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Bringing competitive
advantage to business
Annual Report 2008
IFC2
Contents
01
02
04
Financial Highlights
At a Glance
Chairman’s Statement
Directors’ Report – Business Review
06
09
23
24
28
Chief Executive Officer’s Review
Operating Review
Chief Operating Officer’s Review
Financial Review
Risks and Uncertainties
Directors’ Report – Governance
32
34
36
42
56
58
59
Board of Directors
Intertek Operations Committee
Corporate Governance Report
Remuneration Report
Other Statutory Information
Statement of Directors’ Responsibilities
Corporate Social Responsibility Report
Financial Statements
66
68
69
70
71
72
112
113
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Recognised Income and Expense
Notes to the Financial Statements
Intertek Group plc Company Balance Sheet
Notes to the Company Financial Statements
Shareholder Information
116
117
Corporate and Shareholder Information
Financial Calendar and Contact Information
Cautionary statement
This Annual Report contains certain forward-
looking statements with respect to the financial
condition, results, operations and business of
Intertek Group plc. These statements and forecasts
involve risk and uncertainty because they relate to
events and depend upon circumstances that will
occur in the future. There are a number of factors
that could cause actual results or developments to
differ materially from those expressed or implied by
these forward-looking statements and forecasts.
Nothing in this Annual Report should be construed
as a profit forecast.
01
Annual Report 2008 01
Financial Highlights
Revenue £m
+29.4%
2008
2007
+18.7% at constant rates1
Operating profit £m
+27.4%
1,003.5
2008
147.9
775.4
2007
116.1
Adjusted operating profit2 £m
Adjusted operating profit margin
+35.4%
+70bp
2008
2007
164.7
2008
121.6
2007
16.4%
15.7%
+21.2% at constant rates1
+30bp at constant rates1
Operating cash flow £m
+30.1%
2008
2007
Profit before income tax £m
+31.0%
194.0
2008
138.6
149.1
2007
105.8
Basic earnings per share
+27.4%
2008
2007
67.1p diluted adjusted EPS3
Dividend per share4
+15.6%
59.5p
2008
20.8p
46.7p
2007
18.0p
1. Growth at constant exchange rates compares revenue and
adjusted operating profit for 2008 and 2007 at the average
exchange rates for 2008.
2. Operating profit before amortisation of acquisition intangibles,
goodwill impairment and non-recurring costs (see reconciliation
in note 3 to the financial statements).
3. Diluted adjusted EPS based on adjusted earnings (see note 9
to the financial statements).
4. Dividend per share is based on the interim dividend paid of
7.1p (2007: 5.8p) plus the proposed final dividend of 13.7p
(2007: 12.2p).
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Client: Intertek
Date: 05-03-2009
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ID No: C14294
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Our industries
Aerospace & Automotive
Building Products
Chemicals
Consumer Goods & Retailers
Electrical & Electronic
Energy
Food & Agriculture
Industrial
IT & Telecom
Medical & Pharmaceutical
Minerals
Petroleum
Toys, Games & Hardlines
Textiles, Apparel & Footwear
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Payless ShoeSource
Petroleo Brasileiro
Rolls-Royce
SABIC
Samsung
The Government of
Saudi Arabia
Saudi Aramco
Schneider Electric
Sears Holdings Management
Corporation
Shell
Smiths Medical
StatoilHydro
Talisman Energy
Territory Resources Limited
Tesco
The Home Depot Inc
Timberland
TOKYO ELECTRON LTD
Toshiba
Total
Trafigura
Valero
Vitol
YAMAHA
02 www.intertek.com
At a Glance
Intertek revenue growth in 2008
Asia Pacific
+37%
Americas
+26%
EMEA
+26%
Our customers
•
•
•
•
•
•
•
•
Aerojet
Agfa Healthcare
AkzoNobel
Auchan
The Government of
Bangladesh
Barrick Gold of Australia
BHP Billiton Worsley
Alumina Pty Ltd
Boddington Gold Mine/
Newmont Asia Pacific
Bosch
Bose Corporation
Canon
Certified Automotive
Parts Association
ChevronTexaco
Cisco
Citgo
ConocoPhillips
•
•
BP•
•
•
•
•
•
•
DSM•
•
•
•
•
•
ExxonMobil
Gap Inc
Häagen-Dazs®
Haier
Hitachi
Honeywell
Hydro-Québec
•
•
IBM•
•
IKEA
•
J C Penney Company, Inc.
•
Kohl’s
•
The Government of Kuwait
•
Lear Corporation
•
Levi Strauss & Co
LG•
•
•
•
•
•
•
•
•
•
•
LIDL
Linde
Lloyd’s Register
Maersk
Marks & Spencer
McDonald’s Corporation
The Government of Mexico
Morgan Stanley
Mothercare
The Government of
Mozambique
Nestlé
Newcrest Mining Limited
The Government of Nigeria
Nikon
Nordstrom, Inc.
Panasonic
•
•
•
•
•
•
03
Annual Report 2008 03
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.
Our divisions
Consumer Goods
Employees 8,531
Offices 104
Laboratories 71
Commercial & Electrical
Employees 3,527
Offices 72
Laboratories 76
Oil, Chemical & Agri
Employees 8,060
Offices 367
Laboratories 232
Government Services
Employees 563
Offices 40
Laboratories 1
Analytical Services
Employees 1,320
Offices 25
Laboratories 34
Industrial Services
Employees 417
Offices 40
Minerals
Employees 1,340
Offices 24
Laboratories 29
Contribution
to revenue
What we do
Testing
25%
20%
31%
5%
12%
3%
4%
Inspection
Certification
Auditing
Outsourcing
Advisory
Training
Quality
assurance
0404
Client: Intertek
Date: 05-03-2009
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04 www.intertek.com
Chairman’s Statement
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 financial statements. 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. Biographies of each of
the Board members are set out on pages 32 and 33.
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. Biographies of each
of the IOC members are set out on pages 34 and 35.
Acquisitions in 2008
14 businesses acquired for
£79.5m in nine countries
across six divisions
05
Annual Report 2008 05
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. As a result, we are confident that
Intertek will continue to grow well in 2009.
Basic earnings
per share
59.5p
Dividend per share
20.8p
Vanni Treves
Chairman
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 on pages 63 and 64.
Revenue £m
2008
2007
2006
1,003.5
775.4
664.5
Revenue in
2008 over
£1bn
06 www.intertek.com
Directors’ Report – Business Review
Chief Executive Officer’s Review
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Our commitment to supporting and adding value
to our customers by improving their products and
processes and reducing their costs drives everything
we do.
Our commitment
We deliver innovative solutions to our customers
and guide them through the complex regulations
and standards that apply to their products. We
facilitate our customers’ success in the global
marketplace and, most importantly, we provide our
customers with confidence. Our knowledge of
quality-enhancing and procurement procedures
along their value chain, together with our insight of
existing and forthcoming regulations worldwide,
allow our clients to reduce their product
development time cycle and ensure that their
products are compliant. By leveraging our local
service and global network, we enable our
customers to reduce overhead costs and dedicate
their primary energies to their core business
activities. We offer comprehensive programmes and
services which draw on our industry-specific
knowledge and technical expertise.
Progress towards delivering our strategy
Our excellent results for 2008 demonstrate the
effectiveness of our growth strategy. This strategy
is achieved by focusing on six key aspects of our
business:
•
•
•
•
•
•
Customers;
Our people;
Business development;
Processes;
Financial management;
Risk management.
Customers
By organising ourselves along industry lines we
have developed in-depth knowledge of our chosen
industries. This enables us to understand our
customers’ businesses, anticipate their current and
future needs and deliver seamless customer service.
We locate our offices and laboratories near our
clients so we can maintain a close relationship and
provide a local contact point through which they can
access our global network of facilities and expertise.
In the current economic climate, reducing non-
productive overheads is key for most businesses. Our
services allow our clients to reduce their dependency
on in-house testing, freeing up valuable resources to
allocate to their core services by outsourcing this to
Intertek. As a result, clients can speed up the
time-to-market of their products and reduce costs.
Our people
Our strategy is to attract, retain and motivate
talented people with the expertise and experience
to provide our clients with a service that surpasses
their expectations. Our focus on customer service
development through training and the strength
of our collective leadership, combined with a
stimulating work environment, are the principal
drivers which motivate our people to excel at their
work on behalf of all clients.
07
Annual Report 2008 07
We plan ahead to ensure we have the right profiles
of talent flowing through to shape and lead the
evolution of our markets and services. This also
enhances retention, with opportunities for career
progression across all countries and areas of
specialism.
We continue our distinctive strategy of developing
and promoting people locally as they have the best
understanding of the local market and customers,
whilst continuing to give opportunities for the most
talented to advance into international management.
Through our many Intertek as One initiatives we
emphasise the need to join together, maintaining
our agility to move people quickly to where they are
of greatest impact for the benefit of our customers
and our business.
Business development
Our industry-focused approach also drives our
business and corporate development strategy. Our
aim is to be a leader in our core service industries
and we actively seek businesses to acquire that
complement or extend our service offering to
customers in our chosen sectors. We integrate the
expertise and services in acquired businesses with
our existing services and offer these to our
customers globally. In 2008 we acquired 14
businesses in nine countries across a variety of
industry sectors. For example, in 2008 we acquired
Hi-Cad Technical Services Ltd which provides
specialist 3D data capture and measurement
services, primarily to customers in the UK and the
USA in the oil and petroleum industries. We also
acquired CML Biotech Ltd which specialises in the
measurement and management of bacteria in the
upstream oil and gas industries. Both acquisitions
strategically extend the breadth of our service
offering to our clients in the energy industries.
Our in-depth knowledge of the industries in which
we operate enables us to understand future
developments and design services to meet changing
customer requirements. For example, in 2008 we
expanded our photovoltaic capabilities to support
growth in the alternative energy industry and we
have extended our service offering for customers
in the food industry.
Processes
Internally, we continuously review and streamline
our core processes to improve customer service and
control costs. Our processes and procedures are
subject to regular audits from our customers and
regulatory bodies to ensure that we meet required
standards. We strive to achieve operational
excellence in all our facilities. Each division measures
a variety of operational performance indicators that
are appropriate to their business, such as test
turnaround times, number of certifications issued,
utilisation statistics, order backlog and order
conversion amongst others. Our global Intertek
as One initiative ensures that different parts of our
business communicate and co-operate with each
other to ensure our customers receive a seamless
service. We are also planning to combine our back
office functions within countries to improve
efficiency and reduce overhead costs.
Financial management
We aim to manage our business responsibly to
meet the needs of all our stakeholders. Our strategy
is to generate profitable growth both organically
and through acquisitions and to maintain a sound
financial position. We aim to secure long-term,
recurring revenue from new and existing clients.
We have many key financial performance indicators
such as top line revenue growth and operating
margin growth which we measure on a monthly
basis for each division and industry sector. Further
details are provided in the Financial Review starting
on page 24.
Our business focus
•
•
•
•
•
•
Customers
Our people
Business development
Processes
Financial management
Risk management
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08 www.intertek.com
Directors’ Report – Business Review
Chief Executive Officer’s Review
Intertek is a cash generative business and our focus
is on managing capital expenditure, working capital,
tax and interest costs. Our strategy is to ensure that
the cash we generate is used efficiently for
acquisitions, organic investment and returning funds
to our shareholders, adding to their value creation.
We continually monitor our cash position and the
location of our cash balances to ensure that
sufficient cash can be remitted into the UK to fund
our dividend payments to shareholders. During
2008 we added £75.0m to our committed
borrowing facilities and raised a further US$200.0m
by way of two senior note issues to ensure that we
have sufficient funds available to continue investing
in our business and making acquisitions. At
31 December 2008, the Group had undrawn
committed borrowing facilities of £97.8m which
mature in December 2011, and cash of £113.3m.
Risk management
An important part of our growth strategy is to
clearly identify risks to the achievement of our
ambitions and to successfully address them. We
continuously improve our risk assessment matrix
with a view to improving our risk assessment and
reporting framework to ensure that our internal
audit work continues to focus on the most
appropriate areas.
Our close relationship with our customers and the
markets in which they operate mean that we are
aware of the issues facing many industries and can
take appropriate and timely action. We monitor
underperforming businesses closely and where we
see revenue growth is declining we take action to
adjust our cost base to maintain our margin.
The current turmoil in the financial markets and the
prospects of a global recession have made it more
difficult and expensive to obtain debt financing.
We will closely monitor the level of capital in the
business and adjust it as necessary to meet
requirements.
Creating value
We will face many challenges in the current
economic environment but I am confident that the
services we provide, our strategy and the dedication
of our people will continue to drive demand for our
services, add value for our customers and create
value for our shareholders.
Wolfhart Hauser
Chief Executive Officer
Our strategy
•
•
•
•
•
Add value to clients
Offer bundled services
Drive outsourcing
Focus on selected industry sectors
Support global trade
09
Annual Report 2008 09
Operating Review
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.
Group Overview
Who we are
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,
10 www.intertek.com
Directors’ Report – Business Review
Operating Review
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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
Intertek Group Revenue
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
Other Divisions
25%
20%
31%
5%
19%
11
Annual Report 2008 11
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.
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
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services1
New Divisions
Central
Revenue
£m
250.4
203.5
308.1
46.8
194.7
–
New Structure
Adjusted
operating
profit
£m
75.7
29.2
33.5
6.4
19.9
–
Total
1,003.5
164.7
Old Structure
Adjusted
operating
profit
£m
78.8
32.6
59.6
9.6
–
(15.9)
Revenue
£m
250.4
223.2
468.0
61.9
–
–
1,003.5
164.7
Margin
31.5%
14.6%
12.7%
15.5%
–
–
16.4%
Margin
30.2%
14.3%
10.9%
13.7%
10.2%
–
16.4%
1. Integrated into the Oil, Chemical & Agri division from 1 January 2009.
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Client: Intertek
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Our performance in 2008
2008
250.4
203.5
308.1
46.8
194.7
Revenue
Change at
actual
rates
38.2%
24.8%
24.0%
3.5%
41.6%
Change at
constant
rates
24.1%
13.9%
14.5%
(3.5)%
32.0%
1,003.5
29.4%
18.7%
£m
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
New Divisions
Revenue and Adjusted
operating profit
Amortisation
Impairment
Non-recurring costs
Operating profit
Net financing costs
Share of profit of associate
Profit before income tax
Income tax expense
Result for the year
1,003.5
29.4%
18.7%
Adjusted operating profit1
Change at
actual
rates
44.5%
27.0%
37.3%
6.7%
25.9%
Change at
constant
rates
27.9%
12.3%
25.5%
(8.7)%
17.0%
35.4%
21.2%
27.4%
31.0%
29.7%
2008
75.7
29.2
33.5
6.4
19.9
164.7
(9.6)
(0.5)
(6.7)
147.9
(9.5)
0.2
138.6
(36.4)
102.2
1. Before amortisation of acquisition intangibles, goodwill impairment and non-recurring costs.
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).
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 which starts on
page 14.
13
Annual Report 2008 13
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 continue 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.
Revenue £m
+29.4%
2008
2007
1,003.5
775.4
Adjusted operating profit £m
+35.4%
2008
2007
164.7
121.6
Adjusted operating profit margin
+70bp
2008
2007
16.4%
15.7%
1414
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ID No: C14294
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14 www.intertek.com
Directors’ Report – Business Review
Operating Review
High growth from
consumer concern
over toy safety
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
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
15
Annual Report 2008 15
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.
Paul Yao
Group Executive
Vice President
Consumer Goods
£m
250.4
Revenue
Adjusted operating profit
75.7
Adjusted operating margin 30.2%
Change
at actual
rates
Change
at constant
rates
38.2%
44.5%
130bp
24.1%
27.9%
90bp
1616
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Directors’ Report – Business Review
Operating Review
Effective marketing
campaigns and
growth of developing
businesses
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 to
a wide range of industries including the home
appliance, lighting, medical, building, industrial
and HVAC/R (heating, ventilation, air conditioning
and refrigeration), IT, telecom, renewable energy
and automotive industries. 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
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.
17
Annual Report 2008 17
Intertek – the mark of quality
For more than a 100 years, Intertek has guided
clients through the challenging certification
process. Offering the broadest range of
certification and accreditation marks accepted
in markets around the world, Intertek can help
clients to succeed in new and existing markets,
meet evolving regulatory requirements and win
new customers.
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.
Gregg Tiemann
Division Executive
Vice President
Commercial & Electrical
2008
£m
Change
at actual
rates
Change
at constant
rates
203.5
Revenue
Adjusted operating profit
29.2
Adjusted operating margin 14.3%
24.8%
27.0%
20bp
13.9%
12.3%
(30)bp
1818
Client: Intertek
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Directors’ Report – Business Review
Operating Review
Strong growth in all
regions particularly
non-inspection
related testing
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
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.
2008
£m
Change
at actual
rates
Change
at constant
rates
308.1
Revenue
Adjusted operating profit
33.5
Adjusted operating margin 10.9%
24.0%
37.3%
110bp
14.5%
25.5%
100bp
19
Annual Report 2008 19
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
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.
Jay Gutierrez
Division Executive
Vice President Oil,
Chemical & Agri and
Government Services
2008
£m
Change
at actual
rates
Change
at constant
rates
46.8
Revenue
Adjusted operating profit
6.4
Adjusted operating margin 13.7%
3.5%
6.7%
40bp
(3.5)%
(8.7)%
(80)bp
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2020
Client: Intertek
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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 and aerospace.
We have an established track record of success
in laboratory outsourcing with many large
internationally recognised companies.
Our performance in 2008
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.
Andrew Swift
Division Executive
Vice President
Analytical Services
2008
£m
Change
at actual
rates
Change
at constant
rates
119.5
Revenue
Adjusted operating profit
13.2
Adjusted operating margin 11.0%
24.9%
12.8%
(120)bp
17.4%
5.6%
(130)bp
21
Annual Report 2008 21
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
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.
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.
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 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.
Stefan Butz
Group Executive
Vice President
Industrial Services
2008
£m
Change
at actual
rates
Change
at constant
rates
36.0
Revenue
Adjusted operating profit
1.8
Adjusted operating margin 5.0%
62.2%
80.0%
50bp
48.1%
50.0%
10bp
2222
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Date: 05-03-2009
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Operating Review
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
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
benefited 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.
Marc Hoffer
Division Executive
Vice President
Minerals
2008
£m
Change
at actual
rates
Change
at constant
rates
39.2
Revenue
Adjusted operating profit
4.9
Adjusted operating margin 12.5%
100%
58.1%
(330)bp
83.2%
48.5%
(290)bp
23
Annual Report 2008 23
Chief Operating Officer’s Review
Intertek as One
The main purpose of our Intertek as One
programme is to promote cross-divisional
integration and co-operation to ensure that
our customers have access to the complete range
of Group services and to allow us to pursue
opportunities for sharing of resources.
In order to facilitate cross-divisional integration and
co-operation, we have nominated country managers
in 16 of the countries in which we operate, covering
80% of the Group’s revenue for 2008. Their
responsibility is to support and lead cross-divisional
selling and implement back office support shared
service initiatives. The intention is that by mid
2009 this will increase to more than 20 countries,
accounting for over 95% of the Group’s revenue.
Presenting a single face to our customers is essential
to achieve market penetration and drive cross-
divisional sales. By working together and integrating
our services we are able to provide a complete
package of services seamlessly to our customers.
We are developing customer management systems
to allow our divisions to share customer profiles
and contact details. This facilitates business
development through co-ordinated marketing
campaigns and allows us to provide a full range
of services to our clients.
One of the fundamental aims of the Intertek as One
programme is to position Intertek to sustain high
levels of growth without corresponding increases
in overhead costs. During 2008, we undertook
an in-depth review to consider how we might
standardize and streamline our processes to improve
efficiency and provide a platform for future growth.
We decided to establish shared service centres in
countries where we have a large presence,
combining business support functions such as
accounting, procurement, human resources and
IT across the divisions, to better improve the quality
and delivery of these functions to the business and
best support our growth.
Intertek as One
integrated services,
shared resources,
improved
communication.
In order to effect the desired changes without
disrupting our business and service to clients we
decided to concentrate initially on developing a
shared service centre covering the USA and Canada.
Our large presence in North America has the greatest
potential for cost saving synergies. This project is
currently underway and is expected to be completed
during 2009. Once the North American shared
service centre has been successfully established,
the project blueprint will be used to develop shared
service centres as appropriate elsewhere.
Communication is a vital part of the Intertek as One
initiative. Regular global, regional and local meetings
were held during the year to identify, support and
prioritise initiatives relevant to each country. Regular
progress reports are posted on the Group intranet
so that all employees are aware of the success of
various projects and can see the tangible benefits
that are starting to accrue.
In the current economic environment, it is even
more important that we maximize our business
opportunities whilst reducing our overheads and
our Intertek as One programme will help us to
achieve this.
Mark Loughead
Chief Operating Officer
Mark Loughead
Chief Operating
Officer
24 www.intertek.com
Directors’ Report – Business Review
Financial Review
2424
Client: Intertek
Date: 05-03-2009
Project: Annual Report 2008
ID No: C14294
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WI No: Verbal
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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 which starts on page 42.
Key financial peformance indicators
Revenue
Organic revenue
Adjusted operating profit
Organic adjusted operating profit
Adjusted operating margin
Operating cash flow
Operating cash flow/operating profit
Diluted adjusted earnings per share
Dividend per share
Return on invested capital
Up 29.4%
Up 22.5%
Up 35.4%
Up 28.4%
Up 70bp
Up 30.1%
85.7%
Up 37.5%
Up 15.6%
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
Euro
Chinese renminbi
Hong Kong dollar
1.87
1.26
13.03
14.59
2.00
1.46
15.24
15.62
6.5%
13.7%
14.5%
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
Operating profit
Amortisation of
acquisition intangibles
Impairment of goodwill
Non-recurring costs
Adjusted operating
profit
Adjusted operating
margin
2008
£m
2007
£m
Change
147.9
116.1
27.4%
9.6
0.5
6.7
5.1
0.4
–
88.2%
25.0%
–
164.7
121.6
35.4%
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 financial statements,
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 & 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 consultancy and legal fees.
This primarily related to the integration of the
Government Services division with 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 financial statements.
25
Annual Report 2008 25
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 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 financial statements, 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
financial statements). 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
Cash generated
from operations
Less net acquisition
of property, plant,
equipment and
software
Operating cash
flow after capital
expenditure
2008
£m
2007
£m
Change
194.0
149.1
30.1%
(67.2)
(43.5)
54.5%
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.
Sources of cash
Operations 71%
Issue of share capital 1%
Drawdown of debt 28%
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
26 www.intertek.com
Directors’ Report – Business Review
Financial Review
2626
Client: Intertek
Date: 05-03-2009
Project: Annual Report 2008
ID No: C14294
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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 on page 25, 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.
Cash outflow and increase in cash
Tax 13%
Working capital 2%
Interest 5%
Acquisitions and investment 32%
Capital expenditure 24%
Dividends 13%
Increase in cash 11%
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.
Due within one year
Due between one and two years
Due between two and five years
Due in over five years
2008
£m
14.0
44.3
222.0
141.3 –
2007
£m
13.7
82.7
134.8
Total
421.6
231.2
The Group’s gross borrowings are denominated in
the following currencies:
US dollar
UK sterling
Hong Kong dollar
Euro
Swedish kroner
Japanese yen
Other
2008
£m
63%
12%
9%
8%
4%
3%
1%
2007
£m
30%
3%
36%
13%
10%
5%
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
27
Annual Report 2008 27
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:
Senior term debt facilities
Repayments to 31 December
Senior term debt borrowings
Letters of credit and guarantees
Undrawn committed
borrowing facilities
Cash and cash equivalents
Liquid funds
2008
£m
612.4
(88.0)
(417.7)
(8.9)
97.8
113.3
211.1
2007
£m
400.0
(50.0)
(230.7)
(7.0)
112.3
58.6
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%).
Capital structure and management
The Group is committed to enhancing shareholder
value, both by investing in the business so as to
improve the return on investment in the longer term
and by managing our capital structure. The Group’s
policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence
and to sustain future development of the business.
Management monitors both the demographic
spread of shareholders, as well as the return on
capital. The Group seeks to maintain a balance
between the higher returns that might be possible
with higher levels of borrowings and the advantages
and security afforded by a sound capital position.
Return on capital in 2008 was 19.9% compared to
24.2% in 2007. The decrease was primarily due to
the higher level of capital invested in acquisitions
and laboratory facilities during the year, which did
not contribute a full year’s profits in 2008.
Return on invested capital
Operating profit
Amortisation of acquisition
intangibles
Impairment of goodwill
Non-recurring costs
Adjusted operating profit
Tax rate
2008
£m
2007
£m
147.9
116.1
9.6
0.5
6.7 -
5.1
0.4
164.7
26.3%
121.6
25.5%
Adjusted operating profit after tax
121.4
90.6
Property, plant and equipment
Goodwill
Other intangible assets
Inventories
Trade and other receivables
Trade and other payables
Provisions
234.8
242.1
55.2
8.2
284.4
(187.8)
(26.6)
149.2
148.4
35.0
4.0
191.0
(129.5)
(23.6)
Invested capital
610.3
374.5
Return on invested capital
19.9%
24.2%
There were no changes to the Group’s approach to
capital management during the year and neither the
Company nor any of its subsidiaries are subject to
externally imposed capital requirements.
Critical accounting policies
The consolidated financial statements are prepared
in accordance with IFRS. Intertek’s accounting
policies are set out in note 2 to the financial
statements.
New accounting standards
The Group has adopted in the year the following
new standards, amendments to standards and
interpretations, which have had no impact on the
financial statements:
• Amendments to IAS 39 and IFRS 7 –
‘Reclassification of Financial Instruments’;
• IFRIC 14, ‘IAS 19 – The limit on a defined benefit
asset, minimum funding requirements and their
interaction’;
• IFRIC 11, ‘IFRS 2 – Group and Treasury
Share Transactions’.
28 www.intertek.com
Directors’ Report – Business Review
Risks and Uncertainties
28
Client: Intertek
Date: 05-03-2009
Project: Annual Report 2008
ID No: C14294
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Risk framework
The Board has overall responsibility for the
establishment and oversight of the Group’s risk
management framework. The Board has an
established, structured approach to risk
management, which is described in the Corporate
Governance Report which starts on page 36.
The Vice President of Risk Management and Internal
Audit, who reports to the Chief Financial Officer and
the Audit and Risk Committee, has accountability
for the system of risk management and reporting
the key risks and mitigating actions. Risks are
formally identified and recorded in a risk matrix for
each operating division, which calculates gross risk
and net risk after mitigating controls are applied.
The risk matrix is updated annually and is used to
plan the Group’s internal audit and risk strategy. In
addition to the risk matrix, all senior executives and
their direct reports are required to complete an
annual return to confirm that management controls
have been effectively applied during the year.
The return covers operations, compliance, risk
management and finance. The Vice President of
Risk Management and Internal Audit attends the
meetings of the Audit and Risk Committee and
meets with the members of that committee alone,
at least once a year.
In common with all businesses, the Group is
affected by a number of risk factors, some of which
are outside our control. Although many of the risk
factors influencing the Group’s performance are
macroeconomic and likely to affect the performance
of business generally, others are particular to
Intertek’s operations. Specific risks which we are
aware of are detailed below, however there may be
other risks that are currently unknown or are
currently regarded as immaterial which could turn
out to be material. Any of these risks could have the
potential to impact the performance of the Group,
its assets, liquidity and capital resources.
Market risk
Market risk is the risk that changes in market prices,
such as foreign exchange rates and interest rates,
will affect the Group’s income or the value of its
assets and liabilities. These risks are managed by
the Group’s treasury function as described below.
Treasury management
The Board is responsible for approving the treasury
policy for the Group. The Group’s treasury and
funding activities are undertaken by a centralised
treasury function which reports to the Chief
Financial Officer. Its primary activities are to manage
the Group’s liquidity, funding requirements and
financial risk, principally arising from movements
in interest and foreign currency exchange rates.
The Group’s policy is to ensure that adequate
liquidity and financial resource is available to
support the Group’s continuing activities and
growth whilst managing these risks. The Group’s
policy is not to engage in speculative financial
transactions. Generally, the Group seeks to apply
hedge accounting in order to manage volatility in
profit or loss. There have been no significant
changes in the Group’s policies in the last year.
Group Treasury operates as a service centre within
clearly defined objectives and controls and is
subject to periodic review by internal audit.
Foreign currency risk
The Group operates in more than 100 countries
and has 217 (2007: 180) subsidiaries, of which 180
(2007: 161) report in currencies other than sterling.
The net assets of foreign subsidiaries represent
a significant portion of the Group’s shareholders’
funds and a substantial percentage of the Group’s
revenue and operating costs are incurred in
currencies other than sterling. Because of the high
proportion of international activity, the Group’s
profit is exposed to exchange rate fluctuations.
Two types of risk arise as a result: (i) translation risk,
that is, the risk of adverse currency fluctuations
in the translation of foreign currency operations
and foreign assets and liabilities into sterling and
(ii) transaction risk, that is, the risk that currency
fluctuations will have a negative effect on the
value of the Group’s commercial cash flows in
various currencies.
29
Annual Report 2008 29
(i) Translation risk
The results of the Group’s overseas activities are
translated into sterling using the cumulative average
exchange rates for the period concerned. The balance
sheets of overseas subsidiaries are translated at
actual exchange rates applicable at the balance
sheet date.
Key rates used during the year were as follows:
Value of £1
Balance sheet
Actual rates
Income statement
Cumulative average rates
31 Dec 08
31 Dec 07
2008
2007
US dollar
1.46
1.02
Euro
Chinese renminbi 9.95
Hong Kong dollar 11.28
1.99
1.36
14.57
15.51
1.87
1.26
13.03
14.59
2.00
1.46
15.24
15.62
Material changes in the exchange rates can create
volatility in the results when they are translated
into sterling. In order to mitigate this translation
exposure, the Group’s policy is to match the
currency of external borrowings to the currency
of expected cash flows and the currency of net
investments. At 31 December 2008, over 70%
of the Group’s borrowings were denominated in
US dollars and Hong Kong dollars.
(ii) Transaction risk
The Group’s policy requires overseas subsidiaries
to hedge all significant transaction exposures with
Group Treasury where they are managed centrally.
Subsidiaries’ transaction exposures include
committed foreign currency sales and purchases
together with the anticipated transactions
reasonably expected to occur during future periods.
The Group’s policy is also to hedge transaction
exposures arising from the remittance of overseas
dividends and interest as soon as they are
committed. Transaction exposures are hedged
forward using forward currency contracts which
mature in less than 12 months.
Interest rate risk and exposure
The Group’s policy is to ensure that between
33% and 67% of its exposure to changes in interest
rates on borrowings is on a fixed rate basis. This is
achieved by entering into interest rate swaps. The
balance between fixed and variable rate debt is
periodically adjusted on the basis of prevailing
and anticipated market conditions and the Group’s
gearing and interest cover, which are monitored by
Group Treasury. Details of the interest rate hedges
in place at 31 December 2008 are given in note 28
to the financial statements.
Liquidity risk
Liquidity risk is the risk that the Group fails to meet
its financial obligations as and when they fall due.
The management of operational liquidity risk aims
primarily at ensuring that the Group always has
a liquidity buffer that is able, 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. Group Treasury manages this
liquidity risk through the use of daily headroom
calculations as well as forecast headroom
calculations. Group Treasury are in regular contact
with the banks and capital debt markets as well
as other potential providers of debt to ensure a
proper understanding of the availability and
pricing of debt funding.
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 under the same
terms and conditions and margin by joining the
existing syndicate of 10 banks.
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% made up as follows. In
June, US$100.0m cash was raised that is repayable
on 26 June 2015 at a fixed interest rate of 5.54%.
In December, US$25.0m cash was raised that is
repayable on 21 January 2014 at a fixed interest
rate of 7.50%. In December, US$75.0m cash was
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Directors’ Report – Business Review
Risks and Uncertainties
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raised that is repayable on 10 June 2016 at a fixed
interest rate of 8.00%. These senior notes were
immediately applied against bank debt borrowings
to increase the amount of liquidity headroom
on the facility.
The sterling equivalent of the gross drawn and
available borrowings as at 31 December 2008
were £519.4m (2007: £343.5m) of which
£421.6m (2007: £231.2m) was drawn and
£97.8m (2007: £112.3m) was available when
translated at the year end exchange rates. The
Group also reported a cash balance of £113.3m
at 31 December 2008. The borrowings and cash
are mostly in currencies other than sterling and so
the value of these can fluctuate when translated
into sterling. The liquidity headroom is sterling
denominated and so this can also fluctuate
depending on the sterling value of the drawn
borrowings. The Group has prepared forecasts,
including scenarios adjusted for significantly worse
economic conditions and we have concluded
that these facilities are expected to be adequate
to support the Group’s medium-term funding
requirements.
The analysis of the debt and a description of the
borrowings and their respective maturity dates is
given in note 17 to the financial statements and
the currency of the debt is shown in note 28.
Surplus cash is placed on deposit with short-term
maturities providing liquidity when required.
Credit risk
Credit risk is the risk of a financial loss to the
Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations,
and arises principally from the Group’s receivables
from customers.
(i) Trade receivables
There is no concentration of credit risk with respect
to trade receivables as the Group has a large
number of customers who are internationally
dispersed. All companies in the Group are required
to operate a credit policy under which each new
customer is analysed individually for creditworthiness
before the company transacts any business with the
customer. Each division has a range of targets for
days sales outstanding and to encourage and
reward good performance, these form part of the
bonus criteria for the divisional managers. The
Group establishes an allowance for impairment that
represents our estimate of likely losses in respect of
trade and other receivables. The main components
of this allowance are a specific loss component that
relates to individually significant exposures and a
collective loss component established for groups
of similar assets in respect of losses that have been
incurred but not yet identified. The collective loss
allowance is determined based on historical data
of payment statistics for similar financial assets.
Due to the current economic recession there is an
increased risk that certain of our customers may
face financial difficulties and as a result be unable
to meet our credit terms or cease trading. We have
reinforced our credit checking procedures and have
increased our vigilance in monitoring and reacting
to changes in our clients’ circumstances.
(ii) Counterparty
The Group monitors the distribution of cash deposits,
borrowings and hedging instruments which are
assigned to each of the Group’s counterparties and
which are subject to periodic review.
Tax risk
Tax risk is the risk that the value of tax assets and
liabilities in the Group’s balance sheet is misstated,
resulting in financial loss to the Group.
The Group operates in more than 100 countries
and is subject to wide range of complex tax laws
and regulations. At any point in time it is normal for
there to be a number of open years in any particular
territory which may be subject to enquiry by local
authorities. Where the effect of the laws and
regulations is unclear, estimates are used in
determining the liability for the tax to be paid on
past profits which are recognised in the financial
statements. The Group considers the estimates,
assumptions and judgements to be reasonable but
this can involve complex issues which may take a
number of years to resolve. The final determination
31
Annual Report 2008 31
of prior year tax liabilities could be different from
the estimates reflected in the financial statements.
