Preliminary Results
Intertek Group PLC
08 March 2004
PRELIMINARY 2003 RESULTS ANNOUNCEMENT
8 MARCH 2004
Intertek Group plc ('Intertek'), the global testing, inspection and
certification company, today announces its preliminary results for the year to
31 December 2003.
FINANCIAL HIGHLIGHTS
Turnover £471.1m Up 2.2% at actual exchange rates
Up 6.4% at constant exchange rates1
Operating profit2 £76.2m Down 0.9% at actual exchange rates
Up 5.2% at constant exchange rates1
Operating margin 16.2% Down from 16.4% at constant exchange rates
Operating cash flow3 £62.4m Up 3.1%
Profit before tax £70.6m Up 31.0% (Up 7.8% pro-forma4)
Earnings per share5 29.7p Up 10.4% (Up 8.4% pro-forma4)
Basic earnings per share 31.3p Up 15.1% (Up 15.5% pro-forma4)
Proposed final dividend
per share 5.9p Up 13.5%
1 Excluding disposal and acquisitions, turnover was up 7.2% and operating profit
was up 6.5% at constant exchange rates
2 Before goodwill amortisation and exceptional items and including profit from
associates
3 Before exceptional items and after capital expenditure
4 Pro-forma growth figures are to show the underlying growth, excluding the
impact of the different capital structure in place in 2002 prior to the IPO in
May 2002
5 Fully diluted underlying earnings per share before goodwill amortisation and
exceptional items
CHIEF EXECUTIVE OFFICER, RICHARD NELSON commented:
I am pleased to announce another good set of annual results, continuing our
growth record. Turnover and operating profit were up 6.4% and 5.2% respectively
on a constant currency basis. With 80% of the Group's earnings in US dollars or
related currencies and the US dollar on average 9% weaker in 2003 than 2002, at
actual exchange rates turnover was up 2.2% on last year but operating profit was
down 0.9%.
The Labtest division, which tests and inspects textiles, toys and other consumer
goods and also certifies systems, had another excellent year with good growth in
all regions and areas of activity. China grew most rapidly with a 59% increase
in comparable turnover.
The Caleb Brett division, which inspects and tests oil and chemicals, operated
in a difficult market; competition was high and customers' stocks of crude oil
and petroleum products remained at low levels throughout the year. Progress was
made against the strategic target of growing outsourcing where turnover grew by
8.6% and increased from 23% of the division's turnover to 25%. 23 new contracts
were signed in the year with an annual sales value of approximately £9m, four of
which had annual sales values in excess of £1m each. The strong emphasis to grow
outsourcing and the large potential market will help this business to accelerate
its growth and improve its profit margin.
ETL SEMKO, our electrical testing business, benefited from 28% growth in Asia,
most of which was in China where operations were expanded to meet the growing
demand. America declined by 2%, most of the decline occurring in the first half
of the year. Profits in this division suffered due to high overheads in Europe
and America which were reduced towards the end of the year.
The Foreign Trade Standards business was able to maintain turnover at the same
level as last year due to the new contracts with Kuwait, Venezuela and Malawi
offsetting the loss of the Kenya contract and a loss of sales from the Nigeria
contract which was suspended towards the end of the year, and restarted after a
short period. We are currently actively engaged in discussions with the Nigerian
authorities over the future of this contract which is significant to the
division.
Overall, we have capitalised and continue to do so on the opportunities in our
fast growing markets, and we have reduced costs and streamlined operations in
our slower growing markets. The drivers of our business continue to be positive,
and we are confident that we will continue to provide good performance and
growth. Based on our continuing confidence, the Board is recommending a final
dividend of 5.9p per share making the full year dividend 8.8p, an increase of
12.8% on the equivalent dividend last year.
ANALYSTS' MEETING
There will be a meeting for analysts at 9.30am today at Goldman Sachs
International, Peterborough Court, 133 Fleet Street, London EC4A 2BB. A copy of
the presentation will be available on the website later today.
CONTACT
For further information, please contact
Aston Swift, Treasurer and Investor Relations
Telephone: +44 (0) 20 7396 3400 aston.swift@intertek.com
Katie Macdonald-Smith, Tulchan Communications
Telephone: +44 (0) 20 7353 4200 kmacdonald-smith@tulchangroup.com
Corporate website: www.intertek.com
High resolution images of Intertek Group plc businesses are available to
download, free of charge from www.vismedia.co.uk.
ABOUT INTERTEK
Intertek is a leading international testing, inspection and certification
organisation which assesses customers' products and commodities against a wide
range of safety, regulatory, quality and performance standards and in some
cases, certifies the management systems of customers. Intertek has 273
laboratories and 11,900 people around the world and is increasingly undertaking
outsourced testing work for its customers.
Operating and financial review
REVIEW OF RESULTS FOR 2003
Overview
Turnover for the Group was £471.1m, an increase of 6.4% over the previous year
at constant exchange rates. Each of the four operating divisions reported
increased turnover in the year. At actual exchange rates, the reported increase
was 2.2%.
