THE GLOBAL TQA EXPERTS
ANNUAL REPORT 2017
OVERVIEW
INTERTEK AT A GLANCE
OUR SERVICES
As the global pioneers of a fully
integrated Assurance, Testing,
Inspection and Certification ('ATIC')
solution, we offer our clients an
end-to-end systemic Total Quality
Assurance ('TQA') value proposition.
In doing so, we help customers operate
more safely, more effectively and with
greater peace of mind.
Read more on our services on
page 10
OUR SECTORS
Our organisational structure ensures
our people’s expertise is concentrated
in the markets where customers need
our direct support. With business lines
structured in the three sectors of
Products, Trade and Resources, we
focus on attractive growth and margin
sectors where we can add most value.
Read more in our operating
reviews on pages 22 to 29
ASSURANCE
TESTING
PRODUCTS
REVENUE
£1,625m
ADJUSTED OPERATING
PROFIT
£350m
STATUTORY OPERATING
PROFIT
£336m
OUR HISTORY
The Intertek story features some
of history’s most prominent Quality
Assurance pioneers. Today, our
population of innovative and
passionate experts continues this
tradition as we introduce our unique
Total Quality Assurance value
proposition to companies across
the world.
1885 Caleb Brett
founds his cargo
certification
business in the UK
1888 Milton
Hersey establishes
his chemical
testing lab in
Canada
1896 Thomas
Edison sets up
the Lamp Testing
Bureau in the US.
(This later becomes
the Electrical
Testing Laboratories
or ETL – a mark
that Intertek still
applies today)
1911 Virginius
Daniel Moody
founds the Moody
International oil
and gas testing
and certification
business in the US
1925 SEMKO (the
Swedish Electronic
Equipment Control
Office) is founded
1927 The Charles
Warnock Company
is created in
Canada to inspect
steel products
INSPECTION
CERTIFICATION
TRADE
REVENUE
£648m
ADJUSTED OPERATING
PROFIT
£89m
STATUTORY OPERATING
PROFIT
£83m
RESOURCES
REVENUE
£496m
ADJUSTED OPERATING
PROFIT
£29m
STATUTORY OPERATING
PROFIT
£4m
1973 Labtest
is established
in Hong Kong,
initially to focus
on testing
textiles
1987 Inchcape
Testing Services
(ITS, the future
Intertek) is
founded and
completes
the purchase
of Caleb Brett
1989 ITS enters
the Chinese market
1994 ITS acquires
SEMKO
2002 Inchcape
sells ITS to
Charterhouse
Development
Capital. ITS is
renamed Intertek
2002 Intertek
lists on the
London Stock
Exchange
2009 Intertek
enters the FTSE
100 index
2011 Intertek
acquires Moody
International
2015 Intertek
buys the
PSI building and
construction
business
2016 Intertek
acquires FIT-Italia
and EWA-Canada,
and enters a joint
venture with ABC
Analitic in Mexico
2017 Intertek
acquires KJ Tech
and Acumen
Security
OVERVIEW
FINANCIAL HIGHLIGHTS
Continued progress in
revenue, margin and
cash reflecting the
Group’s performance
management discipline
focused on margin-
accretive revenue
growth and cash
conversion.
• Group revenue growth of: +3.0% at
constant currency rates, +7.9% at
actual rates
• Solid organic revenue growth at
constant rates of 2.1%: Products +5.5%,
Trade +3.0%, Resources -8.6%
• Strong diluted EPS growth:
adjusted +10.4% at constant rates,
+14.3% at actual rates;
statutory +12.4% at actual rates
• Full year dividend per share of 71.3p,
an increase of 14.3%
• Portfolio strength and performance
• Free adjusted cash flow of £342m,
+7.4% year on year
• Free statutory cash flow of £309m,
+10.2% year on year
management discipline driving margin
progression: adjusted +110bps at
constant rates, +90bps at actual rates
• Adjusted operating profit of £468m, an
increase of 14.2% at actual rates and
10.0% at constant rates
• Statutory operating profit of £423m,
an increase of 14.4% at actual rates and
10.3% at constant rates
REVENUE (£m)
+7.9%
2017
2016
OPERATING PROFIT1,2 (£m)
+14.2%
+14.4%
2,769
2,567
2017
2016
423
468
370
410
DILUTED EARNINGS PER SHARE1 (pence)
FREE CASH FLOW1 (£m)
+14.3%
+12.4%
+7.4%
+10.2%
2017
2016
176.3
191.6
2017
309
342
156.8
167.7
2016
280
318
DIVIDEND PER SHARE3 (pence)
+14.3%
2017
2016
71.3
62.4
2017 Adjusted
2017 Statutory
2016 Adjusted
2016 Statutory
RETURN ON INVESTED CAPITAL AT CONSTANT
CURRENCY2 (%)
+280bps
2017
2016
26.7
23.9
1. Adjusted operating profit, adjusted diluted earnings per share (‘EPS’) and adjusted free cash flow, which are non-GAAP measures, are stated before Separately Disclosed
Items, which are described in note 3 to the financial statements. Reconciliations between statutory and adjusted measures, as well as Return on Invested Capital and cash
conversion, are shown in the Financial review on pages 38 to 43.
2. Definitions of the above metrics and constant currency are set out on page 30.
3. Dividend per share for 2017 is based on the interim dividend paid of 23.5p (2016: 19.4p) plus the proposed final dividend of 47.8p (2016: 43.0p).
OVERVIEW
We are leading the
industry with our
end-to-end systemic
Total Quality Assurance
('TQA') value proposition
of Assurance, Testing,
Inspection and
Certification solutions,
delivered across the
world by our global
TQA Experts.
Read more in the CEO Review on page 14
OVERVIEW
Financial Highlights
Intertek at a Glance
STRATEGIC REPORT
Our 5x5 Strategy
Our Sustainability Goals
Our Global Network
Market Opportunities
Our TQA value proposition
Our Services
Our Experts
Life Cycle of a Lightbulb
Chief Executive Officer’s review
Executive Management Team
Operating reviews
KPIs – Measuring our strategy
Principal risks and uncertainties and
Long-term Viability statement
Financial review
Sustainability and Corporate Social
Responsibility
DIRECTORS’ REPORT
IFC
IFC
2
4
6
8
9
10
11
12
14
20
22
30
32
38
44
62
Chairman’s introduction
64
Corporate Governance
Board of Directors
68
72
Nomination Committee
75
Audit Committee
81
Remuneration report
Other statutory information
99
Statement of Directors’ responsibilities 102
FINANCIAL STATEMENTS
Contents
Consolidated primary statements
Notes to the financial statements
Intertek Group plc – Company
primary statements and notes
103
104
109
152
OTHER
Independent Auditor’s Report
157
Shareholder and corporate information 164
STRATEGIC REPORT
OUR 5X5 STRATEGY
DIFFERENTIATED FOR GROWTH
WITH OUR 5X5 STRATEGY
Our 5x5 strategy aims to move the Company’s
centre of gravity towards high-growth and high-
margin areas of industries across the world.
OUR GOALS
• Fully engaged employees working in
a safe environment
• Superior customer service in Assurance,
Testing, Inspection and Certification
• Margin-accretive revenue growth based
on GDP+ organic growth
• Strong cash conversion from operations
• Accretive, disciplined capital
allocation policy
OUR PURPOSE
Bringing quality and safety to life.
OUR VISION
To be the world’s most trusted partner
for Quality Assurance.
OUR TQA CUSTOMER PROMISE
Intertek Total Quality Assurance expertise,
delivered consistently with precision, pace
and passion, enabling our customers to
power ahead safely.
OUR CUSTOMER-CENTRIC
ORGANISATION
Our decentralised organisational model
places our people's talents, commitment
and ambition to succeed directly where
our clients need them most – in the
markets where they work and live.
Then, by supporting all our people with
shared operating principles across our
global footprint, we empower them to
react quickly to the constantly evolving
ATIC needs of those clients.
That drives the ultimate Intertek
differentiator that’s at the heart of our
drive for global growth – our unique ability
to deliver the Total Quality Assurance
solutions our clients demand with
precision, pace and passion.
It’s exciting to work with
clients on innovative products,
especially for new energy
sources, renewables, and smart
grids where we can be part of
creating a better future."
Sarah Linn
Global Marketing Director,
Electrical & Network
Assurance UK
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INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
• Increase existing
account penetration
• Drive ATIC cross-selling
• Business development
with new accounts
• Build customer loyalty
and win new customers
• TQA customer service
delivered consistently
• Innovative ATIC solutions
• Position Intertek as
the leading Quality
Assurance provider
• Build brand awareness
across sectors and
geographies
• Compelling Total
Quality Assurance
brand positioning
EFFECTIVE SALES
STRATEGY
SUPERIOR
CUSTOMER
SERVICE
• Prioritised business
lines, geographies and
service areas
• Invest in areas with
good growth and good
margin prospects
•
Disciplined resource,
capital and people
allocation
GROWTH AND
MARGIN-
ACCRETIVE
PORTFOLIO
• Continuous
improvement to
drive productivity
• Best-in-class
management to
reduce span of
performance
• Eliminate non-
essential costs –
facilities/offices/
processes/
purchasing
STRONG BRAND
PROPOSITION
LIVING OUR
CUSTOMER-
CENTRIC
CULTURE
R 5 S T R ATEGIC PRIORITIE
S
O U
5x5
DIFFERENTIATED
STRATEGY
FOR GROWTH
O
U
R 5 STRATEGIC E N A
E R S
L
B
OPERATIONAL
EXCELLENCE
DELIVERING
SUSTAINABLE
RESULTS
DISCIPLINED
PERFORMANCE
MANAGEMENT
• Strong entrepreneurial
culture
• Customer-centric
culture
• Engagement at
all levels
• Performance management
with financial and
non-financial metrics
• Forecast and review
processes focused
on margin-accretive
revenue growth with
strong cash conversion
SUPERIOR
TECHNOLOGY
• Improve customer
experience
• Leverage back-office
synergies
• Upgrade business
intelligence system
ENERGISING
OUR PEOPLE
• Invest in capability
• Aligned reward system
• Promote internal growth
• Sustainable growth
for customers
and shareholders
• Importance of
sustainability for
the community
• Right balance
between
performance
and sustainability
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
3
STRATEGIC REPORT
STRATEGIC REPORT
OUR SUSTAINABILITY GOALS
OUR SUSTAINABILITY PRIORITIES
ARE AT THE HEART OF OUR 5X5 STRATEGY
Our sustainability
priorities aligned with
our 5x5 differentiated
strategy for growth.
As a Total Quality Assurance provider, we
are in a strong position, given our global
scale and expertise, to support the
sustainability objectives of our customers
with our industry-leading Sustainability
value proposition. Whilst supporting our
clients, we are also focused on generating
a positive impact for our stakeholders –
the communities in which we operate, the
environment, our people, our investors,
and our suppliers. Our objective is to
create sustainable growth for all.
I am proud to work for a company that is
putting sustainability at the heart of its
strategy, both for the services we provide
our customers, as well as the progress we
are making internally."
Eric Saigeon
Sustainability and Energy Manager,
USA and Canada
OUR VALUES
OUR STAKEHOLDERS
WE ARE A
GLOBAL FAMILY
THAT VALUES
DIVERSITY
OUR
COMMUNITIES
WE ALWAYS DO
THE RIGHT THING
WITH PRECISION,
PACE AND PASSION
OUR
INVESTORS
OUR PURPOSE
Bringing quality and
safety to life
WE CREATE
SUSTAINABLE
GROWTH
FOR ALL
OUR PEOPLE
OUR VISION
To be the world's most
trusted partner for
Quality Assurance
WE TRUST EACH
OTHER AND HAVE
FUN WINNING
TOGETHER
OUR
CUSTOMERS
WE OWN AND
SHAPE
OUR FUTURE
OUR
SUPPLIERS
4
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
STRATEGIC REPORT
ALIGNING WITH THE
UNITED NATIONS
SUSTAINABLE
DEVELOPMENT GOALS
In order to track our
progress in Sustainability,
each of our major business
lines and countries will
provide quarterly updates
on the progress they are
making towards the
United Nations Sustainable
Development Goals.
Every day, I’m aware that I’m treading in
the footsteps of giants like Thomas
Edison. It’s that incredible history and
spirit of constant innovation that puts
Intertek ahead of the field."
Gary Yu
Manager, Luminaires
Electrical & Network Assurance,
Hong Kong
1
HAVING A
POSITIVE IMPACT
ON OUR PEOPLE,
OUR SUPPLIERS AND
THE COMMUNITIES
IN WHICH WE
OPERATE
2
SUPPORTING OUR
CLIENTS WITH OUR
INDUSTRY-LEADING
SUSTAINABILITY
VALUE PROPOSITION
5
CONTINUOUS
PROGRESS IN
SUSTAINABILITY
THROUGH
APPROPRIATE
ORGANISATIONAL
FOCUS
OUR
SUSTAINABILITY
PRIORITIES
4
TRACKING OUR
PROGRESS WITH THE
UNITED NATIONS
SUSTAINABLE
DEVELOPMENT
GOALS
3
IMPROVING OUR
NON-FINANCIAL
DISCLOSURES TO
STRENGTHEN OUR
INVESTMENT
PROPOSITION
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
5
STRATEGIC REPORT
OUR GLOBAL NETWORK
OUR GLOBAL NETWORK
Our global scale, allied
with the depth and
breadth of our solutions,
means we are uniquely
positioned to grasp
growth opportunities in
markets across the world.
The primary drivers of our growth are our
43,000+ employees, based in more than
1,000 laboratories and offices in over 100
countries worldwide.
We are based where our customers and
prospects are – delivering global
solutions locally and building local
relationships, in local languages and with
a deep understanding of local priorities
and culture.
In the eyes of our customers, our
employees across the world are Intertek,
enabling us collectively to deliver value
with precision, pace and passion.
The team makes Intertek an incredibly
positive place to work, not just in each
country but globally too. The sheer range
of expertise in specialist areas, from
Minerals to Trade, never ceases to
impress me."
Kaeti Fallens
Marketing Manager
Minerals, Australia
6
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
EMPLOYEES
43,000+
AUDITORS
3,000+
AUDITS
100,000+
COUNTRIES
100+
LABS AND OFFICES
1,000+
LANGUAGES
80+
GLOBAL
INNOVATIONS
CHILD SAFETY
We’ve created a unique
testing approach for toys to
reduce the risk of children
inhaling small plastic toy
parts
INTERTEK PIPEAWARETM
An industry-leading digital
inspection solution for
delivering full transparency
into the pipe manufacturing
process
STRATEGIC REPORT
TAKING INSPECTION TO NEW
HEIGHTS
Delivering non-destructive testing
and inspection services with drones
to ensure asset quality, safety and
reliability
AUTONOMOUS ASSESSMENT
We’re working with the American
Center for Mobility to facilitate the
testing of autonomous and
connected vehicles
LIGHT FANTASTIC
Our expertise in both the Electrical
and Agricultural sectors has allowed
us to develop a Horticultural Lighting
Certification Programme
FUEL FOR THOUGHT
We’re working with manufacturers and
regulatory bodies to develop standards
to provide clear safety solutions for
alternative fuel components
ROBOTIC REVOLUTION
Integrating robotics into our fuel-tank
inspections enables customers to
achieve safety and compliance more
quickly and efficiently
A CONCRETE ISSUE
Our new specialist corrosion sensors
can monitor the strength of concrete
structures throughout their entire
lifetime
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
7
STRATEGIC REPORT
MARKET OPPORTUNITIES
EXCITING GROWTH OPPORTUNITIES
IN THE ATIC MARKET
The global ATIC market is
currently valued at $250bn.
With more and more
companies outsourcing their
Quality Assurance activities,
Intertek is well placed to
capture a disproportionate
share of the $200bn that’s
currently managed in-house.
WHY OUTSOURCE?
The growing complexity of companies'
operations is creating unprecedented
levels of risk in supply and distribution
chains across the world.
Many forces are at play, from
increasingly decentralised supply and
manufacturing operations, to more
empowered and demanding consumers
and an ever-more competitive
distribution and retail landscape.
Many companies are recognising two
key truths.
First, they need an end-to-end Total
Quality Assurance solution that
manages quality, safety and endemic
risk at every point of the supply and
distribution chain.
Second, that using independent TQA
experts with a proven track record
delivers peace of mind while freeing
them up to concentrate on their core
competencies.
Intertek provides independent TQA
expertise, based on our integrated
portfolio of ATIC solutions, delivered
through the unmatched precision, pace
and passion of our 43,000+ experts
located in more than 100 countries
across the world.
In short, we believe that Intertek can
truly deliver the peace of mind that our
clients seek.
Our customers’ world
has changed. Complexity
throughout the value
chain demands a
systemic, integrated and
end-to-end approach to
quality assurance and
risk management. This
is TQA.
$50BN
EXISTING CUSTOMERS:
Increase account
penetration from ATIC
cross selling
NEW CUSTOMERS:
New contracts
$200BN
EXISTING & NEW
CUSTOMERS:
Outsourcing
8
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
OUR TQA VALUE PROPOSITION
STRATEGIC REPORT
OUR TQA VALUE PROPOSITION
HOW WE ADD VALUE
We deliver our Total Quality Assurance
value proposition with our TQA
Customer Promise, every day,
everywhere: Intertek Total Quality
Assurance expertise, delivered
consistently with precision, pace and
passion, enabling our customers to
power ahead safely.
• Precision: the consistent quality and
precision of our people’s findings,
conclusions and reports
• Pace: their speed of response,
delivering the rapid and accurate
feedback that clients demand
• Passion: the desire to manage
properly customer-centric
relationships by placing clients
at the centre of our universe
To deliver on our Promise, we first
employ people with the right potential,
attitude, intellect and entrepreneurial
spirit. Then we expose them to our
culture of excellence and innovation,
helping them to focus on meeting our
demanding service standards.
It is by aligning the quality of our
people with the scale of our operations
that we unleash the shared value on
which we build long-term, mutually
rewarding and constantly expanding
customer relationships.
Read more in the CEO Review
on page 14
RESEARCH AND
DEVELOPMENT
CONSUMER MANAGEMENT
RAW MATERIALS
SOURCING
Our TQA Customer Promise
Intertek Total Quality Assurance
expertise, delivered consistently with
precision, pace and passion, enabling
our customers to power ahead safely
Assurance
Testing
Inspection Certification
DISTRIBUTION AND
RETAIL CHANNELS
COMPONENT
SUPPLIERS
TRANSPORTATION
MANUFACTURING
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
9
STRATEGIC REPORT
OUR SERVICES
DELIVERING ATIC SOLUTIONS THROUGH OUR
PRECISION-ENGINEERED SERVICE PROPOSITION
ASSURANCE
Enabling our customers to identify and
mitigate the intrinsic risk in their
operations, their supply and distribution
chains, and quality management systems.
TESTING
Evaluating how our customers'
products and services meet and
exceed quality, safety, sustainability
and performance standards.
INSPECTION
Validating the specifications, value and
safety of our customers' raw materials,
products and assets.
CERTIFICATION
Formally confirming that our customers'
products and services meet all trusted
external and internal standards.
Enabling our clients
to manage and mitigate
their increasingly
complex risk universe
takes commitment to
continuous evolution
and improvement.
The single biggest step forward that we
have taken this century was when we
placed Assurance at the forefront of our
service offering.
This pioneering shift from TIC to ATIC did
far more than simply rename our industry.
In a single step it clarified the relevance of
our integrated services to countless
organisations across the world.
Now, our people can deliver Total Quality
Assurance solutions with precision, pace
and passion to any business wishing to:
• manage the endemic risk at every point
in its supply and distribution chains; and
• gain a deep understanding of how its
operating processes and quality
management systems are performing.
In today’s ultra-complex, competitive
and global trading environment, our
TQA services are every day helping more
organisations to operate more safely,
effectively and with greater peace of mind.
10
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
OUR EXPERTS
STRATEGIC REPORT
OUR EXPERTS SUPPORT AND
DELIVER AT EVERY STAGE
The energy, commitment and expertise of
our people at every point in the TQA journey
give our clients the Intertek TQA Advantage.
Assurance can be an incredibly powerful
tool: used in the right ways, it can help
companies cut costs, increase efficiency,
improve quality and reduce any negative
impacts of their operations."
Read Nikhil's story on page 29
Testing supports the value and marketability
of products, in this case by providing proof
of authenticity."
Read Antje's story on page 25
Companies use our Inspection services
to validate their assets. Doing so can make
a difference in value worth many millions
of dollars."
Read Sergei's story on page 27
Ultimately, what Certification delivers is realisation
of confidence from customers, partners, legislators
and other stakeholders, clearly demonstrating that
the organisation will sustainably meet
requirements for quality, safety, reliability and
environmental performance."
Read Jeffrey's story on page 23
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
11
STRATEGIC REPORT
LIFE CYCLE OF A LIGHTBULB
ASSURING TOTAL QUALITY FOR
OUR CLIENTS AT EVERY STAGE
We’ve taken a single, simple product – a lightbulb – to illustrate how we provide
end-to-end quality assurance at every stage of the lightbulb product journey.
By the time it reaches the consumer, the lightbulb has been through up to 20
Intertek quality and safety processes.
SUPPLY >
TESTING, INSPECTION AND CERTIFICATION PROVIDE QUALITY &
SAFETY CONTROLS IN HIGH RISK AREAS OF GLOBAL OPERATIONS
Copper Mine
Physical Testing &
Chemical Analysis
R&D
Laboratory
Reliability and
Lifetime
Testing
Manufacturing
Factory Working
Conditions
Evaluation
Manufacturing
Global Safety
Certification
Manufacturing
Energy Efficiency
Testing
ASSURANCE PROVIDES AN END-TO-END ASSESSMENT
OF QUALITY & SAFETY PROCESSES
Damage Survey
Environmental
Modelling
Services
Quality/Health
& Safety,
Environmental
Audits Training
Programs
Global Market
Access Assurance
PRECISION, PACE
AND PASSION AT
EVERY STAGE
" We build, set up and manage
laboratories on mine sites for
our clients to provide them with
expert independent quality
assurance. The speed of
turnaround is always crucial –
quality can never be
compromised."
Yennhi Vo
Projects Manager,
Minerals,
Australia
" By testing a bulb’s useful lifetime,
we give the manufacturer two
opportunities for business
improvement. To use exceptional
performance data in marketing.
Or to improve the product."
Hector Huitron
Engineer, Associate,
Electrical & Network
Assurance,
USA
"We ensure that factories in the
supply chain shape ethical,
progressive and productive work
environments that not only
protect workers but also
safeguard the reputation of
brand-owners."
Raquel Sese
Senior Manager –
Global Technical,
Quality and Compliance,
Supplier Management &
Business Assurance,
Philippines
12
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
TOTAL QUALITY ASSURANCE
Our TQA value proposition gives our clients
the ATIC Advantage, our TIC Expertise plus
our Assurance Differentiation.
+
+
+
Assurance
Testing
Inspection
Certification
PRODUCTION >
DISTRIBUTION >
RETAIL >
Manufacturing
IoT Services
Distributor
Transportation
Testing
Haulier
Green
Packaging Claim
Certification
Retailer
Market
Surveillance
Inspecting On-Sale
Product Quality
Retailer
Commercial
& Functional
Claims
Packaging
Evaluation
Global Security
Verification
Programme
Expediting
Services
Benchmarking
Product Returns
Analysis
" We provide manufacturers and
consumers with secure lines
of defence against unsafe
electrical products. It might sound
simple, but our team’s shared
knowledge and passion are vital in
getting it right every time."
Viktor Rubin
Technical Manager
Lighting Products,
Electrical & Network
Assurance,
Sweden
" Our work on energy efficiency has
a direct impact on people’s quality
of life: by assuring them that a
product is fit for purpose, we give
them the confidence that they’re
making the right buying decision."
Cindy Kong
Senior Lead Engineer,
Electrical & Network
Assurance,
Hong Kong
" For connected devices, testing
the interface is just as important
as testing the device itself – we’re
here to quality-assure the total
customer experience."
" Companies can depend on us
to give them the comfort and
confidence that comes with
knowing their products comply
with all relevant standards."
Raymond Balolong
Project Manager,
Internet of Things
and Software,
USA
Jeffrey Davis
Engineering Supervisor,
Aviation and Energy
Efficient Lighting,
Electrical & Network
Assurance, USA
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
13
STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER'S REVIEW
CHIEF EXECUTIVE OFFICER'S REVIEW
In 2017, we made progress on performance and
strategy... the organic and inorganic growth
opportunities ahead are truly exciting!
The Group has delivered continued
progress in revenue, margin and cash
performance in 2017, reflecting the
Group's performance management
discipline focused on margin-
accretive revenue growth and cash
conversion delivering strong returns
for our shareholders.
In line with our progressive dividend policy
and underpinned by our excellent cash
generative earnings model and strong
balance sheet, we have announced a full
year dividend of 71.3p, an increase of
14.3% and are increasing the dividend
payout ratio to circa 50% from 2018.
The Products and Trade related divisions,
which represent 94% of the Group's
earnings, delivered excellent performance
with organic revenue growth of 4.8% at
constant rates while, as expected, trading
conditions remained challenging in the
Resources related division.
Moving forward, the growth opportunities
are highly attractive for Intertek as we
further leverage our high-quality,
cash-generative earnings model, built on
the local expert delivery of Assurance,
Testing, Inspection and Certification
services on a global scale, that together
define our unique Total Quality Assurance
(TQA) value proposition.
It remains important to contextualise our
performance of 2017 and anticipated
future earnings growth, driven by our
differentiated growth strategy based on
our TQA value proposition and the
significant market development
opportunities ahead, all underpinned by
the exceptionally deep and broad
expertise of our people.
SEIZING THE MARKET
OPPORTUNITIES AHEAD
At Intertek, our aim is to give our clients
across the world the uncompromised peace
of mind that builds trust.
One thing is for certain – this is a
differentiated approach with the
commercial potential to step up our scale
and performance as we move ahead.
Intertek is facing a tremendous
opportunity: a global opportunity that we
currently value at around $250 billion.
This is the estimated total value of the
global Quality Assurance market, of which
only around 20 per cent is currently
outsourced. That means that companies
across the world manage approximately
$200 billion-worth of quality assurance
for themselves – the massive hidden
‘iceberg’ of potential.
Additionally, in our view, there is significant
untapped opportunity beyond the $250
billion, as companies increasingly become
aware of systemic risk in their businesses
and the need for Total Quality Assurance.
OUR TQA VALUE PROPOSITION
RESEARCH AND DEVELOPMENT
CONSUMER
MANAGEMENT
RAW MATERIALS
SOURCING
Intertek Total Quality Assurance
expertise, delivered consistently
with precision, pace and passion,
enabling our customers to
power ahead safely.
DISTRIBUTION AND
RETAIL CHANNELS
COMPONENT
SUPPLIERS
TRANSPORTATION
MANUFACTURING
Read more about our TQA value proposition on page 9
14
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
André Lacroix
Chief Executive Officer
STRATEGIC REPORT
Our global TQA Experts give
our clients the ATIC
Advantage by delivering our
TQA Customer Promise."
LEVERAGING OUR UNIQUE
TQA VALUE PROPOSITION
Intertek pioneers the Quality Assurance
industry on a global scale with a fully
integrated portfolio of Assurance,
Testing, Inspection and Certification (ATIC)
services. This is what we call Total Quality
Assurance and is what clients increasingly
want and need in a progressively
complex world.
Intertek is the only company to have
added the Assurance dimension to the
‘TIC’ components to offer an integrated
ATIC value proposition to its clients.
So what drove us to take this step? We
took the simple decision to look at our
value proposition from the customer’s
perspective. And this rapidly revealed to
us that TQA is what our customers now
require, almost regardless of their size,
their industry or their location.
This is for a very simple reason. In the
past, companies were primarily focused on
the quality control issues around their
end-products, raw materials, components
and assets – all of which rely on the
efficiency and effectiveness of Testing,
Inspection and Certification activities.
Importantly, the demand for TIC
components will continue to grow in the
years to come, benefiting from a number of
parallel trends: companies’ investments in
quality and innovation, for example, as well
as ever-strengthening regulatory
standards, increased focus on sustainability,
accelerating global and regional trade flows,
and increasing demand for energy.
Another powerful trend is also at play,
however. In our global market place,
corporations are sharpening their focus on
the management of risk in their
increasingly complex supply chain and
distribution operations. This is where
Assurance comes in – and it is why we
have evolved beyond quality control alone
to additionally assure the reliability of
clients’ operating processes and quality
management systems.
BUILDING OUR VALUE PROPOSITION
It was this recognition that led us to
substantially adapt the Intertek value
proposition around a new Customer
Promise. This Promise commits us to
“Intertek Total Quality Assurance
expertise, delivered consistently with
precision, pace and passion, enabling our
customers to power ahead safely”.
Now we can support the existing and
emerging TQA needs of our customers
in all areas of their extended
operations, from R&D, sourcing
materials and component suppliers to
transportation, distribution, retail and
consumer management.
This gives our clients the systemic TQA
solution they want and we believe TQA is
set to be an increasingly important
requirement in the future, as the trading
landscape in which our customers operate
continues to become more complex and
global. And it is already complex – today,
almost 60 per cent of GDP is international.
Compare this with 50 years ago, when
global trade represented only 25 per cent
of global GDP.
This burgeoning globalism is driving
change in the ways that supply chains
are formulated. It is giving corporations
the opportunity to focus squarely on their
core competencies and take advantage
of new, decentralised sourcing and
manufacturing opportunities that are
driving down their costs.
THE ATIC ADVANTAGE
Intertek Total Quality
Assurance expertise,
delivered consistently with
precision, pace and passion,
enabling our customers to
power ahead safely
Read more about our full services
on page 10
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
15
STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER'S REVIEW
CEO'S REVIEW
continued
However, there is a price to pay – the price
of additional complexity in the supply
chain, particularly around the ongoing and
accelerating shift to multi-tier sourcing.
This is not the only driver of complexity.
Consumers, too, are becoming more
demanding and selective as they seek
greater variety, more sustainable and
ethically sourced products, better customer
service, faster delivery, heightened quality
and enhanced value. This in turn has
increased competition, giving rise to
increasing numbers of products and brand
choices as well as more trade channels and
routes to market. As a result, the distribution
chain too is becoming ever-more complex.
This additional complexity in both the
supply and the distribution chains is
heightening the risk of failure at any
number of points, and therefore increasing
the value for organisations of having
granular insight into the risks they face.
Our internal data is telling us that the role
of Assurance is increasing significantly.
Moreover, the success that we are deriving
from the move into Assurance is providing
hard evidence that TQA is what customers
want and need.
OUR DIFFERENTIATED 5X5 STRATEGY
FOR GROWTH
The lead, already two years in the making, is
delivering a commercial advantage for
Intertek with our TQA Customer Promise
lying at the heart of our 5x5 differentiated
strategy for growth.
Our 5x5 strategy has one overriding
objective – to move the Intertek centre
of gravity towards those sectors of our
addressable market that will in years to
come deliver both the highest rates of
growth and the best available margins.
Achieving this aim will accelerate our
growth and help us maximise our share
of that $250 billion ‘iceberg’ in the fastest
and most efficient way possible.
It is by achieving our five medium-to-long-
term corporate goals that we believe we
will measure progress and achieve against
this strategy.
As we are ultimately a people business
whose success depends on the
knowledge, expertise and commitment of
our workforce, the first two goals are
about our people and our clients.
EFFECTIVE SALES
STRATEGY
SUPERIOR
CUSTOMER
SERVICE
GROWTH AND
MARGIN-
ACCRETIVE
PORTFOLIO
R 5 S T R ATEGIC PRIORITIE
S
O U
STRONG BRAND
PROPOSITION
OPERATIONAL
EXCELLENCE
5x5
DIFFERENTIATED
STRATEGY
FOR GROWTH
DELIVERING
SUSTAINABLE
RESULTS
LIVING OUR
CUSTOMER-
CENTRIC
CULTURE
O
U
R 5 STRATEGIC E N A
E R S
L
B
DISCIPLINED
PERFORMANCE
MANAGEMENT
ENERGISING
OUR PEOPLE
SUPERIOR
TECHNOLOGY
Read more about our 5x5 strategy on page 2
LABORATORIES AND OFFICES
We want:
1,000+
COUNTRIES
100+
EMPLOYEES
43,000+
Read more about our global scale
on page 6
• Our employees to be fully engaged in
a safe working environment
• To deliver a superior customer service
in Assurance, Testing, Inspection and
Certification
It is by successfully fulfilling these first two
goals that the next two, more financially-
focused, goals will be facilitated:
• To deliver margin-accretive organic
revenue, based on GDP+ organic growth
• To achieve strong cash conversion from
our operations
Finally, given our highly cash-generative
business model and broad-based
investment opportunities, our fifth goal
is an important shareholder value-
creation accelerator:
• An accretive disciplined capital-
allocation policy for Capex and
M&A investments
16
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
targets that genuinely complement and
add to our existing expertise.
During 2016, for example, we made
several strategically important acquisitions
and investments. These included ABC
Analitic, market leader in the provision of
environmental water testing and analytical
services in Mexico, and EWA-Canada, a
world-leading cyber security business
providing security assurance services for
products, equipment and networks across
multiple industries.
In April 2017, we expanded our global
profile in automotive testing with the
acquisition of KJ Tech, a leading provider of
vehicle, component, lubrication and fuel
testing services based in Germany.
And in December 2017, with increasing
demand for security Assurance services
resulting from the rapid growth in
connected devices (Internet of Things or
'IoT'), the increase in data security
breaches, and an increasingly diverse
range of global certification standards and
security requirements, we further
strengthened our global footprint in cyber
security Certification and Assurance with
the acquisition of Acumen Security,
headquartered in Maryland, USA.
These acquired businesses are
established, recognised and highly
regarded, and will continue to operate
under their own brands within the Intertek
family, while bringing us access to
additional areas of expertise that we can
take to new countries and customers.
OUR DEPTH AND BREADTH OF
TQA EXPERTISE
Customers understand the depth of
expertise that our people have; our
opportunity is to leverage the breadth of
what we have to offer. Again, it is
humbling to appreciate the sheer scope of
our people’s expertise in a range of areas
that covers just about the full range of
business activities undertaken anywhere
on the planet.
The best way of explaining that breadth is
to describe in some detail how our services
can be applied to the sourcing, production
and distribution of a simple product – such
as a T-shirt, for example.
Read more on page 18
Read more about our experts in our Operating reviews on pages 22 to 29
A CUSTOMER-CENTRIC
ORGANISATION
Intertek is uniquely positioned to deliver
ATIC solutions with a truly global network:
over 1,000 laboratories and offices in
more than 100 countries across the
world, providing fast and efficient services
to customers on a local basis. This is the
primary focus of our more than 43,000
employees. In order to ensure we are
focused on the needs of our clients at
the point of delivery, we operate a
decentralised business model.
The real strength of Intertek is in its
people, its global team of experts. Indeed,
it is both humbling and enormously
exciting to recognise through every
interaction with them, that our people
have the most remarkable expertise,
entrepreneurial capabilities and talent
for innovation.
Our people give us the foundations we
need to support our Customer Promise
that sits at the heart of our value
proposition. In short, it is our people who
consistently set us apart from our
competition – and they do so by
demonstrating five powerful
differentiating attributes:
• The consistent quality and precision of
their findings, conclusions and reports
In such an organisation, it is
obvious that the real strength
of Intertek is in its people,
its experts."
• Their speed of response, delivering the
rapid, detailed and accurate feedback
that clients demand
• The ability to manage properly
customer-centric relationships (summed
up best by one employee who recently
said to me “the customer is the centre
of our universe”)
• Deep expertise in their subject areas
and incisive understanding of customer
requirements
• A proven track record of innovating
and anticipating the changing needs
of our clients.
It’s in such ways that we aim always to
live up to the standards set by our
founding forefathers. These most
famously include Thomas Edison, the
giant of innovation who is not only
credited with inventing the first practical
incandescent lightbulb, the phonograph
and the movie camera, but who also
created the forerunner of today's
Electrical Testing Laboratories that
continue to provide Assurance to
consumers through product performance
and safety testing. Indeed, when
manufacturers apply Intertek’s ETL Listed
Mark to their products, the letters “ETL”
carry with them a long history of
innovation, influence, and independence.
A PIONEERING CULTURE
That spirit of innovation continues today
as Intertek people continue to drive the
global development of the Quality
Assurance industry. And it’s not just about
the innovative capabilities of our people
already within the organisation. While our
primary focus is on organic growth, we are
constantly seeking the right acquisition
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
17
STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER'S REVIEW
THE T-SHIRT JOURNEY
We offer our clients the
ATIC Advantage, our global
TIC expertise combined with
our Assurance Difference.
INTERTEK TIC EXPERTISE
This starts well before manufacturing
actually begins, with testing of the physical
and chemical safety of the materials
involved. For example, we can test against
the GOTS (Global Organic Textile Standard)
on organic cotton. The further Testing,
Inspection and Certification processes that
we can apply include:
High-Volume Instrument
Testing: here, we test factors
including the air-permeability,
length, strength and colour of the
cotton fibres prior to shipment
Raw Materials & Pre-Production
Inspection: we help to eliminate
any manufacturing variances at later
stages in the process by inspecting
the quality and quantity of raw
materials before production begins
Product Testing for Physical and
Chemical Safety: at this stage, we
test for a range of the product’s
physical and chemical safety
attributes, including factors such as
flammability and the presence of any
sharp edges in the finished garment
Final Random Inspection: we
carry out a detailed inspection of
finished goods before they proceed
to shipment
Certificate of Conformity: this is
the point at which we certify that
goods comply with the importing
country’s specific health, safety and
environmental standards
Retail Store Building Testing: we
provide a wide range of Building and
Construction services
Commercial and Functional
Claims: we carry out tests on final
products to ensure that they
achieve the standards claimed in
promotional materials; these can
include factors like ‘quick-dry’,
colour-fastness, thermal resistance
and waterproofing.
Testing, Inspection and Certification is
required to control quality and safety at the
high-risk, regulated points of the supply
chain and the urgent desire of our people to
develop new solutions throughout is a key
differentiator for Intertek: it is in our culture
that we should, whenever necessary or
desirable, develop effective and original
solutions to emerging issues.
OUR ASSURANCE DIFFERENCE
The Intertek difference comes when we
complement the physical Testing, Inspection
and Certification at the critical points with
end-to-end, truly systemic Assurance
processes. We achieve this through expert,
in-depth audits and assessments of all the
systems and operating processes that are
involved. These take place in enormous
numbers – during 2017, our 3,000
professional auditors carried out more than
100,000 audits across the world,
positioning us as significantly the number
one compliance auditor globally.
Not only is our growing ability to provide
fully bespoke Assurance solutions an
important competitive advantage – it is also
highly attractive from an earnings-model
position, as it is capital-light and delivers
margins that are greater than the average
across our Group.
Once again, this approach extends far
beyond our customers' own premises.
Staying with the T-shirt example, we carry
out onsite audits and training to ensure the
correct usage and treatment of chemicals
throughout the entire length of the supply
chain. Other Assurance services include:
Damage Surveying: we can
inspect cotton for any damage that
might have been sustained during
transit
Mill Qualification Programme:
under this key service, we can
evaluate a manufacturing supplier’s
quality, environmental and social
performance, and certify the mill’s
own in-house lab. This is a
particularly important aspect of
the quality assurance process, as
it provides peace of mind that
suppliers are abiding by international
standards and legislation on
modern-day slavery and child labour
Environmental Chemical
Management Solutions: we
ensure proper chemical management
by undertaking thorough testing of
wastewater and sludge as well as
onsite auditing and training
18
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
Read more about how our
experts are at every stage
of the lightbulb journey on
page 12
Ethical Supply Chain
Assessments: we can certify
garment factories against a wide
range of international standards,
including Worldwide Responsible
Accredited Production (WRAP),
SA8000 (a leading social
accountability certification
standard) and our own widely
recognised Workplace Conditions
Assessment (WCA) standard
Supplier Qualification
Programme: this is a wide-ranging
programme that supports a
coherent and truly world-class
standard enabling corporations to
drive continuous improvement in
their benchmarking. This covers
areas ranging from product and
process quality to site
management and training
Custom and Trade Partnership
against Terrorism: we help
importing businesses set up policies
that improve not only their own
security practices but those of their
supply chain partners too
Counterfeiting Assurance:
integrating our Intellectual Property
(IP) expertise into our family of
Assurance services enables us to
determine whether partners in the
supply chain pose a risk of
counterfeiting our customers'
products
Benchmarking: by comparing the
features and quality of our customers'
products to industry norms, we can
enable informed decision-making on
factors such as performance claims,
design and pricing
Cyber Security Assurance: our
cutting edge cyber security
solutions, strengthened by our
acquisition of EWA-Canada, provide
protection against ransomware,
increasingly sophisticated phishing
scams, distributed denial-of-service
attacks and more
Lifecycle Assessments: we use
cloud-based technology to deliver a
sustainability Assurance solution that
enables customers to compute the
carbon footprint of their products,
processes and business operations.
CEO'S REVIEW
continued
AN INDUSTRY-AGNOSTIC TQA
APPROACH
Here, we have only looked at one specific
area of the global apparel industry. But
while our service portfolio includes services
that are specific to individual industries and
sectors, Intertek’s reach is industry-
agnostic. We apply our TQA approach to all
of the industries with which we work.
We can demonstrate this by taking
another example – a highly appropriate
one given our historical connections to
Thomas Edison. This time, we look at how
we provide a TQA solution in support of
the global manufacturing and distribution
of a LED lightbulb, as shown on page 12.
Once again, our TIC services are wide-
ranging; they embrace physical testing and
chemical analysis at the copper mine,
Testing and Inspection during
manufacturing, packaging Certification for
the distributor, battery Testing at the
hauliers, and market surveillance Inspection
and claims Testing for the retailer.
But this is only half the story. A product
with a global market is naturally subject to
a wide range of complex risks, which is
why we complement these TIC services
with our global market Assurance service.
This is part of our comprehensive
Assurance portfolio that helps our
customers identify and mitigate the risks
that are intrinsic to their operations,
supply chain and distributed quality
management operations.
So, at the mine, physical testing and
chemical analysis can be underpinned by a
Damage Survey, for example. In production,
energy efficiency Testing and global safety
Certification might be complemented with
global market and packaging evaluation
Assurance services. And even at the retail
end, a market surveillance initiative
inspecting product quality might coincide
with Assurance services like benchmarking
and returns analysis.
The emerging picture is complex enough
when we consider relatively simple
products like a T-shirt or LED lightbulb. But
we are every bit as capable of delivering
an end-to-end, integrated TQA service in
greatly more complex industries, including
automotive manufacturing.
STRATEGIC REPORT
manufacturing and production processes
to import and export, the dealership
network, customer experience
considerations and into the aftermarket.
Once again, we support the manufacturer
at all the same stages with a bespoke
range of Assurance services, from
regulatory compliance assessments and
design validation planning at the R&D
stage, through Greenhouse Gas Validation
and Verification Failure Analysis during
manufacturing and ultimately to Field
Performance Data Collection Analysis. We
clearly demonstrate our flexibility when it
comes to factors like emissions and fuel
consumption – for this sort of Assurance
work does not take place in the
laboratory, but out on the road in
ordinary driving conditions.
Our industry-agnostic TQA approach
provides our clients with global TIC
expertise and an Assurance Difference:
the ATIC Advantage delivered by Intertek
TQA Experts.
OUR GLOBAL TQA EXPERTS
The key to our continuing sales growth is
our responsive culture, decentralised
organisation and global network of
state-of-the-art laboratories – and above all
the depth and breadth of our people’s
expertise: global TQA subject-matter
experts, who know how to innovate and
solve challenges that nobody has previously
been able to overcome.
These are some of the Intertek strengths
that enable us to live and fulfil our Core
Purpose of 'Bringing Quality and Safety to
Life'. But they would not be so effective
without a clearly defined organisational
structure based around an operating
model that always puts the customer
first. We maximise the potential returns
accrued from this infrastructure through
multiple further factors, including:
• A disciplined and systemic approach to
financial performance management
• Our highly cash-generative earnings
model
• Our capital-light business model, which
enables us to respond and adapt rapidly
to the changing needs of our customers
and markets
in high-margin areas and investing in the
most attractive growth opportunities.
LOOKING AHEAD
We believe that the strength of our 2017
results demonstrates the attractive
nature of our industry, Intertek's high-
quality earnings model and the
effectiveness of our 5x5 differentiated
strategy for growth. We are confident
about the structural growth prospects in
the global Quality Assurance market.
We are uniquely positioned to seize these
attractive growth opportunities,
underpinned by the increased
complexities of corporate supply and
distribution chains and the associated
challenges of maintaining a high level of
quality assurance end-to-end.
Leveraging our industry-leading expertise
and innovative and entrepreneurial culture,
we service a diversity of industries,
geographies and customers, with our
global network enabling us to follow the
supply chains of our customers wherever
they are in the world.
We have a strong track record of creating
sustainable growth and shareholder value,
leveraging our high-margin and highly
cash-generative earnings model.
We are moving the Company's centre of
gravity towards our industry's most
attractive growth and margin areas with
a disciplined approach to performance
management and capital allocation.
We are on track on our 'good to great'
journey, making progress on both
performance and strategy.
I am certain that the passion and expertise
of our people will continue to be the primary
differentiator that makes Intertek a true
pioneer in the global Quality Assurance
market. In short, I am very excited about
what the future holds for Intertek, its
employees, shareholders and customers.
Above all our TQA Customer Promise of
Total Quality. Assured is providing our
clients with the peace of mind they need
to grow their business.
To take a live example, we provide one
manufacturer with a wide range of TIC
services at every stage of the value chain,
from R&D and raw materials, through
• Our disciplined approach to capital
allocation, which enables us to support
organic growth through creating new
services, developing client relationships
André Lacroix
Chief Executive Officer
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
19
STRATEGIC REPORT
EXECUTIVE MANAGEMENT TEAM
EXECUTIVE MANAGEMENT TEAM
1
5
2
3
4
6
7
8
9
10
11
12
13
20
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
1 André Lacroix
Chief Executive Officer
See full bio on page 68
2 Edward Leigh
Chief Financial Officer
See full bio on page 68
3 Ann-Michele Bowlin
Chief Information Officer
Joined Intertek in 2009. Ann-Michele
is Chief Information Officer and joined
Intertek from Ernst & Young consulting
where she led shared services
transformation programmes. Prior
to Ernst & Young, Ann-Michele held
leadership and operations roles in
technology companies, including
Hotels.com, and in the manufacturing
and services sectors.
4 Alex Buehler
Executive Vice President,
Global Resources
Joined Intertek in 2017. Alex has
responsibility for Global Resources,
comprising our business lines of Industry
Services, Minerals, and Exploration &
Production. Prior to joining Intertek, Alex
was President and CEO of Energy
Maintenance Services (EMS) and before
this held senior executive management
positions at Energy Recovery and
Insituform Technologies, Inc. (now Aegion
Corporation) in both the US and Europe.
Alex has a BS in Civil Engineering and an
MBA in Finance.
5 Ian Galloway
Executive Vice President,
Middle-East, Africa and Global
Trade
Joined Intertek in 2011. Ian is responsible
for the Middle-East, Africa and Global
Trade comprising our business lines of
Government & Trade Services, Cargo &
Analytical Assessment and AgriWorld.
Prior to assuming his current role, Ian held
senior finance and business roles within
Intertek. He has previously held
international roles in finance
management with BG Group in the UK,
Egypt and Tunisia. Ian is a qualified
Chartered Accountant.
6 Tony George
Executive Vice President,
Human Resources
10 Rajesh Saigal
Executive Vice President,
South & South East Asia
Joined Intertek in 2015. Tony is
responsible for Human Resources. He has
over 28 years' experience in HR, general
management and business development
having held senior leadership positions in
international FMCG, chemicals,
telecommunications and retail companies
including Vodafone plc, Starbucks, Diageo
plc and ICI. Prior to joining Intertek, he was
Group HR & Business Development
Director at Inchcape plc.
Joined Intertek in 2007. Rajesh has
responsibility for South & South East Asia.
Prior to this he was Regional Managing
Director for Intertek’s South Asia
operations. He has over 27 years’ general
management and operational experience
with Fortune 500 companies covering
consumer durables, industrial products
and engineering. Before joining Intertek,
Rajesh was CEO South Asia for GEWISS
and General Manager at Honeywell.
7 Ken Lee
11 Julia Thomas
Executive Vice President,
Marketing and Communications
Senior Vice President,
Corporate Development
Joined Intertek in 2013. As SVP Corporate
Development, Julia has responsibility for
Intertek's acquisition and disposal activities.
Before joining Intertek, Julia spent 12 years
in investment banking with J.P. Morgan
Cazenove and Rothschild, focusing primarily
on mergers and acquisitions.
12 Mark Thomas
Group General Counsel
Joined Intertek in 2015. Mark has
responsibility for Intertek’s legal, risk and
compliance functions. He joined Intertek
from Inchcape plc where he was Group
General Counsel. Prior to this, Mark was in
private practice with Slaughter and May in
London, advising on a wide range of public
and private M&A transactions, equity and
debt financing, and general corporate
law issues.
13 Gregg Tiemann
Executive Vice President,
Americas
Joined Intertek in 1993. Gregg has
responsibility for the Americas. Prior to
assuming his current role, Gregg was
responsible for the Americas, North Asia
and Australasia as well as the former
Consumer Goods and Commercial &
Electrical divisions, having started as
General Manager of the Los Angeles
laboratory in 1993. Before joining Intertek,
Gregg worked in sales and marketing for
the software industry.
Joined Intertek in 2016. Ken has
responsibility for Intertek’s marketing as
well as internal and external
communications. He joined the company
from Inchcape plc where he spent 13
years in various senior marketing roles,
most recently as Chief Marketing and
Communications Officer. Prior to this he
held marketing leadership positions with
RAC Motoring Services and Hyundai
Car (UK) Ltd.
8 Patrick Lee
Executive Vice President, North
East Asia and Australasia
Joined Intertek in 2018. Patrick is
responsible for leading the Group's North
East Asia and Australasia region. Prior to
joining Intertek, he was CEO of Inchcape
plc Greater China and has over 30 years'
management experience with a proven
track record of success with blue-chip
companies including P&G, Coca-Cola and
Agfa Gevaert. Before joining Inchcape,
Patrick served as the Group General
Manager, Sales and Marketing of Kerry
Beverages Ltd. Patrick holds a BBA and
an MBA from The Chinese University of
Hong Kong.
9 Graham Ritchie
Executive Vice President, Europe
Joined Intertek in 2014. Graham is
responsible for Intertek’s operations in
Europe, including Russia, and Central Asia.
Prior to assuming his current role, Graham
was Intertek’s Group Financial Controller.
Before joining the company he held senior
financial positions at BT Group plc and
other technology services organisations,
having started his career with PwC.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
21
STRATEGIC REPORT
OPERATING REVIEWS
PRODUCTS
Excellent performance
with strong margin-accretive
revenue growth.
REVENUE
£1,625.5m
ADJUSTED OPERATING PROFIT
£350.5m
STATUTORY OPERATING PROFIT
£335.5m
BUSINESS LINES
SOFTLINES
HARDLINES
ELECTRICAL & NETWORK
ASSURANCE
BUSINESS ASSURANCE
BUILDING &
CONSTRUCTION
TRANSPORTATION
TECHNOLOGIES
FOOD
CHEMICALS & PHARMA
HEALTH,
ENVIRONMENTAL
& REGULATORY
SERVICES
PRODUCT ASSURANCE
STRATEGY
Our Total Quality Assurance value
proposition provides a systemic approach
to support the Quality Assurance efforts
of our Products-related customers in each
of the areas of their operations. To do this
we leverage our global network of
accredited facilities and world-leading
technical experts to help our clients meet
high-quality safety, regulatory and brand
standards, develop new products,
materials and technologies and ultimately
assist them in getting their products to
market quicker, in order to continually
meet evolving consumer demands.
INTERTEK VALUE PROPOSITION
Our Products-related businesses consist
of business lines that are focused on
ensuring the quality and safety of physical
components and products, as well as
minimising risk through assessing the
operating processes and quality
management systems of our customers.
As a trusted partner to the world’s leading
retailers, manufacturers and distributors,
the division supports a wide range of
industries including textiles, footwear,
toys, hardlines, home appliances,
consumer electronics, information and
communication technology, automotive,
aerospace, lighting, building products,
industrial and renewable energy products,
food and hospitality, healthcare and
beauty, and pharmaceuticals.
Across these industries we provide
a wide range of ATIC services including,
laboratory safety, quality and performance
testing, second-party supplier auditing,
sustainability analysis, product assurance,
vendor compliance, process performance
analysis, facility plant & equipment
verification and third-party certification.
FINANCIAL HIGHLIGHTS 2017
Revenue
Organic revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2017
£m
1,625.5
1,607.6
350.5
21.6%
335.5
20.6%
2016
£m
1,465.5
1,457.9
297.7
20.3%
281.0
19.2%
Change at
actual
rates
10.9%
10.3%
17.7%
130bps
19.4%
140bps
Change at
constant
rates
6.1%
5.5%
13.2%
140bps
22
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
COFFEE
CONFIDENCE
SERVICES OFFERED
Assurance
Certification
Jeffrey Eves,
Green Services
Program Manager,
Business Assurance,
USA
WHAT DID INTERTEK DELIVER?
Intertek developed and assisted with the
roll-out of the integrated programme, ranging
from brainstorming sessions and workshops
through determining the most effective means
of combining different processes for the best
possible outcomes.
This involved creating new risk-assessment
tools and flexible bespoke solutions that give
Nespresso a rigorous approach to assess and
improve its recycling processes, flexible
enough to be used in all countries.
This is now not only delivering the assurance
that the system is working to its current
maximum capability – it is also enabling
continuous improvement for the years ahead.
WHAT WAS YOUR ROLE IN THE
PROJECT?
I was the technical lead, setting the programme
layout and managing the integrated, risk-based
approach we took to project delivery.
WHAT IS THE BACKGROUND?
The Nespresso Company is the world-leader
in coffee pods, machines and accessories. As
such, it takes its environmental responsibilities
very seriously, and wants to ensure that the
recycling paths for their capsules are
sustainable and effective.
So it has created a global programme, which
not only enables materials to be recycled but
also allows waste coffee to be used in
producing biomass energy. But this mammoth
operation, involving more than 100,000
international drop-off points, uses several
different ‘pathways’ in numerous countries
across the world.
When Nespresso asked Intertek to develop
an assurance process across the entire value
chain, the intent was to improve the system by
challenging its implementation, enabling them
to iron out any inconsistencies and ultimately
ensure that performance can be verified with
a reasonable level of assurance.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
23
• We delivered solid organic revenue
growth in our Chemicals & Pharma
business as we continue to leverage
the structural growth opportunities in
the healthcare markets in both
developed and emerging economies.
• Driven by the growing demand for more
environmentally friendly and higher-
quality buildings and infrastructure in
the US market, our Building &
Construction business reported good
organic revenue growth.
2018 OUTLOOK
We expect our Products division to
benefit from robust organic revenue
growth at constant currency.
MID-TO LONG-TERM OUTLOOK
Our Products division will benefit from
mid-to long-term structural growth drivers
including product variety, brand and
supply chain expansion, product
innovation and regulation, the growing
demand for quality and sustainability from
developed and emerging economies, the
acceleration of e-commerce as a sales
channel, and the increased corporate
focus on risk.
STRATEGIC REPORT
OPERATING REVIEWS
PRODUCTS
continued
INNOVATION
We continue to invest in innovation to
deliver a superior customer service in our
Products-related businesses:
2017 PERFORMANCE
In 2017 our Products business delivered
an excellent performance with strong
margin-accretive revenue growth.
i2Q
• Customer insight: Customers value
fast reports and insights from supplier
inspections with differing reporting
requirements by client.
• Softlines and Hardlines innovation:
Intertek has developed i2Q, a market
leading digital inspection solution for
supplier product inspections, using big
data to generate advanced insights
for customers.
• Customer benefit: Provides same-day
real-time reporting via Intertek’s unique
smart protocol and reports that are
bespoke for each customer.
Softlines Robotic Automation
• Customer insight: For Softlines
customers, speed to market is
competitive advantage and they value
innovations that can make the testing
process faster.
• Softlines innovation: Intertek has
introduced a six-axis robot in its fibre
content tests, which can be used to
speed up processes where there is
chemical contamination risk, improving
safety for technicians and allowing
them to focus on more analytical work.
• Customer benefit: Shortens turnaround
time allowing customers to get their
products to market faster.
Connected and Automated Vehicle
Proving Grounds
• Customer insight: Rigorous testing of
autonomous vehicles is required to
ensure that the technology is safe for
consumers and the public.
• Transportation Technologies
innovation: Intertek have partnered
with the American Center for Mobility
('ACM') to provide an extensive range
of ATIC services for their new 500-acre
autonomous vehicle proving grounds.
• Customer benefit: The partnership
between ACM and Intertek will create a
market-leading centre for autonomous
and connected vehicle testing.
Our organic revenue growth at constant
rates was 5.5%, driven by broad-based
revenue growth across business lines and
geographies. We delivered strong
operating profit of £350.5m, up 13.2%
at constant currency enabling us to
deliver a margin of 21.6%, up 140bps
versus last year:
• Our Softlines business reported robust
organic growth performance. We are
leveraging the investments we have
made to support the expansion of our
customers in new markets and to seize
the exciting growth opportunities in
the footwear sector. We continue to
benefit from strong demand from our
customers for chemical testing as well
as from a greater number of brands
and SKUs.
• Our Hardlines and Toy business
continues to take advantage of our
strong global account relationships, the
expansion of our customers’ supply
chains into new markets and our
innovative technology for factory
inspections. We delivered robust organic
revenue growth performance across
our main markets of China, Hong Kong,
India and Vietnam.
• Our Transportation Technologies
business delivered stable organic
revenue growth as we capitalise
on our clients’ investments in new
powertrains to lower emissions and
increase fuel efficiency.
• Our Business Assurance business
delivered double-digit organic revenue
growth as we continue to benefit from
the increased focus of corporations on
risk management, resulting in strong
growth in Supply Chain Audits.
• We delivered robust organic revenue
growth in our Electrical & Network
Assurance business driven by higher
regulatory standards in energy
efficiency and by the increased
demand for wireless devices.
• We continue to benefit from the
increased focus of corporations on
food safety and delivered good organic
revenue growth in our Food business.
24
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
PROTECTING
PRODUCERS AGAINST
FISH FRAUD
SERVICES OFFERED
Testing
Assurance
Antje Stahl,
Research Associate,
Food Services,
Germany
WHAT WAS YOUR ROLE IN THE
PROJECT?
I was dedicated to this project for a year,
planning and organising it as well as carrying
out the practical work. This allowed me to be
laser-focused on delivering the project.
WHAT WAS THE BACKGROUND?
In the world of food processing, it is vital that
manufacturers can prove the authenticity of
their products, which means that they contain
what the label claims.
This is particularly important for fish fillet: not
only is it often difficult to identify a species
following the removal of skin and fins, but the
wide disparity in value of different species also
creates the risk of ‘food fraud’. This could
involve the substitution of a low-value species,
such as catfish, for an expensive species such
as sole.
At present, DNA-based methods are the only
reliable and widely used means of testing. They
can be costly and time consuming but it all
depends, however, on the species tested.
WHAT DID INTERTEK DELIVER?
That has now all changed, following Intertek’s
innovative application of ‘MALDI-TOF’ mass
spectrometry technology – previously used
only in the microbial area – to identify fish
species by their protein pattern.
It’s an approach that has several key
advantages over the DNA approach. First, it is
quick – the laboratory time involved is typically
around 90 minutes. Using our own developed
database of fish species also ensures it is
highly accurate. And low manpower and
maintenance requirements make it cost-
effective too.
As a result, we can now give customers the
assurance that they are selling the right fish to
customers, and that their labelling is correct.
The same for importers buying fish with
complex supply chains.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
25
STRATEGIC REPORT
OPERATING REVIEWS
TRADE
Broad-based revenue
growth across business
lines and geographies.