Risk of financial irregularities
Risk of financial irregularities is the risk that assets
of the Group could be misappropriated resulting in
financial loss to the Group, as well as the risk of
management misrepresenting results.
The Group comprises 217 subsidiaries, operating in
over 100 countries. Despite a rigorous programme
of internal audits and management reviews, we
cannot be certain that internal and external audit
procedures will always identify any financial
irregularity. The Group regularly reminds the
operating company officers of their fiduciary
responsibilities and maintains a culture of openness
to promote disclosure. As described above, each of
the senior executives and their direct reports are
required to complete an annual return to confirm
that management controls have been effectively
applied during the year.
Risk of litigation
Risk of litigation is the risk that the Group could
suffer a material financial loss resulting from a
legal judgement against the Group or one of its
subsidiaries. Such a judgement could also result
in adverse publicity which could damage the
reputation of the Group.
The Group is regularly notified of, or involved in,
a number of claims and proceedings which are
incidental to its ordinary course of business. Claims
can arise in the context of a dispute between
the parties to a commercial transaction in which
the Group has provided testing, inspection or
certification services. Often the Group’s role in
the transaction will be incidental to the underlying
dispute, but the claim will be notified to the Group
in order to toll the relevant statute of limitations in
respect of such a claim. In certain situations, a claim
may only be notified to the Group after resolution
of the underlying commercial dispute and, in such
cases, a considerable period of time may elapse
between the performance of services by the Group
and the assertion of a claim in respect of such
services. In either case, because the underlying
commercial transaction can be of significant value,
the claims notified to the Group can allege
substantial damages.
To reduce the likelihood of claims arising, the Group
has extensive quality assurance and control procedures
to ensure that work is performed in accordance with
proper protocols. All incidents that could potentially
result in a claim against the Group are reported to
compliance officers and are logged in a data base
of incidents. The Company Secretary reports
significant claims to the Audit and Risk Committee.
Legal counsel is appointed if appropriate. The Group
mitigates the risk of financial loss arising from
litigation by maintaining insurance against potential
claims, however there can be no assurance that claims
brought against the Group will always be covered by
insurance, or that such insurance, if available, will be
sufficient to cover fully the damages or other expenses
which the Group may be required to pay.
Environmental risk
Environmental risk is the risk that assets of the Group
could be damaged or destroyed by an environmental
incident and that the Group could incur loss of revenue
as a result of the ensuing disruption to operations.
Intertek operates facilities in more than 100
countries which are subject to local, environmental
and political factors. Disasters such as fire,
hurricanes, floods and earthquakes can cause
damage to property and personnel and can disrupt
operations, causing loss of revenue. The Group
maintains disaster recovery plans at key facilities for
such events and endeavours to ensure that
adequate insurance is in place.
Political risk
Political risk is the risk that the Group could suffer
financial losses due to the action of a government.
The Group operates in some countries where there
is potential risk of political instability which can make
it difficult to operate. In particular, government
contracts in the Government Services division can
be subject to change or termination at short notice.
The Group manages this risk by maintaining close
relationships with government representatives,
however the risk cannot be entirely mitigated.
32 www.intertek.com
Directors’ Report – Governance
Board of Directors
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Vanni Treves (68)
Chairman
Appointed to the Board as Chairman in May 2002.
He is a corporate solicitor and was a Partner of a major
London law firm, Macfarlanes, for 30 years for 12 of
which he was Senior Partner. He has been Chairman
of three listed companies, Channel Four Television
and London Business School and is currently Chairman
of Equitable Life Assurance Society, Korn/Ferry
International UK Limited and the National College for
School Leadership. He is also a Senior Advisor to Oliver
Wyman, a leading management consultancy, and a
Trustee of the J Paul Getty Charitable Trust.
Wolfhart Hauser (59)
Chief Executive Officer
Appointed to the Board as Chief Executive Officer in
March 2005 after serving as a Non-Executive Director
since November 2002. He was previously Chief Executive
Officer of TÜV Product Services for 10 years and Chief
Executive Officer and President of TÜV Süddeutschland
AG from 1998 to 2002. Starting his career as a scientist in
pharmacology and ergonomics, he established and led a
broad range of successful international service industry
businesses over 25 years. He is also currently a
Non-Executive Director of LogicaCMG plc.
Richard Nelson (66)
Non-Executive Deputy Chairman
Appointed Non-Executive Deputy Chairman in April
2005 after retiring as Chief Executive Officer of the
Group, a position he had held since the acquisition from
lnchcape plc in 1996. Prior to that he was Chief Executive
Officer of lnchcape Testing Services Ltd from 1987 and
before then of Transcontinental Services Ltd, which was
bought by lnchcape plc in 1985. A Chartered Accountant
and a graduate of the London Business School.
David Allvey (63)
Senior Independent Non-Executive Director
Appointed to the Board as a Non-Executive Director in
May 2002. With a career that started in civil engineering,
as a Chartered Accountant he has held positions in major
international businesses including Group Finance
Director for BAT Industries and Barclays Bank plc and
Chief Operating Officer for Zurich Financial Services.
He is currently Chairman of Costain Group plc and Arena
Coventry Ltd and a Non-Executive Director of William
Hill plc and Thomas Cook plc, and is a former board
member of the UK Accounting Standards Board.
33
Annual Report 2008 33
Bill Spencer (49)
Chief Financial Officer
Appointed to the Board as a Director in April 2002,
he has been Chief Financial Officer of the Group since its
acquisition from Inchcape plc in 1996. Previously, he was
the Finance Director of lnchcape Testing Services Ltd,
having joined the Group in 1992 as a Regional Financial
Officer in the Oil, Chemical & Agri division. He has held
financial positions in Olivetti UK Ltd, Rexam PLC and
Centrica plc. He is a Fellow of the Chartered Institute
of Management Accountants and a member of the
Association of Corporate Treasurers.
Mark Loughead (49)
Chief Operating Officer
Appointed to the Board and appointed Chief Operating
Officer (COO) of Intertek Group plc on 1 January 2008.
As COO, he leads the global integration of sales, key account
management, global information systems and country-
focused activities across the Group. Previously, he was Chief
Executive of Intertek’s Oil, Chemical & Agri division. Before
this, he was Vice President of the division in the Americas
and prior to that, divisional Vice President in Europe, Middle
East and Africa. He joined the Group in 1988 as Operations
Manager in Liverpool and in 1993 he was promoted to
Regional Manager for Scotland, based in Aberdeen. Prior to
joining Intertek, he spent 13 years at Inspectorate including
six years in the Middle East.
Debra Rade (55)
Non-Executive Director
Appointed to the Board as a Non-Executive Director
in January 2006. Between 1989 and 2002, she was
an officer of Underwriters Laboratories Inc., a global
provider of product safety testing and certification
and held various positions there, including Senior Vice
President, Chief Legal Officer, and Chief Administrative
Officer. This year, after more than four years as a partner
in a large international law firm, she established Rade
Law LLC and Rade Consulting LLC in Chicago focused on
product testing and safety, certification, standards and
regulatory issues.
Christopher Knight (62)
Non-Executive Director
Appointed to the Board as a Non-Executive Director in
March 2006. He was an investment banker for nearly 30
years, for much of that time with Morgan Grenfell and
Deutsche Bank, of which he was a managing director
until 2001. He has extensive corporate finance
experience gained during his banking career in London,
New York and Hong Kong. A Chartered Accountant, he
is Chairman of Brooks Macdonald Group plc and NB Real
Estate Group Limited.
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34 www.intertek.com
Directors’ Report – Governance
Intertek Operations Committee
01 Stefan Butz
Group Executive Vice President
Industrial Services
Joined Intertek in 2008
In addition to Industrial Services, Stefan Butz has
responsibility for the Group functions of Strategy,
Corporate Development and Marketing. Stefan has
held this role since January 2008, when he joined
Intertek from TÜV SÜD, where he was CEO America
with an earlier role as Head of Corporate
Development. Prior to this he was a Strategy
Consultant with Accenture Germany.
02 Jay Gutierrez
Division Executive Vice President
Oil, Chemical & Agri and Government Services
Joined Intertek in 1997
Jay Gutierrez assumed his current role in January
2008, incorporating Government Services in January
2009. Previously, he was Vice President for the Oil,
Chemical and Agri division in the Americas. Jay
began his career with Intertek with a focus to
develop the Chemical business stream, later
assuming responsibility for International
Coordination and Sales & Marketing. Prior to
joining Intertek he spent eight years as General
Manager for C.J. Thibodeaux, Inc.
03 Wolfhart Hauser
Chief Executive Officer
See Board of Directors.
04 Marc Hoffer
Division Executive Vice President
Minerals
Joined Intertek in 2005
Marc Hoffer assumed his current role in January
2008 in addition to continued responsibility for
Intertek’s Oil, Chemical & Agri division in Asia.
Prior to joining Intertek Marc spent 13 years at SGS,
part of the time as Country Manager of Taiwan,
Brazil and Switzerland and part as Regional Financial
Controller for Asia and Europe.
05 Jonathan Lawrence
Group Executive Vice President
Human Resources
Joined Intertek in 2005
Jonathan has many years experience as an
international human resources director and of the
testing and inspection business based from the UK,
France and the USA. Before moving to Intertek,
he was Group Senior Vice President of Human
Resources at Bureau Veritas and prior to this he
was Group Director Management Development
at Valeo Automotive.
01
02
06
07
08
35
Annual Report 2008 35
06 Mark Loughead
Chief Operating Officer
See Board of Directors.
07 Bill Spencer
Chief Financial Officer
See Board of Directors.
08 Andrew Swift
Division Executive Vice President
Analytical Services
Joined Intertek in 2001
Prior to assuming his current role, in January 2008,
Andrew Swift was Vice President of Global
Outsourcing within Intertek’s Oil, Chemical & Agri
division, having originally started as Business
Development Manager and then Director of Global
Outsourcing. Andrew began his career by launching
CSMA Ltd, where he became Managing Director
in 1993.
09 Gregg Tiemann
Division Executive Vice President
Commercial & Electrical
Joined Intertek in 1993
Prior to assuming his current role in January 2008
Gregg Tiemann was President of Intertek’s
Commercial & Electrical division in Europe and the
Americas since 2004, having started as General
Manager of the Los Angeles and Mexico City
laboratories, becoming Vice President of Sales for
the Americas, then Senior Vice President in 2003.
Gregg began his career in sales and marketing for
the high technology sector.
10 Paul Yao
Group Executive Vice President
Consumer Goods
Joined Intertek in 1994
Paul Yao was appointed a member of the Executive
management team on 1 July 2006. Prior to this,
from January 2003 he was Vice President with
responsibility for Consumer Goods in China and
Taiwan. Before joining Intertek, Paul worked in
Regional Sales & Marketing for companies such as
Hitachi Chemical, Brent Plc and SISIR Singapore.
05
03
09
04
10
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Corporate Governance Report
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Introduction
The Group is committed to high standards of
corporate governance and this report outlines its
compliance with the provisions of the revised
Combined Code on Corporate Governance issued
by the Financial Reporting Council in June 2006
(the Code). During 2008, the Group complied with
almost all of the provisions of the Code. The areas
of non-compliance are as follows, and are further
discussed and explained below:
•
•
the Board did not comprise at least half
independent Non-Executive Directors; and
the membership of the Audit and Risk Committee
and the Remuneration Committee each included
two independent Non-Executive Directors instead
of three, because, as Chairman of the Company,
Vanni Treves is not viewed as independent by
the Code.
The Board is accountable to shareholders for good
corporate governance and this statement describes
how the relevant principles of governance have
been applied.
The Board
An effective Board, which provides strategic leadership
and controls the Group, is in place. The Board’s main
roles are to create value for shareholders, to lead the
Group, to approve the Group’s strategic objectives
and to ensure that the appropriate financial and other
resources as required are made available to enable
it to meet those objectives. The Board is responsible
to shareholders for the proper management of the
Group. All Directors have a wide range of experience
and skills, bringing independent judgement to bear
on issues of strategy, performance, resources and
standards of conduct.
There were nine scheduled Board meetings held in
2008 and three unscheduled supplementary meetings.
There was, in addition, frequent informal contact
between Directors to discuss the Group’s affairs and
develop its business. Directors’ attendance at Board
meetings is shown in the table on page 38. Also, on
several occasions, the Chairman met with the Non-
Executive Directors without the Executive Directors
being present. The Non-Executive Directors have also
had discussions without the Chairman being present.
Board matrix
The Group has identified a number of key areas that
are subject to regular reporting to the Board, so that
the performance of management can be reviewed and
monitored. A Board matrix is in place which formally
outlines the matters specifically requiring the consent
of the full Board and includes, inter alia, the approval
of the Group strategy and operating plans, the annual
budget, the Annual Report, the Half Year Results
and related announcements, substantial capital
expenditure, material contracts, acquisitions and
disposals, the recommendation of dividends and the
approval of treasury and risk management policies.
The Board matrix was reviewed, amended and
approved by the Board during 2008.
The Board matrix also identifies areas where executive
management can grant approval subject to certain
financial limits. Where any of the activities involve
amounts greater than those limits they are referred to
the Board. The Board matrix is communicated to all
senior management to ensure that approval limits are
known throughout the Group.
Board management
During the year the Board consisted of the Chairman
Vanni Treves, the Non-Executive Deputy Chairman
Richard Nelson, the Chief Executive Officer Wolfhart
Hauser, the Chief Operating Officer Mark Loughead,
the Chief Financial Officer Bill Spencer, and three
independent Non-Executive Directors, David Allvey,
who is also the Senior Independent Director,
Christopher Knight and Debra Rade. The Directors’
biographies appear on page 32. The Senior
Independent Director is readily available to
shareholders if they have concerns that remain
unresolved after contacting the Group through the
usual channels of the Chairman or any of the Executive
Directors or where such contact is inappropriate.
If a Director has any concerns about the Group or a
proposed action, then such concerns are recorded in
the Board minutes as a matter of course.
There is a clear division of responsibilities between
the Chairman and the Chief Executive Officer and
they have been set out in writing and approved by
the Board. On appointment to the Board in May
2002, the Chairman met the independence criteria
as set out in the Code.
The responsibilities of Vanni Treves as Chairman include
those contained in the supporting principle to
paragraph A.2 of the Code, namely leadership of the
Board, ensuring its effectiveness in all aspects of its role
and setting its agenda; ensuring that the directors
receive accurate, timely and clear information; ensuring
effective communication with shareholders; facilitating
the effective contribution to the Board of the Non-
Executive Directors in particular; and ensuring
constructive relationships between the Executive and
Non-Executive Directors. The Chairman’s other main
commitments are detailed in his biography on page 32.
The Chief Executive Officer has direct charge of the
Group on a day-to-day basis and is accountable to the
Board for the financial and operational performance
of the Group.
David Allvey, Christopher Knight and Debra Rade
are clearly independent Non-Executive Directors.
They have been Directors for less than nine years,
were never employed by the Group and have
no material relationships or links to the business
which would compromise their independence.
Richard Nelson is not considered to be independent
37
Annual Report 2008 37
in his position as Non-Executive Deputy Chairman
because of his previous service in the Group.
However, during the year Richard Nelson continued
to bring valuable expertise to the Board through his
extensive knowledge of the business and industry.
changes to legislation, most recently the ‘Conflicts
of Directors’ Interests’ provisions under the
Companies Act 2006. The Non-Executive Directors
also attend various seminars during the year on
topics relevant to a publicly listed company.
The Non-Executive Directors have a particular
responsibility to ensure that the strategies proposed
by the Executive Directors are fully discussed and
critically examined, not only in the best long-term
interests of shareholders, but also to ensure that
they take proper account of the interests of
customers, employees and other stakeholders. The
Non-Executive Directors are all experienced and
influential individuals and through their mix of skills
and business experience they contribute significantly
to the effective functioning of the Board and its
committees, ensuring that matters are fully debated
and that no one individual or group dominates the
decision-making process.
The Code requires that half of the Board comprises
independent Non-Executive Directors. However,
following the appointment of Mark Loughead to
the Board on 1 January 2008 independent Directors
represent less than half the Board. The Board
believes that its current composition, taking into
account the overall balance of skills, knowledge,
commitment and experience, results in an efficient
and effective board operation, whilst maintaining
an appropriate balance between Executive and
Non-Executive Directors. Nevertheless, in order to
ensure the continual refreshment of the composition
of the Board, the Nominations Committee appointed
an independent search consultancy in January 2009
to conduct a search for a new Non-Executive
Director. The Company’s Articles of Association
contain provisions relating to the retirement,
election and re-election of directors. At the
forthcoming AGM Wolfhart Hauser, Chief Executive
Officer, and Christopher Knight and Debra Rade,
both Non-Executive Directors, will retire and, being
eligible, will offer themselves for re-election.
To enable them to discharge their duties, all Directors
have full and timely access to all relevant information.
Papers are circulated well before the Board and
Committee meetings to ensure that Directors have
the necessary time to read and review them. The
Non-Executive Directors receive monthly management
accounts and regular management reports and
information which enable them to scrutinise the
Group’s and management’s performance against
agreed objectives and prior performance.
A formal induction programme has been established
for new Directors, tailored to suit the individual’s
previous experience. Ongoing training is provided to
Directors as necessary and visits to sites arranged to
further their knowledge of the Group’s operations.
Directors are regularly briefed on best practice and
All Directors have access to the advice and services
of the Group Company Secretary who will assist in
arranging any additional training and information
as required. The appointment and removal of the
Group Company Secretary is a matter for the Board
as a whole.
All Directors are entitled to obtain independent
professional advice, at the Group’s expense, in the
performance of their duties as Directors. No such
advice was sought during the year. In accordance
with the Company’s Articles of Association, the
Company has granted a deed of indemnity, to the
extent permitted by law, to each of the Directors
and Group Company Secretary. Directors’ and
officers’ liability insurance is in place.
The Board believes that strong corporate governance
improves the performance of the business and
enhances shareholder value. During its meetings in
2008, the Board received and discussed reports from
the Chief Executive Officer, Chief Operating Officer
and Chief Financial Officer, strategy, debt financing,
market reports, share trading reports, analysts’
forecasts, potential acquisitions, litigation reports,
final and interim dividend recommendations,
potential contract bids, road show and investor
feedback, budgets, tax policy, Annual Report, Half
Year results, interim management statements and
announcements, and a wide range of other issues.
Board Committees
The Board has established three Committees, each
with clearly defined terms of reference, procedures
and powers. These terms of reference are available
on request from the Group Company Secretary at
the registered office or can be downloaded from
www.intertek.com. The Directors who held office
during the year and the number of full Board meetings
and Committee meetings attended by each Director
during the year are given in the table on page 38.
Membership of the three relevant Board
Committees is set out below.
The Remuneration Committee
This Committee currently comprises three
Non-Executive Directors, David Allvey (Chairman),
Vanni Treves and Christopher Knight. The Code
requires the Remuneration Committee to have at
least three independent Non-Executive Directors
whilst allowing the Chairman of the Board of
Directors of the Company, if considered independent
on appointment, to be a member. The Committee,
therefore, does not currently comply with the Code.
During 2008, the Remuneration Committee was
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Directors’ Report – Governance
Corporate Governance Report
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Name/Position
Vanni Treves
Chairman
Richard Nelson
Non-Executive Deputy Chairman
Wolfhart Hauser
Chief Executive Officer
Bill Spencer
Chief Financial Officer
Mark Loughead (appointed 1 January 2008)
Chief Operating Officer
David Allvey
Senior Independent Non-Executive Director
Debra Rade
Independent Non-Executive Director
Christopher Knight
Independent Non-Executive Director
Scheduled
Board meetings
Audit and Risk
Committee
meetings
Nomination
Committee
meetings
Remuneration
Committee
meetings
9 (9)
8 (9)
9 (9)
9 (9)
9 (9)
9 (9)
9 (9)
9 (9)
4 (4)
3 (3)
5 (5)
n/a
n/a
n/a
n/a
4 (4)
n/a
4 (4)
n/a
n/a
n/a
n/a
3 (3)
n/a
3 (3)
n/a
n/a
n/a
n/a
5 (5)
n/a
5 (5)
Figures in brackets indicate the number of meetings held during the year
evaluated and the Board agreed that membership
of the Committee was appropriate and effective.
The Committee has responsibility for making
recommendations to the Board on the remuneration
of the Chairman, Executive Directors and senior
executives and for the determination, within agreed
terms of reference, of additional benefits for each of
the Executive Directors, including pension rights and
any compensation for loss of office. The Committee is
also responsible for the implementation and operation
of employee share incentive arrangements.
Details of the matters discussed and actions taken
by the Remuneration Committee, including the
Group’s remuneration for Executive Directors,
and details of benefits, share options, pension
entitlements, service contracts and compensation
payments are given in the Remuneration Report
which starts on page 42.
The Nomination Committee
This Committee currently comprises three Non-
Executive Directors, Vanni Treves (Chairman), David
Allvey and Christopher Knight. During 2008, this
Committee was evaluated and the Board agreed
that membership of the Committee was appropriate
and effective. The composition of the Committee is
in compliance with the Code.
This Committee, which met three times during the
year, nominates candidates to fill board vacancies,
reviews talent mapping and succession planning
for the Board and senior management and makes
recommendations on the balance and composition
of the Board.
Talent mapping and succession planning is an
important component in ensuring the continued
success of the Group. The goal of Intertek talent
mapping is to have the right organisation with the
right people in the right jobs at the right time,
including identifying and preparing the next
generation. This approach was first introduced
in 2006. The 2008 objectives were to:
•
•
•
re-run the talent map for the top 224 roles
which comprise the Intertek leadership team;
launch and plan the roll-out of the new
organisational structure comprising seven divisions
(in lieu of four), and country management;
engage and transition to the new Group and
Division Executive Vice Presidents and Intertek
Operations Committee (IOC).
Reviews are conducted by ‘career committees’ of
the Chief Executive Officer, Chief Operating Officer,
Division Executive Vice President, Group Vice President
HR and the Division Vice President HR. The Intertek
talent mapping process includes the identification and
readiness of potential successors and highlights
coaching, mentoring and training if required.
Bearing in mind the balance of existing skills,
knowledge and experience of the Board, a job
description is prepared for any new Board position
and when a Non-Executive Director is appointed,
the Committee requires confirmation that he or she
can devote sufficient time to fulfil the commitments
of the role. The terms and conditions of
appointment of Non-Executive Directors are
available for inspection by any person at the
Company’s registered office during normal business
hours and at the AGM (for 15 minutes prior to the
meeting and during the meeting). All new Directors
are subject to election by shareholders at the first
AGM after their appointment and then subject to
re-election by shareholders once every three years.
The policy on Directors’ service contracts is set out
in the Remuneration Report.
39
Annual Report 2008 39
The Audit and Risk Committee
This Committee currently comprises three Non-
Executive Directors, David Allvey (Chairman), Vanni
Treves and Christopher Knight. The Code requires
the Audit and Risk Committee to have at least three
independent Non-Executive Directors. As Chairman
of the Company, Vanni Treves is not viewed as
independent by the Code and therefore the
Committee does not currently comply with the
Code. During 2008, the Audit and Risk Committee
was evaluated and the Board agreed that
membership of the Committee was appropriate and
effective. Both David Allvey and Christopher Knight
have recent and relevant financial experience as
detailed in their biographies on page 32 and 33.
The Audit and Risk Committee monitors the integrity
of the Group’s financial statements and any formal
announcements relating to the Group’s performance.
The Committee is responsible for monitoring the
effectiveness of the external audit process and making
recommendations to the Board in relation to the
appointment, reappointment and remuneration of the
external auditors, and for ensuring that an appropriate
relationship is maintained between the Group and its
external auditors. It also reviews annually the Group’s
systems of internal control, risk management, the
processes for monitoring and evaluating the risks
facing the Group and the effectiveness of the internal
audit function. It reviews the progress of internal
audit activity against the annual plan, and reviews
the strategy, scope and approach of the internal
audit and compliance teams. It reviews the corrective
action taken by management to address any
control issues identified by the internal audit and
compliance function. It is responsible for approving
the appointment and termination of the Vice President
Risk Management and Internal Audit and meets with
him at least once a year without management present.
Committee meetings are usually attended by the
Group’s external auditors, Chief Executive Officer,
Chief Financial Officer, Vice President Financial
Control and the Vice President Risk Management
and Internal Audit. The Group’s external auditors
meet with the members of the Audit and Risk
Committee alone at least once a year.
The Audit and Risk Committee seeks to ensure
the continued independence and objectivity of
the Group’s auditors. A policy on the provision of
non-audit work by the external auditors has been
approved by the Board to ensure that auditors’
objectivity and independence are safeguarded.
To this end, the policy highlights those areas where
the external auditor cannot provide services to the
Group, including inter alia, the provision of Group
management functions, internal audit outsourcing,
provision of legal advice and recruitment and
remuneration advice. The auditors confirm by way
of letter to the Board that processes to ensure
compliance with this policy are in place, and that
these processes are monitored regularly. A detailed
breakdown of the audit and non-audit fees paid to
the Group’s auditors during the year is set out in
note 5 to the financial statements.
At its meetings during 2008, the Committee
reviewed and endorsed, prior to submission to the
Board, the Group’s 2007 Annual Report, Half Year
results, and 2008 interim management statements.
The Committee also monitored and reviewed the
standards and effectiveness of risk management
and internal control, the Group’s internal audit
function and its plans and performance. It also
reviewed the Group’s arrangements for the
avoidance and detection of fraud and related
matters, whistle-blowing and hotlines, compliance,
training, e-learning, quality assurance systems and
substantial claims affecting the Company.
The ultimate responsibility for reviewing and
approving the Annual Report and the Half Year
Results announcement remains with the Board.
During 2008 the Audit and Risk Committee met
four times. The Chairman and other Committee
members also attend meetings with the external
auditors and management to discuss any accounting
issues associated with the annual audit.
Performance evaluation
A stringent performance evaluation process led by
the Chairman is applied to each Director, Committee
and the Board as a whole. This comprises a series of
detailed questionnaires which provide a framework
for the evaluation process, and provides the
Chairman with a means of making year-on-year
comparisons. There are questionnaires for each of
the following: the Board; each individual Director;
and the Remuneration, Nomination and Audit and
Risk Committees.
This annual evaluation of the effectiveness of the
Board and its Committees ensures that the
performance of each individual Director and the
functioning and constitution of the Board and each
Committee are properly measured and debated.
The Chairman assesses the individual performance
of each Director, taking into account discussions
with other Directors. The Senior Independent
Director has discussions with the other Executive
and Non-Executive Directors, without the Chairman
being present, in order to appraise the Chairman’s
performance during the year. For the year under
review these assessments concluded that the
performance of the Board and each Director was,
and is, effective, and that all Directors demonstrate
full commitment in their respective roles to the
Company evidenced, inter alia, by the Board and
Committee attendance records set out in this report.
The evaluations further demonstrate that the Board
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Corporate Governance Report
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has an appropriate set of skills, that all the Directors
add value to the overall effectiveness and success
of the Group, and that no substantial issues have
arisen out of the evaluation process.
After a rigorous review of performance and in
view of their continued robust contribution and
commitment to the Board, Christopher Knight and
Debra Rade are to continue in their roles on the
Board for a further three-year term subject to
re-election at the AGM in accordance with the
Articles of Association.
The Remuneration, Nomination, and Audit and Risk
Committees also each held an evaluation of their
work and effectiveness during the year, the results
of which were reported to the Board by the Group
Company Secretary. The reviews concluded that
each Committee was operating in an efficient and
effective manner.
The Board will continue to develop the evaluation
process in order to ensure that it can properly
review, on an annual basis, its performance and that
of its individual members and Committees. In doing
so, consideration is given to succession planning
requirements and the Board will act accordingly
with the assistance of the Nominations Committee.
Procedures to deal with Directors’ conflicts
of interests
During 2008, the Board implemented a formal
system to deal with conflicts of Directors’ interests.
All Directors completed an initial questionnaire to
identify any conflicts or potential conflicts of interests.
The Board discussed all questionnaires and
authorisation of conflicts and potential conflicts was
granted by the non-conflicted Directors in accordance
with the Company’s Articles of Association. All
authorisation decisions were recorded and will be
reviewed annually by the Board.
Internal control
The Group’s primary business objectives require
adherence to local, national and international laws
and require the Group’s employees to show integrity
and honesty in all business dealings. Risk
management and internal controls are therefore
embedded in the running of each division, assuring
the accuracy and validity of reports and certificates
that the Group provides to customers. Although the
Directors are ultimately responsible for establishing
and maintaining the Group’s system of internal
control and for reviewing its effectiveness, such a
system can realistically only manage, rather than
eliminate, the risk of failure to achieve business
objectives and can only provide reasonable
assurance against material misstatement or loss.
The Board confirms that, in addition to internal audits,
there is an ongoing process for identifying, evaluating
and managing any significant risks to the Group’s short
and long-term value, including those arising from
social, environmental and ethical matters. This process
has been in place for the year under review and up to
the date of approval of the Annual Report is regularly
reviewed by the Board and accords with the Turnbull
Guidance. Any breaches of internal controls identified
by the Group’s control review procedures are reported
to the Audit and Risk Committee and corrective action
taken. In carrying out the risk review, the Board is
satisfied that it received adequate information from
the operations around the world. Training is provided
to Directors on these matters where necessary.
The Audit and Risk Committee has reviewed the
effectiveness of the system of financial and non-
financial internal control during the year. In particular,
it has reviewed and continues to seek to improve the
process for identifying and evaluating the significant
risks affecting the business and the policies and
procedures by which these risks are managed. This is
reinforced by the Intertek Compliance Code and
Code of Ethics, which provides practical guidance
and instruction for staff. The Codes are available at
www.intertek.com.
The Group operates a ‘zero tolerance policy’ in regard
to breaches of ethics and all employees are required
to sign a certificate confirming their understanding
that any breaches of the Group’s Code of Ethics will
result in disciplinary action that may include summary
dismissal of the employee concerned. To support
Group policies and to facilitate the raising of concerns
about possible improprieties in matters of financial
reporting or any other matters, the Group provides
and publicises email and telephone hotlines so that
staff may report anonymously any inaccurate or
unethical working practices. All complaints are
investigated thoroughly with action taken as
appropriate. The number of complaints received,
together with the corrective actions taken, are
reported to the Audit and Risk Committee. During
2008, 42 complaints were received and investigated.
Most investigations concluded that the complaint was
unfounded, but corrective action was taken where
appropriate.
In carrying out its review, the Audit and Risk
Committee endeavours to ensure that the Group has
in place the most appropriate and effective controls,
checks, systems and risk management techniques so as
to be in line with best practice on such matters.
Each operating division is responsible for the
identification and evaluation of significant risks
applicable to that area of business, together with
the design and operation of suitable internal controls.
These risks are assessed on a continual basis, and
may be associated with a variety of internal or
external sources including control breakdowns,
disruption of information systems, competition,
natural catastrophe and regulatory requirements.
41
Annual Report 2008 41
Operation of the controls is designed to minimise
the occurrence of risk or its consequences.
mix of techniques is used to attain the level of
assurance required by the Board.
A process of control using self-assessment and
hierarchical reporting has been established which
provides a documented trail of accountability. These
procedures are applied across Group operations and
provide for continuing assurances to be given at
increasingly higher levels of management and finally,
to the Board. This process is facilitated by Internal
Audit which also provides assurance as to the
operation and validity of the system of internal
controls. Planned corrective actions are
independently monitored for timely completion.
Each division reports annually to the Audit and Risk
Committee via the Vice President Risk Management
and Internal Audit on its review of risks and how they
are managed. Each year senior managers throughout
the Group confirm the adequacy of their systems of
internal controls, compliance with Group policies,
local laws and regulations and report any control
weaknesses identified in the past year. One of the
Audit and Risk Committee’s main roles is to review,
on behalf of the Board, the key risks inherent in the
business and the system of controls necessary to
ensure such risks are properly managed.
The Chief Financial Officer heads a central compliance
team, which co-ordinates the quality assurance
function. Quality assurance audits are carried out by
the divisions, and the findings reported to divisional
management and to compliance officers. Each division
has at least one compliance officer who undertakes
investigations of issues that arise either from quality
assurance audits or by other means, such as the
employee hotline. Reports of significant findings are
presented to the Audit and Risk Committee. Each
geographic region has at least one internal auditor
who is independent of the divisions. The main
reporting sites are reviewed annually. The other
sites are reviewed regularly on a schedule based on
materiality and risk. Reports of significant findings are
presented to the Audit and Risk Committee which
monitors and reviews the effectiveness of the internal
audit function. The internal audit department was
awarded ISO 9001: 2000 accreditation in 2003 and
was re-accredited in 2008.
The Group will, from time-to-time, be required by
its customers to operate in countries where there
is potential political and economic risk. In doing so,
the Group fulfils its policy of facilitating international
trade inspection and audit services that help to
prevent corruption and assist with humanitarian
aid. Where there are no laws in place that prohibit
business dealings in certain countries, the Group will
consider operating in those countries, but only in
strict accordance with its stringent Code of Ethics.
The Audit and Risk Committee reviews the
assurance procedures, ensuring that an appropriate
The Chief Executive Officer also reports to the Board
on significant changes in the business and the external
environment which could impact on risk. The Chief
Financial Officer provides the Board with monthly
financial information, which includes the comparison of
key performance figures against budgets and forecasts,
and risk indicators. Where areas for improvement in
the system are identified, the Board considers the
recommendations made by management and the
Audit and Risk Committee. The Board approves the
treasury policy and the Treasury department’s activities
are also subject to regular internal audits.
Relations with shareholders
Communications with shareholders are given a high
priority. The Group produces an Annual Report which
is available to shareholders and also publishes interim
management statements and its Half Year Results.
The Group website (www.intertek.com) contains
up-to-date information on its activities and published
financial results. Shareholders can subscribe via the
Investors’ section of www.intertek.com to receive
email alerts of important announcements made by
the Group. At the AGM in 2007 the Company
took advantage of provisions contained within
the Companies Act 2006 and the Disclosure and
Transparency Rules of the Financial Services Authority
enabling communication with shareholders using
electronic means via the Group website or by email.
The Group’s Annual Report, notices of meetings and
proxy forms are now provided electronically as a
default option. However, shareholders are also able to
request paper copies of documents if they so choose.
The Chairman ensures that any comments he receives
from institutional shareholders are communicated
directly to the Board, and all analysts’ and brokers’
reports on the Group are sent to each Director.
The Board views the AGM as an opportunity to
communicate with private and institutional investors
and welcomes their participation. All Board members
attend the AGM and in particular, the Chairmen of
the Audit and Risk, Nomination and Remuneration
Committees are available to answer questions.