Total operating profit before goodwill amortisation and operating exceptional
items, improved by £3.8m over the previous year to £76.2m which was 5.2% higher
at constant exchange rates. At actual exchange rates, reported operating profit
was 0.9% lower than last year. Labtest had an excellent year and delivered 17.9%
growth in operating profit at constant rates. Caleb Brett and ETL SEMKO
operating profits declined by 14.3% and 9.0% respectively. Market conditions
were difficult in these sectors and both divisions have been restructured to
improve effectiveness and reduce costs. Operating profits from FTS rose by 6.3%,
the increase coming mainly from efficiency improvements and the release of bad
debt provisions no longer required.
The Group made two small acquisitions in the UK towards the end of the year,
which cost £7.6m in total. These did not have a significant effect on the
results for the year but will benefit Labtest and ETL SEMKO going forward. In
May 2003, the Group disposed of its interest in a Labtest company operating in
China for a net consideration of £6.6m. This generated turnover of £1.9m and
operating profit of £0.3m to the date of sale, compared to full year turnover of
£5.6m and operating profit of £1.3m in 2002. Excluding these acquisitions and
disposal, at constant exchange rates, turnover grew by 7.2% and operating profit
grew by 6.5%. At actual exchange rates, turnover grew by 3.0% and operating
profit increased by 0.4%.
About 80% of the Group's results are denominated in US dollars or currencies
linked to the US dollar. The strength of sterling against the US dollar and
related currencies during 2003, had a significant negative impact on the results
of the Group. In order to give a like-for-like comparison of the Group's results
for 2003 with 2002, the reported results for 2002 have been retranslated into
sterling using the 2003 average exchange rates. The impact of this retranslation
was to reduce 2002 turnover and operating profit by £18.5m and £4.5m
respectively. The figures at constant exchange rates are shown in the table
below and in the discussion that follows.
The Group' s operating margin after central overheads declined slightly from
16.4% to 16.2%, with increases in Labtest and FTS offset by declines in Caleb
Brett and ETL SEMKO. The performance of each of the divisions at constant
exchange rates with an adjustment to actual exchange rates is shown below:
Financial performance at 2003 constant exchange rates
Turnover Total operating
profit2
2003 2002 Change 2003 2002 Change
Restated3 Restated3
£m £m % £m £m %
---------------------- ------ -------- ------ -------- ------- ------
Labtest 130.8 111.1 17.7 42.8 36.3 17.9
Caleb Brett 169.6 166.5 1.9 13.2 15.4 (14.3)
ETL SEMKO 111.6 106.0 5.3 14.2 15.6 (9.0)
Foreign Trade Standards 59.1 59.0 0.2 11.9 11.2 6.3
Central overheads (5.9) (6.1) 3.3
------------------------ ------ -------- ------ -------- ------- ------
Continuing operations at
constant 471.1 442.6 6.4 76.2 72.4 5.2
exchange rates1
Exchange rate adjustment 18.5 4.5
------------------------ ------ -------- ------ -------- ------- ------
As reported at actual
average 471.1 461.1 2.2 76.2 76.9 (0.9)
exchange rates
------------------------ ------ -------- ------ -------- ------- ------
1 2003 and 2002 figures are stated at average exchange rates for 2003
2 Total operating profit is stated before goodwill amortisation and
exceptional items
3 In 2003, inspection of electronic and electrical goods was transferred
from Labtest to ETL SEMKO. The 2002 figures have been restated to reflect this
change. In 2003, at constant exchange rates, this business generated turnover of
£6.7m (2002: £5.4m) and operating profit of £3.0m (2002: £2.3m)
REVIEW OF 2003 DIVISIONAL PERFORMANCE
Operating profit referred to in the discussion below is total operating profit
before goodwill amortisation and operating exceptional items.
Labtest
Labtest continued to perform very strongly. At constant exchange rates,
Labtest's turnover increased by 17.7% to £130.8m and operating profit increased
by 17.9% to £42.8m. At actual exchange rates, reported turnover and operating
profit growth was 10.8% and 9.5% respectively. 90% of the operating profits of
the division are generated in Asia where the main drivers of the Labtest
business continued to be strong. Textile testing, toy testing, inspection and
social compliance audit continued to perform well. Retailers in the Americas and
Europe increased their sourcing from Asia, particularly China, where turnover
from ongoing businesses grew strongly and accounted for about 11% of the
division's total turnover in 2003. In May 2003, the Group sold its 50%
shareholding in a systems certification business operating in China, to the
other 50% shareholder. In 2003 up to the date of disposal, this business
contributed £1.9m to turnover (2002: £5.6m) and £0.3m to operating profit (2002:
£1.3m). This disposal allows Labtest to develop its systems certification
business within a wholly owned subsidiary of the Group. The division's operating
margin at constant exchange rates, remained at 32.7%. Excluding the disposal and
a small acquisition made towards the end of 2003, at constant exchange rates,
Labtest's turnover grew by 21.6% and operating profit grew by 20.9%.
