2008 Final Results

RNS Number : 5001O

Intertek Group PLC

09 March 2009

 



2008 FULL YEAR RESULTS ANNOUNCEMENT

9 MARCH 2009

Intertek Group plc ('Intertek'), a leading international provider of quality and safety services, announces its full year results for the year ended 31 December 2008.

Excellent results - Continue to grow well in 2009

Year ended 31 December	2008	2007	% change over 2007 as reported	% change  over 2007 at constant currency
Revenue	£1,003.5m	£775.4m	+ 29.4%	+ 18.7%
Adjusted operating profit¹	£164.7m	£121.6m	+ 35.4%	+ 21.2%
Adjusted profit before tax¹	£155.4m	£111.3m	+ 39.6%
Adjusted diluted earnings per share¹	67.1p	48.8p	+ 37.5%

Statutory:

Year ended 31 December	2008	2007	% change over 2007 as reported
Operating profit	£147.9m	£116.1m	+ 27.4%
Profit before tax	£138.6m	£105.8m	+ 31.0%
Basic earnings per share	59.5p	46.7p	+ 27.4%
Dividend per share	20.8p	18.0p	+ 15.6%

Highlights

• Organic revenue and adjusted operating profit¹ growth of 12.3% and 14.8% at constant currency

• Adjusted operating profit¹ margin increased by 70 bps to 16.4%

• Operating cash flow of £194.0m, up 30.1%

• Strategic review of Government Services division successfully concluded with integration into Oil, Chemical & Agri division. Non-recurring costs of £6.7m primarily related to this restructuring

• Fourteen businesses acquired in 2008, for net consideration of £79.5m

^1. Excluding amortisation of acquisition intangibles £9.6m (2007: £5.1m), goodwill impairment £0.5m (2007: £0.4m) and non-recurring costs of £6.7m

Wolfhart Hauser, Chief Executive Officer, commented:

'These excellent results, in challenging times, have been achieved through the combination of strong organic performance, the contribution from acquisitions and favourable exchange rate movements.

Our strategy, as well as our geographic and industry diversification, will help to mitigate any adverse economic impact on our business and provide us with a range of opportunities. As a result, we are confident that Intertek will continue to grow well in 2009.'

Contacts

For further information, please contact

Aston Swift, Investor Relations

Telephone:    [phone]    [e-mail]

Richard Mountain, 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.

The 2008 statutory audited Report and Accounts will be available to download from the website later today. If you wish to receive a hard copy of this Report and Accounts, please contact Intertek by email to [e-mail] or call [phone]. 

Corporate website: 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 23,000 people in more than 100 countries around the world.

Introduction by the Chairman

Revenue over £1 billion

Results 

I am pleased to report that Intertek delivered excellent results in 2008 and ended the year with a revenue figure of £1,003.5m, up 29.4% over last year. Excluding acquisitions, revenue growth was 22.5%.  

Operating profit was £147.9m, up 27.4% over last year. Adjusted operating profit increased to £164.7m, up 35.4%. Our adjusted operating margin increased by 70 basis points to 16.4%. Excluding acquisitions, adjusted operating profit grew by 28.4%. 

Acquisitions

We continued our successful track record of making infill acquisitions. In 2008 we acquired 14 new businesses for total consideration of £79.5m (2007: £100.0m). Details of the acquisitions are given in the Operating Review by division and in note 26 to the Annual Report. To date in 2009, we have completed two further acquisitions for initial consideration of £21.5m which further widen the scope and range of the services we offer. Additional consideration of up to £5.6m is payable dependent on future financial performance. We intend to continue prudently investing in new opportunities in our chosen industry sectors. 

Earnings per share

Basic earnings per share were 59.5p, up 27.4% over last year and diluted adjusted earnings per share were 67.1p, up 37.5%. 

Dividends

An interim dividend of 7.1p per share (2007: 5.8p) was paid to shareholders on 18 November 2008. The Directors will propose a final dividend of 13.7p per share at the Annual General Meeting on 15 May 2009, to be paid on 19 June 2009 to shareholders on the register at close of business on 5 June 2009. If approved, this will make a full year dividend of 20.8p per share (2007: 18.0p), an increase of 15.6%. This is in line with our dividend policy and reflects the good performance of the Group. 

The Board 

Other than the previously announced appointment of Mark Loughead to the Board on 1 January 2008, there were no changes to the Board during 2008. Mark's appointment further strengthens the depth of experience on the Board.  

Intertek Operations Committee

The day-to-day management of the Group is undertaken by the Intertek Operations Committee (IOC). The IOC currently comprises the three Executive Directors, the six Executive Vice Presidents who head up the operating divisions and the Vice President of Human Resources. 

Employees 

Our mission to support and add value for our customers is delivered through almost 24,000 people across Intertek worldwide. We continue to improve our capacity to attract, develop and retain the best people who share in the mission, values and success of the Group. 

On behalf of the Board, I would like to welcome all new employees to Intertek and to thank all our employees around the world for their commitment to making 2008 another successful year.

Environmental impact

Intertek is committed to playing an important and positive role with respect to climate change and the environmental impact of products and processes. We advise our clients, as an integral part of our business, on many issues which have an impact on the environment, such as the chemical content of their products and packaging, the energy efficiency of their equipment, CO2 emissions and the disposal of harmful substances and waste electrical products. We also provide advisory and consultancy services to help retailers and manufacturers design their products and services to comply with current and future environmental regulations around the world. Through our services we help our clients to minimise the environmental impact of their products and processes for the benefit of society as a whole. We are also mindful of our own impact on the environment and are working on various initiatives to reduce this. This is discussed further in the Corporate Social Responsibility Report. 

Outlook  

Our 2008 revenue growth, excluding acquisitions was 12.3% at constant exchange rates. Whilst a significant global recession will obviously affect our business, our strategy as well as our geographic and industry diversification, will help to mitigate any adverse impact and provide us with a range of opportunities to grow our business. As a result, we are confident that Intertek will continue to grow well in 2009. 

Vanni Treves

Chairman

Directors' Report - Operating Review

Group overview

Who we are

Intertek is a global market leader in many industries supporting customers in the international market place and ensuring that their products comply with their own quality and safety standards and all relevant external regulations. Our services cover the whole supply chain including the sourcing of raw materials, product design, manufacturing processes, compliance certifications and performance testing of the end product. Our customers range from major household names and international corporations to niche suppliers, globally and locally. With over 1,000 facilities in more than 100 countries and over 23,000 employees, we can provide services in almost every country in the world. 

What we do

Intertek is a global market leader providing safety and quality services to customers to add value to their products and processes and support their success in the global market place. We offer a comprehensive range of services from testing, inspection and certification through to auditing, and consultancy. Using internationally-approved methods, standards, equipment and guidelines, we test consumer products, commercial products, commodities, food, and raw materials for quality control, research, vendor compliance, and against regulatory and customer requirements. 

Our testing methods use a wide range of skills including complex analytical laboratory techniques in the fields of organic and inorganic chemistry and biochemistry, critical analysis to trouble-shoot customers' problems, 3D laser scanning, electromagnetic compatibility testing, minerals assay and performance testing amongst many others. We provide inspection services to manufacturers, retailers, bulk commodity traders, governments and international buyers and sellers of goods, including factory evaluation, quality inspection, custody transfer, pre-production, in-production, final random sampling, pre-shipment and loading supervision. We hold an extensive range of global accreditations, recognitions and agreements to provide certification services for manufacturers, retailers and traders to enable them to sell products in virtually any market in the world. Our audit services check whether a process, system or facility is performing in the prescribed manner. This includes corporate social responsibility auditing to ensure that factory conditions, especially in developing countries, meet the standards required by our clients. We also offer an extensive range of consultancy and training services. Our services are integrated together to provide our customers with a complete and customised service that meets the precise requirements of the different industries in which they operate.

Our market

Intertek provides services to a wide range of industry sectors, including Aerospace & Automotive, Building Products, Chemicals, Consumer Goods & Retailers, Electrical & Electronic, Energy, Food & Agriculture, Industrial, IT & Telecom, Medical & Pharmaceutical, Minerals, Petroleum, Toys, Games & Hardlines and Textiles, Apparel & Footwear. Each industry has its own characteristics but there are a number of key drivers for our services common to all markets. These are global and local trade through new product development, increasing consumer demand for good quality, safe and environmentally friendly products, more stringent regulations, and the increasing requirement for independent certification of the quantity and quality of traded commodities.  

