Half Yearly Report

RNS Number : 7194W

Intertek Group PLC

03 August 2009

 



3 August 2009

2009 HALF YEAR RESULTS 

Intertek Group plc ('Intertek'), a leading international provider of quality and safety services, announces its half year results for the period ended 30 June 2009.

Good results - Resilient growth

Key Performance Indicators	H1 09	H1 08	Growth	Growth
			as reported	at constant rates
Revenue	£622.3m	£457.4m	36.1%	10.5%
Adjusted operating profit (1)	£103.5m	£68.7m	50.7%	13.6%
Adjusted operating profit margin (1)	16.6%	15.0%	160bp	40bp
Adjusted profit before tax (1)	£94.2m	£62.9m	49.8%
Diluted adjusted earnings per share (1)	40.2p	26.9p	49.4%

Statutory	H1 09	H1 08	Growth
			as reported
Operating profit	£97.0m	£64.3m	50.9%
Profit before tax	£87.7m	£58.5m	49.9%
Basic earnings per share	37.5p	25.1p	49.4%
Interim dividend	8.2p	7.1p	15.5%

Highlights

• Organic revenue growth of 6.1% at constant exchange rates

• Organic adjusted operating profit¹ growth of 8.5% at constant exchange rates

• Operating cash flow of £117.1m, up 106.5%

• Three businesses acquired in first half for a total consideration of £29.0m

1. Before amortisation of acquisition intangibles of £6.5m (H1 08: £4.4m).

Wolfhart Hauser, Chief Executive Officer, commented: 

'Intertek has reported an excellent result for the first half of the year and we continue to see good trading in the majority of our businesses, in line with our expectations. 

Despite tougher global market conditions, the key business drivers to Intertek's global business remain intact, namely product variety, supply chain complexity, the outsourcing of in-house testing laboratories and increasing demand for safe, environmentally friendly and quality products driven by ongoing regulation and end customers. Supporting our customers as they strive to be more competitive and cost effective underpins this growth. We expect this strategy and customer focus to generate continued sustainable growth.

For the full year we expect to achieve good organic revenue growth, although we anticipate slower growth in the second half. Some of our volume related businesses (around 30% of Group revenues) have been impacted by lower global trade and costs have been aligned accordingly.

We have actively reduced our investment in capital expenditure and new businesses to reflect the uncertain market conditions, providing increased capacity to fund medium or larger acquisitions should suitable opportunities arise.'

Contacts

For further information, please contact:

Aston Swift, Investor Relations

Telephone:    [phone]  [e-mail]

Sophie Kernon, Financial Dynamics

Telephone:    [phone]  [e-mail] 

Andrew Dowler, Financial Dynamics

Telephone:    [phone]  [e-mail] 

Analysts' Meeting

There will be a meeting for analysts at 9.30am today at JPMorgan Cazenove, 20 Moorgate, London EC2R 6DA.  A copy of the presentation will be available on the website later today.

Corporate website: www.intertek.com 

High resolution images of Intertek businesses are available to download, free of charge from the News & Media section of www.intertek.com

 

 

About Intertek

 

Intertek is a leading provider of quality and safety solutions serving a wide range of industries around the world.

 

From auditing and inspection, to testing, quality assurance and certification, Intertek people are dedicated to adding value to customers' products and processes, supporting their success in the global marketplace.

 

Intertek has the expertise, resources and global reach to support its customers through its network of more than 1,000 laboratories and offices and over 24,000 people in more than 100 countries around the world.

 

 

INTERIM REPORT 2009

OPERATING REVIEW 
For the six months ended 30 June 2009   

Overview of results 

Group	H1 09	H1 08	Change	Change
	£m	£m	at actual rates	at constant rates
Revenue	622.3	457.4	36.1%	10.5%
Adjusted operating profit	103.5	68.7	50.7%	13.6%
Adjusted operating margin	16.6%	15.0%	160bp	40bp

Revenue for the Group increased to £622.3m, up 36.1% at actual exchange rates. The growth benefited from the weakness of sterling against most of the currencies in which the Group operates, particularly in the first quarter of 2009. Sterling strengthened in the second quarter of 2009 and the beneficial impact of currency translation is expected to be greatly reduced in the second half of the year. At constant exchange rates, revenue grew by 10.5%. All six divisions reported growth in revenue at constant exchange rates with a particularly strong performance in Consumer Goods. Excluding the results of acquisitions made since 1 January 2008, organic revenue increased 6.1% at constant exchange rates.   

Operating profit for the Group before the amortisation of acquisition intangibles (adjusted operating profit), was £103.5m, up 50.7% (13.6% at constant exchange rates). The Group's organic adjusted operating profit increased by 8.5% at constant exchange rates, with growth in Consumer Goods, Analytical Services and Industrial Services partially offset by declines in Minerals, Oil, Chemical & Agri, and Commercial & Electrical. The Group's adjusted operating margin increased 160 basis points to 16.6%. 

Operating review by division

A review of the performance of each division in the six months to 30 June 2009 compared to the six months to 30 June 2008 is set out below. Revenue and adjusted operating profit are presented at actual exchange rates and growth rates are shown at both actual and constant exchange rates. There have been some non-material changes to the Group structure and the figures for the six months to 30 June 2008 have been restated to reflect these changes in the relevant divisions. As previously announced, following a material restructuring in 2008, Government Services is now incorporated into the Oil, Chemical & Agri division.  

Consumer Goods	H1 09	H1 08*	Change	Change
	£m	£m	at actual rates	at constant rates
Revenue	162.5	104.9	54.9%	20.2%
Adjusted operating profit	53.7	30.9	73.8%	29.1%
Adjusted operating margin	33.0%	29.5%	350bp	220bp

*Restated for non-material changes in Group structure

The Consumer Goods division provides services to the textiles, toys, footwear, hardlines, food, and retail industries. Services include testing, inspection, auditing, advisory services, quality assurance, and hazardous substance testing. 

The division delivered very strong results with total revenue of £162.5m up 54.9% (20.2% at constant exchange rates) and organic revenue up 15.9% at constant exchange rates. The toys and hardlines sector, which accounted for a third of the division's revenue in the first half of 2009, performed exceptionally well. Revenue from textile testing also grew well, particularly eco-testing for the European consumer market. Trading conditions in the inspection market remain difficult with reduced global trade flows leading to increased competition and low pricing. 

Total adjusted operating profit was £53.7m, up 73.8% (29.1% at constant exchange rates). The total adjusted operating margin was 33.0% up 350 points over the comparable prior year period.

The key growth drivers in Consumer Goods remain strong, although the exceptionally high level of growth in the first half will not be sustained as the performance in the second half of last year was also very strong. Consumer concerns over the safety of products have increased demand for independent assurance of quality and safety. Increasingly this assurance is governed by legislation. Retailers continue to source products from countries where production costs are low, so supply chains are increasingly complex. The trend towards shorter product life-cycles and increasing product variety also continues to contribute to our growth. Although two-thirds of revenue is derived from toys and textiles testing, the remainder is from our expanding service lines such as consultancy, inspection, supply chain services, food and corporate social responsibility where margins are not always as high as those earned by the established services. 

Commercial & Electrical	H1 09	H1 08	Change	Change
	£m	£m	at actual rates	at constant rates
Revenue	125.2	95.8	30.7%	2.5%
Adjusted operating profit	17.8	12.3	44.7%	7.9%
Adjusted operating margin	14.2%	12.8%	140bp	70bp

The Commercial & Electrical division provides services including testing and certification, electromagnetic compatibility testing (EMC), outsourcing, benchmark and performance testing and environmental testing. These are provided to a wide range of industries including the home appliance, lighting, medical, building, industrial and HVAC/R (heating, ventilation, air conditioning and refrigeration), IT, telecom, renewable energy and automotive industries.