Caleb Brett
At constant exchange rates, turnover increased by 1.9% to £169.6m but operating
profit declined by 14.3% to £13.2m. At actual exchange rates, reported turnover
and operating profit declined 1.9% and 19.0% respectively. The traditional and
slow growth cargo inspection and testing market, accounted for 75% of the
turnover in 2003 (2002: 77%). This part of the business operated in a
competitive market and some market share was lost to competitors. The oil and
chemical markets were depressed with stocks at record lows.
The main growth opportunity continued to be outsourced testing. At constant
exchange rates, turnover from outsourcing grew by 8.6% and several new contracts
were won during the year which will benefit future turnover. This business
accounted for approximately 25% of the division's total turnover, up from about
23% in 2002. Caleb Brett's operating margin at constant exchange rates, declined
from 9.2% to 7.8%, mainly due to excessive costs in Europe and the United States
in the cargo inspection business.
The structure and senior management of the division were changed during the year
to reduce costs and facilitate the development of global outsourcing.
ETL SEMKO
At constant exchange rates, ETL SEMKO's turnover increased by 5.3% to £111.6m
but operating profit decreased by 9.0% to £14.2m. At actual exchange rates,
reported turnover increased by 1.0% and reported operating profit declined by
13.4%. Asia continued to perform strongly and accounted for 28% of the
division's total turnover, up from 23% in 2002, and 56% of its operating profit,
up from 38%. Growth was mainly due to increased safety testing of household
appliances manufactured in Asia for export to North America and Europe and the
extension of the range of products tested. The laboratory facilities in China
were expanded, particularly in Guangzhou and Shanghai. Markets in Europe and the
Americas showed little or no growth. Marketing the ETL mark to retailers in the
United States did not have a positive impact on results in 2003, because the
operating profit from the new business did not cover the extra promotional
costs.
The division's operating margin at constant exchange rates decreased from 14.7%
to 12.7%, mainly due to excessive overhead costs in Europe and the United
States. These costs were reduced at the end of the year when the senior
management of ETL SEMKO was combined with the FTS division to improve efficiency
and further reduce overheads.
Foreign Trade Standards
At constant exchange rates turnover increased by 0.2% to £59.1m and operating
profit increased by 6.3% to £11.9m. At actual exchange rates, reported turnover
declined by 1.2% and operating profit increased by 5.3%. The operating margin at
constant exchange rates, increased from 19.0% to 20.1%. During the year FTS
gained a standards contract with the government of Kuwait and pre shipment
inspection (PSI) programmes with the governments of Venezuela and Malawi. The
Kenyan government cancelled its PSI programme half way through the year and FTS
was not appointed under the new programme. The Nigerian PSI programme, was
suspended towards the end of 2003, but restarted after a short period. The
future of this contract, which is significant to the FTS division, is being
discussed with the Nigerian authorities. The contract with the Saudi Arabian
Standards Organisation is expected to continue in its present form until at
least 31 August 2004. After that, the Saudi Arabian authorities have confirmed
that a new contract is being planned which is expected to include more local
testing in Saudi Arabia. The division was restructured at the end of 2003 with
the Chief Executive of FTS taking on additional responsibility for the ETL SEMKO
division to maximize synergies between the two divisions and to reduce
overheads.
Central overheads
Central overheads at constant exchange rates, reduced by 3.3% to £5.9m in the
year.
OPERATING EXCEPTIONAL ITEMS
The Group reported a net exceptional operating charge of £1.1m in 2003 (2002
credit: £15.6m). The charge comprised costs of £6.5m incurred in connection with
the restructuring of the Caleb Brett, ETL SEMKO and FTS divisions, offset by a
credit of £2.8m for the release of FTS debt provisions and a credit of £2.6m for
insurance recoveries related to the Environmental Testing division which was
discontinued in 1998.
NON OPERATING EXCEPTIONAL ITEMS
The Group reported net non operating exceptional income of £4.5m (2002: £nil).
This comprised a profit of £5.5m from the disposal of the Group's interest in a
Labtest company in China and a loss of £1.0m on the disposal of a trade
investment held by Caleb Brett.
INTEREST
The Group's net interest charge before exceptional items for the year was £7.9m
compared to £22.5m in 2002. Last year's charge comprised six month's interest on
pre-flotation debt and six month's interest on a lower level of post-flotation
debt. The annual charge on the post-flotation debt for 2002 would have been
approximately £10.5m. The charge for 2003 was reduced due to the part repayment
of debt and lower interest rates.
The Group incurred an exceptional finance charge of £15.5m in 2002, which
comprised bond redemption fees of £7.2m and accelerated fee amortisation of
£8.3m.