By outsourcing their testing to us, customers reduce the cost of maintaining in-house testing facilities and they benefit from the economies of scale that we can achieve by higher utilisation of the laboratory equipment and personnel. Many products are subject to increased regulation to protect consumers and the environment. For example, the recently enacted US Consumer Product Safety Improvement Act (CPSIA) contains many provisions concerning the safety and quality of consumer goods and more stringent requirements for children's products. In the European Union, the Registration, Evaluation and Authorisation of Chemicals (REACH) regulations cover over 30,000 chemicals used in products. We advise our customers on the regulatory developments that are applicable to their products in the markets they choose. 

Despite slower economic activity, the key growth drivers behind the Intertek business model remain intact. We tend to test products at the prototype stage and therefore our business is driven by product development activity rather than the volume of products sold. We expect this to help maintain our growth through an economic recession although the economic downturn in 2009 is likely to see our business growing at a slower rate than in 2008. We will continue to respond accordingly by ensuring our cost base is aligned with a reduced level of growth in those locations and for those industries that could be affected by a severe downturn.

Our employees

At 31 December 2008, the Group employed 23,841 people (2007: 21,303) in over 100 countries. Our people include highly skilled scientists and engineers with specialist knowledge of the industries in which we operate. Many are educated to degree level and above and are peer group leaders in their fields of expertise. Our operations are located close to our customers and our strategy is to employ and develop people native to those locations as they have a better understanding of local issues and cultures and can build strong customer relationships. Through their appointed relationship manager, our clients can access all the services and expertise offered by our global network. Through our Intertek as One programme we emphasise the need to join together to ensure our customers receive a co-ordinated and cohesive service. We have a strong emphasis on training and professional development and this together with the strength of our collective leadership ensures that our employees remain motivated to deliver a world class service. 

Our impact on the environment

Being a service industry, energy consumption is not a material part of our cost base. In 2008, 1.3% of our total costs were spent on gas and electricity. However, we are mindful of our impact on the environment and, where possible, take measures to reduce energy consumption and eliminate waste. Our internal meetings are increasingly held by conference call to reduce our emissions footprint. We recycle waste paper and we dispose of our waste products responsibly and in compliance with applicable legislation. In the UK and Ireland we operate a 'green' company car policy. 

Our main impact on the environment is through the services we offer to customers. We test the performance and evaluate the efficiency of products and advise customers of ways in which they can improve their products and processes to reduce energy use. Since we usually perform our work at the design stage of product development, the small amount of energy that we use to conduct our tests is far outweighed by the global benefits to the environment of our clients using our advice to produce energy efficient products on a larger scale. Our services are supporting the growing alternative energy sectors such as photovoltaic, bio fuels and wind energy. More details about our employees and the environment are provided in our Corporate Social Responsibility Report which starts on page 59 of the Annual Report.

Divisional structure 

For management purposes we organise ourselves into operating divisions combining similar industry sectors. We aim to operate a balanced portfolio of businesses across industry sectors and regions. In previous years the Group was structured into four main divisions: Consumer Goods; Commercial & Electrical; Oil, Chemical & Agri; and Government Services. In response to growth opportunities in new sectors and to increase our focus on customers in their specific industries, we identified Analytical Services, Minerals and Industrial Services as sectors in which to invest for future growth. These divisions are managed independently but are grouped together as New Divisions due to their relatively small size in comparison to the other divisions. Analytical Services and Minerals were formerly part of the Oil, Chemical & Agri division and Industrial Services includes Systems Certification, which was previously included in Commercial & Electrical, and Industrial Inspection which was previously included in Government Services.  No material costs were incurred to effect this reorganisation. 

Under our new structure, central overhead costs are allocated to each of the operating divisions and are therefore no longer separately disclosed. In order to aid comparison with our previously reported results, the table below shows our 2008 results under both the new and the old structure.  

The Government Services division was restructured at the end of 2008 and is being integrated into the Oil, Chemical & Agri division. Thus from 1 January 2009, we are operating in six divisions.  The restructuring costs incurred are included in non-recurring costs.

2008 results under new and old structures

	New Structure				Old Structure
	Revenue	Adjusted operating profit	Margin		Revenue	Adjusted operating profit	Margin
	£m	£m			£m	£m
Consumer Goods	250.4	75.7	30.2%		250.4	78.8	31.5%
Commercial & Electrical	203.5	29.2	14.3%		223.2	32.6	14.6%
Oil, Chemical & Agri	308.1	33.5	10.9%		468.0	59.6	12.7%
Government Services 1	46.8	6.4	13.7%		61.9	9.6	15.5%
Analytical Services	119.5	13.2	11.0%		-	-	-
Industrial Services	36.0	1.8	5.0%		-	-	-
Minerals	39.2	4.9	12.5%		-	-	-
Central	-	-	-		-	(15.9)	-
Total	1,003.5	164.7	16.4%		1,003.5	164.7	16.4%

^1.  Integrated into the Oil, Chemical & Agri division from 1 January 2009.

Our performance in 2008

The Group had an excellent year and reported revenue of just over £1 billion. Revenue increased by 29.4% (18.7% at constant exchange rates) and adjusted operating profit increased by 35.4% (21.2% at constant exchange rates). The adjusted operating margin was 16.4%, up 70 basis points from last year (30 basis points at constant exchange rates).

Our performance in 2008

	Revenue			Adjusted operating profit 1
£m	2008	Change at actual rates	Change at constant rates	2008	Change at actual rates	Change at constant rates
Consumer Goods	250.4	38.2%	24.1%	75.7	44.5%	27.9%
Commercial & Electrical	203.5	24.8%	13.9%	29.2	27.0%	12.3%
Oil, Chemical & Agri	308.1	24.0%	14.5%	33.5	37.3%	25.5%
Government Services	46.8	3.5%	(3.5)%	6.4	6.7%	(8.7)%
Analytical Services	119.5	24.9%	17.4%	13.2	12.8%	5.6%
Industrial Services	36.0	62.2%	48.1%	1.8	80.0%	50.0%
Minerals	39.2	100.0%	83.2%	4.9	58.1%	48.5%
Revenue/Adjusted operating profit	1,003.5	29.4%	18.7%	164.7	35.4%	21.2%
Amortisation	-			(9.6)
Impairment	-			(0.5)
Non-recurring costs	-			(6.7)
Operating profit	-			147.9	27.4%
Net financing costs	-			(9.5)
Share of profit of associate	-			0.2
Profit before income tax	-			138.6	31.0%
Income tax expense	-			(36.4)
Result for the year	1,003.5	29.4%	18.7%	102.2	29.7%

^1.  Before amortisation of acquisition intangibles, goodwill impairment and non-recurring costs.

We calculate organic growth by excluding the results of acquisitions made in 2007 and 2008. On an organic basis, revenue grew by 22.5% (12.3% at constant exchange rates) and adjusted operating profit grew by 28.4% (14.8% at constant exchange rates). The organic growth was generated primarily by growth in the market for quality and safety services, an increase in environmental regulations and an increase in outsourcing.

Part of the Group's growth strategy is to make acquisitions which complement and extend the Group's service offering into new areas of expertise and new locations. We made 14 acquisitions in 2008 and 16 in 2007, which were located in 13 different countries. These businesses have extended the range of services offered by the Group in a variety of sectors including the minerals, food, pharmaceutical and chemical industries, and have increased the Group's footprint in strategically important countries such as the USA, the UK, Australia and Germany. The Group is able to leverage the return from these acquisitions by offering new services on a global basis to existing customers. 

Details of the performance of each division, including more information about the acquisitions are given in the Operating Review by division shown below.

The market for our services continues to expand. Consumers and regulatory bodies are increasingly concerned about the quality and safety of products and services and their impact on the environment. The number of global and domestic regulations regarding the environment and the safety and quality of products continues to increase. Manufacturers and retailers need to meet the demands of their customers and ensure that they comply with quality and safety requirements, increasingly complex legislation and longer supply chains. We work in partnership with our customers to help them meet those demands and increase the value of their products and services.  