Total revenue increased to £125.2m, up 30.7% (2.5% at constant exchange rates) and organic revenue decreased by 0.7% at constant exchange rates.  Performance in the Commercial & Electrical division was mixed, with the core sectors such as electrical & electronic, renewable energy and medical growing well, building products holding steady, and automotive and wireless declining. The wireless business is recovering but trading conditions in the automotive sector remain depressed. 

Total adjusted operating profit was £17.8m, up 44.7% (7.9% at constant exchange rates).  The total adjusted operating margin increased 140 basis points to 14.2%, but the organic adjusted operating margin at constant rates declined by 60 basis points. This decline was exacerbated by costs of £0.5m for restructuring underperforming businesses.

In April 2009, the Group acquired Sagentia Catella, a globally renowned battery testing business based in Sweden. This business will be integrated with Intertek's global energy services laboratories throughout Europe, the USA and Asia and will benefit global customers who are developing more efficient energy storage technologies and more reliable and environmentally friendly products.

The outlook for Commercial & Electrical for the rest of the year is stable. The renewable energy industries are expected to grow rapidly and we are well placed to support this growth. The automotive sector remains a concern and is not expected to recover this year.   

Oil, Chemical & Agri (including Government Services)	H1 09	H1 08*	Change	Change
	£m	£m	at actual rates	at constant rates
Revenue	205.6	162.3	26.7%	4.5%
Adjusted operating profit	20.3	16.9	20.1%	(10.6)%
Adjusted operating margin	9.9%	10.4%	(50)bp	(160)bp

*Restated to include the former Government Services division and other non-material changes in Group structure

The Oil, Chemical & Agri division provides independent cargo inspection as well as non-inspection related laboratory testing, calibration and related technical services to the world's energy, petroleum, chemical and agricultural industries. The division also includes the former Government Services division which provides cargo scanning, fiscal support services and standards programmes to governments, national standards organisations and customs authorities.

Total revenue increased to £205.6m, up 26.7% (4.5% at constant exchange rates). The growth was wholly organic. Revenue from both inspection related services and non-inspection related testing grew at a distinctly lower rate than last year. The slower growth rate was mostly in North America where the low oil price caused customers to reduce their development work and perform more work in-house. This reduction in development expenditure and lower demand also reduced growth in the biofuels market. We expect this to improve when the US economy starts to recover and investment resumes. Revenue from government services decreased due to the decline in world trade which resulted in lower volumes of imports.     

Total adjusted operating profit was £20.3m, up 20.1% at actual exchange rates but down 10.6% at constant exchange rates. The total adjusted operating margin decreased by 50 points to 9.9% over the comparable prior year period. The decline in operating profit and margin was caused mainly by the reduced level of non-inspection related testing including biofuel testing, which earn a higher margin than inspection services. 

The outlook for Oil, Chemical & Agri is stable. The core inspection business is steady and we expect the demand for higher margin complex testing services to increase once the global recession recedes and investment resumes.  We also expect the demand for biofuels to grow, leading to the development of new technologies and production methods. Once market conditions improve we expect the margin for this division to increase.  

Analytical Services	H1 09	H1 08	Change	Change
	£m	£m	at actual rates	at constant rates
Revenue	66.9	55.3	21.0%	5.4%
Adjusted operating profit	6.5	5.3	22.6%	4.8%
Adjusted operating margin	9.7%	9.6%	10bp	(10)bp

Analytical Services provides advanced laboratory services and consultancy to a broad range of industries including chemical, pharmaceutical, oil and gas, and automotive and aerospace. We have an established track record of success in laboratory outsourcing with many large internationally recognised companies.  

Total revenue increased to £66.9m, up 21.0% (5.4% at constant exchange rates). Organic revenue increased by 3.8% at constant exchange rates. Downstream materials and chemical testing which accounted for almost half of the division's revenue, reported good revenue growth despite suffering a decline in sample volumes at its polymer and chemicals testing facility in The Netherlands. Overall, upstream oil and gas testing reported modest revenue growth and pharmaceutical and speciality chemicals suffered a decline in revenues as clients focused on down-sizing and maximising the use of internal resources rather than outsourcing. Our US pharma business has recovered strongly but our European business is still stagnant and is being restructured. Due to the scarcity of investment capital, some of our customers have delayed projects which were expected to start in the first half of the year.  

Total adjusted operating profit was £6.5m, up 22.6% (4.8% at constant exchange rates). Organic adjusted operating profit increased 7.1% at constant exchange rates. Despite the difficult trading conditions in some areas, the division had reasonable organic growth even after incurring restructuring costs of £0.4m. The total adjusted operating margin increased 10 basis points to 9.7%.

The outlook for Analytical Services is improving, with evidence of bigger projects being commissioned. 

Industrial Services	H1 09	H1 08*	Change	Change
	£m	£m	at actual rates	at constant rates
Revenue	40.2	19.4	107.2%	67.5%
Adjusted operating profit	3.6	0.9	300.0%	200.0%
Adjusted operating margin	9.0%	4.6%	440bp	400bp

*Restated for non-material changes in Group structure

Industrial Services is a global provider of technical verification, inspection, testing and auditing services. This includes management systems certification, second-party auditing, supplier evaluation, conformity assessment, asset integrity management, training, health and safety and risk consulting, and greenhouse gas services. We serve a wide variety of industries including oil, gas, petrochemical, power, renewable energy, and civil and infrastructure. 

Total revenue increased to £40.2m, up 107.2% (67.5% at constant exchange rates). Organic revenue increased by 13.8% at constant exchange rates. The division had excellent growth boosted by good performances from acquisitions. In February 2009, the Group acquired the WISco group of companies, which provide global technical inspection and expediting support to a wide range of customers in the oil, gas, petrochemical and power generation industries and their supplier markets. Also in February, the Group acquired Aptech Engineering Services which is a US based engineering consulting company specialising in the life management of infrastructure, facilities and equipment. Both of these acquisitions extend the range of services that Intertek is able to offer its existing clients and bring new clients into the Group. 

The market for systems certification was challenging, especially in the automotive sector resulting in reduced demand for our services. 

Total adjusted operating profit was £3.6m, up 300.0% (200.0% at constant exchange rates). Organic adjusted operating profit increased 75.0% at constant exchange rates. The total adjusted operating margin was 9.0%.

Despite the constraints caused by the lack of capital investment in new projects, our focused strategy is expected to deliver a good growth rate for the full year.  

Minerals	H1 09	H1 08*	Change	Change
	£m	£m	at actual rates	at constant rates
Revenue	21.9	19.7	11.2%	0.9%
Adjusted operating profit	1.6	2.4	(33.3)%	(44.8)%
Adjusted operating margin	7.3%	12.2%	(490)bp	(610)bp

*Restated for non-material changes in Group structure

The Minerals division provides complete analytical solutions to the world's minerals, ore and mining industries. Our network of laboratories and sample preparation facilities offer key services such as analysis at the point of exploration and production of gold, precious metals and iron ore, fire assay, and testing and analysis of coal and coke as well as environmental monitoring. We also provide marine and inspection services of minerals shipments. 

Total revenue increased to £21.9m, up 11.2% (0.9% at constant exchange rates). Organic revenue decreased by 3.3% at constant exchange rates. Excluding an operation in Brazil which was transferred from the Oil, Chemical & Agri division, revenue grew organically by over 4.0%. The growth rate declined due to a very strong comparable growth rate in the first half of last year. The Minerals market started to decline in the last quarter of 2008, when certain commodity prices fell sharply and funding for exploration projects was reduced. Many junior mining companies ceased operating and major companies scaled back their activities and stopped investing in new projects.    

Total adjusted operating profit was £1.6m, down 33.3% (44.8% at constant exchange rates). Organic adjusted operating profit decreased 40.7% at constant exchange rates. The underperforming operations have been restructured to reduce costs. The total adjusted operating margin was 7.3%.

