Preliminary Results

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

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