INTERTEK VALUE PROPOSITION
Our Trade division consists of three Global
Business Lines with differing services and
customers, but similar mid-to long-term
structural growth drivers:
REVENUE
£647.8m
ADJUSTED OPERATING PROFIT
£88.7m
STATUTORY OPERATING PROFIT
£82.8m
BUSINESS LINES
CARGO & ANALYTICAL
ASSESSMENT
GOVERNMENT &
TRADE SERVICES
AGRIWORLD
SUSTAINABILITY
• Our Cargo/AA business provides cargo
inspection, analytical assessment,
calibration and related research and
technical services to the world’s
petroleum and biofuels industries.
• Our Government & Trade Services
(‘GTS’) business provides inspection
services to governments and regulatory
bodies to support trade activities that
help the flow of goods across borders,
predominantly in the Middle East, Africa
and South America.
• Our AgriWorld business provides
analytical and testing services to
global agricultural trading companies
and growers.
STRATEGY
Our Total Quality Assurance value
proposition assists our Trade-related
customers in protecting the value and
quality of their products during their
custody-transfer, storage and
transportation, globally, 24/7.
Our expertise, service innovations and
advanced analytical capabilities allow us
to optimise the return on our customers’
cargoes and help them resolve difficult
technical challenges. Our independent
product assessments provide peace of
mind to our government clients that the
quality of products imported into the
country meet their standards and
import processes.
FINANCIAL HIGHLIGHTS 2017
INNOVATION
We continue to invest in innovation to
deliver a superior customer service in our
Trade-related businesses:
iDocs
• Customer insight: Agriculture export
processes are complex and time-
consuming with multiple stages of
approval and documentation.
• AgriWorld innovation: Intertek has
developed a cloud-based export
documentation system that monitors
the export process and provides
customers with real-time updates on
their documentation progress.
• Customer benefit: Fast and real-time
information on the progress of their
exports enabling clients to take any
action required as quickly as possible.
Mercury Decontamination
• Customer insight: Mercury
contamination puts physical
infrastructure assets, such as refineries
and pipelines at increased risk of
corrosion.
• AA & Industry Services innovation:
Intertek’s experts use advanced
technology to detect, monitor and
analyse mercury content in very low
levels of oil & gas samples as well as
measuring the mercury emission into
the atmosphere.
• Customer benefit: The technology
enables our clients to minimise the
impact of mercury on their
infrastructure and to work safely.
Revenue
Organic revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2017
£m
647.8
629.7
88.7
13.7%
82.8
12.8%
2016
£m
584.5
582.7
81.8
14.0%
75.4
12.9%
Change at
actual
rates
10.8%
8.1%
8.4%
(30)bps
9.8%
(10)bps
Change at
constant
rates
5.6%
3.0%
4.1%
(20)bps
26
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
Fuel Tank Inspection Robot
• Customer insight: Fuel tank
inspections can be costly and time-
consuming due to the sensitive
environment within the tank and
stringent safety requirements.
• Cargo/AA and Electrical & Network
Assurance innovation: Intertek has
partnered with the developers of a fuel
tank inspection robot to develop a new
inspection process that involves
hydrostatic testing, functional safety
certification and bespoke evaluations
of other features all in a single piece of
equipment.
• Customer benefit: The combination of
all the features offered by one system
is unique, enabling our customers to
achieve safety and compliance more
quickly and efficiently.
2017 PERFORMANCE
Our Trade-related businesses delivered
an organic revenue growth of 3.0% at
constant rates, driven by broad-based
revenue growth across business lines
and geographies and we delivered an
operating profit of £88.7m:
• Our Cargo/AA business reported solid
organic revenue growth, reflecting the
structural growth drivers in the Crude
Oil and Refined Product global trading
market.
• Benefiting from new contracts, our
Government & Trade Services
business delivered robust organic
revenue growth.
• The continued expansion of the supply
chain of our clients in fast growing
markets led our AgriWorld business to
deliver robust organic revenue growth.
2018 OUTLOOK
We expect our Trade-related businesses
to benefit from solid organic growth
performance at constant currency.
MID-TO LONG-TERM OUTLOOK
Our Trade division will continue to benefit
from both regional and global trade-flow
growth, as well as the increased customer
focus on quality, quantity controls and
supply chain risk management.
A QUANTUM LEAP
IN MEASUREMENT
ACCURACY
SERVICES OFFERED
Testing
Assurance
Inspection
Dr Sergei Fedorenko
Business Streams
Development Manager,
Cargo & Analytical
Assessment, Australia
WHAT WAS YOUR ROLE IN THE
PROJECT?
I launched and ran the project because, as
a physicist, I was intrigued as to why tonnage
assessments of stockpiled materials from
coal and rice to fertilisers and copper
concentrates were so poor.
WHAT IS THE BACKGROUND?
Businesses that own stockpiles of materials
have historically faced significant difficulty in
gaining accurate assessments of their weight
– and therefore their value. Typical margins of
error ranged between +/- 5-7%.
When very large qualities of a high-value
material are involved, this can bring about
miscalculations worth millions of dollars. The
issue therefore has long been the cause of a
profound lack of confidence, not just for
companies that cannot accurately value their
own stock-holdings, but also for financial
institutions and potential M&A partners who
demand trustworthy valuation data.
WHAT DID INTERTEK DELIVER?
Now, Intertek has developed a new method
of measurement based on combining the
volumetric profile (width, height and shape)
of a stockpile with the compaction force at
play. This means the density (and therefore
weight) of a layer of materials depends on
how far down the stockpile it is.
Over the last three years, the new
methodology has been proven in Australia’s
chemical, agriculture and energy sectors,
delivering a quantum leap in accuracy
performance of up to 0.01-1%.
As a result of this work, organisations in
sectors ranging from mining and power
generation to fertilisers and even
government can benefit from independent,
scientifically proven expertise in asset
evaluations and management.
In addition, this revolutionised accuracy
means that the number of occasions on
which measurement is required may decrease,
potentially enabling customers to buy a
premium product at a lower overall cost.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
27
STRATEGIC REPORT
OPERATING REVIEWS
RESOURCES
Our Resources-related
businesses faced
challenging trading
conditions in 2017.
REVENUE
£495.8m
ADJUSTED OPERATING PROFIT
£28.5m
STATUTORY OPERATING PROFIT
£4.4m
BUSINESS LINES
INDUSTRY SERVICES
MINERALS
INTERTEK VALUE PROPOSITION
Our Resources division consists of two
Business Lines with differing services and
customers, but both demonstrating similar
cyclical growth characteristics:
• Our Industry Services business uses
in-depth knowledge of the oil, gas,
nuclear and power industries to provide
a diverse range of Total Quality
Assurance solutions to optimise the use
of customers’ assets and minimise the
risk in their supply chains. Some of our
key services include technical
inspection, asset integrity
management, analytical testing and
ongoing training services.
• Our Minerals business provides a broad
range of ATIC service solutions to the
mining and minerals exploration
industries, covering the resource supply
chain from exploration and resource
development, through to production,
shipping and commercial settlement.
STRATEGY
Our Total Quality Assurance value
proposition allows us to help customers
gain peace of mind that their projects will
proceed on time and their assets will
continue to operate with a lower risk of
technical failure or delay. Our broad range
of services allow us to assist clients in
protecting the quantity and quality of
their mined and drilled products, improve
safety and reduce commercial risk in the
trading environment.
INNOVATION
We continue to invest in innovation to
deliver a superior customer service in our
Resources-related businesses:
Intertek PipeAwareTM
• Customer insight: Pipeline asset
owners require a way in which to
accurately track and monitor vital asset
information.
• Industry Services innovation: Intertek
has developed Intertek PipeAwareTM, an
industry-leading software solution that
allows customers to access real-time
information on their asset inspection
data throughout all stages of
manufacturing.
• Customer benefit: With Intertek
PipeAwareTM, customers are provided
with a unique solution which combines
the traceability software with
inspection expertise, so customers
achieve full transparency into the
pipeline manufacturing process.
Drones Deliver Energy Asset
Inspection Services
• Customer insight: Industrial asset
owners require inspections to ensure
that their assets are operating safely
and reliably.
• Industry Services innovation:
Intertek has partnered with
Unmanned Eagle Eye ('UEE') in the US
to develop the use of drone technology
as an inspection aid during the capital
inspection process.
• Customer benefit: Using drones
reduces the time that operations must
be shut down and improves safety
through reduced need for human entry
to the equipment or assets being
inspected, which are often difficult
to reach.
Robotic mine site laboratories
• Customer insight: Minerals customers
value fast, consistent and accurate
testing of their extracted commodities.
• Minerals innovation: Intertek is the
largest commercial operator of
automated robotic mine site
laboratories globally, ranging from
individual cells to fully integrated highly
bespoke laboratory systems.
• Customer benefit: By operating
complex robotic laboratories for
customers, we provide rapid sample
throughput, improved efficiency and a
comprehensive audit trail, whilst also
reducing employees' exposure to
hazardous materials.
FINANCIAL HIGHLIGHTS 2017
Revenue
Organic revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2017
£m
495.8
495.8
28.5
5.7%
4.4
0.9%
2016
£m
517.0
517.0
30.2
5.8%
13.1
2.5%
Change at
actual
rates
(4.1)%
(4.1)%
(5.6)%
(10)bps
(66.4)%
(160)bps
Change at
constant
rates
(8.6)%
(8.6)%
(5.9)%
10bps
28
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
2017 PERFORMANCE
Our Resources-related businesses
faced, as expected, challenging trading
conditions and reported an organic
revenue reduction of 8.6% at constant
currency. We delivered operating profit of
£28.5m with our disciplined approach to
cost control, which enabled us to expand
our margins by 10bps at constant
currency:
• Driven by a lower volume of
investments in exploration activities
from our clients and price pressure in
the industry, revenue from Capex
Inspection Services was lower than
last year.
• The demand for Opex Maintenance
Services remained stable in a
competitive pricing environment.
• We saw an improved level of demand
for testing activities in the Minerals
business.
2018 OUTLOOK
While we have seen a reduction in the
negative growth rate in the July to
December period of 2017, we do not
believe that we have reached the trough
in the Resources division, and we expect
trading conditions to remain challenging in
the first half of 2018 with a gradual
improvement expected in the second half.
MID- TO LONG-TERM OUTLOOK
Our Resources division will grow in the
medium to long term as we benefit from
investments in the exploration and
production of Oil and Minerals to meet the
demand of the growing population around
the world.
STRATEGIC REPORT
CLARIFYING THE COSTS
OF POWER GENERATION
Nikhil Kumar
Managing Director,
Santa Clara (CA) facility,
USA
SERVICES OFFERED
Assurance
WHAT WAS YOUR ROLE IN THE
PROJECT?
I led the project, heading up software and
algorithm design and implementation.
WHAT DID INTERTEK PROVIDE?
With deregulation in electricity markets,
power generators have been challenged by
the need to become ‘leaner and meaner’ in
order to compete and provide favourable
returns to their investors.
While operators understand fuel costs and
efficiency, one area where the understanding
of the underlying nature of costs is particularly
weak is power plant operation and maintenance
(O&M), which includes a wide variety of
activities such as equipment monitoring,
replacement, and upgrading.
Moreover, with increased renewable
generation, traditional power plants across
the world have been forced to change their
operations, resulting in increased O&M costs.
Power plants across the world have struggled
to determine the effects of this change in
operating regime on the equipment and, more
importantly, the change in operating cost to
set their price and margin. Historically,
however, they’ve had little insight into their
costs in real time. In addition, any cost analysis
was immediately out of date as it only ever
addressed a specific moment.
WHAT DID INTERTEK DO?
Now, thanks to a specialist new Intertek
solution called Costcom, all that has
changed. Today, growing numbers of plants
across the world are implementing this
ground-breaking algorithm, which uses
machine learning to analyse data streaming
from hundreds of sensors.
These plants are not only getting an
immediate and accurate view of costs – they
can also use Costcom to immediately identify
any activities that are less than optimal.
The implications for the global power
industry are significant. Not only can plants
cut their costs, they can also improve their
competitiveness with sharper pricing based
on better insight.
And that’s a valuable benefit for power
generators everywhere.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
29
STRATEGIC REPORT
KPIS – MEASURING OUR STRATEGY
KPIs – MEASURING OUR STRATEGY
Disciplined performance management focused on margin-accretive
revenue growth with strong cash conversion and accretive capital
allocation to drive strong returns on invested capital.
FINANCIAL
The Group uses a variety of key performance indicators (‘KPIs’)
to monitor performance and measure the financial impact of the
Group’s strategy. Where applicable, KPIs are based on Adjusted
measures in order to provide a meaningful and consistent year on
year comparison. An explanation and reconciliation of Statutory
to Adjusted performance measures is given on pages 40 and 41.
Non-financial KPIs are shown in the Sustainability and CSR report
on pages 44 to 61.
DEFINITIONS
• Constant currency rates: Growth at constant exchange
rates compares both 2017 and 2016 figures at the average
and year-end exchange rates for 2017, in order to remove the
impact of currency translation from the Group’s growth figures.
• Organic: Organic measures are used in order to present the
Group’s results excluding the results of acquisitions and
disposals made since 1 January 2016.
• Operating Profit: Revenue less Operating costs.
• Operating Margin: Operating Profit divided by Revenue.
REVENUE# (£m)
Revenue growth measures how well the Group is expanding its
business, and includes currency impacts.
+7.9%
2017
2016
2,769
2,567
OPERATING PROFIT#,1 (£m)
Measures profitability of the Group and includes currency
impacts.
+14.2%
+14.4%
2017
423
468
• Return on Invested Capital: Adjusted Operating Profit less
2016
370
410
Adjusted Taxes divided by Invested Capital.
• Adjusted Taxes: Adjusted income tax divided by Adjusted
Profit Before Tax multiplied by Adjusted Operating Profit.
• Invested Capital: Net Assets less Tax balances, Net debt and
Net pension liabilities.
• Diluted Earnings per Share: Profit for the year attributable
to equity shareholders of the Company divided by the Diluted
weighted average number of shares (see Note 7 to the
financial statements).
• Cash flow from Operations: see Group cash flow statement
on page 108.
2017 Adjusted
2017 Statutory
2016 Adjusted
2016 Statutory
30
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DILUTED EARNINGS PER SHARE1 (pence)
A key measure of value creation for the Board and for
shareholders.
+14.3%
2017
2016
+12.4%
176.3
191.6
156.8
167.7
CASH FLOW FROM OPERATIONS1 (£m)
Shows the ability of the Group to turn profit into cash.
+5.4%
2017
2016
+6.6%
579
596
543
565
STRATEGIC REPORT
# Revenue, Adjusted Operating Profit and Return on Invested Capital (‘ROIC‘) are
re-calculated using 2016 exchange rates to form the basis for Executive Director
remuneration, as described in more detail on pages 89 to 90.
1. Adjusted operating profit, adjusted operating margin, adjusted cash flow from
operations, adjusted net financing costs and adjusted diluted earnings per share
are stated before Separately Disclosed Items, which are described on pages
40 and 41.
2. Dividend per share is based on the interim dividend of 23.5p (2016: 19.4p) plus
the proposed final dividend of 47.8p (2016: 43.0p).
3. 2016 ROIC has been prepared using average exchange rates for Adjusted
Operating Profit and Adjusted Tax, and year end 2017 exchange rates for
Invested Capital. 2016 ROIC at actual rates was 21.7%.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
31
ORGANIC REVENUE AT CONSTANT CURRENCY RATES (£m)
Revenue growth, excluding currency movements, acquisitions
and disposals.
+2.1%
2017
2016
2,733
2,678
OPERATING MARGIN1 (%)
Margin measures profitability as a proportion of revenue.
+90bps
+90bps
2017
2016
15.3
16.9
14.4
16.0
DIVIDEND PER SHARE2 (pence)
Dividend per share measures returns provided to shareholders.
+14.3%
2017
2016
71.3
62.4
RETURN ON INVESTED CAPITAL AT CONSTANT EXCHANGE
RATES#,3 (%)
Measures how effectively the Group generates profit from its
invested capital.
+280 bps
2017
2016
26.7
23.9
STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
PRINCIPAL RISKS
AND UNCERTAINTIES
This section sets out a description
of the principal risks and uncertainties
that could have a material adverse
effect on the Group’s strategy,
performance, results, financial
condition and reputation.
RISK FRAMEWORK
The Board has overall responsibility for the establishment and
oversight of the Group’s risk management framework. This work
is complemented by the Group Risk Committee, whose purpose is
to manage, assess and promote the continuous improvement of
the Group’s risk management, controls and assurance systems.
This risk governance framework is described in more detail in the
Directors’ Report on pages 75 to 80.
The Head of Internal Audit and the Group General Counsel, who
report to the Chief Financial Officer and Chief Executive Officer
respectively, have accountability for reporting the key risks that
the Group faces, the controls and assurance processes in place
and any mitigating actions or controls. Both roles report to the
Audit Committee, attend its meetings and meet with individual
members each year as required.
Risks are formally identified and recorded in a risk register for
the significant countries and for each business line and support
function. The risk register is updated at least twice each year
and is used to plan the Group’s internal audit and risk strategy.
In addition to the risk register, 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 Sales, Operations, IT, Finance
and People.
Operational
PRINCIPAL RISK
CONTEXT
POSSIBLE IMPACT
MITIGATION
2017 UPDATE
Reputation
Reputation is key to the Group maintaining and growing
its business. Reputation risk can occur in a number of
ways: directly as the result of the actions of the Group
or a group company itself; indirectly due to the actions
of an employee or employees; or through the actions of
other parties, such as joint venture partners, suppliers,
customers or other industry participants.
• Failure to meet financial performance expectations.
• Exposure to material legal claims, associated costs and
wasted management time.
• Destruction of shareholder value.
• Loss of existing or new business.
• Loss of key staff.
• Quality Management Systems; adherence to these is regularly audited
• This risk remains stable compared with 2016.
and reviewed by external parties, including accreditation bodies.
• Risk Management Framework and associated controls and assurance
• The Group continues to invest in staff development,
quality systems and standard processes to prevent
processes, including contractual review and liability caps where appropriate.
operational failures.
Customer Service
A failure to focus on customer needs, to provide
customer innovation or to deliver our services in
accordance with our customers’ expectations and our
customer promise.
• May lead to customer dissatisfaction and
customer loss.
• Gradual erosion of market share and reputation
if competitors are perceived to have better, more
responsive or more consistent service offerings.
People Retention
The Group operates in specialised sectors and
needs to attract and retain employees with
relevant experience and knowledge in order
to take advantage of all growth opportunities.
• Poor management succession.
• Lack of continuity.
• Failure to optimise growth.
• Impact on quality, reputation and customer confidence.
• Loss of talent to competitors and lost market share.
32
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
• Code of Ethics which is communicated to all staff, who undergo
regular training.
• Zero-tolerance approach with regard to any inappropriate behaviour by any
individual employed by the Group, or acting on the Group’s behalf.
• Whistle-blowing programme, monitored by the Audit Committee, where staff
are encouraged to report, without risk, any fraudulent or other activity likely
to adversely affect the reputation of the Group.
• Relationship management and communication with external stakeholders.
turnaround time tracking.
• Global and Local Key Account Management (‘GKAM’/’LKAM’) initiatives
in place.
• Customer feedback meetings.
• Customer claims/complaints reporting.
• Development and reward programme to retain and motivate employees.
• Succession planning to ensure effective continuation of leadership
and expertise.
• Net Promoter Score (‘NPS’) customer satisfaction, customer sales trends and
• This risk remains stable compared with 2016.
• HR strategy policies and systems.
• This risk remains stable compared with 2016.
STRATEGIC REPORT
PRINCIPAL RISKS
The Group is affected by a number of risk factors, some of which,
including macroeconomic and industry-specific cyclical risks, are
outside the Group’s control. Some risks are particular to Intertek’s
operations. The principal risks of which the Group is aware are
detailed on the following pages including a commentary on how
the Group mitigates these risks. These risks and uncertainties do
not appear in any particular order of potential materiality or
probability of occurrence.
There may be other risks that are currently unknown or 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, capital resources and its reputation.
LONG-TERM VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate
Governance Code, the Directors have assessed the viability
of the Group over a five-year period to 31 December 2022, by
carrying out a robust assessment of the potential impact of the
principal risks and uncertainties on the Group’s current position,
including those that would threaten the Group's business model,
future performance, solvency or liquidity. This is documented on
the following pages.
The Directors have determined that a five-year period is an
appropriate period over which to provide the viability statement of
the Group, as the Group’s strategic review covers a five-year period.
Furthermore, the Directors believe the five-year period
appropriately reflects the average business cycles of the
business lines in which the Group operates, particularly in
relation to capital expenditure investment horizons.
In addition to the bottom-up strategic review process where
the prospects of each business line are reviewed, an assessment
has been made of the potential operational and financial impacts
on the Group of the principal risks and uncertainties outlined in
the following pages. The Directors have also assessed certain
combinations of these principal risks and uncertainties in a
number of severe, but plausible, scenarios, as well as the
effectiveness of any mitigating actions.
The Group has a broad customer base across its multiple
business lines and in its different geographic regions, and is
supported by a robust Balance Sheet and strong operational
cash flows. The Board considers that the diverse nature of
business lines and geographies in which the Group operates
significantly mitigates the impact that any of these scenarios
might have on the Group’s viability.
Based on this assessment, the Directors confirm that they
have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over
the period to 31 December 2022.
Operational
Reputation
Reputation is key to the Group maintaining and growing
• Failure to meet financial performance expectations.
its business. Reputation risk can occur in a number of
• Exposure to material legal claims, associated costs and
ways: directly as the result of the actions of the Group
wasted management time.
or a group company itself; indirectly due to the actions
• Destruction of shareholder value.
of an employee or employees; or through the actions of
• Loss of existing or new business.
other parties, such as joint venture partners, suppliers,
• Loss of key staff.
customers or other industry participants.
PRINCIPAL RISK
CONTEXT
POSSIBLE IMPACT
MITIGATION
2017 UPDATE
• Quality Management Systems; adherence to these is regularly audited
and reviewed by external parties, including accreditation bodies.
• Risk Management Framework and associated controls and assurance
processes, including contractual review and liability caps where appropriate.
• Code of Ethics which is communicated to all staff, who undergo
regular training.
• Zero-tolerance approach with regard to any inappropriate behaviour by any
individual employed by the Group, or acting on the Group’s behalf.
• Whistle-blowing programme, monitored by the Audit Committee, where staff
are encouraged to report, without risk, any fraudulent or other activity likely
to adversely affect the reputation of the Group.
• Relationship management and communication with external stakeholders.
• This risk remains stable compared with 2016.
• The Group continues to invest in staff development,
quality systems and standard processes to prevent
operational failures.
Customer Service
A failure to focus on customer needs, to provide
• May lead to customer dissatisfaction and
• Net Promoter Score (‘NPS’) customer satisfaction, customer sales trends and
• This risk remains stable compared with 2016.
customer innovation or to deliver our services in
customer loss.
turnaround time tracking.
accordance with our customers’ expectations and our
• Gradual erosion of market share and reputation
• Global and Local Key Account Management (‘GKAM’/’LKAM’) initiatives
customer promise.
if competitors are perceived to have better, more
responsive or more consistent service offerings.
in place.
• Customer feedback meetings.
• Customer claims/complaints reporting.
People Retention
The Group operates in specialised sectors and
• Poor management succession.
needs to attract and retain employees with
relevant experience and knowledge in order
• Lack of continuity.
• Failure to optimise growth.
• HR strategy policies and systems.
• Development and reward programme to retain and motivate employees.
• Succession planning to ensure effective continuation of leadership
• This risk remains stable compared with 2016.
to take advantage of all growth opportunities.
• Impact on quality, reputation and customer confidence.
and expertise.
• Loss of talent to competitors and lost market share.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
33
STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
PRINCIPAL RISKS AND UNCERTAINTIES
continued
Operational
PRINCIPAL RISK
CONTEXT
POSSIBLE IMPACT
MITIGATION
2017 UPDATE
Operational Health,
Safety and
Security
Any health and safety incident arising from our
activities. This could result in injury to Intertek’s
employees, sub-contractors, customers and/or any
other stakeholders affected.
• Individual or multiple injuries to employees
and others.
• Litigation or legal/regulatory enforcement
action (including prosecution) leading to reputational
damage.
• Loss of accreditation.
• Erosion of customer confidence.
• Environment – environmental damage, potential litigation
• Business Continuity Plans (‘BCPs’) and Disaster Recovery Plans (‘DRPs’)
• This risk remains stable compared with 2016.
and fines, impact on reputation.
• Lease Renewals – loss of key sites, financial impact in
terms of relocation costs, or increased premiums on
renewed leases.
• Security – possible injury or fatality to our people and
general public, inability to deliver key services, impact on
revenue and reputation.
• Restructuring – loss of financial or other internal controls,
loss of revenues, adverse customer relationship or
delivery impacts.
• Failure to maximise revenue opportunities.
• Failure to take advantage of new opportunities.
• Lack of ability to respond flexibly.
• Erosion of market share.
• Impact on share price.
• Failure to respond to macroeconomic factors.
• Sanctions and fines for non-compliance
with new laws, etc.
• Loss of revenue due to down time.
• Potential loss of sensitive data with associated legal
implications, including regulatory sanctions and
potential fines.
• Potential costs of IT systems replacement
and repair.
• Loss of customer confidence.
• Damage to reputation.
• Loss of revenue/profitability if we fail to adopt an IT
investment strategy which supports the Group’s growth,
innovation and customer offering.
Facilities
Industry and
Competitive
Landscape
IT Systems and
Data Security
Environment – an adverse impact on the environment
due to inadequate sample storage/disposal, and/or
inappropriate use of materials dangerous to the
environment.
Lease Renewals – a failure to secure the renewal
of a critical lease, or having to agree unfavourable
renewal terms.
Security – loss of a critical site due to natural
disaster/catastrophe, with alternative sites
unavailable/unfeasible.
Restructuring – an adverse impact on operations
caused by restructuring or moving multiple
facilities or locations.
A failure to identify, manage and take advantage
of emerging and future risks. Examples include
the opportunities provided by new markets and
customers, a failure to innovate in terms of service
offering and delivery, the challenge of radically new
and different business models, and the failure to
foresee the impact of, or adequately respond to and
comply with, changing or new laws and regulations.
Macroeconomic factors such as a global/market
downturn and contraction/changing requirements
in certain sectors.
Systems integrity – major IT systems integrity issue, or
data security breach, either due to internal or external
factors such as deliberate interference or power
shortages/cuts etc.
Systems functionality – a failure to define the right IT
strategies, maintain existing IT systems or implement
new IT systems with the required functionality and
which are fit for purpose, in each case to support
the Group’s growth, innovation and competitive
customer offering.
Data security – a failure to adequately protect the
Group's confidential information, customer confidential
information or the personal data of the Group's
employees, customers or other stakeholders.
34
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
• Quality management and associated controls, including safety training,
• This risk remains stable compared with 2016.
appropriate PPE (Personal Protective Equipment), Health & Safety policies
(including due diligence on sub-contractors), meetings and communication.
• Avoiding fatalities, accidents and hazardous situations is paramount.
It is expected that Intertek employees will operate to the highest
standards of health and safety at all times and there are controls
in place to reduce incidents.
in place.
• Health & Safety policies, Environmental policy and Sample Storage
policy implemented.
• Regular review of contracts/leases.
• GKAM and LKAM initiatives in place.
• Diversification of customer base.
• Focus on new services and acquisitions.
• Tracking new laws and regulations.
• Regular strategic and business line reviews.
• Development of ATIC cross-selling initiatives.
• This risk remains stable compared with 2016.
• The Group’s results have been impacted by the lower
levels of capital expenditure in the energy sector,
driven by lower oil prices, but more than offset by
the diverse nature of the Group and
its ability to grow revenue and manage the
• NPS customer research to understand customer satisfaction.
cost base.
• Information systems policy and governance structure.
• Regular system maintenance.
• Backup systems in place.
• Disaster recovery plans that are constantly tested and
improved to minimise the impact if a failure does occur.
• Global Information Security policies in place
(IT, Data Protection, Cyber Security).
('CMCs')).
• Adherence to IT general controls.
• Internal and external audit testing.
• Adherence to IT finance systems controls (part of Core Mandatory Controls
• This risk remains stable compared with 2016.
• Additional work being undertaken to ensure
adherence to the EU's General Data Protection
Regulation ahead of implementation in May 2018.
STRATEGIC REPORT
Lease Renewals – a failure to secure the renewal
of a critical lease, or having to agree unfavourable
renewal terms.
Security – loss of a critical site due to natural
disaster/catastrophe, with alternative sites
unavailable/unfeasible.
Restructuring – an adverse impact on operations
caused by restructuring or moving multiple
facilities or locations.
renewed leases.
• Security – possible injury or fatality to our people and
general public, inability to deliver key services, impact on
revenue and reputation.
• Restructuring – loss of financial or other internal controls,
loss of revenues, adverse customer relationship or
delivery impacts.
Industry and
Competitive
Landscape
A failure to identify, manage and take advantage
• Failure to maximise revenue opportunities.
of emerging and future risks. Examples include
• Failure to take advantage of new opportunities.
the opportunities provided by new markets and
• Lack of ability to respond flexibly.
customers, a failure to innovate in terms of service
• Erosion of market share.
offering and delivery, the challenge of radically new
• Impact on share price.
and different business models, and the failure to
• Failure to respond to macroeconomic factors.
foresee the impact of, or adequately respond to and
• Sanctions and fines for non-compliance
comply with, changing or new laws and regulations.
with new laws, etc.
Operational
Safety and
Security
PRINCIPAL RISK
CONTEXT
POSSIBLE IMPACT
MITIGATION
2017 UPDATE
Operational Health,
Any health and safety incident arising from our
• Individual or multiple injuries to employees
• Quality management and associated controls, including safety training,
• This risk remains stable compared with 2016.
activities. This could result in injury to Intertek’s
and others.
employees, sub-contractors, customers and/or any
• Litigation or legal/regulatory enforcement
other stakeholders affected.
action (including prosecution) leading to reputational
damage.
• Loss of accreditation.
• Erosion of customer confidence.
appropriate PPE (Personal Protective Equipment), Health & Safety policies
(including due diligence on sub-contractors), meetings and communication.
• Avoiding fatalities, accidents and hazardous situations is paramount.
It is expected that Intertek employees will operate to the highest
standards of health and safety at all times and there are controls
in place to reduce incidents.
Facilities
Environment – an adverse impact on the environment
• Environment – environmental damage, potential litigation
• Business Continuity Plans (‘BCPs’) and Disaster Recovery Plans (‘DRPs’)
• This risk remains stable compared with 2016.
due to inadequate sample storage/disposal, and/or
and fines, impact on reputation.
in place.
inappropriate use of materials dangerous to the
• Lease Renewals – loss of key sites, financial impact in
• Health & Safety policies, Environmental policy and Sample Storage
environment.
terms of relocation costs, or increased premiums on
policy implemented.
• Regular review of contracts/leases.
• GKAM and LKAM initiatives in place.
• Diversification of customer base.
• Focus on new services and acquisitions.
• Tracking new laws and regulations.
• Regular strategic and business line reviews.
• Development of ATIC cross-selling initiatives.
• NPS customer research to understand customer satisfaction.
• This risk remains stable compared with 2016.
• The Group’s results have been impacted by the lower
levels of capital expenditure in the energy sector,
driven by lower oil prices, but more than offset by
the diverse nature of the Group and
its ability to grow revenue and manage the
cost base.
IT Systems and
Systems integrity – major IT systems integrity issue, or
• Loss of revenue due to down time.
Data Security
data security breach, either due to internal or external
• Potential loss of sensitive data with associated legal
factors such as deliberate interference or power
implications, including regulatory sanctions and
• Potential costs of IT systems replacement
potential fines.
and repair.
• Loss of customer confidence.
• Damage to reputation.
• Loss of revenue/profitability if we fail to adopt an IT
investment strategy which supports the Group’s growth,
innovation and customer offering.
• Information systems policy and governance structure.
• Regular system maintenance.
• Backup systems in place.
• Disaster recovery plans that are constantly tested and
improved to minimise the impact if a failure does occur.
• Global Information Security policies in place
(IT, Data Protection, Cyber Security).
• Adherence to IT finance systems controls (part of Core Mandatory Controls
('CMCs')).
• Adherence to IT general controls.
• Internal and external audit testing.
• This risk remains stable compared with 2016.
• Additional work being undertaken to ensure
adherence to the EU's General Data Protection
Regulation ahead of implementation in May 2018.
Macroeconomic factors such as a global/market
downturn and contraction/changing requirements
in certain sectors.
shortages/cuts etc.
Systems functionality – a failure to define the right IT
strategies, maintain existing IT systems or implement
new IT systems with the required functionality and
which are fit for purpose, in each case to support
the Group’s growth, innovation and competitive
customer offering.
Data security – a failure to adequately protect the
Group's confidential information, customer confidential
information or the personal data of the Group's
employees, customers or other stakeholders.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
35
STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
PRINCIPAL RISKS AND UNCERTAINTIES
continued
Legal and Regulatory
PRINCIPAL RISK
CONTEXT
Litigation
Claims resulting from mistakes in Intertek’s work
resulting in disputes with clients and/or other relevant
third parties.
POSSIBLE IMPACT
• Financial impact (fines by regulators,
suspension of accreditation, compensation).
• Financial impact from defending and settling claims.
• Impact of fines.
• Potential impact on insurance premiums.
• Loss of customer confidence.
• Damage to reputation.
• Impact on share price.
Business Ethics
Non-compliance with Intertek’s Code of Ethics ('Code')
and/or related laws such as anti-bribery, anti-money
laundering, and fair competition legislation. Non-
compliance could be either accidental or deliberate, and
committed either by our people or sub-contractors who
must also abide by the Code.
• Litigation, including significant fines and debarment
from certain territories/activities.
• Reputational damage.
• Loss of accreditation.
• Erosion of customer confidence.
• Impact on share price.
Regulatory and
Political Landscape
A failure to identify and respond appropriately to a
change in law and/or regulation, or to a political decision,
event or condition which could impact demand for the
Group’s services or the Group’s ability to grow, innovate
and/or provide a competitive customer offering in any
existing or new industry sector or market.
• Loss of revenue, profitability and/or market share.
• Increase to costs of operations, reduction in profitability.
• Reduction in the attractiveness of investment in specific
business, sectors or markets and/or adverse change the
competitive landscape.
Financial
Financial Risk
Risk of theft, fraud or financial misstatement by
employees. On acquisitions or investments, the financial
risk or exposure arising from due diligence, integration
or performance delivery failures.
• Financial losses with a direct impact on the bottom line.
• Large-scale losses can affect financial results.
• Potential legal proceedings leading to costs and
management time.
• Corresponding loss of value and reputation could result
in funding being withdrawn or provided at higher
interest rates.
• Possible adverse publicity.
36
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
MITIGATION
2017 UPDATE
• Effective Quality Management Systems and assurance procedures and controls,
• This risk remains stable compared with 2016.
including contractual review and liability caps where appropriate.
• Compliance personnel have been utilised to manage
• Claims management policy and process in place.
• Contract review process (including risk review).
• Use of standard Intertek Terms & Conditions.
contract reviews and assist the wider legal
framework.
• Ongoing training and education in respect of
• All significant incidents that could potentially result in a claim against the Group
contractual liabilities being assumed.
are immediately reported to compliance officers and logged in an incident
database so that they can be properly managed. The Group General Counsel
reports any significant claims to the Audit Committee. External legal counsel is
• Insurance liaison – seeking contractual protection from loss or insurance cover for
appointed where appropriate.
loss where possible.
• Annual Code of Ethics training and sign-off requirement.
• This risk remains stable compared with 2016.
• Whistle-blowing programme, monitored by the Group Risk Committee, where
• Ongoing annual confirmations ensure that staff
staff are encouraged to report, without risk, any fraudulent or other activity likely
verify compliance with the Code of Ethics.
to adversely affect the reputation of the Group.
• Enhanced processes for engagement with suppliers and third parties.
• Local compliance officers perform due diligence on
sub-contractors to check that they have signed the
• Zero-tolerance approach with regard to any inappropriate behaviour by any
Group’s Code.
individual employed by the Group, or acting on the Group’s behalf.
• During 2017, 202 (2016: 163) non-compliance
• The Group employs local people in each country who are aware of local legal and
issues were reported through the whistle-blowing
regulatory requirements. There are also extensive internal compliance and audit
hotline and other routes. All were investigated
systems to facilitate compliance. Expert advice is taken in areas where
with 36 (2016: 47) substantiated and corrective
regulations are uncertain.
action taken.
• The Group continues to dedicate resources to ensure compliance with the UK
Bribery Act and all other anti-bribery legislation, and internal policy.
• Monitoring of regulatory environment and political developments.
• This risk is new for 2017.
• Analysis of impact of regulatory and political changes on operational SOPs
• Membership of relevant associations, e.g. IFIA with related advocacy and
and Group policies.
liaison activities.
• The Group has financial, management and systems controls in place to ensure
• This risk remains stable compared with 2016.
that the Group’s assets are protected from major financial risks.
• 'Doing Business the Right Way’ established
• Adherence to Authorities Cascade (which sets approval limits for
as core principle within Intertek.
financial transactions).
• Review and update of core mandatory controls for
• Legal, financial and other due diligence on M&A and other investments.
year-end compliance certification.
• A detailed system of financial reporting is in place to ensure that monthly
financial results are thoroughly reviewed. The Group also operates a rigorous
programme of internal audits and management reviews. Independent external
auditors review the Group’s half year results and audit the Group’s annual
financial statements.
STRATEGIC REPORT
Legal and Regulatory
PRINCIPAL RISK
CONTEXT
Litigation
Claims resulting from mistakes in Intertek’s work
• Financial impact (fines by regulators,
resulting in disputes with clients and/or other relevant
suspension of accreditation, compensation).
third parties.
• Financial impact from defending and settling claims.
• Impact of fines.
• Potential impact on insurance premiums.
• Loss of customer confidence.
• Damage to reputation.
• Impact on share price.
Business Ethics
Non-compliance with Intertek’s Code of Ethics ('Code')
• Litigation, including significant fines and debarment
and/or related laws such as anti-bribery, anti-money
from certain territories/activities.
laundering, and fair competition legislation. Non-
• Reputational damage.
compliance could be either accidental or deliberate, and
• Loss of accreditation.
committed either by our people or sub-contractors who
• Erosion of customer confidence.
must also abide by the Code.
• Impact on share price.
POSSIBLE IMPACT
MITIGATION
2017 UPDATE
• Effective Quality Management Systems and assurance procedures and controls,
including contractual review and liability caps where appropriate.
• This risk remains stable compared with 2016.
• Compliance personnel have been utilised to manage
• Claims management policy and process in place.
• Contract review process (including risk review).
• Use of standard Intertek Terms & Conditions.
• All significant incidents that could potentially result in a claim against the Group
contract reviews and assist the wider legal
framework.
• Ongoing training and education in respect of
contractual liabilities being assumed.
are immediately reported to compliance officers and logged in an incident
database so that they can be properly managed. The Group General Counsel
reports any significant claims to the Audit Committee. External legal counsel is
appointed where appropriate.
• Insurance liaison – seeking contractual protection from loss or insurance cover for
loss where possible.
• Annual Code of Ethics training and sign-off requirement.
• Whistle-blowing programme, monitored by the Group Risk Committee, where
• This risk remains stable compared with 2016.
• Ongoing annual confirmations ensure that staff
staff are encouraged to report, without risk, any fraudulent or other activity likely
to adversely affect the reputation of the Group.
• Enhanced processes for engagement with suppliers and third parties.
• Zero-tolerance approach with regard to any inappropriate behaviour by any
verify compliance with the Code of Ethics.
• Local compliance officers perform due diligence on
sub-contractors to check that they have signed the
Group’s Code.
individual employed by the Group, or acting on the Group’s behalf.
• During 2017, 202 (2016: 163) non-compliance
• The Group employs local people in each country who are aware of local legal and
regulatory requirements. There are also extensive internal compliance and audit
systems to facilitate compliance. Expert advice is taken in areas where
regulations are uncertain.
• The Group continues to dedicate resources to ensure compliance with the UK
Bribery Act and all other anti-bribery legislation, and internal policy.
issues were reported through the whistle-blowing
hotline and other routes. All were investigated
with 36 (2016: 47) substantiated and corrective
action taken.
Regulatory and
A failure to identify and respond appropriately to a
• Loss of revenue, profitability and/or market share.
Political Landscape
change in law and/or regulation, or to a political decision,
• Increase to costs of operations, reduction in profitability.
• Monitoring of regulatory environment and political developments.
• Analysis of impact of regulatory and political changes on operational SOPs
• This risk is new for 2017.
event or condition which could impact demand for the
• Reduction in the attractiveness of investment in specific
Group’s services or the Group’s ability to grow, innovate
business, sectors or markets and/or adverse change the
and Group policies.
• Membership of relevant associations, e.g. IFIA with related advocacy and
and/or provide a competitive customer offering in any
competitive landscape.
existing or new industry sector or market.
liaison activities.
Financial
Financial Risk
Risk of theft, fraud or financial misstatement by
• Financial losses with a direct impact on the bottom line.
• The Group has financial, management and systems controls in place to ensure
employees. On acquisitions or investments, the financial
• Large-scale losses can affect financial results.
risk or exposure arising from due diligence, integration
• Potential legal proceedings leading to costs and
or performance delivery failures.
management time.
• Corresponding loss of value and reputation could result
in funding being withdrawn or provided at higher
interest rates.
• Possible adverse publicity.
that the Group’s assets are protected from major financial risks.
• Adherence to Authorities Cascade (which sets approval limits for
financial transactions).
• Legal, financial and other due diligence on M&A and other investments.
• A detailed system of financial reporting is in place to ensure that monthly
financial results are thoroughly reviewed. The Group also operates a rigorous
programme of internal audits and management reviews. Independent external
auditors review the Group’s half year results and audit the Group’s annual
financial statements.
• This risk remains stable compared with 2016.
• 'Doing Business the Right Way’ established
as core principle within Intertek.
• Review and update of core mandatory controls for
year-end compliance certification.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
37
STRATEGIC REPORT
FINANCIAL REVIEW
FINANCIAL REVIEW
FINANCIAL HIGHLIGHTS 2017
+7.9% +3.0%
Revenue up to £2,769m
+14.3%
Dividend per share
+14.2% +10.0%
Adjusted operating profit
up to £468m
+14.4%
Statutory operating profit
up to £423m
+14.3% +10.4%
Adjusted diluted EPS
+12.4%
Statutory diluted EPS
£27m
Acquisitions
128.1%
Cash conversion
Actual rates
Constant rates
£113m
Organic investment spend
26.7%
Return on Invested Capital
This year we delivered double-digit growth in
operating profit and diluted EPS at constant
currency. Cash conversion was strong as the
focus on working capital initiatives
continued to deliver, resulting in good
progress in ROIC in the year.”
Edward Leigh
Chief Financial Officer
38
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
Solid organic revenue growth and
a focus on cost and operational
initiatives delivered strong margin
accretion for the Group.
CONSOLIDATED INCOME STATEMENT COMMENTARY
Revenue for the year was £2,769.1m, up 7.9% (up 3.0% at
constant exchange rates), with organic revenue growth of 2.1%
at constant exchange rates.
The Group’s organic revenue reflected robust growth in the
Products division and good growth in the Trade division, while
challenging conditions in the oil and gas infrastructure market
impacted the Resources division.
The Group’s adjusted operating profit was £467.7m, up 14.2%
on the prior year (up 10.0% at constant exchange rates).
The adjusted operating margin was 16.9%, an increase of 110bps
from the prior year at constant exchange rates. Adjusted organic
operating margin at constant rates increased by 90bps as we
benefited from positive operating leverage, margin-accretive
divisional mix and the restructuring activities in prior years.
The recent storms in the southern regions of the USA disrupted
the operations of our clients in the last 10 days of August, in
September and October, impacting our Cargo/AA, Building &
Construction and Industry Services businesses, and continued
to impact our Cargo/AA business in November and December.
These operational disruptions reduced our revenue performance
by £6.5m at constant currency over the period from August to
December, negatively impacting our Products, Trade and
Resources divisions by £1.5m, £4.3m and £0.7m respectively.
The Group remains very focused on cost and margin
management. In line with the review linked to the 5x5 strategy
announced in March 2016, an impairment of £8.0m has been
charged following a full assessment of the Group’s IT assets, an
impairment of £8.8m has been charged in respect of plant and
equipment related to a specific service line and the Group has
recognised a further £12.4m restructuring cost.
The Group’s statutory operating profit for the year was £422.7m
(2016: £369.5m), with statutory operating margin of 15.3%, up
90bps on the prior year.
NET FINANCING COSTS
The Group had an adjusted net financing cost of £28.9m
(2016: £22.4m) in the year. This comprised £1.2m (2016: £0.9m)
of finance income and £30.1m (2016: £23.3m) of finance
expense. The statutory net financing cost of £29.4m included
£0.5m (2016: £nil) relating to Separately Disclosed Items.
STRATEGIC REPORT
TAX
The Group effective tax rate on adjusted profit before income
tax was 24.5% (2016: 25.3%) with the reduction being driven by
a 1% one-off benefit from the net revaluation of deferred tax
balances following the US Tax reforms.
The statutory tax charge, including the impact of SDIs, of £86.9m
(2016: £75.5m), equates to an effective rate of 22.1% (2016:
21.8%) and the cash tax on adjusted results is 23.0% (2016:
24.3%). The statutory tax charge, excluding the impact of SDIs,
is £107.5m (2016: £98.0m).
RESULTS FOR THE YEAR
Key financials
Revenue
Adjusted Group operating profit
Adjusted diluted EPS
Statutory Group operating profit
Statutory diluted EPS
Adjusted cash flow from operations
Statutory cash flow from operations
Dividend per share
Dividends paid in the year
2017
£m
2,769.1
467.7
191.6p
422.7
176.3p
596.1
579.2
71.3p
107.0
2016
£m
2,567.0
409.7
167.7p
369.5
156.8p
565.3
543.4
62.4p
88.0
FIVE-YEAR PERFORMANCE
ADJUSTED DILUTED EPS1 (pence)
DIVIDEND PER SHARE2 (pence)
+7.9% CAGR3
+11.7% CAGR3
2017
2016
2015
2014
2013
2012
191.6
2017
167.7
2016
140.7
2015
132.1
2014
138.6
2013
131.2
2012
71.3
62.4
52.3
49.1
46.0
41.0
1. Presentation of results: To provide readers with a clear and consistent presentation of the underlying operating performance of the Group’s business, some figures
discussed in this review are presented before Separately Disclosed Items (see note 3 of the financial statements). A reconciliation between Adjusted and Statutory
performance measures is set out overleaf.
2. Dividend per share for 2017 is based on the interim dividend paid of 23.5p (2016: 19.4p) plus the proposed final dividend of 47.8p (2016: 43.0p).
3. CAGR represents the compound annual growth rate from 2012 to 2017.
The underlying performance of the business, by division, is shown in the table below:
Products
Trade
Resources
Group total
Net financing costs
Adjusted profit before income tax
Adjusted Income tax expense
Adjusted profit for the year
Adjusted diluted EPS
Notes
2
2
2
14
6
7
Revenue
Change at
actual rates
%
10.9
10.8
(4.1)
7.9
Change at
constant
rates
%
6.1
5.6
(8.6)
3.0
2017
£m
1,625.5
647.8
495.8
2,769.1
Adjusted operating profit
2017
£m
350.5
88.7
28.5
467.7
(28.9)
438.8
(107.5)
331.3
191.6p
Change at
actual rates
%
17.7
8.4
(5.6)
14.2
13.3
14.5
14.3
Change at
constant
rates
%
13.2
4.1
(5.9)
10.0
9.5
10.7
10.4
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
39
STRATEGIC REPORT
FINANCIAL REVIEW
FINANCIAL REVIEW
continued
EARNINGS PER SHARE
The Group delivered adjusted diluted earnings per share (‘EPS’) of
191.6p (2016: 167.7p). Diluted EPS after SDIs was 176.3p (2016:
156.8p), and basic EPS was 178.6p (2016: 158.5p).
DIVIDEND
The Board recommends a full-year dividend of 71.3p per share,
an increase of 14.3%. This recommendation reflects the Group’s
earnings progression, strong financial position and the Board’s
confidence in the Group’s structural growth drivers into the future.
The full-year dividend of 71.3p represents a total cost of
£115.1m or 37% of adjusted profit attributable to shareholders
of the Group for 2017 (2016: £100.7m and 37%). The dividend is
covered 2.7 times by earnings (2016: 2.7 times), based on
adjusted diluted earnings per share divided by dividend per share.
PORTFOLIO ACTIVITIES
In March 2016, the Group announced its 5x5 differentiated
strategy for growth, with the aim to move the centre of gravity
of the Company towards high-growth, high-margin areas in its
industry, which included two strategic priorities relevant to
the operational structure of the business:
• to operate a portfolio that delivers focused growth amongst
the business lines, countries and services, including a strategic
review of underperforming business units.
• to deliver operational excellence in every operation to drive
productivity, including re-engineering of unnecessary
processes and layers.
During the year, the Group has continued to implement certain
non-recurring action plans identified through the portfolio review
in specific country and/or business line combinations, consistent
with the 5x5 strategy, with a resulting charge of £12.4m in the
year. These activities included the termination of certain
business lines in some countries; the closure and consolidation of
business line locations in certain countries; the re-organisation of
various management structures either in-country or across
multiple countries in a region; or the fundamental re-organisation
of global business lines including direct staff, management and
support function structures.
Restructuring charges are included in the SDI section below, in
instances where they have been specifically identified as part of
the Portfolio review, are non-recurring and meet the IAS 37
criteria, in contrast to restructuring costs for ongoing standard
cost efficiency and cost-saving opportunities, which are incurred
within Adjusted Results.
SEPARATELY DISCLOSED ITEMS (‘SDIs')
A number of items are separately disclosed in the financial
statements as exclusion of these items provides readers with
a clear and consistent presentation of the underlying operating
performance of the Group’s business. Reconciliations of the
Statutory to Adjusted measures are given below.
40
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
When applicable, these SDIs include amortisation of acquisition
intangibles; impairment of goodwill and other assets; the profit
or loss on disposals of businesses or other significant fixed
assets; costs of acquiring and integrating acquisitions; the cost of
any fundamental restructuring of a business; material claims and
settlements; significant recycling of amounts from equity to
the income statement; and unrealised market or fair value gains
or losses on financial assets or liabilities, including contingent
consideration.
Adjusted operating profit excludes the amortisation of acquired
intangible assets, primarily customer relationships, as we do not
believe that the amortisation charge in the Income Statement
provides useful information about the cash costs of running our
business as these assets will be supported and maintained by the
ongoing marketing and promotional expenditure, which is already
reflected in operating costs. Amortisation of software, however,
is included in adjusted operating profit as it is similar in nature to
other capital expenditure. The costs of any restructuring are
excluded from adjusted operating profit where they represent
fundamental changes in individual operations around the Group
as a result of the portfolio activities discussed above, and are not
expected to recur in those operations. The profit and loss on
disposals of businesses or other significant assets and the costs
associated with successful, active or aborted acquisitions are
excluded from adjusted operating profit in order to provide
useful information regarding the underlying performance of
the Group’s operations.
The SDIs charge for 2017 comprises amortisation of acquisition
intangibles of £16.0m (2016: £14.0m); acquisition costs relating
to successful, active or aborted acquisitions of £3.2m (2016:
£2.8m); restructuring costs (as described above) of £12.4m
(2016: £21.4m); loss on disposal of subsidiaries and associates
of £nil (2016: £2.0m); impairment of IT assets related of
computer software of £8.0m (2016: £nil); impairment of plant
and equipment related to a specific service line of £8.8m (2016:
£nil); and a credit for material claims and settlements of £3.4m
(2016: £nil), where a large claim was settled resulting in a
significant release of excess provision that has been recorded
within SDIs due to its size, so as not to distort Adjusted results.
2017 RECONCILIATION OF STATUTORY TO ADJUSTED
PERFORMANCE MEASURES
£m
Revenue
Operating profit
Operating margin (%)
Net Financing costs
Income tax expense
Profit for the year
Cash flow from
operations
Basic EPS (p)
Diluted EPS (p)
Statutory
2,769.1
422.7
15.3%
(29.4)
(86.9)
306.4
SDIs
–
45.0
1.6%
0.5
(20.6)
24.9
Adjusted
2,769.1
467.7
16.9%
(28.9)
(107.5)
331.3
579.2
178.6p
176.3p
16.9
15.5p
15.3p
596.1
194.1p
191.6p
2016 RECONCILIATION OF STATUTORY TO ADJUSTED
PERFORMANCE MEASURES
£m
Revenue
Operating profit
Operating margin (%)
Net Financing costs
Income tax expense
Profit for the year
Cash flow from
operations
Basic EPS (p)
Diluted EPS (p)
Statutory
2,567.0
369.5
14.4%
(22.4)
(75.5)
271.6
SDIs
–
40.2
1.6%
–
(22.5)
17.7
Adjusted
2,567.0
409.7
16.0%
(22.4)
(98.0)
289.3
543.4
158.5p
156.8p
21.9
11.0p
10.9p
565.3
169.5p
167.7p
Further information on Separately Disclosed Items is given in
note 3 to the financial statements.
KEY PERFORMANCE INDICATORS
The Group uses a variety of key performance indicators
(‘KPIs’) to monitor the financial performance of the Group
and operating divisions. The specific metrics and associated
definitions are disclosed on pages 30 to 31.
Organic revenue at constant currency is presented to show the
Group's revenue excluding the effects of the change in the scope
of the consolidation (acquisitions and disposals made since
1 January 2016) and removing the impact of currency translation
from the Group's growth figures.
Organic revenue at constant
currency
Reported Revenue
Less: Acquisitions /
disposals revenue
Organic Revenue
Impact of foreign
exchange movements
Organic revenue at
constant currency
2017
£m
2,769.1
2016
£m
2,567.0
(36.0)
2,733.1
(9.4)
2,557.6
–
120.1
Change
%
7.9%
6.9%
2,733.1
2,677.7
2.1%
* Organic revenue excludes acquisitions/disposals over the past two years.
The rate of return on invested capital (‘ROIC’), defined as
Adjusted Operating Profit less Adjusted Taxes divided by
Invested Capital, measures the efficiency of Group investments.
This is a key measure to assess the efficiency of investment
decisions and is also an important criterion in the decision-making
process when projects are competing for limited funds.
ROIC in 2017 of 26.7% compares to 23.9% at constant
exchange rates.
Return on Invested Capital
at Constant currency
Adjusted operating
profit
Less: Adjusted Tax*
Adjusted Profit After Tax
Invested capital*
ROIC %
2017
£m
2016
£m
Change
%
467.7
(114.6)
353.1
1,323.6
26.7%
425.2
(107.6)
317.6
1,327.4
23.9%
10.0%
6.5%
11.2%
(0.3)%
280bps
* Definitions of the above measures are given on the page 30.
STRATEGIC REPORT
ACQUISITIONS AND INVESTMENT
One of the key corporate goals of the Group's 5x5 strategy is
delivering an accretive, disciplined capital-allocation policy. As
a result the Group invests both organically, and by acquiring or
investing in complementary businesses to strengthen our
portfolio in the locations demanded by clients. This approach
enables the Group to focus on those existing business lines or
countries with good growth and margin prospects where we
have market-leading positions or to enter new exciting
growth areas offering the latest technologies and quality
assurance services.
Acquisitions and investments
The Group completed two (2016: three) acquisitions in the year
with cash consideration of £27.4m (2016: £34.8m), net of cash
acquired of £2.1m (2016: £0.7m).
In March 2017, the Group acquired KJ Tech Services GmbH
('KJ Tech'), a leading provider of vehicle, component and fuel
testing services based in Germany.
In December 2017, the Group acquired Acumen Security LLC
('Acumen'), a leading provider of Security Certification solutions
for products, headquartered in Maryland, USA.
These acquisitions provide valuable additional service lines and
new geographic locations for the Group, and will help drive future
profitable revenue growth.
In 2017 £7.8m (2016: £2.0m) was spent in relation to
consideration for prior year acquisitions, namely the settlement
of the contingent consideration for EWA-Canada Ltd.
Organic investment
The Group also invested £112.9m (2016: £105.5m) organically
in laboratory expansions, new technologies and equipment and
other facilities. This investment represented 4.1% of revenue
(2016: 4.1%).
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
41
FIVE-YEAR TREND – ADJUSTED CASH FLOW FROM
OPERATIONS (£m)
+11.5% CAGR1
2017
2016
2015
2014
2013
2012
596.1
565.3
465.7
403.7
394.1
345.4
1. CAGR represents the compound annual growth rate from 2012 to 2017.
Net debt
Net debt has decreased from £743.7m at 31 December 2016
to £544.1m at 31 December 2017.
In the year, the Group drew on facilities it had in place at
31 December 2016. During the year US$100m of its existing
bilateral term loan facility was repaid.
The Group has a well-balanced loan portfolio to enable the
funding of future growth opportunities with a maturity profile as
shown below.
BORROWINGS BY MATURITY PROFILE
31%
Less than two years
Two to five years
Over five years
13%
56%
STRATEGIC REPORT
FINANCIAL REVIEW
FINANCIAL REVIEW
continued
CASH FLOW AND NET DEBT
Cash flow
The Group relies on a combination of debt and internal cash
resources to fund its investment plans. One of the key metrics
for measuring the ability of the business to generate cash is cash
flow from operations. Due to the cash payments associated with
the SDIs, and to provide a complete picture of the underlying
performance of the Group, adjusted cash flow from operations
is shown below to illustrate the cash generated by the Group:
Cash flow from
operations
Add back: cash flow
relating to SDIs
Adjusted cash flow from
operations
Add back: special
contributions to pension
schemes
Cash flow for cash
conversion
Cash conversion %
2017
£m
2016
£m
Change
%
579.2
543.4
6.6%
16.9
21.9
596.1
565.3
5.4%
2.8
2.8
598.9
128.1%
568.1
5.4%
138.7% (1,060)bps
The components of free cash flow are summarised below:
2017
£m
467.7
2016
£m
409.7
Adjusted free cash flow
Adjusted operating profit
Add back: depreciation, amortisation
and impairment
Movement in working capital
52.4
and provisions
(102.5)
Net capital expenditure
(131.0)
Other*
318.1
Free cash flow
* Other includes exceptionals, special contributions to pension schemes, interest
19.7
(109.7)
(130.9)
341.6
94.8
89.5
paid/received, tax and non-cash items.
Free cash flow
Statutory operating profit
Add back: depreciation, amortisation
and impairment
Movement in working capital
and provisions
Net capital expenditure
Other*
Free cash flow
2017
£m
422.7
2016
£m
369.5
111.6
89.5
15.0
(109.7)
(130.9)
308.7
54.7
(102.5)
(131.0)
280.2
42
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
Under existing facilities the Group has available debt headroom
of £443m at 31 December 2017. The components of net debt
at 31 December 2017 are outlined below:
1 January
2017
£m
158.8
(902.5)
(743.7)
Cash flow1
£m
7.0
150.6
157.6
Exchange
adjustments
£m
(29.9)
71.9
42.0
31 December
2017
£m
135.9
(680.0)
(544.1)
Cash
Borrowings
Total net debt
1. Cash flow includes £0.7m of non-cash movements related to amortisation of
facility fees (see note 14 of the financial statements).
To ensure the Group is not exposed to income statement
volatility in relation to foreign currency translation on its debt,
the Group ensures that any foreign currency borrowings are
matched to the value of its overseas assets in that currency
(an ‘effective’ hedge).
The Group borrows primarily in US dollars and any currency
translation exposures on the borrowings are offset by the
currency translation on the US dollar and US dollar-related
overseas assets of the Group.
