Preliminary Results

Intertek Group PLC 07 March 2005 PRELIMINARY 2004 RESULTS ANNOUNCEMENT 7 MARCH 2005 Intertek Group plc ('Intertek'), the global testing, inspection and certification company, today announces its preliminary results for the year to 31 December 2004. FINANCIAL HIGHLIGHTS Turnover Â£499.6m Up 6.0% at actual exchange rates Up 14.5% at constant exchange rates(1) Operating profit (2) Â£85.2m Up 11.8% at actual exchange rates Up 23.5% at constant exchange rates(1) Operating margin (2) 17.1% Up from 15.8% at constant exchange rates Operating cash flow (3) Â£73.9m Up 31.0% Profit before tax Â£75.8m Up 7.4% Earnings per share (4) 36.3p Up 22.2% Basic earnings per share 34.1p Up 8.9% Dividend per share 10.4p Up 18.2% 1. Excluding acquisitions and disposals, turnover was up 11.6% and operating profit was up 20.1% at constant exchange rates. 2. Before goodwill amortisation and exceptional items and including profit from associates 3. After net capital expenditure. 4. Fully diluted underlying earnings per share before goodwill amortisation and exceptional items. CHIEF EXECUTIVE OFFICER, RICHARD NELSON commented: In 2004, each of our divisions achieved excellent growth in turnover and operating profit at both constant and actual exchange rates. At actual exchange rates, turnover in 2004 was Â£499.6m, 6.0% above 2003 and operating profit was Â£85.2m, 11.8% above 2003. Approximately 80% of Intertek's profits were in US dollars or currencies that move in line with the US dollar. The average value of the US dollar compared to sterling in 2004 has declined by 12% since 2003 which reduced the results on translation into sterling. At constant exchange rates, turnover grew by 14.5% and operating profit grew by 23.5%. Despite the currency effect, the headline earnings per share increased by 22.2% to 36.3p. We made seven acquisitions in the year at a cost of Â£27.6m. Excluding the results of the acquisitions and disposals made in 2003 and 2004, at constant exchange rates, turnover increased by 11.6% and operating profit increased by 20.1%. Labtest, which tests and inspects textiles, toys and other consumer goods as well as certifying systems, continued to perform very strongly. Turnover increased by 11.2% and operating profit increased by 16.9% at constant exchange rates. Excluding the results of acquisitions and disposals made in 2003 and 2004, at constant exchange rates, turnover grew by 13.5% and operating profit grew by 16.6%. The most significant growth areas in Labtest continued to be the testing of textiles, toys and hardlines, particularly in China and Hong Kong, where the key business drivers remained strong. Caleb Brett, which inspects and tests oil and chemicals, reported strong growth in 2004. Whilst market conditions improved compared to last year due to higher volumes of shipments, the main source of growth continued to be outsourced testing. This business grew by 34% increasing its contribution to divisional turnover from 25% to 30%. Several new contracts were gained in the year, including business from Avecia, ChevronTexaco, ExxonMobil, BP and Shell. ETL SEMKO, which tests, inspects and certifies electrical and electronic goods, reported strong growth in 2004 with turnover up 19.4% at constant exchange rates. Excluding the results of acquisitions, turnover grew by 8.0% at constant exchange rates. The main acquisition was Entela Inc, an automotive component testing business located in the US and acquired in May 2004. Turnover in Asia increased, particularly in China where the demand for safety testing of home appliances continued to grow. In Foreign Trade Standards turnover and operating profit grew very well principally due to the pre-shipment inspection contract in Venezuela which started in the second half of 2003, and due to all the other main contracts performing well. The Group will continue to focus on extending the services we offer to customers. The key growth drivers remain strong and there are many new opportunities to develop both organically