At General Meetings, a schedule of the proxy votes
cast is made available to all shareholders and is also
available on the website. The Company proposes a
resolution on each substantially separate issue and
does not combine resolutions inappropriately.
Going concern
After making diligent enquiries, the Directors
have a reasonable expectation that the Group has
adequate resources to continue in operation for the
foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the
Group’s financial statements.
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Directors’ Report – Governance
Remuneration Report
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Client: Intertek
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Letter from the Chairman
of the Remuneration Committee
9 March 2009
Dear Shareholder
The ongoing economic upheavals have not made the task of the Remuneration Committee
any easier. As well as the usual deliberations that the Committee carries out each year, we have
spent some time considering how the Group’s senior executive reward policies should reflect
the business environment.
We have debated the appropriate performance targets for future cash bonuses and
performance-related share bonus awards. We have considered the effect of our policies on
retention of key staff without adversely affecting the Company’s flexibility or shareholders’
interests. We have tried to take into account the disparities in outlook and performance
between our many geographical and business areas. The considerable growth that has taken
place in the Group over the last few years has also been a factor that we have included in
our deliberations.
The detail about our reward structures and the results of our discussions is given below, but
I felt it might be helpful to highlight to you here the main changes that occurred during 2008.
The Committee has:
•
•
based on benchmarking information, increased the cash bonus potential for the most senior
employees. The targets are heavily weighted towards financial growth to ensure that the
interests of these senior employees are aligned with our shareholders;
proposed a revised Deferred Bonus Share Plan to the shareholders because independent
global benchmarking indicated that the performance-related share-based element of
packages was somewhat light. The adoption of the new limits, which were agreed at the
AGM in 2008, will enable higher awards in 2009 for the most senior employees and a more
flexible approach for other middle-ranking staff;
•
agreed the payment in shares of a proportion of the non-executive directors’ fees;
•
agreed to redefine the constituency of the second-tier management group to include
a greater proportion of key business-line managers so as to reward those people
appropriately. We expect this group to form the basis of succession for the most senior
managers; and
•
increased the emphasis on directing rewards to key staff, in the interests of keeping
competitive advantage in a difficult market through retention of high achievers.
We believe that these efforts to keep an appropriate balance in our executives’ rewards,
to drive our business strategy and to continue to tailor policies to fit with the market are all
in our shareholders’ interest. Each of these points is described in more detail in the report
that follows.
Yours faithfully
David Allvey
43
Annual Report 2008 43
This report sets out the Group’s policy and disclosures in relation to Directors’
remuneration for the year ended 31 December 2008. It will be subject to
shareholder vote at the forthcoming AGM.
The report has been prepared on behalf of the
Board and complies fully with the requirements
of the Directors’ Remuneration Report Regulations
2002 (the Regulations) and the 2006 Combined
Code on Corporate Governance (the Code) and has
been audited by KPMG Audit Plc to the extent
required by the Regulations.
The Group has applied the Principles of Good
Corporate Governance relating to the remuneration
of its Directors and this report outlines how the
Group has complied with the provisions of the
Code as well as some of the guidelines issued by
institutional shareholder bodies.
Our peer group
Our remuneration policy requires us to take account
of both local and international markets when
deciding on pay and benefits. Our peer group for
the majority of group employees, therefore, is
composed of international industrial organisations
and similar-sized businesses in each local area.
In respect of our more senior employees, we base
our pay comparison information on a blend of
factors, including the fact that the Company is a
UK-based FTSE 250 company, job location and
responsibility of the role based on revenue.
Executive share ownership
We believe that share ownership should form
a significant element in senior executives’
compensation so that total remuneration will
depend on the future success of the Group. The
number of shares owned by Executive Directors
and the shares that they may receive through our
incentive plans in future are shown in the tables
on pages 53 and 55.
Linking performance to strategy
Our Remuneration Committee considers the link
between performance and strategy by assessing
individual and divisional performance, contribution
to the Group as a whole, level of experience and
scope of responsibility against the strategy as
developed in the annual planning process.
Consideration of prevailing economic conditions
forms part of this planning process.
The Committee also reviews and benchmarks
the balance between base salary and short and
long-term performance-related benefits when
setting each individual’s performance-related
arrangements. It aims to achieve alignment of
rewards with shareholder interests through a
balance between the following elements:
Performance short-term
annual cash performance bonus
Performance long-term
awards made under the Intertek
Deferred Bonus Share Plan
Fixed
base salary
Fixed
pension
Fixed
other benefits
The cash bonus serves to recognise short-term performance against pre-set
targets which are a mix relative to shareholder, business, team and personal
objectives. The criteria and targets are reviewed each year to tie in with
changing business objectives and the economic environment.
Both for the purposes of retention and to link reward clearly to our
shareholders’ experience, a significant element of reward is determined
by business targets, but has a value dependent on our share price at the
end of the deferral period. The Intertek Deferred Bonus Share Plan is in place
to retain and to reward executives, managers and key specialists crucial for the
future of the business and to align Group and shareholder goals.
The annual base salary takes account of the size of the job and the
sustainable competence and contribution of the job holder. We target annual
base salary for fully competent performance at the market median.
Provision for retirement varies amongst Executive Directors but is regarded as
an essential element in attracting high-calibre executives.
These may include travel, school fees, car allowances, life and private medical
insurance and annual medicals, as typically provided for the executive directors
of a FTSE 250 company.
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44 www.intertek.com
Directors’ Report – Governance
Remuneration Report
Total compensation
Total remuneration for our Executive Directors and
the balance between the elements for 2008 was:
Composition
For the whole of 2008 the Committee comprised
the following Non-Executive Directors of the
Company:
Total compensation (%)
Wolfhart Hauser
29 5
27
6
20
13
Mark Loughead
Bill Spencer
36 2
20
9
20
13
32 2
19
16
19
12
Salary and fees
Benefits
Cash bonus
Pension
Deferred share bonus
Matching share bonus
Salary, fees and benefits are the actual amounts received during
2008; pension for those directors in the defined benefit scheme
(Mark Loughead and Bill Spencer) is the increase in actual transfer
value for 2008; pension for Wolfhart Hauser is the actual amount
of the contribution made by the Company to a personal pension
arrangement; deferred share bonus is based on the cash value of
the deferred shares as outlined in the table on page 50, and the
Matching share bonus is the estimated value of half of the
maximum potential number of matching shares that may vest
(subject to performance). Details of how the fair values have been
calculated are set out in note 27 of the financial statements.
The Remuneration Committee (the Committee)
Responsibilities
On behalf of the Board, the Committee:
•
determines the Company’s policy on the
remuneration of, and incentives for, the Chairman,
Executive Directors and other senior executives
(mainly the Intertek Operations Committee (IOC)
which comprises the Group and Executive Vice
Presidents);
determines their remuneration packages, including
any compensation on termination of office;
provides advice to, and consults with, the Chief
Executive Officer on major policy issues affecting
the remuneration of senior executives; and
keeps the remuneration policy under review in the
light of regulatory and best practice developments
and shareholder expectations. Due regard is given
to the interests of shareholders and the
requirements of the Listing Rules and associated
guidance.
•
•
•
The Committee met five times during 2008. Its
terms of reference are available on our website
at www.intertek.com.
David Allvey (Chairman)
Christopher Knight
Vanni Treves
David Allvey and Christopher Knight are
independent in accordance with the Code.
Vanni Treves was independent at the time of his
appointment as Chairman of the Board. The
Committee members have no personal financial
interest, other than as shareholders, in the matters
to be decided and any Director in attendance
absents himself from meetings for matters relating
to his own remuneration.
Advisors
To ensure that the Group’s remuneration practices
are market competitive and to help achieve its
objectives, the Committee obtains information from
various independent sources. The Committee has
appointed and taken independent advice on
remuneration matters and share incentive
arrangements from Hewitt New Bridge Street
(Hewitt), on remuneration benchmarking from
Towers Perrin (TP) and on UK pension matters from
Premier Pensions Management Limited (PPM). PPM,
TP and Hewitt have no other connection with the
Company or its senior officers.
Remuneration of executives
Policy
The Group is an international service business
deriving its revenue from the Americas (34%),
Europe, Middle East and Africa (29%) and Asia
Pacific (37%). The international nature and
complexity of the Group are reflected in salary
policy, requiring account to be taken of both the
relevant local and international markets in order to
attract and retain the right people. Because it is a
service business, success is critically dependent on
the performance and retention of key people.
Employee costs represent a significant proportion
of Group operating costs, but there is considerable
managed variation amongst businesses. For this
reason there is in place a Remuneration Policy
Framework with each operation retaining the
freedom to navigate, within that framework, to find
the best local solution. Given the diversity and speed
of development across Intertek, standard answers
do not fit all circumstances. There is, for example,
no single rate of inflation agreed when salary
increases are considered. Local variations are to
be expected to innovate, adapt and fit with the
specifics of the business while conforming with
local culture and legal constraints.
45
Annual Report 2008 45
industry sector (excluding property and financial)
and geographical benchmarks, the Committee
made changes to increase the performance-related
element of remuneration for the Executive Directors
and some senior executives. In 2008 the maximum
potential cash bonus was increased in the case of
the Chief Executive Officer from 75% to 100% of
base salary. Mark Loughead joined the Board on
his promotion to the new role of Chief Operating
Officer on 1 January 2008, to drive cross-business
synergies. In his case and that of the Chief Financial
Officer, the maximum potential cash bonus was
increased from 60% to 70% of base salary. The
2008 bonus targets were set to ensure that they
were sufficiently stretching to align the interests of
the Executive Directors and senior executives with
the interests of the Company’s shareholders.
Components
Base salary
Salary from
1 April 2008
Salary from
1 April 2009
%
Increase
Wolfhart Hauser
£550,000
£577,500
Mark Loughead1 US$500,000 US$535,000
Bill Spencer
£275,166
£286,173
5%
7%
4%
1. In addition to his base salary Mark Loughead received £43,000
in directors’ fees in 2008.
Where a decision is made to increase base salary
the Committee will expect the individual, taking into
account levels of experience, to have demonstrated
exceptional leadership within the business and a
results-orientated approach. When the Committee
takes benchmarking information into account it
reviews the performance of the individual concerned
against the above measures to ensure that there is
no unjustified upward ratchet in remuneration.
When determining salary increases for Executive
Directors, the Committee takes account of pay and
employment conditions elsewhere in the Group as
well as the general market. This is achieved by
reviewing detailed information on the top four
employing countries within the Group.
Salaries are reviewed annually. Increases in base
salary are linked to:
•
the growth in size and complexity of the
business;
demonstrable efforts and contribution of an
individual to the development of Intertek
Group strategy, synergy and efficiency;
retention;
market movement.
•
•
•
Our remuneration strategy in short:
•
attract, engage, motivate and retain the best
available people by positioning total pay and
benefits to be competitive in the local market
and in line with the ability of the business
to pay;
reward people equitably for the size of their
responsibilities, performance and potential;
align and recognise the individual’s
contribution to success in our business goals;
engage motivated high performers and,
through variable bonus schemes, share the
success with those who build and lead Intertek
as a world class business.
•
•
•
The Committee considers that the Company’s
long-term success is dependent on its ability to
attract, retain, motivate and reward high-calibre
individuals to deliver superior performance both in
the short and long-term. It aims to promote a
balanced performance-driven culture by maintaining
a competitive package of pay and benefits
commensurate with packages of pay and benefits
provided by other global companies of comparable
size and complexity.
For overseas executives the objective is to provide
a competitive package that is commensurate
with comparable packages paid to employees of
other organisations overseas doing a similar job in
that region.
Performance-related rewards are a balanced mix
of Group financial targets and tailored personal
objectives. Exceptional performance on the part of
both the Group and individual can deliver upper
quartile total remuneration. This direct alignment with
performance is considered by the Committee to be
clearly in the interests of shareholders and provides
the executives with unambiguous signals about the
importance of delivering success to the Company’s
shareholders in both the short and long-term.
In January 2008 the Committee reviewed the
Group’s remuneration policy for its Executive
Directors and senior executives to take into account
the new larger and restructured organisation, the
Group’s sustained growth and performance and
also to ensure that the policy, including the balance
between fixed and variable rewards, remained
appropriate and competitive in the light of the
Group’s business needs, future strategy and the
wider market. Following the review, which involved
component benchmarking against the general
46 www.intertek.com
Directors’ Report – Governance
Remuneration Report
Annual incentives
Cash bonus
The Executive Directors and senior executives are
eligible for annual cash bonus payments for the
achievement of the financial and strategic goals
of the Group and its businesses.
46
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Bonus elements 2009
CEO, COO & CFO
Group and Divisional EVP
80%
20%
The maximum annual cash bonus potential for
2008 and 2009 are:
Group Function VP
40%
40%
20%
50%
30%
20%
Percentage of base salary
2008
2009
Wolfhart Hauser
Mark Loughead
Bill Spencer
Executive Vice Presidents
100%
70%
70%
60%
100%
70%
70%
60%
Group
Divisional and Personal
Discretionary
Group bonus breakdown 2009
The bonus potential that was agreed for 2008 was
increased over the 2007 potential following the
benchmarking exercise carried out at the beginning
of 2008, with similar growth measures but far more
challenging target levels.
Based on the performance measures for 2008, cash
bonuses of 90.6%, 63.4% and 59.2% of salary will
be paid to Wolfhart Hauser, Mark Loughead and
Bill Spencer respectively in March 2009.
Targets are established and reviewed by the
Committee each year with the intention of ensuring
links to current business goals, taking full account of
economic conditions. This year the Committee has
taken into account the unusual economic situation
when setting the 2009 targets, which remain
challenging.
The link between cash bonus and awards under the
Intertek Deferred Bonus Share Plan is described on
page 47. Bonuses are not pensionable.
Senior executives’ bonus criteria comprise the
following: (i) Group performance elements;
(ii) divisional performance elements and personal
objectives; and (iii) discretionary elements. The goals
derive from the annual planning process for the
Group, which forms the cornerstone of the Group’s
results-focused culture.
The target level is typically set at half the total
opportunity to encourage and reward upside
performance.
The divisional elements of bonus are based upon
consistent financial performance indicators but with
targets appropriate to that division.
50%
25%
15% 10%
Diluted adjusted earnings per share
Adjusted operating profit
Operating cash flow/adjusted operating profit
Return on invested capital
The sum to be paid under the discretionary element,
of up to 20% of total bonus, is determined by
taking into account the overall personal contribution
of the executive to the goals and results of the
Group for the year, the development of the
medium-term strategy of the Group, the
achievement over the year of strategic objectives
and demonstrable efforts and results in team-
building and leadership. The Committee recognises
its responsibility to shareholders to use its discretion
in a reasonable and informed manner and in the
Group’s interests, and to be accountable and
transparent in the exercise of that discretion.
The Committee can additionally award a
discretionary payment where circumstances have
occurred which were beyond the direct
responsibility of the executive and the executive
has managed and mitigated the impact of any loss,
or where circumstances have arisen outside the
Group’s control and the Committee feels that
payment is necessary to retain and motivate the
executive concerned.
The Committee has the discretion to reduce bonus
payments if it believes that short-term performance
has been achieved at the expense of the Group’s
long-term future. The Committee also retains the
discretion to reclaim payments if the performance
achievements are subsequently found to have been
significantly misstated. Neither of these discretions
was exercised in respect of the bonuses paid in 2008.
47
Annual Report 2008 47
Share incentives
The Company believes that share ownership by
employees is an integral part of its programme
to incentivise, reward and retain employees as it
strengthens the link between employees’ personal
interests and those of shareholders and enables
them to benefit from the growth of the Company.
The Committee regularly reviews the
appropriateness of the Company’s share incentive
arrangements and targets to ensure that they
remain both competitive and challenging.
Executive Directors and other key employees are
eligible to participate in our share plans, Non-
Executive Directors are not.
Share retention
A shareholding retention requirement has been
set by the Committee. Executive Directors and the
members of the IOC are expected, within five
years, to build up a shareholding in the Company
worth at least 100% of base salary. To assist in
the building of this holding, it is expected that,
after allowing for tax and similar liabilities, all the
shares subject to each vested award under the
Intertek Deferred Bonus Share Plan will be
retained by the executive until the ownership
target is attained.
The only long-term incentive plan currently in use
is the Intertek Deferred Bonus Share Plan (the Plan).
This was approved in 2005 and supersedes all
previous Executive Share Option Plans, creating
more effective rewards for executives throughout
the Group’s global operations by linking their share
rewards to the achievement of the bonus targets
which are directly relevant to them. Awards have
been made annually since 2006. Information about
the Plan, awards granted under the Plan and the
Directors’ participation in them is given on pages 53
and 54.
The purposes of the Plan are the retention of senior
executives and the alignment of their interests with
shareholders by linking rewards to Intertek’s share
price performance. In early 2008 a benchmarking
exercise suggested that for a number of senior
executives and managers the level of awards had
not been competitive. Accordingly some adjustments
to the levels of award available under the Plan were
put to the shareholders at the 2008 AGM and
approved. The effect of the changes was to allow
amounts of up to 100% of annual cash bonus to be
deferred and matched. However, initially grants of
deferred shares to senior executives would be
capped at 70% of salary.
In its consideration of share plan incentives in 2008
the Committee undertook to review the performance
criteria for future Matching Share awards taking full
account of the economy and business climate at the
time of the award. The Committee has reached the
decision that in respect of awards to be granted in
2009, the performance criteria should remain based
on Total Shareholder Return (‘TSR’). The vesting
schedule will also remain unchanged from last year.
The Committee will continue to keep the
performance criteria under review.
The Company has undertaken to limit the number
of awards satisfied by newly issued shares under the
Plan in the ten-year period from the time the plan was
adopted to 5% of the Company’s issued share capital.
As at 31 December 2008 awards represented 0.89%
of the Company’s issued share capital.
The Committee has decided not to publish the
part-way achievement of performance conditions
applicable to outstanding awards, or the expected
value of the anticipated vested awards, as it
considers this information would be misleading
to a greater extent than it is informative.
The Company had established a share option
scheme for executives in March 1997. This scheme
was discontinued and replaced by the Intertek
Group 2002 Share Option Plan and the Intertek
Group 2002 Approved Share Option Plan on 9 May
2002, under which options were granted by either
the Company or the Employee Share Ownership
Trust on the recommendation of the Committee.
All awards were discretionary. No options have
been granted since 2005. Information about these
schemes and the Directors’ participation in them is
given on page 55 and in note 27 to the financial
statements.
Pensions
Wolfhart Hauser
Wolfhart Hauser is not a member of a Group
company pension scheme. Instead the Group
contributes an amount equal to 20% of his base
salary to a personal pension arrangement. For 2008
this amounted to £106,700 (2007: £94,600).
Wolfhart Hauser is entitled to life cover benefit
comprising a lump sum payment equivalent to four
times his base salary.
Mark Loughead and Bill Spencer
Mark Loughead and Bill Spencer are both members
of the defined benefit section of the Intertek UK
Company Pension Scheme. This is a defined benefit
and defined contribution occupational pension
scheme approved by the Inland Revenue. The main
features of the defined benefit section of the
scheme are shown on page 51.
48 www.intertek.com
Directors’ Report – Governance
Remuneration Report
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Non-Executive Directors
The Board determines the remuneration of the
Non-Executive Directors of the Company, for their
work as Directors and as members of committees.
Their remuneration is assessed relative to the Group’s
peer groups and was increased with effect from
March 2008. Remuneration is neither pensionable
nor eligible for annual incentive payments and the
Non-Executive Directors are not allowed to
participate in the Company’s share incentive plan.
Pursuant to the policy of aligning directors’ interests
with those of shareholders, in 2008 a proportion of
the fees due to the Non-Executive Directors was
used to purchase shares in the Company. Below is a
summary of the Non-Executive Directors’ fees and
the pre-tax amounts of those fees used to purchase
shares in the Company in 2008.
Other than Vanni Treves, who has the benefit
of a company car, and Richard Nelson, for whom
the Group maintains a life insurance policy in
accordance with the terms of his previous
employment contract with the Company,
no other benefits-in-kind are provided.
The Non-Executive Directors do not have service
contracts with the Company. The letter of
engagement for each Non-Executive Director states
that they are appointed for an initial period of three
years and all appointments are terminable by one
month’s notice on either side. At the end of the
initial period, the appointment may be renewed for
a further period, if the Company and the Director
agree, subject to reappointment at the AGM.
Each letter of engagement states that should the
Group terminate the appointment, on such
termination the Non-Executive Director will not be
entitled to any compensation for loss of office.
Vanni Treves and David Allvey are each engaged by
the Group as Non-Executive Directors under the terms
of a letter of appointment commencing 29 May 2002.
Both appointments were renewed for three years at
the end of their second three-year period.
Richard Nelson was originally engaged by the Group
as a Non-Executive Director under the terms of a
letter of appointment for an initial period of three
years commencing 8 April 2005. Under the terms of
his letter of appointment Richard Nelson is entitled
to remuneration of £1,000 per working day for any
special project work agreed in advance by the
Chairman. On 7 March 2008 Richard Nelson’s
appointment was further extended for another
two years, until 7 April 2010.
Debra Rade was engaged by the Group as a
Non-Executive Director under the terms of a letter
of appointment for an initial period of three years
commencing 1 January 2006. This appointment was
renewed for a further three years with effect from
1 January 2009.
Christopher Knight was engaged by the Group as a
Non-Executive Director under the terms of a letter
of appointment for an initial period of three years
commencing 30 March 2006. The Committee has
agreed that this appointment be renewed for a
further three years, effective from 30 March 2009.
Basic Fee
From
1 March 2008
£
David Allvey
50,000
Christopher Knight 50,000
65,000
Richard Nelson
50,000
Debra Rade
170,000
Vanni Treves
Remuneration
Committee
Chairman
3
–
–
3
Audit
and Risk
Committee
Chairman
3
–
–
3
Nominations
Committee
3
3
–
–
Chairman
Additional
committee
fee £
37,500
15,000
n/a
n/a
–
Fees used to
Total purchase shares
in 2008 £
fees £
87,500
65,000
65,000
50,000
170,000
10,000
10,000
10,000
7,000
20,000
49
Annual Report 2008 49
Service contracts
Details of the service contracts currently in place for
Executive Directors who have served during the year
are as follows:
Wolfhart Hauser
Mark Loughead
Bill Spencer
Date of contract
1 March 2005
1 January 2008
24 May 2002
Wolfhart Hauser’s and Bill Spencer’s contracts are
12-month rolling contracts terminable by either
party on 12 months’ notice and contain provisions
by way of compensation for loss of office, limited
to payment of salary and bonus over a 12-month
period, and benefits in lieu of notice. Wolfhart
Hauser’s contract permits payments in lieu of notice
to be made, at the Company’s election, either (i) in
full on termination or (ii) on a monthly basis, but only
for so long as he receives no remuneration from any
other business. If Wolfhart Hauser does receive any
such remuneration, the monthly amount payable
will be reduced by that remuneration, determined
on a monthly basis. Neither service contract contains
provisions regarding a change of control.
Mark Loughead has both an executive service
contract and a letter of appointment in respect of
his directorship of Intertek Group plc. The executive
contract is subject to 12 months’ notice on either
side and contains provisions for Mark Loughead to
continue to receive an amount equal to salary
during the period of notice in accordance with his
normal payroll schedule unless he receives
remuneration from any other business. Bonuses not
already received will not be paid unless pro rata
payment formed part of the bonus criteria. The
appointment as Director of Intertek Group plc is for
an initial term of three years, but can be terminated
Intertek Group vs FTSE 250 TSR
by either party giving one-month’s notice,
is not dependent upon his continued executive
appointment and provides for an annual fee of
£43,000. Neither the service contract nor the letter
of appointment contain provisions regarding a
change of control.
Policy on external appointments
The Company recognises that, during their
employment with the Company, Executive Directors
may be invited to become Non-Executive Directors
of other companies and that such duties can
broaden their experience and knowledge. Executive
Directors may, with the written consent of the
Company, accept such appointments outside the
Company, and the policy is that any fees may be
retained by the Director. Wolfhart Hauser is a
Non-Executive Director of LogicaCMG plc. His
earnings for this appointment for 2008, which he
retained, were £55,000.
Performance graph
Total Shareholder Return (TSR), comprising the
changes in value of a share and dividends
distributed, can be represented by the value of a
notional £100 invested at the beginning of a period
and its change over that period.
The graph below shows the TSR in respect of the
Company over five years. The TSR for the Company
is compared with the TSR for the FTSE 250 Index.
The FTSE 250 Index was selected as it is a broad
market index of which the Group is a member. In
addition, the Group uses that group of companies,
amongst others, for comparison of pay and benefit
levels and as its TSR comparator group in assessing
performance for the vesting of Matching Shares
under the Intertek Deferred Bonus Share Plan.
250
200
150
100
2004
2005
2006
2007
2008
Intertek Group
FTSE 250
Information provided by JPMorgan Cazenove and calculated according to methodology that is compliant
with the requirements of the Companies Act 2006. The performance of the Company, as indicated by the
graph, is not indicative of vesting levels under the Company’s Deferred Bonus Share Plan.
50
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50 www.intertek.com
Directors’ Report – Governance
Remuneration Report
Information required to be audited
The auditors are required to report on the
information contained in the following section
of the Report.
The table below summarises Directors’ remuneration
and pension contributions for 2008 and the prior
year for comparison. No payments for loss of
office were made during the year or the prior year
and no other awards were made to any Director.
Directors’ remuneration summary
2008
2007
Base
salary
and fees
£000
Cash
bonuses
£000
Other
benefits
£000
Pension
contri-
butions3
£000
Total
emolu-
ments
£000
Notes
Total Deferred Deferred
bonus
bonus
20084
£000
emolu-
ments
£000
20074
£000
Executive Directors
Wolfhart Hauser
Mark Loughead
Bill Spencer
Non-Executive Directors
David Allvey
Christopher Knight
Raymond Kong
Richard Nelson
Debra Rade
Vanni Treves
Total
1
2
534
310
270
86
65
–
65
50
168
498
170
163
–
–
–
–
–
–
88
16
16
–
–
–
51
–
13
107
–
–
1,227
496
449
1,019
n/a
394
374
170
163
242
n/a
126
–
–
–
–
–
–
86
65
–
116
50
181
66
54
19
106
43
148
– –
– –
– –
– –
– –
– –
1,548
831
184
107
2,670
1,849
707
368
1. Mark Loughead was appointed to the board of Intertek Group plc on 1 January 2008. His remuneration for the year comprised
US$500,000 in respect of his executive appointment and £43,000 by way of director’s fee. The USD component of his remuneration
was translated into Sterling using £1 = $1.87 which was the cumulative average exchange rate applicable during 2008.
2. Raymond Kong resigned on 11 May 2007, and his remuneration is reported up to the date of his resignation.
3. As Mark Loughead and Bill Spencer are members of the Intertek Defined Benefit Plan (see page 51), contributions to that plan are
not included in this table. Wolfhart Hauser is not a member of any Group pension plan. The contributions in this table are the
amounts the Group pays to a personal pension arrangement.
4. These figures exclude amounts relating to Matching Awards granted under the Intertek Deferred Bonus Share Plan. Details of these
awards and their performance criteria are given on pages 53 and 54.
Other benefits
Executive Directors are entitled to the use of a
company car or the cash equivalent, life assurance,
disability insurance, an annual medical and private
medical insurance. In addition, until the end of
2008, Wolfhart Hauser was entitled to private
school fees for his children. Richard Nelson is
entitled to life assurance in accordance with the
terms of his previous employment contract with the
Company, for £1.0m to be maintained for the whole
of his life and payable to his beneficiaries on his
death. Vanni Treves is entitled to a company car.
Transactions with Directors
These are disclosed in note 30 to the
financial statements.
Pensions
The Committee continues to review the liabilities
under the defined benefit section of the UK pension
scheme and to monitor the effect of changes to
future mortality rates and investment returns and
consider how to limit the potential liability created
by pension commitments.
The majority of the Group’s employees are non-UK
based and are therefore unaffected. Further details
of the Group’s pension schemes, including the
funding position, are disclosed in note 24 to the
financial statements. Details of the pension
arrangements for those who have served as
Executive Directors during the financial year are
shown on page 47.
51
Annual Report 2008 51
Mark Loughead and Bill Spencer
Intertek Defined Benefit Pension Scheme
Normal retirement age
65
Annual pension at normal retirement age 1/60 of final pensionable salary (highest base salary in any 12-month period
during the five years immediately preceding retirement date) for each year of
pensionable service, except, for those members who were active members of
the Scheme on 5 April 1996, the accrual rate is 1/45 for pensionable service in
the period after 5 April 1996 and before 6 April 1999. Members may exchange
part of their pension for a tax-free cash sum. This will reduce their pension but
not that of their spouse.
Spouse’s or dependant’s pension
payable on death of member
Half of member’s pension.
Early retirement
Pension increases in payment
or deferment
Employee contributions
Employer contributions
Ill health or incapacity
Death in service
From age 50 onwards with the consent of the Company and the Trustees, based
on accrued entitlement currently reduced by 4% for each year of retirement
prior to age 65. With effect from 6 April 2010, the minimum retirement age will
increase to age 55.
Increases in deferment – revaluation is in two parts:
i) The part that represents the Guaranteed Minimum Pension (GMP) will be
increased at the rate of 4% for each complete tax year between date of leaving
and State Pension Age.
ii) The balance of the pension will increase at the rate of 5% per annum or in
line with the Retail Price Index if lower, for each completed year between the
date of leaving and the Normal Retirement Date.
Increases in retirement (or payment):
i) Pre 6 April 1997, excess pension benefits will increase at the rate of
3% per annum.
ii) 6 April 1997 to 5 April 2005, excess pension benefits will increase at the
rate of the lower of 5% per annum or the increase in the Retail Price Index.
iii) Post 5 April 2005 excess pension benefits will increase at the rate of the lower
of 2.5% per annum or the increase in the Retail Price Index.
iv) Pre 1988 GMP will not increase.
v) Post 1988 GMP will increase at the rate of 3% per annum or the increase in
the Retail Price Index, if lower.
As determined by the Company and the Trustees: currently 8.5% of base salary
(excluding incentive payments) up to the Company-set earnings cap which is
£115,949 for the 08/09 tax year (£112,028 for 07/08).
As determined by the Company and the Trustees: currently 16% of base salary
(excluding incentive payments) up to the Company-set earnings cap.
In the case of ill health, the pension is calculated as for early retirement but
without the 4% reduction. In the case of incapacity, the pension is calculated as
if pensionable service had continued to normal retirement date.
Death in service leads to a refund of the member’s own contributions plus either:
i) a lump sum of four times pensionable salary plus spouse’s pension which is
50% of the member’s prospective pension at normal retirement date (based on
prospective pensionable service to normal retirement date and final pensionable
salary immediately prior to the member’s death); or
ii) lump sum of eight times pensionable salary, but with no spouse’s pension
(except for the contracting-out requirements).
52 www.intertek.com
Directors’ Report – Governance
Remuneration Report
52
Client: Intertek
Date: 05-03-2009
Project: Annual Report 2008
ID No: C14294
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Details of the accrued pension to which Mark
Loughead and Bill Spencer are entitled on leaving
service and the changes during the year are shown
in the table below.
Age at
31 December
2008
Contributions
made by
the Director
during
the year
£
Increase in
accrued
entitlement
during
the year2
£
Name
Accrued
entitlement1
2008
£
Transfer
value3
2007
£
Transfer
value3
2008
£
Increase in
transfer value
in year less
contributions
made by
Director
£
Mark Loughead4
Bill Spencer
49
49
9,772
9,772
1,396
1,387
25,070
33,213
191,109
303,124
273,634
445,044
72,753
132,148
1. The accrued pension entitlement is the amount that would be paid each year on retirement at 65 based on service to 31 December
2008, excluding the effect of inflation.
2. Including inflation, the increase during the year for Mark Loughead was £2,524 and for Bill Spencer was £2,903.
3. The transfer value has been calculated using the Cash Equivalent Transfer Value Basis adopted by the Trustees with effect from
1 October 2008, in accordance with The Occupational Pension Schemes (Transfer Values) (Amendment) Regulations 2008
(SI2008/1050). The transfer value disclosed above does not represent a sum paid or payable to the individual Director, instead it
represents a potential liability of the Pension Scheme. The value represents the full transfer value without reduction for any shortfall
in scheme funding.
4. Mark Loughead joined the Board on 1 January 2008.
Directors’ interests in ordinary shares
The interests of the Directors in the shares of the
Company as at the year end are set out below.
Save as stated in this report, during the course of
the year, no Director, nor any member of his or
her immediate family, had any other interest in
the ordinary share capital of the Company or any
of its subsidiaries.
No changes in the above Directors’ interests have
taken place between 31 December 2008 and the
date of this report.
Directors’ interests in ordinary shares
Number of ordinary shares of 1p
31 December 2007
or on appointment
Acquired
Disposed
31 December
2008
David Allvey
Wolfhart Hauser
Christopher Knight
Mark Loughead
Richard Nelson
Debra Rade
Bill Spencer
Vanni Treves
5,270
–
5,000
11,985
500,000
–
132,000
50,000
627
1,336
627
2,500
637
1,445
–
1,276
–
–
–
–
–
–
–
–
5,897
1,336
5,627
14,485
500,637
1,445
132,000
51,276
53
Annual Report 2008 53
Directors’ interests in Long Term Incentive
Plan and share options
Non-Executive Directors are not allowed to
participate in the Company’s share incentive plans.
Awards made under the Intertek Deferred Bonus
Share Plan and options granted to the Executive
Directors under the 2002 Plan and the Approved
Plan are shown below. No options have been
granted to the Executive Directors under the
1997 Plan.
The Intertek Deferred Bonus Share Plan
31 December
2007 or on
appointment
Granted
in
2008
Award
Price1
Vested
in
2008
Lapsed
in
2008
31 December
2008
Date
award
vests2
Number
of shares
Number
of shares
£
Number
of shares
Number
of shares
Number
of shares
2006
Wolfhart Hauser
Deferred
Matching
Deferred
Matching
Deferred
Matching
2008
2007
Total
Bill Spencer
2006
2007
2008
Deferred
Matching
Deferred
Matching
Deferred
Matching
Total
Mark Loughead
2006
2007
2008
Deferred
Matching
Deferred
Matching
Deferred
Matching
14,514
29,028
22,753
45,506
–
–
–
–
–
–
26,448
52,896
111,801
79,344
6,391
12,782
9,774
19,548
–
–
–
–
–
–
13,813
27,626
48,495
41,439
7,133
14,266
9,351
18,702
–
–
–
–
–
–
9,972
19,944
8.276
8.276
9.166
9.166
9.150
9.150
8.276
8.276
9.166
9.166
9.150
9.150
8.276
8.276
9.166
9.166
9.150
9.150
Total
49,452
29,916
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
April 2009
April 2010
March 2011
April 2009
April 2010
March 2011
April 2009
April 2010
March 2011
14,514
29,028
22,753
45,506
26,448
52,896
191,145
6,391
12,782
9,774
19,548
13,813
27,626
89,934
7,133
14,266
9,351
18,702
9,972
19,944
79,368
1. Awards are made based on a share price obtained by averaging the closing share prices for the five dealing days before the date
of grant. At date of grant in 2008 the share price was £9.595. No payment is made by participants in the Plan.