The composition of the Group’s gross borrowings in 2017,
analysed by currency is as follows:
The exchange rates used to translate the statement of financial
position and the income statement into the Group's functional
currency, sterling, for the five most material currencies used in
the Group are shown below:
Statement of financial
position rates
Income
statement rates
Value of £1
US dollar
Euro
Chinese renminbi
Hong Kong dollar
Australian dollar
2017
1.34
1.13
8.79
10.47
1.72
2016
1.22
1.17
8.51
9.49
1.70
2017
1.29
1.14
8.72
10.05
1.68
2016
1.35
1.23
8.98
10.52
1.83
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance
with IFRS as adopted by the EU. Details of the Group’s significant
accounting policies are shown in note 1 to the financial statements.
BORROWINGS BY CURRENCY
Edward Leigh
Chief Financial Officer
4%
4%
13%
2%
77%
USD
Euro
GBP
AUD
CAD
FOREIGN CURRENCY MOVEMENTS
The Group transacts in over 80 currencies across more than
100 countries, and revenue and profit are impacted by currency
fluctuations. However, the diversification of the Group’s revenue
base provides a partial dilution to this exposure.
At constant exchange rates, revenue grew 3.0% (actual
exchange rates 7.9%) and adjusted operating profit grew
10.0% (actual exchange rates 14.2%).
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
43
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
SUSTAINABILITY AND CSR
Sustainability is at the heart of
our business. Our Core Purpose is
“To bring quality and safety to life”.
Our Vision is “To be the world’s
most trusted partner for Quality
Assurance”.
We are focused on ensuring that our strategy and culture provide
our people with the right platform to grow and develop their
careers, but also allow them to be involved in activities that are
socially responsible and enable them to engage with the
communities in which they live and work.
I am delighted that so much of what we
do for our customers is helping them with
their own sustainability strategies, whilst
internally we also continue to make
progress on our sustainability initiatives."
During 2017 we established a set of five group sustainability
priorities, linked to our 5x5 differentiated strategy for growth:
1 Having a positive impact on our people, our suppliers,
and the communities in which we operate
2 Supporting our customers with our industry-leading
Sustainability value proposition
3
Improving our non-financial disclosures to strengthen
our investment proposition
4 Tracking our progress with the United Nations
Sustainable Development Goals
5 Continuous progress in sustainability through
appropriate organisational focus
Across our business, our people provide Assurance, Testing,
Inspection and Certification ('ATIC') services that assist our
customers in mitigating the environmental impacts of their
products, processes and operations, ensuring their goods are
ethically and sustainably sourced, improving the health and
safety of their employees, and advancing their contribution to
the United Nations Sustainable Development Goals (UN SDGs).
Our people are passionate about their work and are proud to be
involved in activities that generate a positive impact for society
and the environment. Intertek operates a decentralised and
customer-centric organisational model that enables our team to
innovate to improve our sustainability value proposition on a
continuous basis, and direct resources locally towards the most
value-enhancing activities, both for the financial performance of
the operating unit and for the communities and environment in
which they operate.
Each of our countries and business lines define their own
sustainability agenda tied to our Group priorities, but specific to
their local operations. During 2017, we established a network of
Sustainability Champions across our major countries and business
lines to develop global connectivity across our sustainability
activities. Two networks were created:
• Country network: focused on internal sustainability activities
• Business line network: focused on sustainability services for
our customers
The Sustainability Champions meet monthly to discuss progress
against our group priorities and share best practice. A newly
formed Sustainability Operating Committee reports to me on
a monthly basis and provides the Executive Management Team
with a quarterly update and the Board with an annual update. Our
objective is to make continuous progress in sustainability through
appropriate organisational focus.
André Lacroix
Chief Executive Officer
44
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
We recognise we have further to go in our non-financial
disclosures and have made significant progress in 2017,
particularly in our environmental data collection and reporting.
As a Total Quality Assurance provider, we are in a strong position
to align with each of the UN SDGs, both through the internal
activities we carry out for our people, our communities and the
environment, as well as through the sustainability services we
provide to our customers. In this report we are using the UN SDGs
as a third party, independent framework to track our country and
business line progress in sustainability, and from 2018 onwards,
each of our major business lines and countries will provide
quarterly updates on the progress they are making toward the
UN SDGs with which they have chosen to align.
I am delighted that so much of what we do for our customers
is helping them with their own sustainability strategies, whilst
internally our passionate and dedicated colleagues are improving
the lives of the communities around them and the environments
in which we operate.
Ultimately, sustainability is a broad and evolving topic for all our
stakeholders – I believe we have made great progress during
2017 and we will continue to make further strides in our
sustainability journey during 2018.
This report describes Intertek’s sustainability performance in
2017 and highlights some of the work we are doing to help our
customers; develop our people; partner with our local
communities; reduce our own ecological footprint and track
our progress with the UN SDGs.
André Lacroix
Chief Executive Officer
STRATEGIC REPORT
IN THIS SECTION
OUR SUSTAINABILITY
VALUE PROPOSITION
Supporting our customers' sustainability needs
with our industry-leading Sustainability value
proposition
PAGE 46
OUR PEOPLE
Ensuring our people are engaged, inspired,
energised and working in a safe environment
PAGE 48
OUR COMMUNITIES
Engaging and partnering with the local
communities in which we operate
PAGE 52
OUR ENVIRONMENT
Demonstrating our commitment to reducing the
environmental impact of our operations
PAGE 54
TRACKING OUR PROGRESS
WITH THE UN SDGs
Demonstrating our alignment with the United
Nations Sustainable Development Goals
PAGE 58
OUR SUSTAINABILITY
GOVERNANCE
Making continuous progress in sustainability
through appropriate organisational focus
PAGE 60
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
45
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
OUR SUSTAINABILITY VALUE PROPOSITION
Intertek's Green Leaf Mark is proof that a product has been
independently tested and found to conform to multiple existing
environmental regulations, such as RoHS laws, REACH and Eco
Design requirements through one mark rather than multiple
marks. The Green Leaf Mark is used on product packaging, in
point of purchase displays, product advertising and literature
to explain a product’s environmental credentials.
Since 2011, Intertek has partnered with a leading Chinese Steel
manufacturer to measure the environmental footprint of its
carbon steels used in the automotive and packaging industry,
and certify the products to the Green Leaf standard. To date,
30 products from 10 categories have been verified and awarded
with the Intertek Green Leaf Mark. By receiving these
certifications, the company is able to effectively demonstrate
its efforts to reduce the adverse environmental impact of its
production processes and final products.
Water Footprint Verification Services
Intertek provides Water Footprint Verification Services for its
customers covering the evaluation, calculation and
documentation associated with both water consumption and
quality at customer and supplier sites. In 2017, we provided this
service for an appliance manufacturing site in Turkey amongst
others. Working with our local offices, Intertek was able to
support a verification of the organisations water footprint,
which included six manufacturing facilities, offices and
ancillary buildings.
As part of the Water Footprint assessment, companies commit to
reduce consumption in measurable metrics to minimise stress on
fresh-water sources for industrial processes. Water-stress
impacts communities globally, where industrial uses of water can
divert resources and affect safe potable drinking water
availability. Intertek’s Water Footprint Verification Services
ensure that companies are following acceptable standards for
evaluating their water sustainability so that substantiated
improvements can be made over time.
In a world where companies are facing an
increasing number of challenges driven by growing
complexities in their operations, the demand is
growing for Total Quality Assurance solutions that
extend beyond the quality and safety of physical
components, to those that deliver sustainable
solutions in the development of products and
services for the future.
As a Total Quality Assurance provider, we are in a strong position
given our global scale and expertise to support the sustainability
objectives of our customers with our Sustainability value
proposition. Our Assurance, Testing, Inspection and Certification
(ATIC) services cover many industries, from textiles, toys and
electronics, to building, heating, pharmaceuticals, petroleum
products, food, cargo inspection, exploration and production, and
minerals. We work globally with our customers to improve social,
ethical, safety and environmental impacts of their services and
products that are used by their customers every day.
Our proven supply chain expertise, global network and on the
ground local knowledge help our customers with increased
transparency to manage social, ethical and environmental risk in
their processes and supply chains, whilst supporting their ability
to operate effectively and act responsibly. Our customers trust
us to ensure the quality and safety of their products, assets
and processes, to protect their brands and to help them gain
competitive advantage, whilst ensuring they achieve this in an
environmentally responsible manner.
Full details of our Sustainability value proposition are listed on
our Group website at www.intertek.com/sustainability/services.
In this section of the report we have provided some interesting
examples of the work we carry out for our customers.
SUSTAINABILITY ATIC SERVICES
Green Leaf Mark
Environmental product claims are coming
under scrutiny by regulators and are a growing
source of distrust by consumers. Recent studies
show that consumers continue to support
companies and brands that demonstrate social
and environmental responsibility and are
increasingly looking for certification marks or
labels on products to validate environmental credentials. What's
more, manufacturers and retail brands are under greater pressure
to ensure products meet standards and have accurate test and
analysis data to back up their claims.
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INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
During 2017, Intertek helped squid oil receive approval as a
natural health product ingredient in Canada, offering Canadians a
new sustainably-sourced alternative to fish oil. Squid oil is
emerging as an alternative sustainably-sourced healthy omega-3
fatty acid. Much of the squid harvested for human consumption
does not make it to market, but is discarded as "cut-offs" during
food preparation; these "left-over" trimmings are predominantly
rich in the healthy omega-3 fatty acids. Thus, squid oil is
manufactured solely from by-products obtained during the food
production of squid.
Additionally, the management and fishing methods for squid have
minimal environmental impacts compared to methods typically
used for other fish. The main fishing method employed for
catching squid is jigging, which involves equipping fishing boats
with bright lights at night to attract large schools of squid to the
surface and then deploying a vast number of un-baited hooks
just below the surface. As a result, there is virtually zero by-
catch, as the fishing method is highly selective, specifically
targeting same size specimens, with no impact on the ocean
floor or coral reefs.
Intertek assists clients in navigating complicated regulatory
approvals for their new, innovative and sustainable alternative
products. With the availability of these products, consumers can
select brands that reduce their impact to life under water, and
minimise wasteful production processes.
Zero Discharge of Hazardous Chemicals
In 2017, Intertek joined the Zero Discharge of Hazardous
Chemicals (ZDHC) Programme, a major body which is leading the
textile, leather and footwear industries to advance towards zero
discharge of hazardous chemicals. As a contributor, Intertek is
supporting the programme’s vision of achieving the widespread
implementation of sustainable chemistry and best practices in
the textile, leather and footwear industries to protect consumers,
workers and the environment. Intertek delivers comprehensive
solutions to enable fashion retailers and brands to fulfil their
ZDHC Programme commitments. The solutions include:
• Waste water and sludge testing and sampling services at
various key textiles and footwear manufacturing sites;
Regulatory approvals for innovative biocides and
pesticides
Intertek provides clients with regulatory approvals for innovative
biocides and pesticides gaining access to global markets and
multiple sectors. Introduction of new biocide and pesticide
products can replace older and deleterious alternatives, make
equipment more efficient and prevent the spread of harmful
bacteria and contamination.
Intertek supports the approval of innovative biocide uses in
healthcare and food processing industries to prevent outbreak of
harmful bacteria, while replacing existing products that may have
harmful environmental impacts.
In 2017, Intertek assisted transportation clients by developing
approvals for the use of biocides in exterior paints on ships. The
use of biocides in paint reduces barnacle attachment, whilst
effectively maintaining aqua-dynamics and reducing overall
emissions resulting from shipping activities.
Additionally, we also supported the building & construction
sector by assisting our clients with the development of biocides
for cooling towers, a major contributor to a building’s overall
energy consumption. By using biocide products to reduce the
buildup of organisms and algae, our clients could improve the
performance of their cooling towers.
Helping to develop an alternative to fish oil
• Chemical Management System auditing services;
• Training for ZDHC Academy; and
• Manufacturing Restricted Substances Lists management
and testing.
ZDHC has approved Intertek to provide waste water and sludge
testing services for its members through the ZDHC Provisional
Laboratory Acceptance Programme.
In other sections of this report, we have added further
examples of our Sustainability value proposition, assisting
our customers in their social, ethical and environmental
goals.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
47
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
OUR PEOPLE
Our 43,906 passionate Intertek people work
globally for our customers on a daily basis,
contributing to the success of our customers'
products, services and operations and helping us
succeed in Our Vision of being “The world’s most
trusted partner for Quality Assurance.”
To achieve this, our 5x5 strategy energises our people to take
Intertek to new heights, deliver our customer promise and to live
our own values. We want to foster a company culture where our
people are recognised for being inspired to find innovative ways
to continually develop the services and solutions for our
customers and be engaged in the activities they perform.
In this section we detail the ways in which we engage and inspire
our people, ensure they have the frameworks in place for them to
succeed in a safe working environment and ultimately make them
proud to work for Intertek.
ENERGISING, INSPIRING AND ENGAGING OUR
TALENTED PEOPLE
To seize the exciting growth opportunities of our Total Quality
Assurance value proposition we continually invest in the growth
of our people. We want to provide our people with skills to grow
our business, to hire, inspire, engage and retain the best people to
power our 5x5 strategy. We want our people to grow by learning
new skills to help them advance their careers and deliver our
customer promise. Our talent mapping process is critical to the
future success of our organisation in delivering our strategy and
fostering our passionate culture and values throughout Intertek.
Training
During 2017 we developed our own in-house employee training
programme – The 10X Way! This was a unique programme as it
was designed and delivered internally to over 1,000 Intertek
leaders globally. Two-day training workshops were held across
three locations in the Americas, Asia Pacific and EMEA and were
delivered by our expert faculty from our global leadership team.
The content of the workshops was based on internal feedback
and developed into engaging and interactive sessions where key
tools and best practice was shared.
We continue to roll-out the training across our entire organisation
to ensure everyone has the tools, processes and principles to
create sustainable growth for all. To supplement the face-to-face
event, embed learning and consistently deliver the messaging,
we are also developing eLearning modules, available to all
43,000+ employees on our Learning Management System,
The 10X Way!
As part of The 10X Way! events and in order to support a highly
engaged and high performing workforce of expertise, we have
launched a brand new performance and growth conversation, My
10X JOURNEY, which replaces our previous appraisal process and
is truly transformational. This new development plan enables
quality conversations to clarify expectations, foster continual
improvement and inspire people to perform beyond their best.
In addition to The 10X Way! we also provide a variety of in-house
and external learning opportunities to provide our employees
with the requisite skills and expertise needed to deliver our TQA
Customer Promise. We operate across a wide range of sectors
requiring different employee technical training – this education
and support ranges from apprenticeships and internship
programmes through to college, degree and professional
qualifications.
UK Living wage
In the UK we are committed to becoming a Real Living Wage
employer in accordance with the recommendations of the Living
Wage Foundation. We will continue to align our directly-employed
staff with the Real Living Wage UK, and are also working towards
aligning third party contractor staff to the recommended
guidelines.
INCLUSION, DIVERSITY AND GENDER EQUALITY
To live our values and be a global family that is inclusive and
values diversity, we apply all employment policies and practices,
including recruitment, promotion, reward, working conditions, and
performance management related policies, in a way that is
informed, fair and objective.
Our inclusion and diversity policy acts to eliminate discrimination
so that our employees are treated fairly, feel respected and
included in our workplaces. We are committed to maintaining the
highest standards of fairness, respect and safety and adhere to
the principles of the UN Convention on Human Rights and the
International Labour Organization’s core conventions.
At Intertek we recognise the importance of gender diversity not
only in management, but across our business. In line with the
Hampton-Alexander Review, in addition to supporting gender
diversity on our Board, in June 2017 we contributed our data on
the gender balance across our senior executive team and their
direct reports:
Board
Executive Management Team (Exec)
Direct reports (DR)
Combined: Exec + DR
Data submitted as at 30-Jun-17.
Male
70.0%
84.6%
82.7%
82.9%
Female
30.0%
15.4%
17.3%
17.1%
We will continue to promote and endorse fair, consistent and
thoughtful working practices that are in accordance with
our values.
48
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
INTERTEK TQA EXPERTS BY REGION
8,791
2,960
12,009 8,582
8,108
3,456
Male
Female
11,751
Americas
20,591
Asia
11,564
EMEA (inc. Central)
At 31 December 2017 Intertek employed 43,906 people,
an increase of 3.4% over the previous year.
INTERTEK TQA EXPERTS BY GENDER
34%
66%
Male
Female
Intertek’s gender diversity reflects the industries and
qualification profiles typical of individuals working in the
countries and business lines in which we operate.
REVENUE AND HEADCOUNT
2,769
2,184
2,166
43,906
36,864
41,434
2,093
38,407
2,567
42,452
Revenue (£m)
Headcount
2013
2014
2015
2016
2017
STRATEGIC REPORT
At Intertek, we are proud to be an Equal Opportunities Employer
and all qualified applicants are considered for employment
regardless of gender, ethnicity, religion, age, disabilities, and other
protected characteristics. We reach out to prospective employees
in a variety of ways, depending on location and role, in compliance
with local regulations for fair recruitment practices and equal
opportunities. We post vacancies via our website (www.intertek.
com/careers) and employ different ways of sourcing talented
people, such as recruitment agencies, social media, printed
advertisements, employee referrals, professional bodies and
associations, schools, colleges and universities. To offer people
career growth and progression within the Group, where possible,
we fill vacancies from within the company first.
SUPPORTING OUR CLIENTS IN GENDER EQUALITY
Our Sustainability value proposition also supports our clients in
achieving gender equality in their own operations:
EDGE Certification Standard
The EDGE Certified Standard was developed with the input of
experts in gender equality from leading academic institutions
and top multinational companies. The EDGE assessment
methodology was developed by the EDGE Certified Foundation
and launched at the World Economic Forum in 2011. EDGE has
been designed to help companies not only create an optimal
workplace for women and men, but also to benefit from it. The
methodology uses a business, rather than theoretical, approach
that incorporates benchmarking, metrics and accountability into
the process.
The EDGE Certified Standard ensures that companies certified to
the standard have a structured and systematic approach to
measure, track and close the corporate gender gap by looking at
both quantitative and qualitative indicators, including:
• Equal pay for equivalent work
• Recruitment & promotion
• Leadership development
• Flexible working
• Company culture
Intertek was the first certification body fully approved to certify
companies against the EDGE Standard.
During 2017 amongst others, our team in Mexico certified the
Banco de Mexico, the Central Bank of Mexico, to the EDGE
Standard.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
49
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
Intertek employees or people acting on Intertek's behalf are
responsible for applying the Code in their own job role, their part
of the business and location.
To support their continuing understanding, they are required to
complete our comprehensive online Code of Ethics training
course annually. When completing the training, all employees are
required to sign a certificate confirming their understanding that
any breaches of the Code will result in disciplinary action that
may include summary dismissal of the employee concerned.
Whistle-blowing hotline
To empower the people who work for Intertek to act, we have a
well-publicised hotline for all employees, contractors and others
representing Intertek, enabling them to confidentially report
suspected misconduct or breaches of the Code.
Our whistle-blowing hotline is run by an independent, external
provider, is multi-language and is accessible to all employees 24
hours a day either by phone or by email. Those concerned are
encouraged to report any conduct, compliance, integrity or ethical
concerns using the hotline. Information posters are present in all
of our sites.
If a report is made to the hotline, it is followed up by Intertek's
Compliance officers. All reports received are fully investigated by
our Group Compliance function, which is independent of our
operational businesses and reports directly to our Group General
Counsel. Provided there is no conflict of interest, all reports are
also notified immediately to our Group Ethics & Compliance
Committee which consists of our Group CEO, Group CFO, Group
EVP for HR and Group General Counsel. This ensures effective
resolution both of individual issues and any systemic or process
improvements that can be made to address them.
• During 2017, 202 reports of non-compliance with our Code of
Ethics were made to our hotline. Of those reports, 36 were
substantiated and required remedial action. Of those
substantiated claims: there were no substantiated grievances
relating to human rights, labour practices or societal impact
breaches;
• there were no environmental incidents;
• there were no reported violations of the rights of indigenous
people; and
• there were no cases of discrimination..
OUR PEOPLE
continued
DOING BUSINESS THE RIGHT WAY
At the heart of everything we do at Intertek is our vision to be
the world's most trusted partner for Quality Assurance. We can
only deliver that vision if we maintain the trust and confidence of
all our stakeholders, including our shareholders, our customers,
our people and the communities and environment in which we
operate. Integral to this is our internal risk, control, compliance
and quality programme which we call "Doing Business the
Right Way".
At Intertek, Doing Business the Right Way means having the
highest standards of ethics and integrity in how we conduct
ourselves every day, everywhere and in every situation. Our
Doing Business the Right Way programme includes processes,
tools and training to ensure that:
• our people work in a safe and inclusive environment;
• the services we provide and the contracts we enter into are
delivered with integrity and our commitment to Total Quality;
and
• we deliver growth that is sustainable by managing our risks
and doing the right thing for the longer term.
Key elements of our Doing Business the Right Way programme
are described below.
Ethics, integrity and professional conduct
Doing Business the Right Way is our commitment to upholding
the highest standards of integrity and professional ethics. This
commitment is embedded in the Group's culture by the integrity
principles set out in our Code of Ethics ('the Code') available at
www.intertek.com/ investors/governance/code-of-ethics,
which also covers health and safety, anti-bribery, labour and
human rights.
We have a culture in which all issues relevant to our professional
conduct and our Code of Ethics can be raised and discussed
openly without recrimination. We operate a strict zero tolerance
policy regarding any substantial breach of our Code of Ethics and
any behaviour that fails to meet our expected standards of
integrity.
To support this policy in action, all people working for or on
behalf of Intertek are required to sign our Code of Ethics upon
joining the Company or before commencing work on our behalf, in
order to confirm their acceptance of the high standards expected
of them in all business dealings. The Code sets clear expectations
that people working for our business must act at all times with
integrity and in an open, honest, ethical and socially responsible
manner.
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INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
HEALTH & SAFETY
One of our five key corporate goals is to ensure that our
colleagues are fully engaged in a safe working environment –
therefore, managing the health, safety and welfare of our people,
clients and third parties connected with the business is a top
priority for us. Intertek is committed to the continuous review
and improvement of its health and safety performance and works
towards achieving zero incidents.
As a key element of our commitment to health and safety and
following its successful implementation during 2016, this year
we saw increased adoption of our ‘Speak up for Safety’ campaign
across the whole of Intertek. Additionally we implemented
further Health & Safety processes enabling all Intertek sites to
report and track Health & Safety activities with our new Global
H&S Platform.
In 2017, we achieved a 14% reduction in lost time incidents,
a 17% reduction in medical treatment incidents and a total
recordable incident rate reduction of 13%.
Sadly, one fatality was recorded in Veracruz in Mexico. This
occurred when a grain silo in the port collapsed and fell onto the
harbour where our employee was working.
Near Miss
First Aid
Lost time incidents
Medical treatment incidents
Fatalities
Total recordable incident rate
(TRIR)*
2017
9,960
857
101
143
1
2016
6,548
760
117
173
0
% change
52%
13%
(14)%
(17)%
–
0.55
0.63
(13)%
* Rates refer to the number of lost time incidents and medical treatment incidents
occurring per 200,000 hours worked.
We go to great lengths to train all our employees on health and
safety matters, including emergency response procedures,
intervention and reporting of accidents, incidents and near
misses, during on-boarding. Where relevant, all employees and
contractors are provided with personal protection equipment
when performing work for the Company.
To ensure that each Intertek location is able to operate safely,
there is a dedicated fire warden, first-aider and health and safety
representative at each Intertek location. These representatives
are empowered to not only investigate incidents and implement
preventative and corrective actions, but also to disseminate
safety information through training and continual improvement
programmes to target specific areas of concern that are
identified.
STRATEGIC REPORT
SUPPORTING OUR CLIENTS IN HEALTH AND SAFETY
Our Sustainability value proposition also supports our clients in
their health and safety management
Certifying to OHSAS 18001
We can provide our customers with the support they need to be
certified as an organisation with high quality health and safety
management systems. lntertek provides enterprises with
occupational health and safety management system certification
services to UK domestic standard GB/T28001 and international
standard OHSAS 18001.
In 2018, ISO 45001 is due to be published – this standard is set to
replace the popular OHSAS 18001 standard with the same
overall purpose – to improve the occupational health and safety
performance of an organisation. ISO 45001 will more easily
integrate with other ISO Management Systems standards
including ISO 9001:2015 and ISO 14001:2015.
As globalisation and global trade continue to escalate,
organisations' stakeholders are expecting organisations to be
ethical in every aspect of their business, especially in the way
they treat employees. ISO 45001 will give organisations an
internationally recognised occupational health and safety
standard to follow. This standard provides the specification for
formal systematic analysis and management of risk; management
of regulatory compliance; promotion of safer work practices and
evaluation of occupational health and safety performance. This
systematic approach facilitates a decrease in the number of
incidents and ultimately less disruption to business.
In 2017, lntertek certified PepsiCo in China to the OHSAS 18001
standard amongst other customers. Going forward, lntertek will
be working with its customers to ensure a smooth transition to
ISO 45001 from OHSAS 18001, whilst also encouraging more
organisations to work towards this internationally recognised
benchmark in health and safety management.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
51
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
OUR COMMUNITIES
The role we play in the communities in which
we operate is vital to the success of our business.
Fostering good relationships provides benefits
beyond reputation, but also in recruitment, local
education, and ultimately engagement, as our
passionate and dedicated colleagues are proud of
improving the lives of the people and communities
around them.
The intended audience for the newsletter includes Facility
Managers, EH&S (Environment, Health and Safety) Managers,
CSR Managers and Internal Auditors that engage in supply chain
management in China, as well as vendors, buyers, or associations
who are focused on supplier management in China or outside
China, especially in the US and EU/UK.
The newsletter contributes to promoting sustainable
employment and decent work, and raising awareness of the
issues regarding forced labour/modern slavery/human trafficking/
child labour.
SCHOOL SUPPLY SANTA
School Supply Santa is a community programme in Michigan, US,
that provides students in need with a backpack filled with school
related items such as notebooks, markers, pens, and folders to
ensure they start the school year out on the right foot with
everything they need to grow and learn.
Being aware of this programme, the Intertek Grand Rapids Health
& Wellness Committee and Events & Communications
Committees teamed up to lead the efforts to all employees
across all divisions. Intertek Grand Rapids became a corporate
partner of School Supply Santa and received a list of supplies that
were needed in their local districts. The committee members
created posters, sent emails, and leveraged operations managers
to rally employees and communicate the efforts. Following the
communications, employees donated supplies and filled collection
boxes at Intertek Grand Rapids. Together, they collected 15
backpacks and hundreds of other requested supplies.
The recipients of these supplies are part of the free lunch
programme from 20 different schools covering 8 districts in the
greater Grand Rapids, Michigan area. Thanks to the combined
efforts of all donations, more than 100 students were helped
through the programme this year.
In this section we have selected some examples from across the
world of Intertek of how we have engaged with our local
communities during 2017, through community work, education
and disaster relief efforts.
CARING COMPANY RECOGNITION
Intertek Hong Kong has been continuously recognised as a Caring
Company by the Hong Kong Council of Social Service (HKCSS) and
this year is the 6th consecutive year that we received this
acclaim. Partnering with Hong Kong Red Cross, Intertek Hong
Kong has cultivated good corporate social responsibility through
cross-sectoral activities and exchanges, developing community
projects that address the needs of the local community. In 2017,
Intertek Hong Kong organised and carried out a number of
community activities including:
• Blood Donation Day which involved more than 80 Intertek
colleagues donating blood to the Hong Kong Red Cross;
• Mid-Autumn Elderly Visit in October 2017 by our Intertek
Volunteer Team, during which festival food and supplies were
provided for elderly people;
• Participated in charity fund-raising at the Hong Kong Red Cross
Carnival; and
• Participating in other environmental protection initiatives and
programmes locally.
CSR GAZETTE
In China, we issue a bi-monthly CSR Gazette. The CSR Gazette is
a corporate social responsibility newsletter covering updates on
laws, regulations and national standards of China relating to CSR
auditing on labour, health and safety, environmental protection
and business practice.
With our Sustainability value proposition and experience in CSR
auditing, Intertek is well placed to provide relevant and timely
updates to its customers, as they look to implement improved
practices in their own operations.
52
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
LITTLE SCIENTISTS PROGRAMME
Intertek Hong Kong held its first community educational
programme, named “The Little Scientists” for young children and
their parents in September 2017.
The objective of the programme was to provide the children with
a fun and engaging scientific learning experience, including
experiments that they could carry out with their parents.
Offering this high-quality Science, Technology, Engineering, and
Mathematics (STEM) education helped stimulate the young
children’s interest in exploring new fields of knowledge and
experimental learning.
A total of 30 participants took part, aged 7 to 10, and the
feedback received was overwhelmingly positive. We will look
to run this programme again in 2018.
TRANSPORTATION DONATIONS
During 2017, Intertek’s Transportation Technologies Business
donated automobile parts to the National Auto Body Council to
support their Recycled Rides programme. Recycled Rides is a
unique programme in the US, in which insurers, collision repairers,
paint suppliers, parts vendors and others collaborate to repair and
donate vehicles to deserving individuals and service
organisations in local communities throughout the country.
Over 1,000 vehicles have been donated through the National
Auto Body Council’s Recycled Rides programme since its
inception in 2007.
STRATEGIC REPORT
In addition, the Transportation Technologies business also
donated parts to technical schools to support education.
HURRICANE MARIA RELIEF EFFORTS
Hurricane Maria was regarded as the worst natural disaster on
record in Puerto Rico and Dominica. The tenth most intense
Atlantic hurricane on record and the most intense tropical cyclone
worldwide of 2017.
As the hurricane hit, our employees in our Houston offices, having
just recently suffered from Hurricane Harvey themselves, wanted
to assist their fellow colleagues in Puerto Rico.
The team rallied together and made arrangements to secure a
container for supplies in the Houston area. An email was sent out
to Houston area employees to donate water and nonperishable
foods and request for volunteers to help pack the donations. The
team were able to fill a large trailer and flatbed truck. The
supplies were packed into the container, where it left via truck to
Miami. One of our employees volunteered to work from our
Florida location, to ensure secure passage of the container to
Puerto Rico. On arrival in Puerto Rico the supplies were
distributed to our employees.
During 2017, Intertek USA donated $25,000 to the hurricane
disaster relief efforts, in addition to employee contributions, as
well as providing the much-needed support and assistance to
employees and customers.
EXTENDING A HELPING HAND TO FLOOD VICTIMS IN
BANGLADESH
Geographically, Bangladesh is in a delta of the three major rivers:
Ganges, Brahmaputra, and Meghna — commonly known as the
GBM basin. In the recent past, we have observed major floods in
Bangladesh during the monsoon seasons of 1987, 1988, 1998,
2004, 2007, and 2016. However, in 2017, the peak water level
crossed the highest recorded water levels in Brahmaputra,
Teesta, Dharala, and Jamuneswari rivers.
The second spell of floods this year has affected nearly 7.5 million
people, according to figures by the National Disaster Response
Coordination Centre (NDRCC). Additionally, 10,583 hectares of
land have been totally washed away, while another 600,587
hectares of farmland have been damaged.
To help people affected by the flooding, Intertek Bangladesh
employees contributed to, and participated in, relief activities to
help those affected by the devastating floods in Durgapur Union,
Kalihati Upzila in Tangail District. Volunteer teams from Dhaka
travelled from almost 150 kilometers away to the flood
affected areas to distribute food, drinking water, cooking oil,
candles and other essential items to support around 200
flood-affected families.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
53
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
OUR ENVIRONMENT
Our environmental mission is to provide a better
quality of life today and a more environmentally
responsible world tomorrow, by continually
improving our business performance to minimise
the impact our operations have on the
environment.
OUR APPROACH
Intertek’s primary environmental goal is to work with each of our
sites globally to reduce their impact on the environment, through
reducing energy consumption and improving their overall
sustainability credentials. Intertek plays an important role in
raising awareness of Climate Change and National Resource
Constraints in its employees, suppliers and customers. As such,
our aim is to improve operational and natural resource efficiency
in a consistent manner across all of our 1,000 sites, and to
establish a global community of sustainability champions who
share their site level knowledge and experience for the benefit
of others.
To support this effort, our environmental and climate change
policy is implemented through country management to ensure
compliance with local guidelines and regulations.
To support our environmental goals, and following a thorough
review of our 2015 and 2016 reporting of Group emissions, it
was recognised that a more flexible and robust reporting tool
was required to more accurately carry out site level
environmental data tracking. In 2017, Intertek implemented a
Global Sustainability Environmental Software platform, which is
optimised specifically to provide Intertek with the financial grade
reporting, analytics, and auditability to support its site level
sustainability initiatives and corporate reporting going forward.
Due to the wider scope and depth of reporting in 2017 and the
increased attention to detail and diligence across all Intertek sites
globally, our 2017 data is meaningfully different to our previously
reported 2015 and 2016 figures. The data gathering has become
more accurate and granular, using less extrapolation, hence
leading to differences versus the 2015 and 2016 data. Going
forward, data should be comparable to the 2017 base year.
As a result of this renewed approach, we have already witnessed
a material uplift in the level of engagement across the business
regarding Greenhouse Gas (GHG) emissions, with each site now
being able to access their own, bespoke GHG data dashboard.
In the Our Sustainability Governance section of this report we
introduce our newly-formed Sustainability Operating Committee,
Country and Business Line Champions network and sustainability
reporting processes. Using our newly-established network, we
will focus on reducing our material impacts in our major countries
and over time plan to extend our country network to cover more
sites and locations globally. At present our country network
accounts for 82% of our Scope 1, 2 and 3 GHG emissions.
From 2018 onwards, using our enhanced data tracking, GHG
emissions will form part of our quarterly performance discussions,
in order to ensure that our environmental footprint is receiving
the requisite level of attention at the global, country and site
level, and we will be utilising our Country Sustainability
Champions network to drive material improvements in our
major markets.
In line with this improved practice, we are setting our first carbon
reduction target: To reduce our annual CO2 emissions per
employee by 5% by 2020*.
We plan to achieve this through utilising renewable sources of
energy; implementing ‘green’ waste management practices;
efficient water management; minimising business travel and
operating quality management systems.
In addition, and to support our longer-term objectives, we have
defined a four-year plan:
• 2017: Establish a robust financial grade reporting system and
process, implement a 2020 target
• 2018 & 2019: Roll-out best practice guidelines to support and
promote environmental efficiency and broaden the scope of
environmental reporting (i.e. additional scope 3 reporting)
based on the materiality of business activities which are
relevant to our business, our peers and our key stakeholders
• 2020: Reach our 2020 carbon target and explore
implementation of a Science Based Target for future
emissions reductions
Through tracking accurately and setting meaningful objective
targets, we can ensure that we are minimising our environmental
footprint whilst also providing our key stakeholders, including
shareholder and customers, with the data they need to
understand our performance. In line with this focus, we also
intend on externally verifying our data in the 2018 reporting year.
*Against the 2017 base year and excluding Process Emissions.
54
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
OUR DATA
Our annual GHG reporting cycle runs from 1 October 2016 to 30
September 2017.
For 2017, Intertek’s electricity consumption was reported to be
241,991 MWh (5.65 MWh per employee) and gas consumption
was reported to be 66,432 MWh (1.55 MWh per employee).
As a Total Quality Assurance provider, we carry out testing on
behalf of our clients which involves the direct consumption of
fuel or the direct release of emissions through refrigerant testing
procedures (Scope 1 – Process Emissions). The tests we perform
are required by our clients to help them determine the safety,
quality and environmental efficiency of their products and as
such, whilst this increases our overall Group reported emissions, it
has a positive longer-term impact on the item being tested. For
example, we perform tests for automotive manufacturers on
their engines, to help them improve efficiency, performance and
reduce emissions, however in doing so we will burn fuel both in
stationary and mobile environments. Similarly, we are one of very
few companies globally which carry out safety testing on
refrigerants which are then used in commercial and domestic
everyday items.
In the table below, we have specifically split out the Scope 1
“Process Emissions”. Where possible we look to reduce the impact
of these emissions, for example, in our engine testing lab in the
UK, our Transportation Technologies business has implemented
several electricity-producing dynamometers, which generate
power from the engines being tested, resulting in a reduction in
their site Scope 2 emissions and operating costs.
CO2e1 emissions from activities for which Intertek is responsible
include:
Scope 1
Scope 2
Scope 3
Outside of scope
Total emissions
Fugitive Emissions
Mobile Combustion -
Owned Fleet
Stationary Combustion
Process Emissions
Purchased and Used
Electricity
Purchased Heat and Steam
Energy Related Activities
Biomass
Intensity ratio
2017
Average # of employees
during reported period
1. CO2e – Carbon dioxide equivalent.
GHG
Emissions
(tonnes of
CO2e)1
7,186
23,704
13,722
15,523
126,574
1,621
29,118
157
217,605
CO2 per
employee
5.08
42,828
The platform used by Intertek complies with the methodologies
outlined by the GHG Protocol “Corporate Accounting and
Reporting Standard”, the GHG Protocol “Corporate Value Chain
(Scope 3) Standard”, ISO 14064-1, and the UK Government’s
“Environmental Reporting Guidelines: Including Mandatory
greenhouse gas emissions reporting guidance”.
In compliance with the above standards, the platform uses the
most up-to-date GHG emission factors available for each country
and type of activity. The emission factors are sourced from the
relevant government department in each country. Where local
emission factors are not available, the platform uses default
emission factors provided by the International Energy Agency
(IEA), GHG Protocol, the UK’s Department for Environment, Food
and Rural Affairs (DEFRA) and the US Environmental Protection
Agency (US EPA).
ENVIRONMENTAL ACHIEVEMENTS IN 2017
As we operate a decentralised business model, our teams locally
look for ways to become more environmentally efficient and
reduce the impact of operations on the environment. Below are
some examples of our achievements in 2017 and through
actively performance managing our GHG emissions in 2018, we
hope to make further improvements:
• In Turkey, we have implemented a water recycling system’ by
re-using the heated water from laboratory machinery. By doing
so we have been able to recover 50% of the waste water,
thereby reducing our consumption by 4 tonnes of water/per day.
• In India, our team implemented a number of initiatives following
World Environment Day, including:
–
–
–
Elevator usage restrictions during allotted time slots to
reduce power and energy;
Celebrating ‘No Paper Day’ and overall reducing paper
usage;
Encouraging usage of air purifying plants both indoors and
outdoors; and
–
Tree plantation to improve biodiversity.
• In France, we are trialling a scheme with a recycling company
whereby they collect waste paper from our sites and in
exchange we receive vouchers to buy green office supplies.
• In Australia, we have installed skylights in one laboratory which
has reduced the need entirely for lighting during the day. This
has delivered both cost savings and GHG emission reductions.
• Globally, we have made a further progress to upgrade
lightbulbs to more efficient LEDs, with particular improvements
in conversion in Turkey, France, India, USA and Australia.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
55
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
OUR ENVIRONMENT
continued
SUPPORTING OUR CLIENTS IN ENVIRONMENTAL
MANAGEMENT
With our Sustainability value proposition, there are multiple ways
in which we support our clients in their Environmental
Management goals:
Carbon Footprinting Services
During 2017 Intertek HERS performed a carbon footprint for a
North American transport and operations services provider. As
part of the assessment Intertek worked with the client to
determine year-on-year improvements and how they relate to
specific changes and upgrades to their operations. Results were
reported in CO2 equivalent emissions and encompassed
improvements such as fuel and fleet changes, warehouse
logistics and implementing policies that require efficient
movement of materials within operations.
Resource efficiency and adoption of cleaner technologies can
positively impact sustainable growth, demonstrated by
implementing strategies that increase efficiency in operations
and the responsible use of fuel and materials. With the
transportation sector contributing over a quarter of the world’s
GHG emissions, movement of materials, whether in a factory or
cross-country is an important part of sustainable consumption
and economic growth.
Zero Waste to Landfill Certification
Intertek provides companies with the Zero Waste to Landfill
certification, which showcases an organisation's contribution
towards improving their sustainability initiatives through their
pledge to minimise the amount of waste that enters landfills from
their operations.
Zero Waste to Landfill certification provides improved credibility
and visibility to an organisation’s sustainability efforts.
Implementing a Zero Waste to Landfill programme will not only
improve the efficiency in manufacturing processes but can also
save physical and financial resources through energy
conservation and reuse of raw materials.
During 2017, Intertek awarded the Zero Waste to Landfill to
Mahindra Group, a leader in the tractor and utility vehicles space,
employing more than 200,000 people across the globe. Mahindra
was among the first to receive this certification in India which
truly demonstrates their commitment to improving the
environmental effects their manufacturing process has on the
communities in which they operate.
Clean energy
Across the world, our Sustainability value proposition positions us
well to support our clients in their development of clean energy
solutions, including solar, wind, biofuel and water power. In
Mexico, during 2017, along with our Joint Venture partner,
Intertek+ABC Analitic have participated extensively in the
sampling of the initial conditions of sites where wind farms are to
be placed, in order to advise on the appropriateness of the
location and impact on the ecosystem. In addition, we have also
been involved in monitoring and assessing the environmental
impact of the noise generated by the wind turbines.
56
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
Ecotoxicology
Intertek provides ecotoxicology services for clients, to assess the
toxicity of a variety of different samples that pose a risk to the
marine environment, i.e. effluents, crude oils, bulk shipping cargo
to name a few. The outcomes of each toxicity assessment are
then used by our clients to ensure environmental protection.
In addition to the testing of samples for toxicity, the
ecotoxicology division also provides assurance services to assist
clients with environmental risk assessments. Specialising in
determining the bioavailability of contaminants, our
ecotoxicologists provide focused and insightful data analytics
to assist our clients in their environmental goals.
During 2017, Intertek’s ecotoxicology team have worked with
Jacobs for many of the major Oil and Gas companies in the
Australasian region in relation to the produced water testing for
the offshore oil and gas platforms.
STRATEGIC REPORT
Pollution Prevention Planning Services
Intertek provides industrial and institutional clients with pollution
prevention planning services. Some jurisdictions require the
testing for wastewater discharge from industrial and institutional
facilities for a range of parameters. The strategy behind pollution
prevention planning is to address hazardous chemicals that are
found in freshwater resources and landfills. Before wastewater is
treated, many solid and larger inorganic materials are removed
and deposited, untreated, into landfills where previously absorbed
pollutants can later leach into soil and groundwater. To manage
unwanted chemicals from reaching freshwater resources and
landfills, pollution prevention planning, includes testing
wastewater when it is discharged from the facility and relating
findings back to chemicals, products and infrastructure used.
In Ontario, Canada Intertek’s pollution prevention planning
services led to the removal of a subject pollutant from cleaning
products commonly used in healthcare facilities, among major
manufacturers. Additionally, Intertek is also working with a global
supplier of laboratory equipment, to identify pollution prevention
planning requirements in various countries world-wide so their
products can meet customer demand and reduce their
contribution of pollutants discharged to the environment.
Pollution prevention effectively incorporates strategies for
clean and safe drinking water with controllable activities and
wastewater discharge. Intertek supports evaluation and planning
for management of freshwater ecosystems that are essential to
human health, environmental sustainability and economic
prosperity.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
57
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
TRACKING OUR PROGRESS WITH THE UN SDGs
INTERNAL
As a Total Quality Assurance provider, we are
in a strong position to align with each of the
United Nations Sustainable Development Goals
('UN SDGs'), both through the internal activities
we carry out, for our people, our communities and
the environment, as well as through the
sustainability services we provide our customers.
We are therefore using the UN SDGs as a third party, independent
framework to track our country and business line progress in
sustainability. From 2018 onwards, each of our major business
lines and countries will provide quarterly updates on the progress
they are making toward the UN SDGs that they have chosen to
align with, providing quantitative and qualitative examples of
how they have helped to contribute to the goals.
By way of example, during 2017 we ran a case study with our
Building & Construction (B&C) division, to evaluate B&C’s
performance in internal and external sustainability initiatives vs.
the UN SDGs.
By taking this approach, we aim to increase engagement across
our business by providing Our People with a framework upon
which they can clearly demonstrate the wider positive
sustainability contribution that they are making through their
daily activities.
We will continue to update vs. the UN SDGs going forward, by
providing annual examples of the progress we are making in
different business lines.
B&C provide assurance services for
The Ronald McDonald House on a
volunteer basis – helping food
storage and distribution for the poor
B&C is actively involved in the ACE
Mentoring Program which is the TOP
Program in the USA to promote
Quality of Education and exposure
into the B&C market sector
B&C heavily promotes Women in
Engineering and actively supports
specific projects of the Small Women
Owned Businesses initiative
B&C provides extensive consulting
for civil engineering design and
inspection services on US Army Corp
of engineers dams, levees,
wastewater treatment plants and
clean water supply reservoirs
58
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
STRATEGIC REPORT
"Intertek B&C has helped
to set Renewable
Energy Records in the
USA to an all time high
of 10% in 2017."
B&C provides extensive
assurance and testing to
Wind, Solar, and
Hydroelectric operators.
Recent projects have been
some of the largest and
most Clean Energy
advanced projects in
the World
EXTERNAL
B&C provides assurance on
reutilising concrete demolition debris
from demolished foundations,
columns, floor slabs, and parking lots
for reuse as high quality aggregate
materials for highways
B&C provide inspection and services
on building envelope evolutions to
ensure better insulation and energy
efficiency
17.899 MM
B&C provides extensive assurance
and testing in the field of coastal
restoration, marine, and wildlife
conservation with many prominent
state wide projects
B&C provides extensive assurance
and testing in the field of “Land
Management” which includes halting
land lost and its negative impact on
the environment. B&C has a
dedicated Wetlands consulting group
"Intertek B&C has been a key
provider of LEED/"Green" building
certificates to a record high of
65,000 in the USA in 2017."
B&C employs Leadership in
Energy and Environmental
Design (LEED) Inspectors
to assess the certification
of Buildings to LEED
status. PSI is a member of
the US Green Building
Council
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
59
STRATEGIC REPORT
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
OUR SUSTAINABILITY GOVERNANCE
During 2017 we established a set of five
group sustainability priorities, linked to our 5x5
differentiated strategy for growth. One of our
five priorities is to make continuous progress in
sustainability through appropriate
organisational focus.
Our objective is to ensure that we provide the organisation with
the requisite levels of support and engagement, at the highest
levels of the organisation, both for our internal sustainability
activities and for the sustainability services we provide our
customers.
SUSTAINABILITY OPERATING COMMITTEE
To enhance engagement across our sustainability initiatives, in
2017 we established a network of Sustainability Champions
across our major countries and business lines to develop global
connectivity across our sustainability activities. Two networks
were created:
• Country network:
–
–
–
Seeking opportunities to act sustainably, through energy
efficiency and cost reductions across energy, water and
waste usage
Engaging with people locally to drive positive behaviours
throughout the organisation, but also through encouraging
sustainability engagement with local stakeholders
Maintaining best in class internal labour and human rights
practices, activity monitoring, and liaising with HR
colleagues regarding social sustainability metrics
improvements
• Business line network:
–
–
–
Taking the lead on engaging the sales organisation within
the business line to ensure they are aware of all the
sustainability services that can be offered to customers
Working with colleagues globally to help develop our suite
of sustainability service offerings
Help generate new and innovative ways of offering
sustainability services to our customers
SUSTAINABILITY NETWORK
The Sustainability Champions meet monthly to discuss progress
against our group priorities and share best practice. A newly formed
Sustainability Operating Committee reports to the Group CEO
monthly, and provides the Group Executive Management Team with
a quarterly update and the Board with an annual update.
Over time we will expand this network to include more countries
and business lines. Our objective is to enhance engagement
across our business in sustainability activities, whether this be
internally, through the work we do for the environment or
communities in which we operate, or externally through the
services we provide our customers.
Our people are passionate about their work and are proud to be
involved in activities which generate a positive impact for society
and the environment. As each of our countries and business lines
define their own sustainability agenda, tied to our Group priorities
but specific to their local operations, the objective of our network
is to ensure the activities being performed locally are understood
and we benefit from best practice globally.
RESPONSIBLE INVESTMENT
Delivering sustainable returns is a key enabler of our 5x5
strategy for growth and incorporates Responsible Investment
('RI'). At Intertek, RI includes the evaluation of Environmental,
Social & Corporate Governance ('ESG') risks as part of the
investment process. ESG due diligence forms a key part of our
acquisition review process as well as when assessing capital
expenditure decisions on new and innovative ATIC services. We
ensure that we have identified potential ESG risks, and have in
place corresponding mitigation plans and remedies. Our
investment process, in line with our overall Group strategy,
ensures that we maintain the right balance between
performance and sustainability. Going forward, acquired
businesses will be provided access to our Group Environmental
Data Software and will be required to submit their environmental
data as part of the ongoing reporting cycle.
STEWARDSHIP AND GOVERNANCE
Sustainability and CSR are integrated into Intertek through
policy distribution and through our Code of Ethics framework
at www.intertek.com/investors/governance/code-of-ethics. Our
operations and support functions are responsible for identifying
and evaluating risks applicable to their areas of the business and
the design and operation of suitable internal controls (see
‘Principal risks and uncertainties’ on pages 32 to 37).
Board
Updates
annually
Group CEO
Updates
monthly
Sustainability Operating Committee
Executive Management Team
Updates
quarterly
Sustainability Data
Social & HR
Sustainability Lead
External Reporting
Sustainability Services
Country Champions: 15 countries
Business Line Champions: 10 BLs
Updates monthly
60
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
ETHICAL SUPPLY
As a global provider of quality solutions, including supply chain
assurance and modern slavery audits, for its clients, Intertek is
committed to preventing slavery and human trafficking in its own
corporate activities and to ensuring that its own supply chain is
free from modern slavery. Our 2017 Modern Slavery Statement
can be found at www.intertek.com/about/corporate-governance.
The Group analyses its supply chain on an ongoing basis as part
of its risk, compliance and ethics framework.
We have corporate policies and governance processes to support
our efforts to address the issues covered by the Modern Slavery
Act 2015, including: the Code of Ethics (with regular refresher
training for all employees); a confidential and external hotline on
which issues can be reported; a labour and human rights policy;
and clear recruitment policies aimed at fair recruitment and
treatment of employees. Furthermore, to demonstrate our
commitment to continued improvements and achieving an
industry-leading standard in this area, we will work to put in place
enhanced policies, procedures and due diligence processes for
suppliers which are aimed more specifically at evaluating the risk
of, and preventing, modern slavery issues.
SUPPORTING OUR CLIENTS IN SUPPLY CHAIN RISK
ASSESSMENTS
Our Sustainability value proposition also supports our clients in
their supply chain risk assessments:
Workplace Conditions Assessment
The Intertek developed Workplace Conditions Assessment (WCA)
program provides a powerful, cost-effective solution for
companies and facilities seeking to improve workplace conditions
efficiently and in accordance with widely accepted industry
standards and best practices.
Anchored in Intertek’s extensive social compliance expertise,
WCA has emerged as an industry-leading tool for evaluating,
benchmarking and continuously improving supplier workplace
conditions. The program is supported by a web-based platform
that automates and streamlines the audit process, increasing
efficiencies for all supply chain partners.
WCA addresses the following and more:
• Labour (Child/Forced Labour, Discrimination, Discipline,
Harassment/Abuse, Freedom of Association, Labour Contracts)
• Wages and Hours (Wages and Benefits; Working Hours)
• Health and Safety (General Work Facility, Emergency
Preparedness, Occupational Injury, Machine Safety, Safety
Hazards, Chemical and Hazardous Material, Dormitory
and Canteen)
• Management Systems (Documentation and Records,
Worker Feedback and Participation, Audits and Corrective
Action Process)
• Environment (Legal Compliance, Environmental Management
Systems, Waste and Air Emissions)
STRATEGIC REPORT
During 2017, we carried out our WCA programme for Siemens
suppliers globally in a number of countries including China, India,
Germany, Mexico, United Arab Emirates, USA, Brazil and more.
Mill Qualification programme
In the competitive apparel sector, retailers and brands are
increasingly concerned about the quality of the textiles that
mills supply. They know it is fundamental to overall garment
quality. Today, however, they also appreciate the extent to which
social and environmental performance figures into the value
equation – especially now that it’s apparent that the most socially
and environmentally responsible mills deliver more consistently
on quality excellence. The key challenge becomes one of
accessing reliable data on mill social and environmental
performance, including measures related to improved efficiency
and overall quality.
The Mill Qualification Program (MQP), developed by Intertek,
provides leading suppliers and brands with a new operating
environment that integrates sustainability considerations with
continuous improvement in the quality performance of fabric
mills. The program employs a unified and standardised approach
for mill performance measurement in key areas, including social
considerations, quality assurance, lab certification and
environmental sustainability. The MQP has emerged as an
industry-leading tool for evaluating, benchmarking and
monitoring mills’ performance and ensuring continuous
improvement. Its focus on collaboration encourages a partnership
between buyers and suppliers in order to create a better
understanding of and alignment with sourcing strategies and
expectations. During 2017 we carried out Supplier In-house Lab
Certification Programmes for a number of customers, including
Arcadia and C&A.
The Strategic Report was approved by the Board on 5 March 2018.
By order of the Board.
André Lacroix
Chief Executive Officer
Global Reporting Initiative (GRI) guidelines provide a recommended framework and
indicators for reporting. A table outlining the GRI standard disclosures is provided on
our corporate website at www.intertek.com/about/corporate-responsibility/.
All data used for performance indicators is representative of the GRI Guidelines.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
61
DIRECTORS’ REPORT
CHAIRMAN'S INTRODUCTION
CHAIRMAN'S INTRODUCTION
DEAR SHAREHOLDER
As reported in the Chief Executive Officer’s review, Intertek has
delivered good results as we have continued to pursue our
strategy focused on Total Quality Assurance. In line with our
progressive dividend policy of sustainably growing the dividend
each year whilst maintaining minimum dividend cover of 2.5 times
earnings, the Board is recommending a final dividend of 47.8p
bringing the total for the year to 71.3p, up 14.3% and increasing
the dividend payout ratio to circa 50% in 2018.
The Company remains focused on strong free cash flow
generation with the result that net debt at the year end of
£544.1m was 26.8% lower than at the end of 2016. With the
aim of increasing shareholder value, as well as organic growth,
we continue to pursue a disciplined approach to capital allocation.
Our strong financial position means we have the flexibility to
consider strategic acquisition opportunities in new niche and
emerging areas as well as pursuing acquisitions in the core
businesses whilst investing in laboratories and equipment to
support future growth.
To underpin the successful delivery of long-term sustainable
growth and shareholder value, your Board is committed to high
standards of corporate governance. The Board is responsible for
ensuring the appropriateness and effectiveness of the Group’s
management and control framework in order to support the delivery
The Board is committed to the successful
delivery of long-term sustainable growth
and shareholder value which is
underpinned by the highest standards
of corporate governance.”
Sir David Reid
Chairman
62
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
of our strategic and business goals, providing leadership to the
business on culture, values and ethics, affording strong oversight
of risk management and making certain there is alignment with
shareholder interests and effective shareholder relations.
The aim of this report is to provide shareholders with a clear
perspective of your Board’s approach to corporate governance, how
we have complied with the UK Corporate Governance Code ('Code’)
and the work of the Board and its Committees during 2017.
CORPORATE GOVERNANCE DEVELOPMENTS
2017 has been a year of particular focus on corporate
governance in the UK with scrutiny from businesses, the
government and the wider public. The Board have paid close
attention to these developments including the Government’s
Corporate Governance Green Paper, the BEIS Select Committee
inquiry into corporate governance and the FRC’s consultation on
proposed amendments to the Code. We noted the proposals with
interest and are reviewing these to ensure any changes can be
implemented in due course and strengthen the governance
framework as we continue to operate in an ever-evolving
environment.
We remain strongly supportive of the principle of boardroom
diversity and have continued to be mindful of the
recommendations by the Hampton Alexander Review, which
builds on the Lord Davies Review into 'Women on Boards'. The
Group also supports the Parker Review ‘Beyond One by ‘21’
recommendation in respect of ethnically diverse director
representation on boards. More details about the diversity of our
Board can be found in the report of the Nomination Committee
on page 74.
SUCCESSION PLANNING
Succession planning has continued to be a key focus for the
Board. The Nomination Committee maintained its focus on the
NED refreshment programme and on evaluating the composition
of the Board and its Committees. We have reviewed the necessary
skills required to address the evolving and changing needs of our
business. It is my intention to continue to ensure that we maintain
a Board that works effectively and cohesively under my leadership.
The Nomination Committee deliberated on a broad range of
candidates to ensure individuals with wide-ranging experience,
expertise and attributes were considered to support the existing
skills on the Board and to support the continued growth and
success of the Group. More information on the role and activity of
the Nomination Committee is detailed on pages 72 to 74.
As announced on 2 March 2017, Alan Brown stepped down from
the Board on 24 May 2017 after completing six years’ service as a
Non-Executive Director. We further announced on 27 July 2017
that Michael Wareing, after serving for over six years as the Chair
of the Audit Committee and as the Senior Independent Non-
Executive Director would step down from the Board on 30
September 2017. I would like to take this opportunity to thank
both Alan and Michael for their dedicated service and valuable
contribution since joining the Board in 2011.
On 1 July 2017 we welcomed Gurnek Bains and Jean-Michel Valette
to the Board as Non-Executive Directors and members of the
Nomination Committee and Audit Committee respectively. Gurnek’s
expertise is in the areas of culture change, executive coaching,
board and strategic talent development while Jean-Michel brings
DIRECTORS’ REPORT
to the Board experience in branded consumer goods, US corporate
governance, strategic planning and finance. Graham Allan joined the
Board on 1 October 2017 as our new Senior Independent Non-
Executive Director and as a member of the Nomination and
Remuneration Committees. His background in Asia and consumer
goods, and particularly food and beverages will prove invaluable.
PERFORMANCE EVALUATION
In the context of the Board changes during the year and in
accordance with the requirements of the Code, we undertook an
internally facilitated assessment. I am pleased to report that the
evaluation concluded that each Director is making significant
contributions to debate and discussion and that the Board and its
Committees continue to operate effectively. Further details on the
outcome of the evaluation and its process can be found on pages
71 and 72.
CULTURE
Corporate culture is continually moving up the agendas of investors,
our clients and other stakeholders. As such, we believe that the
Board should give sufficient time not only to discussing
performance and results, but also to understanding the culture and
values that underpin a collaborative culture. We are focused on
ensuring that our strategy and culture provides our people with the
right platform to grow and develop their careers, but also allows
them to be involved in activities which are socially responsible and
enables them to engage with the communities in which they live
and work.
During the year, the CEO and his Executive Management Team
spent considerable time and energy on embedding Intertek’s values
within the organisation, and reinforcing the levels of communication
and behaviour that are expected of everyone. As an example, the
values supporting the Group and the new brand identity exercise,
which was rolled out during the year, were developed using the
input from the business and, in conjunction with the 5x5 strategy
for growth, have provided the platform to energise our people to
enable us to get closer to our customers. The Board will continue to
focus on our culture and promoting good governance to support
openness and accountability throughout the business.
More detail can be found in the Strategic report on pages 2 and 3.
SHAREHOLDER ENGAGEMENT
Our engagement with shareholders is outlined on pages 97 and
98 and also in the Remuneration report in the letter from the
Chair of the Remuneration Committee on page 81. I am
interested in hearing the views of our shareholders. Your
feedback helps us to ensure that the Board takes these into
account when considering the strategic direction of the Group.
Finally, I would like to thank the Board, our Executive
Management and all our employees for their endeavours and
commitment during 2017.
IN THIS SECTION
The Code provides guidance on
five key areas: Leadership,
Effectiveness, Accountability,
Remuneration and Relations
with Shareholders. This report
provides an insight into how,
through its actions, the Board and
its Committees have fulfilled their
governance responsibilities
throughout 2017.
LEADERSHIP
PAGE 64
EFFECTIVENESS
PAGE 70
ACCOUNTABILITY
PAGE 75
REMUNERATION
PAGE 81
SHAREHOLDER ENGAGEMENT
PAGE 97
Sir David Reid
Chairman
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
63
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
LEADERSHIP
COMPLIANCE WITH THE 2016 UK CORPORATE
GOVERNANCE CODE ('CODE')
This report has been prepared in order to provide the
shareholders and other stakeholders with a comprehensive
understanding of our governance framework and to meet the
requirements of the Code, the Listing Rules ('LR') and the
Disclosure Guidance and Transparency Rules ('DTR'). A copy of
the Code is also available at www.frc.org.uk. During 2017, the
Company has complied with the provisions of the Code in full. A
more detailed explanation of our compliance can also be found on
our website at www.intertek.com. The information required to be
disclosed in accordance with DTR 7.2.6 can be found in the Other
Statutory Information section on pages 99 to 101.