and through acquisitions. Based on our continuing confidence in the future growth of the business, the Board is recommending a final dividend of 7.0p per share making the full year dividend 10.4p, an increase of 18.2% on last year. After more than 20 years leading Intertek, I have decided to retire in March this year from my role as Chief Executive Officer. I will then serve on the Board as Non-Executive Deputy Chairman. I am delighted that Wolfhart Hauser is becoming Chief Executive Officer and I am confident that under his leadership the Group will continue to drive growth and produce excellent value for its customers and returns for its shareholders. 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 Tim Lynch, Tulchan Communications Telephone: +44 (0) 20 7353 4200 tlynch@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 certifies the management systems of customers. Intertek has 294 laboratories and over 13,500 people around the world and is increasingly undertaking outsourced testing work for its customers. REVIEW OF RESULTS FOR 2004 Overview In 2004, each of the divisions achieved excellent growth in turnover and operating profit at both constant and actual exchange rates. Group turnover was Â£499.6m, up 6% on the previous year at actual exchange rates and up 14.5% at constant exchange rates. Total operating profit before goodwill amortisation and operating exceptional items, was Â£85.2m, up 11.8% on the previous year at actual exchange rates and up 23.5% at constant exchange rates. Labtest and Foreign Trade Standards continued to grow well and produce excellent results. Following the restructuring and management changes in 2003, ETL SEMKO and Caleb Brett markedly improved their results over last year, showing excellent growth in turnover and operating profit. 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 2004 had a negative impact on the results of the Group on translation into sterling. In order to compare the Group's results for 2004 with 2003 at constant exchange rates, the reported results for 2003, have been retranslated into sterling using the 2004 average exchange rates. In 2004, the Group made seven acquisitions and two disposals for a net consideration of Â£27.6m. Excluding the results of the acquisitions and disposals made in 2003 and 2004, at constant exchange rates turnover increased by 11.6% over the previous year and operating profit increased by 20.1%. The Group's operating margin after central overheads improved from 15.8% to 17.1% with increases in every division. The growth in each division is shown below at both constant and actual exchange rates. The figures at constant exchange rates are used in the explanation below of the performance of each division. FINANCIAL PERFORMANCE BY DIVISION Turnover Total operating profit (2) 2004 2003 Growth at Growth at 2004 2003 Growth at Growth at constant rates actual rates constant rates actual rates Â£m Â£m % % Â£m Â£m % % ---------------------- ------- ------ ------ ------ ------ ------ ------ ------ Labtest 132.3 119.0 11.2 1.1 45.0 38.5 16.9 5.1 Caleb Brett 177.3 157.9 12.3 4.5 15.5 11.9 30.3 17.4 ETL SEMKO 122.4 102.5 19.4 9.7 17.5 13.0 34.6 23.2 Foreign Trade Standards 67.6 56.8 19.0 14.4 14.0 11.4 22.8 17.6 Central overheads - - - - (6.8) (5.8) 17.2 15.3 ---------------------- ------- ------ ------ ------ ------ ------ ------ ------ Continuing operations at constant exchange rates(1) 499.6 436.2 14.5 - 85.2 69.0 23.5 - Exchange rate adjustment - 34.9 - - - 7.2 - -- ---------------------- ------- ------ ------ ------ ------ ------ ------ ------ As reported at actual average exchange rates 499.6 471.1 - 6.0 85.2 76.2 - 11.8 ---------------------- ------- ------ ------ ------ ------ ------ ------ ------ 1. 2004 and 2003 figures are stated at average annual exchange rates for 2004. 