Our business is based on facilitating trade and increasing consumer demand for product variety, quality and safety, as well as manufacturers' desire to reduce overhead costs by outsourcing testing and inspection activities.  Our 2008 organic revenue growth at constant exchange rates was 12.3%. Whilst a significant global recession will reduce our growth rate, we are very well diversified, both geographically and across industry sectors, which will help mitigate any adverse impact and provide us with growth opportunities. 

The key growth drivers in our business model remain unchanged so our business is robust. The current economic uncertainty makes it difficult to predict performance in 2009 and a prolonged decline in global trade will inevitably affect our customers and this might affect the volume of goods that we inspect. In a severe, long-lasting downturn, some of our customers may undertake fewer development projects and this could affect the number of products that we test and certify. 

Each of our divisions offers opportunities for organic growth through increasing our service offering to customers, to add value to their products and processes and help them compete in the global market. We anticipate that businesses will increasingly be looking to reduce the cost of non-core activities such as in-house testing, which provides us with an opportunity to offer our services. We have been very successful in finding acquisitions which extend our range of services. We have a pipeline of potential acquisitions which we are pursuing and we will continue to seek other opportunities to grow our business.

Consumer Goods

What we do

The Consumer Goods division is a market leading provider of services to the textiles, toys, footwear, hardlines, food and retail industries. Services include testing, inspection, auditing, advisory services, quality assurance and hazardous substance testing. Customers are often retailers but also include manufacturers and suppliers within a global supply chain. 

The market for the services of the Consumer Goods division is diverse. Demand is driven by retailers who require the goods they sell to be produced to a quality set by either their own internal standards or by legislation in a particular country. Increasingly, materials are sourced and goods are manufactured in locations that are remote from the consumer, causing supply chains to be longer and more complex. The market is also being driven by regulations issued to address safety and environmental concerns over such issues as carcinogenic dyes in textiles and chemicals in toys and cosmetics. 

Our performance in 2008

	2008	Change	Change
	£m	at actual rates	at constant rates
Revenue	250.4	38.2%	24.1%
Adjusted operating profit	75.7	44.5%	27.9%
Adjusted operating margin	30.2%	130bp	90bp

The Consumer Goods division delivered excellent results with total revenue of £250.4m up 38.2% (24.1% at constant exchange rates) and organic revenue up 34.0% (20.3% at constant exchange rates). Textiles, Apparel & Footwear which is the largest sector in the division, grew well, particularly in China with a strong performance in Toys and Hardlines.  This was mainly due to increased demand for heavy metals testing driven by heightened consumer concern over the safety of toys following the major product recalls that took place in 2007 and new regulations in the USA. In August 2008, the US Consumer Product Safety Improvement Act (CPSIA) was enacted. CPSIA contains new certification requirements, phthalate and lead limits, mandatory third-party testing requirements and many other provisions concerning the safety and quality of children's goods. Intertek has sixteen leading-edge laboratories accredited under CPSIA and additional laboratories will be accredited in the coming months.  

Although still relatively small, revenue from the food sector increased considerably and we made several acquisitions in this sector which will add to the growth in future.

Total adjusted operating profit was £75.7m, up 44.5% (27.9% at constant exchange rates). Organic adjusted operating profit increased by 41.9% (25.3% at constant exchange rates). The total adjusted operating margin increased 130 basis points to 30.2% from 28.9% in 2007. 

In April 2008, the Group acquired 4-Front Research, a group of companies in the UK, France and India which provide analytical support for clinical research studies on cosmetic, personal care, functional food and over-the-counter pharmaceutical and medical products. This acquisition extends the services the Group is able to offer its consumer healthcare customers and provides a strategic platform for development in India and other fast growing Asian markets for consumer healthcare products. 

In 2008, the Group acquired three businesses which provide services to the food industry: Applica GmbH, a company in Germany which provides high-end analytical services with particular expertise in honey and bee products; EKO-lab, which provides microbiological and chemical analysis services from its laboratory in Poland; and the food facility auditing operations of RQA which is headquartered in Chicago, USA, but provides auditing services to more than 100 countries. 

In December 2008, the Group acquired Porst & Partner GmbH, a highly recognised German laboratory providing consumer product testing and environmental, food and microbiological analyses. Porst & Partner's services include chemical analyses of consumer products, Restriction of Hazardous Substances (RoHS) compliance and Registration, Evaluation and Authorisation of Chemicals (REACH) related services.

In 2008, we continued to invest in our laboratory network, particularly in China where we opened a large-scale toy testing laboratory in Guangzhou to support the toy manufacturers located in Southern China. We also extended our REACH facilities in a number of our laboratories.

The key growth drivers in Consumer Goods remain strong, principally the sourcing of products from China, the increasingly wide range of products being sold by retailers and shorter product lifecycles. Concern over the safety of consumer products has increased demand from consumers and regulatory bodies for independent assurance of quality and safety. 

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. As many economies are currently entering a recessionary phase, consumer spending is declining. Whilst our business is dependent on the variety of goods produced and new product development rather than the volume sold, a prolonged decline in consumer spending could result in a reduction in product development. We aim to grow our revenue by developing new services, integrating our services and providing innovative supply chain solutions to our customers.  

Commercial & Electrical

What we do

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 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. Our customers are mostly manufacturers but also retailers, industry organisations and government departments. Intertek has the widest range of owned marks and accreditations, including the ETL listed mark, the Warnock Hersey mark for North America and the S mark, Asta mark and BEAB mark for Europe, as well as being a leader in providing CB certification and the CE mark and GS mark for Europe.   

The market for our Commercial & Electrical services is driven primarily by increasing regulations over the safety of products, product variety and growing environmental concerns. This includes current concerns over climate change and the impact on the environment of electrical products. 

Our performance in 2008

	2008	Change	Change
	£m	at actual rates	at constant rates
Revenue	203.5	24.8%	13.9%
Adjusted operating profit	29.2	27.0%	12.3%
Adjusted operating margin	14.3%	20bp	(30)bp

Total revenue increased to £203.5m, up 24.8% (13.9% at constant exchange rates) and organic revenue increased by 19.0% (8.5% at constant exchange rates). The electrical sector which accounted for 60% of the division's total revenue grew well, particularly in the US, where increased acceptance of the ETL mark contributed to growth in market share. 

The Americas reported double digit organic growth in revenue at constant exchange rates plus revenue from acquisitions. Revenue in Asia also increased mainly due to good organic growth in China. Total revenue in Europe increased, although organic revenue growth declined slightly due to underperformance in Italy and stagnant growth in the rest of Europe. 

Total adjusted operating profit was £29.2m, up 27.0% (12.3% at constant exchange rates). Organic adjusted operating profit increased by 20.5% (6.9% at constant exchange rates). The total adjusted operating margin increased 20 basis points to 14.3%. The increase in margin was due to a strong performance in the second half of 2008 when effective marketing campaigns and the growth of developing businesses such as photovoltaic and energy efficiency had a positive impact. Cost cutting initiatives also helped the margin growth.  

In February 2008, the Group acquired Epsilon Technical Services Ltd. Epsilon is based in the UK and offers safety and advisory services to companies with products for use in potentially explosive atmospheres. This acquisition complements and extends the Group's existing explosive environment certification services.

In September 2008, the Group acquired HP White Laboratory Inc. a company based in Maryland, USA, which provides ballistic resistance testing and certification programmes for personal protective equipment (PPE). Intertek already tests PPE against fire and chemical hazards so adding ballistic resistance testing will enable the Group to offer a more comprehensive service to the PPE industry.  

Our major investment projects during 2008, included the establishment of photovoltaic facilities in California, New York and Shanghai, consolidating our facilities in Boston, USA, extending our wireless testing facility in Kentucky, USA and building a 35 ton psychrometric (HVAC) facility in Dallas, USA. 