THE BOARD
The Board has the ultimate responsibility to the Company’s
shareholders for the proper conduct and success of the business
through innovative leadership, setting the strategic aims of the
Company, its values and standards. The Board also decides and
reviews all key policies and regulations, its strategy, operating
plans, large acquisitions, corporate governance, major
investments and disposals, appointment and removal of
Directors, risk management, financial reporting, audit,
sustainability, ethics, the environment and people policies.
The Board reviews and approves the method and approach
to risk management and internal control systems and the Group’s
Risk Register. The overall powers of Directors are set out in
the Company’s Articles of Association (‘Articles’) and may be
amended by special resolution of the shareholders.
The Board is ultimately responsible for ensuring that appropriate
financial and human resources are in place to achieve its long-
term strategy and deliver sustainable performance. Our strategy
and progress towards delivering these strategic aims is set
out in the Strategic report on pages 2 to 61.
The Board Approval Matrix formally outlines the matters
specifically requiring the consent of the full Board. Each of the
Board’s Committees has received delegated authority to carry
out the business defined in its respective terms of reference.
The Board is satisfied that the terms of reference for each
of these Committees continue to reflect current best practice
and satisfy the terms of the Code.
The Board also delegates specific responsibilities, subject
to certain financial limits, to management and this is governed
by the Authorities Cascade, which is regularly reviewed and
refreshed to ensure it continues to meet business needs.
An agreed framework of controls enables strategic aims and
financial performance to be delivered whilst also allowing
risk to be assessed and managed.
Intertek Board of Directors
Biographical details can be found on pages 68 and 69.
Audit Committee
Remuneration Committee
Nomination Committee
Membership as at
31 December 2017
- Andrew Martin (Chair)
- Jean-Michel Valette
- Lena Wilson
Read more on pages 75 to 80.
Membership as at
31 December 2017
- Gill Rider (Chair)
- Graham Allan
- Dame Louise Makin
- Andrew Martin
Membership as at
31 December 2017
- Sir David Reid (Chair)
- Graham Allan
- Gurnek Bains
- Dame Louise Makin
Read more on pages 81 to 96.
Read more on page 72 to 74.
Group Risk
Committtee (GRC)
Ethics and Compliance
Committee
Investment
Committee
Disclosure
Committee
Responsible for the management of risk;
to develop, oversee and promote the
continuous improvement of the Group’s
risk management, internal controls and
assurance framework and the related
procedures and systems; to oversee the
development, implementation and adoption
of any policies, procedures and systems
which are identified as being required to
address, or as a consequence of, Group risks.
The GRC provides an integrated, Group-wide
approach to identifying and managing the
Group's emerging and systemic risk
environment.
Responsible for the
monitoring of ethical,
compliance and HSE issues
affecting any part of the
Intertek Group.
Responsible for reviewing
significant contracts,
leases and acquisitions,
undertaking post
investment appraisal
reviews, overseeing
capital expenditure and
investments as defined in
the Authorities Cascade.
Responsible for assisting
the CEO in overseeing the
Group’s compliance with
securities dealing as well as
continuous and periodic
disclosure requirements.
Executive
Management Team
Responsible for Intertek’s
global operations, the Team
meets regularly to discuss
and decide business and
operational issues.
Biographical details of the
Team can be found on
pages 20 and 21.
Divisional & Country
Management
Support Functions
64
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
ROLES AND RESPONSIBILITIES
There is a clear division of responsibilities between the running of the Board (a key responsibility of the Chairman) and the day-to-day
running of the Company’s business (the responsibility of the CEO). These responsibilities have been formalised in writing.
Roles of the Chairman, Chief Executive Officer and Senior Independent Non-Executive Director
ROLE
Chairman
NAME
Sir David Reid
André Lacroix
Chief
Executive
Officer
Senior
Independent
Non-Executive
Director
Michael Wareing
(to 30 September 2017)
Graham Allan
(from 1 October 2017)
RESPONSIBILITIES
• Leading and governing the Board to ensure its effectiveness in all aspects.
• Ensuring the Directors receive accurate, timely and clear information to enable them
to discharge their duties.
• Ensuring effective two-way communication with shareholders and communicating to all
Directors any of the major shareholders’ issues and concerns.
• Facilitating openness and debate and the effective contribution of Non-Executive Directors.
• Proposing and agreeing the strategy with the Board.
• Running the day-to-day operation of the business in line with the agreed strategy
and commercial objectives.
• Promoting and conducting the affairs of the Company with the highest standards of ethics,
integrity and corporate governance.
• Leading the Executive Management Team.
• Providing a sounding board for the Chairman.
• Being available as an intermediary between other Directors and the Chairman.
• Leading the annual performance review of the Chairman.
• Being available to meet with shareholders should they have any concerns that have
not been resolved through the normal channels.
GROUP COMPANY SECRETARY
The Group Company Secretary supports the Chairman in the
delivery of the Board and governance procedures, in particular
with the planning of agendas for the annual cycle of Board
and Committee meetings, the planning of the induction for
new Directors and in ensuring that information is made available
to the Board members on a timely basis. She arranges for the
Non-Executive Directors to meet with investors to discuss
aspects of Intertek’s corporate governance arrangements on
request and supervises the arrangements for them to visit
Intertek’s operations to enhance their knowledge and
understanding of the business. She also provides updates
to the Board on regulatory and corporate governance issues,
new legislation, and Director’s duties and obligations.
All Directors have access to the advice and services of the Group
Company Secretary, including access to independent professional
advice at the Group’s expense. She ensures that an accurate
record of all the Board and Committee meetings is taken and if
a member of the Board has any concerns about the Company
or any of the decisions taken, the minutes reflect this. No such
concerns were raised during the year.
The Company has granted an indemnity, to the extent
permitted by law, to each of the Directors and the Group
Company Secretary. Directors’ and Officers’ liability insurance
is also in place.
MEETING, ATTENDANCE & INDEPENDENCE
The table on the right sets out the Board and Committee
membership and attendance during the year to 31 December
2017. Attendance is shown as the number of meetings attended
out of the total number of meetings possible for the individual
Director to attend during the year. The Board has reviewed the
independence of the Non-Executive Directors, other than the
Chairman, and considers that all of them continue to demonstrate
independence in both character and judgement.
Board and Committee membership & Meeting attendance
DIRECTOR
Sir David Reid
Chairman
André Lacroix
Chief Executive Officer
Edward Leigh
Chief Financial Officer
Graham Allan1
Senior Independent
Non-Executive Director
Gurnek Bains2
Non-Executive Director
Alan Brown3
Non-Executive Director
Dame Louise Makin
Non-Executive Director
Andrew Martin4
Non-Executive Director
Gill Rider5
Non-Executive Director
Jean-Michel Valette6
Non-Executive Director
Michael Wareing7
Senior Independent
Non-Executive Director
Lena Wilson
Non-Executive Director
BOARD AUDIT NOMINATION REMUNERATION
5/5
5/5
5/5
2/2
3/3
–
–
–
–
–
1/1
1/1
5/5
–
5/5
4/4
4/5
–
3/3
2/2
3/3
3/3
5/5
4/4
4/4
–
–
1/1
2/2
–
4/4
–
–
–
3/3
–
–
–
–
1/1
–
–
3/3
1/1
3/3
–
2/2
–
When required the Board also met at short notice on a quorate basis.
1. Graham Allan was appointed to the Board and joined the Nomination and
Remuneration Committees on 1 October 2017.
2. Gurnek Bains was appointed to the Board and joined the Nomination Committee
on 1 July 2017.
3. Alan Brown stepped down from the Board and the Audit Committee on 24 May 2017.
4. Andrew Martin joined the Remuneration Committee on 1 October 2017.
5. Gill Rider missed one Board meeting due to illness however she attended the
preceding management presentations.
6. Jean-Michel Valette was appointed to the Board and joined the Audit Committee
on 1 July 2017.
7. Michael Wareing stepped down from chairing the Audit Committee on 1 March 2017
and stepped down from the Board on 30 September 2017.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
65
30%
70%
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
LEADERSHIP
continued
Whenever a Director is unable to attend a meeting, they will
go through the papers, which have been circulated in advance,
and give feedback and discuss any issues with the Chairman.
DIVERSITY
The Chairman and Non-Executive Directors meet regularly
without the Executive Directors or management being present.
The Chairman also maintains regular contact with the Senior
Independent Non-Executive Director.
BOARD BALANCE & COMPOSITION
As at 31 December 2017, the Company’s Board comprised the
Chairman, two Executive Directors and seven Non-Executive
Directors. Biographical details of individual Directors are set out
on pages 68 and 69. The Directors are of the view that the Board
and its Committees consist of Directors with the appropriate
balance of skills, experience, independence and knowledge of
the Group to ensure the business continues to be run effectively
and the Board's decision-making is not dominated by any one
specific view or individual.
COMPOSITION
There continues to be a focus on maintaining an effective
and complementary Board, whose capability is appropriate
for the scale, complexity and strategic positioning of the
Group’s business.
7
The Nomination Committee is responsible for reviewing the
composition of the Board and its Committees. More detail on
the process for appointments can be found in the report of the
Nomination Committee on pages 72 to 74.
The Chairman is committed to ensuring the Board comprises
a majority of independent Non-Executive Directors who
constructively challenge and scrutinise the day-to-day
management of the business, balanced against the need to
ensure continuity on the Board.
The Non-Executive Directors are appointed for specified
terms subject to election and re-election by shareholders at
the Annual General Meeting ('AGM') each year, if the Board, on
the recommendation of the Nomination Committee, deems it
appropriate that they remain in office. The Board recognises the
recommended term within the Code and as such, any term beyond
six years for a Non-Executive Director is subject to a particularly
rigorous review to ensure the progressive refreshing of the Board
meets the evolving needs of the Company.
The letters of appointment of the Non-Executive Directors, as well
as the service agreements of Executive Directors, are available for
inspection at the Company’s registered office and at the AGM.
TENURE NON-EXECUTIVES
29%
28%
66
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
Male
Female
1
2
43%
Chairman
Executives
Non-Executives
Under 1 year
1 to 3 years
3 to 6 years
DIRECTORS’ REPORT
EXPERIENCE OF THE BOARD
With a wide range of knowledge and experience from sectors and industries which complement the Company’s operations, the
Company’s Non-Executive Directors bring external perspectives and strong independent insight to the deliberations of the Board
and its Committees. The table below shows the professional experience on appointment for new Directors and as at 1 January 2017
for all other Directors.
Professional Experience
DIRECTOR
Sir David Reid
André Lacroix
Edward Leigh
Graham Allan
Gurnek Bains
Dame Louise Makin
Andrew Martin
Gill Rider
Jean-Michel Valette
Lena Wilson
OUR
SECTORS CONSULTING
• • •
• • •
• • •
•
• • •
• •
•
• •
•
• • •
•
•
•
•
•
RISK
MANAGEMENT
•
•
•
•
•
•
•
•
•
•
CUSTOMER
SERVICE/CARE
•
•
•
•
•
•
•
•
•
•
PEOPLE
•
•
•
•
•
•
•
•
FINANCE
•
•
•
•
•
•
•
•
INTERNATIONAL
•
•
•
•
•
•
•
•
•
•
LISTED
COMPANY
DIRECTOR
•
•
•
•
•
•
•
•
•
PREVIOUS/
CURRENT
CHIEF
EXECUTIVE
•
•
•
•
•
•
NED
EXPERIENCE
•
•
•
•
•
•
•
•
PRODUCTS
TRADE
RESOURCES
BOARD ACTIVITY DURING THE YEAR
The Chairman, and respective Committee Chairs, develop and agree a forward agenda for Board and Committee meetings for the year
ahead to ensure that proper oversight of key areas of responsibility are scheduled regularly and that adequate time is available during the
year for the Board to fully consider strategic matters. Papers, including minutes of Board and Committee meetings held since the
previous meeting, are circulated in advance of each meeting. In addition to scheduled Board meetings, there was frequent ad hoc
contact between Directors to discuss the Group’s affairs and the development of its business.
Board agenda items for 2017
Corporate Governance
• Reports of the activities of the Audit, Nomination and
Finance
• Approval of full-year results, Annual Report and Accounts,
half-year results, the AGM circular and dividends
Remuneration Committees
• Updates on governance
• Conflicts of interest
• 2018 annual budget and five-year plan
• Chief Executive’s Business Performance Reports
• Monthly Business Performance Reports to the
• Board, Director and Committee evaluation process
Non-Executive Directors
• 2016 Board Effectiveness Review
Strategy & Business Development
• Updates on Group strategy and commercial objectives
• Presentations by regions, country and business lines
• Group funding strategy
• Tax strategy
People Management
• Group People strategy
• Updates on developments, acquisitions and disposals
• Talent mapping and succession planning
• Group IT strategy
• Group M&A strategy
• Group Sustainability strategy
Shareholder Engagement
• IR reports
Risk
• Quarterly Risk, Control, Compliance and Quality reports
• The Group Risk Register
• Approval of changes to the composition of the Board
and its Committees
• Re-election of Directors at the 2017 AGM
• Board, Committee and Director evaluation process
Since the year end, the Board approved the Annual Report and
Accounts for 2017 and has concluded that, taken as a whole,
they are fair, balanced and understandable. The Notice of AGM
was also approved, the payment of a final dividend
to shareholders was recommended and the Board has received
and discussed the report on the effectiveness of the Board
during 2017.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
67
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
LEADERSHIP
continued
1
2
3
4
5
BOARD OF DIRECTORS
2 André Lacroix
Chief Executive Officer
Committees as at 5 March 2018
Audit
Nomination
Remuneration
1 Sir David Reid
Chairman
A
N
R
N
Appointed to the Board in December 2011
and became Chairman in January 2012.
Sir David Reid retired as Chairman of Tesco
PLC in November 2011 after serving in
that role since April 2004. Prior to that he
was Deputy Chairman of Tesco PLC and
had served on the Tesco Board since
1985. David is Chairman of the charity
Whizz-Kidz. In February 2012 he was
appointed a member of the Global Senior
Advisory Board of Jefferies International
Limited, a global securities and
investment banking group. He was
formerly the Senior Independent Non-
Executive Director of Reed Elsevier Group
PLC, Chairman of Kwik-Fit Group Ltd,
Non-Executive Director at Greenalls Group
Plc (now De Vere Group), Legal & General
Group Plc and Westbury plc.
Appointed to the Board as Chief
Executive Officer in May 2015. André
is an experienced Chief Executive with a
strong track record of delivering long-term
growth strategies and shareholder value
with global companies across diverse
territories. André was previously Group
Chief Executive of Inchcape plc from
2005 to 2015 and prior to this he was
Chairman and Chief Executive Officer of
Euro Disney S.C.A. From 1996 to 2003
he was the President of Burger King
International, previously part of Diageo.
André is currently the Senior Independent
Director of Reckitt Benckiser Group plc.
3 Edward Leigh
Chief Financial Officer
Appointed to the Board as Chief Financial
Officer in October 2014. Joined Intertek in
March 2013 as the Group’s Financial
Controller. Prior to that, Edward spent nine
years at Dixons Retail Plc, where he held
several senior financial management
positions, including Divisional & Corporate
Development Finance Director, UK &
Ireland CFO and Group Financial Controller.
From 1995 to 2004 Edward held
commercial financial leadership roles at
Procter & Gamble Co. covering the UK
and international markets.
4 Graham Allan
Senior Independent
Non-Executive Director
RN
Appointed to the Board as a Non-
Executive Director in October 2017. He
was the Group Chief Executive of Dairy
Farm International Holdings Limited, a
pan-Asian retailer and a subsidiary of
Jardine Matheson, until August 2017 after
serving for five years with the Group. Prior
to joining Dairy Farm, he was President
and Chief Executive Officer at Yum!
Restaurant International and was
responsible for global brands KFC, Pizza
Hut and Taco Bell in all markets except
the US and China. Since 1989, he has held
various senior positions in multinational
food and beverage companies with
operations across the globe and has lived
and worked in Australia, Asia, the US and
Europe. Graham is also a Board member of
IKANO Pte Ltd, an Asian retail and
property company. He was previously
a Non-Executive Director of
InterContinental Hotels Group plc, Yonghui
Superstores Co. in China and a
Commissioner of Hero Group, an
Indonesian retailer.
5 Gurnek Bains
Non-Executive Director
RN
Appointed to the Board as a Non-
Executive Director in July 2017. Gurnek
Bains was the co-founder of YSC, a
premier global business psychology
consultancy. He led the business as Chief
Executive Officer and Chairman for 25
years to a position of global pre-eminence,
and a client base comprising over 40% of
the FTSE 100. Gurnek has worked
extensively with multinational
organisations in the areas of culture
change, vision and values, executive
68
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
6
7
8
9
10
coaching and assessment, Board
development and strategic talent
development. Gurnek is also a Trustee
of the School of Social Entrepreneurs.
He has a doctorate in psychology from
Oxford University.
6 Dame Louise Makin
Non-Executive Director
NA
Appointed to the Board as a Non-
Executive Director in July 2012. Dame
Louise Makin is currently Chief Executive
Officer of BTG plc, a growing international
specialist healthcare company, a position
she has held since 2004. Before joining
BTG, Louise was at Baxter Healthcare
from 2000, holding the roles of Vice
President, Strategy & Business
Development Europe, and from 2001,
President of the Biopharmaceuticals
division of Baxter Healthcare, where she
was responsible for Europe, Africa and the
Middle East. Prior to her time at Baxter,
she was Director of Global Ceramics at
English China Clay, and in her earlier career,
held a variety of roles at ICI between
1985 and 1998. Louise is a Non-
Executive Director of Woodford Patient
Capital Trust plc, Chair of the 1851 Trust,
a Trustee of The Outward Bound Trust
and an Honorary Fellow of St John’s
College, Cambridge. She was
previously a Non-Executive Director
of Premier Foods plc.
7 Andrew Martin
Non-Executive Director
RA
Appointed to the Board as a Non-
Executive Director in May 2016. He is a
Non-Executive Director of easyJet plc
where he is a member of the Audit,
Nomination and Remuneration
Committees and Chairman of the Finance
Committee and IT Governance and
Oversight Committee; and a Non-
Executive Director of Hays plc and a
member of their Audit, Nomination and
Remuneration Committees. From 2012 to
2015, Andrew was the Group Chief
Operating Officer for Europe and Japan for
Compass Group PLC and prior to that
served as their Group Finance Director
from 2004 to 2012. Before he joined the
Compass Group, he was the Group Finance
Director at First Choice Holidays plc.
Andrew also previously held senior
financial positions with Forte plc and
Granada Group plc and was a partner
at Arthur Andersen.
8 Gill Rider CB
Non-Executive Director
R
Appointed to the Board as a Non-
Executive Director in July 2015. She
currently holds Non-Executive
Directorships with Pennon Group Plc,
where she chairs the Sustainability
Committee and Charles Taylor Plc where
she chairs their Remuneration Committee.
She is the Senior Independent Director at
both. Gill is also the Chair of Council
(Board) of the University of Southampton
and was the President of the Chartered
Institute of Personnel & Development for
five years. Formerly Gill was head of the
Civil Service Capability Group in the
Cabinet Office reporting to the Cabinet
Secretary and prior to that held a number
of senior positions with Accenture
culminating in the post of Chief
Leadership Officer for the global firm. She
was previously a Non-Executive Director
of De La Rue plc.
9 Jean-Michel Valette
Non-Executive Director
A
Appointed to the Board as a Non-
Executive Director in July 2017.
Jean-Michel currently serves as an
independent advisor in the US to select
branded consumer companies and has
more than 30 years’ experience in
management, US public company
corporate governance, strategic planning
and finance. He is currently the Chairman
of Select Comfort Corporation and the
Lead Director and member of the Audit
Committee of The Boston Beer Company,
both US-listed companies. From 2004 to
2012, Jean-Michel was Chairman of Peet’s
Coffee and Tea, Inc. He has an MBA from
Harvard Business School.
10 Lena Wilson CBE
Non-Executive Director
NA
Appointed to the Board as a Non-
Executive Director in July 2012. Until
October 2017, she was the Chief
Executive Officer of Scottish Enterprise,
Scotland's national economic
development agency and a member of
Scotland's Financial Services Advisory
Board. Prior to this, she was Chief
Executive Officer of Scottish
Development International (Scotland's
international trade and investment arm)
and Chief Operating Officer, Scottish
Enterprise. Lena was also a Senior Advisor
to The World Bank in Washington DC on
private sector development for developing
countries. She is an Ambassador for the
Prince and Princess of Wales Hospice and
the Edinburgh Military Tattoo, a visiting
professor and advisor to the University of
Strathclyde Business School and is a
Non-Executive Director of the Royal Bank
of Scotland Group plc and ScottishPower
Renewable Energy Limited.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
69
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
EFFECTIVENESS
DIRECTORS’ INDUCTION AND DEVELOPMENT
There is a formal and extensive induction programme which
is tailored to meet the needs of new Directors. This is managed
by the Chairman and the Group Company Secretary. During
the programme, new Directors receive a wealth of background
information on the Company and details of Board procedures,
Directors’ responsibilities and various governance related issues.
The induction also includes a series of meetings with other
members of the Board, senior members of management and
external advisors.
Graham Allan, Gurnek Bains and Jean-Michel Valette all
undertook their induction programmes during the year. This
included orientation from relevant senior executives from the
operations and other functional areas to ensure the development
of a deeper understanding and knowledge of Intertek. They also
received information about the business operations, internal
audit activities, Group risks and management processes.
Gurnek Bains visited various sites in the UK and travelled
to Germany with Gill Rider and the Chairman where they were
given a tour of the operations and laboratories and met local
management in Nuremberg. During Q3, and shortly after
the Board trip to Singapore, Graham Allan, Gurnek Bains and
Jean-Michel Valette, accompanied by the Chairman, visited
Intertek Indonesia’s headquarters in East Jakarta. The Country
Managing Director of Intertek Indonesia discussed Intertek’s
business in the region and gave the visiting Directors a guided
tour of the Minerals, Petroleum, Food and Environmental
laboratories at the Ciracas Facility.
The newly appointed Non-Executive Directors then went on to
visit laboratories in China to enable them to see as much of
the business as possible. On their two-day visit the Directors met
with representatives of the China management team, receiving
presentations on the region and their strategic development
plans. The visit included tours at our Softlines, Hardlines, Food
and Transportation Technologies facilities.
Graham Allan, Gurnek Bains and Jean-Michel Valette on their visit to our
Transportation Technologies facility in Shanghai.
70
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
Earlier in the year, Sir David Reid visited our facilities in Mexico
City. Intertek+ABC Analitic has become the leading solution in the
Mexican market for environmental and food testing. Sir David was
given a tour of the laboratories where the Intertek+ABC Analitic
team conducts chemical testing for food, water, soil analysis,
atmospheric/smoke stack emissions and residues. The Chairman
went on to visit the Environmental, Softlines, Electrical and
Hardlines laboratories at the Intertek Mexico facilities.
All Directors are kept up to date with information about
Intertek’s business and there is an ongoing programme of
information dissemination. It is important that the Directors
have an appreciation of the business both in the UK and
overseas. During the year there were presentations from
senior management to the Board and meetings have been
held on regional strategy to increase the understanding of
operations, opportunities and risks.
BOARD VISIT TO SINGAPORE
In October, the Board travelled to Singapore for its annual
overseas visit. During this trip, they met with the Singapore
management team as well as the country managers from the
South-East Asia region, who gave presentations providing an
in-depth overview of the local operations and opportunities.
The Board visited the Singapore Technical Centre and were
taken through the Total Quality Assurance services Intertek
provides as an independent ATIC partner to the oil & gas supply
chain. The Board congratulated the Singapore team on their
technical competence, high operational standards, commitment
to HSE, and enthusiasm and commitment to providing superior
customer service with Total Quality Assurance.
The Intertek Board of Directors on their visit to our Singapore Technical Centre.
DIRECTORS’ CONFLICTS OF INTEREST
The Board operates a policy to identify, authorise and manage
any conflicts of interest to assist Directors in complying with
their duty to avoid actual or potential conflicts. The Directors
are advised of the process upon appointment and whenever
any Director considers that he or she is, or may be, interested
in any contract or arrangement to which the Company is, or
may be, a party, the Director gives due notice to the Board in
accordance with the Companies Act 2006 and the Articles.
A formal process is also in place for managing such conflicts
to ensure no conflicted Director is involved in any decision
related to their conflict.
The Conflicts of Interest Register is maintained by the Group
Company Secretary and the Board undertakes an annual review
of each Director’s interests, if any, including outside the Company.
Any conflicts of interests are reviewed when a new Director is
appointed, or if and when a new potential conflict arises. During
the year, this process operated effectively.
PERFORMANCE EVALUATION
The effectiveness of the Board and its Committees is reviewed
annually and an independent externally facilitated review is
conducted every three years. A full externally facilitated Board
evaluation exercise was last conducted in 2015 and reported
on in the 2015 Annual Report and Accounts. The next
externally facilitated Board evaluation will be conducted in
2018 and reported in next year’s Annual Report and Accounts.
BOARD, COMMITTEE AND DIRECTORS' PERFORMANCE
CYCLE
2017
Internal Review
2016/2019
Internal Review
2018
Externally
facilitated evaluation
conducted by an
independent
consultant
DIRECTORS’ REPORT
2017 Internal Board and Committee evaluation
The evaluation process was led by the Chairman, with the
support of the Group Company Secretary and entailed:
• the completion of detailed questionnaires by each
Board member;
• discussions on the outcomes and recommendations
with the Chairman and each Board member; and
• following discussion of the results of the evaluation
with the relevant Committee and the Board as a whole,
identifying and agreeing areas for improvement – the strategy
and strategic agenda having already been agreed at the Board.
Last year’s Effective Board Review 2016 was about how the
Board was actively progressing and implementing the agreed
strategy and putting in place the strategic initiatives and
capability to deliver sustainable growth and strong returns for
our shareholders.
This year’s Effective Board Review 2017 covers how the Board
had continued to deliver sustainable growth and strong returns
for our shareholders through the Total Quality Assurance value
proposition which forms the core of our 5x5 differentiated
strategy for growth.
The key findings of this year’s report are very positive:
• The Board refreshment programme was concluded successfully
during the year for our Non-Executive Directors.
• The Board has been strengthened by the addition of three new
members bringing new skills, experience and attributes to bear.
They have received a good induction into the business.
• The Board is performing at a high level demonstrating the right
behaviours, culture and tone.
• The strong leadership of the CEO with the focus on
performance management is continuing to make a real
difference. In addition, the leadership have introduced a bold
new brand covering the world of Intertek known as “Total
Quality Assurance” thereby engaging all our staff on the
quality of our service and commitment to our customers to
deliver our promise for them, with precision, pace and passion.
• Despite the continuing challenges in the cyclical Oil & Gas
industry, the Group results have delivered a strong
performance in revenue, earnings and cash.
• The implementation and delivery of the strategy is working
well and delivering further value for the business, and as ever
there is more to do and to deliver with our forward plan.
• The TSR for the year 2017 has increased by 51.4%, a strong
absolute performance and also strong relative to Intertek’s
peers. Importantly, our return on invested capital has increased
in the year to 26.7% from 23.9% at constant rates.
• Governance is seen as strong. There is good engagement with
shareholders by senior management and the IR team. The
Chairman received good feedback in January 2018 from his
discussions with shareholders, who accounted for some 22%
of the portfolio.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
71
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
EFFECTIVENESS
continued
• In 2017, we again received a strong shareholder vote (96.76%)
on the approval of our 2016 Remuneration report.
NOMINATION COMMITTEE
• The enhancement of the risk management and controls
processes during 2017, now reporting directly through the CEO,
have ensured that risk is owned and operated by management
with comprehensive quarterly reports to the Board.
• The quality and level of information and papers for board
meetings is good, and the progress on the strategic agenda is
reviewed and discussed at each meeting and reviewed again
annually. There is good balance and constructive debate at the
meetings. There is good communication to the Board between
meetings and a good example of this is the weekly updates
received by the Board following the storms in the US until the
situation had stabilised.
• The Board visit to Intertek’s business in Singapore was
excellent and gave the Board a thorough review of the region.
The CEO also encourages Non-Executive Directors to visit
laboratories and management covering the important
geographies and business lines.
• Our people continue to be our most important asset and we
continue to focus on becoming the best-in-class through talent
mapping, talent development and customer-centricity. We
believe we can achieve significant competitive advantage as
we work through our people programme.
• On sustainability, another area where we are on a journey to
best-in-class following a detailed review in December 2016, we
have seen further significant progress in 2017. We work
globally with our clients to improve the social, ethical and
environmental impacts of their services, supply chain and their
products. We have further exciting plans for 2018, for our
customers, and all our stakeholders.
• Lastly on growth, our Board is totally focused on driving
organic sales growth, together with taking advantage of
investment and acquisition opportunities. Growth is a key
driver and will be accompanied by margin-accretive revenue
growth and delivering good returns on capital invested.
Chairman and Director evaluation
The Non-Executive Directors, led by the Senior Independent
Non-Executive Director, conducted a performance review of
the Chairman. They considered his leadership, performance
and overall contribution to be of a high standard and he
continues to have their full support.
The Chairman met with each Director to discuss individual
contributions and performance, together with training and
development needs. Following these reviews, the Board
remains satisfied that, in line with the Code, all Directors are
able to allocate sufficient time to the Company to enable them
to discharge their responsibilities as Directors effectively and
that any current external appointments do not detract from
the extent or quality of time which the Director is able to
devote to the Company.
The Board recommends that shareholders should be supportive
of their election or re-election to the Board at the 2018 AGM.
72
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DEAR SHAREHOLDER
Succession planning has been a key focus of the Nomination
Committee (‘Committee’) during the year. We continued our focus
on the Non-Executive Director refreshment programme, and the
ongoing review of the composition of the Board and its
Committees. In keeping with this, the Committee carried out a
robust recruitment process resulting in the appointment of
Gurnek Bains and Jean-Michel Valette in July, and the appointment
of Graham Allan in October 2017, further enhancing the range of
skills, breadth of experience and diversity on our Board.
MAIN RESPONSIBILITIES OF THE COMMITTEE
• Review the structure, size and composition of the Board and
its Committees.
• Identify, review and nominate candidates to fill Board
vacancies.1
• Evaluate the balance of skills, knowledge, experience and
diversity on the Board and its Committees.
• Review the results of the performance evaluation process that
relates to the composition of the Board and the Committees.
• Review the time commitment required from Non-Executive
Directors.
1. Neither the Chairman nor the CEO participates in the recruitment of their
own successor.
For the Committee’s terms of reference see www.intertek.com.
MEMBERSHIP OF THE COMMITTEE
The membership of the Committee at the year-end was Sir David
Reid (Committee Chair), Graham Allan, Gurnek Bains and Dame
Louise Makin. Michael Wareing was a member of the Committee
until 30 September 2017 when he stepped down from the Board.
With effect from 1 January 2018, Lena Wilson was appointed to
the Committee. During the year, the Committee held four formal
meetings, although members of the Committee correspond and
meet informally on a number of occasions to consider, and meet
with, individuals that the Committee had identified as possible
Sir David Reid
Chair of the Nomination Committee
DIRECTORS’ REPORT
candidates to join the Board. Attendance of members at formal
meetings is shown in the table on page 65. The Group Company
Secretary attends all the meetings of the Committee. The
Committee invites the CEO and the EVP, Human Resources to
attend meetings when it deems appropriate.
ACTIVITY OF THE COMMITTEE DURING THE YEAR
The Committee’s programme of work for the year was as follows:
• Considered and discussed the results of the internal annual
review into the effectiveness of the Committee.
• Reviewed and appointed recruitment consultants.
• Reviewed the shortlist of candidates against a revised
comprehensive and focused requirement of the skills,
experience and behaviours of our Non-Executive Directors in
the light of our refreshment programme.
• Reviewed the composition of each Committee and approved
the appointment of Andrew Martin as a member of the
Remuneration Committee on 1 July 2017.
• Reviewed training and development for Non-Executive
Directors.
• Recommended to the Board that Gurnek Bains and Jean-Michel
Valette be appointed as Non-Executive Directors and as
members of the Nomination and the Audit Committees
respectively on 1 July 2017.
• Recommended to the Board the appointment of Graham Allan
as the Senior Independent Non-Executive Director and a
member of the Nomination and Remuneration Committees
on 1 October 2017.
SUCCESSION PLANNING
As recommended by Provision B.2.3. of the Code, we are
committed to a progressive refreshing of the Board. We have
continued our discussions, not just on the qualities and skills
required on the Board in the short term but also considered the
importance in understanding the evolving needs of the business
over the next five to ten years. This is to ensure that the core
skills and attributes required of future candidates support the
growth agenda of the Group. The Committee continues to ensure
that the composition of the Board retains the right balance of
skills, diversity, experience, industry and technical knowledge to
provide the quality of leadership necessary, to further implement
the strategy and achieve the strategic objectives necessary for
the long-term success of the Company. The Committee also
ensures plans are in place for orderly succession for appointments
to the Board, and reviews the succession plans for other senior
management positions. Responsibility for making senior
management appointments rests with the CEO.
Last year we reported to you our intention to annually review the
Board’s effectiveness and composition in relation to long-term
succession planning. To ensure that the Board comprises a broad
range of skills, experience and attributes, the Committee
discusses and reviews extensively the skills and capabilities
for each Board vacancy as well as outlining the qualities of the
individual required to ensure the right fit with the culture and
style of Intertek. The Committee has also developed an
information pack on Intertek to enable potential candidates to
gain a thorough understanding of the Group to ensure that this
is a company that they wish to be part of.
In the context of the retirements from the Board, the Committee
initiated a search for new Non-Executive Directors. In addition to
the specific skills, knowledge and experience deemed necessary,
the role specification contained criteria such as competency and
personal qualities that would be required for each of the positions.
The Committee also paid close attention to ensure that those
candidates selected exhibited the right behaviours to fit the
culture, values and ethics of the Group and would also be able
to allocate sufficient time to the Company to discharge their
responsibilities. The Committee separately engaged Egon
Zehnder and Russell Reynolds, both external search agencies
with no other connection to the Company, to assist with the
different selection processes. Russell Reynolds were specifically
chosen to assist with the search in the US.
Following this rigorous selection process, the Committee, having
considered the relative merits and fit of each candidate, made
a recommendation to the Board, which was accepted, to appoint
as independent Non-Executive Directors Gurnek Bains and
Jean-Michel Valette on 1 July 2017. Gurnek’s wide-ranging
experience, working with senior leaders across a range of
industries internationally, and his thought leadership on culture
and leadership development, provides a strong addition to the
current skills on the Board and we extended a warm welcome
to him as a member of this Committee.
Jean-Michel Valette brings strong US and global management
experience, especially in consumer branding and luxury goods
companies, which will broaden the international and customer
knowledge on our Board. With more than 30 years’ experience in
management, US public company corporate governance, strategic
planning and finance he is well placed as a member of the Audit
Committee which he joined on appointment.
We are also delighted to say that Graham Allan became the
Company’s Senior Independent Non-Executive Director in
October 2017. He brings strong management knowledge
as a CEO and experience in the pan-Asian market, as well as
international experience in consumer and retail business, to
complement the current skills on the Board.
Throughout the year the Committee reviewed the composition
of each Committee and approved the appointment of Andrew
Martin as a member of the Remuneration Committee on 1 July
2017. To further ensure continuity of knowledge and Board
dynamics, he also succeeded Michael Wareing as Chair of the
Audit Committee on 1 March 2017.
Biographies for all the Directors are available on pages 68 and 69
and a resolution for each new Director will be proposed at the
forthcoming AGM for their election.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
73
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
EFFECTIVENESS
continued
DIVERSITY
We remain strongly supportive of the principle of boardroom
diversity, of which gender is an important, but not the only
aspect. It is the Company’s policy, in line with the Code, that
proposed appointments to the Board, and succession planning,
are based on merit, judged against objective criteria, whilst also
making the best use of differences in culture, gender, skills,
background, regional and industry experience and other qualities.
All of these factors are considered by the Committee in
determining the composition of the Board and each new
appointment must complement existing skills, knowledge
and experience.
The Board is mindful of the recommendations by both Lord
Davies in his report 'Women on Boards', and the Hampton
Alexander Review, which builds on the Davies Review, which
encourages FTSE 350 companies to achieve at least 33% women
on boards by 2020.
As at 31 December 2017, Intertek had three female members on
the Board out of ten (representing 30%). Whilst the Board’s wish
is to return to a level of at least 33% female representation at
Board level, the need to ensure the progressive refreshing of the
Board to maintain the correct balance of skills, knowledge and
experience remains paramount.
The Group also supports and already complies with the Parker
Review ‘Beyond One by ‘21’ recommendation that FTSE 100 and
250 company boards should have at least one ethnically diverse
director by 2021 and 2024 respectively. Gurnek Bains, currently a
Non-Executive Director, fulfils this criterion.
The Company remains committed to providing equal
opportunities, eliminating discrimination, and encouraging
diversity amongst our global workforce. An analysis of the
diversity of the senior leadership group, their direct reports and
other employees as at 31 December 2017 is set out on pages
48 and 49 respectively.
CONCLUSION
As Chairman of the Nomination Committee, I believe we have
made significant progress in the last six years, and particularly in
the last three years, in building a strong PLC board at the
Executive and Non-Executive level as well as within the
Executive Management Team.
We are a people business and so this will continue to be a key
focus on an ongoing basis. An example of our commitment to
People is the recent appointment of Gurnek Bains who is a
leading expert on “People” and his skills are complementary and
add value to the Executive Team in terms of attracting,
developing and retaining good people. He is also a thought leader
on Leadership Culture.
Similarly, Jean-Michel Valette's vast experience of US and global
management and Graham Allan's experience in consumer and
retail management pan-Asia including China, as well as in the US,
has added complementary perspectives and insight to the Board.
These geographies represent over 50% of our global revenues.
Sir David Reid
Chair of the Nomination Committee
74
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
AUDIT COMMITTEE
DEAR SHAREHOLDER
On behalf of the Board, I am pleased to present this year’s Audit
Committee report. It has been another busy and interesting year
for the Audit Committee (‘Committee’).
As announced last year, I succeeded Michael Wareing as Chair of
this Committee on 1 March 2017 and he remained a member until
30 September 2017. I wish to thank Michael for his diligent
handover and his exemplary stewardship of the Committee since
2012. In July 2017 we also announced the appointment of
Jean-Michel Valette to the Board and to this Committee. His
appointment brings a new perspective to the Committee and I am
pleased to welcome him aboard.
PricewaterhouseCoopers LLP (‘PwC’) completed their first full
audit for the year ended 31 December 2016, following a smooth
handover from the previous auditor. The audit process continues
to be effective with PwC establishing positive relationships and
providing a good level of service to the Company. During 2017
the Committee’s primary focus centred on the accuracy of the
Group’s financial reporting, together with improvements in
internal control activities and risk and compliance matters. This
built on new developments in corporate governance and
extensive regulatory change in the UK and EU statutory audit
reporting, which the Committee had already considered and
reported on in the 2016 Annual Report and Accounts. The new
legislation introduced mandatory rotation of auditors and tighter
restrictions on the provision of non-audit services, as well as
setting out requirements in relation to the responsibilities and
composition of audit committees.
This report aims to outline the activities and the responsibilities
of the Committee, on behalf of the Board, in responding to
these changes and in scrutinising the conduct of the business,
its management and auditors to protect the interests of
our shareholders.
ACCOUNTABILITY
The Board has established formal and transparent arrangements
to apply the corporate reporting, risk management and internal
control principles as set out in the Code. This section outlines the
Group’s system of internal control and risk management as well
as the work of our Audit Committee during the year.
INTERNAL CONTROL AND RISK MANAGEMENT
The Board is responsible for monitoring the Group’s system
of internal control and risk management and for reviewing its
effectiveness so as to be in line with best practice. Risk
management and internal controls are embedded in the running
of each business line, country and support function and oversight
is provided by divisional, regional and functional risk committees.
Each risk committee in turn reports to the Group Risk Committee
('GRC').
The Group identifies and tracks its risk environment using a risk
register process: the risk committees produce a register of risks
in their area of responsibility, and these risk registers are then
consolidated at Group level. The GRC reviews the risks and
mitigation plans throughout the year and the Board approved the
final Group Risk Register in December. The Group General Counsel
presents a quarterly integrated control and compliance risk
review to the Board covering matters such as the Group risk
register and mitigation action plans, quarterly action plans to
address any risk developments and a review of any changes
to the Group’s risk environment.
COMPLIANCE, WHISTLE-BLOWING AND FRAUD
Intertek is committed to maintaining a culture where issues of
integrity and professional ethics can be raised and discussed. The
Group’s key ethics and integrity policies are set out in the Code of
Ethics and a detailed description of the topics covered by the
Code of Ethics, its operation during the year and the outcomes of
these policies are contained in the Sustainability and CSR report
on pages 44 to 61.
To enable all employees, contractors and others representing
Intertek to confidentially report suspected breaches of the Code
of Ethics, a global hotline system is in place. In addition, dedicated
compliance officers across the Group’s markets undertake
investigations of issues that arise either from reports to the
hotline system or from other sources, such as routine compliance
questions. The Group Compliance function is independent of the
Group’s operational business and reports directly to the Group
General Counsel.
Andrew Martin
Chair of the Audit Committee
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
75
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
ACCOUNTABILITY
continued
COMMITTEE MEMBERSHIP
The membership of the Committee at the year end was Andrew
Martin (Committee Chair), Jean-Michel Valette and Lena Wilson.
Alan Brown was a member of the Committee until 24 May 2017
and Michael Wareing remained a member until 30 September
2017. With effect from 1 January 2018, Dame Louise Makin was
appointed a member of the Committee. The Board considers that,
as a whole, the Committee has the competence and broad
experience relevant to the sectors in which Intertek operates. In
addition, Andrew Martin has extensive recent and relevant
financial experience, particularly gained as the Group Finance
Director of Compass Group PLC. An overview of the background,
knowledge and experience of the Committee Chair and each of
the Committee members can be found on pages 68 and 69 as per
the table on page 67.
On appointment new Committee members receive an appropriate
induction, consisting of the review of the terms of reference,
previous Committee meeting papers, information on the
Company’s financial and operational risks and also have access to
and meetings with senior management and the Group’s internal
and external auditors.
The business of the Committee is linked to the Group’s financial
calendar of events and the timetable for the annual audit. During
the year, the Committee held four formal meetings. Attendance
of members at meetings is shown in the table on page 65. The
Group Company Secretary attends all the meetings of the
Committee. At the invitation of the Committee, the Chairman,
CEO, CFO, Group Financial Controller and the Group Audit Director
attended the meetings. The audit partner and his team attended
all meetings held during the year. Other senior executives were
invited to attend the Committee meetings as required.
During the year the Committee also ensured that separate
meetings with the CFO, Group Audit Director and the external
auditor without management present took place in order to
provide a forum for any issues to be raised.
The internal evaluation of the performance of the Committee
was conducted during the year and entailed the completion of a
detailed questionnaire by each of the Committee members,
the review and discussion of the results of the evaluation and
identifying and agreeing areas for improvement. It was shown
that the Committee is able and effective in discharging its duties
in accordance with its terms of reference and the requirements
of the Code.
76
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
ROLE AND RESPONSIBILITIES OF THE COMMITTEE
Our role and responsibilities, as authorised by the Board, are set
out in the terms of reference of the Committee and fall into the
categories below:
Financial reporting
• Monitor the integrity of the financial statements and their
compliance with UK statutory requirements.
• Review significant financial reporting issues and judgements,
accounting policies and compliance with accounting standards.
Narrative reporting
• Where requested by the Board, to review the Annual Report
and Accounts, and advise the Board on whether, taken as a
whole, it is fair, balanced and understandable, and provides
the information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy.
Internal control and risk management systems
• Review the adequacy and effectiveness of the internal financial
controls and internal control and risk management systems.
• Review and approve the statements to be included in
the Annual Report concerning internal controls and risk
management.
Whistle-blowing and fraud
• Review the adequacy and security of the Company’s
arrangements for its employees and contractors to raise
concerns, in confidence, about possible wrongdoing in financial
reporting or other matters ensuring that these arrangements
allow proportionate and independent investigation of such
matters and appropriate follow up action.
• Review the Company’s systems and procedures for detecting
fraud; for the prevention of bribery and receive reports on
non-compliance.
Internal audit
• Monitor the effectiveness of the internal audit function.
• Agree internal audit plans and review reports of the internal
audit work.
• Review and monitor management’s responsiveness to control
observations made by the internal auditor.
External audit
• Consider and make recommendations to the Board, to be put
to shareholders for approval at the AGM, in relation to the
appointment, re-appointment and removal of the Company’s
external auditor.
• Oversee the relationship with the external auditor.
• Ensure that at least once every 10 years the audit services
contract is put out to tender.
• Monitor and review the independence and performance of the
external auditor and evaluate their effectiveness.
For the Committee’s terms of reference, see www.intertek.com.
DIRECTORS’ REPORT
SIGNIFICANT ISSUES CONSIDERED BY THE COMMITTEE
In preparation for each year end, the Committee reviews the
significant accounting policies, estimates and judgements to
be applied in the financial statements and discusses their
application with management. The external auditor also
considers the appropriateness of these assessments as part
of the external audit.
In accordance with the Code, the external auditor prepares a
report for the Committee on both the half-year and full-year
results, which summarises the approach to key risks in the
external audit and highlights any issues arising out of their
work on those risks, or any other work undertaken on the audit.
During the year, the Committee reviewed and considered the
following areas of judgement to be exercised in the application of
the accounting policies:
Claims
From time to time the Group is involved in various claims and
lawsuits incidental to the ordinary course of business. The
Committee considered the claims provision which reflects the
estimates of amounts payable in connection with identified
claims from customers, former employees and others.
The Committee noted that once claims have been notified the
finance teams liaise with the business to determine whether
a provision is required, based on IAS 37 ‘Provisions, Contingent
liabilities and Contingent assets’ (‘IAS 37’).
The level of provision is subsequently reviewed on a regular basis
with the Group General Counsel, taking into account the advice of
external legal counsel. The Committee, following assurance from
management and review of the report presented by the external
auditor, considered and agreed that the claims provision was
appropriate given the size and status of claims reported.
Taxation
The determination of profits subject to tax is calculated
according to complex laws and regulations, the interpretation
and application of which can be uncertain. In addition, deferred
tax assets and liabilities require judgement in determining the
amounts to be recognised, with consideration given to the timing
and level of future taxable income. The main areas of judgement
in the Group tax calculation are the expected central tax
provisions for the full year and the recognition of the UK
deferred tax asset.
Twice a year, the Committee receives a report from management
providing an evaluation of existing risks and tax provisions which
is reviewed by the Committee. The Committee also considered
reports presented by the external auditor before determining
that the levels of tax provisioning were appropriate.
Restructuring
In reviewing the provision for restructuring, the Committee
reviewed details of the activities pursued as part of the
restructuring to ensure that the appropriate level of provision is
put in place, and that these activities are aligned with the Group's
strategy. The Committee also sought confirmation from the
external auditor that the restructuring plan met the criteria for
recognising a provision under IAS 37 before determining that the
provision was appropriate.
Accounting for acquisitions
The provisional recognition of goodwill, intangible assets, other
assets and liabilities and estimates of the fair value of
consideration transferred for acquisitions made are based on a
number of assumptions. In 2017, management concluded its
final assessment of these assets and liabilities for acquisitions
made in 2016 and presented an update to the Committee. The
Committee reviewed management’s final accounting paper on
acquisitions made in 2016 and 2017, and took into account the
report presented by the external auditor, before determining that
the acquisition accounting is appropriate.
Impairment
The Group’s strategy includes acquisition-led growth to generate
new services and expand into new locations. These acquisitions,
being in the service sector, can generate significant goodwill that
benefits the Group as a whole and specifically the business to which
the acquisition relates. Goodwill, aggregated at the cash generating
unit (‘CGU’) level, must be tested annually for impairment under IAS
36 ‘Impairment’ (‘IAS 36’), or when there are indicators of
impairment.
The Committee reviewed the impairment consideration and
calculations prepared by management considering the trading
assumptions, the discount rates used as well as the sensitivities
included by management, details of which are contained in
note 9 to the financial statements. The Committee also took into
account the work undertaken by the external auditor in respect
of impairment and is satisfied that no impairment is required
against any CGU.
The significant issues considered by the Committee in relation to
the financial statements were consistent, with the exception of
restructuring, with those identified by the external auditor in
their report on pages 157 to 163.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
77
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
ACCOUNTABILITY
continued
ACTIVITIES DURING THE YEAR
During the year the Committee discussed the following items:
AUDIT COMMITTEE AGENDA ITEMS 2017
Financial statements and reports
Full-year results 2016
Annual Report and Accounts 2016
Management highlights memorandum
Going concern assessment
Fair, balanced and understandable assessment
Review of significant accounting policies
Half-year results 2017
Risk Register and Viability Statement process
External audit
PwC 2017 audit plan
Audit fee proposal 2017
PwC engagement letter
PwC year-end report and controls update
PwC half-year report and controls update
Intertek assessment of PwC effectiveness
Letter of representation to the auditors
Independence confirmation and review of non-audit spend and policy
PwC pre year-end report to the Committee
Internal Control Environment
2018 Internal Audit plan and Charter
Internal Controls process and sign-off
Internal audit reports
Assessment of Internal Audit effectiveness
Core Mandatory Controls and Assurance Map update
Other
2017 Rolling Committee agenda
2016 Evaluation of the Committee and Committee terms of reference
Update on FRC focus areas and letter
New IFRS accounting standards update
FAIR, BALANCED AND UNDERSTANDABLE ASSESSMENT
The Code provides that through its financial reporting, the Board
should provide a fair, balanced and understandable assessment
of the Company’s prospects.
At the Board’s request, the Committee reviewed the Annual
Report and Accounts to determine whether it considered that the
document, taken as a whole, meets this standard and provides
the necessary information for shareholders and other readers of
the Annual Report and Accounts to assess the Group’s position
and performance for 2017, its business model and strategy.
In justifying this statement, the Committee has considered the
robust process that underpins it, which includes:
• Clear guidance and instruction given to all contributors,
including at business line level;
• Revisions as a result of regulatory requirements monitored
on a regular basis;
• Pre year-end discussions held with the external auditor
in advance of the year-end reporting process;
• Pre year-end input provided by senior management and
corporate functions;
78
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
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• A verification process dealing with the factual content
of the reports to ensure accuracy and consistency;
• Comprehensive review by the senior management team
to ensure overall consistency and balance;
• Review conducted by external advisors and the external
auditor on best practice with regard to the content and
structure of the Annual Report and Accounts;
• Review and consideration of the Annual Report and Accounts
by the Committee; and
• Final sign-off provided by the Board.
The results are presented to the Committee to ensure compliance
with the Code. The Committee challenges judgemental
statements to ensure that they are reasonable within the context
of the report. This process enabled the Committee, and then the
Board, to confirm that the 2017 Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Company’s position, performance, business model and strategy.
DIRECTORS’ REPORT
EXTERNAL AUDITOR
The Statutory Auditors and Third Country Auditors Regulations
2016, which implement the EU Audit Directive and Audit
Regulation, has resulted in changes to the Companies Act 2006
and to the Code. Amongst other things, the Company is now
required to rotate its auditors every 10 years, to give advance
notice of any tendering plans and to cap the non-audit fees paid
to auditors at 70% of the three-year average audit fees at Group
level, with there being a prohibition on the provision of certain
non-audit services.
As noted in this report last year, the Group completed
a transparent and independent audit tender process in 2015.
Following this process PwC have been the Company’s auditors
and Ian Chambers the Audit Partner since May 2016.
In line with current regulation, the Company is required to put its
external audit process out to tender again in 2025-2026.
The independence of the external auditor is critical for the
integrity of the audit. We are satisfied that PwC are fully
independent from the Company’s management and free from
conflicts of interest.
Effectiveness of the external audit
The Committee conducts an annual review to assess the
independence and objectivity of the external auditor and the
effectiveness of the audit as part of the year-end process. This
process is conducted in three parts:
• PwC presents its approach to maintaining audit quality
annually to the Committee;
• The views of management and the Directors on PwC’s service
are obtained via a questionnaire/survey and feedback is
presented to the Committee; and
• The key findings and recommendations from both processes
form the basis of the assessment of PwC’s effectiveness
together with the Committee’s experience of dealing with
PwC during the year.
The survey assessed the effectiveness of the PwC audit across its
three main stages; Planning, Fieldwork and Reporting, as well as on
transition commitments in the first year of their tenure.
financial information systems design and implementation;
appraisal or valuation services; actuarial services; internal audit
outsourcing or co-sourcing services; management functions or
human resources services; broker or dealer, investment advisor
or investment banking services; legal services which can only be
provided by a qualified lawyer; expert services unrelated to the
audit that include advocating Intertek’s interests in litigation,
regulatory or administrative proceedings not precluding the
auditors providing factual accounts to explain positions taken
during the course of their work; tax services in relation to
marketing, planning, or opining in favour of an aggressive tax
position or transaction; any other services that, locally, are
prohibited through regulation; and personal tax compliance
services to members of the Group’s management who have
a financial reporting oversight role.
In the event that an engagement for non-audit services arises,
the policy is designed to ensure that the external auditor is only
appointed where it is considered to be the most suitable supplier
of the service and the necessary prior approvals have been given
in accordance with the policy.
The Committee annually reviews and reapproves the framework
of permitted non-audit services as set out in the policy, taking
into account any changes in legislation and best practice. PwC
also provide an update on the spend for non-audit services
against the annual cap twice a year.
A summary of the fees paid for non-audit services is set out
below and further information is contained in note 4 to the
financial statements on page 116:
AUDIT FEE BREAKDOWN FOR SERVICES PROVIDED BY
PWC IN 2017
Total non-audit fees
– audit-related services
– tax services
– other non-audit services
Audit fee
% of audit fee
2017
£m
0.2
0.2
–
–
3.6
5%
2016
£m
0.2
0.1
0.1
–
3.1
6%
Following this review, the Committee considered in detail the
feedback received and concluded, at the meeting held in May 2017,
that PwC remained independent and provided a service that was
robust and fit for purpose and that the overall audit process was
effective. The effectiveness for the 2017 audit of the Group will be
reviewed by the Committee in May 2018.
The Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities) Order
2014 (‘CMA Order’) – Statement of compliance
The Company confirms that it complied with the provisions of the
CMA Order for the financial year under review.
Audit and non-audit fees
The Company has set out a policy on the provision of non-audit
work by the external auditor consistent with the Revised Ethical
Standard 2016 issued by the FRC and it is designed to ensure
that the provision of such services does not create a threat to the
external auditor’s independence and objectivity.
It identifies certain types of engagement that the external
auditor shall not undertake, including bookkeeping or other
services related to accounting records or financial statements;
INTERNAL CONTROLS AND FINANCIAL REPORTING
Doing Business the Right Way is at the heart of what we do and
is a key enabler of our 5x5 strategy for growth. The Intertek Core
Mandatory Controls (‘CMCs’) are an integral part of Doing
Business the Right Way, and provide the mechanism by which we
define, monitor and achieve consistently high standards in our
control environment throughout the whole organisation. An
updated set of CMCs (v3.0) has been developed reflecting
feedback on the existing framework and how the Group’s risk
environment has evolved during the year.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
79
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
ACCOUNTABILITY
continued
In order to provide assurance that the Intertek controls and policy
framework is being adhered to, a self-certification exercise is
undertaken across the Group’s global operations. This exercise is
reviewed and refreshed each year to ensure that it encapsulates
all new areas of risk identified and to support the continued
development of the Group’s control environment. An online
questionnaire requesting confirmation of adherence to controls,
financial and operational, is sent to all Intertek country and
finance operations. Where corrective actions are needed, the
country is required to provide an outline and a confirmed timeline.
These items are monitored closely to ensure timely completion.
This process is facilitated by the Legal, Risk and Compliance
function.
A consolidated assessment is made at regional level for senior
leadership approval. An evaluation is then undertaken with
Executive Management Team following which a Company-wide
position is submitted to the CEO and the CFO. A final summary
assessment is provided to the Committee. The self-assessment
exercise has been reviewed during the year to ensure global
coverage and to reflect Intertek’s operational and financial
structure, and in order to enhance the alignment of the self-
assessment to the assurance process.
A detailed verification programme also provides assurance to the
Committee and the Board when checking that all the statements
made in the Annual Report and Accounts are accurate. Intertek’s
Manual of Accounting Policies and Procedures is issued to all
finance staff and gives instructions and guidance on all aspects
of accounting and reporting that apply to the Group.
The Committee can confirm that it reviewed the Group’s internal
controls and risk management systems and concluded that there
was a sound and effective control environment in place across
the Group during 2017, and up to the date upon which these
financial statements were approved. No significant failings or
weaknesses had been identified.
INTERNAL AUDIT
The annual Internal Audit plan is reviewed and approved by the
Committee. Where there is no internal expertise to perform
a specialised audit, a third-party auditor with the requisite skills
is appointed to undertake the audit, the findings of which are
reported to the Committee. In its reports to the Committee,
Internal Audit provided summaries of each audit performed,
with commentary on the robustness of internal control design
and operating effectiveness. In 2017, Internal Audit focused
on reviews of financial control in a wide range of businesses,
as well as regular follow-up activities.
As part of its annual programme, the Committee reviewed the
effectiveness of the Group Internal Audit function including
feedback from key business stakeholders. An independent review
of Internal Audit effectiveness is conducted every three years,
with the latest review having been completed in 2016, and the
Committee reviewed progress against the recommendations.
80
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
PRIORITIES FOR 2018
The priorities for the Committee over the next 12 months are
as follows:
• Continue to monitor the external auditor;
• Continue to facilitate the understanding of the business by
the external auditor;
• Ensure that the audit continues to evolve and align with the
changes in the business and strategic objectives;
• Continue to develop and refine the CMCs in line with the
evolving risk environment of the Company;
• Continue to monitor the impact of external economic factors
on the Group and its financial position; and
• Monitor any relevant changes in the corporate governance
and regulatory arena.
GOING CONCERN
The Directors have a reasonable expectation that the Group has
adequate resources for a period of at least 12 months from the
date of signing this Annual Report and Accounts, and have
therefore assessed that the going concern basis of accounting is
appropriate in preparing the financial statements and that there
are no material uncertainties to disclose.
This conclusion is based on a review and an assessment of the
levels of facilities expected to be available to the Group, based
on levels of cash held, Group Treasury funding projections, and
the Group’s financial projections for a period to 31 December
2022. With the exception of $100m of facilities maturing in
2018, all the current borrowing facilities are expected to be
available at 31 December 2018.
In making this assessment, management has considered the
covenants attached to the Group’s borrowing facilities and
performed downside scenarios on the Group’s financial
projections of 10% and 20% reduction in EBITDA forecast.
Even in these circumstances, there is significant headroom on
the debt covenants.
After making diligent enquiries the Directors have a reasonable
expectation based upon current financial projections and bank
facilities available, that the Group has adequate resources to
continue in operation. Accordingly they continue to adopt the
going concern basis in preparing the Group’s financial statements.
Andrew Martin
Chair of the Audit Committee
REMUNERATION REPORT
DEAR SHAREHOLDER
I would like to begin this statement by thanking you for the
support you have given our remuneration matters during 2017.
The strength of your vote at the 2017 AGM for our 2016
Remuneration report signalled to us that we are implementing a
remuneration policy that clearly aligns your interests with those
of our business strategy and the leadership team.
Our business continues to have significant opportunities to
provide our clients with ATIC services across the three broad
economic sectors – Products, Trade and Resources. The sustained
focus on Intertek’s 5x5 differentiated strategy for growth in
2017 has provided our managers and employees across the world
with the tools they need to deliver on Intertek’s Total Quality
Assurance Customer Promise. This in turn has allowed us to
continue improving shareholder returns with our disciplined
approach to revenue, margin, and cash and capital allocation.
