H1 20: GBP261.4m) before cash outflows relating to
Separately Disclosed Items of GBP7.3m (H1 20: GBP6.7m).
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 2021 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 2020 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
On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted
international accounting standards, with future changes being
subject to endorsement by the UK Endorsement Board. Intertek Group
plc transitioned to UK-adopted international accounting standards
in its consolidated financial statements on 1 January 2021. There
was no impact or changes in accounting policies from the
transition. These Condensed Consolidated Interim Financial
Statements for the half-year reporting period ended 30 June 2021
have been prepared in accordance with the UK-adopted International
Accounting Standard 34, 'Interim Financial Reporting' ("IAS 34")
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's 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 2020 which have been prepared in accordance with
International Financial Reporting Standards (IFRS) and IFRS
Interpretations Committee interpretations in conformity with the
Companies Act 2006 and pursuant to Regulation (EC) No 1606/2002 as
it applies to the European Union. These Condensed Consolidated
Interim Financial Statements do not comprise statutory accounts
within the meaning of section 434 of the Companies Act 2006.
The Condensed Consolidated Financial Statements have also been
prepared in accordance with the accounting policies set out in the
2020 Annual Report and have been prepared under the historical cost
convention as modified by the revaluation of certain financial
assets and liabilities (including derivative financial instruments)
at fair value.
The comparative figures for the financial year ended 31 December
2020 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
2020.
There are no significant new accounting standards that have a
material effect on the results of the Group.
A number of our existing agreements, such as borrowings and
commercial contracts, utilise various benchmark rates such as LIBOR
and other interbank offering rates (`IBORs`). The replacement of
these benchmark interest rates is expected to be completed in 2021.
Intertek's hedging relationships will not be affected by the
interest rate benchmark reforms and we do not expect interest rate
benchmark reform to have any material further implications on the
wider business.
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 2020. During the six months ended 30 June 2021
management reassessed its estimates and judgements in respect of
taxation (notes 4 and 11(b)), pensions (note 6), contingent
consideration payable and fair value adjustments in respect of
acquisitions made in prior periods (note 8(b) and 8(c)), impairment
(note 8(d)), claims and litigation (note 11(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 2022, which assumes the acquisition of SAI Global
Assurance in Q3 2021, to assess both liquidity requirements and
debt covenants. In addition, these have been sensitised for a
severe decline in economic conditions (including an illustrative
senstivity scenario of a reduction of 30% to the base profit
forecasts and the corresponding impact to cash flow forecasts in
each of these years) and the Board remains satisfied with the
Group's funding and liquidity position even following the 30%
stress testing sensivity. The sensitivity modelling excludes
additional mitigating actions (e.g. dividend cash payments,
non-essential overheads and non-committed capital expenditure) 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 2021 was GBP936.3m, this includes a new
facility of US$692m, secured to facilitate the SAI Global Assurance
transaction where the funds can only be used in respect of this
transaction and will be drawn down on completion of the
acquisition. Full details of the Group's borrowing facilities and
maturity profile are outlined in note 7. On the basis of its
forecasts to 31 December 2022, 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 21 H1 20 F Y 20
2021 2020 2020
================== ======== ======== ============= ======== ======== =========
US dollar 1.39 1.23 1.35 1.39 1.26 1.28
Euro 1.16 1.10 1.10 1.15 1.15 1.13
Chinese renminbi 8.97 8.73 8.81 8.99 8.89 8.88
Hong Kong dollar 10.78 9.56 10.47 10.78 9.81 9.96
A ustralian
dollar 1.83 1.80 1.78 1.80 1.92 1.87
================== ======== ======== ============= ======== ======== =========
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
2021 from external and software operating Disclosed Operating
customers amortisation profit Items profit
GBPm GBPm GBPm GBPm GBPm
============================== =============== ============== =========== =========== ==========
Products 819.5 (50.7) 170.9 (13.5) 157.4
Trade 278.2 (21.4) 20.1 (0.6) 19.5
Resources 219.9 (10.0) 10.7 (3.1) 7.6
============================== =============== ============== =========== =========== ==========
Total 1,317.6 (82.1) 201.7 (17.2) 184.5
============================== =============== ============== =========== =========== ==========
Group operating profit 201.7 (17.2) 184.5
Net financing (costs)/income (15.4) - (15.4)
============================== =============== ============== =========== =========== ==========
Profit before income
tax 186.3 (17.2) 169.1
Income tax (expense)/credit (49.4) 5.4 (44.0)
============================== =============== ============== =========== =========== ==========
Profit for the year 136.9 (11.8) 125.1
============================== =============== ============== =========== =========== ==========
Six months to 30 June Revenue
2020 from external Depreciation Adjusted Separately
customers and software operating Disclosed Operating
GBPm amortisation profit Items profit
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 (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
============================= =============== ============== =========== ============= ============
3. Separately Disclosed Items (SDIs)
Six months
Six months to
to 30 June
30 June 2021 2020
GBPm GBPm
=========================================== ===== ============== ===========
Operating costs
Amortisation of acquisition intangibles (a) (13.3) (14.3)
Restructuring costs (b) - (5.9)
Acquisition costs (c) (3.9) (1.1)
Total operating costs (17.2) (21.3)
Net financing income/(costs) (d) - 0.6
=========================================== ===== ============== ===========
Total before income tax (17.2) (20.7)
Income tax (expense)/credit on Separately
Disclosed Items (e) 5.4 13.4
=========================================== ===== ============== ===========
Total (11.8) (7.3)
================================================== ============== ===========
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 GBPnil were incurred in the period
(H1 20: GBP5.9m) following 2020 being the final year of 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 GBP3.9m
(H1 20: GBP1.1m).