Customer demand for safe, reliable, energy efficient products continues to increase and the market for Commercial & Electrical continues to evolve presenting opportunities for growth. Market drivers in the medical and renewable energy sectors remain strong. Concerns over climate change are driving new directives regarding the energy usage of products, particularly in the HVAC/R industry and this is expected to extend to other industries. The consumer market for home appliances and electronics is under pressure and the growth of information, communication and technology products is also slowing down. This may provide us with opportunities as customers seek to maintain or increase their market share through product innovation, improvements in quality and durability, and performance comparisons, and cut their costs by improving efficiency. The issues in the automotive industry are well documented and we do not anticipate any improvement in this market in the near future. We are closely monitoring our business in this sector and will reduce costs if revenue continues to decline.  

Market conditions in 2009 will provide both challenges and opportunities for the Commercial & Electrical division. We will continue to strive for operational excellence and aim to strengthen our market share by offering superior service. There are many small niche players in the market and this provides opportunities for us to continue adding infill acquisitions.

Oil, Chemical & Agri

What we do

The Oil, Chemical & Agri division provides independent cargo inspection as well as non-inspection related laboratory testing, calibration and related technical services. Our customers include the world's energy, petroleum, chemical and agricultural industries. Cargo inspection and testing is a well established global market in which Intertek is one of the leading service providers. High barriers to entry are principally due to the fixed costs of establishing a global network of operations and laboratories and our excellent reputation and experience earned through decades of service in the industry.

Our performance in 2008

	2008	Change	Change
	£m	at actual rates	at constant rates
Revenue	308.1	24.0%	14.5%
Adjusted operating profit	33.5	37.3%	25.5%
Adjusted operating margin	10.9%	110bp	100bp

Despite being affected by the hurricanes in the USA, Oil, Chemical & Agri delivered an excellent performance in 2008 with strong growth across all regions, particularly in non-inspection related testing. Total revenue increased to £308.1m, up 24.0% (14.5% at constant exchange rates) and organic revenue increased by 22.7% (13.3% at constant exchange rates). The organic growth was driven by favourable market conditions, particularly in the first half,  higher demand for alternative fuels and increased regulation, which together resulted in greater demand for testing and inspection services.  

Total adjusted operating profit increased to £33.5m, up 37.3% (25.5% at constant exchange rates). Organic adjusted operating profit increased by 34.7% (23.0% at constant exchange rates).The adjusted operating margin improved by 110 basis points to 10.9%. The improvement in margin was mainly driven by the strong growth in inspection and related testing of alternative bio fuels.

Hurricanes Ike and Gustav which hit the Gulf Coast in the USA in September 2008, caused disruption to our laboratories and customers located in that area and resulted in the Oil, Chemical & Agri division losing revenue of £2.1m in 2008. 

In January 2008, we acquired Electrical Mechanical Instrument Services (UK) Ltd which provides calibration services to the oil and gas industries in the UK and the Middle East and complements the existing upstream services offered by the Group.

The record high oil prices experienced in early 2008 have since declined and the global economic downturn is now causing a decline in consumption of crude oil and refined products which we expect to continue during 2009. The decline in the price of oil has impacted trading and refining, as well as speculative trading by financial institutions. Customers will seek to reduce their costs and improve efficiency which provides us with an opportunity to offer outsourcing solutions. We anticipate that whilst alternative fuel producers could face an increasing challenge to produce their fuels at a profit, the decline in the green economy will be short-term and that market based solutions to environmental and social issues will lead to an upsurge in bio fuel technology. This provides opportunities for us in laboratory testing.

We expect the outlook for the chemical market to remain challenging as the decline in demand from industrial users is likely to continue for some time. Turnaround for this market depends on the recovery of global economies especially in new housing and vehicle sales. Government initiatives to stimulate these sectors may have a positive impact. We will continue to seek new opportunities to gain market share through superior service and innovative solutions.  

Government Services

What we do

The Government Services division offers a range of services to governments, national standards organisations and customs departments. Services include cargo scanning, fiscal support services and standards programmes.

Our performance in 2008

	2008	Change	Change
	£m	at actual rates	at constant rates
Revenue	46.8	3.5%	(3.5)%
Adjusted operating profit	6.4	6.7%	(8.7)%
Adjusted operating margin	13.7%	40bp	(80)bp

Performance in Government Services in 2008 was disappointing. Revenue increased 3.5% at actual rates but declined 3.5% at constant exchange rates. The decline at constant exchange rates was mainly due to the discontinuance of a pre-shipment inspection contract in Ecuador which was cancelled in 2007. Operating profit increased 6.7% to £6.4m at actual rates but declined 8.7% at constant exchange rates. All the contracts were profitable, however no significant new contracts were won during the year and the level of overhead cost was too high for the revenue base.  

Following a strategic review in 2008, we concluded that the services offered by Government Services (GS) would be more efficiently provided from within the Oil, Chemical & Agri (OCA) division. As a result we are making a significant reduction in the overhead and operating costs in Government Services, and integrating a number of GS and other divisional offices and systems into the OCA division to improve efficiency. Government Services will not be reported as a separate division of Intertek in future.

Analytical Services 

What we do

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

Our performance in 2008

	2008	Change	Change
	£m	at actual rates	at constant rates
Revenue	119.5	24.9%	17.4%
Adjusted operating profit	13.2	12.8%	5.6%
Adjusted operating margin	11.0%	(120)bp	(130)bp

Total revenue in 2008 was £119.5m, up 24.9% (17.4% at constant exchange rates) over the prior year. Organic revenue increased 9.0% (2.4% at constant exchange rates). Total adjusted operating profit increased to £13.2m, up 12.8% (5.6% at constant exchange rates). Organic adjusted operating profit declined by 15.0% (21.3% at constant exchange rates). Overall, the division improved its adjusted operating margin in the second half of the year although the full year margin of 11.0% was 120 basis points down on the prior year, due in part to reorganisation costs. 

Results in Analytical Services were mixed, with some business segments performing very strongly and others performing less well. Upstream Services reported strong growth in revenues in 2008 over 2007. Downstream, Chemicals and Materials also performed well, apart from lubricant testing in the USA which suffered from lower volumes in 2008 ahead of new standards being issued in 2009. Pharmaceutical testing grew well in the USA but underperformed in the UK due to delays in a number of client projects. Although the fundamental industry drivers for new pharmaceuticals remain strong, we expect the market to remain challenging in 2009.  Our pharmaceutical business in the UK was reorganised at the end of 2008 to reduce costs. 

In February 2008, the Group acquired the UK based Commercial Microbiology Group which provides laboratory and consultancy services related to the measurement and management of bacteria in the upstream oil and gas industries. Also in February, the Group acquired Bioclin Research Laboratories Ltd, an Irish company which provides product quality testing and bio-analytical services to pharmaceutical, medical device and bio-technology companies.  

In March 2008, the Limburg Water Boards of The Netherlands outsourced all laboratory activities and transferred the employees of Waterschapsbedrijf Limburg to Intertek for a minimum period of five years. The Group will provide extended analytical testing and consultancy services in the areas of environmental science, regulation and complex analysis of silt, soil and water. 

Much of Intertek's Upstream activities are related to the production and transportation of hydrocarbon reserves. We anticipate that this business will be largely unaffected by the current economic climate as production facilities will continue to generate volumes at normal levels.  However, if the oil price remains depressed, some new development projects may be postponed or cancelled which could result in increased competition for work in our subsurface exploration and production activities. 

The chemical industry in the mature markets in the USA and Europe is suffering from a decline in demand for plastics, mainly from the automotive and construction industries. We expect this to have a negative impact on our sample testing business in The Netherlands as it is related to production volumes. Other contracts which support research and development and product innovation are expected to be more resilient. These market conditions provide a potential upside for Intertek as it is likely that companies will increasingly look to outsource their non-core activities. Our strong track record of successfully running outsourcing contracts means that we are well placed to capitalise on this opportunity. 

Industrial Services

What we do

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 consulting and greenhouse gas services. We serve a wide variety of industries including oil, gas, petrochemical, power, renewable energy, and civil and infrastructure. 