In 2017 Intertek delivered 7.9% growth in revenue at actual rates
(3.0% at constant currency), 14.2% growth in adjusted operating
profit (10.0% at constant currency) and 280bps improvement in
ROIC which was 26.7%, against stretching performance targets.
On the structure of remuneration, there were no major changes
in 2017. We have continued our approach to the annual incentive,
using fewer measures, closely aligned to the delivery of our
growth strategy. Since 1 January 2016 the annual incentive
structure has been based solely on financial performance with
three main indicators weighted as shown below:
• 80% – a matrix based on revenue growth and adjusted
operating profit growth; and
• 20% – based on return on invested capital performance.
For the annual bonus, this performance resulted in the
Remuneration Committee approving an overall payout for Group
performance of 100% of maximum. As per policy, the proposed
bonus was subject to a quality of earnings review at the end of
the year to ensure that the payout was appropriate and
commensurate with the underlying business performance and
the Group’s culture and values.
DIRECTORS’ REPORT
The performance of the 2015 LTIP, which was measured based
on EPS and relative TSR performance over the three-year period
to 31 December 2017, resulted in a payout of 90.87%.
The salary increase for the CEO in 2018 has been set at an
inflation-based 2.0%.
As communicated to shareholders in my letter last year, the
Committee has completed a review of our CFO, Edward Leigh’s
remuneration. Following his strong performance since
appointment and given both the substantial support he provides
to the CEO in delivering our business performance and his
increased responsibilities, which now also include leading the IT
services function within the Group, the Committee consulted
with shareholders during the latter half of 2017 on increasing
Edward’s base salary to £475,000 (an increase of c.14.1%). The
Committee acknowledges that such salary increases are not
common in the current climate, however, given both Edward’s
performance in role and his increased responsibilities, it was felt
that the proposed increase was appropriate and in the best
interests of the business.
With regards to market positioning, whilst noting that this was
not the driving force behind the proposal, we did undertake a
detailed review of CFO benchmark data. The increase in base
salary positions Edward’s base salary at around market median,
when compared to companies ranked between 31 and 130 in the
FTSE 350, which is in line with our philosophy for executive
directors. His total remuneration package (under which incentives
will remain unchanged as a percentage of salary for 2018) will be
positioned in line with market practice.
Having completed the review, we consulted with the majority of
our shareholders and received strong support on the proposed
increase. We have therefore implemented the change in his base
salary from 1 January 2018.
The elements specifically required to be audited within the
bordered sections of pages 89 to 93 have been audited by PwC
LLP in compliance with the requirements of the Regulations.
Finally, I hope you will find that you are able to support the level
of remuneration we have determined for 2017 as submitted for
your approval at this year’s AGM.
Yours sincerely,
Gill Rider
Chair of the Remuneration Committee
Gill Rider
Chair of the Remuneration Committee
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
81
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
REMUNERATION REPORT
continued
DIRECTORS’ REMUNERATION
POLICY REPORT
The section below sets out the Remuneration Policy for Executive
and Non-Executive Directors, which was approved by a resolution
of the shareholders and became effective from 25 May 2016,
the date of the 2016 AGM.
The policy remains unchanged. Where appropriate, tables have
been updated with current data.
POLICY OVERVIEW
We continue to focus on ensuring that our Remuneration Policy
is appropriate for the nature, size and complexity of the Group,
encourages our employees in the development of their careers
and is directed to deliver continued profitable growth.
Our remuneration strategy is to:
• align and recognise the individual’s contribution to help us
succeed in achieving our growth strategy and long-term
business goals;
• attract, engage, motivate and retain the best available people
by positioning total pay and benefits to be competitive in the
relevant market and in line with the ability of the business
to pay;
• reward people equitably for the size of their responsibilities
and performance; and
• motivate high performers to increase shareholder value
and share in the Group’s success.
Each year the Committee approves the overall reward strategy
for the Group and considers the individual remuneration of
the Executive Directors and certain senior executives.
The Committee reviews the balance between base salary and
performance-related remuneration against the key objectives
and targets so as to ensure performance is appropriately rewarded.
This also ensures outcomes are a fair reflection of the underlying
performance of the Group.
As a global service business, our success is critically dependent
on the performance and retention of our key people around the
world. Employment costs represent the major element of Group
operating costs. As a global Group our pay arrangements take
into account both local and international markets and we
operate a global Remuneration Policy framework to achieve
our reward strategy.
Our peer groups for the majority of our employees consist of
international industrial or business service organisations and
similar-sized businesses. For our more senior executives we
base our remuneration comparisons on a blend of factors,
including sector, job complexity, location, responsibilities and
performance, whilst recognising the Company is listed in the UK.
We believe that a significant proportion of remuneration for
senior executives should be related to performance, with part
of that remuneration being deferred in the form of shares and
subject to continued employment and longer-term performance.
We also believe that share-based remuneration should form
a significant element of senior executives’ compensation,
so that there is a strong link to the sustained future success
of the Group.
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INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
REMUNERATION POLICY FOR DIRECTORS
The following table sets out the key aspects of the Remuneration Policy for Directors:
ELEMENT
OF PAY
PURPOSE AND
LINK TO STRATEGY
BASE
SALARY
To attract and retain high
performing Executive
Directors to lead the Group.
BENEFITS
To provide competitive
benefits to ensure the
wellbeing of employees.
PENSION
To provide competitive
retirement benefits.
ANNUAL
INCENTIVE
PLAN (‘AIP’)
To drive the short-term
strategy and recognise
annual performance against
targets which are based
on business objectives.
OPERATION
The Committee reviews salaries
annually, taking account of
the scale of responsibilities,
the individual’s experience
and performance.
Whilst the Committee takes
benchmarking information into
account, its decisions are based
primarily on the performance of
the individual concerned against
the above factors to ensure
that there is no unjustified
upward ratchet in base salary.
Benefits include, but are not
limited to, annual medicals,
life assurance cover of up
to six times base salary,
allowances in lieu of a company
car or other benefits, private
medical insurance (for the
individual and their dependants)
and other benefits typically
provided to senior executives.
Executive Directors can
participate in the all-employee
share plans operated by the
Company on the same basis
as all other employees.
Executive Directors can elect
to join the Company’s defined
contribution pension scheme,
receive pension contributions
into their personal pension
plan or receive a cash sum in
lieu of pension contributions.
Awards are based on Group
annual financial performance
targets, with performance
targets set annually by
the Committee.
Normally, 50% of any bonus is
paid in cash and 50% deferred
into shares which will vest after
a period of three years subject
to continued employment.
Accrued dividends on deferred
shares during the deferral period
are paid in cash or shares at
the end of the deferral period.
Not pensionable.
Malus and clawback
provisions apply.
PERFORMANCE
MEASURES
Individual performance is
taken into account when
salary levels are reviewed.
n/a
MAXIMUM
OPPORTUNITY
There is no prescribed
maximum annual increase.
The Committee is guided
by the general increase for
the employee population
but on occasions may need
to recognise other factors
including, but not limited
to, development in role,
change in responsibility
and/or variance to market
levels of remuneration.
The total value of these
benefits (excluding the
all-employee plans) will
not exceed 12% of salary.
The maximum opportunity
under any all-employee
share plan is in line with all
other employees and is as
determined by the prevailing
HMRC rules.
Up to 30% of salary.
n/a
The maximum opportunity
is 200% of salary for all
Executive Directors.
The annual bonus will be
measured against a range of
key Group financial measures.
The Committee has the ability
to reduce bonus payments
if it believes that short-term
performance has been achieved
at the expense of the Group’s
long-term future success.
The Committee can adjust
upwards the bonus outturn (up
to the maximum set out above)
to recognise very exceptional
circumstances or to recognise
that circumstances have
occurred which were beyond
the direct responsibility of the
executive and the executive
has managed and mitigated
the impact of any loss.
The current intention is that
none of the bonus will be subject
to non-financial measures or
personal performance measures.
The Committee, however, retains
the discretion to introduce such
measures in the future, up to
a maximum of 20% of the bonus.
Were the Committee to introduce
such measures, it would normally
consult with the Company’s
largest institutional
shareholders.
The stretch targets, when met,
reward exceptional achievement
and contribution. There is no
bonus payout if threshold
targets are not met.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
83
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
REMUNERATION REPORT
continued
ELEMENT
OF PAY
PURPOSE AND
LINK TO STRATEGY
OPERATION
MAXIMUM
OPPORTUNITY
PERFORMANCE
MEASURES
LONG-TERM
INCENTIVE
PLAN (‘LTIP’)
To retain and reward Executive
Directors for the delivery
of long-term performance.
To support the continuity of
the leadership of the business.
To provide long-term alignment
of Executives’ interests with
shareholders by linking rewards
to Intertek’s performance.
SHARE
OWNERSHIP
GUIDELINES
To increase alignment
between executives
and shareholders.
NON-
EXECUTIVE
DIRECTORS’
FEES
To attract and retain
high-calibre Non-Executive
Directors through the
provision of market
competitive fees.
Up to 250% of salary in
respect of any financial year.
LTIP awards are subject
to performance conditions
based on Earning Per Share
(‘EPS’) growth and relative
Total Shareholder Return (‘TSR’).
At least a quarter of each
award will be based on each
of these measures, with the
split determined each year
by the Committee.
25% of an award will vest
for achieving threshold
performance, increasing
pro-rata to full vesting for
the achievement of stretch
performance targets.
Awards under the TSR
element of the LTIP are also
subject to the satisfaction
of a financial underpin.
n/a
n/a
CEO: 200% of salary.
CFO: 200% of salary.
As for the Executive Directors,
there is no prescribed maximum
annual increase. The Committee
is guided by the general increase
for the employee population
but on occasions may need to
recognise other factors including,
but not limited to, change in
responsibility and/or variance to
market levels of remuneration.
Annual grant of conditional
shares which vest after
three years, subject to
Company performance and
continued employment.
Awards may be made in other
forms (e.g. nil-cost options)
if considered appropriate.
The shares will also be subject
to a six-month holding period
after vesting. The Committee
has the discretion to increase
the length of the holding
period in future years.
Performance targets are set
annually for each three-year
performance cycle by
the Committee.
Accrued dividends during
the vesting period to be paid
in cash or shares at vesting,
to the extent that shares vest.
The Committee may adjust
and amend awards in accordance
with the LTIP rules.
Executive Directors are required
to retain any vested shares
(net of tax) under the Group’s
share plans until the guideline
is met.
The guideline should be
met within five years of the
guideline being set.
A proportion of the fees
(at least 50%) are paid in cash,
with the remainder used to
purchase shares.
Fees are determined based
on the responsibility and time
committed to the Group’s
affairs and appropriate
market comparisons.
With the exception of
benefits-in-kind arising from
the performance of duties,
no other benefits are provided,
other than to the Chairman,
who receives a car allowance
of £25,000 per annum.
CHANGES TO THE POLICY TABLE
There have been no changes to the policy.
SELECTION OF PERFORMANCE METRICS
The annual bonus is based on performance against a mix of financial measures. The mix of financial measures is aligned to the Group’s
Key Performance Indicators (KPIs) and is reviewed each year by the Remuneration Committee to ensure that they remain appropriate
to reflect the priorities for the business in the year ahead. The targets are set for each KPI to encourage continuous improvement
and challenge the delivery of stretch performance.
84
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
The LTIP is based on EPS growth and TSR performance. EPS is a measure of the Group’s overall financial success and TSR provides
an external assessment of the Company’s performance against the market. It also aligns the rewards received by executives with the
returns received by shareholders. A sliding scale of challenging performance targets is set for each measure. The Committee reviews
the choice of performance measures and the appropriateness of the performance targets prior to each LTIP grant. The Committee
reserves the discretion to set different targets for future awards, without consulting with shareholders. The targets for awards
granted under this Remuneration Policy are set out in the Annual Report on Remuneration.
When setting the targets for the annual bonus and the LTIP, the Remuneration Committee takes into account a range of factors,
including the business plan, prior year performance, market conditions and consensus forecasts.
REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS
The charts below illustrate how the Executive Directors’ remuneration packages vary at different levels of performance under the
ongoing policy, which will apply in 2018 for both the Chief Executive Officer (‘CEO’) and Chief Financial Officer (‘CFO’):
VALUE OF REMUNERATION PACKAGES AT DIFFERENT LEVELS OF PERFORMANCE
£’000
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
£5,615
42%
34%
£3,478
34%
28%
£1,341
100%
38%
24%
LTIP award
Bonus
Basic salary, benefits and pension
£1,551
31%
31%
38%
£601
100%
£2,501
38%
38%
24%
Minimum
On-target
A Lacroix, Chief Executive Officer
Maximum
Minimum
On-target
E Leigh, Chief Financial Officer
Maximum
Points relating to the above table:
1. Salary levels are based on those applying on 1 April 2018.
2. The value of taxable benefits is based on the cost of supplying those benefits (as disclosed) for the year ended 31 December 2017.
3. The value of pension receivable by the CEO and CFO in 2018 is taken to be 30% of salary and 20% of salary respectively.
4. The on-target level of bonus is taken to be 50% of the maximum bonus opportunity.
5. The on-target level of the LTIP is taken to be 50% of the face value of the award at grant.
6. Share price movement and dividend accrual have not been incorporated into the values shown above.
APPROACH TO RECRUITMENT AND PROMOTIONS
The remuneration package for a new Executive Director – base salary, benefits, pension, annual bonus and long-term incentive awards –
would be set in accordance with the terms of the Company’s prevailing approved Remuneration Policy at the time of appointment.
The Committee may set the base salary at a value to reflect the calibre, experience and earnings potential of a candidate, subject
to the Committee’s judgement that the level of remuneration is in the Company’s best interest. The maximum level of variable pay
(annual bonus and long-term incentive awards) which may be awarded to a new Executive Director at or shortly following recruitment
shall be limited to 450% of salary. These limits exclude buyout awards and are in line with the ‘Remuneration Policy for Directors’
set out previously.
The Committee may offer additional cash and/or share-based elements to take account of remuneration relinquished when leaving
the former employer when it considers these to be in the best interests of the Company (and therefore shareholders) (‘buyouts’).
Any such awards would reflect the nature, time horizons and performance requirements attaching to the remuneration it is intended
to replace. Where appropriate, the Committee retains the flexibility to utilise Listing Rule 9.4.2 for the purpose of making an award
to ‘buy out’ remuneration relinquished when leaving the former employer.
For external and internal appointments, the Committee may agree that the Company will meet certain relocation expenses and
continuing allowances as appropriate. Additionally, in the case of any Executive Director being recruited from overseas, or being
recruited by the Company to relocate overseas to perform their duties, the Committee may offer expatriate benefits on an ongoing
basis subject to their aggregate value to the individual not exceeding 50% of salary per annum.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
85
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
REMUNERATION REPORT
continued
For an internal Executive Director appointment, any variable
pay element awarded in respect of the prior role may be allowed
to pay out according to its terms, adjusted as relevant to take
into account the appointment. In addition, any other ongoing
remuneration obligations existing prior to appointment
may continue.
If a new Chairman or Non-Executive Director is appointed,
remuneration arrangements will be in line with those detailed in
the Remuneration Policy for Non-Executive Directors set out
in the ‘Remuneration Policy for Directors’ above.
SERVICE CONTRACTS FOR EXECUTIVE DIRECTORS
The service agreements of the Executive Directors are not
fixed-term and are terminable by either the Company or the
Director on 12 months’ notice and make provision, at the Board’s
discretion, for early termination by way of payment of salary and
pension contributions in lieu of 12 months’ notice. In calculating
the amount payable to a Director on termination of employment,
the Board would take into account the commercial interests
of the Company and apply usual common law and contractual
principles. Any payments in lieu of notice may be paid in a lump
sum or may be paid in instalments and reduce if the Director finds
alternative employment. The service contracts are available for
inspection at the Company’s registered office. The Committee
reviews the contractual terms for new Executive Directors to
ensure these reflect best practice. In summary, the contractual
provisions are:
PROVISION
Notice period
DETAILED TERMS
12 months
Common law and
contractual principles
Remuneration entitlements
Change of control
Common law and contractual
principles apply
A bonus may be payable
(pro-rata where relevant)
and outstanding Share
Awards may vest (see below).
No Executive Director’s
contract contains provisions
or additional payments in
respect of change of control.
The treatment of bonus
awards and outstanding Share
Awards will be treated in line
with the relevant plan rules.
The annual bonus may be payable with respect to the period
of the financial year served. Any share-based entitlements
granted to an Executive Director under the Company’s share
plans will be determined based on the relevant plan rules.
The default treatment under the 2011 LTIP is that any
outstanding awards lapse on cessation of employment.
However, in certain prescribed circumstances, such as death,
ill-health, disability, retirement or other circumstances at
the discretion of the Committee, ‘good leaver’ status may
be applied.
86
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
For good leavers, awards will normally vest on the original
vesting date, subject to the satisfaction of the relevant
performance conditions at that time and reduced pro-rata to
reflect the proportion of the performance period actually served.
However, the Committee has discretion to determine that awards
vest at an earlier date and/or to disapply time pro-rating, although
it is envisaged that this would only be applied in exceptional
circumstances. Any such incidents, where discretion is applied
by the Committee in relation to Executive Directors, will be
disclosed in the following Annual Report on Remuneration.
The default treatment for deferred bonus awards is that
any outstanding awards lapse on cessation of employment.
However, in certain ‘good leaver’ circumstances (as described
under the 2011 LTIP above), awards will vest in full on the
original vesting date, unless (as permitted under the plan rules)
the Committee determines that awards should vest at an
earlier date.
In determining whether an Executive should be treated as a
good leaver or not, the Committee will take into account the
reasons for their departure.
LETTERS OF APPOINTMENT FOR NON-EXECUTIVE DIRECTORS
The letter of appointment 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 and after rigorous
review the appointment may be renewed for a further period,
usually three years, if the Company and the Director agree
and subject to annual re-election at the AGM. Each letter of
appointment states that if the Company were to terminate
the appointment, the Director would not be entitled to any
compensation for loss of office.
The table below sets out the terms for all the current
Non-Executive Directors of the Board.
Sir David Reid
DATE OF
APPOINTMENT
1 December 2011
Reappointed:
1 December 2017
NOTICE PERIOD/
UNEXPIRED TERM AS
AT 31 DECEMBER 2017
One month/35 months
Graham Allan
1 October 2017
One month/33 months
Gurnek Bains
1 July 2017
One month/30 months
Dame Louise
Makin
1 July 2012
Reappointed:
1 July 2015
One month/6 months
Andrew Martin
26 May 2016
One month/17 months
Gill Rider
Jean-Michel
Valette
Lena Wilson
1 July 2015
1 July 2017
One month/6 months
One month/30 months
1 July 2012
Reappointed:
1 July 2015
One month/6 months
DIRECTORS’ REPORT
CONSIDERATION OF EMPLOYMENT CONDITIONS
ELSEWHERE IN THE COMPANY
When setting the Remuneration Policy for Executive Directors,
the Remuneration Committee takes into account the pay and
employment conditions elsewhere within the Group. When
considering the remuneration arrangements for the Executive
Directors for the year ahead, the Committee is informed of
salary increases across the wider group. The Committee also
approves the overall reward strategy in operation across
the Group.
The remuneration strategy set out at the beginning of the
Directors’ Remuneration Policy report reflects the strategy
in place across all employees across the Group. Although this
remuneration strategy applies across the Group, given the size
of the Group and the geographical spread of its operations,
the way in which the Remuneration Policy is implemented
varies across the Group. For example, bonus deferral applies
at the more senior levels within the Group and participation
in the LTIP is at the Remuneration Committee’s discretion
and is typically limited to senior executives employed within
the Group.
Given the geographical spread of the Group’s operations,
the Remuneration Committee does not consider it appropriate
to consult employees on the Remuneration Policy in operation
for Executive Directors.
CONSIDERATION OF SHAREHOLDER VIEWS
The Committee takes the views of the Group’s shareholders
very seriously. The policy that was approved by shareholders
at the 2016 AGM reflects the extensive discussions with
shareholders during the consultation process.
LEGACY ARRANGEMENTS
For avoidance of doubt, through this approved Directors’
Remuneration Policy Report, authority is given to the Company
to honour any commitments entered into with current or
former Directors (such as the vesting of past share awards)
that were agreed:
(i)
Before the policy set out above, or any previous policy,
came into effect;
(ii) At a time when a previous policy approved by shareholders
was in place provided that the payment is in line with the
terms of that policy; and
(iii) At a time when the relevant individual was not a Director
of the Company and the payment was not in consideration
for the individual becoming a Director of the Company.
ANNUAL REPORT ON REMUNERATION
COMMITTEE MEMBERSHIP AND MEETING ATTENDANCE
The membership of the Committee at the year end was Gill Rider
(Committee Chair), Graham Allan, Dame Louise Makin, and Andrew
Martin. Michael Wareing was a member until 30 September 2017.
With effect from 1 January 2018, Dame Louise Makin stepped
down and Gurnek Bains was appointed to the Committee.
Meeting attendance is shown on page 65.
Throughout the year, the composition of the Committee was
in compliance with the Code. All members are independent
Non-Executive Directors.
On appointment, new Committee members receive an
appropriate induction consisting of the review of the terms
of reference, previous Committee meeting papers, meetings
with senior personnel and advisors and, as appropriate,
meetings with shareholders.
The Committee invites the Chairman, CEO and the EVP, Human
Resources to attend meetings when it deems appropriate,
except when their own remuneration is discussed. No Director
is involved in determining his or her own remuneration. None of
the Committee members has had any personal financial interest,
except as shareholders, in the matters decided. The Group
Company Secretary acts as Secretary to the Committee.
THE ROLE OF THE COMMITTEE
On behalf of the Board, the Committee:
• Determines the Company’s policy on the remuneration of the
Chairman, the Executive Directors and other senior executives;
• Determines the remuneration packages of the above,
including any compensation on termination of office;
• Reviews the remuneration arrangements for the wider
employee population and considers issues relating to
remuneration that may have a significant impact on the Group;
• Provides advice to, and consults with, the CEO on major policy
issues affecting the remuneration of other executives; and
• Keeps the Remuneration Policy under review in 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.
For the Committee’s terms of reference, see www.intertek.com.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
87
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.
André Lacroix
André is the Senior Independent Non-Executive Director
at Reckitt Benckiser Group plc for which his earnings from
1 January to 31 December 2017 were £134,782 which
he retained.
STATEMENT OF SHAREHOLDER VOTING
At the 2017 AGM, a resolution was proposed to shareholders
to approve the Directors’ Remuneration report for the year
ended 31 December 2016. This resolution received the
following votes from shareholders:
Remuneration report:
In favour
Against
Total
Withheld
VOTES
124,680,112
4,176,780
128,856,892
420,490
%
96.76
3.24
79.84*
* Percentage of total issued share capital voted.
At the 2016 AGM, a resolution was proposed to shareholders to
approve the Remuneration Policy.
Remuneration Policy:
In favour
Against
Total
Withheld
VOTES
116,806,831
4,383,570
121,190,401
1,386,204
%
96.38
3.62
75.09*
* Percentage of total issued share capital voted.
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
REMUNERATION REPORT
continued
THE ACTIVITY OF THE COMMITTEE
During the year the Committee discussed the following items:
FEB
JULY
DEC
Executive Directors’ remuneration
The salary for senior management
and the determination of the bonus
payments for 2016
The TSR and EPS performance results for
the 2014 to 2016 share plan award cycles
The 2017 bonus targets and
performance measures
Share plan awards for 2017 to 2019
and TSR and EPS performance criteria
Review of market trends in remuneration
Outcomes from shareholder consultation
The remuneration proposals or departure
terms for senior employees
The review of the Directors’ Remuneration
report to ensure compliance with
Remuneration Reporting Regulations
The annual Committee agenda schedule
The Committee terms of reference
The annual Committee evaluation
2017 AGM update and Corporate
Governance bodies' voting
recommendations
Updates on Corporate Governance
developments
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ADVISORS
To ensure that the Group’s remuneration practices drive and
support achievement of strategies and are market competitive,
the Committee obtains advice from various independent sources.
In 2017, the Committee received advice from Deloitte LLP
(‘Deloitte’), who they appointed in 2015 for their particular
expertise both at a local and global level, due to the worldwide
operations of the Group and, following review, the Committee
remains satisfied that their advice is objective and independent.
Deloitte provided no other services to the Committee during
the year under review.
Deloitte are members of the Remuneration Consultants
Group and adhere to the Voluntary Code of Conduct in relation
to executive remuneration consulting in the UK.
The fees paid to Deloitte in the year were £55,107. The charges
for services are calculated on the basis of time spent and the
seniority of the personnel performing the work at their
respective rates.
88
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
DIRECTORS’ REMUNERATION EARNED IN 2017
The table below summarises Directors’ remuneration received for 2017 and the prior year for comparison.
Base
salary
or fees
£’000
Benefits1
£’000
BIK arising
from
performance
of duties2
£'000
Pension
£’000
Annual
bonus3
£’000
Long-term
incentives
£’000
Total
£'000
Other4
£'000
927
908
414
406
320
320
17
25
33
69
68
68
78
35
73
73
29
72
98
68
68
104
83
27
30
25
25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
2
–
–
–
–
–
1
–
–
–
–
2
–
7
3
1
278
273
83
826
1,862
1,282
832
573
4,4365
–
1,5865
1137
7,607
2,546
2,942
1,204
4,076
2,906
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
351
347
17
25
33
69
68
69
78
35
73
73
31
72
105
71
69
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
including
joining
Mirror
Awards
£’000
11,683
5,452
2,942
1,204
351
347
17
25
33
69
68
69
78
35
73
73
31
72
105
71
69
2017
2016
20178
20179
201710
2016
2017
2016
2017
2016
2017
2016
201711
201712
2016
2017
2016
Executive Directors
André Lacroix
Edward Leigh
2017
2016
2017
2016
Non-Executive Directors
Sir David Reid
Graham Allan
Gurnek Bains
Alan Brown
Dame Louise Makin
Andrew Martin
Gill Rider
Jean-Michel Valette
Michael Wareing
Lena Wilson
1. Benefits include allowances in lieu of company car, annual medicals, life assurance and private medical insurance, and the use of a car and driver for the CEO (£51,890).
Taxable benefits for 2016 have been restated to include benefits received in that year for which the amount was not known at the time. With respect to the Non-
Executive Directors, other than Sir David Reid who receives a car allowance of £25,000 per annum, no other benefits are provided.
2. Certain expenses relating to the performance of a Director’s duties (not included in the Benefits column above) such as travel to and from Company meetings and
related accommodation have now been classified as taxable. In such cases, the Company will ensure that the Director is not out of pocket by settling the related
tax via the PSA. In line with current regulations, these taxable benefits have been disclosed and are shown in the BIK arising from performance of duties column.
The figures shown are the cost of the taxable benefit.
3. This relates to the payment of the annual bonus and Deferred Bonus Share Award for the financial year end. Further details of this payment are set out on the
following pages.
4. As reported in previous years, at the time of joining, the Company had bought out André’s existing share awards with his previous employer in two tranches of 91,575
and 91,574 shares vesting in 2016 and 2017 each at an award price of £28. The tranche that vested in 2017 vested at a share price of £42.95 which represents an
increase in our Company share price over the two years of over 53%. These awards were one-off awards and are not part of his ongoing remuneration.
5. This relates to the vesting of the 2015 LTIP award. The value shown is based on the share price of £52.01 which was the average share price in the fourth quarter
of 2017.
6. The pension contributions for Edward Leigh include the sum of £nil (2016: £17,140) which was paid into the Intertek Group Personal Pension Plan, which is a defined
7.
contribution scheme.
This figure has been updated to show the actual value of the vested LTIP share awards based on the share price of £38.43 on the date of vesting, as the 2016 Report
included figures based on the share price for the final quarter of 2016 (£33.71). The awards were granted on 10 March 2014 prior to Edward Leigh’s appointment as
CFO on 1 October 2014.
8. Graham Allan’s fees relate to the period from 1 October 2017, the date he was appointed to the Board.
9. Gurnek Bains’ fees relate to the period from 1 July 2017, the date he was appointed to the Board.
10. Alan Brown’s fees relate to the period to 24 May 2017, the date he stepped down from the Board.
Jean-Michel Valette’s fees relate to the period from 1 July 2017, the date he was appointed to the Board.
11.
12. Michael Wareing’s fees relate to the period to 30 September 2017, the date he stepped down from the Board.
ANNUAL BONUS
The annual bonus for 2017 was based solely on financial measures:
• 80% based on a matrix (illustration provided on the following page) based on revenue and adjusted operating profit growth; and
• 20% based return on invested capital (ROIC).
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
89
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
REMUNERATION REPORT
continued
Overview of the matrix (80% of the award)
Revenue performance (£m)
Maximum
Target
Threshold
Below threshold
Adjusted operating profit performance (£m)
Below
threshold
0%
0%
0%
0%
Threshold
40%
30%
25%
0%
Target
65%
50%
35%
0%
Maximum
100%
75%
60%
0%
Straight-line payouts occur between each of the points noted above.
The Company’s performance resulted in a Group bonus payout of 100% of maximum opportunity. Performance of individual
components is shown below.
2017 Company Performance against bonus targets (at 2016 constant currency)
Financial measures
Total External Revenue1
Adjusted Operating Profit1
Revenue/Profit Matrix
Return on invested capital1
Total
%
Weighting
80%
20%
100%
2017
Target2
2017
Threshold
2017
Actual
£2,540.8m £2,592.7m £2,644.5m £2,649.4m
£453.6m
2017
Maximum
£425.6m
£412.8m
£438.4m
21.8%
22.0%
22.2%
24.4%
1. Calculated using constant 2016 exchange rates. Adjusted results exclude the impact of Separately Disclosed Items.
2. Target is equivalent to 50% payout.
3. Percentage achieved against maximum targets.
For 2017, the annual bonus outturn in cash and shares is as follows:
André Lacroix
Edward Leigh
Achieved3
Weighted
achievement
100%
100%
80%
20%
100%
Payable
in cash
£’000
931.2
416.2
Deferred
Share Award
£’000
931.2
416.2
The Committee has the discretion to adjust the final bonus outcome downwards if it considers short-term performance has been
achieved at the expense of long-term future success. Deferred Shares are subject to continued employment for the three-year vesting
period. The Committee may also adjust the final bonus outcome upwards to recognise exceptional circumstances that were beyond the
direct responsibility of the Executive Director and the Executive has managed and mitigated the impact of any loss. The Committee
considered the results and did not exercise any discretion in respect of the above bonus outturn as it felt that the payouts were
reflective of the underlying performance of the Group. Both the cash and share elements of the bonus are subject to malus and
clawback. Overpayments may be reclaimed in the event of performance achievements being found to be significantly misstated.
VESTING OF LTIP SHARE AWARDS
The LTIP Share Awards granted in 2015 are subject to performance for the three-year period ended 31 December 2017.
The performance conditions attached to this award and actual performance against these conditions are as follows:
Metric
Earnings Per Share
Performance condition
Annualised fully diluted, adjusted EPS growth, calculated
on the basis of foreign exchange rates adopted at the
start of the performance cycle
Threshold
target
4%
Stretch
target
10%
Actual
performance
8.54%
Vesting
level
81.73%
Total Shareholder Return Relative TSR performance against the FTSE 31 to 130
Median
(excluding banks and investment trusts)
Total vesting
Upper
quartile
At or above
upper
quartile1
100.00%
90.87%
1. TSR performance calculation was calculated by Deloitte; Intertek was ranked 3rd of the 92 members of the comparator group of companies.
90
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
The LTIP Share Awards granted in 2015 to the Executive Directors were as follows:
Executive Director
André Lacroix
Edward Leigh
Total vesting
Number of
shares at
grant
90,440
32,336
Number of
shares based
on accrued
dividends
3,411
1,217
Total number
of shares1
93,851
33,553
Number of
shares
to lapse
(8,569)
(3,063)
Number of
shares
to vest
85,282
30,490
Value of
vested
shares
£'000
4,4361
1,5861
6,022
1. The value shown is based on the share price of £52.01 which is based on the average share price in the fourth quarter of 2017.
LTIP SHARE AWARDS GRANTED DURING THE YEAR
The following LTIP Share Awards were granted to the Executive Directors on 20 March 2017:
André Lacroix
Edward Leigh
Type of
award
LTIP Share
Award
LTIP Share
Award
Basis of
award
granted
250%
of salary
200%
of salary
Share price
at date
of grant
£
38.922
Number of
shares over
which award
was granted
58,636
% of face
value that
would vest at
threshold
performance
25%
Face value
of award
£’000
2,282
38.922
20,965
816
25%
Vesting
determined
by
performance
over
Three
years to
31 December
2019
The LTIP Share Awards granted in 2017 are conditional share awards subject to performance for the three-year period ending
31 December 2019. This note relates to performance shares only; details of deferred shares granted in 2017 are set out in the
table below (Share Plan Awards).
The performance conditions attached to this award and the targets are as follows:
Metric
Earnings Per Share
Total Shareholder Return
Performance condition
Annualised fully diluted, adjusted EPS growth, calculated on the basis
of foreign exchange rates adopted at the start of the performance cycle
Relative TSR performance against the FTSE 31 to 130 (excluding banks
and investment trusts)
Threshold
target
4%
Median
Stretch
target
10%
Upper
quartile
SHARE PLAN AWARDS
The table below shows the Directors’ interests in the Intertek Share Plans, all of which are restricted stock units (‘RSUs’):
Type of Award
LTIP Share4
Dividend
Mirror share,
Tranche B
Dividend
LTIP Share6
Dividend
Deferred
Share6
Dividend
LTIP Share7
Dividend
Deferred
Share7
Dividend
31 December
2016
Number
of shares
Granted
in 2017
Number of
shares
Award
price1
£
Dividend
accrued
in 20172
Vested
in 2017
Number
of shares
Lapsed
in 2017
Number
of shares
90,440
2,105
91,574
3,321
71,982
1,188
17,376
–
–
–
–
–
–
286
–
–
–
–
58,636
–
16,474
–
–
28.006
–
31.084
–
31.084
–
38.922
–
38.922
–
1,306
–
–
–
1,038
–
250
–
846
–
–
–
(91,574)
(3,321)
–
–
–
–
–
–
–
–
278,272
–
75,110
–
237
3,677
–
(94,895)
–
–
–
–
–
–
–
–
–
–
–
–
31
December
2017
Number
of shares
90,440
3,411
Date of
vesting
Sep 2018
– May 2017
–
71,982 Mar 2019
2,226
17,376 Mar 2019
536
58,636 Mar 2020
846
16,474 Mar 2020
237
262,164
André Lacroix
2015
2016
2017
Total
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
91
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
REMUNERATION REPORT
continued
SHARE PLAN AWARDS (CONTINUED)
31 December
2016
Number
of shares
Granted
in 2017
Number of
shares
Award
price1
£
Dividend
accrued
in 20172
Vested
in 2017
Number
of shares
Lapsed
in 2017
Number
of shares
31 December
2017
Number
of shares
Date of
vesting
Type of Award
LTIP Share3
Dividend
Deferred
Share3
Dividend
LTIP Share4
Dividend
Deferred
Share5
Dividend
LTIP Share6
Dividend
Deferred
Share6
Dividend
LTIP Share7
Dividend
Deferred
Share7
Dividend
6,576
349
1,331
69
32,336
751
5,405
195
25,736
424
12,425
204
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,965
–
7,362
30.41
–
30.41
–
24.74
–
25.572
–
31.084
–
31.084
–
38.922
–
38.922
–
–
–
–
466
–
77
–
371
–
179
–
302
–
(2,785)
(147)
(1,331)
(3,791)
(202)
–
–
–
–
Mar 2017
Mar 2017
(69)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32,336
1,217
5,405
272
25,736
795
12,425
383
20,965
302
7,362
Sep 2018
Mar 2018
Mar 2019
Mar 2019
Mar 2020
Mar 2020
–
85,801
–
28,327
–
106
1,501
–
(4,332)
–
(3,993)
106
107,304
Edward Leigh
2014
2015
2016
2017
Total
1. Awards made are based on a share price obtained by averaging the closing share prices for the five dealing days before the date of grant.
2. The dividend shares are accrued on the date the dividend is paid and determined using the closing market price of the shares on that date. The dividend accruals relate
to Share Awards made in lieu of not receiving cash dividends during the vesting period.
3. Awards vested on 10 March 2017, on which date the market price of shares was £38.43 having been granted on 10 March 2014 on which date the closing market price
was £30.46. 50% of the LTIP (Performance) Awards were subject to EPS and 50% were subject to relative TSR. The EPS threshold level was set at 6% per annum and
the upper target at 14% per annum. Under the TSR condition, the Company’s TSR ranking is measured relative to the FTSE index members 31 to 130 (excluding banks
and investment trusts) and 42.35% of awards vested.
4. Awards will vest on 22 September 2018, subject to performance and continued employment, having been granted on 22 September 2015 on which date the closing
market price was £23.94. 50% of awards are subject to EPS and 50% are subject to relative TSR. The EPS threshold level was set at 4% per annum and the upper target
at 10% per annum. Under the TSR condition, the Company’s TSR ranking is measured relative to the FTSE index members 31 to 130 (excluding banks and investment
trusts). As set out on page 90, 90.87% of the awards will vest.
5. Awards will vest on 9 March 2018, having been granted on 9 March 2015 on which date the closing market price was £25.70.
6. Awards will vest on 21 March 2019, subject to continued employment, having been granted on 21 March 2016 on which date the closing market price was £31.13.
Awards were made at a share price of £31.084 being the share price obtained by averaging the closing share prices for the five dealing days before the date of grant.
50% of the LTIP Share Awards are subject to EPS and 50% are subject to relative TSR. The EPS threshold level was set at 4% per annum and the upper target at 10%
per annum. Under the TSR condition, the Company’s TSR ranking is measured relative to the FTSE index members 31 to 130 (excluding banks and investment trusts).
7. Awards will vest on 20 March 2020, subject to continued employment, having been granted on 20 March 2017 on which date the closing market price was £39.17.
Awards were made on a share price of £38.922 being the share price obtained by averaging the closing share prices for the five dealing days before the date of grant.
50% of the LTIP Share Awards are subject to EPS and 50% are subject to relative TSR. The EPS threshold level was set at 4% per annum and the upper target at 10%
per annum. Under the TSR condition, the Company’s TSR ranking is measured relative to the FTSE index members 31 to 130 (excluding banks and investment trusts).
MALUS AND CLAWBACK
Malus and clawback will operate, in respect of the 2011 Long Term Incentive Plan in circumstances where there is reasonable
evidence of misbehaviour or material error, conduct considered gross misconduct, breach of any restrictive covenants by participants,
conduct which resulted in (a) significant loss(es) to the Company, failure to meet appropriate standards of fitness and propriety;
a material failure of management in the Company, a discovery of a material misstatement in the audited consolidated accounts or
the behaviour of a Director has a significant detrimental impact on the reputation of the Group. Clawback can be applied at any time
during the clawback period which is six years from the date of the award unless extended by the Remuneration Committee prior
to the expiry of the initial clawback period.
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 or vice versa. The Committee also retains the discretion to reduce or reclaim payments
if the performance achievements are subsequently found to have been significantly misstated.
92
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
DIRECTORS’ INTERESTS IN ORDINARY SHARES
The interests of the Directors in the shares of the Company as at the year end, or date of ceasing to be a Director, are set out below.
Save as stated in this report, during the course of the year, no Director or any member of his or her immediate family have any other
interest in the ordinary share capital of the Company or any of its subsidiaries. None of the Non-Executive Directors have share options
or share awards.
Beneficially
owned at
31 December
2016 or on
appointment
249,494
1,976
3,356
–
–
1,808
715
–
249
–
3,973
699
Beneficially
owned at
31 December
2017 or on
ceasing to
be a Director1
299,788
4,271
5,919
–
–
1,905
852
137
395
10,000
4,123
836
Outstanding
LTIP Share
Awards2
227,541
81,351
–
–
–
–
–
–
–
–
–
–
Outstanding
Deferred
Shares/Mirror
Awards
34,623
25,953
–
–
–
–
–
–
–
–
–
–
Shareholding
as a % of
salary3
1,678
54
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Shareholding
Guideline
met?
Yes
No
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
André Lacroix7
Edward Leigh8
Sir David Reid
Graham Allan4
Gurnek Bains5
Alan Brown6
Dame Louise Makin
Andrew Martin
Gill Rider
Jean-Michel Valette5
Michael Wareing9
Lena Wilson
1. No changes in the above Directors’ interests have taken place between 31 December 2017 and the date of this report.
2. Subject to performance conditions.
3. Based on a share price of £51.90 as at 29 December 2017 being the last trading day and applied to the annual salary for 2017.
4. Appointed on 1 October 2017.
5. Appointed on 1 July 2017.
6. Stepped down from the Board on 24 May 2017.
7. Appointed 16 May 2015 with the guideline to hold 200% of base salary in shares by 16 May 2020, which has been exceeded.
8. Appointed on 1 October 2014 with the guideline to hold 150% of base salary in shares by 1 October 2019. This guideline was increased to 200% in the
Remuneration Policy approved by shareholders on 25 May 2016 and must be met by 25 May 2021.
9. Stepped down from the Board on 30 September 2017.
PAYMENTS TO PAST DIRECTORS
Wolfhart Hauser (ceased to be a Director on 15 May 2015)
On leaving the Company Wolfhart Hauser had a pro-rated entitlement to 28,679 LTIP Share Awards from the original award of
46,991 LTIP Share Awards granted to him on 10 March 2014, on which date the closing market price was £30.46. At the date of
vesting, following the application of the performance criteria a further 16,534 shares lapsed. Thus a total of 12,145 shares vested
on 10 March 2017 at a share price of £38.43.
PAYMENTS FOR LOSS OF OFFICE
No payments were made in respect of loss of office during the year ended 31 December 2017.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
93
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
REMUNERATION REPORT
continued
PERCENTAGE CHANGE IN REMUNERATION LEVELS
The table below shows the average movement in salary and annual bonus for UK employees between the 2016 and 2017
financial year ends. André Lacroix’s salary was £912,900 for 2016. In 2017, his salary was increased to £931,158.
CEO (A Lacroix1)
Average pay based on Intertek’s UK employees2
Salary
2.0%
5.0%
Bonus
45.2%
1.0%
Benefits
25.3%
5.1%
1. The percentage change for bonus and benefits for André Lacroix are based on actual amounts earned in 2016 and 2017.
2. The Intertek UK employee group has been selected as the most appropriate comparator group, due to the diverse nature of the Group’s global employee population.
RELATIVE IMPORTANCE OF THE SPEND ON PAY
The table below shows the movement in spend on staff costs between the 2016 and 2017 financial years, compared to dividends.
Staff costs1
Dividends
2017
£m
1,220.8
107.0
2016
£m
1,140.6
88.0
% change
7.0%
21.6%
1. Staff costs are shown at actual rates. At constant currency, staff costs increased by 2.0%, reflecting a 5.0% foreign exchange impact.
PERFORMANCE GRAPH
Consistent with prior years, the graph below shows the TSR in respect of the Company over the last nine financial years, compared
with the TSR for the full FTSE 100 Index. The FTSE 100 is selected as the comparator group as it is a good representation of peer
group companies. TSR, reflecting the change in the value of a share and dividends paid, can be represented by the value of a notional
£100 invested at the beginning of a period and its change over that period.
TSR PERFORMANCE
£
900
800
700
600
500
400
300
200
100
0
INTERTEK GROUP
FTSE 100
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
CEO TOTAL REMUNERATION
The total remuneration figures for the CEO during each of the past nine financial years are shown in the table below. Consistent
with the calculation methodology for the single figure for total remuneration, the total remuneration figure includes the total annual
bonus and Deferred Share Award based on that year’s performance and LTIP Share Awards based on the three-year performance
period ending in the relevant year. The annual bonus payout and LTIP award vesting level as a percentage of the maximum opportunity
are also shown for each of these years.
Total remuneration £’000
Annual bonus (%)
LTIP award vesting (%)
Year ended 31 December
2009
2,451
100.0
100.0
2010
3,164
96.6
100.0
2011
4,554
92.3
100.0
2012
5,298
83.1
100.0
2013
3,195
34.6
81.8
2014
2,011
38.4
25.2
W Hauser
2015
876
90.6
–
A Lacroix
2015
1,824
96.6
–
2016
2017
5,4521 11,6831
70.24 100.0
– 90.87
1. As reported in previous years, at the time of joining, the Company had bought out André’s existing share awards with his previous employer in two tranches of 91,575 and
91,574 shares vesting in 2016 and 2017 each at an award price of £28. The tranche that vested in 2017 vested at a share price of £42.95 which represents an increase in
our Company share price over the two years of over 53%. These awards were one-off awards and are not part of his ongoing remuneration. Ongoing remuneration would
have been £7,607m in 2017 as further detailed in the charts on page 89 and 95.
94
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
CEO TOTAL REMUNERATION
The graph below shows the total remuneration of the Intertek CEO over the nine-year period from 2009 to 2017.
CEO TOTAL REMUNERATION FIGURE
Mirror awards5
LTIP (share price increase)4
LTIP (award share price)3
Annual Bonus
Pension
Benefits
Salary
£’000
12,000
10,000
8,000
6,000
4,000
2,000
0
2009
2010
2011
2012
2013
2014
2015 (WH)1
2015 (AL)2
2016
2017
1. Shows W Hauser remuneration based on period to 15 May 2015.
2. Shows A Lacroix remuneration for the period from appointment as CEO on 16 May 2015.
3. LTIP (award share price) shows the proportion of the LTIP value received which resulted from the share price on the award date.
4. LTIP (share price increase) shows the proportion of the LTIP value received which resulted from increase in the share price over the vesting period.
5. Mirror Awards – as reported in previous years, at the time of joining, the Company had bought out André’s existing share awards with his previous employer in two
tranches of 91,575 and 91,574 shares vesting in 2016 and 2017 each at an award price of £28. The tranche that vested in 2017 vested at a share price of £42.95 which
represents an increase in our Company share price over the two years of over 53%. These awards were one-off awards and are not part of his ongoing remuneration.
REMUNERATION DECISIONS TAKEN IN RESPECT OF THE FINANCIAL YEAR ENDING 31 DECEMBER 2018
Base salary
Following a review of base salaries, the Remuneration Committee approved a salary increase of 2.0% for the CEO. This is in line with
the increase provided to UK employees in the Group.
As set out in further detail in the letter from the Remuneration Committee Chair, following consultations with the majority of our
shareholders, the Remuneration Committee approved a 14.1% increase for the CFO from 1 January 2018. This increase was made to
recognise his performance in role, the addition of the global IT function to his role, as well as the market benchmarks for his role.
The Executive Directors’ salaries are:
André Lacroix
Edward Leigh
1. The salary increase for Edward Leigh has been applied from 1 January 2018.
Base salary
from
1 April 2017
£’000
931
416
Base salary
from
1 April 2018
£’000
950
4751
% increase
2.0%
14.1%
Annual Bonus and LTIP awards to be granted in 2018
For 2018, the annual bonus opportunity expressed as a percentage of base salary will be 200% for the CEO and CFO. The Committee
has determined that for 2018 the basis for calculating the Annual Bonus will be unchanged from the previous year – 80% will be based
on a matrix based on revenue and adjusted operating profit growth, and 20% will be based on ROIC.
Annual Bonus will continue to be subject to a quality of earnings review at the end of the year to ensure that payouts are appropriate
based on the underlying performance of the Group and to ensure that any awards are commensurate with the Group’s culture and values.
The Committee has chosen not to disclose, in advance, the performance targets for the forthcoming year as these include items
which the Committee considers commercially sensitive. In accordance with good governance, the Committee is however committed to
providing insightful and transparent disclosure to our shareholders. In this regard, and in line with the Investment Association’s position
regarding bonus target disclosure, the Committee will disclose the performance targets for the annual incentive in the following year.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
95
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
REMUNERATION REPORT
continued
For 2018, the LTIP opportunity for the CEO and CFO will be 250% and 200% of salary respectively with targets based on the Group
Remuneration Policy as below:
Metric
Earnings Per Share
Total Shareholder Return
Performance condition
Annualised fully diluted, adjusted EPS growth calculated
on the basis of foreign exchange rates adopted at the start
of the performance cycle
Relative TSR performance against the FTSE index members
31 to 130 (excluding banks and investment trusts)
Threshold
target
4%
Stretch
target
10%
Median
Upper
quartile
NON-EXECUTIVE DIRECTORS’ FEES
As detailed in the Remuneration Policy, fees for the Non-Executive Directors are determined by the Board, based on the responsibility
and time committed to the Group’s affairs and appropriate market comparisons. Individual Non-Executive Directors do not take part in
discussions regarding their own fees. Following a review of Non-Executive Directors fees in 2017, minor changes are proposed as set
out in the table below:
Board membership
Chairman
Non-Executive Director
Senior Independent Non-Executive Director
Committee membership
Chair Audit Committee
Chair Remuneration Committee
Chair Nomination Committee
Member Audit Committee
Member Remuneration Committee
Member Nomination Committee
* Increase to take effect from 1 April 2018.
2017
£’000
320
58
12
20
15
–
10
7.5
2.5
2018*
£’000
320
62
12
20
15
–
10
10
5
Pursuant to the policy of aligning Directors’ interests with those of shareholders, £10,000 of the fees paid to the Non-Executive
Directors and £30,000 of the fees paid to the Chairman are used each year to purchase shares in the Company.
APPROVAL OF THE DIRECTORS’ REMUNERATION REPORT
The Directors’ Remuneration report, including the Remuneration Policy Annual Report on Remuneration, was approved by the Board
on 5 March 2018.
Gill Rider
Chair of the Remuneration Committee
96
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
SHAREHOLDER ENGAGEMENT
DIRECTORS’ REPORT
The Board recognises its responsibility to take account of the
interests of stakeholders as outlined in section 172 of the
Companies Act 2006.
Our Sustainability and CSR report on pages 44 to 61 sets out our
sustainability priorities, our commitment and engagement with
our people, the environment and wider communities.
Details of our significant shareholders is disclosed on page 100.
INVESTOR RELATIONS PROGRAMME
Investor Materials
The primary form of communication with institutional investors
is through our Annual Report, full-year and half-year results
updates and Trading Statements. These materials are available on
the investor webpages, which includes a wealth of information
that may be of interest to shareholders and investors and is
supplemented by videos, webcasts, and presentations.
APPROACH TO INVESTOR RELATIONS
The Board is committed to maintaining an active and open
dialogue with shareholders and sees this as an important part
of the governance process. The Chairman, supported by the
Executive Directors, has overall responsibility for ensuring
Intertek has regular and effective communication with its
investors and throughout the year, the Chairman, Non-Executive
Directors and Executive Directors are available to meet with
institutional shareholders.
Investor Conferences
Throughout the year, the Executive Directors and the investor
relations team attended industry conferences which provide an
opportunity to meet a large number of investors. Some of the
conferences attended this year include the Berenberg TIC
Conference in London, the Exane BNP Paribas CEO conference in
Paris and the Credit Suisse Business Services Conference in San
Francisco. A full list of conferences attended is outlined in the
calendar below.
Intertek has a comprehensive annual investor relations
programme, aimed at helping existing and potential investors
understand the Group’s business model, strategy, financial
performance and outlook.
ESG/SRI Conferences
During the year the investor relations team also attended ESG/
SRI conferences which have a specific focus on responsible and
sustainable investment.
This function is managed by the investor relations team in
London and includes a wide-ranging programme of events and
roadshows throughout the year to update investors and sell-side
analysts on the developments of the Group.
Investor Roadshows
Following the full-year and half-year results announcements
in March and August respectively, the Executive Directors and
investor relations team carried out meetings with principal
shareholders across London, Edinburgh, New York, Boston,
Montreal and Toronto.
JANUARY
APRIL
JUNE
SEPTEMBER
NOVEMBER
• Oddo Lyon IR Forum
• Exane BNP Milan 1st
Support Services
Investor Forum
• Netherlands
Roadshow
• Berenberg London UK
Corporate Conference
• New York Roadshow
• Frankfurt Roadshow
• Trading Statement
• Mid-Atlantic, Toronto,
San Francisco. Salt Lake
City Roadshows
• Exane BNP Paris
European CEO
Conference
• Copenhagen Roadshow
• Goldman Sachs London
European Business
Services, Transport &
Leisure Conference
• HSBC Frankfurt
Business/Consumer
Services Conference
• UBS London 20th
Annual Business
Services Conference
• Kepler Cheuvreux Paris
Autumn Conference
• Bernstein London
Strategic Decisions
Conference
MARCH
MAY
AUGUST
OCTOBER
DECEMBER
• Full Year Results 2016
• Trading Statement
• Half Year Results
• Berenberg London
• London, Edinburgh,
New York − Annual
Results Roadshows
• JP Morgan Chase Paris
SRI Conference
• Citi London
Pan-European
Business Services
Conference
• Stockholm Roadshow
• Geneva Roadshow
• Zurich Roadshow
• Dublin Roadshow
• JP Morgan Chase
London European
Business Services
Conference
2017
• London, Edinburgh,
New York, Montreal,
Boston − Interim
Results Roadshows
• Stockholm Roadshow
• Helsinki Roadshow
(TIC) Testing,
Inspection
& Certification
Conference
• Santa Fe, Denver,
Chicago Roadshows
• Credit Suisse
San Francisco 7th
Annual European
Business Services
Conference
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
97
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
SHAREHOLDER ENGAGEMENT
continued
In addition, further roadshows were held in European and US
cities, as well as ad hoc investor meetings in other locations
across the world.
Corporate Governance roadshow
Intertek’s largest shareholders are invited annually to meet
with the Chairman to share their views and discuss any
corporate governance matters. In 2017, shareholders holding
more than 53% of the share register collectively were invited
to these meetings.
FEEDBACK ON INVESTOR RELATIONS ACTIVITIES
The Executive Directors and investor relations team receive
regular feedback from sell-side analysts and investors during
the year both directly and through the Group’s Corporate
Advisers. The Group Company Secretary also receives
feedback on governance matters directly from investors
and shareholder bodies.
ANNUAL GENERAL MEETING (‘AGM’)
The Board welcomes the opportunity to meet with both private
and institutional investors at the AGM. The 2017 AGM provided
all shareholders the opportunity to question the Board and Chair
of each Board Committee on matters put to the meeting. The
results of voting at the AGM are published on the Company’s
website: www.intertek.com/investors.
The 2018 AGM will be held on 24 May 2018 at 9.00 a.m. in the
Marlborough Theatre, No. 11 Cavendish Square, London,
W1G 0AN. The AGM provides the opportunity for all shareholders
to develop their understanding of the Company’s strategy and
operations, to ask questions of the full Board on the matters put
to the meeting, including the Annual Report and Accounts. All
Board members attend the AGM and, in particular, the Chairs of
the Audit, Nomination and Remuneration Committees are
available to answer questions. The Company proposes a
resolution on each separate issue and does not combine
resolutions inappropriately. The Notice of the AGM (‘Notice’) is
sent to shareholders by e-communications or by post, and is also
available on the website at www.intertek.com.
DIVIDEND PAYMENTS
Dividend payments to shareholders were made twice during 2017.
The 2016 final dividend payment was made on 2 June 2017 to all
shareholders present on the register as at 19 May 2017. The 2017
interim dividend payment was made on 13 October 2017 to all
shareholders on the register as at 29 September 2017.
98
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
OTHER STATUTORY INFORMATION
DIRECTORS’ REPORT
OTHER STATUTORY INFORMATION
In accordance with the requirements of the Companies Act 2006
(‘Act’) and the Disclosure Guidance and Transparency Rules (‘DTR’)
of the Financial Conduct Authority (‘FCA’), the following section
describes the matters that are required for inclusion in the Directors’
report and were approved by the Board. Further details of matters
required to be included in the Directors’ report that are incorporated
by reference into this report are set out below.
DIRECTORS
The names of the members of the Board, as at the date of this
report, and their biographical details are set out on pages 68 to 69.
ARTICLES OF ASSOCIATION
The Company’s Articles of Association contain provisions
relating to the retirement, election and re-election of Directors
but, in accordance with best practice, all Directors who wish to
continue to serve will stand for election or re-election at the
Annual General Meeting (‘AGM’).
The Articles of Association set out the internal regulation of the
Company and cover such matters as the rights of shareholders,
the appointment or removal of Directors and the conduct of the
Board and general meetings. Copies are available upon request
from the Group Company Secretary and are available at the
Company’s AGM. Further powers are granted by members in
general meeting and those currently in place are set out in
detail in the appropriate section of this report.
DIRECTORS’ INDEMNITIES
The Board believes that it is in the best interests of the Group to
attract and retain the services of the most able and experienced
Directors by offering competitive terms of engagement, including
the granting of indemnities on terms consistent with the
applicable statutory provisions. In accordance with the Articles of
Association, the Company has executed deed polls of indemnity
for the benefit of Directors of the Company.
These provisions which are deemed to be qualifying third-party
indemnity provisions (as defined by section 234 of the Act), were
in force during the financial year ended 31 December 2017, for
the benefit of the Directors and, at the date of this report, remain
in force in relation to certain losses and liabilities which they may
incur (or have incurred) in connection with their duties, powers
or office.
DIRECTORS’ INTERESTS
Other than the Directors’ service agreements or letters of
appointment, none of the Directors of the Company had a personal
interest in any business transactions of the Company or its
subsidiaries. The terms of the Directors’ service agreements or
letters of appointment and the Directors’ interests in shares and
share awards of the Company, in respect of which transactions
are notifiable to the Company under Rule 3 of the DTR of the
FCA, are disclosed in the Remuneration report on pages 81 to 96.
DIRECTORS’ POWERS
The Directors are responsible for the strategic management of
the Company and their powers to do so are determined by the
provisions of the Act and the Company’s Articles of Association.
DIVIDEND
The Directors are recommending a final dividend of 47.8p per
ordinary share (2016: 43.0p) making a full year dividend of 71.3p
per ordinary share (2016: 62.4p) which will, if approved at the
AGM, be paid on 6 June 2018 to shareholders on the register at
the close of business on 18 May 2018.
SHARE CAPITAL
The issued share capital of the Company and the details of the
movements in the Company’s share capital during the year are
shown in note 15 to the financial statements.
The holders of ordinary shares are entitled to receive dividends
when declared, to receive the Company’s Annual Report and
Accounts, to attend and speak at general meetings of the
Company, to appoint proxies and exercise voting rights. A waiver
of dividend exists in respect of 541,211 shares held by the
Intertek Group Employee Share Ownership Trust (‘Trust’) as at
31 December 2017. Details of the shares purchased by the
Trust during the year are outlined within note 15 to the financial
statements. There are no restrictions on the transfer of ordinary
shares in the Company.
The rights attached to shares in the Company are provided by
the Articles of Association, which may be amended or replaced
by means of a special resolution of the Company in a general
meeting. The Directors’ powers are conferred on them by UK
legislation and by the Company’s Articles of Association.
No ordinary shares carry any special rights with regard to control
of the Company and there are no restrictions on voting rights
except that a shareholder has no right to vote in respect of a
share unless all sums due in respect of that share are fully paid.
There are no arrangements known to the Company by which
financial rights carried by any shares in the Company are held by a
person other than the holder of the shares, nor are there any
arrangements between holders of securities that may result in
restrictions on the transfer of securities or on voting rights
known to the Company. All issued shares are fully paid.
Shares are admitted to trading on the London Stock Exchange
and may be traded through the CREST system.
ALLOTMENT OF SHARES
At the AGM held in 2017, the shareholders generally and
unconditionally authorised the Directors to allot relevant securities
up to approximately two-thirds of the nominal amount of issued
share capital.
It is the Directors’ intention to seek renewal of this authority
in line with guidance issued by the Investment Association.
The resolution will be set out in the Notice.