The outlook for the minerals business is difficult to predict and will depend on the availability of capital to allow mining companies to resume exploration activities. Sample volumes have increased in recent months and the division's lower cost base should help to increase the profit margin once revenue growth resumes. Investment in the minerals business has been significantly reduced, although some strategic development is ongoing. In March we opened a new analytical laboratory in Brazil, which extends the reach of the division into Latin America.   FINANCIAL REVIEW

For the six months ended 30 June 2009   

Revenue

Revenue for the six months ended 30 June 2009 was £622.3m, up 36.1% from the comparable prior period.

The Group operates in 72 currencies other than sterling, with the majority of the Group's overseas earnings denominated in US dollars, Chinese renminbi, Euros and Hong Kong dollars. Therefore the Group's results are exposed to changes in the value of these currencies when translated into sterling.

Exchange rates which had a material impact on the Group's earnings are shown below:

Value of £1*	H1 09	H1 08	Change
US dollar	1.49	1.99	(25.1)%
Chinese renminbi	10.15	14.04	(27.7)%
Euro	1.11	1.30	(14.6)%
Hong Kong dollar	11.51	15.50	(25.7)%

* Cumulative average exchange rates

In the second half of 2008, the value of sterling fell dramatically against almost all other currencies. It stabilised in the first quarter of 2009 and has started to recover in the second quarter. This has had a significant translation effect on the Group's results. Revenue at actual exchange rates grew by 36.1% but at constant exchange rates the growth was 10.5%. 

Adjusted operating profit and margin

Operating profit before amortisation of acquisition intangibles (adjusted operating profit) was £103.5m for the six months ended 30 June 2009, up 50.7% from the comparable prior period. At constant exchange rates, adjusted operating profit increased 13.6%.

The Group's adjusted operating profit margin was 16.6%, compared to 15.0% for the comparable prior year period. 

Amortisation of acquisition intangibles

The charge for amortisation of acquisition intangibles was £6.5m in the first half of 2009 compared to £4.4m for the comparable prior year period. The increase was due to the number of acquisitions made in recent years. Additional intangible assets of £4.1m were acquired in the six months to 30 June 2009 (H1 08: £10.7m). 

Operating profit and margin

Operating profit after amortisation of acquisition intangibles was £97.0m for the six months ended 30 June 2009, up 50.9% from the comparable prior period. The operating margin was 15.6%, up 150 basis points over the margin for the comparable period. 

Net financing costs

The Group reported net financing costs for the six months to 30 June 2009 of £9.3m (H1 08: £5.8m). The increase was primarily due to interest on the increase in borrowings. 

Income tax expense

The tax charge is based upon the estimate of the tax rate expected for the full financial year. For the six months to 30 June 2009, the estimated effective tax rate was 27.3% compared with 26.5% for the six months ended 30 June 2008. 

Differences between the estimated effective tax rate of 27.3% and the notional statutory UK rate of 28% include, but are not limited to, the effect of tax rates in foreign jurisdictions, non-deductible expenses, the effect of utilised tax losses and withholding taxes.

Profit for the period

Profit for the period after income tax was £63.8m (H1 08: £43.0m) of which £59.3m (H1 08: £39.5m) was attributable to equity holders of the Company.  

Minority interests

Profit attributable to minority shareholders was £4.5m for the first six months of 2009 (H1 08: £3.5m). The increase was mainly due to currency translation.

Earnings per share

Earnings per share are calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the period. As set out in note 9 to the interim financial statements, basic earnings per share for the six months to 30 June 2009 were 37.5p (H1 08: 25.1p), an increase of 49.4%. A diluted adjusted earnings per share calculation is also shown which removes the impact of amortisation of acquisition intangibles from earnings, and includes potentially dilutive share options in the number of shares, to give diluted adjusted earnings per share of 40.2p (H1 08: 26.9p), an increase of 49.4%. 

Dividend

An interim dividend of 8.2 pence per share will be paid on 20 November 2009 to shareholders on the register at 6 November 2009. This represents an increase of 15.5% on last year's interim dividend. 

Cash and liquidity

	H1 09	H1 08	Increase/ (decrease)
	£m	£m
Cash generated from operations	117.1	56.7	106.5%
Less net acquisition of property, plant, equipment and software	(23.1)	(26.7)	(13.5)%
Operating cash flow after capital expenditure	94.0	30.0	213.3%
Adjusted operating profit	103.5	68.7	50.7%
Operating cash flow/adjusted operating profit %	90.8%	43.7%

The primary source of the Group's cash liquidity is cash generated from operations and the drawdown of debt. A portion of these funds has been used to fund acquisitions and capital expenditure and to pay interest, dividends and taxes.

Cash flow for the first six months of 2009 was good. Cash generated from operations was £117.1m for the first half of 2009, compared to £56.7m for the first half of 2008. The increase of 106.5% was due to improved profitability, effective working capital management and the benefit of currency translation. In the first half of 2009, 90.8% of adjusted operating profit was converted into cash compared to 43.7% in H1 08. 

In the first six months of 2009, net cash flows used in investing activities were £50.4m (H1 08: £77.3m). We paid £23.4m net of cash acquired, for three new businesses, (H1 08: £34.6m for eight businesses), and £6.2m additional consideration for acquisitions made in prior periods (H1 08: £16.4m). In addition, we invested £23.1m net of disposals (H1 08: £26.7m) in property, plant, equipment and software. 

Cash flows from financing activities primarily comprised cash inflows from the issue of share capital following the exercise of employee share options of £2.5m (H1 08: £2.3m), and the net drawdown of debt of £12.0m (H1 08: £85.8m); and cash outflows of dividends paid to minorities of £1.5m (H1 08: £0.8m), and dividends paid to Group shareholders of £21.7m (H1 08: £19.2m), which resulted in a net cash outflow of £8.7m (H1 08: inflow £68.6m).

Borrowings

As shown in note 12 of the interim financial statements, interest bearing loans and borrowings were £394.7m at 30 June 2009, a decrease of 6.4% over the borrowings of £421.6m at 31 December 2008. Of these borrowings, £25.7m is repayable in the next two years, £263.0m is due in two to five years and £106.0m is due in more than five years. The Group's borrowings are in currencies which match its asset base. The decrease in borrowings comprised exchange adjustments of £38.9m due to the translation into sterling of borrowings denominated in other currencies and the net drawdown of debt of £12.0m, (£102.1m drawdown less £90.1m repayment). The debt drawdown was mainly used to finance acquisitions. Cash and cash equivalents at 30 June 2009, were £116.1m, an increase of 2.5% over cash at 31 December 2008. 

The Group's policy is to ensure that a liquidity buffer is available, in the short term, to absorb the net effects of transactions made and expected changes in liquidity both under normal and stressed conditions without incurring unacceptable losses or risking damage to the Group's reputation. At 30 June 2009, the Group had liquid funds of £209.7m, compared to £211.1m at 31 December 2008. 

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. The key risks have been identified as the following:

Market risk

Foreign currency risk

Interest rate risk and exposure

Liquidity risk

Tax risk

Credit risk

Risk of financial irregularities

Risk of litigation

Environmental risk

Political risk

A description of these risks and the actions taken by the Group to mitigate them are set out on pages 28 to 31 of the Group's Annual Report for 2008, a copy of which is available from our website www.intertek.com. Despite the current uncertainty in the global economy, these key risks and uncertainties and the factors which mitigate them, have not significantly changed in the period since the Annual Report was published and are not expected to change materially in the remainder of the year. The Operating Review and Financial Review includes consideration of key uncertainties affecting the Group in the remaining six months of the year.

Related party transactions

There have been no material changes in the related party transactions described in the Annual Report for 2008. See note 15 for disclosure of related party transactions for the six months to 30 June 2009. 

Management reports

Intertek will issue the next interim management statement in the fourth quarter of 2009. The year end results will be announced on 8 March 2010. 

Interim Report

If you require a hard copy of this statement please contact the Company Secretary. This statement is available on www.intertek.com.