Our performance in 2008

	2008	Change	Change
	£m	at actual rates	at constant rates
Revenue	36.0	62.2%	48.1%
Adjusted operating profit	1.8	80.0%	50.0%
Adjusted operating margin	5.0%	50bp	10bp

Total revenue in 2008 was £36.0m, up 62.2% (48.1% at constant exchange rates) over the prior year. Organic revenue increased 25.9% (14.9% at constant exchange rates).  Total adjusted operating profit increased to £1.8m, up 80.0% (50.0% at constant exchange rates). Organic adjusted operating profit declined 141.7% (136.4% at constant exchange rates). The adjusted operating margin was 5.0%, up 50 basis points on the prior year. 

In April 2008, the Group acquired Hi-Cad Technical Services Ltd which provides specialist 3D data capture and measurement services, primarily to customers in the upstream and downstream oil and petroleum industry in the UK and the USA. This acquisition strengthens the development of asset integrity management services in the Group and enables the Group to offer a cohesive vendor assessment and quality inspection service to customers globally. 

The industrial services market has seen strong growth in recent years fuelled by infrastructure investment by energy companies. In response to the drop in oil price in the latter part of 2008 and the instability in the financial markets, some customers have deferred new capital expenditure to focus on optimising output from existing facilities. Whilst this could negatively impact our growth, it also provides us with opportunities. The infrastructure investments planned by governments in the USA, China and Europe to stimulate their economies will also provide us with opportunities. 

The systems certification market is experiencing a slow down in new business orders as some customers defer their certification plans in favour of short-term operating priorities. Customers in some sectors such as automotive are downsizing their staff and facilities. In order to mitigate risk, we will focus on higher value sectors in resilient markets such as medical and aerospace where we have strong niche positions.

The outlook for the health and environmental sector is positive. Enforcement of the new REACH, RoHS and CPSIA regulations is driving customers to set up compliance programmes for these markets and seek advice from Intertek given the confusion that currently reigns in the market place. Other green initiatives from government to reduce greenhouse gas emissions will also create further opportunities for Intertek to advise clients on how best to meet these regulatory challenges.

Minerals

What we do

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

Our performance in 2008

	2008	Change	Change
	£m	at actual rates	at constant rates
Revenue	39.2	100.0%	83.2%
Adjusted operating profit	4.9	58.1%	48.5%
Adjusted operating margin	12.5%	(330)bp	(290)bp

In 2008, total revenue was £39.2m, up 100.0% (83.2% at constant exchange rates) over the prior year and organic revenue increased by 71.1% (57.8% at constant exchange rates). Total adjusted operating profit increased to £4.9m, up 58.1% (48.5% at constant exchange rates). Organic adjusted operating profit increased by 100.0% (81.8% at constant exchange rates). The adjusted operating margin was 12.5%, down 330 basis points on the prior year due to investment in new projects. 

Until the last quarter of 2008, the Minerals division benefitted from the high price and strong demand for commodities, particularly in China. We established new minerals laboratories in Townsville, Australia and Johannesburg, South Africa and invested in laboratory equipment including robotic and automated systems in Australia. Over 60% of revenue was generated in Australia, primarily from the Genalysis business which we acquired in 2007.

The Minerals division extended its geographic footprint in 2008. We acquired a company which operates the largest commercial assay laboratory in the Philippines and offers geophysical surveys and inspection services to the minerals industries in Asia and a company in Ghana which provides services to the gold mining industry. These businesses were acquired for £5.2m in total. 

Activity in the mining and exploration industries was high in the first nine months of the year but started to decline in the last quarter, when certain commodity prices fell sharply and funding for exploration projects was reduced. Many junior mining companies have ceased operations and some major companies have scaled back their activities. This has reduced the volume of samples requiring testing. Accordingly we have reduced headcount throughout our facilities and further cost reductions will be made if the market remains depressed. We currently have a very small share of the available market in the minerals industry and therefore, even in a declining market we anticipate being able to grow revenues by gaining market share from competitors.

Directors' Report - Financial Review

Results for the year

Profit before income tax increased by 31.0% to £138.6m (2007: £105.8m) and diluted adjusted earnings per share were 67.1p (2007: 48.8p). Basic earnings per share were 59.5p (2007: 46.7p).  

Key financial performance indicators

We use a variety of key performance indicators (KPIs) to monitor the performance of the Group. Similar indicators are used to review the performance of the operating divisions. These KPIs are reviewed by the Board and management on a monthly basis and are used to assess past performance and set targets for the future. Many of the KPIs also form part of the management incentive scheme whereby managers may receive annual bonus payments on achieving or exceeding a range of targets set for the year. Further information on management incentives is given in the Remuneration Report in the Annual Report.

Key financial performance indicators
Revenue	Up 29.4%
Organic revenue	Up 22.5%
Adjusted operating profit	Up 35.4%
Organic adjusted operating profit	Up 28.4%
Adjusted operating margin	Up 70bp
Operating cash flow	Up 30.1%
Operating cash flow/operating profit	85.7%
Diluted adjusted earnings per share	Up 37.5%
Dividend per share	Up 15.6%
Return on invested capital	19.9%

Growth in revenue

Top line revenue growth is a key performance measure. In 2008, revenue was £1,003.5m up 29.4% over the prior year (18.7% at constant exchange rates). 

Impact of currency movements

The Group operates in 73 different currencies. The majority of the Group's earnings are denominated in US dollars or currencies linked to the US dollar or which historically have moved in line with the dollar. Other currencies such as the Euro and the Chinese renminbi are also an important constituent of our overseas earnings. Therefore the Group's results, when translated into sterling, are exposed to changes in the value of the US dollar and other currencies. 

We show below the main currencies that make up the Group's earnings and the cumulative average exchange rates that we have used when translating results into sterling in 2008 and 2007. 

Value of £1	2008	2007	Change
US dollar	1.87	2.00	6.5%
Euro	1.26	1.46	13.7%
Chinese renminbi	13.03	15.24	14.5%
Hong Kong dollar	14.59	15.62	6.6%

The weak value of sterling compared to most of the currencies in which we operate had a very significant effect on our results in 2008. Our revenue growth was 29.4% at actual rates but 18.7% at constant exchange rates. Growth in adjusted operating profit was 35.4% at actual rates but 21.2% at constant exchange rates. 

Growth in adjusted operating profit and margin

	2008	2007
	£m	£m	Change
Operating profit	147.9	116.1	27.4%
Amortisation of acquisition intangibles	9.6	5.1	88.2%
Impairment of goodwill	0.5	0.4	25.0%
Non-recurring costs	6.7	-	-
Adjusted operating profit	164.7	121.6	35.4%
Adjusted operating margin	16.4%	15.7%	Up 70bp

In 2008, adjusted operating profit was £164.7m, up 35.4% over the previous year. The adjusted operating margin was 16.4%, up 70 basis points from 15.7%. 

Amortisation of acquisition intangibles

Amortisation of acquisition intangibles is provided on a straight line basis over the life of the assets, which is normally five years but can be up to ten years. The charge was £9.6m in 2008, up from £5.1m in 2007 due to the accumulation of intangible assets acquired in the past five years.  

Impairment of goodwill

As described in note 11 to the Annual Report, we perform a detailed review of goodwill each year to consider whether there is any impairment in its carrying value. The capitalised goodwill at 31 December 2008 was £242.1m (2007: £148.4m) which relates to acquisitions made since 1998. Our review revealed that the carrying value of Intertek Testing and Certification Ltd, which forms part of the Commercial & Electrical division in the UK, was impaired. We therefore reduced the goodwill associated with this business by £0.5m to £5.5m. The business was profitable in 2008 and is expected to remain so in the foreseeable future.

Non-recurring costs

The non-recurring costs of £6.7m comprised employee redundancies and settlements, lease terminations, and legal and consultancy costs. This primarily related to the integration of the Government Services division into the Oil, Chemical & Agri division, following the Group's strategic review of its business segments.  

Net financing costs

Details of the Group's net financing costs are given in note 7 to the Annual Report.

The Group reported finance income in 2008 of £13.1m (2007: £5.4m). This comprised foreign exchange differences on the revaluation of net monetary assets and liabilities, the expected return on pension assets and interest on bank balances. The increase was mainly due to foreign exchange gains made on the revaluation of net monetary assets and liabilities.

The Group's finance expense for 2008 was £22.6m compared to £15.6m in 2007. The charge comprised interest on borrowings, pension interest cost, the change in value of financial instruments held for trading, the ineffective portion of cash flow hedges and other financing fees. The increase was primarily due to higher levels of debt and the changes in fair value of financial instruments held for trading. 