2. Total operating profit is stated before goodwill amortisation and exceptional items. REVIEW OF 2004 DIVISIONAL PERFORMANCE Operating profit referred to in the discussion below is total operating profit before goodwill amortisation and operating exceptional items. Growth rates are calculated using constant exchange rates. Labtest Labtest continued to perform very strongly and maintained its market leader position. Labtest's turnover increased by 11.2% to Â£132.3m and operating profit increased by 16.9% to Â£45.0m. Excluding the results of the acquisitions and disposals made in 2003 and 2004, turnover increased by 13.5% and operating profit increased by 16.6%. About 90% of the operating profits of the division are generated in Asia where the main drivers of the Labtest business continued to be strong: retailers increasing their sourcing of products from China and other parts of Asia, their need for reliable testing of quality and safety certification, shorter product life cycles and widening ranges of products, and manufacturers wanting technical support on quality. Textiles, toys and hardlines testing all performed well and there was growth in social compliance auditing. Inspection work declined slightly due to increased competition and pricing pressure. Our businesses in China and India grew particularly well, accounting for about 16% and 4%, respectively, of the division's total turnover in 2004. The division's operating margin increased from 32.4% in 2003 to 34.0% in 2004. In September, the Group completed a transaction with Atlas LLC whereby two Labtest subsidiaries in the laboratory equipment sales business were sold to Allium LLC, a newly formed company, in return for a 40% interest in it. Atlas simultaneously sold its business to Allium in return for a 60% interest. This business generated turnover of Â£4.7m and an operating loss of Â£0.2m in 2004, up to the date of disposal. In March 2004, Labtest acquired a small business in Mauritius. Caleb Brett Caleb Brett reported strong growth in 2004. Turnover increased by 12.3% to Â£177.3m and operating profit increased by 30.3% to Â£15.5m. The cargo inspection market accounted for 70% of the turnover in 2004 (2003: 75%). Whilst market conditions improved compared to last year due to higher volumes of shipments, the main source of growth continued to be outsourced testing. This business grew by 34%, increasing its contribution to divisional turnover from 25% to 30%. Several new contracts were gained during the year, including business from Avecia, ChevronTexaco, ExxonMobil, BP and Shell. Caleb Brett's operating margin increased from 7.5% in 2003 to 8.7% in 2004, partly due to the reduced cost base which resulted from the restructuring in the first half of 2003 and partly due to the growth in outsourcing which has a higher margin than cargo inspection and testing. In April, Caleb Brett acquired the assets of Vestfold Telemark Metering, a consultancy company offering metering services in Norway, for Â£1.0m and in December it bought the assets of Kelley Completion Services, an offshore oil and gas measurement business operating in the Gulf of Mexico for Â£5.3m. ETL SEMKO Following the restructuring and management changes made in 2003, ETL SEMKO returned to a strong growth position. Turnover increased by 19.4% to Â£122.4m and operating profit increased by 34.6% to Â£17.5m. In May 2004, ETL SEMKO bought Entela Inc., a US automotive component testing business for Â£16.2m. The business has performed well and accounted for about half the turnover growth in the division. ETL SEMKO also made two other small acquisitions in the year. Excluding the results of these three acquisitions, turnover increased by 8.0% and operating income increased by 23.8%. Asia continued to perform strongly, particularly in the safety testing of household appliances manufactured in China for export to the West. The sales team in the United States has been successful in gaining acceptance for the ETL safety label from the major retailers. ETL SEMKO has traditionally had a very small share of the market in the United States for the safety testing and labelling of electrical products sold by retailers, but it is now starting to compete aggressively