Cautionary statement concerning forward-looking statements
This interim report and announcement contain certain forward-looking statements with respect to the financial condition, results, operations and business of Intertek Group plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this announcement should be construed as a profit forecast. Past performance cannot be relied upon as a guide to future performance.

Condensed Consolidated Interim Income Statement 

Six months ended 30 June 2009

		Six months to	Six months to	Year to
		30 June	30 June	31 December
		2009	2008	2008
		(Unaudited)	(Unaudited)	(Audited)
	Notes	£m	£m	£m
Revenue	6	622.3	457.4	1,003.5
Cost of sales		(484.4)	(366.6)	(792.6)
Gross profit		137.9	90.8	210.9
Administrative expenses		(40.9)	(26.5)	(63.0)
Group operating profit	6	97.0	64.3	147.9
Analysis of Group operating profit
Group operating profit before amortisation, impairment and non-recurring costs		103.5	68.7	164.7
Amortisation of acquisition intangibles*		(6.5)	(4.4)	(9.6)
Impairment of goodwill*		-	-	(0.5)
Non-recurring costs*		-	-	(6.7)
Group operating profit		97.0	64.3	147.9
Finance income		5.5	2.9	13.1
Finance expense		(14.8)	(8.7)	(22.6)
Net financing costs		(9.3)	(5.8)	(9.5)
Share of profit of associates		-	-	0.2
Profit before income tax		87.7	58.5	138.6
Income tax expense	7	(23.9)	(15.5)	(36.4)
Profit for the period		63.8	43.0	102.2
Attributable to:
Equity holders of the Company		59.3	39.5	93.8
Minority interest		4.5	3.5	8.4
Profit for the period		63.8	43.0	102.2
Earnings per share
Basic	9	37.5p	25.1p	59.5p
Diluted	9	36.9p	24.8p	58.9p
Dividends in respect of the period		8.2p	7.1p	20.8p

* included in administrative expenses

Condensed Consolidated Interim Statement of Comprehensive Income

Six months ended 30 June 2009

		Six months to	Six months to	Year to
		30 June	30 June	31 December
		2009	2008	2008
		(Unaudited)	(Unaudited)	(Audited)
	Notes	£m	£m	£m
Profit for the period		63.8	43.0	102.2
Other comprehensive income
Foreign exchange translation differences for foreign operations		(68.2)	11.2	138.4
Actuarial gains and losses on defined benefit pension schemes		-	-	(12.3)
Effective portion of changes in fair value of cash flow hedges		0.9	0.1	(3.7)
Net gain/(loss) on hedges of net investments in foreign operations		38.9	(5.6)	(110.9)
Net change in fair value of available-for-sale financial assets		0.6	-	-
Income tax on other comprehensive income	8	(0.3)	(0.5)	0.1
Income tax on equity-settled transactions credited/(charged) to equity		0.2	0.2	(0.1)
Other comprehensive income for the period, net of tax		(27.9)	5.4	11.5
Total comprehensive income for the period		35.9	48.4	113.7
Attributable to:
Equity holders of the Company		33.1	44.6	101.8
Minority interest		2.8	3.8	11.9
Total comprehensive income for the period		35.9	48.4	113.7

  Condensed Consolidated Interim Statement of Financial Position

As at 30 June 2009

		At 30 June	At 30 June	At 31 December
		2009	2008	2008
		(Unaudited)	(Unaudited)	(Audited)
	Notes	£m	£m	£m
Assets
Property, plant and equipment	14	207.7	166.3	234.8
Goodwill		242.3	183.4	242.1
Other intangible assets		49.5	41.6	55.2
Investments in associates		1.1	0.6	1.3
Other investments		2.9	-	4.4
Deferred tax assets		13.8	13.1	15.7
Total non-current assets		517.3	405.0	553.5
Inventories		7.4	5.3	8.2
Trade and other receivables		268.6	228.1	284.4
Cash and cash equivalents	12	116.1	83.2	113.3
Total current assets		392.1	316.6	405.9
Total assets		909.4	721.6	959.4
Liabilities
Interest bearing loans and borrowings	12	(7.1)	(13.9)	(14.0)
Derivative financial instruments		(3.6)	(0.6)	(4.5)
Current taxes payable		(26.1)	(25.2)	(36.3)
Trade and other payables		(158.1)	(134.7)	(184.4)
Provisions		(26.6)	(14.4)	(26.4)
Total current liabilities		(221.5)	(188.8)	(265.6)
Interest bearing loans and borrowings	12	(387.6)	(308.9)	(407.6)
Deferred tax liabilities		(3.6)	(7.4)	(6.4)
Net pension liabilities		(16.9)	(4.7)	(18.5)
Other payables		(4.2)	(0.7)	(3.4)
Provisions		(0.7)	(2.3)	(0.2)
Total non-current liabilities		(413.0)	(324.0)	(436.1)
Total liabilities		(634.5)	(512.8)	(701.7)
Net assets		274.9	208.8	257.7
EQUITY
Share capital		1.6	1.6	1.6
Share premium		252.4	249.6	249.9
Other reserves		5.9	17.1	32.0
Retained earnings		(2.1)	(74.8)	(41.8)
Total equity attributable to equity holders of the Company		257.8	193.5	241.7
Minority interest		17.1	15.3	16.0
Total equity		274.9	208.8	257.7

Condensed Consolidated Interim Statement of Changes in Equity 

Six months ended 30 June 2009

	Attributable to equity holders of the Company
			Other reserves
	Share capital	Share premium account	Translation reserve	Hedging reserve	Fair value reserve	Other	Retained earnings*	Total before minority interest	Minority interest	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2008	1.6	247.3	6.1	(0.8)	-	6.4	(96.4)	164.2	11.6	175.8
Profit for the period	-	-	-	-	-	-	39.5	39.5	3.5	43.0
Other comprehensive income for the period	-	-	5.3	0.1	-	-	(0.3)	5.1	0.3	5.4
Dividends paid	-	-	-	-	-	-	(19.2)	(19.2)	(0.8)	(20.0)
Issue of shares	-	2.3	-	-	-	-	-	2.3	-	2.3
Equity-settled transactions	-	-	-	-	-	-	1.6	1.6	-	1.6
Purchase of minority interest	-	-	-	-	-	-	-	-	0.7	0.7
At 30 June 2008	1.6	249.6	11.4	(0.7)	-	6.4	(74.8)	193.5	15.3	208.8
At 1 January 2008	1.6	247.3	6.1	(0.8)	-	6.4	(96.4)	164.2	11.6	175.8
Profit for the year	-	-	-	-	-	-	93.8	93.8	8.4	102.2
Other comprehensive income for the year	-	-	24.0	(3.7)	-	-	(12.3)	8.0	3.5	11.5
Dividends paid	-	-	-	-	-	-	(30.4)	(30.4)	(6.1)	(36.5)
Issue of shares	-	2.6	-	-	-	-	-	2.6	-	2.6
Equity-settled transactions	-	-	-	-	-	-	3.3	3.3	-	3.3
Additions to minority interest	-	-	-	-	-	-	-	-	0.7	0.7
Purchase of minority interest	-	-	-	-	-	-	0.2	0.2	(2.1)	(1.9)
At 31 December 2008	1.6	249.9	30.1	(4.5)	-	6.4	(41.8)	241.7	16.0	257.7
At 1 January 2009	1.6	249.9	30.1	(4.5)	-	6.4	(41.8)	241.7	16.0	257.7
Profit for the period	-	-	-	-	-	-	59.3	59.3	4.5	63.8
Other comprehensive income for the period	-	-	(27.6)	0.9	0.6	-	(0.1)	(26.2)	(1.7)	(27.9)
Dividends paid	-	-	-	-	-	-	(21.7)	(21.7)	(1.5)	(23.2)
Issue of shares	-	2.5	-	-	-	-	-	2.5	-	2.5
Equity-settled transactions	-	-	-	-	-	-	2.7	2.7	-	2.7
Purchase of minority interest	-	-	-	-	-	-	(0.5)	(0.5)	(0.2)	(0.7)
At 30 June 2009	1.6	252.4	2.5	(3.6)	0.6	6.4	(2.1)	257.8	17.1	274.9

*After £244.1m for goodwill written off to retained earnings as at 1 January 2004 in relation to subsidiaries acquired prior to 31 December 1997. As permitted by IFRS 1, this figure has not been restated.