TAXATION
Tax on profit before exceptional items was £18.7m, £2.7m higher than last year
but the effective tax rate before exceptional items reduced from 29.7% to 27.8%.
The main reason for the reduction in the effective tax rate was improved
utilisation of the reduced interest expense which resulted from the
reorganisation of the Group's capital structure following the IPO. The effective
tax rate is expected to be sustainable at close to the current year level in the
short to medium term.
The tax impact from the exceptional items was a net charge of £0.1m. This
comprised a tax charge of £0.8m on income generated by the release of debt
provisions and tax relief of £0.7m on restructuring costs.
MINORITY INTERESTS
Profit attributable to minority shareholders reduced from £4.3m in 2002 to £3.7m
in 2003, primarily due to the Group's disposal of its interest in a Labtest
company in China.
EARNINGS PER SHARE
Basic earnings per share in the year were 31.3p (2002: 27.2p). An adjusted
earnings per share calculation is also shown which removes the impact of
exceptional items and goodwill amortisation to give underlying basic earnings
per share of 29.8p (2002: 27.8p).
DIVIDEND
An interim dividend of 2.9p per share (2002: nil) was paid on 18 November 2003.
A final dividend of 5.9p per share (2002: 5.2p) has been proposed, which subject
to shareholder approval, will be paid on 18 June 2004, to shareholders on the
Register at 4 June 2004. This makes a full year dividend of 8.8p per share. Last
year only a final dividend was paid, being the first dividend since flotation.
Based on a one third, two thirds split of interim and final respectively, this
was equivalent to an annual dividend of 7.8p per share. On this basis the 2003
annual dividend is 12.8% higher than the equivalent annual dividend last year
and is covered 3.3 times by earnings before exceptional items.
SHAREHOLDERS' DEFICIT
The net profit after minority interests for 2003 of £48.1m (2002: £33.6m) was
reduced by dividends of £13.6.m (2002: £8.0m). Shareholders' deficit reduced by
£47.5m in the year, mainly due to retained profits of £34.5m (2002: £25.6m),
favourable foreign exchange movements taken through reserves of £10.1m (2002:
£6.5m) and an actuarial gain on the pension funds of £1.6m (2002: £6.5m
deficit). At the end of 2003, shareholders' funds were in deficit by £43.0m
compared to a deficit of £90.5m at 31 December 2002. The deficit arises
principally from the write off of goodwill in 1996 when the Group was purchased
from its former owners. This amounted to £244.1m at 31 December 2003. Excluding
this historic goodwill write off, shareholders' funds would show a surplus of
£201.0m at 31 December 2003.
CASH FLOW
Total operating cash inflow was £80.0m in the year, down £17.4m on last year.
The decrease was due to exceptional cash outflow of £6.0m in 2003, compared to
exceptional cash inflow of £13.6m in 2002. Excluding exceptional cash flows,
cash generated by operations was £86.0m (2002: £83.8m).
The Group made some small acquisitions in 2003 for a net cash consideration of
£7.5m and generated £6.6m from disposals.
ACCOUNTING POLICIES
The accounting policies of the Group remain unchanged from last year.
Group profit and loss account
for the year ended 31 December 2003
Pre- Exceptional Total Pre- Exceptional Total
exceptional items exceptional items
items items
2003 2003 2003 2002 2002 2002
£m £m £m £m £m £m
--------------------- ------ -------- -------- ------ -------- -------- -------
Turnover -
continuing
operations 471.1 471.1 461.1 461.1
Cost of sales (364.2) (364.2) (356.3) (356.3)
--------------------- ------ -------- -------- ------ -------- -------- -------
Gross profit 106.9 106.9 104.8 104.8
--------------------- ------ -------- -------- ------ -------- -------- -------
-------- -------- ------ -------- -------- -------
Administrative
expenses (31.9) (1.1) (33.0) (28.8) 15.6 (13.2)
Goodwill
amortisation (1.0) (1.0) (0.9) (0.9)
-------- -------- ------ -------- -------- -------
Total
administrative
expenses (32.9) (1.1) (34.0) (29.7) 15.6 (14.1)
--------------------- ------ -------- -------- ------ -------- -------- -------
Group
operating
profit/(loss) 74.0 (1.1) 72.9 75.1 15.6 90.7
Share of
operating
profits of
associates 1.2 1.2 0.9 0.9
--------------------- ------ -------- -------- ------ -------- -------- -------
Total
operating
profit/(loss) 75.2 (1.1) 74.1 76.0 15.6 91.6
--------------------- ------ -------- -------- ------ -------- -------- -------
-------- -------- ------ -------- -------- -------
Continuing
operations 75.2 (3.7) 71.5 76.0 5.9 81.9