(d) Net financing income of GBPnil (H1 20: GBP0.6m) relates to
the unwinding of discounts and changes in fair value of contingent
consideration related to acquisitions.
(e) Income tax Credit on SDIs totalled GBP5.4m (H1 20: GBP13.4m)
mainly relating to deferred tax impact of the movement in
amortisation on intangibles.
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
2021 is GBP49.4m (H1 20: GBP38.7m). The Group's adjusted
consolidated effective tax rate for the six months ended 30 June
2021 is 26.5 % (H1 20: 25.5%). The income tax expense for the total
results for the six months ended 30 June 2021 is GBP 44.0 m (H1 20:
GBP25.3m). The Group's consolidated effective tax rate for the six
months ended 30 June 2021 is 26.0 % (H1 20: 19.3%). The increase is
mainly driven by a one-off prior year adjustment credit to
intangible and goodwill deferred tax position at H1 20.
Differences between the estimated adjusted effective rate of
26.5 % 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. The main rate of UK
corporation tax is 19.0% and it has been substantively enacted on
24 May 2021 that the rate will increase to 25.0% from 1 April 2023.
This has a consequential effect on the Group's future tax charge
and has resulted in an increase in the UK net deferred tax asset by
GBP0.3m.
5. Earnings per share (EPS)
Six months Six months
to to
30 June 2021 30 June
GBPm 2020
GBPm
Based on the profit for the period:
Profit attributable to ordinary shareholders 114.9 95.2
Separately Disclosed Items after tax (note
3) 11.8 7.3
=============================================== ============== ===========
Adjusted earnings 126.7 102.5
=============================================== ============== ===========
Number of shares (millions):
Basic weighted average number of ordinary
shares 161.2 161.0
Potentially dilutive share awards 0.8 1.4
=============================================== ============== ===========
Diluted weighted average number of shares 162.0 162.4
=============================================== ============== ===========
Basic earnings per share 71.3p 59.1p
Potentially dilutive share awards (0.4p) (0.5p)
=============================================== ============== ===========
Diluted earnings per share 70.9p 58.6p
=============================================== ============== ===========
Adjusted basic earnings per share 78.6p 63.7p
Potentially dilutive share awards (0.4p) (0.6p)
=============================================== ============== ===========
Adjusted diluted earnings per share 78.2p 63.1p
=============================================== ============== ===========
6. Pension schemes
During the period, the Group made a special contribution of
GBP2.0m (H1 20: GBP2.0m) into The Intertek Pension Scheme in line
with a Minimum Funding Requirement agreement.
The Group obtained updated actuarial valuations to 31 May 2021,
the asset and liability values have been reviewed and have not
moved materially in the month to 30 June 2021. In addition to the
special contribution, a net actuarial gain before taxation of
GBP10.1m (H1 20: Actuarial loss GBP4.3m) has been recognised in the
consolidated statement of comprehensive income. The net pension
asset stands at GBP3.1m for the UK pension scheme and a net pension
liability of GBP2.8m for the Swiss pension scheme as at 30 June
2021 (31 December 2020: GBP8.8m liability and GBP3.3m liability
respectively).
7. Analysis of net debt
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
============================================= ======== ======== ============
Cash and cash equivalents per the Statement
of Financial Position 197.2 194.6 203.9
Overdrafts (3.4) (7.5) (20.5)
============================================= ======== ======== ============
Cash per the Statement of Cash Flows 193.8 187.1 183.4
============================================= ======== ======== ============
The components of net debt are outlined below:
1 January Cash flow Non-cash Exchange 30 June
2021 adjustments adjustments 2021
GBPm GBPm GBPm GBPm GBPm
=================================== ========== ========== ============= ============= ========
Cash 183.4 27.5 - (17.1) 193.8
=================================== ========== ========== ============= ============= ========
Borrowings:
Revolving credit facility US$850m
2025 (135.5) (45.2) - 6.2 (174.5)
Senior notes US$15m 2021 (11.1) - - 0.3 (10.8)
Senior notes US$140m 2022 (103.7) - - 2.9 (100.8)
Senior notes US$160m 2023 (118.5) - - 3.3 (115.2)
Senior notes US$125m 2024 (92.6) - - 2.5 (90.1)
Senior notes US$120m 2025 (88.8) - - 2.4 (86.4)
Senior notes US$75m 2026 (55.5) - - 1.5 (54.0)
Other* 2.4 - 0.7 - 3.1
=================================== ========== ========== ============= ============= ========
Total borrowings (603.3) (45.2) 0.7 19.1 (628.7)
=================================== ========== ========== ============= ============= ========
Total financial net debt (419.9) (17.7) 0.7 2.0 (434.9)
=================================== ========== ========== ============= ============= ========
Lease liability (224.2) 33.0 (80.9) 6.8 (265.3)
=================================== ========== ========== ============= ============= ========
Total net debt (644.1) 15.3 (80.2) 8.8 (700.2)
=================================== ========== ========== ============= ============= ========
* Other borrowings include facility fees of GBP 3.1m (1 Jan
2021: GBP2.4m),
Total undrawn committed borrowing facilities as at 30 June 2021
were GBP 936.3 m (31 December 2020: GBP494.0m), inclusive of the
US$692m facility which is restricted for use for the acquisition of
SAI Global Assurance and which remains undrawn at 30 June 2021.