in this market although the main competitor still has a strongly entrenched position. The division's operating margin increased from 12.7% to 14.3%, due to the reduced cost base following the restructuring in the second half of 2003 and the growth in Asia, where the profit margin is higher than in the West. Foreign Trade Standards Turnover increased by 19.0% to Â£67.6m and operating profit increased by 22.8% to Â£14.0m. The operating margin increased from 20.1% to 20.7%. The growth was principally due to the pre-shipment inspection contract in Venezuela which started in the second half of 2003 and due to the other main contracts performing well. Central overheads Central overheads increased by 17.2% to Â£6.8m in the year, principally due to the strengthening of central IT resources and additional expenses on internal audit and compliance. INTEREST The Group's net interest charge before exceptional items for the year was Â£5.4m compared to Â£7.9m in 2003. The decrease was primarily due to the reduced level of net borrowings during the year. In December 2004, the Group arranged a new Â£300m credit facility with its banks. Fees of Â£0.6m were incurred in connection with this arrangement. The new facility replaced the credit facilities put in place at the time of the Group's flotation in 2002. The fees associated with the previous credit arrangement were being amortised over five years but the balance of Â£2.1m was fully amortised in 2004. The total fee amortisation of Â£2.7m was reported as an exceptional finance charge in 2004. PROFIT BEFORE TAX Profit before tax was Â£75.8m compared to Â£70.6m in 2003, mainly due to the good trading performance in the year. TAXATION Tax on profit before exceptional items was Â£20.8m, Â£2.1m higher than last year but the effective tax rate before exceptional items reduced from 27.8% to 26.5%. The effective tax rate is expected to be close to the current year level in the short to medium-term. NET PROFIT Net profit after tax and exceptional items but before minority interests was Â£55.5m compared to Â£51.8m last year. MINORITY INTERESTS Profit attributable to minority shareholders reduced from Â£3.7m in 2003 to Â£2.8m in 2004, mainly due to the reduction in minority shareholdings in certain of the Group's subsidiaries in China. EARNINGS PER SHARE As set out in note 10 to the Financial Statements, basic earnings per share in the year were 34.1p (2003: 31.3p), an increase of 8.9%. 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 36.5p (2003: 29.8p). DIVIDEND An interim dividend of 3.4p per share (2003: 2.9p) was paid on 16 November 2004. A final dividend of 7.0p per share (2003: 5.9p) has been proposed, which subject to shareholder approval, will be paid on 17 June 2005, to shareholders on the Register at 3 June 2005. This makes a full year dividend of 10.4p per share, up 18.2% over last year. SHAREHOLDERS' DEFICIT The net profit after minority interests for 2004 of Â£52.7m (2003: Â£48.1m) was reduced by dividends of Â£16.1m (2003: Â£13.6m). Shareholders' deficit reduced by Â£39.5m in the year, mainly due to retained profits of Â£36.6m (2003: Â£34.5m) and favourable foreign exchange movements taken through reserves of Â£7.1m (2003: Â£10.2m), reduced by an actuarial loss on the pension funds of Â£6.6m (2003: Â£1.6m gain) . At the end of 2004, shareholders' funds were in deficit by Â£3.6m compared to a deficit of Â£43.1m at 31 December 2003. The deficit arises principally from the write-off of goodwill in 1996 when the Group was purchased from its former owners. This amounted to Â£229.9m at 31 December 2004. CASH AND LIQUIDITY The Group's net debt at 31 December 2004, was Â£112.4m compared to Â£132.2m at the previous year end. The principal inflow arose from operating activities which generated Â£101.9m (2003: Â£80.0m). The principal outflows were Â£36.3m (2003: Â£6.8m) for net repayment of borrowings, Â£28.2m (2003: Â£24.4m) in respect of the purchase of fixed assets, Â£26.3m (2003: Â£7.8m) related to the cost of