2. Awards normally vest three years after grant. The vesting of Matching Awards is subject to additional performance conditions
described on page 54.
54 www.intertek.com
Directors’ Report – Governance
Remuneration Report
Additional information about the Intertek
Deferred Bonus Share Plan
The Plan
The Plan has two elements:
• Deferred Shares are awarded to executives based
on their annual achievement. For the Executive
Directors and IOC the value of Deferred Shares will
be equal to the cash bonus, subject, currently, to a
maximum of 70% of salary (formerly the limit had
been 50% of salary). The Committee believes that
this provides a simple and well-targeted form of
reward. The awards normally vest three years after
grant subject to continued employment.
• Matching Share awards, which are subject to
long-term performance requirements, are, at the
discretion of the Committee, awarded to the most
senior executives. Awards of Matching Shares are
linked to awards of Deferred Shares, and for the
Executive Directors and IOC are granted at the
maximum ratio of two Matching Shares for every
Deferred Share. Matching Shares vest after three
years depending on the Company’s relative Total
Shareholder Return (TSR) measured against the
FTSE 250 Index (excluding investment trusts). TSR
calculations are conducted independently by Hewitt.
Awards vest as follows:
TSR Ranking
% of Matching Award that vests
None
25%
Below median
Median
Between median Pro-rata on a straight line between
and upper quartile 25% and 100%
Upper quartile
100%
In addition, irrespective of the Company’s TSR
performance, no part of a Matching Award will
vest unless the Company’s normalised EPS growth
over the performance period is, on average, at least
2% per annum above the growth in the UK Retail
Prices Index.
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The Committee can set different performance
conditions from those described above for future
awards. Any such new targets will not, in the
reasonable opinion of the Committee, be materially
less challenging in the circumstances than those
described above.
Deferred Awards will normally vest on the third
anniversary of grant provided the participant is still
employed in the Group.
Matching Awards will normally vest on the third
anniversary of grant once the Committee has
determined the extent to which the applicable
performance conditions have been satisfied
and provided the participant is still employed
in the Group.
It is the current intention of the Company to satisfy
all vested awards by the issue of new shares.
If a participant leaves employment for certain
reasons beyond the participant’s control or for any
other reason at the discretion of the Committee,
then the awards vest as follows: (i) Deferred Awards
will vest on a pro-rata basis on the date of cessation,
although the Committee may decide not to pro-rate
an award if it regards it as inappropriate to do so in
the particular circumstances; (ii) Matching Awards
will vest at the end of the period over which the
performance conditions are measured, or the
Committee may decide that the Matching Award
will vest on cessation of employment. The extent to
which a Matching Award will vest will depend upon
the extent to which the performance conditions
have been satisfied over the full performance period
or up to the date of cessation as appropriate. In the
event of a change of control, vesting of Matching
Awards will occur on the same basis as for leaving
employment, described above. Deferred Awards
will vest in full.
55
Annual Report 2008 55
The 2002 Share Option Plans
31 December
2007 or on
appointment
Option
Price
Options
exercised in
2008
Number
of shares
£
Number
of shares
Options
lapsed in
2008
Number
of shares
31 December
2008
Number
of shares
Date option
became
exercisable1
Date
option
expires
3,856
47,558
51,414
6,864
15,466
20,406
24,069
29,563
96,368
21,472
21,071
42,543
7.78
7.78
4.37
4.37
3.59
5.24
7.78
5.24
7.78
–
–
–
–
–
–
–
–
(579)
(7,129)
3,277 April 2008 April 2015
40,429 April 2008 April 2015
(7,708)
43,706
–
–
–
–
(4,432)
6,864 May 2005 May 2012
15,466 May 2005 May 2012
20,406 April 2006 April 2013
24,069 April 2007 April 2014
25,131 April 2008 April 2015
– (
4,432)
91,936
–
–
–
–
(3,159)
21,472 April 2007 April 2014
17,912 April 2008 April 2015
(3,159)
39,384
Wolfhart Hauser
Approved Plan
2002 Plan
Total
Bill Spencer
Approved Plan
2002 Plan
2002 Plan
2002 Plan
2002 Plan
Total
Mark Loughead
2002 Plan
2002 Plan
Total
1. All outstanding option awards have now vested as they met their performance targets and so are fully exercisable, whereas the
performance targets were not met in the year, for the options which have lapsed. Performance targets were based on Intertek’s EPS
growth over a three-year period, which was required to be at least 5% per annum higher than RPI (25% vesting) up to 11% higher
than RPI (full vesting).
Share information
Exercise prices were determined by the average of
the closing middle market quotations of an ordinary
share in the Company on the five days immediately
prior to the date of grant. No payment was made
by participants in the plan.
On 31 December 2008 the closing market price of
Intertek ordinary shares was 784p. The highest and
lowest prices of the shares during the year were
1050p and 635p respectively.
Approval of the Remuneration Report
The Remuneration Report was approved by
the Board on 9 March 2009.
David Allvey
Chairman, Remuneration Committee
56 www.intertek.com
Directors’ Report – Governance
Other Statutory Information
56
Client: Intertek
Date: 05-03-2009
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ID No: C14294
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Share capital
The authorised and issued share capital of the
Company, together with the rights and obligations
attaching to the shares and details of the movements
in the Company’s issued share capital during the
year, are shown in note 20 to the financial statements.
There are no special restrictions on the transfer, or
voting rights of the Company’s shares, which are
admitted to trading on the London Stock Exchange
and may be traded through the CREST system.
Allotment of own shares
At the AGM held in 2008, the shareholders
generally and unconditionally, authorised the
Directors to allot relevant securities up to
approximately one-third of the nominal amount
of issued share capital, for a period of five years,
under section 80 of the Companies Act 1985.
This authority was not exercised during the year
and the Directors currently have no intention to
do so although it is their intention to renew this
authority and, in the light of guidance issued by the
Association of British Insurers in December 2008 to
seek an increase in the authority as set out in the
Notice of AGM accompanying this Annual Report.
Also at the AGM in 2008, the Directors were
empowered by the shareholders to allot equity
securities, up to 5% of the Company’s issued share
capital, for cash under section 95 of the Companies
Act 1985. It is intended that this authority be
renewed, up to 5%, at the forthcoming AGM.
Purchase of own shares
At the AGM held in 2008, shareholders generally
and unconditionally authorised the Company to
buy back up to 10% of its own ordinary shares by
market purchase until the conclusion of the AGM
to be held this year. No such purchases have been
made to date pursuant to this authority. The
Directors will seek to renew this authority for up to
10% of the Company’s issued share capital at the
forthcoming AGM. This power will only be exercised
if the Directors are satisfied that any purchase will
increase the earnings per share of the ordinary share
capital in issue after the purchase and, accordingly,
that the purchase is in the interests of shareholders.
The Directors will also give careful consideration to
gearing levels of the Company and its general
financial position. Any shares purchased in this way
may be held in treasury which, the Directors believe,
will provide the Company with flexibility in the
management of its share capital. Where treasury
shares are used to satisfy share options or awards,
they will be classed as new issue shares for the
purpose of the 10% limit on the number of shares
that may be issued over a ten-year period under our
relevant share plan rules.
Policy and practice on payment of suppliers
The Group does not follow a single standard on
payment practice but has a variety of payment terms
with its suppliers. Payment terms are agreed at the
commencement of business with each supplier and
it is the policy of the Group that payment is made
accordingly, subject to the terms and conditions
being met. The Company has no trade payables.
Significant relationships
The Group does not have any contractual or other
relationships with any single party which are
essential to the business of the Group and therefore,
no such relationships have been disclosed.
Social and community issues
The Group does not have any group-wide policies
in relation to social and community issues. We
encourage our local managers to foster community
links that are appropriate to the businesses they
manage. Further details are given in our Corporate
Social Responsibility Report on page 63.
Directors’ interests
Richard Nelson may occasionally undertake special
project work for the Group. Details of these service
arrangements are disclosed in the Remuneration
Report on page 48 and in note 30 to the financial
statements. With these exceptions, other than
employment contracts, none of the Directors of
the Company had a personal interest in any business
57
Annual Report 2008 57
transactions of the Company or its subsidiaries.
The terms of the Directors’ service contracts and
the Directors’ interests in the shares and options of
the Company in respect of which transactions are
notifiable to the Company under the Disclosure
and Transparency Rule 3.1.2 are disclosed in the
Remuneration Report on page 49 and 52 to 55.
Substantial shareholdings
The information disclosed to the Company, as at
1 March 2009, under Rule 5 of the Disclosure
and Transparency Rules of the Financial Services
Authority is in respect of holdings exceeding the
3% notification threshold, and is detailed below:
Save for the above, at the date of this report no
other person has reported an interest notifiable
under the Disclosure and Transparency Rules.
Major shareholder
Lone Pine Capital LLC
& Stephen F Mandel Jr
Legal & General Group plc
Eminence Capital, LLC
Number
of shares
Percentage of
voting rights
19,138,766
6,217,137
5,861,000
12.1%
3.9%
3.7%
Charitable and political donations
During 2008, the Group made charitable donations
of £108,000 (2007: £68,000), mostly to support
earthquake victims in China.
At the AGM in 2008 shareholders passed a
resolution, on a precautionary basis, to authorise
the Company to make donations to EU political
organisations and to incur EU political expenditure
(as such terms are defined in the Companies Act
2006) not exceeding £90,000. During the year the
Group did not make any political donations (2007:
£nil). It is the Company’s policy not, directly or
through any subsidiary, to make what are commonly
regarded as donations to any political party.
However, at the forthcoming AGM of the Company
shareholders’ approval will again be sought to
authorise the Group to make political donations
and/or incur political expenditure (as such terms are
defined in Sections 362 to 379 of the Companies
Act 2006). Further details of this are contained in
the Notice of the AGM.
Auditors
The auditors, KPMG Audit Plc, have indicated their
willingness to continue in office and a resolution
that they be reappointed will be proposed at the
forthcoming AGM in accordance with Section 489
of the Companies Act 2006.
Annual General Meeting
The Notice convening the AGM, to be held on Friday
15 May 2009, is available for download from the
Company’s corporate website at www.intertek.com.
The Notice will detail the business to be conducted
at the meeting and include information concerning
the deadlines for submitting proxy forms and in
relation to voting rights.
Disclosure of information to auditors
The Directors who held office at the date of
approval of this Directors’ Report confirm that,
so far as they are aware, there is no relevant audit
information of which the Company’s auditors are
unaware and each Director has taken all the steps
that he or she ought to have taken as a Director to
make himself or herself aware of any relevant audit
information and to establish that the Company’s
auditors are aware of that information.
This Directors’ Report comprising pages 06 to 65
has been approved by the Board and signed on its
behalf by:
Fiona Evans
Group Company Secretary
9 March 2009
Registered Office
25 Savile Row
London
W1S 2ES
Registered Number: 4267576
58 www.intertek.com
Directors’ Report – Governance
Statement of Directors’ Responsibilities
58
Statement of Directors’ responsibilities
in respect of the Annual Report and the
financial statements
The Directors are responsible for preparing the
Annual Report and the Group and Parent Company
financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare
Group and Parent Company financial statements for
each financial year. Under that law, they are required
to prepare the Group financial statements in
accordance with International Financial Reporting
Standards as adopted by the European Union (IFRSs)
and applicable law and have elected to prepare the
Parent Company financial statements in accordance
with UK Accounting Standards and applicable law
(UK Generally Accepted Accounting Practice).
The Group financial statements are required by law
and IFRSs as adopted by the EU to present fairly the
financial position and performance of the Group;
the Companies Act 1985 provides in relation to such
financial statements that references in the relevant
part of that Act to financial statements giving a true
and fair view are references to their achieving a fair
presentation.
The Parent Company financial statements are
required by law to give a true and fair view of the
state of affairs of the Parent Company.
In preparing each of the Group and Parent Company
financial statements, the Directors are required to:
•
select suitable accounting policies and then apply
them consistently;
make judgments and estimates that are
reasonable and prudent;
for the Group financial statements, state whether
they have been prepared in accordance with IFRS
as adopted by the EU;
for the Parent Company financial statements, state
whether applicable UK Accounting Standards have
been followed, subject to any material departures
disclosed and explained in the Parent Company
financial statements; and
prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Group and the Parent Company will
continue in business.
•
•
•
•
The Directors are responsible for keeping proper
accounting records that disclose with reasonable
accuracy at any time the financial position of the
Parent Company and enable them to ensure that
its financial statements comply with the Companies
Act 1985. They have general responsibility for taking
such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors
are also responsible for preparing a Directors’
Report, Directors’ Remuneration Report and
Corporate Governance Report that comply with
that law and those regulations.
The Directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website.
Legislation in the UK governing the preparation and
dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement of the Directors
in respect of the annual financial report
We confirm that to the best of our knowledge:
•
the financial statements, prepared in accordance
with the applicable set of accounting standards,
give a true and fair view of the assets, liabilities,
financial position and profit or loss of the
Company and the undertakings included in the
consolidation taken as a whole; and
the Directors’ report includes a fair review of the
development and performance of the business
and the position of the Company and the
undertakings included in the consolidation taken
as a whole, together with a description of the
principal risks and uncertainties that they face.
•
By order of the Board
Wolfhart Hauser
Chief Executive Officer
9 March 2009
Directors’ Report – Governance
Annual Report 2008 59
Corporate Social Responsibility Report
59
Expansion of our
facilities for testing
photovoltaic
modules in
California, New York
and Shanghai will
enable photovoltaic
manufacturers
around the world to
design and deploy
the next generation
of new solar energy
products faster.
Introduction from the Chief Executive Officer
‘In my review on pages 06 to 08 I have highlighted
how our focus on service to customers is our main
business driver. By helping our customers improve
the safety and quality of their products and
processes and ensuring compliance, we help them
to operate in a more sustainable way which benefits
society as a whole.
We are committed to operating in a socially
responsible way and have set out our key policies
in a framework which is communicated to all our
employees on our corporate intranet site.
Our integrity and the reliability of our work is
fundamental to our business and we operate a
strict code of ethics and compliance code. Training
is provided to all our employees through a variety of
means including an on-line e-learning module and
compliance is closely monitored.
This report describes how our principles are applied
in practice to all aspects of our business.’
Wolfhart Hauser
Chief Executive Officer
Our business
Intertek’s services improve quality and safety in the
products and processes that impact people’s lives
around the world. We guide many of the world’s
largest multinational corporations and best-known
brands to improve the social, ethical and
environmental consequences of their products,
services and supply chains.
The skills and experience of our people, who include
some of the world’s leading scientific analysts and
experts, bring scientific solutions or analytical
advances that will reduce the adverse impact on
the environment now and into the future.
During the year we have continued to invest in our
people and world-class equipment and infrastructure
in our laboratories to meet the world’s need for more
environmentally friendly products and appliances.
Intertek provides inspection, auditing, surveying and
other technical services to the world’s on-shore and
off-shore wind turbine installations. We help ensure
wind power generation facilities meet specifications
and perform at optimal conditions.
Our work includes testing compliance and
effectiveness targets in the production of bio fuels
and ethanol, assisting customers to comply with
ultra low sulphur diesel legislation, and helping to
assess low energy and low emission equipment.
In Pakistan we have collaborated with Karachi’s
Capital City Traffic Police to create awareness of
vehicle pollution. Rather than the conventional
seminar approach we decided on an interactive
15-day road show taking a truck into the streets
to test vehicles for their emission content and to
give advice.
At 80 major traffic intersections some 200
vehicles from public buses to rickshaws were
tested to identify gases in their exhaust fumes.
Analysis of the data led to a number of
recommendations for improvements in Karachi,
including public education and mandatory testing.
We guide organisations on how to reduce the use
of hazardous materials in their products and
sourcing. We also partner with governments and
regulatory bodies to help enforce and monitor
adherence to environmental protocols. Our work
brings greater protection to consumers and the
environment. Our laboratories provide melamine
chemical testing services and we carry out
supply chain verification for a wide range of food
ingredients, agricultural products and raw materials.
We were chosen to collaborate
with the Pakistan Standards
and Quality Control Authority
to help set new guidelines
for use by that authority in
its accreditation programme
for registering inspection
companies in Pakistan.
60 www.intertek.com
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We offered free
audit training places
to certain charities,
such as Oxfam and
non-governmental
organisations during
2008. We see it as
a useful exchange
of information on
approaches.
During 2008 we acquired the fixed assets of Contract
Manufacturing Services, based in New Jersey, USA,
which is a leader in implementing environmental
compliance for product manufacturers, including
the Restriction of Hazardous Substances Directive,
Environmental Compliance Process assurance,
Greenhouse Gas emission and Carbon Credit
programmes.
We provide audit and consultancy services to
corporations, non-governmental and regulatory
organisations to improve the social and ethical
impact of their operations. Increasingly consumers
around the world want peace of mind that products
they have purchased have not been created through
social or ethical abuses of workers or unfair trade.
We audit factory conditions and work practices to
ensure that they are legal, ethical and humane.
We work with corporations to develop bespoke
global CSR standards and programmes to ensure
that they exceed minimum social and ethical
thresholds across all of their sourcing. We have
successfully initiated partnerships and collaborations
with non-governmental and not-for-profit
organisations to pursue and improve standards.
During 2008 we have introduced programmes
to assist retailers in gaining assurance that their
supply chains meet the standards they require.
Our Mill Qualification Program, Think Green
Initiative and Global Security Verification
programme address different aspects of supply
chain assurance and facilitate trade by linking
retailers with providers via a standardised portal.
Some Intertek laboratories are registered with the
US Consumer Product Safety Commission which is
responsible for protecting the US public from injury
through fire, electrical, chemical or mechanical
hazards from more than 15,000 types of consumer
products.
Intertek is a world leader in the design of safe
products, with particular expertise in children’s toys.
Our centres of excellence in Chicago and London
provide counsel to some of the world’s largest
product brands to advance the design of safe
products in the market place. In partnership with
industry and health bodies, we collect and analyse
safety data in connection with child accidents. This
data is used to help our clients improve the safety of
their products.
Our values
We believe that the highest standard of integrity
is essential in business.
Our Mission Statement
We will
•
•
•
value trust and personal responsibility;
act with integrity, honesty and respect;
value each employee’s contribution toward
achieving our business objectives;
promote a culture where motivated customer-
orientated employees can flourish, experience
professional fulfilment and reach their highest
potential; and
respect diverse perspectives, experiences and
traditions as essential.
•
•
In all our activities we aim to:
•
•
be both commercial and fair;
recognise the importance to all stakeholders
of ensuring the health and safety of all our
employees;
maintain our integrity and professionalism; and
strive for continual improvement and innovation.
•
•
Importantly, we do not forget our principal aim,
which means that our resources are used to add
value to our customers’ products and processes.
The following systems help us ensure that our values
are maintained:
•
All staff are required to sign the Group’s Code of
Ethics, which sets out our robust stance on
upholding sound business ethics.
Our central compliance team ensures that our
policies and procedures are properly applied in
practice.
All employees have access to whistle blowing
hotlines. Employees and external parties also have
access to a hotline through the Group website.
•
•
Our corporate social responsibility structure
Intertek has businesses in many locations around the
world. Our activities are organised to permit local or
functional managers to manage operations within
the framework established by the Board of Intertek
Group plc. We consider local managers are best
placed to understand and react to their local business
environment. They have the knowledge to apply
policies with due regard to their relationships with
local stakeholders such as employees, customers
and communities.
Our risk management team has been involved in
active promotion of the need for comprehensive
injury and fatality databases and the design of injury
prevention strategy in Europe.
The corporate social responsibility framework within
which these activities are to be managed was
formally adopted by the Board of Intertek Group plc
in 2007.
61
Annual Report 2008 61
US$15K
Our OCA operation
in Texas made a
US$15k donation
to Valero Energy
Corporation’s Open
Benefit for Children
Golf Day, and in the
UK OCA supported
the Wear it Pink
and Jeans for
Genes days.
General policy
Environmental policy
Ethical policy
Employee policy
Intertek’s core businesses provide services that are ultimately of benefit to
consumers and other stakeholders. We test substances for purity and
performance. We test products for safety and quality. We measure air and noise
emissions. We review imports to assess their content accurately. We provide
advice that can lead to greater efficiency of production or operation. We carry
out audits to help ensure that factory conditions and work practices are legal,
humane and ethical. Intertek takes seriously the benefits that our businesses
confer and will continue to endeavour in all its dealings to improve quality,
safety and to bring about environmental benefits through improved efficiency
of products.
Intertek will strive to prevent its operations causing adverse impact on the
environment. We will comply with national environmental legislation and will
endeavour to identify, monitor and control our environmental risks. We will
seek to reduce emissions, effluents, waste and adverse effect on biodiversity.
We will commit to recycling schemes and energy efficiency. We will provide
benefits in respect of environmental impacts through our testing of
environmental standards and will operate safely.
Intertek prohibits the offer, giving or acceptance of bribes in any form.
Intertek prohibits the provision of improper benefits. No reward, gift or favour
dependent on the outcome of any work will be accepted by employees.
Employees shall operate free from any conflict of interest.
Intertek will strive to provide a safe and healthy environment for its employees
to work in. It will comply with national employee legislation. In the absence of
any local prescription, employees will be assessed solely on the basis of their
ability irrespective of their race, religion, colour, age, disabilities, gender or
sexual orientation or their participation in legitimate union activities.
Employees’ diverse perspectives, experiences and traditions will be respected.
Wherever possible, employees’ personal growth will be fostered through the
provision of training.
Community and stakeholder policy
Intertek will take into account, when making decisions, its impact on all
relevant stakeholders.
Business practices policy
Intertek will carry out its work in an honest, professional, independent and
impartial manner. Marketing will be conducted in a manner that is not
misleading. Procurement from suppliers whose corporate responsibility policies
align with Intertek’s will be encouraged.
We have cascaded these policies through the
management structure and added them to our
corporate intranet to disseminate them.
Employees are encouraged to supply ideas and
information concerning our CSR performance
by contacting us through the intranet.
Overall and ultimate responsibility for the Group’s
CSR policies, issues and their implementation lies
with the Chief Executive Officer.
We take a responsible and active role in the
business communities in which we operate.
Intertek is a member of a number of CSR related
associations such as CSR Europe, the Ethos
Institute of Business and Social Responsibility and
Canadian Business for Social Responsibility.
We aim to increase our participation and
membership of such bodies in the future to show
our commitment to being a significant player in
the corporate social responsibility arena.
Our employees
Our principal strength is the talent of our staff.
Our intention is to unlock the potential of every
employee to perform to the best of his or her
abilities. This enables us to achieve maximum
value for them, our customers and shareholders.
Staff numbers continued to expand in 2008, and
we have continued to develop the reach of our
framework employee policies, to ensure a fair and
consistent approach to employee matters around
the Group.
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Directors’ Report – Governance
Corporate Social Responsibility Report
An Employee Awards
and recognition
programme was
rolled out in North
America and
manager training
and communication
was completed.
It is a three part
award structure
comprising the
Service, the Star and
the Edison Award.
Objectives
We have a number of objectives which include:
continuing to adopt and roll out framework
•
HR policies;
improving communications with employees; and
retaining and motivating employees.
•
•
Our policies
We have framework policies in place that enable us
to treat employees fairly across the Group, whilst still
giving local managers the authority and flexibility to
adopt what is right for their local area. As we grow,
whether organically or by acquisition, we continue
to promote and monitor these policies, which are
concerned with matters such as fair recruitment,
internal communications and remuneration.
The chart below shows how our workforce is
distributed geographically and why it is important
for us to respect regional and cultural differences.
As part of our equal opportunities policy, people
with disabilities are given the same consideration as
others when they apply for jobs. Depending on their
skills and aptitudes, they enjoy the same career
prospects as other employees. If employees become
disabled every effort will be made to retain them in
their current role or to look at possibilities for
retraining or redeployment within the Group.
Where necessary the Group aims to provide these
employees with facilities, equipment and training
to assist them in doing their jobs.
The health and safety of our employees is of
paramount importance to the Group. We aim to
provide a safe working environment and ensure that
our employees have the information and knowledge
to safely perform their duties. We are committed to
maintaining high standards and complying with
relevant local legislation and guidelines in any area in
which we operate. We continually seek to minimise
harm to our employees and our procedures are
regularly monitored by our compliance team to ensure
that they are being properly applied in practice.
Information about employees
It is important to monitor progress in matters such
as diversity, employment of disabled staff, training,
staff retention and safety to attain the best results
for the Group. The more information we have, the
better we will be able to make changes when they
are necessary.
Group-wide human resource meetings and
intranet-based sharing of information are used to
communicate objectives and share knowledge, since
the decentralised and global nature of the Group
means that we do not currently have a single data
platform appropriate for the purpose of measuring
the success of all our employee targets.
Information for employees
Good communication is the basis of every successful
relationship and we are always looking for ways to
increase communication opportunities with our
employees, especially with regard to two-way
communication. We particularly need to ensure
that our employees are aware of our ethical, risk
and safety procedures. We continue to extend
the use of our intranet to encourage Group-wide
communication and knowledge. In time our intranet
will become an online encyclopaedia of the Group,
a home to internal communities, a reference for
policies and information and an e-learning forum.
We use face-to-face review meetings, regular
management meetings and newsletters to give and
receive information. Employees are also able to use
our telephone and email hotlines if there is anything
they feel should be communicated.
An online ‘on-boarding’ programme, is being
introduced to help new employees familiarise
themselves with the Group and its operations.
We have introduced many programmes
of business training for junior managers,
beginning with those in our Asia region.
By developing the careers of these
employees we are laying the foundations
for our next senior executive structure.
Number of employees
12,846
5,412
5,583
2008
11,030
4,763
5,510
2007
8,638
4,267
4,995
2006
Asia Pacific
EMEA
Americas
63
Annual Report 2008 63
Our Intertek as One programme of cross-divisional
liaison has contributed to increased knowledge of
the Group and to better opportunities for staff
through regional and country-based meetings,
communications and workshops.
Share interests
We are committed to encouraging our key
executives to align themselves with the interests of
shareholders and the Group’s performance through
the ownership of the Company’s shares. The
Company operates a long-term incentive share plan
for senior executives and requires the most senior
executives to retain some of the shares they obtain
through this plan. More information about the plan
is contained in the Remuneration Report on page
54. We are pleased to note that a number of our
employees have chosen to invest in the Group and
that some £6.8m of our shares were held by
employees and Directors at the end of 2008.
Our communities
In South Africa, our OCA business donates time
and money to a number of projects, mostly in
support of local children. In 2008 this included
donations of money, computers and other goods
to schools, and hands-on assistance with the
painting of a school for AIDS-affected children,
with which the business has a close link.
Together with the South African Institute of
Chartered Accountants we donated money to
a project for the development of small business
entrepreneurs in South Africa.
Initiatives like these help us to meet our
obligations under the South African Broad Based
Black Economic Codes, which are important to
the business in the country.
Because of the decentralised structure of our
Group and the nature of our activities, community
involvement is organised at local level by local
managers. We recognise the importance of our
relationship with the communities in which we
operate, and encourage our businesses and
employees to undertake community service and
charitable giving.
Intertek is one
of the 44.4% of
companies in the
FTSE 250 with
one or more
female directors
on the Board.
During May 2008 the Sichuan province of China
was devastated by earthquakes. In many countries
Intertek employees contributed to disaster relief
funds to help those affected by events.
Where employees made donations to recognised
international relief funds such as Unicef, Red Cross
or Red Crescent the local Intertek business unit
matched contributions made by employees.
Donations totalled more than RMB 1 million.
One of our CSR auditors, who had just completed
his assignment in the area at the time, joined the
relief team as a humanitarian aid worker.
Our environment
We have measured our carbon emissions at 10
key sites over the last two years to gain a better
understanding of our energy use. The nature and
hence the emissions of the operations at each of
these sites varies considerably and we are
considering how best to use this data to develop
a strategy for reducing our carbon emissions.
Our compliance team carried out 22 environmental
audits at major sites during the year. These reviews
consistently showed our environmental controls to
be strong. No major issues were identified and
minor issues were corrected as part of the process.
Operational staff reviews environmental controls on
an ongoing basis.
Our expertise helps identify the
energy efficiency of electrical
and electronic equipment
in programmes such as the
China Energy Label registration,
Singapore Green Label Scheme
and our own one-stop Energy
Saving Verification Service.
64 www.intertek.com
Directors’ Report – Governance
Corporate Social Responsibility Report
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Our ‘Reduce, Reuse, Recycle’ campaign in China
encourages employees to reduce the use of paper,
switch off air-conditioning 20 minutes prior to
closing their office and recycling all paper.
In common with many areas of Intertek’s business,
the implementation of our framework policy on the
environment is operated by local management in
accordance with relevant local legislation and
guidelines. A number of projects have been carried
out at the local level during the year.
Specific initiatives we are working on include:
•
reducing paper usage by introducing paper-free
delivery to clients, using electronic document
management systems, using electronic
communication with shareholders and increasing
the use of the internet and intranet for
communications including telephone calls;
increasing investment in low-energy equipment;
increasing recycling schemes throughout the
Group;
reducing carbon-fuel travel by holding meetings
by conference call or Webinar and amending
travel policies to include environmentally-friendly
elements;
‘green office’ initiatives have reduced paper
usage, saved energy, and of course, cut costs;
our new multi-divisional site in Mexico is being
designed with a number of environmentally-
friendly features, including use of recycled
products, special lighting and water saving.
•
•
•
•
•
Our Commercial & Electrical division announced
the global launch of a paper-free environmental
programme for customers’ product testing and
certification deliverables. The Company’s
proprietary “MyTestCentralTM” web portal will
be the electronic clearing-house for customer
certificates, reports and documentation, reducing
environmental waste as well as adding efficiencies
to our processes.
The programme will begin in North America,
followed by Europe, Middle East, Africa and Asia
Pacific areas.
Intertek’s compliance team takes an active role in
identifying areas where the Group and employees
can have a positive effect on reducing our
environmental impact. These include energy and
water consumption, use of fuel by Group vehicles,
reduced use of ozone-depleting substances and
waste and by-product production.
We aim to educate our employees so that we can all
work towards a better future for the environment.
The circulation of information concerning, for
example, energy consumption, is one of the ways
we use to identify and enlist the help of all
employees in minimising specific and overall usage.
Our customers, suppliers and shareholders
At Intertek we:
•
maintain quality management systems in our
divisions and continually monitor the service
we provide;
value and serve our customers, as embodied
in our customer focused mission statement;
offer an integrated and unified service on a
global basis;
welcome feedback from all stakeholders;
hold regular feedback meetings with customers
and welcome their inspection of our premises;
provide an accessible feedback service to assess
the quality of service provided; and
conduct customer satisfaction surveys.
•
•
•
•
•
•
As a Group, we do not have any individual suppliers
on whom we are overly reliant and we aim to treat
all suppliers with fairness and integrity. We strive
to create relationships based on mutual trust and
ensure payment of all invoices on a timely basis.
Our Compliance Code sets out our business
principles including their application in business
relationships. The Code is available in the
Compliance section of our website at
www.intertek.com/aboutintertek/compliance.
Communication with shareholders is given a
high priority and a number of means are used
to promote greater understanding and dialogue
with investment audiences.
65
Annual Report 2008 65
Our OCA business
participated in the
Louisiana Clean
Fuels Partnership’s
Designation as
a Clean City
by explaining
inspection and
testing’s role in
the supply chain
at the Coalition
Conference held
in March 2008.
Our investor programme includes:
•
regular individual meetings with shareholders
and investment managers during the year;
road shows in many countries;
regular analyst briefings; and
‘investor days’ where analysts and investors are
invited to visit some of our laboratories to meet
staff and observe work being performed.
•
•
•
In addition, Intertek has an experienced investor
relations team to handle enquiries and report
investor-related matters to the Board. Feedback on
the Group’s investor programme has been positive
and Intertek has a good relationship with investors
and their representatives.
During the course of the year, shareholders are
kept informed on the progress of the Group
through reports on our financial results, and other
announcements of significant developments that
are released through regulatory outlets and our
own website. We have introduced the option of
electronic communications with shareholders
as a way of reducing paper-based reporting.
In November 2008 the Group
held its annual budget and
strategy meetings by Webinar,
with over 70 employees
participating from their
own offices, saving some
125,000lbs of CO2 emissions
through reduced travel.
66 www.intertek.com
Independent Auditors’ Report
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Independent Auditors’ Report to
the Members of Intertek Group plc
We have audited the Group and Parent Company
financial statements (the ‘financial statements’) of
Intertek Group plc for the year ended 31 December
2008 which comprise the Consolidated Income
Statement, the Consolidated and Parent Company
Balance Sheets, the Consolidated Statement of Cash
Flows, the Consolidated Statement of Recognised
Income and Expense and the related notes. These
financial statements have been prepared under the
accounting policies set out therein. We have also
audited the information in the Directors’
Remuneration Report that is described as having
been audited.
This report is made solely to the Company’s
members, as a body, in accordance with section
235 of the Companies Act 1985. Our audit work
has been undertaken so that we might state to the
Company’s members those matters we are required
to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s
members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of
Directors and auditors
The Directors’ responsibilities for preparing the
Annual Report and the Group financial statements
in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by
the EU, and for preparing the Parent Company
financial statements and the Directors’
Remuneration Report in accordance with applicable
law and UK Accounting Standards (UK Generally
Accepted Accounting Practice) are set out in the
Statement of Directors’ Responsibilities on page 58.
Our responsibility is to audit the financial statements
and the part of the Directors’ Remuneration Report
to be audited in accordance with relevant legal and
regulatory requirements and International Standards
on Auditing (UK and Ireland).
We report to you our opinion as to whether the
financial statements give a true and fair view and
whether the financial statements and the part of
the Directors’ Remuneration Report to be audited
have been properly prepared in accordance with
the Companies Act 1985 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
We also report to you whether in our opinion the
information given in the Directors’ Report is
consistent with the financial statements.
In addition we report to you if, in our opinion,
the Company has not kept proper accounting
records, if we have not received all the information
and explanations we require for our audit,
or if information specified by law regarding
Directors’ remuneration and other transactions
is not disclosed.
We review whether the Corporate Governance
Statement reflects the company’s compliance with
the nine provisions of the 2006 Combined Code
specified for our review by the Listing Rules of the
Financial Services Authority, and we report if it does
not. We are not required to consider whether the
Board’s statements on internal control cover all risks
and controls, or form an opinion on the
effectiveness of the Group’s corporate governance
procedures or its risk and control procedures.