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
====================================== ======== ======== ============
Borrowings due in less than one year 110.9 121.2 10.5
Borrowings due in one to two years 28.1 125.1 103.0
Borrowings due in two to five years 435.7 530.1 434.3
Borrowings due in over five years 54.0 60.8 55.5
====================================== ======== ======== ============
Total borrowings 628.7 837.2 603.3
====================================== ======== ======== ============
Key facilities
In July 2021 US$15m of Senior notes matured and were repaid, and
a further US$140m of Senior notes will mature in January 2022.
To facilitate the SAI Global Assurance transaction the Group
secured a credit facility of US$692m. The facility was committed at
30 June 2021 and is restricted in use for the acquisition of SAI
Global Assurance, remaining undrawn at 30 June 2021. The financing
is made up of two facilities, Facility A US$173m and Facility B of
US$519m, where both mature 24 months after draw down.
Further details of the Group's borrowing facilities were
disclosed in note 14 to the 2020 Annual Report.
Fair values
The carrying value of the interest-bearing loans and borrowings
is GBP628.7m. 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 GBP643.0m. 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 assets of GBP0.2m are included
within trade and other receivables (H1 20: Derivative liabilities
of GBP3.7m are included within trade and other payables).
Interest bearing loans and borrowings and derivative
assets/liabilities are measured at amortised cost. 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.
8. Acquisition of businesses
(a) Acquisitions
The Group completed no acquisitions in the first six months of
2021 and 2020, refer to note 12, Post balance sheet events, for
details of transactions that have completed prior to date of this
announcement.
(b) Prior period acquisitions
GBPnil (H1 20: GBP0.2m) was paid during the period in respect of
prior period acquisitions.
(c) Details of 2020 acquisitions
No acquisitions were made during the year ended 31 December
2020.
(d) Impairment
Goodwill generated from past acquisitions has been tested
annually as required by accounting standards. No impairment
triggers were identified during the period and as such no
impairment charge was recorded (H1 20: nil).
(e) Reconciliation of goodwill
GBPm
===================================== =======
Goodwill at 1 January 2021 835.9
Additions -
Transfer to acquisition intangibles -
Foreign exchange (22.2)
===================================== =======
Goodwill at 30 June 2021 813.7
===================================== =======
9. Property, plant, equipment and software
(a) Additions
During the six months to 30 June 2021, the Group acquired fixed
assets with a cost of GBP40.0m (H1 20: GBP33.9m; year ended 31
December 2020: GBP79.8m). The Group did not acquire fixed assets
through business combinations (H1 20: GBPnil; year ended 31
December 2020: GBPnil). At 30 June 2021, the IFRS 16 right of use
asset is GBP 243.7m (H1 20: GBP222.0m; year ended 31 December 2020:
GBP 202.3m ).
(b) Capital commitments
Contracts for capital expenditure which are not provided in
these accounts amounted to GBP 17.6m (H1 20: GBP10.0m; year ended
31 December 2020: GBP 12.0 m).
10. Related parties
There are no material changes in related parties or in related
party transactions from those described in the last Annual
Report.
11. 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.
At 31 December 2020, the Group disclosed a contingent liability
of GBP16.3m in respect of EU State Aid. In April 2021, the European
Commission issued its decision in a state aid investigation into
the Group Financing Exemption in the UK controlled foreign company
(CFC) rules. The European Commission found that part of the
Financing Exemption constitutes state aid. HMRC has concluded that
Intertek did not benefit from unlawful state aid as a result of its
Group Financing Exemption claims. This matter is now regarded as
closed and as a result there is no longer an associated contingent
liability in this regard.
(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 these can involve complex issues
which may take a number of years to resolve.
12. Post balance sheet events
On 19 July 2021, we acquired JLA Brasil Laboratório de Análises
de Alimentos S.A., an independent provider of Food, Agri and
Environmental testing solutions based in Brazil.
13. Approval
The Condensed Consolidated Interim Financial Statements were
approved by the Board on 29 July 2021.
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END
IR FLFEADAIAFIL
(END) Dow Jones Newswires
July 30, 2021 02:00 ET (06:00 GMT)
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