acquisitions, Â£18.5m (2003: Â£15.3m) related to dividends, Â£16.0m (2003: Â£13.7m) tax paid and Â£5.3m (2003: Â£7.3m) net interest paid. Throughout the year there has continued to be a strong focus on cash management with an emphasis on working capital management. ACQUISITIONS AND DISPOSALS During 2004, the Group made seven acquisitions and two disposals for a net consideration of Â£27.6m. In April, Caleb Brett acquired the assets of Vestfold Telemark Metering, a consultancy company offering metering services in Norway, for Â£1.0m. In May, Avecia outsourced its Analytical Sciences Group to Caleb Brett in the UK, which involved the acquisition of assets for Â£4.4m. Also in May, ETL SEMKO bought Entela Inc., a US automotive component testing business for Â£16.2m. In September, the Group completed a transaction with Atlas LLC whereby two Labtest subsidiaries in the laboratory equipment sales business were sold to Allium LLC, a newly formed company in return for a 40% interest in it. Atlas simultaneously sold its business to Allium in return for a 60% interest. In December, Caleb Brett bought the assets of Kelley Completion Services, an offshore oil and gas measurement business operating in the Gulf of Mexico, for Â£5.3m. During the year, Labtest also bought a small business in Mauritius and ETL SEMKO bought a small business in the US. ACCOUNTING POLICIES During the year, the Group adopted UITF 38: Accounting for ESOP Trusts. The impact of this change was immaterial. Apart from this, the accounting policies of the Group remain unchanged from last year. GROUP PROFIT AND LOSS ACCOUNT for the year ended 31 December 2004 Pre-exceptional Exceptional Pre-exceptional Exceptional items items Total items items Total 2004 2004 2004 2003 2003 2003 Â£m Â£m Â£m Â£m Â£m Â£m ---------------- --------- -------- -------- ------- -------- -------- ------- Turnover - continuing operations 499.6 - 499.6 471.1 - 471.1 Cost of sales (385.0) - (385.0) (364.2) - (364.2) ---------------- --------- -------- -------- ------- -------- -------- ------- Gross profit 114.6 - 114.6 106.9 - 106.9 ---------------- --------- -------- -------- ------- -------- -------- ------- -------- -------- ------- -------- -------- ------- Administrative expenses (30.6) - (30.6) (31.9) (1.1) (33.0) Goodwill amortisation (1.5) - (1.5) (1.0) - (1.0) ---------------- --------- -------- -------- ------- -------- -------- ------- Total administrative expenses (32.1) - (32.1) (32.9) (1.1) (34.0) ----------------------- -------- -------- ------- -------- -------- ------- Group operating profit 82.5 - 82.5 74.0 (1.1) 72.9 Share of operating profit of associates 1.2 - 1.2 1.2 - 1.2 ---------------- --------- -------- -------- ------- -------- -------- ------- Total operating profit 83.7 - 83.7 75.2 (1.1) 74.1 ---------------- --------- -------- -------- ------- -------- -------- ------- -------- -------- ------- -------- -------- ------- Continuing operations 83.7 - 83.7 75.2 (3.7) 71.5 Discontinued operations - - - - 2.6 2.6 -------- -------- ------- -------- -------- ------- Non-operating exceptional items Net profit on disposal of businesses - continuing - - - - 4.5 4.5 ----------------------- -------- -------- ------- -------- -------- ------- Profit on ordinary activities before interest 83.7 - 83.7 75.2 3.4 78.6 Net interest and similar charges (5.4) (2.7) (8.1) (7.9) - (7.9) Other net finance income/(expense) 0.2 - 0.2 (0.1) - (0.1) ----------------------- -------- -------- ------- -------- -------- ------- Profit on ordinary activities before taxation 78.5 (2.7) 75.8 67.2 3.4 70.6 Taxation on profit on ordinary activities (20.8) 0.5 (20.3) (18.7) (0.1) (18.8) ----------------------- -------- -------- ------- -------- -------- ------- Profit on ordinary activities after taxation 57.7 (2.2) 55.5 48.5 3.3 51.8 Attributable to minorities - equity interests (2.8) - (2.8) (3.7) - (3.7) ----------------------- -------- -------- ------- -------- -------- ------- Profit for the financial year 54.9 (2.2) 52.7 44.8 3.3 48.1 Dividends (16.1) - (16.1) (13.6) - (13.6) ---------------- --------- -------- -------- ------- -------- -------- ------- Retained profit for the year 38.8 (2.2) 36.6 31.2 3.3 34.5 ----------------------- -------- -------- ------- -------- -------- ------- Earnings per share Basic 35.6p (1.5)p 34.1p 29.1p 2.2p 31.3p ---------------- --------- -------- -------- ------- -------- -------- ------- Diluted 35.3p (1.4)p 33.9p 29.0p 2.1p 31.1p ---------------- --------- -------- -------- ------- -------- -------- ------- GROUP BALANCE SHEET at 31 December 2004 2004 2003 Â£m Â£m Fixed assets Intangible assets - goodwill 36.9 17.8 Tangible assets 88.5 77.8 Investments: Associates 1.8 1.2 ---------------- --------- ------- -------- -------- -------- 127.2 96.8 ---------------- --------- ------- -------- -------- -------- Current assets Stocks 1.5 1.4 Debtors 109.8 105.3 Cash at bank and in hand 52.5 81.5 ----------------------- ------- -------- -------- -------- 163.8 188.2 Creditors due within one year -------- -------- -------- Borrowings (14.0) (17.5) Other creditors (106.2) (92.1) -------- -------- -------- (120.2) (109.6) ---------------- --------- ------- -------- -------- -------- Net current assets 43.6 78.6 ---------------- --------- ------- -------- -------- -------- Total assets less current liabilities 170.8 175.4 Creditors due after more than one year -------- -------- -------- Borrowings (150.9) (196.2) Other creditors (0.5) (1.4) -------- -------- -------- (151.4) (197.6) Provisions for liabilities and charges (6.0) (8.6) --------------------------- -------- -------- -------- Net assets/(liabilities) excluding pension liabilities 13.4 (30.8) Pension liabilities (11.3) (5.1) ---------------- --------- ------- -------- -------- -------- Net assets/(liabilities) 2.1 (35.9) ---------------- --------- ------- -------- -------- -------- Capital and reserves Called up share capital 1.5 1.5 Share premium 234.5 232.1 Merger reserve 3.6 3.6 Other reserves 2.8 2.8 Profit and loss account (246.0) (283.1) ----------------------- ------- -------- -------- -------- Shareholders' (deficit)/funds (3.6) (43.1) Minority shareholders' equity interest 5.7 7.2 ----------------------- ------- -------- -------- -------- Capital employed - equity 2.1 (35.9) ----------------------- ------- -------- -------- -------- STATEMENT OF GROUP CASH FLOW for the year ended 31 December 2004 2004 2003 Â£m Â£m ---------------- --------- ------- -------- -------- -------- Net cash inflow from operating activities 101.9 80.0 Dividends received from associated undertakings 0.8 0.7 Returns on investments and servicing of finance (9.4) (10.1) Taxation (16.0) (13.7) Capital expenditure and financial investment (28.0) (23.6) Acquisitions and disposals: Cash outflow from acquisitions (26.3) (7.8) Cash inflow from disposal 6.6 Equity dividends paid (14.4) (12.5) ---------------- --------- ------- -------- -------- -------- Cash inflow before financing 8.6 19.6 Financing: Net issue of shares 1.1 (0.1) Decrease in debt (36.3) (6.8) --------------------------- -------- -------- -------- (Decrease)/increase in cash in the year (26.6) 12.7 --------------------------- -------- -------- -------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT for the year ended 31 December 2004 2004 2003 Â£m Â£m ----------------------- ------- -------- -------- -------- (Decrease)/increase in cash in the year (26.6) 12.7 Decrease in debt 36.3 6.8 ----------------------- ------- -------- -------- -------- Decrease in net debt resulting from cash flows 9.7 19.5 Acquisitions and disposals (0.3) 0.5 Other non-cash movements (2.8) (1.0) Exchange adjustments 13.2 15.7 ----------------------- ------- -------- -------- -------- Decrease in net debt in the year 19.8 34.7 Net debt at the start of the year (132.2) (166.9) ----------------------- ------- -------- -------- -------- Net debt at the end of the year (112.4) (132.2) ----------------------- ------- -------- -------- -------- STATEMENT OF TOTAL GROUP RECOGNISED GAINS AND LOSSES for the year ended 31 December 2004 2004 2003 Â£m Â£m --------------------------------- -------- -------- Net profit from group companies 52.0 47.3 Net profit from associates 0.7 0.8 --------------------------------- -------- -------- Profit for the financial year 52.7 48.1 Actuarial pension (loss)/gain* (6.6) 1.6 Exchange adjustments 7.1 10.2 --------------------------------- -------- -------- Total recognised gains and losses relating to the year 53.2 59.9 --------------------------------- -------- -------- * Actuarial pension (loss)/gain is stated net of deferred tax. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' (DEFICIT)/FUNDS 2004 2003 Â£m Â£m ----------------------- -------- -------- -------- Opening shareholders' (deficit) (43.0) (90.5) /funds Restatement (see note below)* (0.1) (0.1) ----------------------- -------- -------- -------- Restated at 1 January 2004 (43.1) (90.6) Issue of ordinary shares 2.4 0.5 Profit for the financial year 52.7 48.1 Dividends (16.1) (13.6) Goodwill on - 0.7 disposals Actuarial pension (loss)/gain ** (6.6) 1.6 Exchange adjustments 7.1 10.2 ----------------------- -------- -------- -------- Closing shareholders' (deficit) (3.6) (43.1) /funds -------- -------- -------- ----------------------- * In accordance with UITF 38, own shares of Â£0.1m held by the ESOT have been reclassified from investments. **Actuarial pension (loss)/gain is stated net of deferred tax. HISTORICAL COST PROFITS AND LOSSES A note of consolidation 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, automotive components, 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. 2004 2003 BUSINESS Turnover Profit before Net operating Turnover Profit before Net operating ANALYSIS interest and assets* interest and assets* tax tax Â£m Â£m Â£m Â£m Â£m Â£m ---------------- --------- ------- --------- ------- -------- ------- -------- By activity Labtest 132.3 45.0 23.7 130.8 42.8 23.4 Caleb Brett 177.3 15.5 53.7 169.6 13.2 48.7 ETL SEMKO 122.4 17.5 32.3 111.6 14.2 32.6 Foreign Trade Standards 67.6 14.0 8.5 59.1 11.9 13.7 Central overheads - (6.8) 1.2 - (5.9) (3.5) ---------------- --------- ------- --------- ------- -------- ------- -------- Total continuing operations 499.6 85.2 119.4 471.1 76.2 114.9 Goodwill amortisation - (1.5) - - (1.0) - ---------------- --------- ------- --------- ------- -------- ------- -------- Total before operating exceptional items 499.6 83.7 119.4 471.1 75.2 114.9 Operating exceptional items - continuing - - - - (3.7) - ----------------------- ------- --------- ------- -------- ------- -------- Continuing operations 499.6 83.7 119.4 471.1 71.5 114.9 Operating exceptional items - discontinued - - - - 2.6 - Non-operating exceptional items - - - - 4.5 - ---------------- --------- ------- --------- ------- -------- ------- -------- Total 499.6 83.7 119.4 471.1 78.6 114.9 ---------------- --------- ------- --------- ------- -------- ------- -------- * See analysis below Turnover and profit before interest and tax for 2004, includes Â£18.3m and Â£3.0m respectively, from acquisitions made during the year and includes Â£4.6m and Â£(0.1)m respectively, from businesses that were sold during the year. The following table shows turnover, operating profit, and net operating assets by significant countries. 2004 2003 BY SIGNIFICANT COUNTRY Turnover Operating Net operating Turnover Operating Net operating profit* assets profit* assets Â£m Â£m Â£m Â£m Â£m Â£m ---------------- --------- ------- --------- ------- -------- ------- -------- United States 132.1 11.8 38.5 124.0 6.7 37.5 United Kingdom 77.2 3.0 20.4 63.5 0.8 19.2 Hong Kong 64.6 25.1 5.4 70.4 25.5 6.8 China 33.0 14.3 7.1 25.9 11.0 6.5 Other (each under 10% of total) 192.7 31.0 48.0 187.3 32.2 44.9 ---------------- --------- ------- --------- ------- -------- ------- -------- Continuing operations 499.6 85.2 119.4 471.1 76.2 114.9 ---------------- --------- ------- --------- ------- -------- ------- -------- * Operating profit is stated before goodwill amortisation and operating exceptional items. 