The dividend of £21.7m which was paid on 19 June 2009 represents a final dividend of 13.7p per ordinary share in respect of the year ended 31 December 2008.  The dividend of £19.2m which was paid on 19 June 2008 represents a final dividend of 12.2p per ordinary share in respect of the year ended 31 December 2007.

There was an issue of 742,935 ordinary shares during the period on exercise of share options.

Condensed Consolidated Interim Statement of Cash Flows 

Six months ended 30 June 2009

		Six months to	Six months to	Year to
		30 June	30 June	31 December
		2009	2008	2008
		(Unaudited)	(Unaudited)	(Audited)
	Notes	£m	£m	£m
Cash flows from operating activities
Profit for the period		63.8	43.0	102.2
Adjustments for:
Depreciation charge		24.1	16.6	36.6
Amortisation of software		2.0	1.4	2.9
Amortisation of acquisition intangibles		6.5	4.4	9.6
Impairment of goodwill		-	-	0.5
Equity-settled transactions	11	2.7	1.6	3.3
Share of profit of associates		-	-	(0.2)
Net financing costs		9.3	5.8	9.5
Income tax expense	7	23.9	15.5	36.4
Loss on disposal of property, plant, equipment and software	14	0.1	-	0.6
Operating profit before changes in working capital and operating provisions		132.4	88.3	201.4
Change in inventories		-	(0.3)	(1.1)
Change in trade and other receivables		(2.7)	(25.6)	(20.1)
Change in trade and other payables		(11.4)	(2.4)	11.4
Change in provisions		0.8	(0.3)	5.4
Special contributions into pension schemes	10	(2.0)	(3.0)	(3.0)
Cash generated from operations		117.1	56.7	194.0
Interest and other finance expense paid		(6.2)	(5.9)	(16.5)
Income taxes paid		(35.5)	(19.3)	(36.6)
Net cash flows from operating activities		75.4	31.5	140.9
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and software		0.4	0.2	0.4
Interest received		0.5	0.4	1.5
Acquisition of subsidiaries, net of cash acquired	13	(23.4)	(34.6)	(67.8)
Consideration paid in respect of prior year acquisitions	13	(6.2)	(16.4)	(16.7)
Purchase of minority interests	13	(0.6)	-	(1.9)
Disposal/(acquisition) of a listed investment		2.4	-	(4.4)
Purchase of an associate		-	-	(0.1)
Acquisition of property, plant and equipment	14	(20.8)	(26.0)	(63.9)
Acquisition of software		(2.7)	(0.9)	(3.7)
Net cash flows used in investing activities		(50.4)	(77.3)	(156.6)
Cash flows from financing activities
Proceeds from the issue of share capital		2.5	2.3	2.6
Issue of shares by subsidiary undertaking to minority		-	0.5	0.5
Drawdown of senior term loans and notes		102.1	92.7	177.9
Repayment of senior term loans		(90.1)	(6.9)	(98.4)
Dividends paid to minorities		(1.5)	(0.8)	(6.1)
Dividends paid to equity holders of the parent		(21.7)	(19.2)	(30.4)
Net cash flows (used in)/from financing activities		(8.7)	68.6	46.1
Net increase in cash and cash equivalents	12	16.3	22.8	30.4
Cash and cash equivalents at 1 January	12	113.3	58.6	58.6
Effect of exchange rate fluctuations on cash held	12	(13.5)	1.8	24.3
Cash and cash equivalents at end of period	12	116.1	83.2	113.3

  Notes to the Condensed Consolidated Interim Financial Statements

1  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 2009 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in associates and jointly controlled entities.

The Consolidated Financial Statements of the Group as at and for the year ended 31 December 2008, are available upon request from the Company's registered office at 25 Savile Row, London W1S 2ES. An electronic version is available from the Investors section of the Group website at www.intertek.com.

2  Statement of compliance

These Condensed Consolidated Interim Financial Statements are prepared in accordance with IAS 34: Interim Financial Reporting as endorsed and adopted for use in the European Union and the Disclosure and Transparency Rules (DTR) of the Financial Services 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 2008.

The comparative figures for the financial year ended 31 December 2008 are not 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 237(2) or (3) of the Companies Act 1985.

3  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 2008.

The following standards are effective for the first time in the current financial period and have been adopted by the Group with no significant impact on its consolidated results or financial position although there are some differences in presentation of the Condensed Consolidated Interim Financial Statements:

• IFRS 8 - Operating Segments

• IAS 1 (revised) - Presentation of Financial Statements

• IAS 23 (revised) - Borrowing Costs

Other new standards and interpretations were adopted effective 1 January 2009 but had no material impact on the Group consolidated financial statements.

4  Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business. Despite the current uncertainty in the global economy, the key risks that could affect the Group's medium term performance, and the factors which mitigate these risks, have not significantly changed from those set out on pages 28 to 31 of the Group's Annual Report for 2008, a copy of which is available from our website www.intertek.com. The Operating Review and Financial Review include consideration of uncertainties affecting the Group in the remaining six months of the year.  The Board has reviewed forecasts, including forecasts adjusted for significantly worse economic conditions, and remains satisfied with the Group's funding and liquidity position. On the basis of its forecasts, both base case and stressed, and available facilities, the Board has concluded that the going concern basis of preparation continues to be appropriate.

  5  Estimates

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 2008.

During the six months ended 30 June 2009 management reassessed its estimates in respect of contingent consideration payable in respect of acquisitions made in prior periods (note 13e).

6  Operating segments   

Determination and presentation of operating segments

As of 1 January 2009, the Group determines and presents operating segments based on the information that is provided internally to the Board of Directors, which is the Group's chief operating decision maker. This change in accounting policy is due to the adoption of IFRS 8 - Operating Segments. Previously operating segments were determined and presented in accordance with IAS -14 Segment Reporting. 

Business analysis 

From 1 January 2009, the Group is organised into six operating divisions which offer different services to different industries and are managed separately: Consumer Goods, Commercial & Electrical, Oil, Chemical & Agri, Analytical Services, Industrial Services and Minerals. The costs of the corporate head office and other costs which are not controlled by the operating divisions are allocated to these divisions. Prior to 1 January 2009, Government Services was reported as a separate division. This division was restructured in 2008 and from 1 January 2009 was incorporated into the Oil, Chemical & Agri division. Following the restructuring, a small number of companies have changed division to ensure a good strategic fit. Segmental information previously reported for periods prior to 1 January 2009 has been restated to show a like-for-like comparison.

These divisions are the operating segments that are reported to the chief operating decision maker and are the Group's reportable segments. Inter-segment pricing is determined on an arm's length basis. There is no significant seasonality in the Group's operations. 

Principal activities are as follows:

Consumer Goods provides services to the textiles, toys, footwear, hardlines, food, and retail industries. Services include testing, inspection, auditing, advisory services, quality assurance, and hazardous substance testing. 

Commercial & Electrical provides services including testing and certification, electromagnetic compatibility testing (EMC), outsourcing, benchmark and performance testing and environmental testing. These are provided to a wide range of industries including the home appliance, lighting, medical, building, industrial and HVAC/R (heating, ventilation, air conditioning and refrigeration), IT, telecom, renewable energy and automotive industries.

Oil, Chemical & Agri provides independent cargo inspection as well as non-inspection related laboratory testing, calibration and related technical services to the world's energy, petroleum, chemical and agricultural industries. It also provides cargo scanning, fiscal support services and standards programmes to governments, national standards organisations and customs authorities.