We read the other information contained in
the Annual Report and consider whether it is
consistent with the audited financial statements.
We consider the implications for our report if we
become aware of any apparent misstatements
or material inconsistencies with the financial
statements. Our responsibilities do not extend
to any other information.
Basis of audit opinion
We conducted our audit in accordance with
International Standards on Auditing (UK and Ireland)
issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the
financial statements and the part of the Directors’
Remuneration Report to be audited. It also includes
an assessment of the significant estimates and
judgements made by the Directors in the
preparation of the financial statements, and of
whether the accounting policies are appropriate to
67
Annual Report 2008 67
the Group’s and Company’s circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to
obtain all the information and explanations which
we considered necessary in order to provide us
with sufficient evidence to give reasonable
assurance that the financial statements and the part
of the Directors’ Remuneration Report to be audited
are free from material misstatement, whether
caused by fraud or other irregularity or error. In
forming our opinion we also evaluated the overall
adequacy of the presentation of information in the
financial statements and the part of the Directors’
Remuneration Report to be audited.
Opinion
In our opinion:
•
the Group financial statements give a true and
fair view, in accordance with IFRSs as adopted
by the EU, of the state of the Group’s affairs as
at 31 December 2008 and of its profit for the
year then ended;
the Group financial statements have been properly
prepared in accordance with the Companies Act
1985 and Article 4 of the IAS Regulation;
the Parent Company financial statements give
a true and fair view, in accordance with UK
Generally Accepted Accounting Practice, of the
state of the Parent Company’s affairs as at
31 December 2008;
the Parent Company financial statements and
the part of the Directors’ Remuneration Report
to be audited have been properly prepared in
accordance with the Companies Act 1985; and
the information given in the Directors’ Report is
consistent with the financial statements.
•
•
•
•
KPMG Audit Plc
Chartered Accountants
Registered Auditor
8 Salisbury Square
London
EC4Y 8BB
9 March 2009
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Consolidated Income Statement
For the year ended 31 December 2008
Revenue
Cost of sales
Gross profit
Amortisation of acquisition intangibles
Impairment of goodwill
Non-recurring costs
Other administrative expenses
Total administrative expenses
Group operating profit
Finance income
Finance expense
Net financing costs
Share of profit/(loss) of associates
Profit before income tax
Income tax expense
Profit for the year
Attributable to:
Equity holders of the Company
Minority interest
Profit for the year
Earnings per share
Basic
Diluted
Notes
2008
£m
2007
£m
1,003.5
(792.6)
775.4
(615.9)
210.9
159.5
11
11
4
3
7
7
(9.6)
(0.5)
(6.7) –
(46.2)
(63.0)
(5.1)
(0.4)
(37.9)
(43.4)
147.9
116.1
13.1
(22.6)
(9.5)
5.4
(15.6)
(10.2)
12
0.2
(0.1)
138.6
105.8
8
(36.4)
(27.0)
102.2
78.8
21
22
93.8
8.4
102.2
73.2
5.6
78.8
9
9
59.5p
58.9p
46.7p
46.2p
Consolidated Balance Sheet
As at 31 December 2008
Assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in associates
Other investments
Deferred tax assets
Total non–current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Interest bearing loans and borrowings
Derivative financial instruments
Current taxes payable
Trade and other payables
Provisions
Total current liabilities
Interest bearing loans and borrowings
Deferred tax liabilities
Net pension liabilities
Other payables
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity attributable to equity holders of the Company
Minority interest
Total equity
69
Annual Report 2008 69
Notes
2008
£m
2007
£m
10
11
11
12
13
14
15
16
25
17
28
18
19
17
14
24
18
19
20
21
21
21
22
234.8
242.1
55.2
1.3
4.4 –
15.7
553.5
8.2
284.4
113.3
405.9
149.2
148.4
35.0
0.6
11.9
345.1
4.0
191.0
58.6
253.6
959.4
598.7
(14.0)
(4.5)
(36.3)
(184.4)
(26.4)
(13.7)
(0.7)
(25.3)
(128.6)
(22.7)
(265.6)
(191.0)
(407.6)
(6.4)
(18.5)
(3.4)
(0.2)
(217.5)
(5.3)
(7.3)
(0.9)
(0.9)
(436.1)
(231.9)
(701.7)
(422.9)
257.7
175.8
1.6
249.9
32.0
(41.8)
241.7
16.0
1.6
247.3
11.7
(96.4)
164.2
11.6
257.7
175.8
The financial statements on pages 68 to 111 were approved by the Board on 9 March 2009 and were signed on its behalf by:
Wolfhart Hauser
Director
Bill Spencer
Director
70 www.intertek.com
Consolidated Statement of Cash Flows
For the year ended 31 December 2008
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation charge
Amortisation of software
Amortisation of acquisition intangibles
Impairment of goodwill
Equity-settled transactions
Share of (profit)/loss of associates
Net financing costs
Income tax expense
Loss on disposal of property, fixtures, fittings, equipment and software
Operating profit before changes in working capital and operating provisions
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Change in provisions
Special contributions into pension schemes
Cash generated from operations
Interest and other finance expense paid
Income taxes paid
Net cash flows from operating activities
Cash flows from investing activities
Proceeds from sale of property, fixtures, fittings, equipment and software
Interest received
Acquisition of subsidiaries, net of cash acquired
Consideration paid in respect of prior year acquisitions
Purchase of minority interests
Purchase of a listed investment
Purchase of an associate
Acquisition of property, fixtures, fittings and equipment
Acquisition of software
Net cash flows used in investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
Issue of shares by subsidiary undertaking to minority
Drawdown of senior term loans and notes
Repayment of senior term loans
Dividends paid to minorities
Equity dividends paid
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
Notes
2008
£m
3
102.2
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2007
£m
78.8
27.7
2.3
5.1
0.4
3.0
0.1
10.2
27.0
0.1
154.7
(0.3)
(20.7)
14.4
3.8
(2.8)
149.1
(10.8)
(28.4)
109.9
0.3
1.1
(85.8)
(41.3)
(2.5)
36.6
2.9
9.6
0.5
3.3
(0.2)
9.5
36.4
0.6
201.4
(1.1)
(20.1)
11.4
5.4
(3.0)
194.0
(16.5)
(36.6)
140.9
0.4
1.5
(67.8)
(16.7) –
(1.9) –
(4.4) –
(0.1) –
(63.9)
(3.7)
10
11
11
11
27
12
7
8
5
24
26
19
22
13
12
10
11
21
22
21
25
25
25
25
(156.6)
(128.2)
2.6
0.5 –
177.9
(98.4)
(6.1)
(30.4)
46.1
30.4
58.6
24.3
113.3
4.9
70.6
(21.2)
(3.6)
(25.2)
25.5
7.2
49.5
1.9
58.6
Consolidated Statement of Recognised Income and Expense
For the year ended 31 December 2008
Foreign exchange translation differences for foreign operations
Actuarial gains and losses on defined benefit pension schemes
Tax on income and expense recognised directly in equity
Effective portion of changes in fair value of cash flow hedges
Net loss on hedges of net investments in foreign operations
Income and expense recognised directly in equity
Profit for the year
Total recognised income and expense for the year
Total recognised income and expense for the year attributable to:
Equity holders of the Company
Minority interest
Total recognised income and expense for the year
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Annual Report 2008 71
2008
£m
138.4
(12.3)
–
(3.7)
(110.9)
11.5
102.2
113.7
101.8
11.9
113.7
2007
£m
10.6
8.5
(2.3)
(1.1)
(3.2)
12.5
78.8
91.3
85.1
6.2
91.3
Notes
21 & 22
24
21
21
21
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Notes to the financial statements
Notes to the financial statements
1 General
Intertek Group plc is a company incorporated and domiciled in the UK.
The Group financial statements as at and for the year ended 31 December 2008 consolidate those of the Company and its subsidiaries
(together referred to as the Group) and equity account the Group’s interest in associates. The Parent Company financial statements present
information about the Company as a separate entity and not about its Group.
The Group’s activities are the testing, inspection and certification of products and commodities against a wide range of safety, regulatory,
quality and performance standards. Note 3 provides a segmental analysis of the Group’s performance.
2 Significant accounting policies
(a) Statement of compliance
The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting
Standards as adopted by the EU (IFRSs). The Company has elected to prepare its Parent Company financial statements in accordance with
UK GAAP; these are presented on pages 112 to 115.
(b) Basis of preparation
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
The Group has adopted in the year the following new standards, amendments to standards and interpretations, which have had no impact
on the financial statements:
•
•
•
Amendments to IAS 39 and IFRS 7 – ‘Reclassification of Financial Instruments’
IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’
IFRIC 11, ‘IFRS 2 – Group and Treasury Share Transactions’.
The preparation of financial statements in conformity with IFRSs, requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimates are revised and in any future periods affected.
In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that
have the most significant effect on the amounts recognised in the financial statements, is discussed in note (w).
Measurement convention
The financial statements are prepared on the historical cost basis except that derivative financial instruments and available-for-sale financial
assets are stated at fair value.
Functional and presentation currency
These consolidated financial statements are presented in sterling, which is the Company’s functional currency. All information presented in
sterling has been rounded to the nearest £100,000.
Going concern
The Board has reviewed forecasts, including forecasts adjusted for significantly worse economic conditions, and remains satisfied
with the Group’s funding and liquidity position. On the basis of its forecasts, both base case and stressed, and available facilities, which
are described in note 17, the Board has concluded that the going concern basis of preparation continues to be appropriate.
(c) Basis of consolidation
Subsidiaries
Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that
presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have
been changed where necessary to align them with the policies adopted by the Group.
For purchases of minority interest in subsidiaries, the Group applies the ‘entity concept method’. Under this method, the entire difference
between the cost of the additional interest in the subsidiary, and the minority interest’s share of the assets and liabilities reflected in the
consolidated balance sheet at the date of acquisition of the minority interests, is reflected directly in the shareholders’ equity.
Associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies.
Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. The
consolidated financial statements include the Group’s share of the total recognised income and expense of associates on an equity
accounted basis, after adjustments to align the accounting policies with those of the Group, from the date that significant influence
commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the
Group’s carrying amount of that interest is reduced to nil and recognition of further losses is discontinued except to the extent that the
Group has a legal or constructive obligation or has made payments on behalf of an associate. The Group does not consider the associates
to be an integral part of the Group’s operations and therefore its results are presented outside of the Group operating profit.
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Annual Report 2008 73
2 Significant accounting policies (continued)
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains and losses or income and expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated
against the investment to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised
gains, but only to the extent that there is no evidence of impairment.
(d) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the reporting date are translated at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in the income statement except those arising on the retranslation of a financial
liability designated as a hedge of net investment in a foreign operation and on retranslation of available-for-sale equity instruments which
are recognised directly in equity. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are
translated at foreign exchange rates ruling at the dates the fair values were determined. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to sterling
at foreign exchange rates ruling at the reporting date. The income and expenses of foreign operations are translated into sterling at
cumulative average rates of exchange during the year.
The most significant currencies for the Group were translated at the following exchange rates:
Value of £1
US dollar
Euro
Chinese renminbi
Hong Kong dollar
Balance sheet
Actual rates
Income statement
Cumulative
average rates
31 Dec 08
31 Dec 07
2008
1.46
1.02
9.95
11.28
1.99
1.36
14.57
15.51
1.87
1.26
13.03
14.59
2007
2.00
1.46
15.24
15.62
Exchange differences arising from the translation of foreign operations, and of related qualifying hedges are taken directly to equity in the
translation reserve. They are released into the income statement upon disposal. The Group has taken advantage of relief available in IFRS 1,
to deem the cumulative translation differences for all foreign operations to be zero at the date of transition to IFRSs on 1 January 2004.
Hedges of net investments in foreign operations are discussed in accounting policy (g).
(e) Classification of financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity (i.e. forming part of shareholders’ funds)
only to the extent that they meet the following two conditions:
(i) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or
financial liabilities with another party under conditions that are potentially unfavourable to the Group; and
(ii) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the
Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified
takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and
share premium exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial
instruments that are classified in equity are dividends and are recorded directly in equity.
(f) Derivative financial instruments
The Group uses derivative financial instruments to hedge economically its exposure to foreign exchange and interest rate risks arising from
operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial
instruments for trading purposes.
Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when
incurred. Subsequent to initial recognition, derivative financial instruments are measured at fair value. The gain or loss on re-measurement
to fair value is recognised immediately in the income statement except where derivatives qualify for hedge accounting, in which case the
recognition of any resultant gain or loss depends on the nature of the item being hedged (see accounting policy (g)). Derivatives that do
not qualify for hedge accounting are accounted for as trading instruments.
The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance
sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward
exchange contracts is their quoted market price at the balance sheet date, being the present value of the difference between the quoted
forward price and the exercise price of the contract.
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Notes to the financial statements
2 Significant accounting policies (continued)
(g) Hedging
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly
probable forecasted transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the
hedging reserve. The ineffective part of any gain or loss on the derivative financial instrument is recognised in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the
hedged transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in the income
statement when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or
loss recognised in equity is recognised in the income statement immediately.
When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the income statement in the same period
that the hedged item affects the income statement.
Hedge of monetary assets and liabilities
Where a derivative financial instrument is used economically to hedge the foreign exchange exposure of a recognised monetary asset or
liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the income statement.
Hedge of net investment in a foreign operation
The portion of the gain or loss on an instrument designated as a hedge of a net investment in a foreign operation that is determined to be
an effective hedge, is recognised directly in equity in a translation reserve. The ineffective portion is recognised immediately in the income
statement. When the hedged net investment is disposed of, the cumulative amount in equity is transferred to the income statement as an
adjustment to the profit or loss on disposal.
Available-for-sale financial assets
The Group’s investments in equity securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are
measured at fair value and changes therein, other than impairment losses (which are recognised in the income statement), and foreign
currency differences on available-for-sale monetary items (see note (d)), are recognised directly in equity. When an investment is
derecognised, the cumulative gain or loss in equity is transferred to profit or loss.
(h) Property, plant and equipment
Owned assets
Items of property, plant and equipment are measured at cost less accumulated depreciation (see below) and accumulated impairment
losses (see accounting policy (m)).
Cost includes expenditure that is directly attributable to the acquisition of the asset.
Gains and losses on disposal of items of property, plant and equipment are determined by comparing the proceeds from disposal with the
carrying amount of property, plant and equipment and are recognised in profit or loss.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable
that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying
amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in
profit or loss as incurred.
Leased assets
Leases in which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Where land and
buildings are held under finance leases, the accounting treatment of the land is considered separately from that of the buildings. Leased
assets acquired by way of finance leases are stated at an amount equal to the lower of their fair value and the present value of the
minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.
Other leases are operating leases. These leased assets are not recognised on the Group’s balance sheet.
Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and
equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the
Group will obtain ownership by the end of the lease term.
Land is not depreciated. The estimated useful lives are as follows:
Freehold buildings and long leasehold buildings
Short leasehold buildings
Fixtures, fittings and equipment
50 years
Term of lease
3–10 years
Depreciation methods, residual values and the useful lives of all assets are re-assessed at each reporting date.
(i) Intangible assets
Goodwill
Goodwill arises on the acquisition of businesses. All business combinations are accounted for by applying the purchase method. Goodwill
represents the difference between the cost of acquisition and the Group’s interest in the fair value of the identifiable assets, liabilities and
contingent liabilities acquired. Goodwill is stated at cost less any accumulated impairment losses (see accounting policy (m)). Goodwill is
allocated to cash generating units (CGUs) and is not amortised but is tested annually for impairment. In respect of associates, the carrying
amount of goodwill is included in the carrying amount of the investments in associates.
75
Annual Report 2008 75
2 Significant accounting policies (continued)
The Group has taken advantage of the exemption permitted by IFRS 1 and has not restated goodwill on acquisitions prior to 1 January
2004, the date of transition to IFRS. In respect of acquisitions prior to 1 January 2004, goodwill represents the amount recognised under
the Group’s previous accounting framework.
Purchased goodwill in respect of acquisitions before 1 January 1998, was written off to reserves in the year of acquisition, in accordance
with the accounting standard then in force.
Negative goodwill arising on an acquisition is recognised immediately in the income statement.
Fair value adjustments are made in respect of acquisitions. If at the balance sheet date the fair values of the acquiree’s identifiable assets,
liabilities and contingent liabilities can only be established provisionally, then these values are used. Any adjustments to these values made
within 12 months of the acquisition date are taken as adjustments to goodwill.
Other intangible assets
Other than goodwill, intangible assets arising on acquisitions and computer software, are stated at cost less accumulated amortisation and
accumulated impairment losses. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless
of whether those rights are separable, and which have finite useful lives.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives. The estimated useful lives are as
follows:
Computer software
Customer relationships
Know-how
Licences
Covenants not to compete
Up to 5 years
Up to 10 years
Up to 5 years
Contractual life
Contractual life
(j) Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently are stated at their amortised cost less impairment losses
(see accounting policy (m)).
(k) Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of the inventories is based on the first-in-first-out (FIFO)
principle. Cost comprises expenditure incurred in the normal course of business in bringing inventories to their present condition and
location and net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling costs.
(l) Cash and cash equivalents and net debt
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash
flows. Net debt comprises borrowings less cash and cash equivalents.
(m) Impairment
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial
asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated
future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount,
and the present value of the estimated future cash flows discounted at the original effective interest rate. Receivables with a short duration
are not discounted.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed
collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in the income statement.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised.
For financial assets measured at amortised cost, the reversal is recognised in profit or loss.
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is
estimated. The recoverable amount of goodwill is estimated at each reporting date.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill
allocated to cash generating units and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis. A cash
generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
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Notes to the financial statements
2 Significant accounting policies (continued)
The recoverable amount of an asset or a cash generating unit is the greater of its fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. The goodwill acquired in a business combination, for the
purpose of impairment testing, is allocated to cash generating units that are expected to benefit from the synergies of the combination.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash generating unit
to which the asset belongs. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. An
impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed when there is an indication
that the impairment loss may no longer exist as a result of a change in the estimates used to determine the recoverable amount.
(n) Dividends
Interim dividends are recognised as a movement in equity when they are paid. Final dividends are reported as a movement in equity in the
period in which they are approved by the shareholders.
(o) Interest-bearing borrowings
Interest-bearing borrowings are initially recognised at fair value, less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the
income statement over the period of the borrowings on an effective interest basis.
(p) Employee benefits
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and
will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are
recognised as an employee benefit expense in the income statement as incurred.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of
defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned
in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past
service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-rated
bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in
which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit
method. When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service
costs and the present value of economic benefits available in the form of (i) an unconditional right to a refund from the plan or (ii)
reductions in future contributions to the plan as measured by the estimated future service cost less the estimated minimum funding
contributions required in respect of the future accrual of benefits in that year. An economic benefit is available to the Group if it is
realisable during the life of the plan, or on settlement of the plan liabilities. In addition a provision for future minimum funding
contributions is recorded to the extent that such payments are required to cover an existing shortfall, as measured on a minimum funding
contribution basis, and having been paid will not be available as a refund or a reduction in future contributions to the plan.
The increase in the present value of the liabilities expected to arise from the employees’ services in the accounting period is charged to the
operating profit in the income statement. The expected return on the schemes’ assets and the interest on the present value of the
schemes’ liabilities, during the accounting period, are shown as finance income and finance expense respectively. Actuarial gains and losses
are recognised immediately in equity.
Share-based payment transactions
The share-based compensation plans operated by the Group allow employees to acquire shares of the Company. The fair value of the
employee services received in exchange for the grant of share options or shares, is measured at the grant date and is recognised as an
expense with a corresponding increase in equity. The charge is calculated using the Black-Scholes method and expensed to the income
statement over the vesting period of the relevant award. The charge for the share options and for the share awards is adjusted to reflect
expected and actual levels of vesting where conditions are non-market based. The expense of the share awards under the deferred bonus
plan is also adjusted for the probability of performance conditions being achieved. The Group has taken advantage of the provisions of
IFRS 1: First-time Adoption of International Financial Reporting Standards, and has recognised an expense only in respect of share options
and share awards granted since 7 November 2002.
Own shares held by ESOT trust
Transactions of the Group sponsored ESOT trust are included in the Group financial statements. In particular, the trust’s purchases of
shares in the Company are debited directly to equity.
(q) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation that can be estimated reliably
as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.
(r) Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently are stated at their amortised cost.
(s) Revenue
Revenue represents the total amount receivable for services rendered, excluding sales related taxes and intra group transactions. Revenue
from services rendered is recognised in the income statement when the relevant service is completed, usually when the report of findings is
issued or in certain circumstances, in proportion to the stage of completion, normally determined by reference to costs incurred to date in
proportion to the total anticipated costs of the transaction at the balance sheet date.
77
Annual Report 2008 77
2 Significant accounting policies (continued)
(t) Expenses
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.
Lease incentives received are recognised in the income statement as an integral part of the total lease expense over the term of the lease.
Net financing costs
Net financing costs comprise interest expense on borrowings calculated using the effective interest rate method, facility fees, interest
receivable on funds invested, net foreign exchange gains or losses on external interest, income and expense relating to pension assets and
liabilities, and gains and losses on hedging instruments, that are recognised in the income statement (see accounting policy (g)). Interest
income is recognised in the income statement as it accrues using the effective interest rate method. All borrowing costs are recognised in
the income statement using the effective interest rate method.
(u) Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it
relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences
are not provided for: initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affect neither accounting nor taxable profit; overseas retained earnings, the distribution of which is under the control
of the Group, and which are not likely to be distributed in the foreseeable future; and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the
balance sheet date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and
assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Any additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related
dividend.
(v) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing services to a particular industry (business
segment) or in providing services within a particular economic environment (geographic segment), which is subject to risks and rewards
that are different from those of other segments.
(w) Significant accounting judgements and estimates
In applying the Group’s accounting policies described above, management has applied judgement in the following areas that have a
significant impact on the amounts recognised in the financial statements. Also discussed below, are key assumptions concerning the future
and other key sources of estimation at the balance sheet date, that have a risk of causing a material adjustment to the carrying amount of
assets and liabilities within the next financial year.
Claims (see notes 19 and 29)
In making provision for claims, management bases its judgement on the circumstances relating to each specific event, internal and external
legal advice, knowledge of the industries and markets, prevailing commercial terms and legal precedents. The Group’s legal and warranty
claims are reviewed, at a minimum, on a quarterly basis by senior management.
Intangible assets (see note 11)
When the Group makes an acquisition, management review the business and assets acquired to determine whether any intangible assets
should be recognised separately from goodwill. If such an asset is identified, then it is valued by discounting the probable future cash flows
expected to be generated by the asset, over the estimated life of the asset. Where there is uncertainty over the amount of economic
benefit and the useful life, this is factored into the calculation.
Impairment of goodwill (see note 11)
The Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the value in use of the cash
generating units to which the goodwill is allocated. Estimating the value-in-use, requires the Group to make an estimate of the expected
future cash flows from the cash generating unit that holds the goodwill, at a determined discount rate to calculate the present value of
those cash flows.
Contingent consideration (see notes 19 and 26)
When the Group acquires businesses, the total consideration may consist of an amount paid on completion plus further amounts payable
on agreed post completion dates. These further amounts are contingent on the acquired business meeting agreed performance targets.
At the date of acquisition, the Group reviews the profit and cash forecasts for the acquired business and estimates the amount of
contingent consideration that is likely to be due.
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Notes to the financial statements
2 Significant accounting policies (continued)
Recoverability of trade receivables (see note 28)
Trade receivables are reflected net of an estimated provision for impairment losses. This provision is based primarily on a review of all
outstanding accounts and considers the past payment history and creditworthiness of each account and the length of time that the debt
has remained unpaid. The actual amounts of debts that ultimately prove irrecoverable could vary from the actual provision made.
Employee post-retirement benefit obligations (see note 24)
The Group has three principal defined pension benefit plans. The obligations under these plans are recognised in the balance sheet and
represent the present value of the obligation calculated by independent actuaries, with input from management. These actuarial
valuations include assumptions such as discount rates, return on assets, salary progression and mortality rates. These assumptions vary
from time to time according to prevailing economic and social conditions.
Deferred tax (see note 14)
Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised. In particular, judgement
is used when assessing the extent to which deferred tax assets should be recognised, with consideration given to the timing and level of
future taxable income.
Income tax (see note 8)
The actual tax on profits is determined according to complex tax laws and regulations. Where the effect of these laws and regulations is
unclear, estimates are used in determining the liability for the tax to be paid on past profits which are recognised in the financial
statements. The Group considers the estimates, assumptions and judgements to be reasonable but this can involve complex issues which
may take a number of years to resolve. The final determination of prior year tax liabilities could be different from the estimates reflected
in the financial statements.
Basis of consolidation (see note 26)
Judgement is applied when determining if an entity acquired is controlled by the Group, and therefore is defined as a subsidiary. Control
is presumed to exist when the Group owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity.
However, even if the Group owns half or less of the voting power of an entity, control may still exist. In assessing control, the Group
considers whether it has the ability to control on a legal or contractual basis rather than whether that control actually is exercised. Specific
examples of where the Group has control of subsidiaries are where it has the power to govern the entity’s financial and operating policies
by virtue of statute or agreement and where it has the power to cast the majority of votes of the entity’s governing body.
(x) New standards and interpretations not yet adopted
The following new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2008,
and have not been applied in preparing these consolidated financial statements:
•
•
•
•
IFRS 8: Operating Segments
Revised IAS 23: Borrowing Costs
Amendment to IFRS 2: Share based Payment – Vesting Conditions and Cancellations
Revised IAS 1: Presentation of Financial Statements
The adoption of these standards and interpretations in future periods is not expected to have a material impact on the income,
expenses, assets and liabilities of the Group, although there will be changes to the presentation of the financial statements.
3 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.
79
Annual Report 2008 79
3 Segment reporting (continued)
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)
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
Analytical Services
Industrial Services
Minerals
Eliminations
Total
Non-recurring costs
Group operating profit
Net financing costs
Share of profit of associates
Income tax expense
Profit for the year
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
Analytical Services
Industrial Services
Minerals
Central
Total allocated
Investments
Unallocated
Total
Revenue from
external
customers
£m
Inter-
segment
revenue Total revenue
£m
£m
Adjusted Amortisation
operating of acquisition
intangibles
£m
profit
£m
Impairment
of goodwill
£m
250.4
203.5
308.1
46.8
119.5
36.0
39.2
–
0.5
2.6
6.0
1.3
–
1.8
–
(12.2)
250.9
206.1
314.1
48.1
119.5
37.8
39.2
(12.2)
75.7
29.2
33.5
6.4
13.2
1.8
4.9
–
1,003.5
–
1,003.5
164.7
(1.0)
(1.5)
(0.6)
–
(3.9)
(1.6)
(1.0)
–
(9.6)
–
(0.5)
–
–
–
–
–
–
Total
£m
74.7
27.2
32.9
6.4
9.3
0.2
3.9
–
(0.5)
154.6
(6.7)
147.9
(9.5)
0.2
(36.4)
102.2
Depreciation
and
Segment
software
liabilities amortisation
£m
£m
Capital
expenditure
including
software
£m
47.3
47.2
51.5
10.0
16.4
4.8
6.3
8.0
191.5
–
510.2
701.7
9.3
8.8
12.1
1.5
4.4
0.4
2.8
0.2
39.5
–
–
39.5
14.3
16.3
16.7
0.3
5.4
0.5
12.3
1.8
67.6
–
–
67.6
Segment
assets
£m
139.2
198.8
186.7
15.7
171.8
33.9
68.9
6.5
821.5
5.7
132.2
959.4
80
Client: Intertek
Date: 05-03-2009
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Adjusted Amortisation
operating of acquisition
intangibles
£m
profit
£m
Impairment
of goodwill
£m
Group
operating
profit
£m
80 www.intertek.com
Notes to the financial statements
3 Segment reporting (continued)
Year ended 31 December 2007
Business analysis (primary segment)
Revenue from
external
customers
£m
Inter-
segment
revenue
£m
181.2
163.0
248.5
45.2
95.7
22.2
19.6
–
775.4
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
Analytical Services
Industrial Services
Minerals
Eliminations
Total
Net financing costs
Share of loss of associates
Income tax expense
Profit for the year
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
Analytical Services
Industrial Services
Minerals
Central
Total allocated
Investment in associates
Unallocated
Total
Total
revenue
£m
181.6
164.8
251.5
46.5
95.7
22.3
19.6
(6.6)
0.4
1.8
3.0
1.3
–
0.1
–
(6.6)
52.4
23.0
24.4
6.0
11.7
1.0
3.1
–
–
775.4
121.6
Segment
assets
£m
80.7
117.1
150.0
16.0
111.1
7.3
39.6
4.2
526.0
0.6
72.1
598.7
(0.5)
(0.8)
(0.5)
(0.1)
(1.8)
(0.8)
(0.6)
–
(5.1)
–
–
–
–
–
(0.4)
–
–
51.9
22.2
23.9
5.9
9.9
(0.2)
2.5
–
(0.4)
116.1
(10.2)
(0.1)
(27.0)
78.8
Capital
Depreciation expenditure
including
software
£m
Segment and software
liabilities amortisation
£m
£m
28.1
36.3
37.6
8.1
13.5
0.9
3.8
8.1
136.4
–
286.5
422.9
7.3
7.7
9.9
1.5
2.6
–
0.9
0.1
30.0
–
–
30.0
8.7
9.6
17.3
0.4
3.7
–
3.8
0.3
43.8
–
–
43.8
81
Annual Report 2008 81
Adjusted Amortisation
operating of acquisition
intangibles
£m
profit
£m
Impairment
of goodwill
£m
Group
operating
profit
£m
Total
revenue
£m
181.6
180.9
367.1
52.4
–
(6.6)
0.4
1.8
3.1
1.3
–
(6.6)
55.2
27.2
45.8
7.6
(14.2)
–
–
775.4
121.6
Segment
assets
£m
80.7
121.5
303.6
16.0
4.2
526.0
0.6
72.1
598.7
(0.5)
(1.6)
(2.9)
(0.1)
–
–
(5.1)
–
(0.4)
–
–
–
–
54.7
25.2
42.9
7.5
(14.2)
–
(0.4)
116.1
Capital
Depreciation expenditure
including
software
£m
Segment and software
liabilities amortisation
£m
£m
28.1
37.1
55.1
9.4
6.7
136.4
–
286.5
422.9
7.3
7.7
13.4
1.5
0.1
30.0
–
–
30.0
8.7
9.6
24.8
0.4
0.3
43.8
–
–
43.8
3 Segment reporting (continued)
The figures previously reported were as follows:
Revenue from
external
customers
£m
Inter-
segment
revenue
£m
181.2
179.1
364.0
51.1
–
–
775.4
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
Central
Eliminations
Total
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
Central
Total allocated
Investment in associates
Unallocated
Total
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 geograhic 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
£m
2007
£m
2008
£m
2007
£m
2008
£m
2007
£m
2008
£m
Revenue from external customers
341.1
271.7
295.6
235.0
366.8
268.7
1,003.5
Adjusted operating profit
Amortisation of acquisition intangibles
Impairment of goodwill –
Non-recurring costs
Group operating profit
Segment assets
Capital expenditure including software
49.3
(3.0)
–
(2.5) –
43.8
313.6
20.9
38.5
(1.8)
36.7
198.7
14.2
7.1
(4.3)
(0.5) –
(4.1) –
(1.8)
277.6
16.5
4.1
(1.6)
–
2.5
172.2
10.5
108.3
(2.3)
(0.1) –
105.9
230.3
30.2
79.0
(1.7)
(0.4)
76.9
155.1
19.1
164.7
(9.6)
(0.5)
(6.7) –
147.9
821.5
67.6
2007
£m
775.4
121.6
(5.1)
(0.4)
116.1
526.0
43.8
82
Client: Intertek
Date: 05-03-2009
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Notes to the financial statements
4 Non-recurring costs
The non-recurring costs of £6.7m (2007: £nil) comprise 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.
5 Expenses and auditors’ remuneration
Included in profit for the year are the following expenses:
Property rentals
Lease and hire charges – fixtures, fittings and equipment
Depreciation and software amortisation
Loss on disposal of property, fixtures, fittings, equipment and software
Auditors’ remuneration:
Audit of these financial statements
Amounts receivable by auditors and their associates in respect of:
Audit of financial statements of subsidiaries pursuant to legislation
Other services pursuant to such legislation – review of interim financial statements
Taxation services
Other
2008
£m
32.7
6.2
39.5
0.6
2008
£000
282
961
79
137
199
2007
£m
25.7
5.3
30.0
0.1
2007
£000
264
661
78
223
175
Total
1,658
1,401
In addition the auditors and their associates were paid £10,000 (2007: £9,000) in respect of the audit of associated pension schemes.
6 Employees
Employee costs
Wages and salaries
Equity-settled transactions
Social security costs
Pension costs
Total employee costs
2008
£m
383.7
3.3
37.6
16.3
440.9
2007
£m
279.9
3.0
28.1
13.2
324.2
Details of the remuneration of the Directors are set out in the Remuneration Report. Details of pension arrangements and equity-settled
transactions are set out in notes 24 and 27 respectively.