Discontinued
operations 2.6 2.6 9.7 9.7
-------- -------- ------ -------- -------- -------
Non operating exceptional
items:
Net profit on
disposal of
businesses -
continuing 4.5 4.5
------------------------ -------- -------- ------ -------- -------- -------
Profit on
ordinary
activities
before
interest 75.2 3.4 78.6 76.0 15.6 91.6
Net interest
and similar
charges (7.9) (7.9) (22.5) (15.5) (38.0)
Other finance
(expense)/income (0.1) (0.1) 0.3 0.3
--------------------- ------ -------- -------- ------ -------- -------- -------
Profit on
ordinary
activities
before
taxation 67.2 3.4 70.6 53.8 0.1 53.9
Taxation on
profit on
ordinary
activities (18.7) (0.1) (18.8) (16.0) (16.0)
--------------------- ------ -------- -------- ------ -------- -------- -------
Profit on
ordinary
activities
after taxation 48.5 3.3 51.8 37.8 0.1 37.9
Attributable
to minorities
- equity
interests (3.7) (3.7) (4.3) (4.3)
------------------------ -------- -------- ------ -------- -------- -------
Profit for the
financial year 44.8 3.3 48.1 33.5 0.1 33.6
Dividends (13.6) (13.6) (8.0) (8.0)
--------------------- -------- -------- ------- -------- -------- -------
Retained
profit for the
year 31.2 3.3 34.5 25.5 0.1 25.6
--------------------- -------- -------- ------- -------- -------- -------
Earnings per share
--------------------- -------- -------- ------ -------- -------- -------
Basic 29.1p 2.2p 31.3p 27.1p 0.1p 27.2p
--------------------- -------- -------- ------ -------- -------- -------
Diluted 29.0p 2.1p 31.1p 26.0p 0.2p 26.2p
--------------------- -------- -------- ------ -------- -------- -------
Group balance sheet
at 31 December 2003
Group Group
2003 2002
£m £m
---------------------------------------- ------- --------
Fixed assets
Intangible assets - goodwill 17.8 12.1
Tangible assets 77.8 76.7
Investments
Subsidiaries
Associates 1.2 0.9
Other 0.1 1.1
---------------------------------------- ------- --------
96.9 90.8
---------------------------------------- ------- --------
Current assets
Stocks 1.4 1.5
Debtors 105.3 101.0
Cash at bank and in hand 81.5 70.6
---------------------------------------- ------- --------
188.2 173.1
Creditors due within one year
------- --------
Borrowings (17.5) (15.0)
Other creditors (92.1) (89.6)
------- --------
(109.6) (104.6)
---------------------------------------- ------- --------
Net current assets 78.6 68.5
---------------------------------------- ------- --------
Total assets less current liabilities 175.5 159.3
Creditors due after more than one year
------- --------
Borrowings (196.2) (222.5)
Other creditors (1.4) (4.1)
------- --------
(197.6) (226.6)
Provisions for liabilities and charges (8.6) (8.7)
---------------------------------------- ------- --------
Net (liabilities)/assets excluding pension liabilities (30.7) (76.0)
Pension liabilities (5.1) (7.4)
---------------------------------------- ------- --------
Net (liabilities)/assets (35.8) (83.4)
---------------------------------------- ------- --------
Capital and reserves
Called up share capital 1.5 1.5
Share premium 232.1 231.6
Merger reserve 3.6 3.6
Other reserves 2.8 2.8
Profit and loss account (283.0) (330.0)
---------------------------------------- ------- --------
Shareholders' (deficit)/ funds (43.0) (90.5)
Minority shareholders' equity interest 7.2 7.1
---------------------------------------- ------- --------
Capital employed - equity (35.8) (83.4)
---------------------------------------- ------- --------
Statement of group cash flow
for the year ended 31 December 2003
2003 2002
£m £m
------------------------------------ -------- --------
Net cash inflow from operating activities 80.0 97.4
Dividends received from associated undertakings 0.7 0.5
Returns on investments and servicing of finance (10.1) (34.4)
Taxation (13.7) (12.7)
Capital expenditure and financial investment (23.6) (23.3)
Acquisitions and disposals:
Cash outflow from acquisitions (7.8) (4.3)
Exceptional cash inflow from disposals 6.6
Equity dividends paid (12.5)
------------------------------------ -------- --------
Cash inflow before financing 19.6 23.2
Financing:
Net issue of shares (0.1) 127.2
Decrease in debt (6.8) (97.1)
------------------------------------ -------- --------
Increase in cash in the year 12.7 53.3
------------------------------------ -------- --------
Reconciliation of net cash flow to movement in net debt
2003 2002
£m £m
------------------------------------ -------- --------
Increase in cash in the year 12.7 53.3
Decrease in debt 6.8 97.1
------------------------------------ -------- --------