Analytical Services provides advanced laboratory services and consultancy to a broad range of industries including chemical, pharmaceutical, oil and gas, and automotive and aerospace. We have an established track record of success in laboratory outsourcing with many large internationally recognised companies. 

Industrial Services provides technical verification, inspection, testing and auditing services, including management systems certification, second-party auditing, supplier evaluation, conformity assessment, asset integrity management, training, health and safety and risk consulting, and greenhouse gas services. 

Minerals provides complete analytical solutions to the world's minerals, ore and mining industries.

For management purposes, the Group measures the performance of the divisions based on operating profit excluding amortisation of acquisition intangibles, impairment of goodwill and non-recurring costs (adjusted operating profit). These figures are given below, together with a reconciliation to Group operating profit. There was no impairment charge in the six months ended 30 June 2009 or the six months ended 30 June 2008; however a charge was recorded for the full year ended 31 December 2008 of £0.5m. The non-recurring costs of £6.7m charged in the year ended 31 December 2008 comprised employee redundancies and settlements, lease terminations, consultancy and legal fees.

Six months ended 30 June 2009 (Unaudited)

	Revenue	Adjusted operating profit	Amortisation of acquisition intangibles	Group operating  profit
	£m	£m	£m	£m
Consumer Goods	162.5	53.7	(0.6)	53.1
Commercial & Electrical	125.2	17.8	(1.6)	16.2
Oil, Chemical & Agri*	205.6	20.3	(0.4)	19.9
Analytical Services	66.9	6.5	(2.1)	4.4
Industrial Services	40.2	3.6	(1.2)	2.4
Minerals	21.9	1.6	(0.6)	1.0
Total	622.3	103.5	(6.5)	97.0
Net financing costs				(9.3)
Share of profit of associates				-
Profit before income tax				87.7
Income tax expense				(23.9)
Profit for the period				63.8

 

Six months ended 30 June 2008 (Unaudited)

	Revenue	Adjusted operating profit	Amortisation  of acquisition intangibles	Group operating  profit
	£m	£m	£m	£m
Consumer Goods	104.9	30.9	(0.5)	30.4
Commercial & Electrical	95.8	12.3	(0.6)	11.7
Oil, Chemical & Agri*	162.3	16.9	(0.3)	16.6
Analytical Services	55.3	5.3	(1.8)	3.5
Industrial Services	19.4	0.9	(0.7)	0.2
Minerals	19.7	2.4	(0.5)	1.9
Total	457.4	68.7	(4.4)	64.3
Net financing costs				(5.8)
Share of profit of associates				-
Profit before income tax				58.5
Income tax expense				(15.5)
Profit for the period				43.0

 

* Oil, Chemical & Agri includes Government Services which was previously reported as a separate division.

 

 

Year ended 31 December 2008 (Audited)

	Revenue	Adjusted operating profit	Amortisation of acquisition intangibles	Impairment of goodwill	Total
	£m	£m	£m	£m	£m
Consumer Goods	242.5	75.1	(1.0)	-	74.1
Commercial & Electrical	203.5	29.2	(1.5)	(0.5)	27.2
Oil, Chemical & Agri*	348.6	39.3	(0.6)	-	38.7
Analytical Services	119.5	13.2	(3.9)	-	9.3
Industrial Services	45.6	2.8	(1.6)	-	1.2
Minerals	43.8	5.1	(1.0)	-	4.1
Total	1,003.5	164.7	(9.6)	(0.5)	154.6
Non-recurring costs					(6.7)
Group operating profit					147.9
Net financing costs					(9.5)
Share of profit of associates					0.2
Profit before income tax					138.6
Income tax expense					(36.4)
Profit for the year					102.2

 

* Oil, Chemical & Agri includes Government Services which was previously reported as a separate division.

 

Geographical analysis

	Six months to	Six months to	Year to
	30 June	30 June	31 December
	2009	2008	2008
	(Unaudited)	(Unaudited)	(Audited)
	£m	£m	£m
Revenue from external customers
Americas	219.7	157.3	341.1
Europe, Middle East and Africa	172.4	138.2	295.6
Asia Pacific	230.2	161.9	366.8
Total	622.3	457.4	1,003.5

Group operating profit

Americas	22.1	21.9	43.8
Europe, Middle East and Africa	4.9	(1.7)	(1.8)
Asia Pacific	70.0	44.1	105.9
Total	97.0	64.3	147.9

In presenting the information on the basis of geographical segments, segment revenue is based on the location of the entity generating that revenue. Segment operating profit is based on segment revenue less operating costs incurred in each geographic location. 

7  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. The income tax expense for the six months ended 30 June 2009 is £23.9m (six months ended 30 June 2008: £15.5m; year ended 31 December 2008: £36.4m).  The Group's consolidated effective tax rate for the six months ended 30 June 2009 is 27.3% (six month ended 30 June 2008: 26.5%; year ended 31 December 2008: 26.3%). 

Differences between the estimated effective rate of 27.3% and the notional statutory UK rate of 28% include, but are not limited to, the effect of tax rates in foreign jurisdictions, non-deductible expenses, the effect of utilised tax losses and under/(over) provisions in previous years. 

8 Income tax on other comprehensive income

 

Six months ended 30 June 2009 (Unaudited)

	Before tax	Tax	After tax
		(charge)/credit
	£m	£m	£m
Foreign exchange translation differences for foreign operations	(68.2)	-	(68.2)
Effective portion of changes in fair value of cash flow hedges	0.9	(0.3)	0.6
Net gain on hedges of net investments in foreign operations	38.9	-	38.9
Net change in fair value of available-for-sale financial assets	0.6	-	0.6
Other comprehensive income for the period	(27.8)	(0.3)	(28.1)

 

Six months ended 30 June 2008 (Unaudited)

	Before tax	Tax	After tax
		(charge)/credit
	£m	£m	£m
Foreign exchange translation differences for foreign operations	11.2	-	11.2
Effective portion of changes in fair value of cash flow hedges	0.1	-	0.1
Net loss on hedges of net investments in foreign operations	(5.6)	(0.5)	(6.1)
Other comprehensive income for the period	5.7	(0.5)	5.2

 

Year ended 31 December 2008 (Audited)

	Before tax	Tax	After tax
		(charge)/credit
	£m	£m	£m
Foreign exchange translation differences for foreign operations	138.4	-	138.4
Actuarial gains and losses on defined benefit pension schemes	(12.3)	(1.0)	(13.3)
Effective portion of changes in fair value of cash flow hedges	(3.7)	1.1	(2.6)
Net loss on hedges of net investments in foreign operations	(110.9)	-	(110.9)
Other comprehensive income for the year	11.5	0.1	11.6

 
 

9 Earnings per ordinary share

 

	Six months to	Six months to	Year to
	30 June	30 June	31 December
	2009	2008	2008
	(Unaudited)	(Unaudited)	(Audited)
Based on the profit for the period:	£m	£m	£m
Profit attributable to ordinary shareholders	59.3	39.5	93.8
Adjusting items:
Amortisation of acquisition intangibles	6.5	4.4	9.6
Impairment of goodwill	-	-	0.5
Non-recurring costs	-	-	6.7
Adjusted earnings	65.8	43.9	110.6
Tax impact on adjusting items	(1.2)	(1.1)	(3.7)
Adjusted earnings after tax impact	64.6	42.8	106.9
Number of shares (millions):
Basic weighted average number of ordinary shares	158.1	157.5	157.7
Potentially dilutive share options*	2.4	1.6	1.7
Diluted weighted average number of shares	160.5	159.1	159.4
Basic earnings per share	37.5p	25.1p	59.5p
Options	(0.6)p	(0.3)p	(0.6)p
Diluted earnings per share	36.9p	24.8p	58.9p
Basic adjusted earnings per share (after tax impact)	40.8p	27.2p	67.8p
Options	(0.6)p	(0.3)p	(0.7)p
Diluted adjusted earnings per share (after tax impact)	40.2p	26.9p	67.1p

 

*The weighted average number of shares used in the calculation of the diluted earnings per share for the six months ended 30 June 2009, excludes nil (six months ended 30 June 2008: nil; year ended 31 December 2008: 780,343) contingently issuable shares as the performance conditions were unlikely to be met.