Average number of employees by activity
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Government Services
Analytical Services
Industrial Services
Minerals
Central
Total average number for the year ended 31 December
Total actual number at 31 December
2008
7,895
3,259
8,254
612
1,166
287
1,141
65
2007
6,494
3,152
7,580
857
965
78
623
52
22,679
19,801
23,841
21,303
7 Net financing costs
Recognised in income statement
Finance income
Interest on bank balances
Expected return on pension assets (note 24)
Ineffective portion of hedge of net investment in foreign operations
Foreign exchange differences on revaluation of net monetary assets and liabilities
Change in fair value of financial instruments held for trading (forward exchange contracts)
Total finance income
Finance expense
Interest on borrowings
Pension interest cost (note 24)
Ineffective portion of cash flow hedges
Foreign exchange differences on interest accruals
Change in fair value of financial instruments held for trading (forward exchange contracts)
Foreign exchange differences on revaluation of net monetary assets and liabilities
Facility fees and other
Total finance expense
Net financing costs
Recognised directly in total equity
Foreign currency translation differences for foreign operations
Net exchange loss on hedges of net investment in foreign operations
Effective portion of changes in fair value of cash flow hedges
Income tax on income and expense above recognised directly in equity
Finance income recognised directly in total equity, net of tax
Attributable to:
Equity holders of the Company
Minority interest
Finance income recognised directly in total equity, net of tax
Recognised in:
Hedging reserve
Translation reserve and minority interests
Retained earnings
Finance income recognised directly in equity, net of tax
8 Income tax expense
UK corporation tax at 28.5% (2007: 30%)
Double taxation relief
UK taxation
Overseas taxation
Adjustments relating to prior year liabilities
Current tax
Deferred tax – origination and reversal of temporary differences
Total tax in income statement
83
Annual Report 2008 83
Annual Report 2008 83
2008
£m
2007
£m
–
1.6
4.1
–
7.4 –
–
13.1
13.7
3.9
0.1 –
0.8 –
3.5 –
0.6
22.6
9.5
2008
£m
138.4
(110.9)
(3.7)
0.1
23.9
20.4
3.5
23.9
(3.7)
27.5
0.1
23.9
2008
£m
(3.4)
(0.7)
(4.1)
47.8
(1.8)
41.9
(5.5)
36.4
1.1
3.5
0.1
0.7
5.4
10.8
3.8
0.7
0.3
15.6
10.2
2007
£m
10.6
(3.2)
(1.1)
(0.1)
6.2
5.6
0.6
6.2
(1.1)
7.4
(0.1)
6.2
2007
£m
2.3
(2.2)
0.1
32.6
(3.4)
29.3
(2.3)
27.0
84
Client: Intertek
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Notes to the financial statements
8 Income tax expense (continued)
Reconciliation of the notional tax charge at UK standard rate of corporation tax of 28.5% (2007: 30%) representing the weighted average
annual corporation tax rate for the full year following a reduction in the standard rate of UK corporation tax rate to 28% from 1 April 2008:
Profit before taxation
Notional tax charge at UK standard rate 28.5% (2007: 30%)
Differences in overseas tax rates
Tax on dividends
Non-deductible expenses
Tax exempt income
Losses brought forward utilised
Current year losses not recognised
Accelerated capital allowances and temporary differences not recognised
Brought forward accelerated capital allowances and temporary differences utilised
Recognition of previously unprovided accelerated capital allowances and temporary differences
Recognition of previously unprovided losses
Adjustments in respect of prior years
Other
Total tax in income statement
2008
£m
2007
£m
138.6
105.8
39.5
(2.8)
1.0
3.2
(1.6)
(0.3)
1.1
1.8
(2.1)
(1.3)
(0.3) –
(1.8)
36.4
31.7
(4.8)
1.5
3.6
(0.3)
(0.3)
0.6
3.6
(2.0)
(3.4)
(3.4)
0.2
27.0
–
During the year there was a current tax credit of £0.1m on equity-settled transactions and foreign exchange differences (2007: credit of
£0.3m) and deferred tax charge of £0.1m on pension deficit, interest rate swaps and equity-settled transactions (2007: charge of £2.6m)
charged directly to equity (see notes 14 and 21).
The effective tax rate was 26.3% (2007: 25.5%). The main reason for the increase in the effective tax rate was due to an increase in
earnings in higher taxed jurisdictions and an increase in the tax rate in lower taxed jurisdictions.
9 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:
Based on the profit for the year:
Profit attributable to ordinary shareholders
Adjusting items:
Amortisation of acquisition intangibles
Impairment of goodwill
Non-recurring costs
Adjusted earnings
Tax impact on adjusting items
Adjusted earnings after tax impact
Number of shares (millions)
Basic weighted average number of ordinary shares
Potentially dilutive share options*
Diluted weighted average number of shares
Basic earnings per share
Options
Diluted earnings per share
Basic adjusted earnings per share
Options
Diluted adjusted earnings per share
Basic adjusted earnings per share (after tax impact)
Options
Diluted adjusted earnings per share (after tax impact)
2008
£m
93.8
9.6
0.5
6.7 –
110.6
(3.7)
106.9
2007
£m
73.2
5.1
0.4
78.7
(1.4)
77.3
157.7
1.7
159.4
156.9
1.4
158.3
59.5p
(0.6)p
58.9p
70.1p
(0.7)p
69.4p
67.8p
(0.7)p
67.1p
46.7p
(0.5)p
46.2p
50.2p
(0.5)p
49.7p
49.3p
(0.5)p
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.
85
Annual Report 2008 85
10 Property, plant and equipment
Cost
At 1 January 2007
Exchange adjustments
Additions
Disposals
Businesses acquired (note 26)
At 31 December 2007
Depreciation
At 1 January 2007
Exchange adjustments
Charge for the year
Disposals
At 31 December 2007
Net book value at 31 December 2007
Net book value at 1 January 2007
Cost
At 1 January 2008
Exchange adjustments
Additions
Disposals
Businesses acquired (note 26)
At 31 December 2008
Depreciation
At 1 January 2008
Exchange adjustments
Charge for the year
Disposals
At 31 December 2008
Net book value at 31 December 2008
Land and
buildings
£m
Fixtures,
fittings and
equipment
£m
24.8
0.7
0.9
–
0.7
27.1
3.1
0.1
0.7
–
3.9
23.2
21.7
27.1
10.1
2.1
–
4.2
43.5
3.9
1.4
0.8
–
6.1
37.4
197.6
7.8
40.4
(4.3)
7.7
249.2
95.6
4.5
27.0
(3.9)
123.2
126.0
102.0
249.2
92.1
61.8
(5.7)
5.7
403.1
123.2
51.6
35.8
(4.9)
205.7
197.4
Fixtures, fittings and equipment includes assets in the course of construction of £7.8m (2007: £0.3m) at 31 December 2008,
comprising mainly of laboratories under construction. These assets will not be depreciated until they are brought into use.
The net book value of land and buildings comprised:
Freehold
Long leasehold
Short leasehold
Total
2008
£m
34.1
0.6
2.7
37.4
Total
£m
222.4
8.5
41.3
(4.3)
8.4
276.3
98.7
4.6
27.7
(3.9)
127.1
149.2
123.7
276.3
102.2
63.9
(5.7)
9.9
446.6
127.1
53.0
36.6
(4.9)
211.8
234.8
2007
£m
20.5
0.6
2.1
23.2
86
Client: Intertek
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Notes to the financial statements
11 Goodwill and other intangible assets
Cost
At 1 January 2007
Exchange adjustments
Additions
Disposals
Businesses acquired (note 26)
At 31 December 2007
Amortisation and impairment losses
At 1 January 2007
Exchange adjustments
Charge for the year
Impairment charge
At 31 December 2007
Net book value at 31 December 2007
Net book value at 1 January 2007
Cost
At 1 January 2008
Exchange adjustments
Additions
Disposals
Businesses acquired (note 26)
At 31 December 2008
Amortisation and impairment losses
At 1 January 2008
Exchange adjustments
Charge for the year
Impairment charge
At 31 December 2008
Net book value at 31 December 2008
Other intangible assets
Goodwill
£m
Acquisition
intangibles
£m
Computer
software
£m
81.9
3.9
–
–
74.5
160.3
10.8
0.7
–
0.4
11.9
148.4
71.1
160.3
43.3
–
–
53.4
257.0
11.9
2.5
–
0.5
14.9
242.1
20.3
0.9
–
–
19.4
40.6
7.0
0.2
5.1
–
12.3
28.3
13.3
40.6
13.0
–
–
18.5
72.1
12.3
4.8
9.6
–
26.7
45.4
7.8
0.2
2.5
(0.1)
0.1
10.5
1.5
–
2.3
–
3.8
6.7
6.3
10.5
5.9
3.7
(0.2)
–
19.9
3.8
3.4
2.9
–
10.1
9.8
Total
£m
28.1
1.1
2.5
(0.1)
19.5
51.1
8.5
0.2
7.4
–
16.1
35.0
19.6
51.1
18.9
3.7
(0.2)
18.5
92.0
16.1
8.2
12.5
–
36.8
55.2
The acquisition intangibles of £45.4m consist of customer relationships with a net book value of £33.2m (2007: £21.9m), licences of
£5.8m (2007: £3.6m), covenants not to compete of £2.1m (2007: £1.8m), know-how of £3.2m (2007: £1.0m) and guaranteed income
of £1.1m (2007: £nil). The average remaining amortisation period for customer relationships is 4.1 years (2007: 4.2).
Computer software net book value of £9.8m at 31 December 2008 includes software in construction of £2.2m (2007: £0.8m).
Goodwill arising from acquisitions in the year has been allocated to business segments as follows:
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Analytical Services
Industrial Services
Minerals
Total goodwill
2008
£m
13.6
13.0
0.5
8.0
10.7
7.6
53.4
2007
£m
2.2
15.9
13.5
20.1
2.0
20.8
74.5
11 Goodwill and other intangible assets (continued)
The carrying amount of goodwill by business segment is as follows:
Consumer Goods
Commercial & Electrical
Oil, Chemical & Agri
Analytical Services
Industrial Services
Minerals
Total goodwill net book value at 31 December
87
Annual Report 2008 87
2008
£m
23.3
61.4
25.3
85.0
14.7
32.4
2007
£m
7.4
33.8
21.1
60.6
3.6
21.9
242.1
148.4
All goodwill is recorded in local currency. Additions during the year are converted at average exchange rates and the goodwill at the end
of the year is stated at closing exchange rates.
Total goodwill of £242.1m (2007: £148.4m) is attributable to 80 (2007: 66) acquired businesses which are grouped into 45 (2007: 52)
cash generating units. Each of these cash generating units has been tested for impairment in accordance with the Group’s accounting
policy described on page 74.
Breakdown by material acquisitions with goodwill in excess of 5% of total net book value of goodwill is presented below.
Material acquisitions
Acquisition
Genalysis
HP White
National Software Testing Laboratories
Alta Analytical Laboratories
Quantitative Technologies
Hi-Cad Technical Services
Automotive Research
Entela
Umitek
Others (each less than 5% of total goodwill at 31 Dec 2008)
Total goodwill net book value at 31 December
Division
Minerals
Commercial & Electrical
Commercial & Electrical
Analytical Services
Analytical Services
Industrial Services
Analytical Services
Commercial & Electrical
Analytical Services
Various
2008
£m
26.6
13.9 –
13.1
13.0
12.7
12.2 –
12.2
12.2
9.1
117.1
2007
£m
21.2
8.9
9.5
9.3
9.0
8.7
9.1
72.7
242.1
148.4
All goodwill is denominated in local currency and is translated into sterling at the rates of exchange ruling at the reporting date.
The acquisitions have been reviewed and since each of them offer broadly similar services to those already offered by the Intertek Group’s
existing businesses, it is considered appropriate to use the same assumptions in each of the impairment calculations. In each case the
recoverable amount of the cash generating units, determined upon a value-in-use calculation, was higher than its carrying amount, except
for those discussed below.
Management approved forecasts for each cash generating unit are used in these calculations. These forecasts cover a two-year period and
are based on the most current information relating to each business unit. Beyond two years, management consider that it is difficult to
forecast accurately the business growth for each individual unit. In Intertek’s business, most contractual relationships with customers are
short-term. Despite this, the Group has a strong historical track record of growth. Therefore, when looking at longer term growth (not
exceeding five years), a steady conservative growth rate of 5% is used for all business units. This is considered to be a reasonable
assumption based on the long-term historical growth rate in profits of the Intertek businesses. A terminal cash flow is calculated in year
five by multiplying the year four cash flow forecast by a multiple which is considered appropriate to each acquisition. In the 2008
impairment review the multiples ranged from 5.0 to 12.0.
A Group pre-tax, risk adjusted, discount rate of 10.9% (2007: 10.8%) has been used in the value-in-use calculations. The characteristics of
the businesses acquired are that they are not capital intensive and are largely similar to each other, and therefore the rate of 10.9%, which
is based on the Group’s weighted average cost of capital, is considered to be the most appropriate rate.
The key sensitivities for the impairment tests are the assumed growth rates in profit and the discount rate. A reduction of 1.0% to 4.0% in
the profit growth rate and an increase of 1.0% to 11.9% in the discount rate would not change the conclusion of the impairment tests.
There are 36 (2007: 45) cash generating units with a goodwill amount that is not significant in relation to the carrying value of goodwill
of £242.1m (2007: £148.4m). The aggregate balance of goodwill for these multiple cash generating units is £117.1m (2007: £72.7m).
The recoverable amount of all these units was determined following the same assumptions as for the individually significant units
disclosed above.
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Notes to the financial statements
11 Goodwill and other intangible assets (continued)
In 2008, an impairment charge of £0.5m was recognised within administrative expenses in the Commercial & Electrical division in respect
of the goodwill of Intertek Testing and Certification Limited. This was necessitated by lower than expected trading results. The goodwill
impairment was based on a calculation of the recoverable amount based on value-in-use, using projected cash flows for this business,
discounted by a pre-tax rate of 10.9%. The charge of £0.5m represented the shortfall of the recoverable amount to the carrying value.
The carrying amount of goodwill after the impairment was £5.5m.
No other goodwill impairment losses were identified.
In 2007, an impairment charge of £0.4m was recognised within administrative expenses in the Commercial & Electrical division in respect
of the goodwill of a certification business in India, which was acquired by the Group in 2005. This was necessitated by lower than
expected trading results since acquisition. The goodwill impairment was based on a calculation of the recoverable amount based on
value-in-use, using projected cash flows for this business, discounted by a pre-tax rate of 10.8%. The charge of £0.4m represented the
shortfall of the recoverable amount to the carrying value. The carrying amount of goodwill after the impairment was £0.8m.
There are no intangible assets with indefinite lives.
12 Investment in associates
Cost
At 1 January
Additions
Exchange adjustments
At 31 December
Share of post acquisition reserves
At 1 January
Share of profit/(loss) for the year
At 31 December
Net book value at 31 December
2008
£m
0.6
0.1 –
0.4 –
1.1
0.2
0.2 –
1.3
2007
£m
0.6
0.6
0.1
(0.1)
0.6
–
The addition in 2008 of £0.1m was in respect of EMIS, Abu Dhabi, which is owned 49% by EMIS (UK) Limited, a wholly owned subsidiary
which was acquired in the year (see note 26e). Throughout the year the Group also had a 40% interest in Allium LLC, a company
registered in the USA.
The net book value at 31 December 2008 comprised £1.1m in respect of Allium LLC and £0.2m in respect of EMIS, Abu Dhabi.
Summary financial information on associates (100% basis) is set out below:
2008
2007
* Excluding goodwill and intangibles of £2.5m (2007: £1.9m).
13 Other investments
Available-for-sale financial assets
Assets*
£m
Liabilities
£m
Equity
£m
Revenues
£m
Profit/(loss)
£m
14.5
13.3
13.1
12.5
1.4
0.8
23.1
19.5
0.4
(0.3)
2007
£m
2008
£m
4.4 –
The Group’s equity investment is listed on the Australian Securities Exchange (ASX). This investment is classified as available-for-sale as
the Group holds under 20% and does not have significant influence over the company. For this investment, a 2% increase in the ASX at
31 December 2008 would have increased equity by £0.1m after tax; an equal change in the opposite direction would have decreased
equity by £0.1m after tax.
14 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Other intangible assets
Property, fixtures, fittings and equipment
Pensions
Equity-settled transactions
Interest rate swaps
Provisions and other temporary differences
Tax value of losses
Set-off of tax
Total
–
Assets
2008
£m
–
1.5
1.2
1.7
1.3
14.6
1.6
(6.2)
15.7
Assets
2007
£m
Liabilities
2008
£m
Liabilities
2007
£m
0.7
2.6 –
1.9 –
0.2 –
8.8
0.4 –
(2.7)
11.9
(10.3)
(2.2)
–
–
(0.1)
–
6.2
(6.4)
(2.5)
(2.8)
(0.5)
(2.2)
2.7 –
(5.3)
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
Deductible temporary differences
Pensions
Tax losses
Property, fixtures, fittings and equipment
Total
89
Annual Report 2008 89
Net
2008
£m
(10.3)
(0.7)
1.2
1.7
1.3
14.5
1.6
–
9.3
2008
£m
2.4
4.2 –
30.6
8.6
45.8
Net
2007
£m
(2.5)
(2.1)
2.1
1.9
0.2
6.6
0.4
6.6
2007
£m
8.9
16.8
4.3
30.0
Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits will be available
against which the Group can utilise the benefits from them.
There is a temporary difference of £9.7m (2007: £10.2m) which relates to unremitted post-acquisition overseas earnings. No deferred tax is
provided on this amount as the distribution of these retained earnings is under the control of the Group and there is no intention to either
repatriate from or sell the associated subsidiaries in the foreseeable future.
Movements in temporary differences during the year
Other intangible assets
Property, fixtures, fittings and equipment
Pensions
Equity-settled transactions
Interest rate swaps
Provisions and other temporary differences
Tax value of losses
Total
*See notes 8 and 21.
Other intangible assets
Property, fixtures, fittings and equipment
Pensions
Equity-settled transactions
Interest rate swaps
Provisions and other temporary differences
Tax value of losses
Total
*See notes 8 and 21.
Balance
1 January
2008
£m
Exchange
adjustments Acquisitions
£m
£m
(2.5)
(2.1)
2.1
1.9
0.2
6.6
0.4
6.6
(2.5)
–
–
–
–
3.0
0.1
0.6
(3.0)
(0.5)
–
–
–
0.1
0.1
(3.3)
Balance
1 January
2007
£m
Exchange
adjustments Acquisitions
£m
£m
–
(1.0)
4.7
1.4
–
3.9
0.5
9.5
–
–
(0.1)
–
–
(0.1)
0.1
(0.1)
(3.1)
(0.2)
0.7
–
–
0.1
–
(2.5)
Recognised
in income
statement
£m
(2.3)
1.9
0.1
–
–
4.8
1.0
5.5
Recognised
in income
statement
£m
0.6
(0.9)
(0.6)
0.7
–
2.7
(0.2)
2.3
Balance
Recognised 31 December
2008
£m
in equity*
£m
–
–
(1.0)
(0.2)
1.1
–
–
(0.1)
(10.3)
(0.7)
1.2
1.7
1.3
14.5
1.6
9.3
Balance
Recognised 31 December
2007
£m
in equity*
£m
–
–
(2.6)
(0.2)
0.2
–
–
(2.6)
(2.5)
(2.1)
2.1
1.9
0.2
6.6
0.4
6.6
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Notes to the financial statements
15 Inventories
Raw materials and consumables
Work in progress
Finished goods
Total inventories
2008
£m
6.6
1.1
0.5
8.2
2007
£m
3.0
0.7
0.3
4.0
The amount of inventory recognised as an expense in 2008 was £6.9m (2007: £5.2m). All inventories are expected to be recovered within
12 months. The amount of inventory written off in 2008 was £nil (2007: £nil).
16 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Total trade and other receivables
2008
£m
219.4
27.0
38.0
284.4
2007
£m
147.5
13.6
29.9
191.0
Trade receivables are shown net of an allowance for impairment losses of £10.0m (2007: £6.4m) and are all expected to be recovered
within 12 months. Impairment on trade receivables charged as part of costs of sales was £4.4m (2007: £3.0m).
There is no material difference between the above amounts for trade and other receivables and their fair value, due to their short-term
duration. There is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers who are
internationally dispersed.
The Group’s exposure to credit and currency risks and further details on impairment losses related to trade and other receivables are
disclosed in note 28.
17 Interest bearing loans and borrowings
Current
2008
£m
14.0
–
14.0
Senior term loans and notes
Other borrowings
Total borrowings
Analysis of debt
Debt falling due:
In one year or less (senior term loans)
Between one and two years (senior term loans)
Between two and five years (senior term loans)
Over five years (£137.4m senior notes and £3.9m of other borrowings)
Total borrowings
Current Non-current Non-current
2007
£m
2008
£m
2007
£m
13.5
0.2
13.7
403.7
3.9
407.6
217.2
0.3
217.5
2008
£m
2007
£m
14.0
44.3
222.0
141.3 –
13.7
82.7
134.8
421.6
231.2
Description of borrowings
In December 2004, the Group refinanced its existing £300.0m secured facility with a £300.0m non-secured facility. In August 2007, an
additional £100.0m tranche was added making a total facility of £400.0m. In June 2008, the Group amended the facility to allow a further
£120.0m to be borrowed under the same facility. Of this £120.0m, £75.0m was committed in the year from three further banks to make
a syndicate of 13 banks. The committed i.e. contractually obligated amount of debt facilities from these 13 banks was £387.0m as at
31 December 2008.
The facility was originally for five years expiring on 15 December 2009, with two one-year extension options to extend this up to a further
two years. The facility was extended by a year in 2005 and by a further year in 2006. The facility now expires in December 2011.
The facility comprises four tranches. Facility A is a £14.0m multi-currency term loan (original £70.0m less repayments to 31 December
2008) with bi-annual equal amortisations over the remaining year. Facility B is a £225.0m multi-currency revolving credit facility, available
up to 15 December 2011. Facility C is a 364 day, £48.0m multi-currency revolving credit facility (original £80.0m less repayments to 31
December 2008 of £32.0m), with the option to convert this, at any time by written notice, into a term loan expiring 364 days from the
date of notice. This amount has been included in debt falling due between one and two years. Facility D is a £100.0m multi-currency term
loan facility available up to 15 December 2011.
91
Annual Report 2008 91
17 Interest bearing loans and borrowings (continued)
Advances under the facilities bear interest at a rate equal to LIBOR, or other local currency equivalent, plus a margin. The margin over
LIBOR for facility A and B is in the range of 0.4% to 0.6% in accordance with a leverage grid. As at 31 December 2008, the margin was
0.45%. The margin over LIBOR for facility C is in the range of 1.1% to 1.5% in accordance with a leverage grid. As at 31 December 2008,
the margin was 1.2%. The margin over LIBOR for facility D is in the range of 0.3% to 0.5% in accordance with a leverage grid. As at
31 December 2008, the margin was 0.35%.
In June 2008, US$100.0m was raised by way of a senior note issue. This debt is repayable on 26 June 2015 and the interest rate is fixed at
5.54%. In December 2008, a further US$100.0m was raised by way of a second senior note issue. This debt is repayable in two tranches
with US$25.0m repayable on 21 January 2014 and the interest rate is fixed at 7.50% and the second US$75.0m repayable on 10 June
2016 and the interest rate is fixed at 8.00%.
The undrawn committed borrowing facilities, which can be drawn down at any time, mature in December 2011, and amounted to
£97.8m (2007: £112.3m), having taken into account £8.9m (2007: £7.0m) utilised for letters of credit and guarantees.
18 Trade and other payables
Trade payables
Other payables
Accruals and deferred income
Total trade and other payables
The Group’s exposure to liquidity risk related to trade payables is disclosed in note 28.
All trade payables are expected to be paid within 12 months.
19 Provisions
At 1 January 2008
Exchange adjustments
Provided in the year:
in respect of current year aquisitions
in respect of prior year aquisitions
Released during the year
Utilised during the year
At 31 December 2008
Included in:
Current liabilities
Non-current liabilities
At 31 December 2008
Current
2008
£m
54.0
20.5
109.9
184.4
Contingent
consideration
£m
15.1
1.7
–
10.4
3.5
(2.6)
(16.7)
11.4
11.4
–
11.4
Current Non-current Non-current
2007
£m
2007
£m
2008
£m
43.1 –
19.6 –
65.9
128.6
–
3.4 –
3.4
0.9
0.9
Claims
£m
7.5
1.3
6.1
–
–
(0.9)
(2.4)
11.6
11.6
–
11.6
Other
£m
1.0
–
4.7
–
–
–
(2.1)
3.6
3.4
0.2
3.6
Total
£m
23.6
3.0
10.8
10.4
3.5
(3.5)
(21.2)
26.6
26.4
0.2
26.6
Contingent consideration represents the additional amounts payable on acquisitions which are uncertain in amount, since they are based
on the acquired businesses achieving agreed future performance targets.
From time-to-time, the Group is involved in various claims and lawsuits incidental to the ordinary course of its business. The outcome of
such litigation and the timing of any potential liability cannot be readily foreseen, as it is often subject to legal proceedings. Based on
information currently available, the Directors consider that the cost to the Group of an unfavourable outcome arising from such litigation
is unlikely to have a materially adverse effect on the financial position of the Group in the foreseeable future.
The provision for claims of £11.6m (2007: £7.5m) represents an estimate of the amounts payable in connection with identified claims from
customers, former employees and other plaintiffs and associated legal costs. The timing of the cash outflow relating to the provisions is
uncertain but is likely to be within one year. Details of contingent liabilities in respect of claims are set out in note 29.
The other provision of £3.6m (2007: £1.0m) comprises £2.3m (2007: £nil) for the integration of the Government Services division into the
Oil, Chemical & Agri division and £1.3m (2007: £1.0m) in relation to onerous contracts.
92
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Notes to the financial statements
20 Share capital
Group and Company
Authorised:
Ordinary shares of 1p each
Zero coupon redeemable preference shares of £1 each
Allotted, called up and fully paid:
Ordinary shares of 1p each at start of year
Employee share option schemes – options exercised (note 27)
Employee Long Term Incentive Plan (note 27)
Ordinary shares of 1p each at end of year
Shares classified in shareholders’ funds
2008
Number
2008
£m
2007
£m
200,000,000
105,478,482
2.0
105.5
107.5
2.0
105.5
107.5
157,392,787
405,884
6,822
157,805,493
1.6
– –
– –
1.6
1.6
1.6
1.6
1.6
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time and are entitled to vote at general meetings
of the Company.
During the year, the Company issued 405,884 ordinary shares in respect of the share options exercised, for a consideration of £2.6m
settled in cash and issued 6,822 shares under the Long Term Incentive Plan for £nil consideration.
None of the zero coupon redeemable preference shares were allotted at 31 December 2008 or 31 December 2007. Preference
shareholders have the right to a return of capital on winding up but receive no priority over ordinary shareholders with respect to
repayment of capital paid up and have no further rights to participate in the profits or assets of the Company.
The Employee Share Ownership Trust (ESOT) is managed and controlled by an independent offshore trustee. The total ESOT costs charged
to the Group profits for 2008 were £6,500 (2007: £9,000). The ESOT did not hold any shares of the Company at 31 December 2008
(2007: nil).
21 Shareholders’ equity
Other reserves
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Hedging
reserve
£m
Other
£m
1.6
At 1 January 2007
–
Movement on cash flow hedges
–
Profit for the year attributable to equity holders
–
Dividends paid
–
Issue of shares
–
Equity settled transactions
Actuarial pension gain
–
Foreign exchange translation differences for foreign operations –
–
Net loss on hedges of net investments in foreign operations
–
Tax on income and expense recognised directly in equity
At 31 December 2007
At 1 January 2008
Movement on cash flow hedges
Profit for the year attributable to equity holders
Dividends paid
Issue of shares
Equity settled transactions
Actuarial pension loss
Foreign exchange translation differences for foreign operations
Net loss on hedges of net investments in foreign operations
Purchase of minority interests
Tax on income and expense recognised directly in equity
At 31 December 2008
1.6
1.6
–
–
–
–
–
–
–
–
–
–
1.6
242.4
–
–
–
4.9
–
–
–
–
–
247.3
247.3
–
–
–
2.6
–
–
–
–
–
–
249.9
(0.7)
–
–
–
–
–
–
10.0
(3.2)
–
6.1
6.1
–
–
–
–
–
–
134.9
(110.9)
–
–
0.3
(1.1)
–
–
–
–
–
–
–
–
(0.8)
(0.8)
(3.7)
–
–
–
–
–
–
–
–
–
30.1
(4.5)
6.4
–
–
–
–
–
–
–
–
–
6.4
6.4
–
–
–
–
–
–
–
–
–
–
6.4
Retained
earnings*
£m
(153.6)
–
73.2
(25.2)
–
3.0
8.5
–
–
(2.3)
(96.4)
(96.4)
–
93.8
(30.4)
–
3.3
(12.3)
–
–
0.2
–
Total
£m
96.4
(1.1)
73.2
(25.2)
4.9
3.0
8.5
10.0
(3.2)
(2.3)
164.2
164.2
(3.7)
93.8
(30.4)
2.6
3.3
(12.3)
134.9
(110.9)
0.2
–
(41.8)
241.7
* After £244.1m for goodwill written off to retained earnings as at 1 January 2004 in relation to subsidiaries acquired prior to 31 December 1997. This figure has not been
restated as permitted by IFRS 1.
21 Shareholders’ equity (continued)
Dividends
Amounts recognised as distributions to equity holders:
Final dividend for the year ended 31 December 2006
Interim dividend for the year ended 31 December 2007
Final dividend for the year ended 31 December 2007
Interim dividend for the year ended 31 December 2008
Dividends paid
93
Annual Report 2008 93
2008
2008
2007
2007
Pence per
share
£m
£m
Pence per
share
–
–
19.2
11.2
30.4
–
–
12.2
7.1
19.3
16.1
9.1
–
–
25.2
10.2
5.8
–
–
16.0
After the balance sheet date, the Directors proposed a final dividend of 13.7p per share in respect of the year ended 31 December 2008,
which is expected to amount to £21.6m. This dividend is subject to approval by shareholders at the Annual General Meeting and therefore,
in accordance with IAS 10: Events after the Balance Sheet Date, it has not been included as a liability in these financial statements.
If approved, the final dividend will be paid to shareholders on 19 June 2009.
Translation reserve
The translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign operations
as well as the translation of liabilities that hedge the Group’s net investment in foreign operations.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments
related to hedged transactions that have not yet occurred.
Other
This relates to a merger difference that arose in 2002 on the conversion of share warrants into share capital.
22 Minority interests
At 1 January
Exchange adjustments
Share of profit for the year
Additions
Purchase of minority interests
Dividends paid to minority interests
At 31 December
2008
£m
11.6
3.5
8.4
0.7
(2.1) –
(6.1)
16.0
2007
£m
8.8
0.6
5.6
0.2
(3.6)
11.6
The purchase of minority interests of £2.1m relates to the acquisition in November 2008 of the outstanding 15% interest in Intertek Testing
Services Shenzhen Limited, a company registered in China – for a cash consideration of £1.9m (see note 21). The company is now a wholly
owned subsidiary of the Group.
23 Commitments
At 31 December, the Group had future unprovided commitments under non-cancellable operating leases due as follows:
Within one year
In the second to fifth years inclusive
Over five years
Total
2008
Land and
buildings
£m
29.0
54.1
31.6
2008
2008
Other
£m
5.6
4.8
–
Total
£m
34.6
58.9
31.6
114.7
10.4
125.1
2007
Land and
buildings
£m
22.1
39.9
26.3
88.3
2007
Other
£m
3.6
3.5
–
7.1
2007
Total
£m
25.7
43.4
26.3
95.4
The Group leases various laboratories, testing and inspection sites, administrative offices and equipment under lease agreements which
have varying terms, escalation clauses and renewal rights.
Contracts for capital expenditure which are not provided in these accounts amounted to £4.7m (2007: £3.8m).
94
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Notes to the financial statements
24 Employee benefits
Pension schemes
The Group operates a number of pension schemes throughout the world. In most locations, these are defined contribution arrangements.
However, there are significant defined benefit schemes in the United Kingdom and one in Hong Kong. The United Kingdom schemes are
the Intertek Pension Scheme and the Capcis Limited Pension and Life Assurance Scheme that came into the Group through the acquisition
of the Umitek group in January 2007. These are funded schemes, with assets held in separate trustee administered funds. Other funded
defined benefit schemes are not considered to be material and are therefore accounted for as if they were defined contribution schemes.
The schemes in the United Kingdom and Hong Kong were closed to new entrants in 2002 and 2000, respectively.
The Group recognises any actuarial gains and losses in each period in equity through the consolidated statement of recognised income
and expense.
(a) The total pension cost included in operating profit for the Group was:
Defined contribution schemes
Defined benefit schemes – current service cost
Pension cost included in operating profit
2008
£m
14.4
1.9
16.3
2007
£m
11.3
1.9
13.2
See (b) below for pension interest cost and expected return on scheme assets recognised in the income statement.
(b) The pension cost for the defined benefit schemes was assessed in accordance with the advice of qualified actuaries. The last full
triennial actuarial valuation of The Intertek Pension Scheme in the United Kingdom was carried out as at 1 April 2007, but this has been
updated to 31 December 2008 for IAS 19 purposes. The last full triennial actuarial valuation of the Capcis Limited Pension and Life
Assurance Scheme in the UK was also carried out as at 1 April 2007 and this has been updated to 31 December 2008 for IAS 19 purposes.
The last full actuarial valuation of the Hong Kong scheme was carried out as at 31 December 2007, for local accounting purposes but this
has been updated to 31 December 2008 for IAS 19 purposes.
The Group is currently making additional contributions into the pension schemes with the overall objective of paying off the deficits in line
with actuaries’ recommendations.
The amounts recognised in the balance sheet were as follows:
Fair value of scheme assets
Present value of funded defined benefit obligations
Net liability in the balance sheet
The amounts recognised in the income statement were as follows:
Current service cost
Pension interest cost (note 7)
Expected return on scheme assets (note 7)
Total charge
2008
£m
58.6
(77.1)
(18.5)
2007
£m
66.6
(73.9)
(7.3)
2008
£m
(1.9)
(3.9)
4.1
(1.7)
2006
£m
56.4
(71.6)
(15.2)
2007
£m
(1.9)
(3.8)
3.5
(2.2)
The current service cost is included in administrative expenses in the income statement and pension interest cost and expected return on
scheme assets are included in net financing costs.
(c) Changes in the fair value of scheme assets:
Fair value of scheme assets at 1 January
Acquisition of Capcis
Expected return on scheme assets
Normal contributions by the employer
Special contributions by the employer
Contributions by scheme participants
Benefits paid
Effect of exchange rate changes on overseas plan
Actuarial (losses)/gains
Fair value of scheme assets at 31 December
–
2008
£m
66.6
4.1
1.5
3.0
0.6
(3.0)
3.2
(17.4)
58.6
2007
£m
56.4
2.3
3.5
1.6
2.8
0.6
(2.4)
(0.3)
2.1
66.6
24 Employee benefits (continued)
(d) Changes in the present value of the defined benefit obligations were as follows:
Defined benefit obligations at 1 January
Acquisition of Capcis
Current service cost
Interest cost
Contributions by scheme participants
Benefits paid
Effect of exchange rate changes on overseas plan
Actuarial gains
Defined benefit obligations at 31 December
(e) Actuarial losses recognised directly in equity:
Cumulative loss at 1 January
Recognised (losses)/gains in the year
Cumulative loss at 31 December
95
Annual Report 2008 95
–
2008
£m
73.9
1.9
3.9
0.6
(3.0)
4.9
(5.1)
77.1
2008
£m
(1.0)
(12.3)
(13.3)
2007
£m
71.6
5.1
1.9
3.8
0.6
(2.4)
(0.3)
(6.4)
73.9
2007
£m
(9.5)
8.5
(1.0)
(f) Company contributions
In 2009, the Group expects to make normal contributions of £1.1m (2008: £1.1m) to the UK pension schemes and £1.4m (2008: £0.4m) to the
Hong Kong pension scheme. Additionally, in February 2009, the Group has made a special contribution of £2.0m (2008: £3.0m) to the UK
pension schemes.