Decrease in net debt resulting from cash flows 19.5 150.4
Debt issued in lieu of interest payments (6.1)
Acquisitions and disposals 0.5
Other non cash movements (1.0) (5.4)
Exchange adjustments 15.7 11.6
------------------------------------ -------- --------
Decrease in net debt in the year 34.7 150.5
Net debt at the start of the year (166.9) (317.4)
------------------------------------ -------- --------
Net debt at the end of the year (132.2) (166.9)
------------------------------------ -------- --------
Statement of total group recognised gains and losses
2003 2002
£m £m
----------------------------------------- ------- --------
Net profit from group companies 47.3 33.0
Net profit from associates 0.8 0.6
----------------------------------------- ------- --------
Profit for the financial year 48.1 33.6
Actuarial pension gain/(loss)* 1.6 (6.5)
Exchange adjustments 10.2 6.5
----------------------------------------- ------- --------
Total recognised gains and losses relating to the year 59.9 33.6
----------------------------------------- ------- --------
*actuarial pension gain/(loss) is stated net of deferred tax
Reconciliation of movements in shareholders' (deficit)/funds
Group Group
2003 2002
£m £m
----------------------------------------- ------- --------
Opening shareholders' (deficit)/funds (90.5) (242.9)
Issue of ordinary shares 0.5 232.3
Redemption of preference shares (105.5)
Profit for the financial year 48.1 33.6
Dividends (13.6) (8.0)
Goodwill on disposals 0.7
Actuarial pension gain/(loss) * 1.6 (6.5)
Exchange adjustments 10.2 6.5
----------------------------------------- ------- --------
Closing shareholders' (deficit)/funds (43.0) (90.5)
----------------------------------------- ------- --------
*actuarial pension gain/(loss) is stated net of deferred tax
Historical cost profits and losses
A note of consolidated historical cost profits and losses is not presented as
there is no material difference in either year between the profits of the Group
as shown in these accounts and those shown on a historical cost basis.
Notes
1 SEGMENTAL INFORMATION
The group comprises four operating divisions which are organised as follows:
Labtest, which tests and inspects textiles, toys and other consumer products;
Caleb Brett, which tests and inspects oil, chemicals and agricultural produce;
ETL SEMKO, which tests and certifies electrical and electronic products,
telecommunication equipment, building products and heating, ventilation and air
conditioning equipment and Foreign Trade Standards, which provides standards
programmes and pre shipment inspection programmes to standards bodies and
governments. Central overheads comprise the costs of the corporate head office
and non-operating holding companies. In 2003, inspection of electrical and
electronic goods was transferred from Labtest to ETL SEMKO. Turnover in 2003 was
£6.7m (2002: £5.8m) and operating profit was £3.0m (2002: £2.4m). The 2002
business analysis figures below have been restated to reflect this change.
2003 2002 (restated)
Business analysis Turnover Profit before Net operating Turnover Profit before Net operating
interest and assets interest and assets
tax tax
£m £m £m £m £m £m
--------------------- ------ ------- ------- ------- ------- -------
By activity
Labtest 130.8 42.8 23.4 118.0 39.1 21.7
Caleb Brett 169.6 13.2 48.7 172.8 16.3 42.4
ETL SEMKO 111.6 14.2 32.6 110.5 16.4 37.9
Foreign Trade
Standards 59.1 11.9 13.7 59.8 11.3 5.8
Central
overheads (5.9) (3.5) (6.2) 0.7
--------------------- ------ ------- ------- ------- ------- -------
Total
continuing
operations 471.1 76.2 114.9 461.1 76.9 108.5
Goodwill
amortisation (1.0) (0.9)
--------------------- ------ ------- ------- ------- ------- -------
Total before
operating
exceptional
items 471.1 75.2 114.9 461.1 76.0 108.5
Operating
exceptional
items -
continuing (3.7) 5.9
--------------------- ------ ------- ------- ------- ------- -------
Continuing
operations 471.1 71.5 114.9 461.1 81.9 108.5
Operating
exceptional
items -
discontinued 2.6 9.7
Non operating
exceptional
items 4.5
--------------------- ------ ------- ------- ------- ------- -------
Total 471.1 78.6 114.9 461.1 91.6 108.5
--------------------- ------ ------- ------- ------- ------- -------
Turnover and profit before interest and tax include the results of two small
acquisitions which were acquired in the latter part of 2003. The results of
these acquisitions were not significant to the Group.
The following table shows turnover, operating profit before goodwill
amortisation and operating exceptional items, and net operating assets by
significant countries.