10 Pension schemes

 

During the period the Group made a special contribution of £2.0m (six months ended 30 June 2008: £3.0m; year ended 31 December 2008: £3.0m) into the Intertek Pension Scheme.

 

The Directors have evaluated the significant assumptions used in the valuation of the Group’s defined benefit pension schemes and consider that there is no significant change in the net liabilities of the schemes since 31 December 2008. Therefore actuarial valuations of the assets and liabilities of the defined benefit pension schemes for IAS 19 purposes were not performed at 30 June 2009.

 

The expense recognised in the consolidated interim income statement for the Group’s defined benefit pension schemes consists of the current service cost, interest on the obligation for employee benefits and the expected return on scheme assets. For the six months ended 30 June 2009, the Group recognised a net expense of £1.2m (six months ended 30 June 2008: £0.9m; year ended 31 December 2008: £1.9m).

 

11 Equity-settled transactions

 

The Company has a share option scheme and a long-term incentive plan, details of which were contained in the Annual Report for the year ended 31 December 2008. The share option scheme has been discontinued and the last options under the scheme were granted on 13 September 2005. The first awards under the long-term incentive plan called the Intertek Deferred Bonus Plan (the Plan) were made in April 2006. Under the Plan, in April 2009, 784,098 deferred shares (2008: 427,876) and 513,240 matching shares (2008: 262,028) were awarded.

 

In accordance with IFRS 2 – Share Based Payments, the fair value of services received in return for shares and share options granted to employees, is measured by reference to the fair value of shares and share options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes formula, a financial model used to calculate the fair value of shares and share options. 

 

During the six months ended 30 June 2009, the Group recognised an expense of £2.7m in respect of the share awards made in April 2006, 2007, 2008 and 2009. For the six months ended 30 June 2008, the charge was £1.6m in respect of outstanding share options issued in 2005 and in respect of the share awards made in April 2006, 2007 and 2008. During the year ended 31 December 2008, the Group recognised an expense of £3.3m in respect of outstanding share options issued in 2005 and in respect of the share awards made in 2006, 2007 and 2008. The share awards granted in 2009 had fair values of 839p for deferred shares and 698p for matching shares.

 

12 Analysis of net debt

	At 1 January 2009	Cash flow	Exchange adjustments	At 30 June 2009	At 30 June 2008
	£m	£m	£m	£m	£m
Cash	113.3	16.3	(13.5)	116.1	83.2
Borrowings	(421.6)	(12.0)	38.9	(394.7)	(322.8)
Total net debt	(308.3)	4.3	25.4	(278.6)	(239.6)

 

	At 30 June 2009	At 30 June 2008	At 31 December 2008
	(Unaudited)	(Unaudited)	(Audited)
	£m	£m	£m
Borrowings due in less than one year	(7.1)	(13.9)	(14.0)
Borrowings due in one to two years	(18.6)	(77.4)	(44.3)
Borrowings due in two to five years	(263.0)	(231.5)	(222.0)
Borrowings due in over five years	(106.0)	-	(141.3)
Total borrowings	(394.7)	(322.8)	(421.6)

 

The Group has a multi-currency senior bank facility that was placed in December 2004. This facility was originally due to expire on 15 December 2009; however the Group exercised its option to extend the facility by a year in 2005 and by a further year in 2006. The facility is now due to expire in December 2011. The facility comprises four tranches. The margins currently paid on borrowings in Facility A and B tranches are in the range of 0.4% to 0.6% over LIBOR and the margin for Facility C is 1.1% to 1.5% over LIBOR. In August 2007, the Group extended the senior debt facility by a further £100m to £400m. This was achieved through adding an additional Term D tranche of finance. Term D margins are in the range of 0.3% to 0.5% over LIBOR in the relevant currency.

In 2008, a further £75m was added to Facility B from three new banks on the same terms and conditions and margins as the existing facility, to make a syndicate of thirteen banks. The committed i.e. contractually obligated amount of debt facilities from these syndicate banks was £371.1m at 30 June 2009 (30 June 2008: £403.0m; 31 December 2008: £387.0m).

 

In June 2008, the Group raised US$100m by way of a senior note issue. This debt is repayable on 26 June 2015 and the interest rate is fixed at 5.54%. In December 2008, a further US$100m was raised by way of a second note issue. This debt is repayable in two tranches with US$25.0m repayable on 21 January 2014 and the interest rate is fixed at 7.50% and the second US$75.0m repayable on 10 June 2016 and the interest rate is fixed at 8.00%.

13 Acquisition of businesses and minority interest

 

There were three acquisitions in the period, all of which were paid for in cash.

 

Provisional details of net assets acquired and fair value adjustments are set out below. The analysis is          provisional and amendments may be made to these figures in the 12 months following the date of each acquisition, with a corresponding adjustment to goodwill.

 

	Book value prior to acquisition	Fair value adjustments	Fair value to Group on acquisition
	£m	£m	£m
Property, plant and equipment	0.5	-	0.5
Goodwill	-	19.8	19.8
Other intangible assets	-	4.1	4.1
Trade and other receivables	10.7	-	10.7
Trade and other payables	(3.6)	-	(3.6)
Tax payable	(0.3)	-	(0.3)
Deferred tax liability	(0.8)	(1.4)	(2.2)
Net assets acquired	6.5	22.5	29.0
Cash outflow (net of cash acquired)			23.4
Contingent consideration			5.6
Total consideration			29.0

 

(a)   WISco Enterprises LP

 

The largest acquisition was the purchase on 13 February 2009, of 100% of the share capital of the WISco group of companies (WISco), the largest of which is registered in the USA. WISco specialises in providing third party inspection, expediting and coordination services to customers in the oil and gas industry.

 

Cash consideration, inclusive of expenses, was £20.5m. Cash acquired within the business was £0.4m. This acquisition expands the Intertek technical inspection business, providing it with a global platform and network.

 

Provisional details of net assets acquired and fair value adjustments are set out below.

 

	Book value prior to acquisition	Fair value adjustments	Fair value to Group on acquisition
	£m	£m	£m
Property, plant and equipment	0.1	-	0.1
Goodwill	-	13.7	13.7
Other intangible assets	-	2.8	2.8
Trade and other receivables	6.2	-	6.2
Trade and other payables	(1.7)	-	(1.7)
Deferred tax liability	-	(1.0)	(1.0)
Net assets acquired	4.6	15.5	20.1
Cash outflow (net of cash acquired)			20.1
Contingent consideration			-
Total consideration			20.1

 

 

The goodwill of £13.7m represents the benefit that Intertek expects to gain from leveraging the relationship with WISco customers and gain global contracts for a combined service offering. The other intangible assets of £2.8m represent the value placed on client relationships and the deferred tax thereon was £1.0m.

 

The profit after tax for the period 1 January 2009 to 13 February 2009 was £0.2m. The profit attributable to the Group from the date of acquisition to 30 June 2009 was £0.7m.

 

(b) Aptech Engineering Services, Inc.

 

The Group acquired 100% of the share capital of Aptech Engineering Services, Inc., (Aptech) a company based in California, USA, on 10 February 2009, for an initial cash consideration, inclusive of expenses, of £3.8m and additional consideration of up to £5.6m payable contingent on the achievement of specified profit targets. Cash acquired within the business was £0.8m. Aptech is a full-service engineering consultancy company that specialises in the life management of facilities, equipment, and infrastructure for clients in energy-related industries.This acquisition will strengthen the service offering of Intertek’s Industrial Services division. 

 

Provisional details of net assets acquired and fair value adjustments are set out below.