(g) Fair value of scheme assets in each category:
Equities
Bonds
Cash/other
(h) The net pension (liabilities)/assets of each scheme at 31 December 2008 were as follows:
United Kingdom
Schemes
Hong Kong
Scheme
2008
68%
28%
4%
2007
69%
27%
4%
2008
59%
39%
2%
2007
63%
36%
1%
The Intertek
The Capcis
Limited
Pension and
Pension Life Assurance
Scheme
Scheme
£m
£m
Intertek
Hong Kong
Retirement
Scheme
£m
43.3
(55.1)
(11.8)
3.9
(3.9)
–
11.4
(18.1)
(6.7)
Total
£m
58.6
(77.1)
(18.5)
United Kingdom
Schemes
Hong Kong
Scheme
Weighted
average
2008
2007
2008
2007
2008
2007
6.00%
3.00%
3.50%
2.90%
5.96%
5.70%
3.35%
3.85%
3.35%
6.68%
1.10%
n/a
3.00%
n/a
7.30%
3.50%
n/a
4.00%
n/a
6.30%
4.80%
3.00%
3.40%
2.90%
6.20%
5.40%
3.35%
3.90%
3.35%
6.60%
Fair value of scheme assets
Present value of funded defined benefit obligations
Deficit in schemes
(i) Principal actuarial assumptions
Discount rate
Inflation rate
Rate of salary increases
Rate of pension increases
Annualised expected return on scheme assets
The expected rates of return on scheme assets are determined by reference to relevant indices which take into account the current level
of expected returns on risk free investments, the historical level of risk premium associated with equities and the expectation for future
returns on such assets. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated
balance in the plan’s investment portfolio.
Where investments are held in bonds and cash, the expected long-term rate of return is taken to be the yields generally prevailing on such
assets at the balance sheet date. A higher rate of return is expected on equity investments. This is based on an out-performance assumption
over gilt yields.
96
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Notes to the financial statements
24 Employee benefits (continued)
The actual return on scheme assets was as follows:
Actual return
(j) Life expectancy assumptions at year end for:
Male aged 40
Male aged 65
Female aged 40
Female aged 65
United Kingdom
Schemes
2008
(9.5)
2007
4.0
Hong Kong
Scheme
2008
(3.8)
2007
1.6
United Kingdom
Schemes
2008
48.4
22.2
51.0
24.6
2007
47.4
21.9
50.2
24.8
Hong Kong
Scheme*
2008
2007
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
* The retirement arrangement in Hong Kong pays lump sums to members instead of pensions at the point they retire. Since the amount of the lump sum is not related to the
life expectancy of the members, the post-retirement mortality is not a relevant assumption for the Hong Kong scheme.
The table above shows the number of years a male or female is expected to live, assuming they were aged either 40 or 65 at 31 December.
The 2007 mortality assumptions are based on an actuarial table ‘PA 92 medium cohort, projected by an individual’s year of birth’. The 2008
mortality assumptions are based on an actuarial table ‘PA 00 medium cohort, projected by an individual’s year of birth and a minimum
improvement of 1%’.
(k) Sensitivity analysis
The table below sets out the sensitivity on the pension assets and liabilities as at 31 December 2008 of the two main assumptions.
Change in assumptions
No change
0.25% rise in discount rate
0.25% fall in discount rate
0.25% rise in inflation
0.25% fall in inflation
(l) History of experience gains and losses:
Fair value of scheme assets
Defined benefit obligations
Deficit
Experience gains/(losses) on scheme liabilities
Experience gains/(losses) on scheme assets
25 Analysis of net debt
Cash
Borrowings
Total net debt
Liabilities
Assets
Deficit
£m
(77.1)
(73.5)
(81.0)
(78.5)
(75.9)
2007
£m
66.6
(73.9)
(7.3)
1.5
2.1
£m
58.6
58.6
58.6
58.6
58.6
2006
£m
56.4
(71.6)
(15.2)
1.6
1.3
£m
(18.5)
(14.9)
(22.4)
(19.9)
(17.3)
2005
£m
55.0
(72.8)
(17.8)
(0.5)
4.3
Increase/
(decrease)
in deficit
£m
–
(3.6)
3.9
1.4
(1.2)
2004
£m
46.7
(62.8)
(16.1)
(1.6)
1.3
1 January
2008
£m
58.6
(231.2)
(172.6)
Cash
flow
£m
Exchange 31 December
2008
£m
adjustments
£m
30.4
(79.5)
(49.1)
24.3
(110.9)
113.3
(421.6)
(86.6)
(308.3)
2008
£m
58.6
(77.1)
(18.5)
0.4
(17.4)
The Group’s exposure to interest rate risk, currency risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 28.
97
Annual Report 2008 97
26 Acquisitions
The Group made 14 acquisitions during the year, all of which were paid for in cash.
Provisional details of net assets acquired and fair value adjustments are set out below. The analysis is provisional and amendments may be
made to these figures in the 12 months following the date of each acquisition, with a corresponding adjustment to goodwill.
Property, plant and equipment
Goodwill*
Other intangible assets
Inventories and work in progress
Trade and other receivables
Trade and other payables
Tax payable
Deferred tax liability
Net assets acquired
Cash outflow (net of cash acquired)
Contingent and deferred consideration**
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
7.2
–
–
1.5
8.9
(6.1)
(0.9)
(0.3)
10.3
2.7
52.2
18.5
(0.2)
(0.2)
(0.6)
(0.2)
(3.0)
69.2
9.9
52.2
18.5
1.3
8.7
(6.7)
(1.1)
(3.3)
79.5
67.8
11.7
79.5
*Total goodwill additions per Note 11 of £53.4m is made up of £52.2m in respect of the 2008 acquisitions above and £1.2m in respect of the 2007 acquisitions.
**Of the £11.7m, £10.4m is shown in provisions (note 19) and £1.3m is included in trade and other payables (note 18).
(a) HP White Laboratory Inc
The largest acquisition was the purchase on 24 September 2008, of 100% of the share capital of HP White Laboratory Inc, a company
incorporated in the USA, which provides ballistic resistance testing of protective equipment and which also tests ammunition and firearms.
This acquisition will strengthen the service offering of Intertek’s Commercial & Electrical division.
Initial cash consideration, inclusive of expenses, was £20.2m and additional contingent consideration of £1.5m is estimated to be payable.
This acquisition fits within Intertek’s Life Safety Services strategy by not only expanding its capability in the personal protective equipment
sector but more importantly enabling it to enter the ballistic testing services market.
Provisional details of net assets acquired and fair value adjustments are set out below. The analysis is provisional due to the timing of the
acquisition and amendments may be made to these figures in the 12 months to 23 September 2009, with a corresponding adjustment to
goodwill.
Property, plant and equipment
Goodwill
Other intangible assets
Inventories and work in progress
Trade and other receivables
Trade and other payables
Net assets acquired
Cash outflow (net of cash acquired)
Contingent consideration
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
1.0
–
–
0.6
0.6
(0.1)
2.1
2.8
10.5
6.5
(0.1)
(0.1)
–
19.6
3.8
10.5
6.5
0.5
0.5
(0.1)
21.7
20.2
1.5
21.7
The goodwill of £10.5m represents the opportunity for Intertek to establish a market leading position in ballistics testing and to become
firmly established in the military and defence service sectors. The other intangible assets of £6.5m represent the value placed on client
relationships, accreditations and non-compete agreements. The fair value adjustment of £2.8m arises from the revaluation of land and
buildings based on a professional valuation. The fair value adjustments in respect of inventories and trade receivables represent impairment
provisions against these assets.
The profit after tax for the period 1 January 2008 to 23 September 2008 was £1.1m. The profit attributable to the Group from the date of
acquisition to 31 December 2008 was £0.4m.
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Notes to the financial statements
26 Acquisitions (continued)
(b) Hi-Cad Technical Services Ltd
On 9 April 2008, the Group acquired 100% of the share capital of Hi-Cad Technical Services Ltd (Hi-Cad), a company registered in the UK,
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 US. This acquisition strengthens Intertek’s Industrial Services division and the development of asset
integrity management services.
Consideration paid, inclusive of expenses, was £14.0m and additional contingent consideration of £3.0m is estimated to be payable based
on the future performance of Hi-Cad. Cash acquired within the business was £1.0m.
Provisional details of net assets acquired and fair value adjustments are set out below. The analysis is provisional due to the timing of
the acquisition and amendments may be made to these figures in the 12 months to 8 April 2009, with a corresponding adjustment
to goodwill.
Property, plant and equipment
Goodwill
Other intangible assets
Inventories and work in progress
Trade and other receivables
Trade and other payables
Tax payable
Deferred tax liability
Net assets acquired
Cash outflow (net of cash acquired)
Contingent consideration
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
0.4
–
–
0.1
3.1
(2.2)
(0.2)
(0.3)
0.9
–
12.2
4.5
–
–
(0.3)
–
(1.3)
15.1
0.4
12.2
4.5
0.1
3.1
(2.5)
(0.2)
(1.6)
16.0
13.0
3.0
16.0
The goodwill of £12.2m represents the knowledge and expertise of the Hi-Cad workforce and the benefit that Intertek will gain from
being able to offer a cohesive vendor assessment and quality inspection service to its customers globally. The other intangible assets of
£4.5m represent the value placed on client relationships, know-how and an exclusive software distributorship. The fair value adjustment of
£0.3m relates to additional accruals. The deferred tax liability fair value adjustment of £1.3m arises on intangibles.
The profit after tax for the period 1 January 2008 to 8 April 2008 was £0.2m. The profit attributable to the Group from the date of
acquisition to 31 December 2008 was 0.9m.
(c) CML Biotech Ltd
On 13 February 2008, the Group acquired 100% of CML Biotech Ltd (CML), a UK registered holding company for the Commercial
Microbiology Group for an initial cash consideration, inclusive of expenses, of £8.3m. Additional contingent consideration of £1.4m is
estimated to be payable based on the future performance of CML. CML provides laboratory and consultancy services and sells testing kits
related to the measurement and management of bacteria in the upstream oil and gas industries. This acquisition will strengthen the service
offering of Intertek’s Analytical Services division.
Details of net assets acquired and fair value adjustments are set out below:
Property, plant and equipment
Goodwill
Other intangible assets
Inventories and work in progress
Trade and other receivables
Trade and other payables
Tax payable
Deferred tax liability
Net assets acquired
Cash outflow (net of cash acquired)
Contingent consideration
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
0.8
–
–
0.1
1.4
(0.9)
–
–
1.4
–
7.2
1.9
–
–
–
(0.3)
(0.5)
8.3
0.8
7.2
1.9
0.1
1.4
(0.9)
(0.3)
(0.5)
9.7
8.3
1.4
9.7
The goodwill of £7.2m represents the knowledge and expertise of the CML workforce and the benefit that Intertek will obtain from
expanding the suite of expert services that the Group can deliver as a partner to the oil and gas exploration industries globally. The other
intangible assets of £1.9m represent value placed on client relationships. The fair value tax adjustment of £0.3m relates to a provision for
additional tax liabilities. The deferred tax liability fair value adjustment of £0.5m arises on intangibles.
99
Annual Report 2008 99
26 Acquisitions (continued)
The profit after tax for the period 1 January 2008 to 12 February 2008 was £0.1m. The profit attributable to the Group from the date of
acquisition to 31 December 2008 was £0.4m.
(d) 4-Front Research Limited
On 4 April 2008, the Group acquired 100% of 4-Front Research Limited, a holding company of a group of companies registered in the UK,
France and India. Cash consideration paid, inclusive of expenses, was £7.3m and cash acquired within the business was £0.9m. Additional
contingent consideration of £2.3m is estimated to be payable based on the future performance of 4-Front Research. 4-Front Research
provides analytical support for clinical research studies on cosmetic, personal care, functional food and over-the-counter pharmaceutical and
medical products. With seven sites in England and sites in Hyderabad, India and Paris, France, 4-Front will form part of Intertek’s Consumer
Goods division.
Provisional details of net assets acquired and fair value adjustments are set out below. The analysis is provisional due to the timing of the
acquisition and amendments may be made to these figures in the 12 months to 3 April 2009, with a corresponding adjustment to
goodwill.
Property, plant and equipment
Goodwill
Other intangible assets
Inventories and work in progress
Trade and other receivables
Trade and other payables
Tax payable
Deferred tax liability
Net assets acquired
Cash outflow (net of cash acquired)
Contingent consideration
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
0.5
–
–
0.4
0.7
(0.5)
(0.1)
–
1.0
–
6.7
1.7
–
–
(0.2)
–
(0.5)
7.7
0.5
6.7
1.7
0.4
0.7
(0.7)
(0.1)
(0.5)
8.7
6.4
2.3
8.7
The goodwill of £6.7m represents the additional value that Intertek will gain from adding new high-value services to support its consumer
healthcare customers and from having a strategic position in the developing market for consumer healthcare products in India and other
Asian countries. The other intangible assets of £1.7m represent value placed on client relationships. The fair value adjustment of £0.2m
relates to additional accruals. The deferred tax liability of £0.5m arises on intangibles.
The profit after tax for the period 1 January 2008 to 3 April 2008 was £0.1m. The profit attributable to the Group from the date of
acquisition to 31 December 2008 was £0.3m.
(e) Other acquisitions
The other 10 acquisitions during the year were as follows:
(i) Electrical Mechanical Instrument Services (UK) Ltd (EMIS), a UK registered company was 100% acquired on 3 January 2008,
for consideration, inclusive of expenses, of £1.2m. Cash acquired within the business was £0.4m. EMIS provides calibration services
to the oil and gas industries in the UK and the Middle East.
(ii) Epsilon Technical Services Ltd (Epsilon), a UK registered company was 100% acquired on 5 February 2008, for initial cash consideration,
inclusive of expenses, of £2.1m. No contingent consideration is expected to be payable. Epsilon provides safety and advisory services to
companies with products for use in potentially explosive atmospheres.
(iii) Bioclin Research Laboratories Ltd (Bioclin), a company registered in the Republic of Ireland, was 100% acquired on 8 February 2008,
for initial cash consideration, inclusive of expenses, of £2.8m. Cash acquired within the business was £0.4m. Additional contingent
consideration of £0.6m is estimated to be payable based on Bioclin’s performance in 2008. Bioclin provides product quality testing and
bio-analytical services to pharmaceutical, medical device and biotechnology companies, in Ireland and internationally.
(iv) The Limburg Water Board of The Netherlands outsourced all laboratory activities of Waterschapsbedrijf Limburg to Intertek with effect
from 3 March 2008, for a minimum period of five years and transferred employees to Intertek. Total consideration, inclusive of expenses,
was £1.6m. Intertek will provide extended analytical testing and consultancy services in the areas of environmental science, regulation and
complex analysis of silt, soil and water.
(v) 100% of a company registered in the Philippines, was acquired on 2 April 2008, for cash consideration, inclusive of expenses, of £3.0m.
Cash acquired within the business was £0.2m. This company operates the largest commercial assay laboratory in the Philippines and offers
geophysical surveys and inspection services to the minerals industries.
(vi) Applica GmbH, a food testing company, based in Germany was 100% acquired on 15 July 2008, for an initial cash consideration,
inclusive of expenses, of £3.1m and a contingent consideration of £0.6m payable in March 2009 dependent on financial performance.
Cash acquired within the business was £0.3m.
(vii) Transworld Laboratories (Ghana) Limited, a company incorporated in the Republic of Ghana, was 100% acquired on 24 October 2008, for a
cash consideration, inclusive of expenses, of £2.2m. The company provides analytical testing services to the minerals and exploration industry.
100
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Notes to the financial statements
26 Acquisitions (continued)
(viii) Eko-Lab Sp. z.o.o, a company registered in Poland was 100% acquired on 27 November 2008, for an initial cash consideration,
inclusive of expenses, of £2.1m and a contingent consideration of £1.4m dependent on future financial performance. The company
provides testing services for the food, pharmaceutical and cosmetics industry.
(ix) The assets and the audit and inspection business of RQA, operating in the food industry in the USA, was acquired on 30 December
2008, for an initial cash consideration of £0.9m and a contingent consideration of £0.9m based on future financial performance.
(x) Porst & Partner GmbH, a company registered in Germany, was 100% acquired on 31 December 2008, for a cash consideration,
inclusive of expenses, of £2.2m. The company provides chemical analysis of harmful substances in leather, textiles, toys and hard goods.
The table below sets out a provisional analysis of the net assets acquired and the fair value to the Group in respect of the ten acquisitions
described above. The analysis is provisional due to the timing of some of the acquisitions and amendments may be made to these figures
in the period up to 12 months from the date each business was acquired, with a corresponding adjustment to goodwill.
Property, plant and equipment
Goodwill
Other intangible assets
Inventories and work in progress
Trade and other receivables
Trade and other payables
Tax payable
Deferred tax liability
Net assets acquired
Cash outflow (net of cash acquired)
Contingent consideration
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
4.5
–
–
0.3
3.1
(2.4)
(0.6)
–
4.9
(0.1)
15.6
3.9
(0.1)
(0.1)
(0.1)
0.1
(0.7)
18.5
4.4
15.6
3.9
0.2
3.0
(2.5)
(0.5)
(0.7)
23.4
19.9
3.5
23.4
The other intangible assets of £3.9m represent £2.8m for the value attributable to client relationships, £0.9m for guaranteed income and
£0.2m for know-how. The other significant fair value adjustment of £0.7m relates to the deferred tax liability arising on the intangibles.
The goodwill of £15.6m arises as follows:
EMIS
Epsilon
Bioclin
Waterschapsbedrijf Limburg*
Minerals company in the Philippines
Applica
Transworld
Eko-Lab
RQA
Porst & Partner
Total
* No goodwill arose on this acquisition.
£m
0.4
1.8
2.1
–
2.0
2.1
2.0
2.7
1.1
1.4
15.6
EMIS
The goodwill of £0.4m represents the benefit that Intertek will gain from increasing the penetration of the Group’s existing calibration and
upstream services to the oil and gas industries in Europe and the Middle East.
Epsilon
The goodwill of £1.8m represents the knowledge and expertise of the Epsilon workforce and the benefit that Intertek will obtain from
combining this business with the Group’s existing explosive environment certification services.
Bioclin
The goodwill of £2.1m represents the benefit that Intertek will gain from having a presence in Ireland which is a key European centre for
pharmaceutical manufacturing.
Minerals company
The goodwill of £2.0m represents the benefit to Intertek of increasing its presence in the South East Asian minerals market and gaining
additional management and technical expertise in this region.
Applica
The goodwill of £2.1m represents the expertise of the employees in Applica in the specialised analysis of honey and honey-related products
which extends the range of services Intertek can offer its existing clients in the food industry.
101
Annual Report 2008 101
26 Acquisitions (continued)
Transworld
The goodwill of £2.0m represents the value to Intertek of acquiring an established business in Ghana from which to develop its minerals
business.
Eko-Lab
The goodwill of £2.7m represents the value to Intertek of acquiring an established business in the food services market in Poland which will
complement and enhance Intertek’s existing service offering.
RQA
The goodwill of £1.1m represents the growth that Intertek expects to gain from adding food safety auditing in North America to its service
portfolio for clients in the food industry.
Porst & Partner
The goodwill of £1.4m represents the benefit that Intertek expects to gain from having access to the German market for textiles and toy
testing for selling these services to international customers.
The profit after tax for the period 1 January 2008 to the respective dates of purchase for these acquisitions was £1.3m. The profit
attributable to the Group from these acquisitions from their respective dates of purchase to 31 December 2008 was £0.8m.
(f) All the acquisitions made during the year contributed revenues of £26.0m and profits of £2.8m to the Group from their respective dates
of acquisition to 31 December 2008.
The Group revenue and profit for the year ended 31 December 2008 would have been £1,019.8m and £105.9m respectively if all the
acquisitions were assumed to have been made on 1 January 2008.
(g) Details of 2007 acquisitions
The Group made sixteen acquisitions in 2007, all of which were paid in cash.
The net assets acquired and fair value adjustments are set out below.
Property, plant and equipment
Goodwill*
Other intangible assets
Inventories and work in progress
Trade and other receivables
Trade and other payables
Tax payable
Deferred tax liability
Net assets acquired
Cash outflow (net of cash acquired)
Contingent and deferred consideration*
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
8.2
–
–
0.4
12.7
(7.6)
(0.7)
(0.2)
12.8
0.2
75.7
19.5
–
(0.2)
(4.6)
0.1
(2.3)
88.4
8.4
75.7
19.5
0.4
12.5
(12.2)
(0.6)
(2.5)
101.2
85.8
15.4
101.2
* The 2007 reported figures have been adjusted for movements in 2008. Goodwill has been increased by £1.2m, from the previously reported figure of £74.5m to £75.7m as
contingent and deferred consideration has increased by £1.2m from the previously reported figure of £14.2m to £15.4m. Of the £1.2m increase in deferred consideration, an
additional £3.5m was provided and an additional £2.6m was released, as shown in provisions (note 19) and the remaining net increase of £0.3m is shown in trade and other
payables (note 18).
The other intangible assets of £19.5m represent the value placed on client relationships and certification marks. The fair value adjustment
of £0.2m brings the property, plant and equipment to its approximate market value on acquisition. The £0.2m relates to additional
allowance for doubtful receivables. The £4.6m represents mainly pension liabilities recognised. The £0.1m represents a reduction in the tax
liabilities recognised and the £2.3m relates to deferred tax liability on intangibles.
(i) The largest acquisition was the purchase on 18 April 2007, of 100% of the share capital of Genalysis Laboratory Services Pty Ltd,
a company incorporated in Western Australia. Genalysis provides analytical testing and sample preparation services to mining, ore and
minerals companies on a global basis.
Payments totalling £20.6m, net of cash acquired of £0.2m, have been made, and contingent consideration, based on completion accounts,
estimated to be £8.3m, will be payable on or before March 2008, making a total estimated consideration for this acquisition of £28.9m.
In 2008, estimated contingent consideration was increased by £3.4m, bringing total consideration to £32.3m.
102
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Notes to the financial statements
26 Acquisitions (continued)
Details of net assets acquired and fair value adjustments are set in the table that follows:
Property, plant and equipment
Goodwill
Other intangible assets
Inventories and work in progress
Trade and other receivables
Trade and other payables
Tax payable
Deferred tax liability
Net assets acquired
Cash outflow (net of cash acquired)
Contingent consideration
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
3.8
–
–
0.4
4.1
(1.4)
(0.7)
–
6.2
(0.2)
23.5
4.0
–
–
–
–
(1.2)
26.1
3.6
23.5
4.0
0.4
4.1
(1.4)
(0.7)
(1.2)
32.3
20.6
11.7
32.3
The goodwill of £23.5m represents the value to the Group of acquiring a presence in an industry sector and in a country in which the
Group did not have a significant market share. The other intangible assets of £4.0m represent value placed on client relationships. The fair
value adjustment of £0.2m brings the property, plant and equipment to its approximate market value on acquisition. The deferred tax
liability of £1.2m arises on intangibles.
The profit of Genalysis for the period 1 January 2007 to 18 April 2007 was £0.5m. The profit attributable to the Group from the date of
acquisition to 31 December 2007 was £1.1m.
(ii) On 9 January 2007, the Group acquired 100% of the share capital of Umitek Limited, a company incorporated in the UK, for £9.8m,
net of cash of £0.6m, of which £0.5m was deferred. The company and its subsidiaries provide specialist testing and consultancy services to
the oil and gas industries in the North Sea and globally. The net assets acquired, prior to fair value adjustments, were £2.0m of which
£2.7m related to debtors and prepayments. Fair value adjustments totalled £7.8m of which £9.1m was for goodwill, £1.0m for intangibles,
£2.8m related to the recognition of a pension deficit and a deferred tax asset of £0.8m thereon and £0.3m for the deferred tax liability on
intangibles. Intangibles represent the value placed on client relationships. The goodwill represents the expertise and reputation acquired
which will enable Intertek to improve the service offered to its existing customers. The profit of the Umitek group for the period 1 January
2007 to 9 January 2007 was £25,000. The profit attributable to the Group from the date of acquisition to 31 December 2007 was £0.8m.
(iii) On 7 June 2007, the Group acquired 100% of the share capital of Quantitative Technologies Inc. (QTI), a US pharmaceutical testing
company, for £12.8m, net of cash acquired of £0.3m, of which £2.5m was contingent consideration based on actual 2007 results. The
company provides expert analytical support services to the global pharmaceutical, medical device and drug delivery industries. The net
assets acquired, prior to fair value adjustments, were £0.9m of which £0.9m related to receivables and prepayments. Fair value revaluations
to fixed assets totalled £0.2m. Intangibles of £2.5m, representing value placed on customer relationships, were recognised and goodwill
arising was £9.2m. The goodwill represents the benefit of providing the Group with an established presence on the East Coast on the US
for pharmaceutical support services and the opportunity for the Group to expand its pharma services in North America, complementing
and enhancing the capabilities acquired with the ASG and Alta acquisitions made in 2004 and 2006 respectively. The profit of QTI for the
period 1 January 2007 to 7 June 2007 was £0.3m. The profit attributable to the Group from the date of acquisition to 31 December 2007
was £0.7m.
(iv) On 14 September 2007, the Group acquired 100% of the share capital of National Software Technology Laboratories Inc. (NSTL), a
company incorporated in the USA, which tests mobile applications software, for £11.4m, net of cash acquired of £1.1m. In 2008, estimated
contingent consideration increased from £nil to £0.7m, bringing total consideration to £12.1m. The net liabilities acquired, prior to fair value
adjustments, were £0.1m, of which £1.4m related to receivables and prepayments, £1.7m related to payables and £0.2m related to
property, plant and equipment. There were no fair value adjustments other than for intangibles of £2.7m, representing value placed on
client relationships and for goodwill of £9.5m. The goodwill represents the opportunity for the Group to establish a leading position in the
growing cellular/mobile application software market within the US. The profit of NSTL for the period 1 January 2007 to 15 September
2007 was £0.4m. The profit attributable to the Group from the date of acquisition to 31 December 2007 was £0.4m.
103
Annual Report 2008 103
26 Acquisitions (continued)
(v) The following table sets out an analysis of the net assets acquired and the fair value to the Group in respect of the remaining
acquisitions made in 2007:
Property, plant and equipment
Goodwill
Other intangible assets
Trade and other receivables
Trade and other payables
Tax payable
Deferred tax liability
Net assets acquired
Cash outflow (net of cash acquired)
Contingent consideration
Total consideration
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
3.4
–
–
3.3
(2.9)
(0.1)
(0.1)
3.6
0.3
24.4
9.3
(0.1)
(1.7)
–
(1.6)
30.6
3.7
24.4
9.3
3.2
(4.6)
(0.1)
(1.7)
34.2
34.2
–
34.2
The other intangible assets of £9.3m represent the value placed on client relationships and certification marks. The fair value adjustment
of £0.3m brings the property, plant and equipment to its approximate market value on acquisition. The £1.7m represents pension liabilities
recognised and the £1.6m relates to deferred tax liability on intangibles.
The total goodwill of £24.4m is in respect of the following acquisitions:
Measurement Science Group
Product Quality Partners
Carnot Emission Services
ASTA BEAB
Plastics Technologies Laboratories
Biodata Analytik GmbH
Others (each less than £2.0m)
Total goodwill
£m
4.3
3.2
2.6
3.1
2.5
2.1
6.6
24.4
The goodwill of £24.4m represents value to the Group of acquiring presence in new industry sectors and countries, value of the skilled
workforce in the acquired companies and the synergies that the Group will achieve in integrating these new businesses.
The profit attributable to the Group from these acquisitions from their respective dates of purchase to 31 December 2007 was £0.6m.
(vi) All the acquisitions made during the year contributed revenues of £36.1m and profits of £3.6m to the Group from their respective dates
of acquisition to 31 December 2007.
The Group revenue and profit for the year ended 31 December 2007 would have been £799.2m and £81.9m respectively, if all the
acquisitions were assumed to have been made on 1 January 2007.
(h) Details of post balance sheet acquisitions
On 13 February 2009, the Group acquired 100% of the share capital of Wisco Enterprises, LP, a company registered in the USA for a total
estimated consideration, net of cash acquired, of £18.0m. Wisco companies specialise in providing third party inspection, expediting and
coordination services to customers in the Oil and Gas industry.
Due to the timing of the acquisition, the fair value of the net assets acquired has not yet been determined. An analysis of net assets acquired
is set out below which will be subject to amendment once the value of these net assets and fair value adjustments are fully determined. The
goodwill will also be analysed to determine whether there are any intangibles assets which should be recognised separately.
Property, plant and equipment
Goodwill
Trade and other receivables
Trade and other payables
Tax payable
Net assets acquired
Cash outflow (net of cash acquired)
Book value
prior to
acquisition
£m
Fair value
adjustments
£m
Fair value to
Group on
acquisition
£m
0.1
–
4.5
(0.5)
(0.1)
4.0
–
14.0
–
–
–
14.0
0.1
14.0
4.5
(0.5)
(0.1)
18.0
18.0
The goodwill represents the opportunity for Intertek to expand its technical inspection business providing it with a global platform
and network.
104
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Notes to the financial statements
26 Acquisitions (continued)
In addition to the above, 100% of the share capital of Aptech Engineering Services, Inc., a company based in California, USA, was
acquired on 10 February 2009, for an initial consideration of £3.5m and additional consideration up to £5.6m, is payable contingent on
the achievement of specified profit targets. Aptech Engineering Services is a full-service engineering consultancy company that specialises
in the life management of facilities, equipment, and infrastructure for clients in energy-related industries.
27 Share schemes
(a) Share option schemes
The Company established a share option scheme for senior management in March 1997. The maximum number of options that can
be granted under the scheme have been allocated and that scheme has been discontinued. In May 2002, the Intertek Group plc 2002
Share Option Plan (the 2002 Plan) and the Intertek Group plc 2002 Approved Share Option Plan (the Approved Plan) were established
for employees to be granted share options at the discretion of the Remuneration Committee. These plans have also been discontinued
and the last grants under these plans were made in September 2005.
(i) The number and weighted average exercise prices of share options are as follows:
2008
Weighted
average
exercise price
2008
2007
Weighted
average
of options exercise price
Number
2007
Number
of options
At beginning of year
Exercised
Forfeited
Outstanding options at end of year
Exercisable at end of year
654p 2,026,004
(405,884)
632p
(227,497)
768p
714p 3,289,131
491p (1,007,575)
(255,552)
596p
642p 1,392,623
654p 2,026,004
642p 1,392,623
465p
796,606
The weighted average share price of the Company at the date of exercise of share options was 971p (2007: 921p). The options outstanding
at the year end have an exercise price in the range of 359p to 778p and a weighted average contractual life of 5.6 years.
(ii) The outstanding options at 31 December 2008 are exercisable as follows:
Option Scheme
2002 Plan
Approved Plan
Number of options
outstanding
Exercise
price per share
Exercisable between
101,841
123,844
18,197
298,028
7,116
739,854
14,026
1,302,906
10,515
7,894
14,828
262
20,532
1,000
33,836
850
89,717
437p
359p
462p
523.5p
607p
778p
711p
437p
380p
359p
462p
523.5p
607p
778p
711p
30 May 2005
7 April 2006
12 September 2006
7 April 2007
14 September 2007
7 April 2008
13 September 2008
30 May 2005
17 July 2005
7 April 2006
12 September 2006
7 April 2007
14 September 2007
7 April 2008
13 September 2008
30 May 2012
7 April 2013
12 September 2013
7 April 2014
14 September 2014
7 April 2015
13 September 2015
30 May 2012
17 July 2012
7 April 2013
12 September 2013
7 April 2014
14 September 2014
7 April 2015
13 September 2015
Total
1,392,623
(b) Long Term Incentive Plan
As explained in the Remuneration Report on page 54, deferred and matching shares are awarded under this plan. The first awards were
granted on 7 April 2006. The awards under this plan vest three years after grant date, subject to fulfilment of the performance conditions.
At beginning of year
Granted
Vested
Forfeited
Outstanding share awards at end of year
490,126
427,876
(9,400)
(42,031)
273,028
262,028
–
–
239,669
278,170
(1,108)
(26,605)
128,194
156,386
–
(11,552)
866,571
535,056
490,126
273,028
2008
2008
Deferred Matching
shares
shares
2007
Deferred
shares
2007
Matching
shares
105
Annual Report 2008 105
27 Share schemes (continued)
Deferred shares of 9,400 vested in 2008 comprising 6,822 shares which were allotted in 2008 and 2,578 shares which were only allotted
in 2009 due to timing delays in issue (see note 20).
Details of the share option schemes and the Long Term Incentive Plan are shown in the Remuneration Report on pages 47, and 53 to 55.
(c) Equity-settled transactions
In accordance with IFRS 2, the fair value of services received in return for shares and share options granted to employees, is measured
by reference to the fair value of shares and share options granted. In accordance with the transitional provisions in IFRS 1 and IFRS 2,
the recognition and measurement principles in IFRS 2 have not been applied to share option grants made prior to 7 November 2002.
The estimate of the fair value of the services received is measured based on the Black-Scholes formula, a financial model used to calculate
the fair value of shares and share options.
During the year ended 31 December 2008, the Group recognised an expense of £3.3m (2007: £3.0m) in respect of outstanding share and
share option awards granted from 7 November 2002 onwards.
The fair values and the assumptions used in their calculations are set out below:
Date of share option
grant/shares awarded
Fair value at measurement date (pence)
Share price (pence)
Exercise price (pence)
Expected volatility
Dividend yield
Risk free interest rate
Time to maturity (years)
Share options
Share awards
7 April
2005
240.2
790.0
778.0
25.4%
1.3%
4.6%
6
13 Sept
2005
189.8
703.0
711.0
24.9%
1.6%
4.2%
6
Deferred
shares
7 April
2006
795.9
827.6
n/a
21.6%
1.4%
4.4%
3
Matching
shares
7 April
2006
435.0
827.6
n/a
21.6%
1.4%
4.4%
3
Deferred
shares
10 April
2007
887.6
931.0
n/a
21.4%
1.6%
5.4%
3
Matching
shares
10 April
2007
498.8
931.0
n/a
21.4%
1.6%
5.4%
3
Deferred
shares
11 March
2008
906.9
959.5
n/a
22.8%
1.9%
3.9%
3
Matching
shares
11 March
2008
619.8
959.5
n/a
22.8%
1.9%
3.9%
3
The expected volatility is based on the historic volatility, adjusted for any expected changes to future volatility due to publicly
available information.
Share options were granted under a service condition and a non-market performance condition. Such conditions are not taken into
account in the fair value measurement at grant date.
The deferred shares, under the Long Term Incentive Plan, are granted under a service condition. Such condition is not taken into account
in the fair value measurement at grant date. The matching shares, under the Long Term Incentive Plan, are granted under a performance
related market condition and as a result this condition is taken into account in the fair value measurement at grant date.
28 Financial instruments
Details of the Group’s treasury controls, exposures and the policies and processes for managing capital and credit, liquidity, interest rate
and currency risk are set out in the Directors’ Report – Financial Review on page 27 and Risks and Uncertainties on pages 28 to 30.