Income tax expense

Income tax expense for 2008 was £36.4m (2007: £27.0m), comprising a current tax charge of £41.9m (2007: £29.3m) less a deferred tax credit of £5.5m (2007: £2.3m). The effective tax rate was 26.3%, up from 25.5% in 2007. The main reason for the increase in the effective tax rate was increased earnings in higher taxed jurisdictions such as the USA and an increase in the statutory tax rates in lower taxed jurisdictions such as China.

Profit for the year

Profit for the year after income tax was £102.2m (2007: £78.8m) of which £93.8m (2007: £73.2m) was attributable to equity holders of the Company.  

Minority interests

Profit attributable to minority shareholders was £8.4m in 2008 (2007: £5.6m). The increase was mainly due to the strong growth in the Group's non-wholly owned subsidiaries in Asia.

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 year. As set out in note 9 to the Annual Report, basic earnings per share at the end of the year were 59.5p (2007: 46.7p), an increase of 27.4%. A diluted adjusted earnings per share calculation is also shown which removes the post-tax impact of amortisation of acquisition intangibles, impairment of goodwill and non-recurring costs from earnings, and includes potentially dilutive share options in the number of shares, to give diluted adjusted earnings per share of 67.1p (2007: 48.8p), an increase of 37.5%. We consider that growth in the diluted adjusted earnings per share figure gives a more representative measure of underlying performance and is one of the key performance targets that the Group uses to incentivise its managers.

Dividends 

During the year, the Group paid total dividends of £30.4m (2007: £25.2m), which comprised £19.2m in respect of the final dividend for the year ended 31 December 2007, paid on 19 June 2008 at the rate of 12.2p per share and £11.2m being the interim dividend in respect of the year ended 31 December 2008, paid on 18 November 2008 at a rate of 7.1p per share. These amounts were charged to retained earnings (see note 21 to the Annual Report).  After the balance sheet date, the Board recommended a 12.3% increase in the final dividend in respect of the year ended 31 December 2008, to 13.7p per share (2007: 12.2p), which together with the interim dividend will give a full year dividend of 20.8p per share (2007: 18.0p), an increase of 15.6% over last year. If approved, the final dividend will be paid to shareholders on 19 June 2009. The total cost of the final dividend is expected to be £21.6m, giving a total cost of £32.8m for the dividends paid in respect of the year ended 31 December 2008. This represents 32.1% of net income for 2008, or a dividend cover of 3.1 times by earnings.

Cash and liquidity

Cash and liquidity	2008	2007	Increase
	£m	£m
Cash generated from operations	194.0	149.1	30.1%
Less net acquisition of property, plant, equipment and software	(67.2)	(43.5)	54.5%
Operating cash flow after capital expenditure	126.8	105.6	20.1%
Operating profit	147.9	116.1	27.4%
Operating cash flow/operating profit	85.7%	91.0%	(530)bp

The primary source of the Group's cash liquidity over the last two financial years has been 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.

The Group continued to generate good cash flow. Cash generated from operations was £194.0m for 2008, compared to £149.1m for 2007. The increase of 30.1% was due to favourable exchange rates, improved profitability and effective working capital management. One of the key performance indicators we use to measure the efficiency of our cash generation is the percentage of operating profit that is converted into cash. As shown in the table above, in 2008, 85.7% of operating profit was converted into cash compared to 91.0% in 2007. The decrease in the conversion rate was due to an increase in capital expenditure of 54.5%, mainly as a result of investment in new projects in the Minerals division.

In order to support our growth strategy we need to invest continually in our operations. In 2008, net cash flows used in investing activities were £156.6m (2007: £128.2m). We paid £67.8m net of cash acquired, (2007: £85.8m) for 14 new businesses, £16.7m (2007: £nil) for deferred consideration on prior year acquisitions, and £67.2m (2007: £43.5m) for the acquisition of property, plant and equipment and computer software, net of disposals. In 2008, we also acquired shares in a listed investment for £4.4m, acquired the remaining 15% minority shareholding in one of our subsidiaries in China for £1.9m and purchased a share in an associate for £0.1m. Historically our level of capital expenditure has been less than 7% of revenue. In 2008, the ratio was 6.7% compared to 5.6% the year before. This was mainly due to investment in new projects in the Minerals division in 2008, which are now completed. The same level of investment will not be required in this division in 2009. 

Cash flows from financing activities comprised cash inflows from the issue of share capital following the exercise of employee share options of £2.6m (2007: £4.9m), cash introduced by minority shareholders of £0.5m (2007: £nil) and the net drawdown of debt of £79.5m (2007: £49.4m), and cash outflows of dividends paid to minorities of £6.1m (2007: £3.6m) and dividends paid to Group shareholders of £30.4m (2007: £25.2m), which resulted in a net cash inflow of £46.1m (2007: £25.5m).

Interest bearing loans and borrowings were £421.6m at 31 December 2008, an increase of 82.4% over 2007. The Group's borrowings are in currencies which match its asset base. The increase in borrowings comprised exchange adjustments of £110.9m due to the translation into sterling of borrowings denominated in other currencies and the net drawdown of debt of £79.5m. The debt drawdown was mainly used to finance acquisitions. Cash and cash equivalents at 31 December 2008, were £113.3m, an increase of 93.3% over 2007. This increase was due to exchange adjustments of £24.3m and cash inflow of £30.4m. As shown in note 25 to the financial statements, net debt at 31 December 2008 was £308.3m (2007: £172.6m). 

Borrowings

The Group has a sterling denominated multi-currency bank debt 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, so the facility is now due to expire in December 2011. The margins currently paid on the borrowings in this facility are in the range of 0.3% to 1.5% over LIBOR. In June and July 2008, the Group raised a further £75.0m under this facility from three new banks who joined the existing syndicate of ten banks under the same terms and conditions and margin.

In 2008 the Group also raised US$200.0m by way of senior note issues which have a blended fixed borrowing rate of 6.71%. In June 2008, US$100.0m was raised which is repayable on 26 June 2015 and the interest rate is fixed at 5.54%. In December 2008, a further US$100.0m was raised which 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% These senior notes were immediately applied against bank debt borrowings to increase the amount of liquidity headroom on the facility. 

The maturity of the Group's borrowings is set out below:

Borrowings	2008	2007
	£m	£m
Due within one year	14.0	13.7
Due between one and two years	44.3	82.7
Due between two and five years	222.0	134.8
Due in over five years	141.3	-
Total	421.6	231.2

The Group's gross borrowings are denominated in the following currencies:

	2008	2007
	£m	£m
US dollar	63%	30%
UK sterling	12%	3%
Hong Kong dollar	9%	36%
Euro	8%	13%
Swedish kroner	4%	10%
Japanese yen	3%	5%
Other	1%	3%

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 31 December the Group had the following liquid funds:

	2008	2007
	£m	£m
Senior Term facilities	612.4	400.0
Repayments to 31 December	(88.0)	(50.0)
Senior Term borrowings	(417.7)	(230.7)
Letters of credit and guarantees	(8.9)	(7.0)
Undrawn committed borrowing facilities	97.8	112.3
Cash and cash equivalents	113.3	58.6
Liquid funds	211.1	170.9

Where appropriate, cash is managed in currency based cash pools and is put on overnight deposit, bearing interest at rates fixed daily in advance. At 31 December 2008, 91.3% of cash was on overnight deposit (2007: 75.1%).