 

	Book value prior to acquisition	Fair value adjustments	Fair value to Group on acquisition
	£m	£m	£m
Property, plant and equipment	0.2	-	0.2
Goodwill	-	6.1	6.1
Other intangible assets	-	1.2	1.2
Trade and other receivables	4.5	-	4.5
Trade and other payables	(1.9)	-	(1.9)
Tax payable	(0.3)	-	(0.3)
Deferred tax liability	(0.8)	(0.4)	(1.2)
Net assets acquired	1.7	6.9	8.6
Cash outflow (net of cash acquired)			3.0
Contingent consideration			5.6
Total consideration			8.6

 

The goodwill of £6.1m represents the opportunity for Intertek to enter the US market for risk based inspection and specialist asset integrity services. The other intangible assets of £1.2m represent value placed on client relationships and the deferred tax thereon was £0.4m. 

 

The profit after tax for the period 1 January 2009 to 10 February 2009 was £0.1m. The profit attributable to the Group from the date of acquisition to 30 June 2009 was £0.4m.

 

(c) Other acquisitions

 

The other acquisition was that of the business and assets of Sagentia Catella AB (Sagentia). Sagentia, acquired on 30 April 2009, is an independent testing laboratory based in Sweden providing battery testing, battery forensics and battery application advisory services. The cash consideration was £0.3m representing acquisition of fixed assets for £0.2m and £0.1m for intangibles relating to the value placed on customer relationships. The profit after tax for the period 1 January 2009 to 30 April 2009 was £8,000. The profit attributable to the Group from the date of acquisition to 30 June 2009 was £2,000.

 

(d) Acquisition of minority interest

 

On 12 February 2009, the Group acquired an additional 34% interest in Rhomax Limited (subsequently renamed Intertek Metering and Measurement Limited) for £0.6m in cash, increasing its ownership from 66% to 100%. The carrying amount of the net assets of Rhomax in the consolidated interim financial statements on the date of acquisition was £0.5m. The Group recognised a decrease in minority interest of £0.2m and a decrease in retained earnings of £0.5m.

 

(e) Prior period acquisitions

 

Consideration of £6.2m was paid during the period in respect of prior period acquisitions.

 

Goodwill of £0.8m arose in the period in respect of these acquisitions due to the final contingent consideration paid in 2009 being in excess of the estimate at 31 December 2008.      

 

(f) Impact of acquisitions on the Group results

 

The Group revenue and profit after tax for the six months ended 30 June 2009 would have been £625.3m and £63.9m respectively if all the acquisitions were assumed to have been made on 1 January 2009.

 

(g) Details of 2008 acquisitions

 

Full details of acquisitions made in the year ended 31 December 2008 were disclosed in note 24 to the Annual Report for 2008.

 

14 Property, plant and equipment

 

(a) Acquisitions and disposals

 

During the six months ended 30 June 2009, the Group acquired assets with a cost of £21.3m (six months ended 30 June 2008: £29.4m; year ended 31 December 2008: £73.8m) including assets acquired through business combinations (see note 13) of £0.5m (six months ended 30 June 2008: £3.4m; year ended 31 December 2008: £9.9m).

 

There were disposals with net book value of £0.5m during the six months ended 30 June 2009 (six months ended 30 June 2008: £0.2m; year ended 31 December 2008: £0.8m). This resulted in a loss on disposal of £0.1m for the six months ended 30 June 2009 (six months ended 30 June 2008: £nil; year ended 31 December 2008: £0.6m).

 

(b) Capital commitments

 

Contracts for capital expenditure which are not provided in these accounts amounted to £4.9m (at 30 June 2008: £9.0m; at 31 December 2008: £4.7m).    

 

 

15 Related parties

 

Identity of related parties

The Group has a related party relationship with its associates and with its key management.

 

Transactions between the Company and its subsidiaries and between subsidiaries have been eliminated on consolidation and are not discussed in this note.

 

Transactions with associates

The Group holds a 40% interest in the associate Allium LLC, a company registered in the US and a 49% interest in the associate Euro Mechanical Instrument Services LLC (Abu Dhabi), a company registered in the United Arab Emirates.

 

Allium LLC together with its subsidiaries manufactures testing equipment. In the six months ended 30 June 2009, Allium group companies sold equipment to Intertek Group companies for £0.1m (six months ended 30 June 2008: £0.2m; year ended 31 December 2008: £0.6m). At 30 June 2009 the Group owed £nil (30 June 2008: £nil; 31 December 2008: £0.1m) to Allium in respect of those sales. Details of loans are given below.

 

	At 30 June	At 30 June	At 31 December
	2009	2008	2008
	(Unaudited)	(Unaudited)	(Audited)
	£m	£m	£m
Loans due to Intertek Group companies	1.7	1.4	1.9
Provision against loans due to Intertek Group companies	(1.2)	(1.2)	(1.2)
Net amount of loans due to Intertek Group companies	0.5	0.2	0.7

 

 

The loans to Allium LLC are denominated in US dollars and are interest bearing. In the six months ended 30 June 2009 the annualised average rate of interest charged was 6.0% (six months ended 30 June 2008: 6.0%; year ended 31 December 2008: 5.6%).  

 

Euro Mechanical Instrument Services LLC (Abu Dhabi) provides calibration services to the oil industry. This company had no material transactions with Intertek Group companies in the period (six months ended 30 June 2008: none; year ended 31 December 2008: none).

 

Transactions with key management personnel

 

Key management personnel compensation, including the Group’s Directors, is shown in the table below:

 

	Six months to	Six months to	Year to
	30 June	30 June	31 December
	2009	2008	2008
	(Unaudited)	(Unaudited)	(Audited)
	£m	£m	£m
Short-term benefits	3.2	2.7	5.1
Post-employment benefits	0.2	0.2	0.3
Equity-settled transactions	0.9	0.9	1.5
Total	4.3	3.8	6.9

 

Detailed information concerning Directors’ remuneration, shareholdings, pension entitlements, share options and other long-term incentive plans for the year ended 31 December 2008 was disclosed in the Remuneration Report in the Annual Report for 2008.

 

16 Contingent liabilities: claims and litigation

 

From time to time, 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 former employees. The Group is not currently party to any legal proceedings other than ordinary litigation incidental to the conduct of business.

 

The outcome of the litigation to which Intertek Group companies are party 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.

 

17 Approval

 

The Condensed Consolidated Interim Financial Statements were approved by the Board on 31 July 2009.

 

Statement of Directors’ responsibilities in respect of the Interim Report

 

The Directors confirm that to the best of their knowledge:

 

·           the condensed set of financial statements has been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the EU;

 

·           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 2008 Annual Report that could do so.

 

 

The Directors of Intertek Group plc are listed in the Intertek Group plc Annual Report for 2008.

 

By order of the board of Intertek Group plc

 

 

 

Wolfhart Hauser	Bill Spencer
Chief Executive Officer	Chief Financial Officer
31 July 2009	31 July 2009

 

 
 

Independent review report by KPMG Audit Plc to Intertek Group plc

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim report for the six months ended 30 June 2009 which comprises the Condensed Consolidated Interim Income Statement, the Condensed Consolidated Interim Statement of Comprehensive Income, the Condensed Consolidated Interim Statement of Changes in Equity, the Condensed Consolidated Interim Statement of Financial Position, the Condensed Consolidated Interim Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ('the DTR') of the UK's Financial Services Authority ('the UK FSA'). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

 

Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the DTR of the UK FSA.

 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this interim report has been prepared in accordance with IAS 34:Interim Financial Reporting as adopted by the EU.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim report based on our review.

 

Scope of review

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 UK. 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 Ireland) 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.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

 

 

 

P Korolkiewicz

For and on behalf of KPMG Audit Plc
Chartered Accountants

8 Salisbury Square

London EC4Y 8BB
31 July 2009

                                                                                           

 

 

 

END

 

 

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