2003 2002
By significant Turnover Operating Net operating Turnover Operating Net operating
country profit* assets profit* assets
£m £m £m £m £m £m
---------------------- -------- -------- ------- ------- -------- -------
United States 124.0 6.7 37.5 132.9 10.8 40.8
Hong Kong 70.4 25.5 6.8 61.8 24.1 6.4
United Kingdom 63.5 0.8 19.2 66.9 (0.6) 13.0
China 25.9 11.0 6.5 23.8 8.7 6.6
Other (each
under 10% of
total) 187.3 32.3 44.9 175.7 33.9 41.7
---------------------- -------- -------- ------- ------- -------- -------
Continuing
operations 471.1 76.2 114.9 461.1 76.9 108.5
---------------------- -------- -------- ------- ------- -------- -------
Operating profit is stated before goodwill amortisation and operating
exceptional items
2003 2002
By geographic origin Turnover Operating Net operating Turnover Operating Net operating
profit* assets profit* assets
£m £m £m £m £m £m
------------------------ ------- -------- ------- ------- -------- -------
Americas 157.3 12.0 47.0 166.0 16.4 50.8
Europe, Middle
East and
Africa 149.6 11.0 38.3 144.3 12.1 32.7
Asia 164.2 53.2 29.6 150.8 48.4 25.0
------------------------ ------- -------- ------- ------- -------- -------
Continuing
operations 471.1 76.2 114.9 461.1 76.9 108.5
------------------------ ------- -------- ------- ------- -------- -------
* Operating profit is stated before goodwill amortisation and operating
exceptional items
The above table shows the turnover analysed by geographic origin. The turnover
of continuing operations by geographical destination was Americas £161.1m (2002:
£168.6m), Europe, Middle East and Africa £142.1m (2002: £137.5m) and Asia
£167.9m (2002: £155.0m).
In order to facilitate comparison of the underlying performance, profit on
continuing operations by activity shown above, is stated before exceptional
operating items and before allocating goodwill amortisation to the divisions.
After allocating these costs, the divisional profitability was: Labtest £42.7m
(2002: £39.1m), Caleb Brett £9.6m (2002: £17.7m), ETL SEMKO £12.3m (2002:
£16.2m), FTS £12.8m (2002: £15.1m) and Central overheads £(5.9)m (2002: £(6.2)m)
and geographically was: Americas £10.2m (2002: £18.2m), Europe, Middle East and
Africa £8.6m (2002: £15.3m) and Asia £52.7m (2002: £48.4m).
2 OPERATING EXCEPTIONAL ITEMS
Notes 2003 2002
£m £m
----------------------------------- -------- -------- --------
Caleb Brett (a) (3.0) 2.0
ETL SEMKO (b) (1.7)
FTS (c) (1.8)
FTS - government contracts (d) 2.8 3.9
----------------------------------- -------- --------
Total continuing operations (3.7) 5.9
Discontinued operations - recoveries (e) 2.6 9.7
----------------------------------- -------- --------
Total operating exceptional items (1.1) 15.6
----------------------------------- -------- --------
By geographic region:
Americas 0.8 12.7
Europe, Middle East and Africa (1.5) 2.9
Asia (0.4)
----------------------------------- -------- --------
(1.1) 15.6
-------- --------
(a) Caleb Brett
The charge of £3.0m in 2003, related to the restructuring of the Caleb Brett
division and comprised severance payments, lease terminations and fixed asset
write offs. There was tax relief of £0.4m attributable to these items.
The credit of £2.0m in 2002 related to a recovery of £3.1m from the Group's
former parent company offset by legal costs. The tax effect was £nil.
(b) ETL SEMKO
The charge of £1.7m in 2003, related to the restructuring of the ETL SEMKO
division and comprised severance payments, lease terminations and fixed asset
write offs. There was tax relief of £0.3m attributable to these items.
(c) FTS
The charge of £1.8m in 2003, related to the restructuring of the FTS division
and comprised severance payments and lease terminations. There was no tax relief
attributable to these items.
(d) FTS - government contracts
The credit of £2.8m in 2003, represented the release of a debt provision
relating to Nigeria. The tax effect of this exceptional item was a charge of
£0.8m. The credit of £3.9m in 2002 related to payments received in connection
with debts previously written off. The tax effect was £nil.
(e) Environmental Testing
The credit of £2.6m in 2003, related to insurance refunds in connection with the
remaining instalments of a civil fine levied by the Environmental Protection
Agency in the United States in respect of its investigation into the
discontinued Environmental Testing division. £1.4m was received in 2003, £0.8m
was received in February 2004 and £0.4m is due in August 2004. The tax effect of
these exceptional items was £nil. The credit of £9.7m in 2002 related to costs
recovered from the Group's former parent company and from insurers in connection
with the aforementioned investigation. The tax effect of these exceptional items
was £nil.
3 NON OPERATING EXCEPTIONAL ITEMS
2003 2002
Notes £m £m
----------------------------------- -------- -------- --------
Labtest (Asia) (a) 5.5
Caleb Brett (Americas) (b) (1.0)
----------------------------------- -------- --------
Total continuing operations 4.5
----------------------------------- -------- --------
(a) In May 2003, the Group disposed of its 50% share of a company operating in
China in the Labtest division for a net cash consideration of £6.6m. After
deducting the Group's share of net assets of £0.4m and goodwill of £0.7m, which
was previously written off to reserves, the profit on disposal was £5.5m. There
is no tax payable on this profit.