At the AGM in 2017 the Directors were also empowered by
the shareholders to allot equity securities, up to 5% of the
Company’s issued share capital, for cash under section 570
of the Act. It is intended that this authority be renewed at
the forthcoming AGM.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
99
DIRECTORS’ REPORT
OTHER STATUTORY INFORMATION
OTHER STATUTORY INFORMATION
continued
It is the Board’s intention, in line with guidance issued by the
Pre-Emption Group, to also propose the renewal of the additional
special resolution to allow the Company to allot equity securities
up to a further 5% of the Company’s issued share capital. This is
applicable when the Board determines a transaction to be an
acquisition or other capital investment, as defined by the
Pre-Emption Group’s Statement of Principles. In the event that
this additional 5% disapplication of pre-emption right is used, the
Company will outline the reason for its use and the consultation
process undertaken within six months of the date that it is used.
PURCHASE OF OWN SHARES
Shareholders also approved the authority for 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.
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
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 10-year period under the relevant share plan rules.
SIGNIFICANT AGREEMENTS – CHANGE OF CONTROL
The Company is not a party to significant agreements which
take effect, alter or terminate upon a change of control following
a takeover bid apart from a number of credit facilities with banks
together with certain senior notes issued by the Company. The
total amount owing under such credit facilities and senior note
agreements as at 31 December 2017 is shown in note 14 to the
financial statements. These agreements contain clauses such
that, in the event of a change of control, the Company can offer
to or must repay all such borrowings together with accrued
interest, fees and other sums owing as required by the
individual agreements.
The rules of the Company’s incentive plans contain clauses
relating to a change of control resulting from a takeover and in
such an event awards would vest subject to the satisfaction of
any associated performance criteria.
MATERIAL INTERESTS IN SHARES
Up to 5 March 2018, being the latest practicable date before the
publication of this report, the following disclosures of major
holdings of voting rights have been made (and have not been
amended or withdrawn) to the Company pursuant to the
requirements of Rule 5 of the DTR of the FCA. There have been
no changes since the year end.
AT THE DATE OF NOTIFICATION
Shareholder
BlackRock Inc.
MFS Investment Management
Mawer Investment Management Ltd
Marathon Asset Management LLP
Fiera Capital Corporation
Number of
voting rights
10,473,019
9,547,182
8,110,417
8,037,714
7,107,884
% of voting
rights
6.49
5.92
5.03
4.98
4.40
EMPLOYMENT
Information about the Group’s employees, employment of
disabled persons and employment practices is contained within
the Sustainability and CSR report on pages 48 to 51. Information on
employee share schemes is in note 17 to the financial statements.
GREENHOUSE GAS EMISSIONS
Information about the Group’s Greenhouse Gas emissions is given
in the Sustainability and CSR report on page 54 to 57.
POLITICAL DONATIONS
At the AGM in 2017 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 items are defined in the Act) not exceeding £90,000.
During the year the Group did not make such political donations
(2016: £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.
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 section 362 to 379 of the Act). Further information is
contained in the Notice.
BRANCHES
The Company, through various subsidiaries, has established
branches in a number of different countries in which the business
operates. The list of related undertakings is available on pages
146 to 151.
AUDITOR
The auditor, PricewaterhouseCoopers LLP, have expressed their
willingness to continue in office. Upon the recommendation of
the Audit Committee, resolutions to re-appoint them as auditor
and to determine their remuneration will be proposed at the
forthcoming AGM.
FINANCIAL INSTRUMENTS
Details about the Group’s use of financial instruments are
outlined in note 14 to the financial statements.
ANNUAL GENERAL MEETING
The Notice of AGM, which is to be held on 24 May 2018,
is available for download from the Company’s website at
www.intertek.com/investors. The Notice details the business
to be conducted at the meeting and includes information
concerning the deadlines for submitting proxy forms and in
relation to voting rights.
100
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
DIRECTORS’ REPORT
STATEMENT OF 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 auditor
is unaware and each Director has taken all the steps that he or
she ought to have taken as a Director of the Company to make
themselves aware of any relevant audit information and to
establish that the Company’s auditor is aware of that information.
ANNUAL REPORT AND ACCOUNTS AND COMPLIANCE
WITH LISTING RULE (‘LR’) 9.8.4 R
The Board has prepared a Strategic report (pages 2 to 61) which
provides an overview of the development and performance of the
Company’s business during the year ended 31 December 2017
and its position at the end of that year, and which covers likely
future developments in the business of the Company and Group.
For the purposes of compliance with DTR 4.1.5 R(2) and DTR
4.1.8 R, the required content of the Management Report can be
found in the Strategic report and this Directors’ report, including
the sections of the Annual Report and Accounts incorporated
by reference.
For the purposes of LR 9.8.4C R, the information required to be
disclosed by LR 9.8.4 R can be found in the following locations:
TOPIC
1. Amount of interest capitalised
2. Any information required
LOCATION
Not applicable
Not applicable
by LR 9.2.18 R (Publication of
unaudited financial information)
3. Details of long-term
incentive schemes
4. Waiver of emoluments
by a Director
Directors’ Remuneration
report (pages 81 to 96)
Not applicable
5. Waiver of future emoluments
Not applicable
by a Director
6. Non pre-emptive issues
Not applicable
7.
of equity for cash
Information required by (6) above
for any unlisted major subsidiary
undertaking of the Company
8. Company participation in a
placing by a listed subsidiary
9. Any contracts of significance
10. Any contracts for the
provision of services by
a controlling shareholder
11. Shareholder waivers
of dividends
12. Shareholder waivers
of future dividends
13. Agreements with
controlling shareholders
Not applicable
Not applicable
Other statutory information
(page 100)
Not applicable
Other statutory information
(page 99)
Other statutory information
(page 99)
Not applicable
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 101
DIRECTORS’ REPORT
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
RESPONSIBILITY STATEMENT OF THE DIRECTORS
IN RESPECT OF THE ANNUAL FINANCIAL REPORT
Each of the Directors, whose name and functions are listed on
pages 68 and 69, confirm that to the best of their knowledge:
• the Group and Parent Company 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;
• 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; and
• the Company’s 2017 Annual Report and Accounts, taken as
a whole, is fair, balanced and understandable, and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
The Directors’ report comprising pages 62 to 102 and the Group
Strategic report comprising pages 2 to 61 have been approved by
the Board and signed on its behalf by:
André Lacroix
Chief Executive Officer
5 March 2018
Registered Office
33 Cavendish Square
London
W1G 0PS
Registered Number: 04267576
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
(‘IFRSs’) as adopted by the EU and applicable law and have
elected to prepare the Parent Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS
101 “Reduced Disclosure Framework”, and applicable law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Parent Company
and of their profit or loss for that period. 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 judgements and estimates that are reasonable
and prudent;
• for the Group financial statements, state whether they have
been prepared in accordance with IFRSs 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 adequate accounting
records that are sufficient to show and explain the Group and
Parent Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and
Parent Company and enable them to ensure that the financial
statements and the Directors’ Remuneration Report comply with
the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation. 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 Strategic report, Directors’ report,
Directors’ Remuneration report and Corporate Governance
Statement that complies 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.
102
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
CONTENTS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
IN THIS SECTION
Consolidated statement of comprehensive income
CONTENTS
104 Consolidated income statement
105
106 Consolidated statement of financial position
Consolidated statement of changes in equity
107
108 Consolidated statement of cash flows
109 Notes to the financial statements
152
153
Intertek Group plc – Company balance sheet
Intertek Group plc – Company statement of
changes in equity
154 Notes to the Company financial statements
NOTES TO THE FINANCIAL
STATEMENTS
Note
Significant accounting policies
Operating segments and presentation of results
Separately Disclosed Items
Expenses and auditor’s remuneration
Employees
Taxation
Earnings per ordinary share
Property, plant and equipment
Goodwill and other intangible assets
109 1
113 2
115 3
116 4
116 5
117 6
120 7
121 8
123 9
127 10 Acquisitions
129 11 Trade and other receivables
130 12 Trade and other payables
130 13 Provisions
131 14 Borrowings and financial instruments
138 15 Capital and reserves
139 16 Employee benefits
143 17 Share schemes
144 18 Subsequent events
144 19 Capital management
145 20 Non-controlling interest
145 21 Related parties
145 22 Contingent liabilities
146 23 Principal Group Companies
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 103
CONSOLIDATED PRIMARY STATEMENTS
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2017
Notes
Revenue
Operating costs
Group operating profit/(loss)
Finance income
Finance expense
Net financing costs
Profit/(loss) before income tax
Income tax expense
Profit/(loss) for the year
Attributable to:
Equity holders of the Company
Non-controlling interest
Profit/(loss) for the year
2
2
14
14
6
2
20
Earnings per share**
Basic
Diluted
* See note 3.
** Earnings per share on the adjusted results is disclosed in note 7.
7
7
Adjusted
results
£m
2,769.1
(2,301.4)
467.7
1.2
(30.1)
(28.9)
438.8
(107.5)
331.3
312.3
19.0
331.3
Separately
Disclosed
Items*
£m
–
(45.0)
(45.0)
–
(0.5)
(0.5)
(45.5)
20.6
(24.9)
(24.9)
–
(24.9)
Total
2017
£m
2,769.1
(2,346.4)
422.7
Adjusted
results
£m
2,567.0
(2,157.3)
409.7
Separately
Disclosed
Items*
£m
–
(40.2)
(40.2)
0.9
(23.3)
(22.4)
387.3
(98.0)
289.3
272.7
16.6
289.3
–
–
–
(40.2)
22.5
(17.7)
(17.7)
–
(17.7)
1.2
(30.6)
(29.4)
393.3
(86.9)
306.4
287.4
19.0
306.4
178.6p
176.3p
Total
2016
£m
2,567.0
(2,197.5)
369.5
0.9
(23.3)
(22.4)
347.1
(75.5)
271.6
255.0
16.6
271.6
158.5p
156.8p
104
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
Profit for the year
Other comprehensive income
Remeasurements on defined benefit pension schemes
Items that will never be reclassified to profit or loss
Foreign exchange translation differences of foreign operations
Net exchange gain/(loss) on hedges of net investments in foreign operations
(Loss)/gain on fair value of cash flow hedges
Tax on items that are or may be reclassified subsequently to profit or loss
Items that are or may be reclassified subsequently to profit or loss
Total other comprehensive (expense)/income for the year
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
Equity holders of the Company
Non-controlling interest
Total comprehensive income for the year
Notes
2
16
14
6
20
2017
£m
306.4
12.6
12.6
(107.3)
77.3
(16.4)
(1.7)
(48.1)
(35.5)
270.9
252.2
18.7
270.9
2016
£m
271.6
(5.2)
(5.2)
279.5
(194.1)
14.3
2.8
102.5
97.3
368.9
347.2
21.7
368.9
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 105
FINANCIAL STATEMENTS CONSOLIDATED PRIMARY STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
Assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in associates
Deferred tax assets
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current tax receivable
Total current assets
Total assets
Liabilities
Interest bearing loans and borrowings
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
Non-controlling interest
Total equity
Notes
2017
£m
2016
£m
8
9
9
6
11
14
14
12
13
14
6
16
12
13
15
20
420.6
579.6
178.2
0.3
59.4
1,238.1
18.3
641.7
137.0
17.3
814.3
443.3
586.1
198.8
0.3
48.3
1,276.8
19.1
651.8
175.6
23.0
869.5
2,052.4
2,146.3
(77.1)
(46.8)
(452.2)
(32.2)
(608.3)
(604.0)
(47.4)
(17.8)
(21.6)
(9.1)
(699.9)
(103.4)
(55.8)
(406.8)
(34.0)
(600.0)
(815.9)
(48.7)
(31.8)
(33.7)
(13.8)
(943.9)
(1,308.2)
(1,543.9)
744.2
602.4
1.6
257.8
(9.5)
459.8
709.7
34.5
1.6
257.8
35.3
273.0
567.7
34.7
744.2
602.4
The financial statements on pages 104 to 151 were approved by the Board on 5 March 2018 and were signed on its behalf by:
André Lacroix
Chief Executive Officer
Edward Leigh
Chief Financial Officer
106
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Company
Other reserves
Notes
Share
capital
£m
1.6
Share
premium
£m
257.8
Translation
reserve
£m
(64.4)
Other
£m
6.4
Retained
earnings
£m
110.2
Total
before
non-
controlling
interest
£m
311.6
Non-
controlling
interest
£m
27.8
–
79.0
79.0
–
14.3
14.3
255.0
(1.1)
253.9
255.0
92.2
347.2
16.6
5.1
21.7
Total
equity
£m
339.4
271.6
97.3
368.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(88.0)
(88.0)
(16.3)
(104.3)
–
(8.6)
–
(6.4)
(5.2)
16.6
0.5
–
(8.6)
–
(6.4)
(5.2)
16.6
0.5
1.5
–
–
–
–
–
–
1.5
(8.6)
–
(6.4)
(5.2)
16.6
0.5
–
1.6
–
257.8
–
14.6
–
20.7
(91.1)
273.0
(91.1)
567.7
(14.8)
34.7
(105.9)
602.4
1.6
257.8
14.6
20.7
273.0
567.7
34.7
602.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.6
–
257.8
–
(28.4)
(28.4)
–
(16.4)
(16.4)
287.4
9.6
297.0
287.4
(35.2)
252.2
19.0
(0.3)
18.7
306.4
(35.5)
270.9
–
–
–
–
–
–
–
–
–
(13.8)
–
–
–
–
–
–
–
–
(107.0)
(107.0)
(18.7)
(125.7)
–
–
–
(15.6)
(6.8)
17.5
1.7
–
–
–
(15.6)
(6.8)
17.5
1.7
(0.2)
–
–
–
–
–
–
(0.2)
–
–
(15.6)
(6.8)
17.5
1.7
–
4.3
(110.2)
459.8
(110.2)
709.7
(18.9)
34.5
(129.1)
744.2
For the year ended 31 December 2017
At 1 January 2016
Total comprehensive income for the year
Profit
Other comprehensive income
Total comprehensive income for the year
Transactions with owners of the
company recognised directly in equity
Contributions by and distributions to the
owners of the company
Dividends paid
Adjustment arising from changes in
15
non-controlling interest
20
Put option liability over non-controlling interest 10
15
Issue of share capital
15
Purchase of own shares
17
Tax paid on Share Awards vested*
17
Equity-settled transactions
6
Income tax on equity-settled transactions
Total contributions by and distributions
to the owners of the company
At 31 December 2016
At 1 January 2017
Total comprehensive income for the year
Profit
Other comprehensive (expense)/income
Total comprehensive income for the year
Transactions with owners of the
company recognised directly in equity
Contributions by and distributions to the
owners of the company
Dividends paid
Adjustment arising from changes in
15
non–controlling interest
20
Put option liability over non-controlling interest 10
15
Issue of share capital
15
Purchase of own shares
17
Tax paid on Share Awards vested*
17
Equity–settled transactions
6
Income tax on equity–settled transactions
Total contributions by and distributions
to the owners of the company
At 31 December 2017
*
The tax paid on share awards vested is related to settlement of the tax obligation on behalf of employees by the Group via the sale of a portion of the
equity-settled shares.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 107
FINANCIAL STATEMENTS FINANCIAL STATEMENTS
CONSOLIDATED PRIMARY STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation charge
Amortisation of software
Amortisation of acquisition intangibles
Impairment of goodwill and other assets
Equity-settled transactions
Net financing costs
Income tax expense
(Profit)/loss on disposal of Subsidiary
Loss/(profit) on disposal of Associate
(Profit)/loss on disposal of property, plant, equipment and software
Operating cash flows 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 generated from operating activities*
Cash flows from investing activities
Proceeds from sale of property, plant, equipment and software*
Interest received*
Acquisition of subsidiaries, net of cash acquired
Consideration paid in respect of prior year acquisitions
Sale/(purchase) of Subsidiary
(Purchase)/sale of Associate
Acquisition of property, plant, equipment and software*
Net cash flows used in investing activities
Cash flows from financing activities
Purchase of own shares
Tax paid on share awards vested
Drawdown of borrowings
Repayment of borrowings
Dividends paid to non–controlling interest
Equity dividends paid
Net cash flow used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange adjustments
Cash and cash equivalents at 31 December
Notes
2017
£m
2016
£m
2
8
9
9
8,9
17
14
6
16
10
13
8,9
15
20
15
14
14
14
14
306.4
271.6
81.2
12.2
16.0
18.2
17.5
29.4
86.9
–
–
(0.8)
567.0
(0.5)
(22.7)
46.0
(7.8)
(2.8)
579.2
(28.3)
(100.8)
450.1
3.2
1.2
(27.4)
(7.8)
–
–
(112.9)
(143.7)
(15.6)
(6.8)
–
(151.3)
(18.7)
(107.0)
(299.4)
7.0
158.8
(29.9)
135.9
76.4
13.1
14.0
–
16.6
22.4
75.5
(0.4)
2.4
(0.1)
491.5
–
28.8
21.9
4.0
(2.8)
543.4
(29.7)
(94.1)
419.6
3.0
1.0
(34.8)
(2.0)
2.0
(3.4)
(105.5)
(139.7)
(6.4)
(5.2)
0.2
(170.5)
(16.3)
(88.0)
(286.2)
(6.3)
116.0
49.1
158.8
The notes on pages 109 to 151 are an integral part of these consolidated financial statements.
Cash outflow relating to Separately Disclosed Items was £16.9m for year ended 31 December 2017 (2016: £21.9m).
Free cash flow of £341.6m (2016: £318.1m) comprises the asterisked items in the above consolidated Statement of Cash Flows.
108
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
NOTES TO THE FINANCIAL STATEMENTS
1 Significant accounting policies
BASIS OF PREPARATION
Accounting policies applicable to more than one section of the financial statements are shown below. Where accounting policies relate
to a specific note in the financial statements, they are set out within that note, to provide readers of the financial statements with a
more useful layout to the financial information presented.
Statement of compliance
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 2017 consolidate those of the Company and its subsidiaries
(together referred to as the Group) and include the Group’s interest in associates. 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 Parent
Company financial statements present information about the Company as a separate entity and not about its Group. The Company has
elected to prepare its Parent Company financial statements in accordance with UK GAAP; these are presented on pages 152 to 156.
IFRSs announced but not yet effective
The following IFRSs have been announced, but are not yet effective, in the preparation of these financial statements. Their adoption is
not expected to have a material effect on the financial statements, unless otherwise indicated. Certain of these standards and
interpretations will, when adopted require addition to, or amendment of, disclosures in the accounts, and are currently still under review.
IFRS 9 Financial Instruments (effective 1 January 2018) – management has completed its analysis of this standard, and identified the
following areas of note, though its adoption is not expected to have a material impact. The Group intends to apply the limited
exemption in IFRS 9, and will elect not to restate comparative information in the year of initial adoption. As a result, the comparative
information provided will, continue to be accounted for in accordance with the Group’s previous accounting policy.
• Classification and measurement of financial assets – the Group’s financial assets comprise trade receivables, accrued income
and cash and cash equivalents. The disclosures relating to both trade receivables, accrued income and cash and cash equivalents
continue to be applicable and will not be affected by the adoption of IFRS 9. There are no changes to the measurement of
financial assets.
• Impairment of financial assets, by introducing a forward-looking expected loss impairment model – the Group’s primary
types of financial assets subject to IFRS 9’s new expected credit loss model are trade receivables and accrued income. For trade
receivables and accrued income, the Group is expecting to apply the simplified approach permitted by IFRS 9, which requires the
use of the lifetime expected loss provision for all receivables. There is no material change expected to the impairment provision
of receivables.
• Hedge accounting – the Group intends to continue to apply its current IAS 39 accounting and will provide the additional IFRS 7
disclosures required for taking that option.
IFRS 15 Revenue from contracts with customers (effective 1 January 2018) – management has completed its analysis of this standard
and its adoption is not expected to have a material impact on the timing of revenue recognition based on the Group’s current revenue
streams. Specifically, the Group’s revenue streams are two-fold:
• Revenue from services rendered on short-term projects is generally recognised in the income statement when the relevant service
is completed, usually when the report of findings or test/inspection certificate is issued. The adoption of IFRS 15 has no material
impact on the recognition of such revenue.
• On long-term projects the Group records transactions as revenue on the basis of value of work done, with the corresponding
amount being included in trade receivables if the customer has been invoiced, or in accrued income if billing has yet to be completed.
Long-term projects consist of two main types:
– time incurred is billed at agreed rates on a periodic basis, such as monthly – the current recognition approach is based on
timesheets evidencing work done – this is consistent with the “over time” recognition criteria under IFRS 15 using those
timesheets as the input basis; or
– staged payment invoicing occurs, requiring an assessment of percentage completion, based on services provided and revenue
accrued accordingly – assessment of percentage completion will continue in the same way – this is in line with the “over time”
recognition under IFRS 15.
IFRS 16 Leases (effective 1 January 2019) – IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments
and a right-of-use asset for lease contracts, subject to limited exceptions for short-term leases and leases of low value assets.
Management intends to apply the modified retrospective method of transition and will continue to determine the most appropriate
treatment under that method on a lease-by-lease basis.
The quantitative impact of IFRS 16 on the Group’s net assets and results is in the process of being assessed, and management has
collated its initial data set to determine the impact on the Group. IFRS 16 will have a material impact on the balance sheet as both
assets and liabilities will increase, and a material impact on key components within the income statement, as operating lease rental
charges will be replaced by depreciation and finance costs. Please refer to Note 8 to the financial statements which gives an indication
of the Group's total operating lease commitments. IFRS 16 will not have any impact on the underlying commercial performance of the
Group, nor the cash flows generated in the year.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 109
FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS 1 Significant accounting policies (continued)
Measurement convention
The financial statements are prepared on the historical cost basis except as discussed in the relevant accounting policies.
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 £0.1m.
Changes in accounting policies
The accounting policies set out in these financial statements have been applied consistently to all years presented. A number of
new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2017,
but do not have a material effect on the consolidated financial statements of the Group.
Going concern
The Board has reviewed forecasts, including forecasts adjusted for significantly worse economic conditions. The Board has also
reviewed the Group’s funding requirements and the available debt facilities. As a result of these reviews the Board remains satisfied
with the Group’s funding and liquidity position and believes that the Group is well placed to manage its business risks successfully.
In addition, on the basis of its forecasts, both base case and stressed, and available facilities, which are described in note 14, the Board
has concluded that the going concern basis of preparation continues to be appropriate.
BASIS OF CONSOLIDATION
Subsidiaries
Subsidiaries are those entities controlled by the Group. Control exists when the Group has power to direct the relevant activities,
exposure to variable returns from the investee and the ability to use its power over the investee to affect the amount of investor
returns. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases.
For purchases of non-controlling interest in subsidiaries, the difference between the cost of the additional interest in the subsidiary
and the non-controlling interest’s share of the assets and liabilities reflected in the consolidated statement of financial position at
the date of acquisition, is reflected directly in shareholders’ equity.
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 losses are eliminated in the same way
as unrealised gains, but only to the extent that there is no evidence of impairment.
FOREIGN CURRENCY
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities (for example cash, trade receivables, trade payables) 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 generally recognised in the income statement. 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. For the policy on hedging
of foreign currency transactions see note 14.
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.
Exchange differences arising from the translation of foreign operations are taken directly to equity in the translation reserve. They are
released to the income statement upon disposal. For the policy on net investment hedging see note 14.
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
Australian dollar
Assets and liabilities
Actual rates
Income and expenses
Cumulative average rates
31 Dec 2017
1.34
1.13
8.79
10.47
1.72
31 Dec 2016
1.22
1.17
8.51
9.49
1.70
2017
1.29
1.14
8.72
10.05
1.68
2016
1.35
1.23
8.98
10.52
1.83
110
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
NOTES TO THE FINANCIAL STATEMENTS continuedFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS 1 Significant accounting policies (continued)
USE OF JUDGEMENTS AND ESTIMATES
The preparation of financial statements in conformity with IFRSs requires management to make judgements and estimates 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 year in which the estimates are revised and in any future years affected.
During the year, management reassessed its critical estimates and judgements and resolved that the following disclosure was
no longer considered critical, as management does not expect there to be a significant risk of material change to the carrying value
of those liabilities within the next year.
Put option over non-controlling interest
The calculation of the fair value of put options over the non-controlling interest in the Group’s businesses in the relevant countries
required the use of judgement in the application of key assumptions around the future performance of those businesses; the risk-
adjusted discount rate taking into account the risk-free rate and the gross domestic product growth in those countries.
JUDGEMENTS
In applying the Group’s accounting policies, management has applied judgement in the following areas that have a significant impact
on the amounts recognised in the financial statements.
Income and deferred tax
The tax on profits is determined according to complex tax laws and regulations. Where the effect of these laws and regulations is
unclear, judgements are used in determining the liability for the tax to be paid.
Deferred tax assets and liabilities require management judgement in determining the amounts to be recognised, with consideration
given to the timing and level of future taxable income. The main areas of judgement in the Group tax calculation are re-assessment
of the uncertain tax provisions for the full year and re-assessment of the recognition and recoverability of the UK deferred tax asset
– see note 6.
Basis of consolidation
Judgement is applied when determining if the Group ‘controls’ a subsidiary. In assessing control, the Group considers whether it has the
power to direct the relevant activities, whether it has exposure to variable returns from the investee and whether it has power over
the investee to affect the amount of investor returns. Our original assessments are subsequently revisited on a rolling basis – see ‘Basis
of Consolidation’ policy.
Intangible assets
When the Group makes an acquisition, e.g. KJ Tech Services GmbH and Acumen Security LLC in 2017, management determines initially
whether any intangible assets should be recognised separately from goodwill, and the provisional amounts at which to recognise those
assets. During the first 12 months of ownership, intangible assets are reviewed to determine whether any additional information
exists that supports amendments to that original assessment, including new intangible assets. Management has performed this
subsequent review for FIT Italia SRL, EWA-Canada, Ltd and Laboratorios ABC Quimica, Investigación y Análisis, S.A. de C.V during the
current year – see note 9.
Restructuring
In making a provision and classifying costs as restructuring, management has used its judgement to assess the specific circumstances
of each local and regional restructuring proposal as to whether it meets the Group definition of this SDI, including an estimate of future
costs and the timing of completion – see note 3.
Claims
In making provision for claims, management has used its judgement to assess the circumstances relating to each specific event,
internal and external legal advice, knowledge of the industries and markets, prevailing commercial terms and legal precedents –
see note 13.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 111
FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS
continued
1 Significant accounting policies (continued)
ESTIMATES
Discussed below are key assumptions concerning the future, and other key sources of estimation at the reporting date, that could
have a risk of causing a significant material adjustment to the carrying amount of assets and liabilities within the next financial year.
Impairment of goodwill
Following recognition of goodwill as a result of acquisitions, the Group determines, as a minimum on an annual basis, whether goodwill
is impaired, which requires an estimation of the future cash flows of the cash generating units to which the goodwill is allocated,
as well as assumptions on long-term growth rates and discount rates – see note 9.
Contingent consideration
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 and at subsequent reporting periods, 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. Further details and sensitivity
analysis are included in note 10.
Employee post-retirement benefit obligations
For material defined benefit plans, the actuarial valuation includes assumptions such as discount rates, return on assets, salary
progression and mortality rates. Further details and sensitivity analysis are included in note 16.
Recoverability of trade receivables
Trade receivables are reflected, net of an estimated provision for impairment losses. This provision considers the past payment
history and the length of time that the debts have remained unpaid. Further details are included in note 11.
Accounting policies relating to a specific note in the financial statements are set out within that note as follows:
Revenue
Separately Disclosed Items
Taxation
Property, plant and equipment
Goodwill and other intangible assets
Trade and other receivables
Trade and other payables
Provisions
Borrowings and financial instruments
Capital and reserves
Employee benefits
Share schemes
Non-controlling interest
Note
2
3
6
8
9
11
12
13
14
15
16
17
20
112
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
NOTES TO THE FINANCIAL STATEMENTS continuedFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS 2 Operating segments and presentation of results
ACCOUNTING POLICY
Revenue
Revenue represents the total amount receivable for services rendered, excluding sales-related taxes and intra-group transactions.
Revenue from services rendered on short-term projects is generally recognised in the income statement when the relevant service
is completed, usually when the report of findings is issued.
On long-term projects the Group records transactions as sales on the basis of value of work done, with the corresponding amount
being included in trade receivables if the customer has been invoiced or in accrued income if billing has yet to be completed.
Long-term projects consist of two main types: (a) time incurred is billed at agreed rates on a periodic basis, such as monthly; or
(b) staged payment invoicing occurs, requiring an assessment of percentage completion, based on services provided and revenue
accrued accordingly.
Expenses are recharged to clients where permitted by the contract. Payments received in advance from customers are recognised
in deferred income where services have not yet been rendered.
OPERATING SEGMENTS
The Group is organised into business lines, which are the Group’s operating segments and are reported to the CEO, the chief operating
decision maker.
These operating segments are aggregated into three divisions, which are the Group’s reportable segments, based on similar nature
of products and services and mid- to long-term structural growth drivers. The costs of the corporate head office and other costs
which are not controlled by the three divisions are allocated appropriately.
Inter-segment pricing is determined on an arm’s length basis. There is no significant seasonality in the Group’s operations.
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
The performance of the segments is assessed based on adjusted operating profit which is stated before Separately Disclosed Items.
A reconciliation to operating profit by division and Group profit for the year is included overleaf.
The principal activities of the divisions, and the customers they serve, are as follows:
Products – Our Products division consists of business lines that are focused on ensuring the quality and safety of physical
components and products, as well as minimising risk through assessing the operating process and quality management systems of
our customers.
As a trusted partner to the world’s leading retailers, manufacturers and distributors, our Products business lines support a wide range
of industries including textiles, footwear, toys, hardlines, home appliances, consumer electronics, information and communication
technology, automotive, aerospace, lighting, building products, industrial and renewable energy products, food and hospitality,
healthcare and beauty, and pharmaceuticals.
Across these industries we provide a wide range of ATIC services including laboratory safety, quality and performance testing,
second-party supplier auditing, sustainability analysis, products assurance, vendor compliance, process performance analysis,
facility plant & equipment verification and third party certification.
Trade – Our Trade division consists of three Global business lines with differing services and customers, but similar mid- to long-term
structural growth drivers:
Our Cargo & Analytical Assessment ('Cargo/AA') business provides cargo inspection, analytical assessment, calibration and related
research and technical services to the world’s petroleum and biofuels industries.
Our Government & Trade Services ('GTS') business provides inspection services to governments and regulatory bodies to support
trade activities that help the flow of goods across borders, predominantly in the Middle East, Africa and South America.
Our AgriWorld business provides analytical and testing services to global agricultural trading companies and growers.
Resources – Our Resources division consists of two business lines with differing services and customers:
Our Industry Services business uses in-depth knowledge of the oil, gas, nuclear and power industries to provide a diverse range
of Total Quality Assurance solutions to optimise the use of customers' assets and minimise the risk in their supply chains. Some
of our key services include technical inspection, asset integrity management, analytical testing and ongoing training services.
Our Minerals business provides a broad range of ATIC service solutions to the mining and minerals exploration industries,
covering the resource supply chain from exploration and resource development, through to production, shipping and
commercial settlement.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 113
FINANCIAL STATEMENTS 2 Operating segments and presentation of results (continued)
The results of these divisions for the year ended 31 December 2017 are shown below:
Year ended 31 December 2017
Revenue
from
external
customers
£m
1,625.5
647.8
495.8
2,769.1
Products
Trade
Resources
Total
Group operating profit
Net financing costs
Profit before income tax
Income tax expense
Profit for the year
* Depreciation and software amortisation of £93.4m includes unallocated charges of £nil.
Year ended 31 December 2016
Revenue
from
external
customers
£m
1,465.5
584.5
517.0
2,567.0
Products
Trade
Resources
Total
Group operating profit
Net financing costs
Profit before income tax
Income tax expense
Profit for the year
* Depreciation and software amortisation of £89.5m includes unallocated charges of £0.5m.
Depreciation
and
software
amortisation*
£m
(60.3)
(19.9)
(13.2)
(93.4)
Depreciation
and
software
amortisation*
£m
(56.6)
(18.6)
(13.8)
(89.0)
Adjusted
operating
profit
£m
350.5
88.7
28.5
467.7
467.7
(28.9)
438.8
(107.5)
331.3
Adjusted
operating
profit
£m
297.7
81.8
30.2
409.7
409.7
(22.4)
387.3
(98.0)
289.3
Separately
Disclosed
Items
£m
(15.0)
(5.9)
(24.1)
(45.0)
(45.0)
(0.5)
(45.5)
20.6
(24.9)
Separately
Disclosed
Items
£m
(16.7)
(6.4)
(17.1)
(40.2)
(40.2)
–
(40.2)
22.5
(17.7)
Operating
profit
£m
335.5
82.8
4.4
422.7
422.7
(29.4)
393.3
(86.9)
306.4
Operating
profit
£m
281.0
75.4
13.1
369.5
369.5
(22.4)
347.1
(75.5)
271.6
GEOGRAPHIC SEGMENTS
Although the Group is managed through a divisional structure, which operates on a global basis, under the requirements of IFRS 8
the Group must disclose any specific countries that are important to the Group’s performance. The Group considers the following
to be the material countries in which it operates: the United States, China (including Hong Kong) and the United Kingdom.
In presenting information on the basis of geographic segments, segment revenue is based on the location of the entity generating
that revenue. Segment assets are based on the geographical location of the assets.
United States
China (including Hong Kong)
United Kingdom
Other countries and unallocated
Total
Revenue from external
customers
Non-current assets
2017
£m
863.3
528.4
183.0
1,194.4
2,769.1
2016
£m
836.1
485.0
173.7
1,072.2
2,567.0
2017
£m
583.4
55.0
106.5
433.8
1,178.7
2016
£m
648.5
61.5
105.1
413.5
1,228.6
MAJOR CUSTOMERS
No revenue from any individual customer exceeded 10% of total Group revenue in 2016 or 2017.
114
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
NOTES TO THE FINANCIAL STATEMENTS continuedFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS 3 Separately Disclosed Items
ACCOUNTING POLICY
Adjusted results
In order to present the performance of the Group in a clear, consistent and comparable format, certain items are disclosed separately
on the face of the income statement. Separately Disclosed Items are items which by their nature or size, in the opinion of the Directors,
should be excluded from the adjusted result to provide readers with a clear and consistent view of the business performance of the
Group and its operating divisions.
When applicable, these items include amortisation of acquisition intangibles; impairment of goodwill and other assets; the profit
or loss on disposals of businesses or other significant fixed assets; costs of acquiring and integrating acquisitions; the cost of any
fundamental restructuring; material claims and settlements; significant recycling of amounts from equity to the income statement;
and unrealised market or fair value gains or losses on financial assets or liabilities, including contingent consideration.
Adjusted operating profit excludes the amortisation of acquired intangible assets, primarily customer relationships, as we do not
believe that the amortisation charge in the Income Statement provides useful information about the cash costs of running our
business as these assets will be supported and maintained by the ongoing marketing and promotional expenditure, which is already
reflected in operating costs. Amortisation of software, however, is included in adjusted operating profit as it is similar in nature to other
capital expenditure. The costs of any restructuring are excluded from adjusted operating profit where they represent fundamental
changes in individual operations around the Group identified as part of the Group's strategy that are not expected to recur in those
operations. The impairment of goodwill and other assets that by their nature or size are not expected to recur; the profit and loss on
disposals of businesses or other significant assets; and the costs associated with successful, active or aborted acquisitions are
excluded from adjusted operating profit to provide useful information regarding the underlying performance of the Group’s operations.
SEPARATELY DISCLOSED ITEMS
The Separately Disclosed Items are described in the table below:
Operating costs:
Amortisation of acquisition intangibles
Acquisition costs
Restructuring costs
Loss on disposal of businesses
Impairment of goodwill and other assets
Material claims and settlements
Total operating costs
Net financing costs
Total before income tax
Income tax credit on Separately Disclosed Items
Total
(a)
(b)
(c)
(d)
(e)
(f)
(g)
2017
£m
(16.0)
(3.2)
(12.4)
–
(16.8)
3.4
(45.0)
(0.5)
(45.5)
20.6
(24.9)
2016
£m
(14.0)
(2.8)
(21.4)
(2.0)
–
–
(40.2)
–
(40.2)
22.5
(17.7)
(a) Of the amortisation of acquisition intangibles in the current year, £4.1m (2016: £3.9m) relates to the customer contracts and
customer relationships acquired with the purchase of Moody International Limited (‘Moody’) in 2011, and £5.1m (2016: £5.0m)
relates to the customer relationships acquired with the purchase of PSI Group in 2015.
(b) Acquisition costs comprise £3.6m (2016: £2.5m) for transaction costs in respect of successful, active and aborted acquisitions in
the current year, and £0.4m income in respect of prior years’ acquisitions (2016: £0.3m cost).
(c)
During the year, the Group has implemented various fundamental restructuring activities, consistent with the Group's 5x5 strategy.
These activities included site consolidations, closure of non-core business units, re-engineering of underperforming businesses and
the delayering of management structures.
(d) £2.0m of small non-core businesses were disposed of in 2016.
(e) Consistent with the corporate 5x5 strategy objective of "Superior Technology" announced in 2016, the Group has recorded an
impairment of other assets of £8.0m (2016: £nil) following a comprehensive strategic review of the Global IT organisation
structure and system finalised in April 2017. This review resulted in restructuring costs of £0.5m included above and £8.0m in
relation to the impairment of assets respectively. In addition, £8.8m (2016: £nil) of plant and equipment was impaired in full, related
to a specific service line in the Resources division that is no longer an area of focus for the Group.
(f) Material claims and settlements relate to a commercial claim that is separately disclosable due to its size.
(g) Net financing costs of £0.5m (2016: £nil) relate to the change in fair value of contingent consideration and the unwinding of
discount on put options related to acquisitions.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 115
FINANCIAL STATEMENTS
4 Expenses and auditor’s remuneration
An analysis of operating costs by nature is outlined below:
Employee costs
Depreciation and software amortisation
Impairment of goodwill and other assets
Other expenses
Total
Certain expenses are outlined below, including fees paid to the auditors of the Group:
Included in profit for the year are the following expenses:
Property rentals
Lease and hire charges – fixtures, fittings and equipment
Profit on disposal of property, fixtures, fittings, equipment and software
Auditor’s remuneration:
Audit of these financial statements
Amounts receivable by the auditors and their associates in respect of:
Audit of financial statements of subsidiaries pursuant to legislation
Total audit fees payable pursuant to legislation
Audit-related services
Taxation compliance services
Taxation advisory services
Other
Total
5 Employees
Total employee costs are shown below:
Employee costs
Wages and salaries
Equity-settled transactions
Social security costs
Pension costs (note 16)
Total employee costs
Details of pension arrangements and equity-settled transactions are set out in notes 16 and 17 respectively.
Average number of employees by division
Products
Trade
Resources
Central
Total average number for the year ended 31 December
Total actual number at 31 December
The total remuneration of the Directors is shown below:
Directors’ emoluments
Directors’ remuneration
Amounts charged under the long-term incentive scheme
Company contributions to the defined contribution schemes
Total Directors’ emoluments
116
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
2017
£m
2016
£m
1,220.8
93.4
18.2
1,014.0
2,346.4
1,140.6
89.5
–
967.4
2,197.5
2017
£m
81.4
24.5
(0.8)
2017
£m
0.5
3.1
3.6
0.2
–
–
–
3.8
2017
£m
1,037.7
17.4
115.6
50.1
1,220.8
2017
23,164
10,171
7,970
2,001
43,306
43,906
2017
£m
9.4
6.0
–
15.4
2016
£m
76.6
21.2
(0.1)
2016
£m
0.5
2.6
3.1
0.1
0.1
–
–
3.3
2016
£m
971.9
15.2
108.3
45.2
1,140.6
2016
22,427
9,468
7,598
2,078
41,571
42,452
2016
£m
7.3
0.1
–
7.4
NOTES TO THE FINANCIAL STATEMENTS continuedFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS 6 Taxation
ACCOUNTING POLICY
Income tax for the year comprises current and deferred tax. Income tax is recognised in the same primary statement as the accounting
transaction to which it relates.
Current tax
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.
The Group recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are likely to become due.
Amounts are accrued based on management’s interpretation of specific tax law and the likelihood of settlement. Where the outcome
of discussions with tax authorities is different from the amount initially recorded, this difference will impact the tax provisions in the
period the determination is made.
Deferred tax
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, except for:
• recognition of consolidated goodwill;
• the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable profit; and
• differences relating to investments in subsidiaries, branches, associates and interest in joint ventures, the reversal of which is under
the control of the Group and where it is probable that the difference will 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 that have been enacted or substantively enacted at the balance sheet date, for the periods when the
asset is realised or the liability is settled. 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 taxable entities which 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. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset
to be utilised.
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.
TAX EXPENSE
The Group operates across many different tax jurisdictions. Income and profits are earned and taxed in the individual countries in
which they occur.
The income tax expense for the profit before tax for the 12 months ended 31 December 2017 is £86.9m (2016: £75.5m). The Group’s
consolidated effective tax rate for the 12 months ended 31 December 2017 is 22.1% (2016: 21.8%).
The income tax expense for the adjusted profit before tax for the 12 months ended 31 December 2017 is £107.5m (2016: £98.0m).
The Group’s adjusted consolidated effective tax rate for the 12 months ended 31 December 2017 is 24.5% (2016: 25.3%).
Differences between the consolidated effective tax rate of 22.1% and notional statutory UK rate of 19.25% include, but are not limited
to: the mix of profits; the effect of tax rates in foreign jurisdictions; non-deductible expenses; the effect of utilised tax losses; and
under/over provisions in previous periods.
The Group receives tax incentives in certain jurisdictions, resulting in a lower tax charge to the income statement. Without these
incentives the adjusted effective tax rate would be 27.0% (2016: 28.0%). The Group’s tax rate is affected by its financing arrangements
that are in place to fund business operations in overseas territories. There is no guarantee that these reduced rates will continue to be
applicable in future years (see note 22).
The new US tax legislation is complex and wide-ranging. Whilst we anticipate that there will be no material effect on the Group’s
adjusted effective tax rate for the year 31 December 2018 and subsequent years, the impact of the legislation has been estimated at
31 December 2017 and may be further refined prior to 31 December 2018 and subsequent years. For the year 31 December 2017, we
have a one-off benefit on the remeasurement of our deferred tax liabilities in respect of intangibles and other assets for the change in
the US Federal tax rate from 35% to 21%. Without this benefit, the adjusted effective tax rate would be 25.5% and the consolidated
effective tax rate would be 25.3%.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 117
FINANCIAL STATEMENTS 6 Taxation (continued)
Tax charge
The total income tax charge, comprising the current tax charge and the movement in deferred tax, recognised in the income statement
is analysed as follows:
Current tax charge for the period
Adjustments relating to prior year liabilities
Current tax
Deferred tax movement related to current year
Deferred tax movement related to prior year
Deferred tax movement
Total tax in income statement
Tax on adjusted result
Tax on Separately Disclosed Items
Total tax in income statement
2017
£m
94.3
(0.2)
94.1
(9.2)
2.0
(7.2)
86.9
107.5
(20.6)
86.9
2016
£m
86.4
(0.3)
86.1
(0.9)
(9.7)
(10.6)
75.5
98.0
(22.5)
75.5
Reconciliation of effective tax rate
The following table provides a reconciliation of the UK statutory corporation tax rate to the effective tax rate of the Group on profit
before taxation.
Profit before taxation
Notional tax charge at UK standard rate 19.25% (2016: 20.0%)
Differences in overseas tax rates
Tax on dividends
Non-deductible expenses
Tax exempt income
US change in tax rate impact1
Movement in unrecognised deferred tax
Adjustments in respect of prior years
Other2
Total tax in income statement
1. Of the £12.5m in 2017 relating to the impact of the US tax rate change, £7.5m has been recorded in SDIs, which is where the underlying cost/income driving the
2017
£m
393.3
75.7
17.6
12.1
4.4
(4.5)
(12.5)
(6.5)
1.8
(1.2)
86.9
2016
£m
347.1
69.4
11.0
10.1
4.7
(5.6)
–
(1.7)
(10.1)
(2.3)
75.5
associated deferred tax has also been recorded.
2. The Other category contains R&D tax credits of £1.2m (2016: £0.9m).
During 2015, the UK Government announced a phased reduction in the main rate of corporation tax from 20% to 18% over a period of
three years from 1 April 2017. In 2016, the UK Government announced a further reduction in the UK corporation tax rate to 17% from
1 April 2020 and was substantively enacted in September 2016.
Income tax recognised in other comprehensive income (‘OCI’)
As noted in the accounting policy, tax is recognised in the same place as the relevant accounting charge. The income tax recognised on
items recorded in other comprehensive income is shown below:
Before tax
2017
£m
Tax charge
2017
£m
Net of tax
2017
£m
Before tax
2016
£m
Tax credit
2016
£m
Net of tax
2016
£m
Foreign exchange translation differences of
foreign operations
Net exchange gain/(loss) on hedges of net investments
in foreign operations
(Loss)/gain on fair value of cash flow hedges
Remeasurements on defined benefit pension schemes
Deferred tax assets recognised in other comprehensive
(107.3)
77.3
(16.4)
12.6
–
–
–
–
(107.3)
279.5
77.3
(16.4)
12.6
(194.1)
14.3
(5.2)
income
–
(1.7)
(1.7)
–
Total other comprehensive (expense)/income for
the year
(33.8)
(1.7)
(35.5)
94.5
–
–
–
–
2.8
2.8
279.5
(194.1)
14.3
(5.2)
2.8
97.3
118
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
NOTES TO THE FINANCIAL STATEMENTS continuedFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS 6 Taxation (continued)
Income tax recognised directly in equity
As noted in the accounting policy, tax is recognised in the same place as the relevant accounting charge. The income tax on items
recognised in equity is shown below:
Equity-settled transactions
Before tax
2017
£m
17.5
Tax credit
2017
£m
1.7
Net of tax
2017
£m
19.2
Before tax
2016
£m
16.6
Tax credit
2016
£m
0.5
Net of tax
2016
£m
17.1
DEFERRED TAX
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
2017
£m
0.8
11.6
3.2
8.2
42.5
11.6
77.9
Assets
2016
£m
0.8
9.9
1.4
6.0
46.5
24.9
89.5
Liabilities
2017
£m
(52.7)
(8.7)
–
–
(4.5)
–
(65.9)
Liabilities
2016
£m
(72.0)
(15.3)
–
–
(2.6)
–
(89.9)
Net
2017
£m
(51.9)
2.9
3.2
8.2
38.0
11.6
12.0
Net
2016
£m
(71.2)
(5.4)
1.4
6.0
43.9
24.9
(0.4)
Intangible assets
Property, fixtures, fittings and equipment
Pensions
Equity-settled transactions
Provisions and other temporary differences
Tax value of losses
Total
As shown on balance sheet:
Deferred tax assets*
Deferred tax liabilities*
Total
*
48.3
(48.7)
(0.4)
The deferred tax by category shown above is not netted off within companies or jurisdictions. The balance sheet shows the net position within companies or jurisdictions.
The difference between the two asset and liability totals is £18.5m, but the net asset of £12.0m is the same in both cases.
59.4
(47.4)
12.0
Movements in deferred tax temporary differences during the year
The movement in the year in deferred tax assets and liabilities is shown below:
Intangible assets
Property, fixtures, fittings and equipment
Pensions
Equity–settled transactions
Provisions and other temporary differences
Tax value of losses
Total
Intangible assets
Property, fixtures, fittings and equipment
Pensions
Equity-settled transactions
Provisions and other temporary differences
Tax value of losses
Total
1 January
2017
£m
(71.2)
(5.4)
1.4
6.0
43.9
24.9
(0.4)
Exchange
adjustments
£m
4.8
0.6
–
–
1.6
(0.6)
6.4
Acquisitions
£m
(3.4)
–
–
–
–
–
(3.4)
1 January
2016
£m
(67.2)
13.5
1.3
4.3
27.3
11.8
(9.0)
Exchange
adjustments
£m
(12.1)
(3.1)
–
–
6.6
2.6
(6.0)
Acquisitions
£m
(2.7)
–
–
–
5.0
–
2.3
Recognised
in income
statement
£m
17.9
7.7
0.8
0.4
(6.5)
(13.1)
7.2
Recognised
in income
statement
£m
10.8
(15.8)
0.4
1.0
5.0
9.2
10.6
Recognised
in equity
and OCI
£m
–
–
1.0
1.8
(1.0)
0.4
2.2
Recognised
in equity
and OCI
£m
–
–
(0.3)
0.7
–
1.3
1.7
31 December
2017
£m
(51.9)
2.9
3.2
8.2
38.0
11.6
12.0
31 December
2016
£m
(71.2)
(5.4)
1.4
6.0
43.9
24.9
(0.4)
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 119
FINANCIAL STATEMENTS FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
6 Taxation (continued)
UNRECOGNISED DEFERRED TAX ASSETS
Deferred tax assets have not been recognised in respect of the items shown below. The numbers shown are the gross temporary
differences, and to calculate the potential deferred tax asset it is necessary to multiply these by the tax rates in each case:
Property, fixtures, fittings and equipment
Pensions
Intangibles
Equity-settled transactions
Provisions and other temporary differences
Tax losses
Total
2017
£m
36.0
–
27.6
–
12.3
65.9
141.8
2016
£m
46.6
23.9
24.6
–
15.0
77.8
187.9
Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits will be
available in certain jurisdictions against which the Group can utilise the benefits from them.
There is a temporary difference of £240.0m (2016: £296.2m) 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.
7 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. Diluted earnings per share is calculated by adjusting the weighted
average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares. Potential ordinary
shares shall be treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or
increase loss per share from continuing operations.
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 other Separately
Disclosed Items. It has been calculated to allow shareholders a better understanding of the trading performance of the Group. Details
of the adjusted earnings per share are set out below:
2017
£m
287.4
24.9
312.3
160.9
2.1
163.0
178.6p
(2.3)p
176.3p
194.1p
(2.5)p
191.6p
2016
£m
255.0
17.7
272.7
160.9
1.7
162.6
158.5p
(1.7)p
156.8p
169.5p
(1.8)p
167.7p
Profit attributable to ordinary shareholders
Separately Disclosed Items after tax (note 3)
Adjusted earnings
Number of shares (millions)
Basic weighted average number of ordinary shares
Potentially dilutive share awards
Diluted weighted average number of shares
Basic earnings per share
Potentially dilutive share awards
Diluted earnings per share
Adjusted basic earnings per share
Potentially dilutive share awards
Adjusted diluted earnings per share
120
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
8 Property, plant and equipment
ACCOUNTING POLICY
Property, plant and equipment
Owned assets
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset.
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 in the Group’s statement of financial position.
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 expected lease term and their useful lives. Land is not depreciated.
The estimated useful lives are as follows:
Freehold buildings and long leasehold buildings
Short leasehold buildings
Fixtures, fittings, plant and equipment
50 years
Term of lease
3 to 10 years
Depreciation methods, residual values and the useful lives of assets are reassessed at each reporting date.
Impairment
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 to determine the level of any impairment.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 121
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
8 Property, plant and equipment (continued)
PROPERTY, PLANT AND EQUIPMENT
The property, plant and equipment employed by the business is analysed below:
Cost
At 1 January 2016
Exchange adjustments
Additions
Disposals
Businesses acquired (note 10)
At 31 December 2016
Depreciation
At 1 January 2016
Exchange adjustments
Charge for the year
Disposals
At 31 December 2016
Net book value at 31 December 2016
Cost
At 1 January 2017
Exchange adjustments
Additions
Disposals
Businesses acquired (note 10)
At 31 December 2017
Depreciation
At 1 January 2017
Exchange adjustments
Charge for the year
Impairments
Disposals
At 31 December 2017
Net book value at 31 December 2017
Fixtures,
fittings,
plant and
equipment
£m
Land and
buildings
£m
82.4
15.6
0.1
(0.6)
0.8
98.3
20.8
5.4
3.5
(0.2)
29.5
68.8
98.3
(3.8)
0.1
(0.2)
–
94.4
29.5
(2.2)
3.4
–
0.2
30.9
63.5
852.2
158.8
85.9
(20.6)
3.3
1,079.6
548.5
101.8
72.9
(18.1)
705.1
374.5
1,079.6
(62.7)
91.6
(21.5)
0.6
1,087.6
705.1
(43.1)
77.8
10.2
(19.5)
730.5
357.1
Total
£m
934.6
174.4
86.0
(21.2)
4.1
1,177.9
569.3
107.2
76.4
(18.3)
734.6
443.3
1,177.9
(66.5)
91.7
(21.7)
0.6
1,182.0
734.6
(45.3)
81.2
10.2
(19.3)
761.4
420.6
Consistent with the corporate 5x5 strategy objectives announced in 2016, the Group has recorded an impairment of £8.8m of plant
and equipment related to a specific service line in the Resources division that was impaired in full and £1.4m relates to computer
hardware.
Fixtures, fittings, plant and equipment include assets in the course of construction of £30.3m at 31 December 2017 (2016: £26.9m),
mainly comprising laboratories under construction. These assets will not be depreciated until they are available for use.
The net book value of land and buildings comprised:
Freehold
Long leasehold
Short leasehold
Total
2017
£m
58.4
1.8
3.3
63.5
2016
£m
62.7
2.4
3.7
68.8
122
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
8 Property, plant and equipment (continued)
Commitments
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over the expected 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.
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
Land and
buildings
2017
£m
73.5
129.0
80.2
282.7
Other
2017
£m
8.0
9.2
0.8
18.0
Total
2017
£m
81.5
138.2
81.0
300.7
Land and
buildings
2016
£m
65.2
119.9
74.0
259.1
Other
2016
£m
6.1
8.1
0.8
15.0
Total
2016
£m
71.3
128.0
74.8
274.1
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 the financial statements amounted to £8.0m (2016: £4.6m).
9 Goodwill and other intangible assets
ACCOUNTING POLICY
Goodwill
Goodwill arises on the acquisition of businesses. Goodwill represents the difference between the cost of acquisition and the Group’s
interest in the fair value of the identifiable assets and liabilities acquired.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units (‘CGUs’) and is not
amortised but is tested annually for impairment.
Acquisitions on or after 1 January 2010
From 1 January 2010, the Group has prospectively applied IFRS 3 Business Combinations (revised 2008). Business combinations
are accounted for using the acquisition method at the acquisition date, which is the date on which control is obtained.
The Group measures goodwill as the fair value of the consideration transferred less the net recognised amount (generally fair value)
of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Costs relating to acquisitions are shown in Separately Disclosed Items.
Any contingent consideration payable is recognised at fair value at the acquisition date with subsequent changes recognised in profit
or loss.
If at the reporting date the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities can only be established
provisionally, then these values are used. Adjustments to the fair values can be made within 12 months of the acquisition date and
are taken as adjustments to goodwill.
Acquisitions between 1 January 2004 and 31 December 2009
For acquisitions between 1 January 2004 and 31 December 2009, goodwill represents the excess of the cost of the acquisition
over the Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities
of the acquiree.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection
with business combinations were capitalised as part of the cost of the acquisition.
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.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 123
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
9 Goodwill and other intangible assets (continued)
Other intangible assets
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, based on management’s judgement, 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.
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
Trade names
Licences
Covenants not to compete
Up to 7 years
Up to 10 years
Up to 5 years
Up to 5 years
Contractual life
Contractual life
Impairment
Goodwill is not subject to amortisation and is tested annually for impairment and when circumstances indicate that the carrying value
may be impaired.
Other intangible assets are subject to amortisation and are reviewed for impairment whenever events or changes in circumstances
indicate that the amount carried in the statement of financial position may be less than its recoverable amount.
Any impairment is recognised in the income statement. Impairment is determined for goodwill by assessing the recoverable amount of
each asset or group of assets, i.e. cash generating unit, to which the goodwill relates. A CGU represents an asset grouping at the lowest
level for which there are separately identifiable cash flows.
The recoverable amount of an asset or a CGU 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 estimation process is complex due to the inherent risks
and uncertainties and if different estimates were used this could materially change the projected value of the cash flows. An impairment
loss in respect of goodwill is not reversed.
124
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
9 Goodwill and other intangible assets (continued)
INTANGIBLES
The intangibles employed by the business are analysed below:
Cost
At 1 January 2016
Exchange adjustments
Additions
Disposal
Businesses acquired (note 10)
At 31 December 2016
Amortisation and impairment losses
At 1 January 2016
Exchange adjustments
Charge for the year
Disposal
Impairment
At 31 December 2016
Net book value at 31 December 2016
Cost
At 1 January 2017
Exchange adjustments
Additions
Disposal
Businesses acquired (note 10)
At 31 December 2017
Amortisation and impairment losses
At 1 January 2017
Exchange adjustments
Charge for the year
Disposal
Impairment
At 31 December 2017
Net book value at 31 December 2017
Other intangible assets
Goodwill
£m
Customer
relationships
£m
Licences
£m
Other
acquisition
intangibles
£m
Computer
software
£m
965.3
144.0
–
–
29.3
1,138.6
494.2
58.3
–
–
–
552.5
586.1
1,138.6
(60.5)
–
–
28.1
1,106.2
552.5
(25.9)
–
–
–
526.6
579.6
295.8
44.9
–
(0.4)
10.8
351.1
206.8
18.3
13.5
(0.3)
–
238.3
112.8
351.1
(30.0)
4.9
(0.1)
5.2
331.1
238.3
(9.0)
14.5
–
–
243.8
87.3
8.3
1.1
–
–
–
9.4
8.1
1.1
0.2
–
–
9.4
–
9.4
(0.4)
–
–
–
9.0
9.4
(0.4)
–
–
–
9.0
–
23.2
(4.3)
–
–
–
18.9
16.7
1.4
0.3
–
–
18.4
0.5
18.9
12.4
–
–
0.7
32.0
18.4
0.2
1.5
–
–
20.1
11.9
126.0
22.5
19.5
(0.5)
–
167.5
61.3
7.5
13.1
(0.5)
0.6
82.0
85.5
167.5
(12.9)
21.2
(1.4)
0.1
174.5
82.0
(5.4)
12.2
(1.3)
8.0
95.5
79.0
Total
£m
453.3
64.2
19.5
(0.9)
10.8
546.9
292.9
28.3
27.1
(0.8)
0.6
348.1
198.8
546.9
(30.9)
26.1
(1.5)
6.0
546.6
348.1
(14.6)
28.2
(1.3)
8.0
368.4
178.2
Other intangible assets
The other acquisition intangibles of £11.9m (2016: £0.5m) consist of covenants not to compete and know-how. The average remaining
amortisation period for customer relationships is six years (2016: seven years).
Computer software net book value of £79.0m at 31 December 2017 (2016: £85.5m) includes software in construction of £38.5m
(2016: £32.0m).
Goodwill
Goodwill arising from acquisitions in the current and prior year has been allocated to reportable segments as follows:
Products
Trade
Resources
At 31 December
2017
£m
29.0
(0.9)
–
28.1
2016
£m
15.0
14.3
–
29.3
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 125
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
9 Goodwill and other intangible assets (continued)
Goodwill (continued)
The total carrying amount of goodwill by operating segment is as follows, which is also used for the assessment of the Group’s
impairment review.
Industry Services
Business Assurance
Food & Agriculture Services
Cargo & Analytical Assessment
Government & Trade Services
Minerals
Softlines
Hardlines
2017
£m
14.7
12.4
17.3
52.6
0.8
39.7
6.3
5.5
2016
£m
15.8
12.2
17.1
54.6
0.9
40.7
6.2
5.8
4.3
Product Assurance
71.6
Electrical & Wireless
38.5
Transportation Technologies
235.9
Building & Construction
82.5
Chemicals & Pharma/Health, Environmental & Regulatory
586.1
Net book value at 31 December*
* All goodwill is recorded in local currency. Additions during the year are converted at the exchange rate on the date of the transaction and the goodwill at the end of the
3.9
88.6
43.1
215.3
79.4
579.6
year is stated at closing exchange rates.
Impairment review
In order to determine whether impairments are required, the Group estimates the recoverable amount of each operating segment
or CGU. The calculation is based on projecting future cash flows over a five-year period and using a terminal value to incorporate
expectations of growth thereafter. A discount factor is applied to obtain a value in use which is the recoverable amount.