Consolidated Income Statement 

For the year ended 31 December 2008

		2008	2007
	Notes	£m	£m
Revenue	1	1,003.5	775.4
Cost of sales		(792.6)	(615.9)
Gross profit		210.9	159.5
Amortisation of acquisition intangibles		(9.6)	(5.1)
Impairment of goodwill		(0.5)	(0.4)
Non-recurring costs	2	(6.7)	-
Other administrative expenses		(46.2)	(37.9)
Total administrative expenses		(63.0)	(43.4)
Group operating profit	1	147.9	116.1
Finance income		13.1	5.4
Finance expense		(22.6)	(15.6)
Net financing costs		(9.5)	(10.2)
Share of profit/(loss) of associates		0.2	(0.1)
Profit before income tax		138.6	105.8
Income tax expense		(36.4)	(27.0)
Profit for the year		102.2	78.8
Attributable to:
Equity holders of the Company		93.8	73.2
Minority interest		8.4	5.6
Profit for the year		102.2	78.8
Earnings per share
Basic	3	59.5p	46.7p
Diluted	3	58.9p	46.2p

Consolidated Balance Sheet

As at 31 December 2008

		2008	2007
		£m	£m
ASSETS
Property, plant and equipment		234.8	149.2
Goodwill		242.1	148.4
Other intangible assets		55.2	35.0
Investments in associates		1.3	0.6
Other investments		4.4	-
Deferred tax assets		15.7	11.9
Total non-current assets		553.5	345.1
Inventories		8.2	4.0
Trade and other receivables		284.4	191.0
Cash and cash equivalents		113.3	58.6
Total current assets		405.9	253.6
Total assets		959.4	598.7
LIABILITIES
Interest bearing loans and borrowings		(14.0)	(13.7)
Derivative financial instruments		(4.5)	(0.7)
Current taxes payable		(36.3)	(25.3)
Trade and other payables		(184.4)	(128.6)
Provisions		(26.4)	(22.7)
Total current liabilities		(265.6)	(191.0)
Interest bearing loans and borrowings		(407.6)	(217.5)
Deferred tax liabilities		(6.4)	(5.3)
Net pension liabilities		(18.5)	(7.3)
Other payables		(3.4)	(0.9)
Provisions		(0.2)	(0.9)
Total non-current liabilities		(436.1)	(231.9)
Total liabilities		(701.7)	(422.9)
Net assets		257.7	175.8
EQUITY
Share capital		1.6	1.6
Share premium		249.9	247.3
Other reserves		32.0	11.7
Retained earnings		(41.8)	(96.4)
Total equity attributable to equity holders of the Company		241.7	164.2
Minority interest		16.0	11.6
Total equity		257.7	175.8

Consolidated Statement of Cash Flows

For the year ended 31 December 2008

		2008	2007
	Notes	£m	£m
Cash flows from operating activities
Profit for the year	1	102.2	78.8
Adjustments for:
Depreciation charge		36.6	27.7
Amortisation of software		2.9	2.3
Amortisation of acquisition intangibles		9.6	5.1
Impairment of goodwill		0.5	0.4
Equity-settled transactions		3.3	3.0
Share of (profit)/loss of associates		(0.2)	0.1
Net financing costs		9.5	10.2
Income tax expense		36.4	27.0
Loss on disposal of property, fixtures, fittings, equipment and software		0.6	0.1
Operating profit before changes in working capital and operating provisions		201.4	154.7
Change in inventories		(1.1)	(0.3)
Change in trade and other receivables		(20.1)	(20.7)
Change in trade and other payables		11.4	14.4
Change in provisions		5.4	3.8
Special contributions into pension schemes		(3.0)	(2.8)
Cash generated from operations		194.0	149.1
Interest and other finance expense paid		(16.5)	(10.8)
Income taxes paid		(36.6)	(28.4)
Net cash flows from operating activities		140.9	109.9
Cash flows from investing activities
Proceeds from sale of property, fixtures, fittings, equipment and software		0.4	0.3
Interest received		1.5	1.1
Acquisition of subsidiaries, net of cash acquired		(67.8)	(85.8)
Consideration paid in respect of prior year acquisitions		(16.7)	-
Purchase of minority interests		(1.9)	-
Purchase of a listed investment		(4.4)	-
Purchase of an associate		(0.1)	-
Acquisition of property, fixtures, fittings and equipment		(63.9)	(41.3)
Acquisition of software		(3.7)	(2.5)
Net cash flows used in investing activities		(156.6)	(128.2)
Cash flows from financing activities
Proceeds from the issue of share capital		2.6	4.9
Issue of shares by subsidiary undertaking to minority		0.5	-
Drawdown of Senior Term Loans and Notes		177.9	70.6
Repayment of Senior Term Loans		(98.4)	(21.2)
Dividends paid to minorities		(6.1)	(3.6)
Equity dividends paid		(30.4)	(25.2)
Net cash flows from financing activities		46.1	25.5
Net increase in cash and cash equivalents		30.4	7.2
Cash and cash equivalents at 1 January		58.6	49.5
Effect of exchange rate fluctuations on cash held		24.3	1.9
Cash and cash equivalents at 31 December		113.3	58.6

 Consolidated statement of recognised income and expense 

For the year ended 31 December 2008

		2008	2007
		£m	£m
Foreign exchange translation differences for foreign operations		138.4	10.6
Actuarial gains and losses on defined benefit pension schemes		(12.3)	8.5
Tax on income and expense recognised directly in equity		-	(2.3)
Effective portion of changes in fair value of cash flow hedges		(3.7)	(1.1)
Net loss on hedges of net investments in foreign operations		(110.9)	(3.2)
Income and expense recognised directly in equity		11.5	12.5
Profit for the year		102.2	78.8
Total recognised income and expense for the year		113.7	91.3
Total recognised income and expense for the year attributable to:
Equity holders of the Company		101.8	85.1
Minority interest		11.9	6.2
Total recognised income and expense for the year		113.7	91.3

Notes to the financial statements

1    SEGMENT REPORTING

Segment information is presented in respect of the Group's business and geographical segments. The primary format, business segments, is based on the way the Group considers its business.

Inter-segment pricing is determined on an arm's-length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly borrowings, pension fund liabilities, and corporate expenses and assets. 

Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and computer software.

Business segments

From 1 January 2008, the Group is organised into seven operating divisions: Consumer Goods, Commercial & Electrical, Oil, Chemical & Agri, Government Services, 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. 

These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Consumer Goods provides services to the textiles, footwear, toys, food and hardlines industries.

Commercial & Electrical provides testing, inspection and certification services to industries including those in the home appliances, medical, building, industrial and HVAC/R, IT and telecom and automotive sectors.

Oil, Chemical & Agri provides independent cargo inspection, laboratory testing, calibration and related technical services to the world's energy, petroleum, chemical and agricultural industries. 

Government Services provides trade services to standards bodies and governments. 

Analytical Services provides laboratory services to the chemical, pharmaceutical, cosmetics/personal care, oil and gas and automotive/aerospace industries.

Industrial Services provides high-value audit services to a wide range of industries in both the manufacturing and services sectors and quality and safety services to oil and gas, industrial and process industries.

Minerals provides inspection, testing and advisory services to the mining and exploration industries.  

Prior to 1 January 2008, the Group was organised into four divisions: Oil, Chemical & Agri, Commercial & Electrical, Consumer Goods and Government Services. Central overheads which comprised the costs of the corporate head office and other costs which are not controlled by the operating divisions were shown separately. 

Revenue and operating profit previously reported for periods prior to 1 January 2008 have been restated to show a like-for-like comparison.

Year ended 31 December 2008

Business analysis (primary segment)

	Revenue from external customers	Inter-segment revenue	Total revenue	Adjusted operating profit	Amortisation of acquisition intangibles	Impairment of goodwill	Total
	£m	£m	£m	£m	£m	£m	£m
Consumer Goods	250.4	0.5	250.9	75.7	(1.0)	-	74.7
Commercial & Electrical	203.5	2.6	206.1	29.2	(1.5)	(0.5)	27.2
Oil, Chemical & Agri	308.1	6.0	314.1	33.5	(0.6)	-	32.9
Government Services	46.8	1.3	48.1	6.4	-	-	6.4
Analytical Services	119.5	-	119.5	13.2	(3.9)	-	9.3
Industrial Services	36.0	1.8	37.8	1.8	(1.6)	-	0.2
Minerals	39.2	-	39.2	4.9	(1.0)	-	3.9
Eliminations	-	(12.2)	(12.2)	-	-	-	-
Total	1,003.5	-	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
Income tax expense							(36.4)
Profit for the year							102.2