(b) The charge of £1.0m related to a loss incurred in respect of the disposal of
a trade investment for a nominal sum. There is no tax relief for this loss.
4 a) NET INTEREST AND SIMILAR CHARGES
2003 2002
£m £m
----------------------------------------- -------- --------
Interest payable:
Senior Subordinated Notes 7.3
Parent Subordinated PIK Debentures 6.5
Senior Term Loans 8.2 8.0
Senior Revolver 0.5
Other 0.4 0.7
Amortisation of debt issuance costs 1.0 1.3
----------------------------------------- -------- --------
9.6 24.3
Interest receivable:
On bank balances (1.7) (1.8)
----------------------------------------- -------- --------
Net interest payable 7.9 22.5
----------------------------------------- -------- --------
EXCEPTIONAL FINANCE CHARGES
2003 2002
£m £m
----------------------------------------- -------- --------
Unamortised costs in connection with:
Warrants converted into shares 2.2
Repaid Senior Term Loans 6.1
Premium on redemption of Senior Subordinated Notes 7.2
----------------------------------------- --------
15.5
----------------------------------------- ------- --------
Total net interest and similar charges 7.9 38.0
----------------------------------------- -------- --------
4 b) OTHER FINANCE (EXPENSE)/INCOME
Expected return on pension assets 2.2 2.6
Pension interest cost (2.3) (2.3)
----------------------------------------- -------- --------
Net finance (expense)/income (0.1) 0.3
----------------------------------------- -------- --------
5 EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share is based on earnings after tax
and minority interests and the weighted average number of ordinary shares in
issue during the year. In addition to the earnings per share required by FRS 14:
Earnings Per Share, an underlying earnings per share has also been calculated
and is based on earnings excluding the effect of the exceptional items and
goodwill amortisation. It has been calculated to allow shareholders to gain a
clearer understanding of the trading performance of the Group. Details of the
underlying earnings per share are set out below:
2003 2002
Based on the profit for the year: £m £m
------------------------------------ -------- --------
Underlying profit before tax 68.2 54.7
Taxation on underlying profit (18.7) (16.0)
Minority interest in underlying profit (3.7) (4.3)
------------------------------------ -------- --------
Underlying earnings 45.8 34.4
Goodwill amortisation (1.0) (0.9)
Exceptional operating items (1.1) 15.6
Exceptional non operating items 4.5
Exceptional finance charges (15.5)
Taxation on operating exceptional items (0.1)
------------------------------------ -------- --------
Basic earnings 48.1 33.6
------------------------------------ -------- --------
Number of shares (millions):
------------------------------------ -------- --------
Basic weighted average number of shares 153.7 123.7
Potentially dilutive share options 0.7 1.5
Potentially dilutive share warrants 2.9
------------------------------------ -------- --------
Diluted weighted average number of shares 154.4 128.1
------------------------------------ -------- --------
Basic underlying earnings per share 29.8p 27.8p
Options (0.1)p (0.3)p
Warrants (0.6)p
------------------------------------ -------- --------
Diluted underlying earnings per share 29.7p 26.9p
------------------------------------ -------- --------
Basic earnings per share 31.3p 27.2p
Options (0.2)p (0.4)p
Warrants (0.6)p
------------------------------------ -------- --------
Diluted earnings per share 31.1p 26.2p
------------------------------------ -------- --------
The weighted average number of shares used in the calculation of the diluted
earnings per share for the year to 31 December 2003, excludes 1,220,962
potential shares (2002: 1,378,500) as these were not dilutive in accordance with
FRS 14: Earnings Per Share.
6 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
2003 2002
£m £m
----------------------------------------- -------- --------
Group operating profit after exceptional items 72.9 90.7
Depreciation charge 18.6 17.6
Goodwill amortisation 1.0 0.9
Loss on disposal of fixed assets 0.5 0.1
Decrease in stocks 0.1 0.3
Increase in debtors (10.5) (2.6)
Decrease in creditors (3.3) (8.9)
Increase/(decrease) in provisions 0.7 (0.7)
----------------------------------------- -------- --------
Total operating cash inflow 80.0 97.4
----------------------------------------- -------- --------
Operating cash inflow before exceptional items 86.0 83.8
Exceptional operating cash (outflow)/inflow (6.0) 13.6
----------------------------------------- -------- --------
Total operating cash inflow 80.0 97.4
----------------------------------------- -------- --------
7. ANNUAL REPORT AND ACCOUNTS
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 31 December 2003 or 2002. Statutory
accounts for 2002 have been delivered to the Registrar of Companies and those
for 2003 will be delivered following the Company's Annual General Meeting. The
auditor has reported on those accounts; their reports were unqualified and did
not contain statements under section 237(2) or (3) of the Companies Act 1985.
The Report and Accounts will be posted in March 2004. The Annual General Meeting
will be held on 14 May 2004.
This information is provided by RNS
The company news service from the London Stock Exchange
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