Key assumptions
The key assumptions include the rate of revenue and profit growth within each of the territories and business lines in which the Group
operates. These are based on the Group’s approved budget and five-year Strategic Plan. The long-term growth rate is also key since it is
used in the perpetuity calculations. Finally, the discount rate used to bring the cash flow back to a present value varies depending on
the location of the operation and the nature of the operations. The estimated future cash flows are discounted to their present value
using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
The calculation of the value in use is sensitive to long-term growth rates and discount rates. Long-term growth rates predict growth
beyond the Group’s planning cycle, and range from 1.7% to 2.5% (2016: 1.7% to 2.5%). The discount rate for each CGU reflects the
Group’s weighted average cost of capital adjusted for the risks specific to the CGU. Pre-tax discount rates ranged from 9.6% to 11.9%
(2016: 9.5% to 12.4%).
Sensitivity analysis
None of the reasonable downside sensitivity scenarios on key assumptions would cause the carrying amount of each CGU to exceed
its recoverable amount. The sensitivities modelled by management include:
(i)
Assuming revenues decline each year by 1% in 2019 to 2022 from the 2018 budgeted revenues, with margins increasing with
base assumptions.
(ii) Assuming zero growth in operating profit margins in 2018 to 2022 with revenues increasing per base assumptions.
(iii) Assuming an increase in the discount rates used by 1%.
Management considers that the likelihood of any or all of the above scenarios occurring is low.
126
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
10 Acquisitions
ACQUISITIONS IN 2017
On 31 March 2017, the Group acquired KJ Tech Services GmbH ("KJ Tech"), a leading provider of vehicle, component and fuel testing
services based in Germany, for an estimated purchase price of £12.8m (£12.5m net of cash acquired), generating goodwill of £7.6m.
On 8 December 2017, the Group acquired Acumen Security LLC ("Acumen"), a leading provider of Security Certification solutions for
products, headquartered in Maryland, USA, for an estimated purchase price of £25.7m (£23.9m net of cash acquired), generating
goodwill of £23.4m.
Provisional details of the net assets acquired and fair value adjustments are set out in the following tables. These analyses are
provisional and amendments may be made to these figures in the 12 months following the date of acquisition.
Acumen Security LLC
Total
Property, plant and equipment
Goodwill
Other intangible assets
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Net assets acquired
KJ Tech Services GmbH
Total
Property, plant and equipment
Goodwill
Other intangible assets
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Net assets acquired
Book value
prior to
acquisition
£m
–
–
–
0.8
(0.3)
–
0.5
Book value
prior to
acquisition
£m
0.6
–
0.1
0.6
(0.3)
–
1.0
2017
Provisional
fair value
adjustments
£m
–
23.4
–
–
–
–
23.4
2017
Provisional
fair value
adjustments
£m
-
7.6
5.9
–
–
(2.0)
11.5
Fair value
to Group on
acquisition
£m
–
23.4
–
0.8
(0.3)
–
23.9
Fair value
to Group on
acquisition
£m
0.6
7.6
6.0
0.6
(0.3)
(2.0)
12.5
Goodwill and intangible assets
The total goodwill arising on acquisitions made during 2017 was £31.0m. Goodwill in respect of 2016 acquisitions decreased by £2.9m.
The goodwill arising represents the value of the assembled workforce and the benefits the Company expects to gain from increasing
its presence in the relevant sectors in which the acquired businesses operate. The intangible assets of £6.0m primarily represent the
value placed on customer relationships and the deferred tax thereon was £2.0m.
Consideration paid
The total cash consideration paid for the acquisitions in the year was £29.5m (2016: £35.5m), with further contingent consideration
payable of £9.0m which is recognised in note 13. Cash consideration includes cash and debt acquired of £2.1m. The estimated purchase
price net of cash and debt acquired was £36.4m.
Contribution of acquisitions to revenue and profits
In total acquisitions made during 2017 contributed revenues of £4.8m and a net profit after tax of £0.4m from their respective dates
of acquisition to 31 December 2017. The Group revenue and profit after tax for the year ended 31 December 2017 would have been
£2,775.6m and £308.5m respectively if all the acquisitions were assumed to have been made on 1 January 2017.
Key assumptions
The key assumptions in deriving the contingent consideration to be recognised include the weighted probability of making a payout
(assessed as being between 50% to 100%) and the discount rate used to bring the cash flow back to present values. The discount
rates used for the calculation are aligned with the discount rates used for impairment purposes as set out in Note 9.
Sensitivity analysis
It is estimated that an increase of 1% in the discount rate used to calculate the contingent consideration would have decreased the
financial liability by £0.3m, and a 1% decrease in the discount rate would have increased the financial liability by £0.3m. It has also been
estimated that an increase of 10% in the probability used to calculate the contingent consideration would have increased the financial
liability by £1.5m, whilst a decrease of 10% in the probability used would have decreased the financial liability by £1.7m.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 127
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
10 Acquisitions (continued)
ACQUISITIONS IN 2016
On 3 October 2016, the Group completed the acquisition of EWA-Canada, Ltd, a leading provider of cyber security and assurance
services for products, equipment and networks across multiple industries, for an estimated purchase price of £25.1m (£25.0m net of
cash acquired), generating goodwill of £18.8m.
On 11 November 2016, the Group entered into an agreement with Laboratorios ABC Quimica, Investigación y Análisis, S.A. de C.V ('ABC')
to form an environmental services Joint Venture in Mexico. ABC is a leading provider of water testing and analytical services. On
8 January 2016, the Group acquired FIT Italia SRL, an Italian company specialising in providing assurance services to the retail and
agricultural sectors through food quality and safety assessments. Cash consideration for these two ventures was £17.9m (£17.3m net
of cash acquired) generating goodwill of £15.5m.
The fair value adjustments 12 months from the date of acquisition were:
EWA-Canada Ltd
Total
Property, plant and equipment
Goodwill
Other intangible assets
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Net assets acquired
Other acquisitions
Total
Property, plant and equipment
Goodwill
Other intangible assets
Trade and other receivables
Trade and other payables
Provisions for liabilities and charges
Deferred tax liabilities
Attributable to non-controlling interest
Net assets acquired
Book value
prior to
acquisition
£m
0.7
–
–
3.0
(2.1)
–
1.6
Book value
prior to
acquisition
£m
3.4
–
–
3.8
(2.5)
(0.2)
–
(1.1)
3.4
2017
Fair value
adjustments
£m
–
16.8
9.5
–
–
(2.6)
23.7
2017
Fair value
adjustments
£m
(0.7)
14.6
6.1
(0.8)
(4.1)
–
(1.3)
0.1
13.9
Fair value
to Group on
acquisition
£m
0.7
16.8
9.5
3.0
(2.1)
(2.6)
25.3
Fair value
to Group on
acquisition
£m
2.7
14.6
6.1
3.0
(6.6)
(0.2)
(1.3)
(1.0)
17.3
Book value
prior to
acquisition
£m
0.7
–
–
3.0
(2.1)
–
1.6
Book value
prior to
acquisition
£m
3.4
–
–
3.8
(2.5)
(0.2)
–
(1.1)
3.4
2016
Provisional
fair value
adjustments
£m
–
18.8
6.3
–
–
(1.7)
23.4
2016
Provisional
fair value
adjustments
£m
–
15.5
4.4
(2.0)
(3.0)
–
(1.0)
–
13.9
Fair value
to Group on
acquisition
£m
0.7
18.8
6.3
3.0
(2.1)
(1.7)
25.0
Fair value
to Group on
acquisition
£m
3.4
15.5
4.4
1.8
(5.5)
(0.2)
(1.0)
(1.1)
17.3
Put option over non-controlling interest
An earnout arrangement exists resulting in a put option over the minority shareholding related to ABC. This put option is exercisable at
certain points through to 2019. The net present value of the put option liability has been recognised as a non-current financial liability
under IAS 39.
128
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
11 Trade and other receivables
ACCOUNTING POLICY
Trade receivables are recognised initially at the value of the invoice sent to the customer and subsequently at the amounts considered
recoverable (amortised cost).
Estimates are used in determining the level of receivables that will not, in the opinion of the Directors, be collected. Based on historical
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 for trade receivables over 12 months old that are considered likely to be irrecoverable, 25% of balances 6 to 12
months old and specific provision for known doubtful debts regardless of age. 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, after which the trade receivable is
written off.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are analysed below:
Trade receivables
Other receivables
Prepayments and accrued income
Fixed assets held for resale
Total trade and other receivables
2017
£m
469.5
51.3
120.9
–
641.7
2016
£m
472.8
60.0
118.9
0.1
651.8
Trade receivables are shown net of an allowance for impairment losses of £24.0m (2016: £23.9m) and are all expected to be recovered
within 12 months. Impairment on trade receivables charged as part of operating costs was £8.8m (2016: £8.6m).
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 ageing of trade receivables at the reporting 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
2017
£m
397.0
47.4
19.2
29.9
493.5
(24.0)
469.5
2016
£m
399.9
49.0
27.5
20.3
496.7
(23.9)
472.8
Included in trade receivables under three months of £397.0m (2016: £399.9m) are trade receivables of £340.6m (2016: £349.2m) that
are not yet due for payment.
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
Impairment loss recognised
Receivables written off
At 31 December
2017
£m
23.9
(2.0)
8.8
(6.7)
24.0
2016
£m
20.0
3.1
8.6
(7.8)
23.9
Sensitivity analysis
The remaining unprovided amount of receivables is £14.4m for receivables between 6 and 12 months old and £10.7m for receivables
over 12 months old. The total amount of these receivables was not impaired because, having given consideration to the nature of the
receivables and their historical collection, recovery of the unprovided amount is expected in due course.
There were no material individual impairments of trade receivables.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 129
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
12 Trade and other payables
ACCOUNTING POLICY
Trade payables
Trade payables are recognised at the value of the invoice received from a supplier. The carrying value of trade payables is considered
approximate to fair value.
Put option over non-controlling interest
Put options held by non-controlling interests that arise on acquisition are recognised initially at the present value of the redemption
amount. They are subsequently measured at amortised cost using the effective interest method. The discount is unwound through
SDIs as a finance charge.
TRADE AND OTHER PAYABLES
Trade and other payables are analysed below:
Trade payables
Other payables
Accruals and deferred income
Total trade and other payables
Current
2017
£m
126.7
45.5
280.0
452.2
Current
2016
£m
107.3
25.5
274.0
406.8
Non-current
2017
£m
–
17.5
4.1
21.6
Non-current
2016
£m
–
26.1
7.6
33.7
The Group’s exposure to liquidity risk related to trade payables is disclosed in note 14.
The key assumptions in arriving at the value of the put options over shares held by non-controlling interests are the performance of
those businesses; the risk-adjusted discount rate taking into account the risk-free rate and the gross domestic product growth in the
countries of those underlying businesses.
13 Provisions
ACCOUNTING POLICY
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.
PROVISIONS
At 1 January 2017
Exchange adjustments
Provided in the year:
in respect of current year acquisitions
in respect of prior year acquisitions
Released during the year
Utilised during the year
At 31 December 2017
Included in:
Current liabilities
Non-current liabilities
At 31 December 2017
Contingent
consideration
£m
13.8
(0.1)
–
9.5
0.3
(1.0)
(7.8)
14.7
5.6
9.1
14.7
Claims
£m
19.5
(0.3)
4.8
–
–
(5.3)
(4.7)
14.0
14.0
–
14.0
Other
£m
14.5
(0.7)
15.3
–
–
(1.4)
(15.1)
12.6
12.6
–
12.6
Total
£m
47.8
(1.1)
20.1
9.5
0.3
(7.7)
(27.6)
41.3
32.2
9.1
41.3
The maximum contingent consideration, on a discounted basis, that could be paid in relation to acquisitions is £21.7m.
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 £14.0m (2016: £19.5m) 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 22.
The other provision of £12.6m (2016: £14.5m) includes restructuring provisions. The timing of the cash outflow is uncertain, but
is likely to be within one year.
130
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
14 Borrowings and financial instruments
ACCOUNTING POLICY
Net financing costs
Net financing costs comprise interest expense on borrowings; facility fees; interest receivable on funds invested; net foreign exchange
gains or losses; interest income and expense relating to pension assets and liabilities; unrealised market or fair value gains or losses on
financial assets or liabilities, including contingent consideration; and gains and losses on hedging instruments that are recognised in the
income statement. Interest income and interest expense are recognised as they accrue using the effective interest rate method.
Loans and receivables
Loans and receivables comprise trade and other receivables. Loans and receivables are recognised initially at fair value and
subsequently at amortised cost less impairment losses (including bad debt provision).
Cash and cash equivalents
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.
Non-derivative financial liabilities
Trade and other payables are recognised initially at fair value and subsequently at their amortised cost.
Interest-bearing borrowings are initially recognised at fair value less 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.
The fair value of put option liabilities over non-controlling interests is calculated using a present value calculation, incorporating observable
and non-observable inputs. This valuation technique has been adopted as it most closely mirrors the contractual arrangement.
Derivative financial instruments
The Group uses derivative financial instruments, including interest rate swaps and forward exchange contracts, 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 speculative purposes.
Derivative financial instruments are recognised initially and subsequently at fair value; attributable transaction costs are recognised in
profit or loss when incurred. The gain or loss on remeasurement to fair value at each period end is recognised immediately in the income
statement except where derivatives qualify for hedge accounting.
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.
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.
Hedging
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 in the
same caption as the foreign exchange on the related item.
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 the translation reserve. The ineffective portion is recognised immediately in the
income statement. The Group has external borrowings denominated in foreign currencies which are used to hedge the net investment
in its foreign operations.
Cash flow hedges
Cash flow hedges comprise derivative financial instruments designated in a hedging relationship to manage interest rate risk to which
the cash flows of certain assets and liabilities are exposed. The effective portion of changes in the fair value of the derivative that is
designated and qualifies for hedge accounting is recognised in other comprehensive income. The ineffective portion is recognised
immediately in the income statement. Amounts accumulated in equity are reclassified to the income statement in the period in which
the hedged item affects profit or loss. However, where a forecasted transaction results in a non-financial asset or liability, the
accumulated fair value movements previously deferred in equity are included in the initial cost of the asset or liability.
Impairment
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.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 131
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
14 Borrowings and financial instruments (continued)
Net financing costs
Net financing costs are shown below:
Recognised in income statement
Finance income
Interest on bank balances
Total finance income
Finance expense
Interest on borrowings
Net pension interest cost (note 16)
Foreign exchange differences on revaluation of net monetary assets and liabilities
Facility fees and other*
Total finance expense*
Net financing costs*
* Includes £0.5m (2016: £nil) relating to SDIs.
Analysis of net debt
Cash and cash equivalents per the Statement of Financial Position
Overdrafts
Cash per the Statement of Cash Flows
The components of net debt are outlined below:
2017
£m
1.2
1.2
(24.8)
(0.7)
(2.0)
(3.1)
(30.6)
(29.4)
2017
£m
137.0
(1.1)
135.9
2016
£m
0.9
0.9
(26.7)
(0.8)
5.7
(1.5)
(23.3)
(22.4)
2016
£m
175.6
(16.8)
158.8
Cash
Borrowings:
Revolving credit facility US$800m 2021
Bilateral term loan facilities US$100m 2018
Senior notes US$100m 2017
Senior notes US$20m 2019
Senior notes US$150m 2020
Senior notes US$15m 2021
Senior notes US$140m 2022
Senior notes US$40m 2023
Senior notes US$125m 2024
Senior notes US$40m 2025
Senior notes US$75m 2026
Other*
Total borrowings
Total net debt
*
Other borrowings of £2.1m (2016: £4.8m) and facility fees.
1 January
2017
£m
158.8
Cash flow
£m
7.0
(242.2)
(81.8)
(81.8)
(16.4)
(122.7)
(12.2)
(114.5)
(32.7)
(102.3)
(32.7)
(61.3)
(1.9)
(902.5)
(743.7)
73.8
–
75.1
–
–
–
–
–
–
–
–
2.4
151.3
158.3
Non-cash
movements
£m
–
–
–
–
–
–
–
–
–
–
–
–
(0.7)
(0.7)
(0.7)
Exchange
adjustments
£m
(29.9)
31 December
2017
£m
135.9
14.5
7.2
6.7
1.4
10.7
1.1
10.0
2.9
8.9
2.8
5.4
0.3
71.9
42.0
(153.9)
(74.6)
–
(15.0)
(112.0)
(11.1)
(104.5)
(29.8)
(93.4)
(29.9)
(55.9)
0.1
(680.0)
(544.1)
132
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
14 Borrowings and financial instruments (continued)
Cash
Borrowings:
Revolving credit facility US$800m 2021
Bilateral term loan facilities US$100m 2018
Bilateral term loan facilities US$60m 2016
Senior notes US$75m 2016
Senior notes US$100m 2017
Senior notes US$20m 2019
Senior notes US$150m 2020
Senior notes US$15m 2021
Senior notes US$140m 2022
Senior notes US$40m 2023
Senior notes US$125m 2024
Senior notes US$40m 2025
Senior notes US$75m 2026
Other*
Total borrowings
Total net debt
BORROWINGS
Borrowings are split into current and non-current as outlined below:
Senior term loans and notes
Other borrowings
Total borrowings
Analysis of debt
Debt falling due:
In one year or less
Between one and two years
Between two and five years
Over five years
Total borrowings
1 January
2016
£m
116.0
Cash flow
£m
(6.3)
(253.8)
(67.5)
(40.4)
(50.6)
(67.4)
(13.5)
(101.2)
(10.1)
(94.5)
(27.0)
(84.4)
(27.0)
(50.6)
(3.4)
(891.4)
(775.4)
73.5
–
41.8
52.6
–
–
–
–
–
–
–
–
–
2.4
170.3
164.0
Non-cash
movements
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.6)
(0.6)
(0.6)
Exchange
adjustments
£m
49.1
31 December
2016
£m
158.8
(61.9)
(14.3)
(1.4)
(2.0)
(14.4)
(2.9)
(21.5)
(2.1)
(20.0)
(5.7)
(17.9)
(5.7)
(10.7)
(0.3)
(180.8)
(131.7)
(242.2)
(81.8)
–
–
(81.8)
(16.4)
(122.7)
(12.2)
(114.5)
(32.7)
(102.3)
(32.7)
(61.3)
(1.9)
(902.5)
(743.7)
Current
2017
£m
73.9
2.1
76.0
Current
2016
£m
81.8
4.8
86.6
Non-current
2017
£m
604.0
–
604.0
Non-current
2016
£m
815.9
–
815.9
2017
£m
76.0
14.2
380.9
208.9
680.0
2016
£m
86.6
81.1
391.3
343.5
902.5
Description of borrowings
Total undrawn committed borrowing facilities as at 31 December 2017 were £443.2m (2016: £412.0m).
US$800m revolving credit facility
The Group’s principal bank facility comprises a US$800m multi-currency revolving credit facility. In July 2016, US$672m of the facility
was extended to July 2021. Advances under the facility bear interest at a rate equal to LIBOR, or their local currency equivalent, plus a
margin, depending on the Group’s leverage. Drawings under this facility at 31 December 2017 were £153.9m (2016: £242.2m).
Bilateral term loan facility 1
On 21 December 2012 the Group signed a US$20m bilateral term loan which was increased on 4 April 2014 to US$40m. This facility
was further increased in November 2015 to US$100m, and the maturity of this facility was also extended to November 2018.
Advances under this facility bear interest at a rate equal to LIBOR plus a margin. Drawings under this facility at 31 December 2017
were £74.6m (2016: £81.8m).
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 133
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
14 Borrowings and financial instruments (continued)
BORROWINGS (CONTINUED)
Private placement bonds
In December 2010 the Group issued US$250m of senior notes. These notes were issued in two tranches with US$100m repaid on
15 December 2017 at a fixed annual interest rate of 3.2% and US$150m repayable on 15 December 2020 at a fixed annual interest
rate of 3.91%.
In October 2011 the Group issued US$265m of senior notes. These notes were issued in three tranches with US$20m repayable on
18 January 2019 at a fixed annual interest rate of 3.0%, US$140m repayable on 18 January 2022 at a fixed annual interest rate
of 3.75% and US$105m repayable on 18 January 2024 at a fixed annual interest rate of 3.85%.
In February 2013 the Group issued US$80m of senior notes. These notes were issued in two tranches with US$40m repayable on
14 February 2023 at a fixed annual interest rate of 3.10% and US$40m repayable on 14 February 2025 at a fixed annual interest rate
of 3.25%.
In July 2014 the Group issued US$110m of senior notes. These notes were issued in four tranches with US$15m repayable on 31 July
2021 at a fixed annual interest rate of 3.37%, US$20m repayable on 31 July 2024 at a fixed annual interest rate of 3.86%, US$60m
repayable on 31 October 2026 at a fixed annual interest rate of 4.05% and US$15m repayable on 31 December 2026 at a fixed annual
interest rate of 4.10%.
FINANCIAL RISKS
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 below, and in the Strategic Report – Financial Review that starts on page 38.
Credit risk
Exposure to credit risk
Credit risks arise mainly from the possibility that customers may not be able to settle their obligations as agreed. The Group monitors
the creditworthiness of customers on an ongoing basis. The Group’s credit risk is diversified due to the large number of entities,
industries and regions that make up the Group’s customer base.
The carrying amount of financial assets represents the maximum credit exposure. At the reporting date this was as follows:
Trade receivables, net of allowance (note 11)
Cash and cash equivalents
Total
2017
£m
469.5
135.9
605.4
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was as follows:
Asia Pacific
Americas
Europe, Middle East and Africa
Total
2017
£m
127.1
180.6
161.8
469.5
2016
£m
472.8
158.8
631.6
2016
£m
131.5
180.4
160.9
472.8
Counterparty risk
Cash and cash equivalents and available borrowing facilities are at risk in the event that the counterparty is not able to meet its
obligations in regards to the cash held or facilities available to the Group. The Group also enters into transactions with counterparties
in relation to derivative financial instruments. If the counterparty was not able to meet its obligations, the Group may be exposed to
additional foreign currency or interest rate risk.
The Group, wherever possible, enters into arrangements with counterparties who have robust credit standing, which the Group defines
as a financial institution with a credit rating of at least investment grade. The Group has existing banking relationships with a number
of ‘relationship banks’ that meet this criterion, and seeks to use their services wherever possible while avoiding excessive concentration
of credit risk. Given the diverse geographic nature of the Group’s activities, it is not always possible to use a relationship bank. Therefore
the Group has set limits on the level of deposits to be held at non-relationship banks to minimise the risk to the Group. It is also Group
policy to remit any excess funds from local entities back to Intertek Group Treasury in the UK. Given the controls in place, and based on a
current assessment of our banking relationships, management does not expect any counterparty to fail to meet its obligations.
134
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
14 Borrowings and financial instruments (continued)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its obligations as and when they fall due. The Group’s policy is to:
• ensure sufficient liquidity is available to Group companies in the amounts, currencies and locations required to support the Group’s
operations;
• ensure the Group has adequate available sources of funding to protect against unforeseen internal and external events; and
• avoid excess liquidity which restricts growth and impacts the cost of financing.
To ensure this policy is met, the Group monitors cash balances on a daily basis, projects cash requirements on a rolling basis and funds
itself using debt instruments with a range of maturities.
The following are the contractual cash flows of financial liabilities/(assets) including interest (for floating rate instruments, interest
payments are based on the interest rate at 31 December 2017):
2017
Non-derivative financial liabilities
Senior term loans and notes
Other loans
Trade payables (note 12)
Put option liability over non-controlling
interest
Derivative financial liabilities/
(assets)
Forward exchange contracts:
Outflow
Inflow
Total
2016
Non-derivative financial liabilities
Senior term loans and notes
Other loans
Trade payables (note 12)
Put option liability over non-controlling
interest
Derivative financial liabilities/
(assets)
Forward exchange contracts:
Outflow
Inflow
Total
Carrying
amount
£m
Contractual
cash flows
£m
Six months
or less
£m
6-12
months
£m
1-2 years
£m
2-5 years
£m
More than
five years
£m
677.9
2.1
126.7
8.7
815.4
777.4
2.1
126.7
9.2
915.4
10.5
–
122.1
–
132.6
–
(1.0)
(1.0)
814.4
440.9
(441.9)
(1.0)
914.4
440.9
(441.9)
(1.0)
131.6
85.1
2.1
2.9
–
90.1
–
–
–
90.1
164.8
–
1.3
–
166.1
–
–
–
166.1
327.5
–
0.3
9.2
337.0
–
–
–
337.0
189.5
–
0.1
–
189.6
–
–
–
189.6
Carrying
amount
£m
Contractual
cash flows
£m
Six months
or less
£m
6-12
months
£m
1-2 years
£m
2-5 years
£m
More than
five years
£m
897.7
4.8
107.3
1,031.8
4.8
107.3
13.1
–
103.9
8.6
9.6
–
94.9
4.8
3.1
–
142.8
–
0.3
–
1,018.4
1,153.5
117.0
102.8
143.1
–
(8.0)
(8.0)
1,010.4
658.1
(666.1)
(8.0)
1,145.5
657.9
(665.9)
(8.0)
109.0
0.2
(0.2)
–
102.8
–
–
–
143.1
535.7
–
–
9.6
545.3
–
–
–
545.3
245.3
–
–
–
245.3
–
–
–
245.3
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 135
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
14 Borrowings and financial instruments (continued)
Interest rate risk
The Group’s objective is to manage the risk to the business from movements in interest rates, and to provide stability and predictability
of the near term (12 month horizon) interest expense. Under the Group’s Treasury policy, management may fix the interest rates on up
to 80% of the Group’s debt portfolio for the period of the current financial year. The Group’s debt portfolio beyond this period is to be
managed within the range of a 20%-60% fixed to floating rate ratio. To do this the Group uses hedging instruments where considered
appropriate. A cash flow hedge is in place in respect of a borrowing that is repayable in 2020.
Sensitivity
At 31 December 2017, it is estimated that the impact on variable rate net debt of a general increase of 3% in interest rates would
be a decrease in the Group’s profit before tax of approximately £5.4m (2016: £9.3m). This analysis assumes all other variables
remain constant.
Foreign currency risk
The Group’s objective in managing foreign currency risk is to safeguard the Group’s financial assets from economic loss due to
fluctuations in foreign currencies, and to protect margins on cross currency contracts and operations. To achieve this, the Group’s policy
is to hedge its foreign currency exposures where appropriate.
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.
The foreign currency profiles of cash, trade receivables and payables subject to translation risk and transaction risk, at the reporting
date were as follows:
2017
Cash
Trade receivables (note 11)
Trade payables (note 12)
2016
Cash
Trade receivables (note 11)
Trade payables (note 12)
Carrying
amount
£m
135.9
469.5
126.7
158.8
472.8
107.3
Sterling
£m
13.7
43.6
13.6
US dollar
£m
10.3
156.6
39.8
Chinese
renminbi
£m
24.3
44.6
17.1
Hong Kong
dollar
£m
3.4
14.5
3.5
Other
currencies
£m
84.2
210.2
52.7
4.1
44.8
14.6
7.6
158.6
30.8
55.0
44.9
14.9
1.0
14.0
3.7
91.1
210.5
43.3
136
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
14 Borrowings and financial instruments (continued)
RECOGNISED ASSETS AND LIABILITIES
Changes in the fair value of forward foreign 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.
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 2017 was £655.1m (2016: £857.7m).
A foreign exchange gain of £77.3m (2016: loss £194.1m) was recognised in the translation reserve in equity on translation of these
loans to sterling.
SENSITIVITY
It is estimated that a general increase of 10% in the value of sterling against the US dollar (the main currency impacting the Group)
would have decreased the Group’s profit before tax for 2017 by approximately £21.6m (2016: £20.8m). This analysis assumes all other
variables remain constant.
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.
Book value
2017
£m
Fair value
2017
£m
Book value
2016
£m
Fair value
2016
£m
135.9
469.5
1.0
606.4
135.9
469.5
1.0
606.4
158.8
472.8
8.0
639.6
158.8
472.8
8.0
639.6
Financial assets
Cash and cash equivalents
Trade receivables (note 11)
Forward exchange contracts*
Total financial assets
Financial liabilities
Interest bearing loans and borrowings*
Trade payables (note 12)
Put option liability over non-controlling interest
Total financial liabilities
*
909.9
107.3
8.6
1,025.8
Interest bearing loans and borrowing, and derivative assets/liabilities are categorised as Level 2 under which the fair value is measured using inputs other than quoted
prices observable for the liability, either directly or indirectly.
902.5
107.3
8.6
1,018.4
680.0
126.7
8.7
815.4
679.1
126.7
8.7
814.5
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 137
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
15 Capital and reserves
ACCOUNTING POLICY
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 year in which they are approved by the shareholders.
Own shares held by the Employee Share Ownership Trust (‘ESOT’)
Transactions of the Group sponsored ESOT are included in the Group financial statements. In particular, the Trust’s purchases of shares
in the Company are debited directly in equity to retained earnings.
Share capital
Group and Company
Allotted, called up and fully paid:
Ordinary shares of 1p each at start of year
Share Awards
Ordinary shares of 1p each at end of year
Shares classified in shareholders’ funds
2017
Number
161,386,775
3,765
161,390,540
2017
£m
1.6
–
1.6
1.6
2016
£m
1.6
–
1.6
1.6
The holders of ordinary shares are entitled to receive dividends and are entitled to vote at general meetings of the Company.
During the year, the Company issued 3,765 (2016: 24,998) ordinary shares in respect of all share plans.
Purchase of own shares for trust
During the year ended 31 December 2017, the Company financed the purchase of 350,000 (2016: 200,000) of its own shares with an
aggregate nominal value of £3,500 (2016: £2,000) for £15.6m (2016: £6.4m) which was charged to retained earnings in equity and
was held by the ESOT. This trust is managed and controlled by an independent offshore trustee. During the year, 302,418 shares were
utilised to satisfy the vesting of share awards (note 17). At 31 December 2017, the ESOT held 541,211 shares (2016: 493,629 shares)
with an aggregate nominal value of £5,412 (2016: £4,936). The associated cash outflow of £15.6m (2016: £6.4m) has been presented
as a financing cash flow.
Dividends
Amounts recognised as distributions to equity holders:
Final dividend for the year ended 31 December 2015
Interim dividend for the year ended 31 December 2016
Final dividend for the year ended 31 December 2016
Interim dividend for the year ended 31 December 2017
Dividends paid
2017
£m
–
–
69.2
37.8
107.0
2017
Pence per
share
–
–
43.0
23.5
66.5
2016
£m
56.8
31.2
–
–
88.0
2016
Pence per
share
35.3
19.4
–
–
54.7
After the reporting date, the Directors proposed a final dividend of 47.8p per share in respect of the year ended 31 December 2017,
which is expected to amount to £77.1m. This dividend is subject to approval by shareholders at the Annual General Meeting and
therefore, in accordance with IAS 10 Events after the reporting date, it has not been included as a liability in these financial statements.
If approved, the final dividend will be paid to shareholders on 6 June 2018.
RESERVES
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.
Other
This reserve includes a merger difference that arose in 2002 on the conversion of share warrants into share capital, as well as the cash
flow hedge reserve.
138
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
16 Employee benefits
ACCOUNTING POLICY
Pension schemes
Defined contribution plans
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 material 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 years; that benefit is
discounted to determine its present value. The fair value of any plan assets are deducted.
In calculating the defined benefit deficit, 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.
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.
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, Hong Kong and Switzerland. The United
Kingdom Scheme and Hong Kong Scheme are funded, with assets held in separate trustee-administered funds and the Switzerland
Scheme is an insured scheme. The schemes in the United Kingdom and Hong Kong were closed to new entrants in 2002 and 2000,
respectively. Other funded defined benefit schemes are not considered to be material and are therefore accounted for as if they were
defined contribution schemes.
The Group recognises all actuarial remeasurements in each year in equity through the consolidated statement of comprehensive income.
In June 2011, the International Accounting Standards Board issued revisions to IAS 19 Employee Benefits (‘IAS 19’) that provide
changes in the recognition, presentation and disclosure of post-employment benefits. The Group has adopted the revised accounting
standard from 1 January 2013.
TOTAL PENSION COST
The total pension cost included in operating profit for the Group was:
Defined contribution schemes
Defined benefit schemes – current service cost and administration expenses
Pension cost included in operating profit (note 5)
2017
£m
(46.9)
(3.2)
(50.1)
2016
£m
(41.6)
(3.6)
(45.2)
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 (‘United Kingdom Scheme’) was carried out
as at 1 April 2016, and for IAS 19 accounting purposes has been updated to 31 December 2017. The last full actuarial valuation of the
Hong Kong Scheme was carried out as at 31 December 2016, for local accounting purposes and has been updated to 31 December
2017 for IAS 19 purposes. The Switzerland Scheme was valued for IAS 19 purposes as at 31 December 2017. The average duration of
the schemes are 20 years, 10 years and 15 years for the United Kingdom, Hong Kong and Switzerland schemes respectively.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 139
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
16 Employee benefits (continued)
DEFINED BENEFIT SCHEMES
The cost of defined benefit schemes
The amounts recognised in the income statement were as follows:
Current service cost
Scheme administration expenses
Net pension interest cost (note 14)
Total charge
2017
£m
(2.9)
(0.3)
(0.7)
(3.9)
2016
£m
(3.0)
(0.5)
(0.8)
(4.3)
The current service cost and scheme administration expenses are included in operating costs in the income statement and pension
interest cost and interest income are included in net financing costs.
Included in Other Comprehensive Income:
Remeasurements arising from:
Demographic assumptions
Financial assumptions
Experience adjustment
Asset valuation
Other
Total
2017
£m
1.4
0.2
(0.7)
11.6
0.1
12.6
2016
£m
4.1
(26.1)
4.1
12.9
(0.2)
(5.2)
Company contributions
The Company assessed the triennial actuarial valuation for the United Kingdom Scheme and its impact on the scheme funding plan in
2018 and future years. In 2018 the Group expects to make normal contributions of £0.8m (2017: £0.8m) and has made a special
contribution of £2.0m (2017: £2.8m). The next triennial valuation is due to take place as at 1 April 2019 and will include a review of the
Company's future contribution requirements.
The Hong Kong Scheme has an annual actuarial valuation, identifying the funding requirements for 2018.
Pension liability for defined benefit schemes
The amounts recognised in the statement of financial position for defined benefit schemes were as follows:
United
Kingdom
Scheme
£m
114.7
(127.6)
(12.9)
Hong Kong
Scheme
£m
23.1
(25.5)
(2.4)
Switzerland
Scheme
£m
14.5
(17.0)
(2.5)
2017
£m
143.5
3.3
1.7
2.8
0.5
(7.9)
(3.1)
11.6
(0.3)
0.2
152.3
Total
£m
152.3
(170.1)
(17.8)
2016
£m
120.9
3.7
1.9
2.8
0.6
(5.2)
6.2
12.9
(0.5)
0.2
143.5
Fair value of scheme assets
Present value of funded defined benefit obligations
Deficit in schemes
The fair value changes in the scheme assets are shown below:
Fair value of scheme assets at 1 January
Interest income
Normal contributions by the employer
Special contributions by the employer
Contributions by scheme participants
Benefits paid
Effect of exchange rate changes on overseas schemes
Remeasurements
Scheme administration expenses
Contribution to fund scheme administration expenses
Fair value of scheme assets at 31 December
140
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
16 Employee benefits (continued)
ASSET ALLOCATION
Investment statements were provided by the Investment Managers which showed that, as at 31 December 2017 the invested assets
of the United Kingdom Scheme totalled £114.7m (2016: £105.9m) and of the Hong Kong Scheme totalled £23.1m (2016: £21.9m)
broken down as follows:
Asset class
Equities
Property
Bonds
Absolute Return Fund*
Liability Driven Investment*
Cash
Total
United Kingdom Scheme
Hong Kong Scheme
2017
£m
54.8
11.2
–
25.8
17.2
5.7
114.7
2016
£m
50.4
8.6
–
25.2
16.4
5.3
105.9
2017
£m
15.2
–
7.9
–
–
–
23.1
2016
£m
14.0
–
7.9
–
–
–
21.9
*
Investments are included at fair value. The pooled investment vehicles are held under a managed fund policy in the name of the Scheme. Pooled investment vehicles
(including the of the Absolute Return Fund / LDI Funds) which are not traded on active markets, but where the investment manager has provided a monthly trading price,
are valued using the last single price, provided by the investment manager at or before the year end. The Absolute Return Fund aims to provide positive investment
returns in all conditions over the medium- to long-term. The investment managers have a wide investment remit and look to exploit market inefficiencies through active
allocation to a diverse range of market positions. The Fund uses a combination of traditional assets and investment strategies based on derivatives and is able to take
long- and short-term positions in markets. The LDI Fund provides the hedge against adverse movements in inflation and interest rates. It seeks to match the sensitivity of
the Scheme’s liability cash flow to changes in interest rates and inflation; it is invested in gilts, swaps, futures, repo contracts and money market instruments.
The United Kingdom Scheme had bank account assets of £0.5m as at 31 December 2017 (2016: £0.3m).
The United Kingdom Scheme invested assets comprise both quoted and unquoted assets, whilst all of the invested assets of the Hong
Kong Scheme are unquoted. The Switzerland Scheme is fully insured.
Changes in the present value of the defined benefit obligations were as follows:
Defined benefit obligations at 1 January
Current service cost
Interest cost
Contributions by scheme participants
Benefits paid
Effect of exchange rate changes on overseas schemes
Remeasurements
Defined benefit obligations at 31 December
Principal actuarial assumptions:
Discount rate
Inflation rate (based on CPI)
Rate of salary increases
Rate of pension increases:
CPI subject to a maximum of 5% p.a.
Increases subject to a maximum of 2.5% p.a.
2017
£m
175.3
2.9
4.0
0.3
(7.9)
(3.6)
(0.9)
170.1
2016
£m
147.8
3.0
4.5
0.3
(5.2)
7.6
17.3
175.3
United Kingdom Scheme
Hong Kong Scheme
Switzerland Scheme
2017
%
2.5
2.3
2.3
2.3
1.8
2016
%
2.7
2.4
3.4
2.4
1.9
2017
%
1.8
n/a
4.0
n/a
n/a
2016
%
1.9
n/a
4.0
n/a
n/a
2017
%
0.7
n/a
1.0
n/a
n/a
2016
%
0.4
n/a
1.0
n/a
n/a
The retirement arrangement in Hong Kong pays a lump sum to members instead of a pension and the Switzerland Scheme is an
insured plan.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 141
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
16 Employee benefits (continued)
Life expectancy assumptions at year end for:
Male aged 40
Male aged 65
Female aged 40
Female aged 65
*
United Kingdom Scheme
Hong Kong Scheme*
Switzerland Scheme
2017
49.0
22.1
50.9
24.0
2016
49.4
22.2
51.5
24.2
2017
n/a
n/a
n/a
n/a
2016
n/a
n/a
n/a
n/a
2017
42.8
19.8
45.4
21.9
2016
42.8
19.8
45.4
21.9
The retirement arrangement in Hong Kong pays a lump sum to members instead of a pension at the point of retirement. Since the amount of the lump sum is not related to
the life expectancy of the member, the post-retirement mortality is not a relevant assumption for the Hong Kong Scheme.
The table above shows, for the United Kingdom Scheme, the number of years a male or female is expected to live, assuming they were aged either 40 or 65 at
31 December. The mortality tables adopted in 2017 for the United Kingdom Scheme are the S2PA projected by year of birth, based on the CMI 2016 mortality projection
model with a 1.25% long-term annual rate for future improvement. In 2016 the S2PA tables were used, based on the CMI 2015 mortality projection model. For the
Switzerland Scheme, the mortality table adopted in both 2017 and 2016 is the BVG2015, an industry standard in Switzerland which is based on statistical evidence of
major Switzerland pension funds.
SENSITIVITY ANALYSIS
The table below sets out the sensitivity on the United Kingdom and Hong Kong pension assets and liabilities as at 31 December 2017
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
UK Scheme
Hong Kong Scheme
Liabilities
£m
127.6
121.7
133.9
132.8
122.6
Increase/
(decrease)
in deficit
£m
–
(5.9)
6.3
5.2
(5.0)
Liabilities
£m
25.5
24.9
26.1
n/a
n/a
Increase/
(decrease)
in deficit
£m
–
(0.6)
0.6
n/a
n/a
The United Kingdom Scheme is also subject to the mortality assumption. If the mortality tables used are rated up/down one year, the
value placed on the liabilities increases by £5.9m and decreases by £5.8m respectively.
FUNDING ARRANGEMENTS
United Kingdom Scheme
The Trustees use the Projected Unit credit method with a three-year control period. Currently the scheme members pay contributions
at the rate of 8.5% of salary. The employer pays contributions of 16.4% of salary, plus £0.2m per year to fund scheme expenses, and
has made an additional contribution of £2.0m in 2018 to reduce the deficit disclosed by the 2016 valuation.
Hong Kong Scheme
The Trustees use the Attained Age funding method. The last actuarial valuation was as at 31 December 2016. Scheme members do
not contribute to the scheme. The employer pays contributions of 11.5% of salaries including 0.6% in respect of scheme expenses.
Funding Risks
The main risks for the schemes are:
Investment return risk:
Investment matching risk:
Longevity risk:
If the assets underperform the returns assumed in setting the funding targets then additional contributions
may be required at subsequent valuations.
The schemes invest significantly in equities, whereas the funding targets are closely related to the returns on
bonds. If equities fall in value relative to the matching asset of bonds, additional contributions may be required.
If future improvements in longevity exceed the assumptions made for scheme funding then additional
contributions may be required.
Role of Third Parties
The United Kingdom Scheme is managed by Trustees on behalf of its members. The Trustees take advice from appropriate third parties
including investment advisors, actuaries and lawyers as necessary.
142
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
17 Share schemes
ACCOUNTING POLICY
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 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 Monte Carlo method and expensed to the income statement over
the vesting period of the relevant award. The charge for the Deferred Share Awards is adjusted to reflect expected and actual levels of
vesting for service conditions. The expense of the LTIP Share Awards is calculated using the Black-Scholes method and is adjusted for
the probability of EPS 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 awards granted since 7 November 2002.
SHARE PLANS
2011 Long Term Incentive Plan
The Deferred Bonus Plan 2005 was replaced in 2011 with the Intertek 2011 Long Term Incentive Plan (the 'LTIP'). Deferred Share
Awards (previously Share Awards) and LTIP Share Awards (previously Performance Awards) have been granted under this plan. The first
awards were granted on 7 April 2006. The awards under these plans vest three years after grant date, subject to fulfilment of the
performance conditions.
2017
2016
Outstanding Awards
At beginning of year
Granted*
Vested**
Forfeited
At end of year
*
** Of the 287,091 awards vested in 2017, 3,765 were satisfied by the issue of shares and 197,083 by the transfer of shares from the ESOT (see note 15). The balance of
LTIP
Total
Share
awards
Awards
1,861,305
1,043,719
686,644
369,342
(287,091)
(93,463)
(310,840)
(239,376)
869,796 1,080,222 1,950,018
LTIP
Share
Awards
879,491
399,994
–
(235,766)
1,043,719
Deferred
Share
Awards
807,939
379,575
(271,383)
(98,545)
817,586
Includes 11,173 Deferred Share Awards (2016: 12,015) and 15,691 LTIP Share awards (2016: 16,522) granted in respect of dividend accruals.
Deferred
Share
Awards
817,586
317,302
(193,628)
(71,464)
Total
awards
1,687,430
779,569
(271,383)
(334,311)
1,861,305
86,243 awards represented a tax liability of £3.2m which was settled in cash on behalf of employees by the Group, of which £2.7m was settled by the Company.
Deferred Share Plan
On 9 March 2015 the Remuneration Committee approved the adoption of the Intertek Deferred Share Plan (the ‘DSP’). Awards may be
granted under the DSP to employees of the Group (other than the Executive Directors of the Company) selected by the Remuneration
Committee over existing, issued ordinary shares of the Company only. The DSP was adopted primarily to allow for the deferral of a
proportion of selected employees annual bonus into shares in the Company, but may also be used for the grant of other awards (such as
incentive awards and buy out awards for key employees) in circumstances that the Remuneration Committee deems appropriate. The
initial award under the DSP had a two-year vesting period; any subsequent awards will normally have a three-year vesting period. Awards
may be made subject to performance conditions and are subject to normal good and bad leaver provisions and malus and clawback.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 143
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
17 Share schemes (continued)
2017
2017
2016
2016
Deferred
Share
Awards
101,886
40,927
(24,376)
(900)
117,537
Deferred
Share
Awards
117,537
44,915
(94,313)
(1,985)
66,154
Outstanding Awards
At beginning of year
Granted*
Vested**
Forfeited
At end of year
*
** Of the 94,313 awards vested in 2017, 55,041 were satisfied by the transfer of shares from the ESOT (see note 15). The balance of 39,272 awards represented a tax
Includes 945 Deferred Share Awards (2016: 1,642) granted in respect of dividend accruals.
Total
Awards
117,537
44,915
(94,313)
(1,985)
66,154
Total
awards
101,886
40,927
(24,376)
(900)
117,537
liability of £1.7m which was settled in cash on behalf of employees by the Company.
Mirror Share Awards
On 20 May 2015, André Lacroix was granted conditional rights to acquire 183,149 shares under a one-off arrangement as a condition
of his recruitment as CEO of the Company. The award comprised two parts, tranche A and B, with tranche A vesting on 20 May 2016
and tranche B vesting on 20 May 2017. 94,895 shares vested in 2017, which included 3,321 shares granted in respect of dividend
accruals. 50,294 awards were satisfied by the transfer of shares from the ESOT (see note 15) and the balance of 44,601 awards
represented a tax liability of £1.9m which was settled in cash by the Company. Further details are shown in the Remuneration report
on pages 81 to 96.
Equity-settled transactions
During the year ended 31 December 2017, the Group recognised an expense of £17.5m (2016: £16.6m), of which £nil (2016: £1.4m)
related to restructuring SDIs. The fair values and the assumptions used in their calculations are set out below:
Fair value at measurement date (pence)
Share price (pence)
Expected volatility
Risk–free interest rate
Time to maturity (years)
Fair value at measurement date (pence)
Share price (pence)
Expected volatility
Risk-free interest rate
Time to maturity (years)
Deferred
Share
Awards (DSP)
4,679
4,679
–
–
1-3
Deferred
Share
Awards (DSP)
3,376
3,376
n/a
n/a
1-3
2017 Awards
Share
Awards
3,868
3,868
–
–
3
LTIP Share
Awards EPS
element
3,860
3,860
–
–
3
LTIP Share
Awards TSR
element
2,385
3,860
23.9%
0.15%
3
2016 Awards
Share
Awards
3,113
3,113
n/a
n/a
3
LTIP Share
Awards EPS
element
3,113
3,113
n/a
n/a
3
LTIP Share
Awards TSR
element
2,073
3,113
23.4%
0.5%
3
The expected volatility is based on the historical volatility, adjusted for any expected changes to future volatility due to publicly
available information.
All Share Awards are granted under a service condition. Such condition is not taken into account in the fair value measurement at grant
date. The LTIP Share Awards (TSR element) 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.
18 Subsequent events
On 1 February 2018, the parent company received dividend income of £120.0m from subsidiaries further increasing its distributable
reserves.
19 Capital management
The Directors determine the appropriate capital structure of Intertek; specifically how much capital is raised from shareholders (equity)
and how much is borrowed from financial institutions (debt) in order to finance the Group’s activities. These activities include ongoing
operations as well as acquisitions as described in note 10.
144
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
19 Capital management (continued)
The Group’s policy is to maintain a robust capital base (including cash and debt) to ensure the market and key stakeholders retain
confidence in the capital profile. Debt capital is monitored by Group Treasury assessing the liquidity buffer on a short- and longer-term
basis as discussed in note 14. The Group uses key performance indicators, including return on invested capital and adjusted diluted
earnings per share to monitor the capital position of the Group to ensure it is being utilised effectively. The dividend policy also forms
part of the Board’s capital management policy, and the Board ensures there is appropriate earnings cover for the dividend proposed at
both the interim and year end.
20 Non-controlling interest
ACCOUNTING POLICY
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no
goodwill is recognised as a result of such transactions.
NON-CONTROLLING INTEREST
An analysis of the movement in non-controlling interest is shown below:
At 1 January
Exchange adjustments
Share of profit for the year
Adjustment arising from changes in non-controlling interest
Dividends paid to non-controlling interest
Non-controlling interest from businesses acquired
At 31 December
2017
£m
34.7
(0.3)
19.0
–
(18.7)
(0.2)
34.5
2016
£m
27.8
5.1
16.6
1.5
(16.3)
–
34.7
21 Related parties
IDENTITY OF RELATED PARTIES
The Group has a related party relationship 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 KEY MANAGEMENT PERSONNEL
Key management personnel compensation, including the Group’s Directors, is shown in the table below:
Short-term benefits
Post-employment benefits
Equity-settled transactions
Total
2017
£m
9.3
0.8
7.2
17.3
2016
£m
8.8
0.6
7.3
16.7
More detailed information concerning Directors’ remuneration, shareholdings, pension entitlements and other long-term incentive plans
is shown in the audited part of the Remuneration report. Apart from the above, no member of key management had a personal interest
in any business transactions of the Group.
22 Contingent liabilities
Guarantees, letters of credit and performance bonds
2017
£m
26.5
2016
£m
31.4
LITIGATION
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 Group maintains
appropriate insurance cover to provide protection from the small number of significant claims it is subject to from time to time.
TAX
The Group operates in more than 100 countries and with complex tax laws and regulations. At any point in time it is normal for there to
be a number of open years which may be subject to enquiry by local authorities. In some jurisdictions the Group receives tax incentives
(see note 6) which are subject to renewal and review and reduce the amount of tax payable. Where the effect of the laws and
regulations is unclear, estimates are used in determining the liability for the tax to be paid. 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
Group is also monitoring developments in relation to the EU State Aid investigation into the UK's Controlled Foreign Company regime.
The Group does not currently consider any provision is required in relation to EU State Aid.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 145
23 Principal Group companies
The principal subsidiaries whose results or financial position, in the opinion of the Directors, principally affect the figures of the Group
have been shown below. All the subsidiaries shown were consolidated with Intertek Group plc as at 31 December 2017. Unless otherwise
stated, these entities are wholly owned subsidiaries and the address of the registered office is Academy Place, 1-9 Brook Street,
Brentwood, Essex, CM14 5NQ, United Kingdom for all related undertakings included in this note.
Company name
Intertek Finance plc
Intertek Holdings Limited (i)
Intertek Technical Services, Inc. (ii)
Intertek Testing Services Holdings Limited (i)
Intertek Testing Services Hong Kong Limited (iii)
Intertek Testing Services Limited Shanghai (iv)
Intertek Testing Services NA, Inc. (v)
Intertek Testing Services Shenzhen Limited (vi)
Intertek USA, Inc. (vii)
Intertek USD Finance Limited
Labtest Hong Kong Limited (viii)
RCG-Moody International Limited
Testing Holdings USA, Inc. (ix)
(i) Directly owned by Intertek Group plc.
(ii) Ownership held in Ordinary and Preference shares; Registered office address is: 25025 I-45 North, Suite #111, The Woodlands, TX 77380, United States.
(iii) Registered office address is: 2/F Garment Centre, 576 Castle Peak Road, Kowloon, Hong Kong.
(iv)
Country of Incorporation
and principal place of operation
England
England
USA
England
Hong Kong
China
USA
China
USA
England
Hong Kong
England
USA
Equity shareholding 85%, Company controlled by the Group based on management’s assessment; Registered office address is: Room 1605, No 201,
NanQuan North Road, Pudong, Shanghai, China.
Activity
Finance
Holding
Trading
Holding
Trading
Trading
Trading
Trading
Trading
Finance
Trading
Holding
Holding
(v) Registered office address is: 3933 US Route 11, Cortland, NY 13045, United States.
(vi)
Registered office address is: West side of 1/F and 3,4,5/F of Bldg. 1, 1-5/F of Bldg. 3, Yuanzheng Science and Technology Industrial Park, No. 4012, Bantian Street,
Longgang District, Shenzhen, Guangdong, China.
(vii) Registered office address is: CT Corporation System, 5615 Corporate Blvd., Suite 400B, Baton Rouge, LA 70808, United States.
(viii) Registered office address is: 11/F, Unit IJK, Garment Centre, 576 Castle Peak Road, Kowloon, Hong Kong.
(ix) Registered office address is: Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, United States.
GROUP COMPANIES
In accordance with section 409 of the Companies Act 2006 a full list of related undertakings is set out below. Related undertakings
comprise subsidiaries, partnerships, associates, joint ventures and joint arrangements. The above principal subsidiaries have not been
duplicated in the list below. Unless otherwise stated, the share capital disclosed comprises ordinary shares which are indirectly held by
Intertek Group plc as at 31 December 2017. No subsidiary undertakings have been excluded from the consolidation.
.FULLY OWNED SUBSIDIARIES
0949491 B.C. Limited
1620-400 Burrard Street, Vancouver, BC V6C 3A6, Canada
4th Strand, LLC
3000 Northwoods Parkway, Suite 330, Norcross, GA 30071, United States
Acucert Labs, LLP
82/2, Shreyas, 25th Road, Sion West, Mumbai, 400022, India
Acumen Security, LLC
2400 Research Blvd, Suite 395, Rockville, MD 20850, United States
Adelaide Inspection Services Pty Limited
Level 3, 235 St Georges Terrace, Perth, WA 6000, Australia
Ageus Solutions Inc.
505 March Road, Suite 100, Kanata, ON K2K 2V6, Canada
Alex Stewart Assayers Private Limited (ii)
Unit No. D1, Udyog Sadan No.3, M.I.D.C. Central Road, Andheri (East), Mumbai,
400093, India
Alta Analytical Laboratory, Inc. (i)
200 Westlake Park Blvd., Westlake Building 4, Suite 400, Houston, TX 77079, United
States
Amtac Certification Services Limited
Architectural Testing Holdings, Inc.
2711 Centerville Road, Suite 400, Wilmington, DE 19808, United States
Architectural Testing, Inc.
130, Derry Court, York, PA 17406, United States
Caleb Brett Abu Dhabi LLC
CB UAE (Private) Ltd, c/o Al Nahiya Group, PO Box 3728, Abu Dhabi,
United Arab Emirates
Caleb Brett Ecuador S.A.
Centro Commercial Mall del Sol, Av. Joaquín Orrantia González y Juan Tanca Marengo,
Torre B, Piso 5, Oficina 505, Guayaquil, Ecuador
Cantox U.S. Inc.
100 Davidson Avenue, Suite #102, Somerset, NJ 08873, United States
146
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
Capcis Limited
Center for the Evaluation of Clean Energy Technology, Inc.
3933 US Route 11, Cortland, NY 13045, United States
Charon Insurance Limited
Thomas Miller (Bermuda) Ltd, Canon’s Court, 22 Victoria Street, Hamilton, HM12,
Bermuda
CosComply (i)
ZAC Ecopark 2, 27400, Heudebouville, France
Electrical Mechanical Instrument Services (UK) Limited
Unit 19 & 20 Wellheads Industrial Centre, Dyce, Aberdeen, AB21 7GA,
United Kingdom
Electronic Warfare Associates-Canada, Ltd
1223 Michael St, Suite 200, Ottawa, ON K1J 7T2, Canada
Entela-Taiwan, Inc
4700 Broadmoor Avenue SE, Suite 200, Kentwood, MI 49512, United States
Esperanza Guernsey Holdings Limited
PO Box 472, St Julian’s Court, St Julian's Avenue, St Peter Port, GY1 6AX, Guernsey
Esperanza International Services (Southern Africa) (Pty.) Limited
Charter House, 13 Brand Road, Glenwood, Durban, South Africa
Four Front Research (India) Pvt Limited (ii)
Plot# 847, 5th Floor, Near Electricity Substation, Ayyappa Society Road, Madhapur,
Hyderabad, Andhra Pradesh, 500081, India
Gellatly Hankey Marine Services (M) Sdn. Bhd.
Unit 30-01 Level 30, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No.
8, Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia
Genalysis Laboratory Services Pty Limited (vi)
Level 3, 235 St Georges Terrace, Perth, WA 6000, Australia
Geotechnical Services Pty Limited
Level 3, 235 St Georges Terrace, Perth, WA 6000, Australia
Global X-Ray & Testing Corporation
P.O. Box 1536, Morgan City, LA 70380, United States
NOTES TO THE FINANCIAL STATEMENTS continuedFINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS
23 Principal Group companies (continued)
FULLY OWNED SUBSIDIARIES (CONTINUED)
Global X-Ray Holdings, Inc. (v)
112 East Service Road, Morgan City, LA 70381, United States
H.P. White Laboratory Inc.
3114 Scarboro Road, Street, MD 21154, United States
Hawks Acquisition Holding, Inc
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, New
Castle, DE 19808, United States
Hi-Tech Holdings, Inc.
CT Corporation System, 1200 S.Pine Island Road, Plantation, FL 33324, United States
Hi-Tech Testing Service, Inc.
CT Corporation System, 1999 Bryan Street Suite 900, Dallas, TX 75201, United States
Inspection Services (US), LLC
Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801, United States
International Cargo Services, Inc. (i)
c/o CT Corp, 8550 United Plaza Blvd, Baton Rouge, LA 70809, United States
International Inspection Services Limited
33/37 Athol Street, Douglas, IM1 1LB, Isle of Man
Intertek (Mauritius) Limited
2 Palmerston Road, Phoenix, Mauritius
Intertek (Schweiz) AG
TechCenter, Kaegenstrasse 18, 4153 Reinach, Switzerland
Intertek Academy A/S
Buen 12, 3, 6000 Kolding, Denmark
Intertek Argentina Certificaciones S.A. (iii)
Cerrito 1136 3rd floor CF, Ciudad Autónoma de Buenos Aires, C1010AAX, Argentina
Intertek Aruba N.V.
Lago Heights Straat 28A, San Nicolas, Aruba
Intertek Asset Integrity Management, Inc.
1710 Sens Road, La Porte, TX 77571, United States
Intertek ATI SRL
266-268 Calea Rahovei Street, Building 61, 1st Floor, Sector 5, Bucharest, Romania
Intertek Australia Holdings Pty Limited
Level 3, 235 St Georges Terrace, Perth, WA 6000, Australia
Intertek Azeri Limited
2236 Mirza Davud Str., Xatai District, Baku, AZ 1026, Azerbaijan
Intertek BA EOOD
24A Akad. Metodi Popov Str., Floor 5, Sofia, 1113, Bulgaria
Intertek Bangladesh Limited
Phoenix Tower, Plot–407 (3rd Floor), Tejgaon I/A, Dhaka, Bangladesh
Intertek Belgium NV
Kruisschansweg 11, 2040 Antwerp, Belgium
Intertek Burkina Faso Ltd Sarl (i)
Ouagadougou, Secteur 13, Parcelle 21, Lot 11 Section EO Arrondissement de
Nongr'Masson, Ouagadougou, 11 GP 1429, Burkina Faso
Intertek C&T Australia Holdings PTY Ltd (i)
Level 3, 235 St Georges Terrace, Perth WA 6000, Australia
Intertek C&T Australia Pty Ltd (i)
Level 3, 235 St Georges Terrace, Perth WA 6000, Australia
Intertek Caleb Brett (Uruguay) S.A.
Cerrito 507, 4th Floor, Of. 46 and 47, Montevideo, 11000, Uruguay
Intertek Caleb Brett Chile S.A.
Avenida Las Condes N° 11287 Torre A, oficina 301 A Las Condes, Santiago, Chile
Intertek Caleb Brett El Salvador S.A. de C.V.
Recinto Industrial de RASA zona industrial de Acajutla, Sonsonate, El Salvador
Intertek Caleb Brett Germany GmbH
Witternstrasse 14, 21107, Hamburg, Germany
Intertek Caleb Brett Panama, Inc. (i)
Zona Procesadora para la Exportacion de Albrook, Building 6, Ancon Panama, Panama
Intertek Caleb Brett Venezuela C.A.