(a) Credit risk
(i) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the balance
sheet date was as follows:
Available-for-sale financial assets
Trade receivables, net of allowance
Cash and cash equivalents
Total
The maximum exposure to credit risk for trade receivables at the balance sheet date by geographic region was as follows:
Americas
Europe, Middle East and Africa
Asia Pacific
Total
2008
£m
4.4 –
219.4
113.3
337.1
2008
£m
77.8
75.3
66.3
2007
£m
147.5
58.6
206.1
2007
£m
49.5
51.1
46.9
219.4
147.5
106
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Notes to the financial statements
28 Financial instruments (continued)
(ii) Impairment losses
The ageing of trade receivables at the balance sheet date was as follows:
Under 3 months
Between 3 and 6 months
Between 6 and 12 months
Over 12 months
Gross trade receivables
Allowance for impairment
Trade receivables, net of allowance
2008
£m
188.3
24.6
10.5
6.0
229.4
(10.0)
219.4
2007
£m
126.5
15.6
7.5
4.3
153.9
(6.4)
147.5
Included in trade receivables due under three months of £188.3m (2007: £126.5m) are trade receivables of £104.0m (2007: £69.1m) which
are not due for payment under the Group’s standard terms and conditions of sale.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Impairment allowance for doubtful trade receivables
At 1 January
Exchange differences
Cash recovered
Impairment loss recognised
Receivables written off
At 31 December
2008
£m
6.4
1.6
(0.1)
4.4
(2.3)
10.0
2007
£m
5.0
0.3
(0.2)
3.0
(1.7)
6.4
There were no significant individual impairments of trade receivables.
Credit risks arise mainly from the possibility that customers may not be able to settle their obligations as agreed. The Group assesses
periodically the creditworthiness of customers. The Group’s credit risk is diversified due to the large number of entities that make up
the Group’s customer base and the diversification across many different industries and geographic regions.
Allowance for impairment is based on the risk profile of the trade receivable based on the likelihood of the amount being recovered.
Based on historic default rates reflecting the track record of payments by the Group’s customers, the Group believes that no impairment
allowance is necessary in respect of trade receivables which are less than six months outstanding, unless there are specific circumstances
such as the bankruptcy of a customer which would render the trade receivable irrecoverable. The Group provides fully for all trade
receivables over 12 months old as these are considered likely to be irrecoverable. Where recovery is in doubt, a provision is made against
the specific trade receivable until such time as the Group believes the amount to be irrecoverable. At that time the trade receivable
is written off.
(iii) Counterparty
Transactions involving derivative financial instruments are with counterparties who have sound credit ratings. Given this, management does
not expect any counterparty to fail to meet its obligations.
(b) Liquidity risk
The table below provides information about the contractual maturities and interest rate profile of the Group’s senior term loans and notes
at 31 December 2008.
Liabilities 2008
Floating rate (USD)
Average interest rate
Fixed rate (USD)
Average interest rate
Floating rate (HKD)
Average interest rate
Floating rate (SEK)
Average interest rate
Floating rate (GBP)
Average interest rate
Floating rate (EUR)
Average interest rate
Floating rate (JPY)
Average interest rate
Total
2009
£m
–
–
–
–
–
–
–
–
14.0
2.9%
–
–
–
–
14.0
2010
£m
30.2
3.2%
–
–
14.1
3.2%
–
–
–
–
–
–
–
–
44.3
2011
£m
99.2
3.4%
–
–
22.2
2.2%
16.0
2.7%
38.0
3.3%
35.2
3.5%
11.4
1.3%
222.0
2012
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2013+
£m
–
–
137.4
6.7%
–
–
–
–
–
–
–
–
–
–
137.4
Carrying
amount
£m
129.4
–
137.4
–
36.3
–
16.0
–
52.0
–
35.2
–
11.4
–
417.7
107
Annual Report 2008 107
28 Financial instruments (continued)
Of the other borrowings of £3.9m, disclosed in note 17, all of them fall due for repayment over the next six to ten years.
The table below provides information about the contractual maturities and interest rate profile of the Group’s senior term loans at
31 December 2007.
Liabilities 2007
Floating rate (USD)
Average interest rate
Floating rate (HKD)
Average interest rate
Floating rate (SEK)
Average interest rate
Floating rate (GBP)
Average interest rate
Floating rate (EUR)
Average interest rate
Floating rate (JPY)
Average interest rate
Floating rate (NOK)
Average interest rate
Floating rate (SGD)
Average interest rate
Total
2008
£m
–
–
11.2
3.8%
2.3
5.1%
–
–
–
–
–
–
–
–
–
–
13.5
2009
£m
35.6
4.1%
29.0
3.9%
18.0
5.0%
–
–
–
–
–
–
–
–
–
–
82.6
2010
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2011
£m
32.9
4.4%
43.0
4.0%
1.8
5.2%
6.0
5.5%
29.5
5.2%
11.1
1.4%
8.3
5.8%
2.0
3.3%
Carrying
amount
£m
68.5
–
83.2
–
22.1
–
6.0
–
29.5
–
11.1
–
8.3
–
2.0
–
134.6
230.7
Of the other borrowings of £0.5m at 31 December 2007, £0.2m fell due for repayment in 2008 and the other £0.3m over the next two to
ten years.
The following are the contractual maturities of financial liabilities including interest:
2008
Non-derivative financial liabilities
Senior term loans and notes
Other loans
Trade payables
Derivative financial liabilities
Interest rate swaps used for hedging
Forward exchange contracts:
Outflow
Inflow
Total
2007
Non-derivative financial liabilities
Senior term loans
Other loans
Trade payables
Derivative financial liabilities
Interest rate swaps used for hedging
Forward exchange contracts:
Outflow
Inflow
Carrying Contractual
cash flows
amount
£m
£m
6 months
or less
£m
6-12
months
£m
417.7
3.9
54.0
475.6
507.6
5.2
54.0
566.8
16.0
0.1
54.0
70.1
16.0
0.1
–
16.1
1-2
years
£m
61.9
0.2
–
62.1
2-5 More than
5 years
£m
years
£m
256.6
0.7
–
257.3
157.1
4.1
–
161.2
5.3
1.2
1.5
1.9
4.5
–
–
4.5
17.5
(17.5)
5.3
17.5
(17.5)
1.2
71.3
480.1
572.1
Carrying Contractual
cash flows
amount
£m
£m
6 months
or less
£m
230.7
0.5
43.1
274.3
261.5
0.7
43.1
305.3
11.7
0.1
43.1
54.9
–
–
1.5
17.6
6-12
months
£m
11.7
0.1
–
11.8
–
–
1.9
64.0
1-2
years
£m
92.0
0.1
–
92.1
0.7
–
–
0.7
0.7
0.2
0.2
0.2
0.1
10.6
(10.6)
0.7
10.6
(10.6)
0.2
55.1
–
–
0.2
12.0
–
–
0.2
92.3
–
–
0.1
146.4
0.7
–
–
0.7
–
–
–
–
258.0
161.2
2-5
years
£m
More than
5 years
£m
146.1
0.2
–
146.3
–
0.2
–
0.2
–
–
–
–
0.2
Total
275.0
306.0
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Notes to the financial statements
28 Financial instruments (continued)
Cash flow hedges
The following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to
occur and expected to impact the profit or loss.
Interest rate swaps used for hedging – liabilities
2008
2007
Carrying
Expected
amount cash outflows
£m
£m
6 months
or less
£m
4.5
0.7
5.3
0.7
1.2
0.2
6-12
months
£m
1.5
0.2
1-2
years
£m
1.9
0.2
2-5
years
£m
0.7
0.1
More than
5 years
£m
–
–
(c) Interest rate risk
(i) Hedging
The Group adopts a policy of ensuring that between 33% and 67% of its exposure to changes in interest rates on borrowings is on a fixed
rate basis. Interest rate swaps, denominated in various currencies and an interest rate cap have been entered into to achieve an appropriate
mix of fixed and floating rate exposure within the Group’s policy. The swaps mature over the next three years and have fixed swap rates
ranging from 1.1% to 4.8%. At 31 December 2008, the Group had interest rate swaps with a notional contract amount of £136.6m
(2007: £55.4m) and an interest rate cap with a notional value of £19.6m (2007: £14.7m).
The Group designates interest rate swaps and interest rate caps as hedging instruments in cash flow hedges and states them at fair value.
The net fair value of swaps and caps at 31 December 2008, was £4.5m (2007: £0.7m) comprising liabilities of £4.5m (2007: £0.7m). These
amounts were recognised as fair value derivatives.
Under the interest rate swap agreements, the Group agrees with other parties to exchange, at specified intervals, the difference between
fixed rate and floating rate interest amounts calculated by reference to an agreed notional principal amount.
(ii) Profile
The information about the contractual maturities and interest rate profile of the Group’s borrowings is shown in section (b) liquidity risk.
The interest rate profile of the Group’s short-term deposits and cash at 31 December 2008 is set out below:
Financial assets
Short-term deposits and cash*:
Sterling
US dollar
Chinese renminbi
Hong Kong dollar
Euro
Other currencies
Total cash and cash equivalents
Effective
At floating
interest rates interest rates
£m
Total carrying
amount and
fair value
£m
Interest free
£m
1.0%
0.3%
1.5%
0.3%
1.5%
Various
5.7
22.0
33.5
4.3
8.5
29.4
103.4
0.5
1.9
0.7
0.1
1.2
5.5
9.9
6.2
23.9
34.2
4.4
9.7
34.9
113.3
*Short-term deposits are overnight deposits bearing interest at rates fixed daily in advance.
The interest rate profile of the Group’s short-term deposits and cash at 31 December 2007 was as follows:
Financial assets
Short-term deposits and cash*
Sterling
US dollar
Chinese renminbi
Hong Kong dollar
Euro
Other currencies
Total cash and cash equivalents
*Short-term deposits are overnight deposits bearing interest at rates fixed daily in advance.
Effective
At floating
interest rates interest rates
£m
Total carrying
amount and
fair value
£m
Interest free
£m
5.6%
5.2%
1.8%
3.9%
3.8%
Various
(6.2)
16.3
17.0
1.2
1.5
14.2
44.0
–
–
–
–
6.8
7.8
14.6
(6.2)
16.3
17.0
1.2
8.3
22.0
58.6
109
Annual Report 2008 109
28 Financial instruments (continued)
(iii) Sensitivity
At 31 December 2008, it is estimated that a general increase of three percentage points in interest rates would decrease the Group’s profit
before tax by approximately £2.6m (2007: £2.7m at a three percentage point increase and £1.2m at a one percentage point increase).
A three percentage point increase has been used in the current year compared to a one percentage point increase in the prior year
accounts sensitivity analysis to reflect the current economic environment. Interest rate swaps have been included in this calculation.
This analysis assumes all other variables remain constant.
(d) Foreign currency risk
The net assets of foreign subsidiaries represent a significant portion of the Group’s shareholders’ funds and a substantial percentage of the
Group’s revenue and operating costs are incurred in currencies other than sterling. Because of the high proportion of international activity,
the Group’s profit is exposed to exchange rate fluctuations. Two types of risk arise as a result: (i) translation risk, that is, the risk of adverse
currency fluctuations in the translation of foreign currency operations and foreign assets and liabilities into sterling and (ii) transaction risk,
that is, the risk that currency fluctuations will have a negative effect on the value of the Group’s commercial cash flows in various currencies.
(i)Profile
The foreign currency profile of the trade receivables and payables at the balance sheet date were as follows:
2008
Trade receivables
Trade payables
2007
Trade receivables
Trade payables
Carrying
amount
£m
219.4
54.0
147.5
43.1
Sterling
£m
US dollar
£m
26.4
7.7
18.1
6.4
64.8
12.8
41.1
9.2
Chinese
renminbi
£m
23.8
11.0
14.5
8.2
Hong
Kong
dollar
£m
11.7
4.1
9.2
3.0
Euro
£m
30.5
7.7
20.0
6.3
Other
currencies
£m
62.2
10.7
44.6
10.0
(ii) Recognised assets and liabilities
Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies
and for which no hedge accounting is applied are recognised in the income statement. At 31 December 2008, the fair value of forward
exchange contracts was £nil (2007: £nil).
(iii) Hedge of net investment in foreign subsidiaries
The Group’s foreign currency denominated loans are designated as a hedge of the Group’s investment in its respective subsidiaries.
The carrying amount of these loans at 31 December 2008 was £365.7m (2007: £224.7m).
A foreign exchange loss of £110.9m (2007: loss of £3.2m) was recognised in the translation reserve in equity on translation of these loans
to sterling.
(iv) Sensitivity
It is estimated that a general increase of ten percentage points in the value of sterling against the dollar (the main currency impacting the
Group) would have decreased the Group’s profit before tax for 2008 by approximately £10.8m (2007: £7.3m at a ten percentage point
increase and £0.8m at a one percentage point increase). A ten percentage point increase has been used in the current year compared
to a one percentage point increase in the prior year accounts sensitivity analysis to reflect the current economic environment. The forward
exchange contracts have been included in this calculation. This analysis assumes all other variables remain constant.
(e) Fair values
The table below sets out a comparison of the book values and corresponding fair values of all the Group’s financial instruments by class.
Financial assets
Cash and cash equivalents
Trade receivables
Available-for-sale asset
Financial liabilities
Interest bearing loans and borrowings
Interest rate swaps used for hedging
Trade payables
2008
Book value
£m
2008
Fair value
£m
2007
Book value
£m
2007
Fair value
£m
113.3
219.4
4.4
337.1
421.6
4.5
54.0
480.1
113.3
219.4
4.4
337.1
414.3
4.5
54.0
472.8
58.6
147.5
–
206.1
231.2
0.7
43.1
275.0
58.6
147.5
–
206.1
231.2
0.7
43.1
275.0
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Notes to the financial statements
28 Financial instruments (continued)
(f) Estimation of fair values
The major methods and assumptions used in estimating the fair values of the Group’s financial instruments are summarised below.
(i) Interest rate swaps and caps used for hedging
Bank valuations are used to estimate the fair value of interest rate swaps and caps used for hedging. Valuations are tested by considering
the equivalent swap rate as at 31 December and calculating the difference in interest earned at this rate compared to the original swap
rate and cap.
(ii) Forward exchange contracts
The fair value of forward exchange contracts is based on their quoted market price, if available. If a quoted market price is not available,
the fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the
residual maturity of the contract using a risk free interest rate.
(iii) Interest bearing loans and borrowings
The fair value of the floating interest bearing loans and borrowings is equal to the book value, since the floating interest rates were reset
just prior to the year end. The fair value of the fixed rate interest bearing loans and borrowings has been calculated based on the present
value of future principal and interest cash flows, discounted at the market rate at the reporting date.
(iv) Trade receivables and payables
For trade receivables and payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value.
All others are estimated as the present value of future cash flows discounted at the market rate of interest at the reporting date.
(v) Available-for-sale financial assets
The fair value of available-for-sale financial assets is determined by reference to their quoted closing bid price at the reporting date.
(vi) Interest rates used for determining fair value
Prevailing market interest rates at the reporting date are used to discount future cash flows to determine the fair value of financial assets
and liabilities.
29 Contingent liabilities
Guarantees, letters of credit and performance bonds
2008
£m
8.9
2007
£m
7.1
Litigation
From time to time, the Group is involved in various claims and lawsuits incidental to the ordinary course of its business, including claims
for damages, negligence and commercial disputes regarding inspection and testing and disputes with employees and former employees.
The Group is not currently party to any legal proceedings other than ordinary litigation incidental to the conduct of business.
The outcome of litigation to which the Intertek Group companies are party cannot be readily foreseen as in some cases the facts are
unclear or further time is needed to properly assess the merits of the case. However, based on information currently available, the Directors
consider that the cost to the Group of an unfavourable outcome arising from such litigation is unlikely to have a materially adverse effect
on the financial position of the Group in the foreseeable future.
Tax
The Group operates in more than 100 countries and is subject to wide range of complex tax laws and regulations. At any point in time it
is normal for there to be a number of open years in any particular territory which may be subject to enquiry by local authorities. Where
the effect of the laws and regulations is unclear, estimates are used in determining the liability for the tax to be paid on past profits which
are recognised in the financial statements. The Group considers the estimates, assumptions and judgements to be reasonable but this can
involve complex issues which may take a number of years to resolve. The final determination of prior year tax liabilities could be different
from the estimates reflected in the financial statements.
30 Related parties
Identity of related parties
The Group has a related party relationship with its associates (see note 32) and with its key management.
Transactions between the Company and its subsidiaries and between subsidiaries have been eliminated on consolidation and are not
discussed in this note.
Transactions with associates
As stated in note 12, the Group holds a 40% interest in the associate, Allium LLC, a company registered in the US and a 49% interest in
the associate Euro Mechanical Instrument Services LLC (Abu Dhabi), a company registered in the United Arab Emirates.
Allium LLC and its subsidiaries manufacture testing equipment which it sells to certain Intertek Group companies. In 2008, sales by Allium
Group companies to Intertek Group companies amounted to £0.6m (2007: £0.9m). Intertek Group companies had lent dollar equivalent
£1.9m to Allium LLC as at 31 December 2008 (2007: £1.4m) against which there was a Group provision of £1.2m (2007: £1.2m).
Interest on these loans was charged during 2008 at an average rate of 5.6% (2007: 6.5%). Intertek Group companies owed £0.1m at
31 December 2008 (2007: £0.1m) to Allium LLC in respect of purchases of testing equipment.
Euro Mechanical Instrument Services LLC (Abu Dhabi) provides calibration services to the oil industry. This company had no material
transactions with Intertek Group companies in the year.
30 Related parties (continued)
Transactions with key management personnel
Key management personnel compensation, including the Group’s Executive Directors, is shown in the table below:
Short-term benefits
Post-employment benefits
Equity-settled transactions
Total
111
Annual Report 2008 111
2008
£m
4.6
0.3
1.5
6.4
2007
£m
2.3
0.2
0.7
3.2
More detailed information concerning Directors’ remuneration, shareholdings, pension entitlements, share options and other long-term
incentive plans is shown in the audited part of the Remuneration Report.
Richard Nelson is engaged by the Group as a Non-Executive Director under the terms of a letter of appointment for an initial period
of 3 years commencing on 8 April 2005 and extended for a further 2 years on 7 March 2008. Under the terms of the same letter of
appointment Richard Nelson is entitled to remuneration of £1,000 per working day for any special project work agreed in advance by the
Chairman. In 2008, Richard Nelson received remuneration of £nil (2007: £1,000) for special project work.
Apart from the above, no member of key management had a personal interest in any business transactions of the Group.
31 Post Balance Sheet Events
(a) Details of all acquisitions made after 31 December 2008 are given in note 26(h).
(b) At a Board meeting on 6 March 2009, the Directors proposed a dividend of 13.7p per ordinary share, which if approved, is payable to
shareholders on 19 June 2009.
32 Principal operating subsidiaries and associated companies
The Group comprises 217 subsidiary companies and two associated companies. As permitted by Section 231(5) of the Companies Act
1985, only the holding companies and the principal subsidiaries whose results or financial position, in the opinion of the Directors,
principally affect the figures of the Group in 2008 and 2007 have been shown below. A full list of subsidiaries will be attached to the
Company’s Annual Return filed with the Registrar of Companies. All the subsidiaries were consolidated at 31 December 2008.
Country of
incorporation
Activity by
division*
Percentage of ordinary
shares held in
2008 and 2007
Group
Company
Company name
Intertek Testing Services Holdings Limited
Intertek Holdings Limited
Intertek Testing Services UK Limited
Intertek Finance plc
Intertek Testing Management Limited
Intertek International Limited
ITS Testing Services (UK) Limited
ITS Testing Holdings Canada Limited
Intertek Testing Services Limited Shanghai
Intertek Testing Services Shenzhen Limited
Testing Holdings France EURL
Testing Holdings Germany GmbH
ITS Hong Kong Limited
Yickson Enterprises Limited
Intertek Testing Services Taiwan Limited
Kite Overseas Holdings BV
Testing Holdings Sweden AB
Semko AB
ITS NA Inc
Intertek USA Inc
Testing Holdings USA Inc
Genalysis Laboratory Services Pty Ltd
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Canada
China
China
France
Germany
Hong Kong
Hong Kong
Taiwan
Netherlands
Sweden
Sweden
USA
USA
USA
Australia
Country of
incorporation
Associates
Allium LLC
EMIS, Abu Dhabi (acquired 2008)
USA
United Arab Emirates
Holding company
Holding company
Holding company
Finance
Management company
GS, IS
OCA, AS
Holding company
CG, C&E, GS, IS, M
CG, C&E, IS
Holding company
Holding company
CG, C&E, OCA, GS, IS
Holding company
CG, C&E, OCA
Holding company
Holding company
C&E
C&E, IS
OCA, AS, IS
Holding company
Minerals
Principal
activity by
division*
CG
OCA
100
100
100
100
100
100
100
100
85
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Percentage of ordinary
shares held in
2008 and 2007
Group
40
49
Company
–
–
*Consumer Goods (CG), Commercial & Electrical (C&E), Oil, Chemical & Agri (OCA),Government Services (GS), Analytical Services (AS), Industrial Services (IS) and Minerals (M).
112
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Intertek Group plc – Company Balance Sheet
As at 31 December 2008
Fixed assets
Investments in subsidiary undertakings
Current assets
Debtors due after more than one year
Debtors due less than one year
Cash at bank and in hand
Creditors due within one year
Other creditors
Net current assets
Total assets less current liabilities
Creditors due after more than one year
Other creditors
Net assets
Capital and reserves
Called up share capital
Share premium
Profit and loss account
Shareholders’ funds – equity
Notes
2008
£m
2007
£m
(d)
284.7
280.9
(e)
(f)
8.8 –
1.5
10.3
0.3
10.6
0.4
0.4
10.1
10.5
(g)
(3.2)
(1.9)
7.4
8.6
292.1
289.5
(h)
(4.2)
(9.2)
287.9
280.3
(i)
(i)
(i)
1.6
249.9
36.4
287.9
1.6
247.3
31.4
280.3
The financial statements on pages 112 to 115 were approved by the Board on 9 March 2009 and were signed on its behalf by:
Wolfhart Hauser
Director
Bill Spencer
Director
113
Annual Report 2008 113
Notes to the Company financial statements
(a) Accounting policies – Company
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Company’s financial statements, except as noted below.
Basis of preparation
The financial statements have been prepared in accordance with applicable United Kingdom Accounting Standards and under the historical
cost accounting rules.
Under Section 230(4) of the Companies Act 1985 the Company is exempt from the requirement to present its own profit and loss account.
The Company is exempt from the requirement to prepare a cash flow statement on the grounds that it is included in the consolidated
accounts which it has prepared.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and
liabilities in foreign currencies are translated into sterling at the rates of exchange prevailing at the balance sheet date. All foreign exchange
differences are taken to the profit and loss account.
Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between
the treatment of certain items for taxation and accounting purposes.
Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and
accounting purposes, which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19. Deferred tax
assets in respect of timing differences are only recognised to the extent that it is more likely than not there will be suitable taxable profits
to offset the future reversal of these timing differences.
Classification of financial instruments issued by the Company
Following the adoption of the presentation requirements of FRS 25, financial instruments issued by the Company are treated as equity
(i.e. forming part of shareholders’ funds) only to the extent that they meet the following two conditions:
(i) they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets or
financial liabilities with another party under conditions that are potentially unfavourable to the Company; and
(ii) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Company’s own equity instruments, or is a derivative that will be settled by the Company’s
exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified
takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and
share premium account exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of interest payable and similar charges. Finance payments
associated with financial instruments that are classified as part of shareholders’ funds are dealt with as appropriations in the reconciliation
of movements in shareholders’ funds.
Dividends on shares presented within shareholders’ funds
Dividend income is recognised in profit or loss on the date that the Company’s right to receive payment is established.
Dividends unpaid at the balance sheet date, are only recognised as a liability at that date to the extent that they are appropriately
authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes
to the financial statements.
Investments in subsidiaries
Investments in subsidiaries are stated at cost less any provisions for impairment.
Intercompany financial guarantees
When the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies in the Group, the
Company considers these to be insurance arrangements and accounts for them as such. In this respect the Company treats the guarantee
contract as a contingent liability, until such time as it becomes probable that the Company will be required to make a payment under the
guarantee.
Share-based payments
Intertek Group plc runs a share ownership programme that allows Group employees to acquire shares in the Company. In order to
encourage share ownership, a share option scheme for senior management was established in March 1997. This option programme
was discontinued in 2006 and was replaced by a new Long Term Incentive Plan.
As permitted by FRS 20, the Company has applied the requirements of this standard to all share-based payment awards granted after
7 November 2002.
The fair value of options and share awards granted to employees of the Company is recognised as an employee expense with a
corresponding increase in equity. As the Company has no employees, there is no recognition of an employee expense nor the corresponding
increase in equity. However, the Company grants options and awards over its own shares to the employees of its subsidiaries and therefore
the Company recognises an increase in the cost of investment in its subsidiaries, equivalent to the equity-settled share-based payment
charge recognised in its subsidiary’s financial statements, with the corresponding credit being recognised directly in equity.
114
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Notes to the Company financial statements
(a) Accounting policies – Company (continued)
The fair value is measured at grant date and is spread over the period during which the employee becomes unconditionally entitled to the
options. The fair value granted is measured using the Black-Scholes model. This method, in calculating the fair value, takes into account
various factors including the expected volatility of the shares, the dividend yield and the risk free interest rate.
The fair value of shares granted under the Long Term Incentive Plan is also measured using the Black-Scholes method and is spread over
the period during which the employee becomes unconditionally entitled to the shares.
See note 27 in the Group financial statements for further information on the share schemes.
(b) Profit and loss account
Amounts paid to the Company’s auditor and their associates in respect of services to the Company, other than the audit of the Company’s
financial statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis.
The Company does not have any employees.
Details of the remuneration of the Directors are set out in the Remuneration Report.
(c) Dividends
The aggregate amount of dividends comprises:
Final dividend paid in respect of prior year but not recognised as a liability in that year
Interim dividends paid in respect of the current year
Aggregate amount of dividends paid in the financial year
The aggregate amount of dividends proposed and recognised as liabilities as at 31 December 2008 is £nil (2007: £nil).
(d) Investment in subsidiary undertakings
Cost and net book value
At 1 January
Additions
Additions due to share-based payments
At 31 December
2008
£m
19.2
11.2
30.4
2007
£m
16.1
9.1
25.2
2008
£m
2007
£m
280.9
0.5
3.3
284.7
277.4
0.5
3.0
280.9
During the year, the Company subscribed £0.5m into the share capital of its segregated account in Leeward Insurance Company Limited,
registered in Bermuda. This is the insurance captive for the Group.
The Company has granted options over its own shares and made share awards to the employees of its direct and indirectly-owned
subsidiaries, and as such, the Company recognises an increase in the cost of investment in subsidiaries of £3.3m (2007: £3.0m). Please see
note 32 in the Group financial statements for details of the principal operating subsidiaries.
The other two direct subsidiary undertakings at 31 December 2008 were Intertek Testing Services Holdings Limited and Intertek Holdings
Limited, both of which are holding companies, incorporated in the United Kingdom and registered in England and Wales. All interests are
in the ordinary share capital of the companies and both companies are wholly owned. In the opinion of the Directors, the value of the
investments in subsidiary undertakings is not less than the amount at which the investments are stated in the balance sheet.
There is no impairment to the carrying value of these investments.
(e) Debtors due after more than one year
Amounts owed by Group undertakings
2007
£m
2008
£m
8.8 –
The amounts owed by Group undertakings represent long-term loans due in two to five years, which carry interest based on the
denomination of the borrowing currency.
(f) Debtors due within one year
Corporation tax
Amounts owed by Group undertakings
(g) Creditors due within one year
Amounts owed to Group undertakings
Accruals and deferred income
(h) Creditors due after more than one year
Amounts owed to Group undertakings
2008
£m
0.4 –
1.1
1.5
2008
£m
3.0
0.2
3.2
2008
£m
4.2
The amounts owed to Group undertakings represent long-term loans due in two to five years, which carry interest based on the
denomination of the borrowing currency.
(i) Shareholders’ funds – equity
At 1 January 2007
Profit for the financial year
Dividends
Credit in relation to share-based payments
Shares issued
At 31 December 2007
Profit for the financial year
Dividends
Credit in relation to share-based payments
Shares issued
At 31 December 2008
115
Annual Report 2008 115
2007
£m
0.4
0.4
2007
£m
1.8
0.1
1.9
2007
£m
9.2
Total
£m
288.7
8.9
(25.2)
3.0
4.9
280.3
32.1
(30.4)
3.3
2.6
Share
capital
£m
Share
premium
£m
Profit
and loss
£m
1.6
–
–
–
–
1.6
–
–
–
–
1.6
242.4
–
–
–
4.9
247.3
–
–
–
2.6
249.9
44.7
8.9
(25.2)
3.0
–
31.4
32.1
(30.4)
3.3
–
36.4
287.9
Details of share capital are set out in note 20 and details of share options are set out in note 27 to the Group financial statements.
A profit and loss account for Intertek Group plc has not been presented as permitted by Section 230(4) of the Companies Act 1985.
The profit for the financial year, before dividends paid to shareholders of £30.4m (2007: £25.2m) was £32.1m (2007: £8.9m) which was
mainly in respect of dividends received from subsidiaries.
(j) Related party transactions
Under FRS 8: Related Party Disclosures, the Company has taken advantage of the exemption from disclosing transactions with other
Group companies.
(k) Contingent liabilities
The Company is a member of a group of UK companies that are part of a composite banking cross guarantee arrangement. This is a joint
and several guarantee given by all members of the Intertek UK cash pool, guaranteeing the total gross liability position of the pool which
was £17.7m at 31 December 2008 (2007: £29.2m).
From time-to-time, in the normal course of business, the Company may give guarantees in respect of certain liabilities of
subsidiary undertakings.
116 www.intertek.com
Corporate and Shareholder Information
116
Shareholders’ Enquiries and Electronic
Communications www.shareview.co.uk
Any shareholders with enquiries relating to their
shareholding should, in the first instance, contact
our Registrars, Equiniti.
Shareholders who would prefer to view
documentation electronically can elect to receive
automatic notification by email each time the
Company distributes documents, instead of
receiving a paper version of such documents, by
registering a request at the website,
www.shareview.co.uk.
There is no fee for using this service and you will
automatically receive confirmation that a request
has been registered. Should you wish to change
your mind or request a paper version of any
document in the future, you may do so by
contacting the Registrar by email or by post.
To access www.shareview.co.uk, you will need to
have your shareholder reference available when you
first log in, which may be found on your dividend
voucher, share certificate or form of proxy. The
facility also allows shareholders to view their holding
details, find out how to register a change of name
or what to do if a share certificate is lost, as well as
download forms in respect of changes of address,
dividend mandates and share transfers.
Share dealing service
A share dealing service for the purchase or sale of
shares in Intertek is available through JPMorgan
Cazenove, whose details are as follows:
JPMorgan Cazenove (postal service)
20 Moorgate
London
EC2R 6DA
t: +44 20 7155 5328
ShareGift
The Orr Mackintosh Foundation operates a charity
share donation scheme for shareholders with small
parcels of shares whose value makes it uneconomic
to sell them. Details of the scheme are available
from:
ShareGift at www.sharegift.org
t: +44 20 7930 3737.
Share price information
Information on the Company’s share price is
available from the investor pages of
www.intertek.com.
Board of Directors
Vanni Treves, Chairman*
Richard Nelson, Deputy Chairman*
David Allvey*
Christopher Knight*
Debra Rade*
Wolfhart Hauser, Chief Executive Officer
Mark Loughead, Chief Operating Officer
William Spencer, Chief Financial Officer
*Non-Executive Directors
Company Secretary
Fiona Evans
Investor Relations
e: investor@intertek.com
t: +44 20 7396 3400
Registrars
Equiniti
Aspect House,
Spencer Road,
Lancing, West Sussex
BN99 6DA
t: 0871 384 2653
t: +44 121 415 7047 (outside UK)
web address: www.equiniti.com
Auditors
KPMG Audit Plc
PO Box 486
8 Salisbury Square
London EC4Y 8BB
t: +44 20 7311 1000
Registered Office
Intertek Group plc
25 Savile Row
London W1S 2ES
t: +44 20 7396 3400
f: +44 20 7396 3480
www.intertek.com
Registered number: 4267576
ISIN: GB0031638363
London Stock Exchange
Support Services
FTSE 250
Symbol: ITRK
Brokers
JPMorgan Cazenove
20 Moorgate
London EC2R 6DA
t: +44 20 7588 2828
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
t: +44 20 7774 1000
117
Annual Report 2008 117
31 December 2008
9 March 2009
15 May 2009
3 June 2009
5 June 2009
19 June 2009
3 August 2009
November 2009
Financial Calendar
Financial year end
Results announced
Annual General Meeting
Ex-dividend date for final dividend
Record date for final dividend
Final dividend payable
Interim results announced
Interim dividend payable
Contact Information
Intertek Group plc
Head Office
25 Savile Row
London
W1S 2ES
United Kingdom
t: +44 20 7396 3400
f: +44 20 7396 3480
e: info@intertek.com
www.intertek.com
Our Regional Contacts
Oil, Chemical & Agri
Americas
t: +1 713 407 3500
f: +1 713 407 3594
Europe
t: +44 1708 680200
f: +44 1708 680264
Asia
t: +65 6222 3889
f: +65 6221 5876
Commercial & Electrical
Americas
t: +1 800 967 5352
f: +1 800 813 9287
Europe
t: +46 8 750 0000
f: +46 8 750 6030
Asia
t: +86 21 6127 8200
f: +86 21 5426 2346
Minerals
Americas
t: +1 888 400 0084
f: +1 713 407 3594
Europe
t: +44 1708 680200
f: +44 1708 680264
Asia
t: +61 8 9251 8164
f: +61 8 9251 8110
Analytical Services
Americas
t: +1 713 407 3500
f: +1 713 407 3594
Europe
t: +44 161 721 5247
f: +44 161 721 1654
Asia
t: +65 6222 3889
f: +65 6221 5876
Government Services
Americas
t: +1 305 513 3000
f: +1 305 513 3001
Europe
t: +44 1277 223400
f: +44 1277 220127
Asia
t: +852 2310 9923
f: +852 2370 2284
Consumer Goods
Americas
t: +1 630 481 3111
f: +1 630 481 3101
Europe
t: +33 232 09 36 36
f: +33 232 09 36 37
Asia
t: +852 2173 8888
f: +852 2786 1903
Industrial
Americas
t: +1 713 475 4022
f: +1 713 477 9524
Europe
t: +39 02 95383833
f: +39 02 95383832
Asia
t: + 81 3 5245 0648
f: + 81 3 5245 0480
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