	Segment assets	Segment liabilities	Depreciation and software amortisation	Capital expenditure including software
	£m	£m	£m	£m
Consumer Goods	139.2	47.3	9.3	14.3
Commercial & Electrical	198.8	47.2	8.8	16.3
Oil, Chemical & Agri	186.7	51.5	12.1	16.7
Government Services	15.7	10.0	1.5	0.3
Analytical Services	171.8	16.4	4.4	5.4
Industrial Services	33.9	4.8	0.4	0.5
Minerals	68.9	6.3	2.8	12.3
Central	6.5	8.0	0.2	1.8
Total allocated	821.5	191.5	39.5	67.6
Investments	5.7	-	-	-
Unallocated	132.2	510.2	-	-
Total	959.4	701.7	39.5	67.6

Year ended 31 December 2007

Business analysis (primary segment)

	Revenue from external customers	Inter-segment revenue	Total revenue	Adjusted operating profit	Amortisation of acquisition intangibles	Impairment of goodwill	Group operating profit
	£m	£m	£m	£m	£m	£m	£m
Consumer Goods	181.2	0.4	181.6	52.4	(0.5)	-	51.9
Commercial & Electrical	163.0	1.8	164.8	23.0	(0.8)	-	22.2
Oil, Chemical & Agri	248.5	3.0	251.5	24.4	(0.5)	-	23.9
Government Services	45.2	1.3	46.5	6.0	(0.1)	-	5.9
Analytical Services	95.7	-	95.7	11.7	(1.8)	-	9.9
Industrial Services	22.2	0.1	22.3	1.0	(0.8)	(0.4)	(0.2)
Minerals	19.6	-	19.6	3.1	(0.6)	-	2.5
Eliminations	-	(6.6)	(6.6)	-	-	-	-
Total	775.4	-	775.4	121.6	(5.1)	(0.4)	116.1
Net financing costs							(10.2)
Share of loss of associates							(0.1)
Income tax expense							(27.0)
Profit for the year							78.8

	Segment assets	Segment liabilities	Depreciation and software amortisation	Capital expenditure including software
	£m	£m	£m	£m
Consumer Goods	80.7	28.1	7.3	8.7
Commercial & Electrical	117.1	36.3	7.7	9.6
Oil, Chemical & Agri	150.0	37.6	9.9	17.3
Government Services	16.0	8.1	1.5	0.4
Analytical Services	111.1	13.5	2.6	3.7
Industrial Services	7.3	0.9	-	-
Minerals	39.6	3.8	0.9	3.8
Central	4.2	8.1	0.1	0.3
Total allocated	526.0	136.4	30.0	43.8
Investment in associates	0.6	-	-	-
Unallocated	72.1	286.5	-	-
Total	598.7	422.9	30.0	43.8

The figures previously reported were as follows:

	Revenue from external customers	Inter-segment revenue	Total revenue	Adjusted operating profit	Amortisation of acquisition intangibles	Impairment of goodwill	Group operating profit
	£m	£m	£m	£m	£m	£m	£m
Consumer Goods	181.2	0.4	181.6	55.2	(0.5)	-	54.7
Commercial & Electrical	179.1	1.8	180.9	27.2	(1.6)	(0.4)	25.2
Oil, Chemical & Agri	364.0	3.1	367.1	45.8	(2.9)	-	42.9
Government Services	51.1	1.3	52.4	7.6	(0.1)	-	7.5
Central	-	-	-	(14.2)	-	-	(14.2)
Eliminations	-	(6.6)	(6.6)	-	-	-	-
Total	775.4	-	775.4	121.6	(5.1)	(0.4)	116.1

	Segment assets	Segment liabilities	Depreciation and software amortisation	Capital expenditure including software
	£m	£m	£m	£m
Consumer Goods	80.7	28.1	7.3	8.7
Commercial & Electrical	121.5	37.1	7.7	9.6
Oil, Chemical & Agri	303.6	55.1	13.4	24.8
Government Services	16.0	9.4	1.5	0.4
Central	4.2	6.7	0.1	0.3
Total	526.0	136.4	30.0	43.8
Investment in associates	0.6	-	-	-
Unallocated	72.1	286.5	-	-
Total	598.7	422.9	30.0	43.8

Geographic segments

All the business segments are managed on a worldwide basis but can be divided into the following geographic regions:

• Americas
• Europe, Middle East and Africa 
• Asia Pacific

In presenting information on the basis of geographic 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. Central overheads are incurred mostly in the UK and are not allocated to other regions. Segment assets are based on the geographical location of the assets.

Geographic analysis (secondary segment)

	Americas		Europe, Middle East and Africa		Asia Pacific			Consolidated
	2008	2007	2008	2007		2008	2007	2008	2007
	£m	£m	£m	£m		£m	£m	£m	£m
Revenue from external customers	341.1	271.7	295.6	235.0		366.8	268.7	1,003.5	775.4
Adjusted operating profit	49.3	38.5	7.1	4.1		108.3	79.0	164.7	121.6
Amortisation of acquisition intangibles	(3.0)	(1.8)	(4.3)	(1.6)		(2.3)	(1.7)	(9.6)	(5.1)
Impairment of goodwill	-	-	(0.5)	-		-	(0.4)	(0.5)	(0.4)
Non-recurring costs	(2.5)	-	(4.1)	-		(0.1)	-	(6.7)	-
Group operating profit	43.8	36.7	(1.8)	2.5		105.9	76.9	147.9	116.1
Segment assets	313.6	198.7	277.6	172.2		230.3	155.1	821.5	526.0
Capital expenditure including software	20.9	14.2	16.5	10.5		30.2	19.1	67.6	43.8

2    NON-RECURRING COSTS

The non-recurring costs of £6.7m (2007: £nil) comprised employee redundancies and settlements, lease terminations and consultancy and legal fees. The tax impact is a tax credit of £1.2m (2007: £nil). This primarily relates to the integration of the Government Services division with the Oil, Chemical & Agri division, following the Group's strategic review of its business segments. 

3    EARNINGS PER ORDINARY SHARE

The calculation of earnings per ordinary share is based on profit attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares in issue during the year. In addition to the earnings per share required by IAS 33: Earnings Per Share, an adjusted earnings per share has also been calculated and is based on earnings excluding the effect of amortisation of acquisition intangibles, goodwill impairment and non-recurring costs. It has been calculated to allow shareholders to have a better understanding of the trading performance of the Group. Details of the adjusted earnings per share are set out below:

	2008	2007
Based on the profit for the year:	£m	£m
Profit attributable to ordinary shareholders	93.8	73.2
Adjusting items:
Amortisation of acquisition intangibles	9.6	5.1
Impairment of goodwill	0.5	0.4
Non-recurring costs	6.7	-
Adjusted earnings	110.6	78.7
Tax impact on adjusting items	(3.7)	(1.4)
Adjusted earnings after tax impact	106.9	77.3
Number of shares (millions)
Basic weighted average number of ordinary shares	157.7	156.9
Potentially dilutive share options*	1.7	1.4
Diluted weighted average number of shares	159.4	158.3
Basic earnings per share	59.5p	46.7p
Options	(0.6)p	(0.5)p
Diluted earnings per share	58.9p	46.2p
Basic adjusted earnings per share	70.1p	50.2p
Options	(0.7)p	(0.5)p
Diluted adjusted earnings per share	69.4p	49.7p
Basic adjusted earnings per share (after tax impact)	67.8p	49.3p
Options	(0.7)p	(0.5)p
Diluted adjusted earnings per share (after tax impact)	67.1p	48.8p

*The weighted average number of shares used in the calculation of the diluted earnings per share for the year to 31 December 2008, excludes 780,343 (2007: nil) contingently issuable shares as the performance conditions were not met.

4    ANALYSIS OF NET DEBT

	1 January 2008	Cash flow	Exchange adjustments	31 December 2008
	£m	£m	£m	£m
Cash	58.6	30.4	24.3	113.3
Borrowings	(231.2)	(79.5)	(110.9)	(421.6)
Total net debt	(172.6)	(49.1)	(86.6)	(308.3)

5    ANNUAL REPORT

The financial information set out above does not constitute the company's statutory accounts for the year ended 31 December 2008 or 2007 but is derived from the 2008 accounts. Statutory accounts for 2007 have been delivered to the registrar of companies, and those for 2008 will be delivered in due course. The auditors have reported on those accounts; their reports were (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.

 

END

 

 

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