2a AV El Mirador Edif. Saragon Palace Piso, PH-602/603 La Campina, Caracas,
1050, Venezuela
Intertek Canada Newco Limited
1829 32nd Avenue, Lachine, QC H8T 3JI, Canada
Intertek Capacitacion Chile Spa
Avenida Las Condes N° 11287 Torre A, oficina 301 A Las Condes, Santiago, Chile
Intertek Capital Resources Limited
Intertek Certification AB
Torshamnsgatan 43, Box 1103, Kista, S-164 22, Sweden
Intertek Certification AS
Leif Weldings vei 8, 3208 Sandefjord, Norway
Intertek Certification France SAS
67 Boulevard Bessières, 75017, Paris, France
Intertek Certification GmbH
Marie-Bernays-Ring 19a, 41199 Monchengladbach, Germany
Intertek Certification International Sdn. Bhd.
6-L12-01, Level 12, Tower 2, Menara PGRM, No. 6 & 8 Jalan Pudu Ulu, Cheras, 56100
Kuala Lumpur, Malaysia
Intertek Certification Japan Limited
Nihonbashi N Bldg, 1-4-2, Nihonbashi – Horidomecho, Chuo-ku, Tokyo, 103-0012,
Japan
Intertek Certification Limited
Intertek Colombia S.A.
Calle 127A No. 53A-45, Oficina 1103, Bogotá, Colombia
Intertek Commodities Botswana (Proprietary) Limited (i)
First Floor, Time Square, Plot 134 Independence Avenue, Gaborone, Botswana
Intertek Commodities Mozambique Lda
Rua 1233, NR 72 R/C, Distrito Urbano 1, Maputo, Mozambique
Intertek Consulting & Training (UK) Limited
Northpoint Aberdeen Science & Energy Park, Exploration Drive, Bridge of Don,
Aberdeen, AB23 8HZ, United Kingdom
Intertek Consulting & Training (USA), Inc.
201 Energy Parkway, Suite 240, Lafayette, LA 70508, United States
Intertek Consulting & Training Colombia Limitada
Calle 127A No. 53A-45, Oficina 1103, Bogotá, Colombia
Intertek Consulting & Training Egypt
46 B Street #7, Maadi, Cairo, Egypt
Intertek Consulting AB
Torshamnsgatan 43, Box 1103, Kista, S-164 22, Sweden
Intertek Consumer Goods GmbH
Würzburger Strasse 152, 90766 Fürth, Germany
Intertek Curacao N.V.
Barendslaan #3, Rio Canario Willemstad, Curacao, Netherlands Antilles
Intertek de Guatemala SA
46 Calle 21-53 Zona 12, Expobodega 46, Edificio 10, Guatemala Ciudad, Guatemala
Intertek de Nicaragua S.A.
Zona Franca Astro KM 47, Carretera Tipitapa Masaya, Nave 20, Managua, Nicaragua
Intertek Denmark A/S
Dokhavnsvej 3, 4400 Kalundborg, Denmark
Intertek Deutschland GmbH
Stangenstrasse 1, 70771 Leinfelden-Echterdingen, Germany
Intertek DIC A/S
Buen 12, 3, 6000 Kolding, Denmark
Intertek do Brasil Inspecoes Ltda
Av Eng. Augusto Barata s/n, Alamoa, Santos, SP, CEP11095-650, Brazil
Intertek Egypt for Testing Services
2nd Floor, Block 13001, Piece 15, Street 13, First Industrial Zone,
(Beside Abou Ghali Motors), Elobour City, Cairo, Egypt
Intertek Engineering Service Shanghai Limited
Room 308A, 3rd Floor, No. 1 Building, No.1287, Shangcheng Road,
Pulot Free Trade Zone, Shanghai, China
Intertek Engineering Services (Wuhu) Ltd
No. 65 Chang Ye Street, YinHu District, Wuhu, China
Intertek Evaluate AB
Torshamnsgatan 43, Box 1103, Kista, S-164 22, Sweden
Intertek Finance Ireland Unlimited Company
8th Floor, Block E, Iveagh Court, Harcourt Road, Dublin 2, Ireland
Intertek Finance No. 2 Ltd
Intertek Finland OY
Teknoublevardi 3-5, FI-01530 Vantaa, Finland
Intertek Fisheries Certification Limited
Intertek Food Services GmbH
Olof-Palme-Strasse 8, 28719 Bremen, Germany
Intertek France SAS
ZAC Ecopark 2, 27400, Heudebouville, France
Intertek Fujairah FZC
P.O. Box 1307, Fujairah, United Arab Emirates
Intertek Genalysis (Zambia) Limited
Plot No 25/26 Nkwazi House, Nkwazi and Cha Cha Cha Roads, PO Box 31014,
Lusaka, Zambia
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 147
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
23 Principal Group companies (continued)
FULLY OWNED SUBSIDIARIES (CONTINUED)
Intertek Genalysis Madagascar SA
Saint Denis Terrain II, Parcel 2 Ambatofotsy, Ampandrianomby, Madagascar
Intertek Genalysis South Africa Pty Ltd
Level 3, 235 St Georges Terrace, Perth, WA 6000, Australia
Intertek Ghana Limited
1st Floor Gian, Towers Office, Number 2 Community, Gian Towers Tema, Accra,
Accra Metropolitan, P.O. BOX GP 199, Ghana
Intertek Global (Iraq) Limited
Intertek Global International LLC
Building 242, Office No.3, C-Ring Road, PO Box 47146, Doha, Qatar
Intertek Global Limited
1st Floor, Liberation House, Castle Street, St Helier, JE1 1GL, Jersey
Intertek Health Sciences Inc.
2233 Argentia Road, Suite # 201, Mississauga, ON L5N 2X7, Canada
Intertek Holding Deutschland GmbH
Stangenstrasse 1, 70771 Leinfelden-Echterdingen, Germany
Intertek Holdings France SAS
ZAC Ecopark 2, 27400 Heudebouville, France
Intertek Holdings Italia SRL
Via Guido Miglioli 2/A, Cernusco sul Naviglio, 20063, Milano, Italy
Intertek Holdings Nederland B.V.
Leerlooierstraat 135, 3194AB Hoogvliet, Rotterdam, The Netherlands
Intertek Holdings Norge AS
Oljevegen 2, 4056 Tananger, Norway
Intertek Ibérica Spain, S.L.
Alda. Recalde, 27-5., 48009, Bilbao, Vizcaya, Spain
Intertek India Private Limited
E-20, Block B1, Mohan Co-operative Industrial Area, Mathura Road, New Delhi,
110044, India
Intertek Industrial Services GmbH
Marie-Bernays-Ring 19a, 41199 Monchengladbach, Germany
Intertek Industry and Certification Services (Thailand) Limited
539/2 Gypsum Metropolitan Tower, 11C Fl., Sri-Ayudhaya Road,
Tanon – Phayathai Subdistrict, Khet Ratchathewi, Bangkok, 10400, Thailand
Intertek Industry Services (PTY) LTD
3 EL Wak Street, Vereeniging, 1930, Gauteng, South Africa
Intertek Industry Services (S) Pte Ltd
2 International Business Park, #10-09/10, The Strategy, 609930, Singapore
Intertek Industry Services Brasil Ltda
Alameda Mamore 503, Alphaville, Barueri-SP, 06454-040-SP, Brazil
Intertek Industry Services Colombia Limited
Calle 127A No. 53A-45, Oficina 1103, Bogotá, Colombia
Intertek Industry Services Japan Limited
Nihonbashi N Bldg, 1-4-2, Nihonbashi – Horidomecho, Chuo-ku, Tokyo, 103-0012,
Japan
Intertek Industry Services Romania Srl
266-268 Calea Rahovei Street, Building 63, 8th Floor, Sector 5, Bucharest, Romania
Intertek Industry WLL
Office # 24, Building 400, Road 3207, Mahooz, Block 332, Manama, Kingdom of Bahrain
Intertek Inspection Services Ltd
2561 Avenue Georges V, Montreal-Est Québec, H1L 6S4, Canada
Intertek Inspection Services Scandinavia AS
Leif Weldings vei 8, 3208 Sandefjord, Norway
Intertek Inspection Services UK Limited
Intertek International France SAS
67 Boulevard Bessières, 75017, Paris, France
Intertek International Gabon SARL
Quartier Montagne Sainte – Immeuble Dumez, 2éme étage, Libreville, B.P: 13312,
Gabon
Intertek International Guinee S.A.R.L. (i)
Conakry Republique de Guinee, Compte Bancaire: 52481.369.10 0 (SGBG),
Conakry Guinea
Intertek International Inc.
24900 Pitkin Road, Site 200, The Woodlands, TX 77386, United States
Intertek International Kazakhstan, LLC
Building 2A, Abay street, Atyrau City, 060002, Kazakhstan
Intertek International Limited
Intertek International Ltd Egypt
69, Road 161, Intersection with Road 104, Ground Floor, Maadi, Cairo, Egypt
Intertek International Nederland BV
Leerlooierstraat 135, 3194AB Hoogvliet, Rotterdam, The Netherlands
Intertek International Niger SARL
BP 2769, 2nd Floor Lot 792 Block Q, Independance Boulevard, Rue GM-20, Niger
Intertek International Suriname N.V.
Prins Hendrikstraat 49, Paramaribo, Suriname
Intertek International Tanzania Limited
Minazini Street, Kilwa Road 5, Dar es Salaam, United Republic of Tanzania
Intertek Italia SpA
Via Guido Miglioli 2/A, Cernusco sul Naviglio, 20063, Milano, Italy
Intertek Japan K.K.
Pier City Shibaura Building, 4F, 3-18-1, Kaigan, Minato-ku, Tokyo, 108-0022, Japan
Intertek Kalite Servisleri Limited Sirketi
Icerenkoy mahallesi Eski Uskudar Yolu cadessi, VIP Center No: 10, Kat 12, Daire 13,
Atasehir, Istanbul, Turkey
Intertek Korea Industry Service Ltd
Yeouido Dept Bldg #916, 36-2, Yeouido-Dong, Youngdeungpo-Gu, Seoul, 150-749,
Republic of Korea
Intertek Labtest S.A.R.L
Route 110, (par Chefchaouni), Lot Saadi no. 20, Q.I. Aïn Sebaâ 20 250, 4eme Etage,
Casablanca, Morocco
Intertek Ltd
Borco Administration Bldg, West Sunrise Highway, Freeport, Grand Bahama,
The Bahamas
Intertek Management Services (Australia) Pty Ltd
Level 3, 235 St Georges Terrace, Perth, WA 6000, Australia
Intertek Med SARL AU
Zone Franche Logistique Tanger Med, Plateau Bureaux 4, Lot 130, Tanger, Morocco
Intertek Minerales Services SARL (i)
Rue KM 10, Route de Kouroussa S/P Karifamoriah, Commune Urbaine de Kankan,
Guinea
Intertek Minerals Limited
Osu Badu Street, Airport Residential Area, Accra, Greater Accra, CP8196, Ghana
Intertek Myanmar Limited (i)
Classic Strand Cono, No.693/701, Room (4-A), (4th Floor), Merchant Road, Pabedan
Township, Yangon, Myanmar
Intertek Nederland B.V.
Leerlooierstraat 135, 3194 AB Hoogvliet, Rotterdam, The Netherlands
Intertek Nominees Limited
Intertek OCA France SARL
Route Industrielle – Centre Routier, 76600, Gonfreville L'Orcher, France
Intertek Overseas Holdings Limited
Intertek Overseas Holdings, Eritrea Limited (i)
3rd Floor, Warsay Avenue, P.O. Box 4588, Asmara, Eritrea
Intertek Pakistan (Private) Limited
Intertek House, Plot No.1-5/11-A, Sector-5, Korangi Industrial Area, Karachi,
Pakistan
Intertek Poland sp.z.o.o.
Cyprysowa 23 B, 02-265, Warsaw, Poland
Intertek Poland-Certification Sp.z.o.o. w likwidacji (ii)
Ul. Mickiewicza, 18A, 60-833, Poznan, Poland
Intertek Polychemlab B.V.
Koolwaterstofstraat 1, 6161 RA, Geleen, The Netherlands
Intertek Portugal, Unipessoal Lda
Rua Antero de Quental, 221-Sala 102, 4455-586, Perafita-Matosinhos, Portugal
Intertek Quality Services Ltd (i)
Intertek Resource Solutions (Trinidad) Limited (i)
#91-92 Union Road, Marabella, Trinidad, Trinidad and Tobago
148
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
23 Principal Group companies (continued)
FULLY OWNED SUBSIDIARIES (CONTINUED)
Intertek Resource Solutions, Inc.
24900 Pitkin Rd., Ste. 200, The Woodlands, TX 77386, United States
Intertek Rus JSC
8, 2nd Brestskaya Str., 125047, Moscow, Russian Federation
Intertek S.R.O
Sokolovská 131/86, Karlín, Praha 8, 186 00, Czech Republic
Intertek Saudi Arabia Limited
Southern Olaya Center, Office No. 213, Makkah Al-Mukaramah Street, P.O. Box 2526,
Al-Khobar, 31952, Saudi Arabia
Intertek ScanBi Diagnostics AB
Box 166, SE-230 53, Alnarp, Sweden
Intertek Secretaries Limited (i)
Intertek Semko AB
Torshamnsgatan 43, Box 1103, Kista, S-164 22, Sweden
Intertek Services (Pty) Ltd
151 Monument Road, Aston Manor, 1619, South Africa
Intertek Servicios C.A. (i)
Res. San Ignacio, Calle San Ignacio de Loyola con Avenue Francisco de Miranda, Local
3, Chacao, Caracas, Venezuela
Intertek Settlements Limited (i)
Intertek Statius N.V.
Man 'O' War #B3, Oranjestad, St. Eustatius, Netherlands Antilles
Intertek Surveying Services (USA), LLC
3033 Chimney Rock Road, Suite 625, Houston TX 77056, United States
Intertek Surveying Services UK Limited
Redshank House, Alness Point Business Park, Alness, Highland, IV17 OUP, United
Kingdom
Intertek Technical Inspections Canada Inc. (iv)
1829 32nd Avenue, Montreal H8T 3J1, Canada
Intertek Technical Services PTY Limited
Level 3, 235 St Georges Terrace, Perth WA 6000, Australia
Intertek Technical Services, Inc.
25025 I-45 North, Suite #111, The Woodlands TX 77380, United States
Intertek Testing & Certification Limited
Intertek Testing and Inspection Services UK Limited
Intertek Testing Management Limited
Intertek Testing Services (Australia) Pty Limited
Level 3, 235 St Georges Terrace, Perth WA 6000, Australia
Intertek Testing Services (Cambodia) Company Limited
13AC, Street 337, Sangkat Boeung Kak I, Khan Tuol Kork, Phnom Penh, Cambodia
Intertek Testing Services (East Africa) Pty Limited
Djibouti Free Zone, Room 19, Rue De Venice, P.O. Box 6419, Djibouti,
Republique de Djibouti, South Africa
Intertek Testing Services (Fiji) Limited
c/- BDO, Level 10, FNPF Place, 343 Victoria Parade, Suva, Fiji
Intertek Testing Services (Guangzhou) Ltd
3F Hengyun Building, 235 Kaifa Ave, Guangzhou Economic & Technological
Development District, Guangzhou, 510730, China
Intertek Testing Services (ITS) Canada Ltd.
105-9000 Bill Fox Way, Burnaby BC V5J 5J3, Canada
Intertek Testing Services (Japan) K. K.
Nihonbashi N Bldg, 1-4-2, Nihonbashi – Horidomecho, Chuo-ku, Tokyo, 103-0012,
Japan
Intertek Testing Services (NZ) Limited
3 Kepa Road, Ruakaka, Northland, 0171, New Zealand
Intertek Testing Services (Shanghai FTZ) Co., Ltd
Build T52-8, No. 1201, Gui Qiao Road, Jinqiao Development Area, Pudong District,
Shanghai, 201206, China
Intertek Testing Services (Singapore) Pte Ltd.
3 Irving Road #05-01 to 05, Tai Seng Centre, 369522, Singapore
Intertek Testing Services (Thailand) Limited
1285/5 Prachachuen Road, Wong-Sawang Sub-District, Bangsue District, Bangkok,
10800, Thailand
Intertek Testing Services Argentina S.A.
Cerrito 1136, piso 3ro, Frente. Ciudad Autonoma de Buenos Aires, (C1010AAX),
Argentina
FINANCIAL STATEMENTS
Intertek Testing Services Bolivia S.A.
Calle Chichapi # 2125, Santa Cruz, de la Sierra, Bolivia
Intertek Testing Services Caleb Brett Egypt Limited
Intertek Testing Services Center LLC
Office 165-N, Letter A, 21 Rozenshteina Street, 198095, Saint Petersburg,
Russian Federation
Intertek Testing Services Chongqing Co., Limited
1-2/F, Building #3, 5 Gangcheng East Ring Road, Jiangbei District, Chongqing, China
Intertek Testing Services de Honduras, S.A.
Edificio la Pradera, locales 5 y 6. 1-2 Ave, 1 calle, Puerto Cortes, Barrio el Centro,
Honduras
Intertek Testing Services De Mexico, S.A. De C.V.
Poniente 134, No 660 Industrial Vallejo, Mexico DF CP, 02300, Mexico
Intertek Testing Services Environmental Laboratories Inc. (i)
Lexis Document Services, 15 East North Street, Dover, Delaware, 19901,
United States
Intertek Testing Services International (Hong Kong) Limited (ii)
5705, 57th Floor, The Center, 99 Queen's Road Central, Hong Kong
Intertek Testing Services NA Limited
1829 32nd Avenue, Lachine QC H8T 3JI, Canada
Intertek Testing Services NA Sweden AB (i)
c/o Intertek Semko AB, Box 1103, Kista, 16422, Sweden
Intertek Testing Services Namibia (Proprietary) Limited
15th Floor, Frans Indongo Gardens, Dr Frans Indongo Street, Windhoek, Namibia
Intertek Testing Services Pacific Limited
11/F, Unit IJK, Garment Centre, 576 Castle Peak Road, Kowloon, Hong Kong
Intertek Testing Services Peru S.A.
Jr. Mariscal Jose de la Mar No. 200 Urb., Res. El Pino, San Luis, Lima, Peru
Intertek Testing Services Philippines, Inc.
Intertek Building, 2307 Chino Roces Avenue Extension, Metro Manila, Makati City,
1231, Philippines
Intertek Testing Services Taiwan Limited
8F No. 423 Ruiguang Rd, Neihu District, Taipei, 11492, Taiwan
Intertek Testing Services Tianjin Limited
2-F, No. 7 GuiYuan Road, Yi Shang Hu Tong Building, Hua Yuan High-tech Industry Park,
Tianjin, China
Intertek Timor, S.A.
Hotel Timor, Colmera, Vera Cruz, Dili, Timor-Leste
Intertek Torton Limited (ii)
5705, 57th Floor, The Center, 99 Queen's Road Central, Hong Kong
Intertek Training Malaysia Sdn. Bhd.
6-L12-01, Level 12, Tower 2, Menara PGRM, No. 6 & 8 Jalan Pudu Ulu, Cheras,
56100 Kuala Lumpur, Malaysia
Intertek Trinidad Limited
#91-92 Union Road, Marabella, Trinidad and Tobago
Intertek UK Holdings Limited
Intertek Ukraine
Chernomorskogo Kazachestva, 115, Office 507, Odessa, 65003, Ukraine
Intertek USA Finance LLC
c/o CSC Services of Nevada, Inc., 2215-B Renaissance Dr, Las Vegas NV 89919,
United States
Intertek Vietnam Limited
3rd & 4th floor, Au Viet Building, No. 01 Le Duc Tho Str., Mai Dich Ward, Cau Giay
District, Hanoi City, Vietnam
Intertek West Africa SARL
Rue du Canal de Vridi Face Appontement, SIAP, Abidjan, 15 BP 882, Cote d'Ivoire
Intertek West Lab AS
Oljevegen 2, 4056 Tananger, Norway
IntertekGenalysis SI Limited
c/o Baoro & Associates, Top Floor, Y. Sato Building, Point Cruz, Honiara,
Solomon Islands
ITS (PNG) Limited
Section 27 Allotment 27, Voco Point, Lae, Morobe Province, Papua New Guinea
ITS Hong Kong NA, Limited (i)
2/F Garment Centre, 576 Castle Peak Road, Kowloon, Hong Kong
ITS Labtest Bangladesh Limited
Phoenix Tower, Plot – 407 (3rd Floor), Tejgaon I/A, Dhaka, Bangladesh
ITS Testing Holdings Canada Limited
3771 North Fraser Way, Suite 17, Burnaby BC V5J 5G5, Canada
ITS Testing Services (UK) Limited
KJ Tech Services GmbH (ix)
Kirschberg 20, 64347, Griesheim, Germany
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 149
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
continued
Professional Service Industries (Canada) Inc. (i)
200 Bay Street, Suite 3800, Royal Bank Plaza, South Tower, Toronto ON M5J 2J7,
Canada
Professional Service Industries Holding, Inc.
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801,
United States
Professional Service Industries Engineering, PLLC
CT Corporation System, 111 8th Avenue, New York, NY 10011, United States
Professional Service Industries, Inc.
Corporation Trust Center, 1209 Orange Street, Wilmington, DE, 19801,
United States
PSI Acquisitions, Inc.
Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington 19808, United States
PT. Moody Technical Services
Graha STR 3rd floor, Suite#302, Jl. Ampera Raya No. 11, Jakarta, 12550, Indonesia
PT. RCG Moody (i)
Graha STR 3rd floor, Suite#302, Jl. Ampera Raya No. 11, Jakarta, 12550, Indonesia
RCG Moody International Uruguay S.A.
Cerrito 507, 4th Floor, Off. 46, 47, Montevideo 11000, Uruguay
Schindler & Associates (L.C.) (i)
24900 Pitkin Rd., Ste. 200, The Woodlands TX 77386, United States
Shanghai Orient Intertek Testing Services Company Limited
Build T52-8, No. 1201, Gui Qiao Road, Jinqiao Development Area, Pudong District,
Shanghai, 201206, China
Shanghai Tianxiao Investment Consultancy Company Limited
Room 520, No. 5-6, Lane 1218, WanRong Road, ZhaBei District, Shanghai, China
Technical Company for Testing and Conformity Services & Systems LLC
Gates No. 1/2/6, Building 73/ Area 903, Karadah, Al Rusafa, Baghdad, Iraq
Testing Holdings Sweden AB
Torshamnsgatan 43, Box 1103, Kista, S-164 22, Sweden
Tradegood Singapore Pte. Ltd. (i)
3 Irving Road #05-01 to 05, Tai Seng Centre, 369522, Singapore
Tradegood WFOE – Beijing Rui Gu Information Consultancy Company Ltd (i)
Room 802, Information Building, Linyin North Road No.13, Pinggu District,
Beijing City, 101200, China
Tradegood.com International Limited
11/F, Unit IJK, Garment Centre, 576 Castle Peak Road, Kowloon, Hong Kong
UAB Intertek Lithuania (ii)
Jogailos 9, Vilnius, Lithuania
Van Sluys & Bayet NV
Kruisschansweg 11, 2040 Antwerp, Belgium
White Land Company, Inc.
3114 Scarboro Road, Street MD 21154, United States
Wilson Inspection X-Ray Services, Inc.
Michael E Wilson, 6010 Edgewater Dr., Corpus Christi TX 78412, United States
Wisco SE Asia PTE Limited (i)
3 Irving Road #05-01 to 05, Tai Seng Centre, 369522, Singapore
Yickson Enterprises Limited (ii)
5705, 57th Floor, The Center, 99 Queen's Road Central, Hong Kong
Youngever Holdings Ltd.
171 Main Street, Road Town, P.O. Box 4041, Tortola, VG 1110, British Virgin Islands
23 Principal Group companies (continued)
FULLY OWNED SUBSIDIARIES (CONTINUED)
Labtest International Inc.
2107 Swift Drive, No 200, Oak Brook, Illinois, 60523, United States
Lintec Testing Services Limited
Louisiana Grain Services, Inc. (i)
c/o CT Corp, 8550 United Plaza Blvd, Baton Rouge LA 70809, United States
Mace Land Company, Inc.
3114 Scarboro Road, Street MD 21154, United States
Management & Industrial Consultancy (i)
59 Road No.104, Second Floor, Maadi, Cairo, Egypt
Management Systems International Limited (i)
Materials Testing & Inspection Services Limited
Materials Testing Lab, Inc.
145 Sherwood Avenue, Farmingdale NY 11735, United States
McPhar Geoservices (Philippines) Inc. (i)
Building 7 & 8 Philcrest 1 Compound, Km23 West Service Road, Bo. Cupang,
Muntinlupa City, Philippines
Melbourn Scientific Limited
Melbourn Scientific, Saxon Way, Melbourn, Hertfordshire, Royston, SG8 6DN,
United Kingdom
Metoc Limited
Midwest Engineering Services, Inc.
CT Corporation System, 8020 Excelsior Dr. Suite 200, Madison WI 53717,
United States
Moody (Shanghai) Consulting Co., Ltd
1F, No. 5 Building, 912 Bibo Road, Zhangjiang Hi-Tech Park, S hanghai, 201203,
China
Moody Algerie SARL
Cité SERBAT, Bat. B2/C2, N°03, Garidi 1, 16051, Kouba, Wilaya d'Alger, Algeria
Moody Energy Technical Service Co Ltd
Room A201, B-2 East 3rd, Ring Road North Road, Chaoyang District, Beijing,
100027, China
Moody International (Holdings) Limited (iii)
Moody International (India) Private Limited
E-20, Block B1, Mohan Co-operative Industrial Area, Mathura Road, New Delhi,
110044, India
Moody International (Malaysia) Sdn. Bhd.
6-L12-01, Level 12, Tower 2, Menara PGRM, No. 6 & 8 Jalan Pudu Ulu, Cheras,
56100 Kuala Lumpur, Malaysia
Moody International (Russia) Limited
Moody International Angola Ltda
Rua de Macau, Edifico ex Edil Apto 1, Res de Chao Esq. C.P 215, Cabinda, Angola
Moody International Certification India Limited
E-20, Block B1, Mohan Co-operative Industrial Area, Mathura Road, New Delhi,
110044, India
Moody International de Argentina SA
Cerrito 1136, 2nd floor CF, Ciudad Autonoma de Buenos Aires, C1010AAX,
Argentina
Moody International Holdings LLC
24900 Pitkin Rd., Ste. 200, The Woodlands TX 77386, United States
Moody International LLC (ii)
18A Kikvidze str., 01133, Kiev, Ukraine
Moody International Philippines, Inc. (i)
Intertek Building, 2310 Chino Roces Avenue Extension, Metro Manila, Makati City,
1231, Philippines
Moody United Certification Limited (i)
2F, No. 5 Building, 912 Bibo Road, Pudong, Shanghai, 201203, China
MT Group LLC
145 Sherwood Avenue, Farmingdale NY 11735, United States
MT Operating of New Jersey, LLC
145 Sherwood Avenue, Farmingdale NY 11735, United States
MT Operating of New York, LLC
145 Sherwood Avenue, Farmingdale NY 11735, United States
NDT Services Limited
Northern Territory Environmental Laboratories Pty Ltd (i)
Level 3, 235 St Georges Terrace, Perth WA 6000, Australia
Paulsen & Bayes-Davy Ltd
11/F, Unit IJK, Garment Centre, 576 Castle Peak Road, Kowloon, Hong Kong
Petroleum Services of Union Lab Sdn. Bhd.
Suite C-7-10 (B), Level 9, Block C, UE3 Corporate Offices, Menara Uncang Emas,
No 85 Jalan Loke Yew, Taman Miharja, 55200 Kuala Lumpur, Malaysia
Pittsburgh Testing Laboratory Inc
PSI, 850 Poplar Street, Pittsburgh PA 15220, United States
150
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
23 Principal Group companies (continued)
RELATED UNDERTAKINGS WHERE THE EFFECTIVE
INTEREST IS LESS THAN 100%
Admon Labs Servicios Corporativos y Administrativos, S.A. de C.V. (9.99%)
Boulevard Adolfo Lopez Mateos #2259, Atlamaya, Alvaro Obregon, Ciudad de
Mexico, C.P. 01760, Mexico
Euro Mechanical Instrument Services LLC (49%)
PO Box 46153, Abu Dhabi, United Arab Emirates
Gamatek, S.A. de C.V. (9.99%)
Alanis Valdez #2308, Industrial, Monterrey, Nuevo Leon, Mexico
GCA Calidad y Analisis de Mexico, S.A. de C.V. (9.99%)
Jacarandas #19, San Clemente, Alvaro Obregon, Ciudad de Mexico, C.P. 01740,
Mexico
International Inspection Services LLC (70%)
PO Box 193, Al Hamriyah, Muscat, PC 131, Oman
Intertek (Qeshm Island) Limited (51%)
Unit 107, Goldis Building, Valiasr Boulevard, Qeshm Island, Islamic Republic of Iran
Intertek Angola LDA (99%)
282 Rua Amilcar Cabral no.147 2nd floor, Apartment Z, Luanda, Angola
Intertek ETL SEMKO KOREA Limited (90%)
5F, Intertek building, Gongdan-ro, 160beon-gil 3, Gunpo-si, Gyeonggi-do, 15845,
Republic of Korea
Intertek GM Testing Service Zhuhai Co., Ltd (70%)
55 Guangdong-Macau TCM Park Commercial Service Center, 2522 Huan Dao Bei
Road, Hengqin New Area, Zhuhai, Guangdong, China
Intertek Kimsco Co. Ltd. (50%)
Intertek Building, 3, Gongdan-ro, 160beon-gil, Gunpo-si, Gyeonggi-do, 15845,
Republic of Korea
Intertek Lanka (Private) Limited (70%)
Intertek House, No: 282, Kaduwela Road, Battaramulla, Sri Lanka
Intertek Libya Technical Services and Consultations Company Spa (65%)
P.O Box 3788, Hay Alandalus, Gargaresh, Tripoli, Libya
Intertek Life Bridge (Shanghai) Testing Services Co., Ltd. (80%)
Room 401, Building #5-6, Lane 1218, WanRong Road, JinAn District, Shanghai,
Shandong, China
Intertek Robotic Laboratories Pty Limited (50%)
15 Davison Street, Maddington, WA 6109, Australia
Intertek Test Hizmetleri Anonim Sirketi (85%)
Merkez Mahallesi, Sanayi Cad. No.23, Altindag Plaza, Yenibosna-34197, Istanbul,
Turkey
Intertek Testing Services (Hangzhou) Limited (70%)
No. 16, First Street South, Hangzhou Economic Development Zone, Hangzhou,
Zhejiang Province, 310018, China
Intertek Testing Services (South Africa) (Proprietary) Limited (75%)
5th Floor, Charter House, 13 Brand Road, Glenwood, Durban, South Africa
Intertek Testing Services Korea Limited (50%)
1st Fl., Aju Digital Tower, 284-56, Seongsu-dong 2-ga, Seongdong-gu, Seoul 133-120,
Republic of Korea
Intertek Testing Services Nigeria Limited (65.93%)
No. 2 Bombay Crescent, Apapa, Lagos, Nigeria
Intertek Testing Services Sichuan Co., Ltd (90%)
No 1, Jiuxiang Blvd, Pharmacy Industry Park, Luzhou National High Technology
District, Sichuan, China
Intertek Testing Services Wuxi Ltd (70%)
No. 8 Fubei Road, Xishan Economic Development Zone, Wuxi, Jiangsu, 214101, China
ITS (Subic Bay), Inc. (99%)
Area 8 – 10, Lots 11/12 Boton Wharf, Argonaut Highway, Subic Bay, Freeport Zone,
Olongapo City, Philippines
ITS Caleb Brett Deniz Survey A S(viii) (50%)
Ulus Mah. Oz Topuz cad. no.32, Besiktas, Istanbul, 34340, Turkey
ITS Testing Services Holdings (M) Sdn Bhd (49%)
Unit 30-01, Level 30, Tower A, Vertical Business Suite, Avenue 3, Bangsar South,
No.8, Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia
ITS Testing Services (M) Sdn Bhd (74%)
Unit 30-01 Level 30, Tower A, Vertical Business Suite, Avenue 3, Bangsar South, No.
8, Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia
Laboratorios ABC Química, Investigación y Análisis, S.A. de C.V.(vii) (10%)
Jacarandas #19, San Clemente, Alvaro Obregón, Ciudad de Mexico, C.P. 01740,
Mexico
Laboratorio Fermi S.A. de C.V. (9.99%)
Jacarandes #15, San Clemente, Alvaro Obregon, Ciudad de Mexico, C.P. 01740,
Mexico
Laboratory Services International Rotterdam B.V (75%)
Pittsburghstraat 9, 3047 BL, Rotterdam, The Netherlands
Lynx Diagnostics Inc.(viii) (50%)
#220, 8 Perron Street, St Albert AB T8N 1E4, Canada
FINANCIAL STATEMENTS
Moody International Bangladesh Limited (99.9%)
House 6, Road 17/A, Block E, Ground Floor, Banani, Dhaka, 1213, Bangladesh
Moody International Certification Limited (40%)
Brivibas iela 85, Riga, LV-1001, Latvia
Moody International Certification Ltd (40%)
53, Nautic, Triq l-Ortolan, San Gwann, SGN 1943, Malta
Moody International Holdings Chile Ltda (99%)
Avenida Las Condes N° 11287 Torre A, oficina 301 A Las Condes, Santiago, Chile
Moody International SA (35%)
4 Rue Des Brasseurs, Zone 3 Abidjan, Cote d'Ivoire
Moody International Lanka (Private) Ltd. (99.9%)
no.5, St Albans Place, Colombo-4, Sri Lanka
Moody International Morocco (30%)
28, Rue de Provins, 2 eme etage, Casablanca, Morocco
PT Citrabuana Indoloka (viii) (50%)
Jl. Raya Bogor KM 28, RT/RW. 04/07, Kel. Pekayon, Kec. Pasar Rebo, Jakarta Timur,
13710, Indonesia
PT. Intertek Utama Services (viii) (50%)
Jl. Raya Bogor KM. 28, RT/RW. 04/07, Kel. Pekayon, Kec. Pasar Rebo, Jakarta Timur,
13710, Indonesia
Qatar Calibration Services LLC (49%)
Petrotec, PO Box 16069, 8th Floor, Toyota Tower, Doha, Qatar
RCG Moody International de Venezuela S.A. (i) (99%)
Res Morgana, p_4, #04, Av.Andres Bello, Fco de Miranda, Los Polos Grandes,
Caracas, Venezuela
Shanghai Moody Management & Technical Services Co. Ltd (90%)
Room 225, No. 14 at Lane No. 1700 Luo Shan Road, Shanghai, China
Societe Tunisienne d’Inspection Caleb Brett SARL (51%)
67 rue Ech-Chem, Tunis, 1002, Tunisia
UzIntertek Testing Services LLC (51%)
Abdulla Kodiriy Str., C-4, House 24,100017, Tashkent, Uzbekistan
ASSOCIATES
Intertek Riyadh Geotechnique and Foundations Laboratory (51%)
Buildings Number 1 and 2, Khamra Area, Mikaish 2, Jeddeh, Saudi Arabia
Decernis LLC (20%)
1250 Connecticut Avenue, NW, Suite 200, Washington WA DC 20036,
United States
In Liquidation/Strike off requested.
(i) Dormant.
(ii)
(iii) Ownership held in class of A shares and B shares.
(iv) Ownership held in class of A shares and E shares.
(v) Ownership held in ordinary and preference shares.
(vi) Shares held in Class A, B, C, D, E and F.
(vii) Ownership held in class I Series B shares and class II Series B shares.
(viii) Intertek shares joint control over the company under a shareholders’
agreement, and its rights to the profit, assets and liabilities of the company are
dependent on the performance of the Group’s brands rather than the effective
equity ownership of the company.
(ix) Ownership held in No.1 shares and No.2 shares
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 151
INTERTEK GROUP PLC – COMPANY BALANCE SHEET
As at 31 December 2017
Fixed assets
Investments in subsidiary undertakings
Current assets
Debtors due within one year
Cash at bank and in hand
Creditors due within one year
Other creditors
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium
Profit and loss account
Shareholders’ funds
Notes
2017
£m
2016
£m
(d)
324.9
318.1
(e)
(f)
(g)
(g)
(g)
187.6
0.3
187.9
(164.1)
(164.1)
23.8
348.7
182.4
0.5
182.9
(39.6)
(39.6)
143.3
461.4
348.7
461.4
1.6
257.8
89.3
348.7
1.6
257.8
202.0
461.4
The loss for the financial year was £1.6m (2016: £129.4m profit). The 2016 balance sheet has been re-presented – see note (a).
The financial statements on pages 152 to 156 were approved by the Board on 5 March 2018 and were signed on its behalf by:
André Lacroix
Chief Executive Officer
Edward Leigh
Chief Financial Officer
152
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTSINTERTEK GROUP PLC – COMPANY PRIMARY STATEMENTS AND NOTES INTERTEK GROUP PLC – COMPANY STATEMENT
OF CHANGES IN EQUITY
Notes
Share
capital
£m
1.6
Share
premium
£m
257.8
At 1 January 2016
Total comprehensive income for the year
Profit
Total comprehensive income for the year
Transactions with owners of the company recognised
directly in equity
Contributions by and distributions to the owners of
the company
Dividends paid
Purchase of own shares
Tax paid on Share Awards vested
Equity-settled transactions
Total contributions by and distributions to the owners of the
company
At 31 December 2016
At 1 January 2017
Total comprehensive income for the year
Loss
Total comprehensive income for the year
Transactions with owners of the company recognised
directly in equity
Contributions by and distributions to the owners of
the company
Dividends paid
Purchase of own shares
Tax paid on Share Awards vested
Equity-settled transactions
Total contributions by and distributions to the owners of the
company
At 31 December 2017
(b)
(c)
(d)
(b)
(c)
(d)
–
–
–
–
–
–
–
1.6
1.6
–
–
–
–
–
–
FINANCIAL STATEMENTS
Retained
earnings
£m
155.3
129.4
129.4
(88.0)
(6.4)
(4.9)
16.6
(82.7)
202.0
Total
equity
£m
414.7
129.4
129.4
(88.0)
(6.4)
(4.9)
16.6
(82.7)
461.4
–
–
–
–
–
–
–
257.8
257.8
202.0
461.4
–
–
–
–
–
–
(1.6)
(1.6)
(1.6)
(1.6)
(107.0)
(15.6)
(6.3)
17.8
(107.0)
(15.6)
(6.3)
17.8
–
1.6
–
257.8
(111.1)
89.3
(111.1)
348.7
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 153
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
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.
Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework
(‘FRS 101’).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of
International Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’), but makes amendments where necessary in order
to comply with Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
• a Cash Flow Statement and related notes;
• comparative period reconciliations for share capital;
• disclosures in respect of transactions with wholly owned subsidiaries;
• disclosures in respect of capital management;
• the effects of new, but not yet effective, IFRSs;
• an additional balance sheet for the beginning of the earliest comparative period following the retrospective change
in accounting policy;
• disclosures in respect of the compensation of Key Management Personnel; and
• certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument
Disclosures on the basis that the consolidated financial statements include the equivalent disclosures.
As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under
FRS 101 available in respect of IFRS 2 Share Based Payments in respect of Group-settled share-based payments.
The Company proposes to continue to adopt the reduced disclosure framework of FRS 101 in its next financial statements.
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and
loss account.
Following a review of the Company's loan arrangements with Group undertakings, these have been re-presented in the 2016 balance
sheet as balances due within one year.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these
financial statements.
Foreign currencies
Transactions in foreign currencies are recorded to the Company’s functional currency, Sterling, 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
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the profit and loss account except to the
extent that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised directly in
equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business
combination; 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.
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.
154
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
FINANCIAL STATEMENTS
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. Details of the
share schemes are given in note 17 of the Group financial statements.
(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
2017
£m
69.2
37.8
107.0
2016
£m
56.8
31.2
88.0
The aggregate amount of dividends proposed and recognised as liabilities as at 31 December 2017 is £nil (2016: £nil). The aggregate
amount of dividends proposed and not recognised as liabilities as at 31 December 2017 is £77.1m (2016: £69.4m).
(D) INVESTMENT IN SUBSIDIARY UNDERTAKINGS
Cost and net book value
At 1 January
Additions due to share-based payments
Recharges of share-based payments to subsidiaries
At 31 December
2017
£m
318.1
17.8
(11.0)
324.9
2016
£m
308.1
16.6
(6.6)
318.1
The Company has made Share Awards to the employees of its directly and indirectly owned subsidiaries, and as such, the Company
recognises an increase in the cost of investment in subsidiaries of £17.8m (2016: £16.6m). Details of the principal operating
subsidiaries are set out in note 23 to the Group financial statements.
The Company had two direct subsidiary undertakings at 31 December 2017: Intertek Testing Services Holdings Limited and Intertek
Holdings Limited, both of which are holding companies, are incorporated in the United Kingdom and registered in England and Wales.
All interests are in the ordinary share capital and all 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.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 155
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
(E) DEBTORS DUE WITHIN ONE YEAR
Amounts owed by Group undertakings
2017
£m
187.6
2016
£m
182.4
The amounts owed by Group undertakings represent loans that carry interest based on the denomination of the borrowing currency.
(F) CREDITORS DUE WITHIN ONE YEAR
Amounts owed to Group undertakings
2017
£m
164.1
2016
£m
39.6
The amounts owed to Group undertakings represent loans that carry interest based on the denomination of the borrowing currency.
(G) STATEMENT OF CHANGES IN EQUITY
Details of share capital are set out in note 15 and details of share-based payments are set out in note 17 to the Group financial statements.
A profit and loss account for Intertek Group plc has not been presented as permitted by Section 408 of the Companies Act 2006.
The loss for the financial year, before dividends paid to shareholders of £107.0m (2016: £88.0m), was £1.6m (2016: £129.4m profit)
which was mainly in respect of the timing of 2017 Management and Intellectual Property fees and dividend income in relation to 2017.
The Company has sufficient distributable reserves to pay the 2018 interim dividend and on 1 February 2018, the Company received
dividend income of £120.0m to further increase is distributable reserves. When required the Company can receive additional dividends
from its subsidiaries from existing reserves.
The Group settled in cash the tax element of the Share Awards vested in 2017 amounting to £6.8m of which the Company settled
£6.3 m (2016: £4.9m).
During the year ended 31 December 2017, the Company purchased, through its Employee Benefit Trust, 350,000 (2016: 200,000) of
its own shares with an aggregate nominal value of £3,500 (2016: £2,000) for £15.6m (2016: £6.4m) which was charged to profit and
loss in equity.
(H) RELATED PARTY TRANSACTIONS
Details of related party transactions are set out in note 21 of the Group financial statements.
(I) 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 £1.5m at 31 December 2017 (2016: £5.9m).
From time to time, in the normal course of business, the Company may give guarantees in respect of certain liabilities of
subsidiary undertakings.
(J) POST-BALANCE SHEET EVENTS
Details of post-balance sheet events relevant to the Company and the Group are given in note 18 of the Group financial statements.
156
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
INDEPENDENT AUDITOR’S REPORT
OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERTEK GROUP PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion:
• Intertek Group plc’s group financial statements and Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s profit and cash flows for
the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”)
as adopted by the European Union;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report, which comprise:
• the consolidated statement of financial position as at 31 December 2017;
• the Company balance sheet as at 31 December 2017;
• the consolidated income statement and consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of cash flows for the year then ended;
• the consolidated statement of changes in equity for the year then ended;
• the Company statement of changes in equity for the year then ended; and
• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided
to the Group or the Company.
Other than those disclosed in the Directors’ Report, we have provided no non-audit services to the Group or the Company in the period
from 1 January 2017 to 31 December 2017.
OUR AUDIT APPROACH
Overview
Materiality
• Overall Group materiality: £20.0m (2016: £17.3m), based on 5% of statutory profit before tax.
• Overall Company materiality: £5.1m (2016: £4.9m), based on 1% of total assets.
Audit scope
• We performed full scope audit procedures over 54 legal entities and performed specified audit procedures on a further 19 entities,
covering 28 territories in total.
• The Group audit team held regular meetings with component teams, and visited the UK, US, China and United Arab Emirates teams, to
understand and supervise the work of these local teams and to make sure that we had a full and comprehensive understanding of the
results of their work, particularly insofar as it related to the identified areas of focus.
• Taken together, the entities over which audit work was performed accounted for 85% of the Group’s revenue and 90% of the Group’s
statutory profit before tax.
Areas of focus
• Carrying value of goodwill and intangible assets (Group).
• Valuation of current and deferred tax balances (Group).
• Completeness of customer claims (Group).
• Presentation and valuation of acquisitions (Group).
We determined that there were no key audit matters applicable to the Company to communicate in our report.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 157
OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERTEK GROUP PLC continued
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
In particular, we looked at areas where the directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain.
We gained an understanding of the legal and regulatory framework applicable to the Group and the industries in which it operates, and
considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit
procedures at Group and significant component level to respond to the risk, recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise
to a material misstatement in the Group and Company financial statements, including, but not limited to, indirect and direct tax laws,
anti-bribery laws and financial reporting regulations.
Our tests included, but were not limited to: understanding management’s approach to ensuring compliance with laws and regulations;
enquiries with local, regional and Group management; meeting with Group and local legal counsel to discuss legal matters; meeting with
internal audit; obtaining legal confirmations; and focusing testing on balances and transactions, in addition to those listed as key audit
matters below, that are subject to estimation, such as accrued income. There are inherent limitations in the audit procedures described
above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial
statements, the less likely it is that we would become aware of it. We did not identify any key audit matters relating to irregularities,
including fraud. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals
and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditor's professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditor, including those which had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of
our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Carrying value of goodwill
and intangible assets
Refer to the Audit Committee report on page 77
and to note 9 in the financial statements.
We evaluated future cash flow forecasts, and the process by which they
were drawn up, including comparing them to the latest Board-approved
budgets, and testing the underlying calculations. We identified no issues
in this testing.
The Group had £579.6m of goodwill and a further
£178.2m of intangible assets recognised on the
balance sheet at 31 December 2017. The carrying
values of goodwill and intangibles are contingent
on future cash flows of the underlying Cash
Generating Units (“CGUs”) and there is a risk that,
if these cash flows do not meet the directors’
expectations, the assets will be impaired.
Accounting standards require management to
perform an annual assessment of the carrying
value of goodwill, and other intangible assets are
assessed where there are indications that they
are impaired. As this assessment is based on
the future value in use, and a significant amount
of value is based on the value to perpetuity of
the CGUs, future cash flows must be estimated,
which can be highly judgemental and could
significantly impact the carrying value of
the assets.
We used our in-house valuation specialists to evaluate the methodology
used to calculate the value in use of the CGUs, and key assumptions including:
• the discount rate by comparing the cost of capital for the Group with
comparable organisations; and
• the long-term growth rates by comparing these to publicly available market
data on projected growth rates in key territories such as the UK, USA and
China.
We concluded that they were within the range of reasonable assumptions
based on this information.
We performed sensitivity analysis around these assumptions. Having
ascertained the extent of change in those assumptions that either
individually or collectively would be required for an impairment to arise,
we considered the likelihood of such a movement occurring.
Our testing did not identify any indicators of impairment, and that the
assumptions were reasonable and would require significant downside
changes before any impairment would be triggered.
In addition we assessed the appropriateness of the CGUs used in the
impairment assessment, the useful economic lives of the intangible assets
and the related disclosures, and concluded that these were appropriate.
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INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
OTHER INFORMATION
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Valuation of current and deferred tax balances
Refer to the Audit Committee report on page 77
and to note 6 in the financial statements.
Provisions in relation to potential tax exposure
are subject to judgement and require the selection
of estimation techniques and determination
of estimates, either of which could influence the
current or deferred tax positions. The Group operates
in a large number of jurisdictions, which increases
the risk of non-compliance with international tax
legislation and introduces complex transfer
pricing considerations.
In addition the Group has provisions for uncertain
tax positions relating to both historical and current
tax arrangements. The recognition and measurement
of these items in the financial statements is
judgemental, and we focused on the directors’
forecasts of future profits against which to
utilise accumulated losses, and the technical
interpretation of taxation law in respect to
transactions giving rise to deferred tax assets
and uncertain tax positions.
Completeness and valuation of customer claims
Refer to the Audit Committee report on page 77 and
to note 13 in the financial statements.
As an assurance provider, the Group can be subject
to claims from customers and consumers relating
to its work, and the geographically diverse nature
of the Group means there is a risk that one or more
significant claims are omitted from the centrally
maintained claims register.
Where customer claims may give rise to a future
liability, the Directors are required to recognise
either a liability or a contingent liability in the
financial statements. As the actual cost is often
unknown, management must exercise their
judgement in calculating the liability.
We involved our in-house tax specialists in our testing of the appropriateness
of the techniques, estimates and judgements taken in relation to deferred
taxation and in respect of uncertain tax positions recognised in the
financial statements.
In assessing uncertain tax positions, we obtained management’s
calculations and evaluated the methodology and assumptions used.
In understanding and evaluating the directors’ technical interpretation
of tax law in respect of specific transactions that gave rise to uncertain
tax positions we evaluated:
• third party tax advice received by the Group;
• the status of recent and current tax authority audits and enquiries;
• the outturn of previous claims;
• judgemental positions taken in tax returns and current year estimates; and
• changes in tax legislation, in particular the US Tax Cuts and Jobs Act, or
interpretation of existing legislation by local tax authorities.
In assessing the recoverability of deferred tax assets, we considered the
likelihood of the Group being able to generate sufficient future taxable
profits against which to offset accumulated losses, and tested:
• key inputs to the calculation including revenue and profit assumptions,
in line with our work over the carrying value of goodwill; and
• the directors’ ability to accurately forecast future profits where the
tax assets will not be recoverable in the foreseeable future.
The procedures above did not identify any issues with regards to the
valuation of deferred tax assets and provisions for uncertain tax positions,
and we are in agreement with the 1% effect on the current year tax rate of
the US Tax Cuts and Jobs Act and the resulting disclosure.
Where relevant we obtained confirmations from the Group’s external legal
counsels of the existence and details of open claims. Confirmations were
sent to both the lawyers associated with the key claims and also additional
lawyers who Intertek have interacted with throughout the year.
We met with legal counsel to discuss certain open or threatened claims
to understand the likelihood of an adverse judgement and the potential
magnitude of the claim.
We obtained and read the relevant sections of the Group’s insurance
documents, and confirmed that any liability cap had been appropriately
applied to the calculation of provision held against those claims.
Through our work, we did not identify any material claims that had not
been recorded centrally and provided for, or for which the provision was
not appropriate.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 159
OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERTEK GROUP PLC continued
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Presentation and valuation of acquisitions
Refer to the Audit Committee report on page 77 and
to note 10 in the Consolidated Financial Statements.
For these transactions we obtained and read the sale and purchase
agreements (“SPAs”) in order to gain an understanding of the key terms
of each transaction.
The Group’s strategy is to use acquisitions to
augment organic revenue growth, and during the
year made two acquisitions: KJ Tech Services GmbH
and Acumen Security LLC. In addition, the 12-month
hindsight period for reassessing the acquisition of FIT
Italia SRL, EWA-Canada Ltd and Laboratorios ABC
Quimica, Investigación y Análisis, S.A de C.V. closed
during the year.
Judgement is required in determining the amount
of consideration paid and the valuation of assets
and liabilities acquired. In addition, the disclosure
requirements in respect of acquisitions are extensive.
In testing acquisitions during the year we:
• tested that the consideration paid by the Group was consistent with
the terms of the SPAs;
• assessed the appropriateness of the directors’ identification of intangible
assets acquired by reference to the SPAs, due diligence reports and other
supporting documentation, to identify any assets listed;
• obtained the directors’ calculation of the fair value of intangible assets
acquired, and where material corroborated the inputs and assumptions
to supporting evidence;
• verified that the accounting treatment for each transaction, and any
resulting liabilities, is consistent with the accounting standard requirements;
and
• assessed the reasonableness of the inputs and assumptions used in
calculating contingent consideration.
We noted no material exceptions through performing these procedures.
For the acquisitions made in 2016, in order to test the directors’ final
assessment of the purchase price allocation, we:
• obtained evidence from internal and external advisors in relation to the
fair value of liabilities recognised on acquisition, to evaluate whether the
valuation remained appropriate, or that any adjustments were supported;
and
• evaluated whether all fair value adjustments, and any resulting impact,
had been appropriately recognised and accounted for.
Based on the evidence obtained, we did not identify any indications that
the fair value adjustments identified by management were inappropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in
which they operate.
The Group is split into three reporting segments: Products, Trade and Resources and the operations are spread across over 100
countries and approximately 500 legal entities. The results are not consolidated at a country or regional level, so we determined that
the most appropriate level at which to scope our audit was the legal entity level.
When determining our scope, the key financial measure used is profit before tax. Due to the disaggregation of the Group’s results
across the various entities, we identified only two individually financially significant legal entities, both within China. As a result we
instructed our component team to perform audits of the complete financial information of these entities.
We then considered the 50 countries in which PwC are appointed statutory auditor. Of these, 24 accounted for the majority of
external profit, and we therefore focused our considerations on these territories. Within these countries, we then excluded any legal
entities with no external balances, such as intermediary holding companies, and those entities with highly immaterial revenue, leaving
54 legal entities for which we instructed our local teams to perform audits of the complete financial information for the purpose of the
Group audit.
In certain territories, notably the US and Brazil, there is no statutory audit requirement and so we considered whether procedures
needed to be performed to supplement our coverage. We selected 13 entities in the US and Canada and two of the entities in Brazil,
representing those with the largest contribution to Group profit, over which we performed specified procedures equivalent to audits of the
complete financial information. We also identified a further four entities in other countries over which we instructed specific audit
procedures to be performed over revenue and receivables to supplement coverage over these key financial line items.
In total we performed procedures over 73 legal entities in 28 countries, which together accounted for 85% of the Group’s revenue and
90% of the Group’s profit before tax.
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INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
OTHER INFORMATION
During the year, members of the Group audit team visited the US, China, United Arab Emirates and UK component teams, and we held
planning workshops with 10 of the largest in scope component teams, in order to understand and supervise the audit approach in
those locations and to inform them of our audit approach and strategy.
This, together with additional procedures performed at the Group level (including audit procedures over material head office entities,
tax, legal claims, impairment assessments and consolidation adjustments), gave us the evidence we needed for our opinion on the
financial statements as a whole.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
GROUP FINANCIAL STATEMENTS
COMPANY FINANCIAL STATEMENTS
Overall materiality
£20.0m (2016: £17.3m).
How we determined it
5% of profit before tax.
£5.1m (2016: £4.9m).
1% of total assets.
Rationale for
benchmark applied
We believe that profit before tax is the primary
measure used by the shareholders in assessing
the performance of the Group. This is a generally
accepted benchmark and the users of the
accounts consider it to be a key measure of
the performance of the business.
These are a single set of Company accounts for
an entity which has no external revenue and takes
advantage of the exemption offered under s408
of CA 2006 not to present its income statement
in the Company financial statements, which are
presented alongside the Group accounts within
the annual report for Intertek Group plc. As a result,
the materiality calculation has been based on the
total assets of this non-trading holding company
within the Group.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was between £1.20m and £7.82m. Certain components were audited to a local statutory
audit materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £900,000 (Group
audit) (2016: £900,000) and £900,000 (Company audit) (2016: £900,000) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
REPORTING OBLIGATION
OUTCOME
We are required to report if we have anything material
to add or draw attention to in respect of the directors’
statement in the financial statements about whether
the directors considered it appropriate to adopt the
going concern basis of accounting in preparing the
financial statements and the directors’ identification of
any material uncertainties to the Group’s and the
Company’s ability to continue as a going concern over a
period of at least twelve months from the date of
approval of the financial statements.
We are required to report if the directors’ statement
relating to Going Concern in accordance with Listing
Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.
We have nothing material to add or to draw attention to. However, because
not all future events or conditions can be predicted, this statement is not a
guarantee as to the Group’s and Company’s ability to continue as a going
concern.
We have nothing to report.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 161
OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERTEK GROUP PLC continued
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report,
any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06),
ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as
described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 33 of the Annual Report that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 33 of the Annual Report as to how they have assessed the prospects of the Group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of
the principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less
in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements;
checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their
environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report to you in respect of our responsibility to report when:
• The statement given by the directors, on page 78, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the
course of performing our audit.
• The section of the Annual Report on pages 75 to 80 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
• The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditor.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
162
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
OTHER INFORMATION
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities set out on page 102 the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and
fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a
going concern, disclosing as applicable matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
COMPANIES ACT 2006 EXCEPTION REPORTING
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
APPOINTMENT
Following the recommendation of the Audit Committee, we were appointed by the directors on 25 May 2016 to audit the financial
statements for the year ended 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement is
two years, covering the years ended 31 December 2016 to 31 December 2017.
Ian Chambers
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
5 March 2018
The maintenance and integrity of the Intertek Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented
on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017 163
OTHER INFORMATION
SHAREHOLDER AND CORPORATE INFORMATION
SHAREHOLDER AND CORPORATE INFORMATION
SHAREHOLDERS’ ENQUIRIES
Any shareholder with enquiries relating to their shareholding
should, in the first instance, contact our Registrar, Equiniti,
using the address on this page.
ELECTRONIC SHAREHOLDER COMMUNICATIONS
Shareholders can elect to receive electronic communication
in the form of automatic notification by email each time the
Company distributes documents, instead of receiving paper
copies. This can be done by registering via Shareview at no
extra cost, at www.shareview.co.uk. In the event that you
change your mind or require a paper version of any document
in the future, please contact the Registrar by email or by post.
Access to Shareview allows shareholders to view details about
their holdings, submit a proxy vote for shareholder meetings
and notify a change of address. In addition to this, shareholders
have the opportunity to provide dividend mandates online
which in turn facilitates the payment of dividends directly into
a nominated account.
SHAREGIFT
If you have a small shareholding which is uneconomical to sell,
you may want to consider donating it to ShareGift. The Orr
Mackintosh Foundation operates this charity share donation
scheme. Details of the scheme are available from:
ShareGift at www.sharegift.org
T: +44 (0) 20 7930 3737
SHARE PRICE INFORMATION
Information on the Company’s share price is available from the
Company’s website at www.intertek.com.
FINANCIAL CALENDAR
Financial year end
Results announced
Ex-dividend date for final dividend
Record date for final dividend
Annual General Meeting
Final dividend payable
Interim results announced
Ex-dividend date for interim dividend
Record date for interim dividend
Interim dividend payable
31 December 2017
6 March 2018
17 May 2018
18 May 2018
24 May 2018
6 June 2018
7 August 2018
4 October 2018
5 October 2018
19 October 2018
INVESTOR RELATIONS
E: investor@intertek.com
T: +44 (0) 20 7396 3400
REGISTRARS
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
T: 0371 384 2653 (UK)*
T: +44 121 415 7047 (outside UK)
* Lines are open 8.30 a.m. to 5.30 p.m. Monday to Friday, excluding bank holidays.
AUDITORS
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
T: +44 (0) 20 7583 5000
BROKERS
J.P.Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
T: +44 (0) 20 7742 4000
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
T: +44 (0) 20 7774 1000
REGISTERED OFFICE
Intertek Group plc
33 Cavendish Square
London W1G 0PS
T: +44 (0) 20 7396 3400
www.intertek.com
Registered number: 04267576
ISIN: GB0031638363
LEI: 2138003GAT25WW1RN369
London Stock Exchange Support Services
FTSE 100
Symbol: ITRK
164
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2017
Printed in the UK by Pureprint using vegetable inks
and their environmental printing technology.
Pureprint is a CarbonNeutral® company. Both manufacturing
mill and the printer are registered to the Environmental
Management System ISO14001 and are Forest Stewardship
Council® (FSC) chain-of-custody certified.
Designed and produced by
INTERTEK GROUP PLC
33 Cavendish Square,
London, W1G 0PS
United Kingdom
Tel +44 20 7396 3400
info@intertek.com
intertek.com