2004 2003 BY GEOGRAPHIC Turnover Operating Net operating Turnover Operating Net operating ORIGIN profit* assets profit* assets Â£m Â£m Â£m Â£m Â£m Â£m ---------------- --------- ------- --------- ------- -------- ------- -------- Americas 169.0 17.6 47.9 157.3 12.0 47.0 Europe, Middle East and Africa 166.3 14.4 41.6 149.6 11.0 38.3 Asia 164.3 53.2 29.9 164.2 53.2 29.6 ---------------- --------- ------- --------- ------- -------- ------- -------- Continuing operations 499.6 85.2 119.4 471.1 76.2 114.9 ---------------- --------- ------- --------- ------- -------- ------- -------- * 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 geographic destination was Americas Â£181.3m (2003: Â£161.1m), Europe, Middle East and Africa Â£149.0m (2003: Â£142.1m) and Asia Â£169.3m (2003: Â£167.9m). 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 Â£44.9m (2003: Â£42.7m), Caleb Brett Â£14.8m (2003: Â£9.6m), ETL SEMKO Â£16.8m (2003: Â£12.3m), FTS Â£14.0m (2003: Â£12.8m) and Central overheads Â£(6.8)m (2003: Â£(5.9)m) and geographically was: Americas Â£17.0m (2003: Â£10.2m), Europe, Middle East and Africa Â£13.6m (2003: Â£8.6m) and Asia Â£53.1m (2003: Â£52.7m). 2. EARNINGS PER 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: 2004 2003 Based on the profit for Â£m Â£m the year: ------- --------- ------- -------- ----------------------- Underlying profit before tax 80.0 68.2 Taxation on underlying profit (20.8) (18.7) Minority interest in underlying profit (2.8) (3.7) ----------------------- ------- --------- ------- -------- Underlying earnings 56.4 45.8 Goodwill amortisation (1.5) (1.0) Exceptional operating items - (1.1) Exceptional non-operating items - 4.5 Exceptional finance charges (2.7) - Taxation on exceptional items 0.5 (0.1) ---------------- --------- ------- --------- ------- -------- Basic earnings 52.7 48.1 ---------------- --------- ------- --------- ------- -------- Number of shares (millions): ------- --------- ------- -------- ----------------------- Basic weighted average number of shares 154.4 153.7 Potentially dilutive share options 1.1 0.7 --------------------------- --------- ------- -------- Diluted weighted average number of shares 155.5 154.4 --------------------------- --------- ------- -------- Basic underlying earnings per share 36.5p 29.8p Options (0.2)p (0.1)p ----------------------- ------- --------- ------- -------- Diluted underlying earnings per share 36.3p 29.7p ----------------------- ------- --------- ------- -------- Basic earnings per share 34.1p 31.3p Options (0.2)p (0.2)p ----------------------- ------- --------- ------- -------- Diluted earnings per share 33.9p 31.1p ----------------------- ------- --------- ------- -------- The weighted average number of shares used in the calculation of the diluted earnings per share for the year to 31 December 2004, excludes 56,280 potential shares (2003: 1,220,962) as these were not dilutive in accordance with FRS 14: Earnings per share. 3. RECONCILIATION OF OPERATING PROFIT TO OPERATING CASHFLOWS 2004 2003 Â£m Â£m ----------------------- --------- ------- -------- Group operating profit after exceptional items 82.5 72.9 Depreciation charge 18.4 18.6 Goodwill amortisation 1.5 1.0 Loss on disposal of fixed assets 0.2 0.5 (Increase)/decrease in stocks (0.8) 0.1 Increase in debtors (8.9) (10.5) Increase/(decrease) in creditors 11.9 (3.3) (Decrease)/increase in provisions (2.9) 0.7 ----------------------- ------- --------- ------- -------- Total operating cash inflow 101.9 80.0 ----------------------- ------- --------- ------- -------- 4. ANNUAL REPORT AND ACCOUNTS The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2004 or 2003. Statutory accounts for 2003 have been delivered to the Registrar of Companies and those for 2004 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 2005. The Annual General Meeting will be held on 6 May 2005. This information is provided by RNS The company news service from the London Stock Exchange

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