EVER BETTER
EVER STRONGER
Solutions for a safer world
ANNUAL REPORT 2018
Intertek is going from strength
to strength, making consistent
progress in both strategy
and performance.
We have scale positions in
attractive end-markets with
a high-margin and strongly
cash-generative earnings
model and we are benefitting
from higher demand from
our customers for our global
Total Quality Assurance
(‘TQA’) solutions.
We are on a good-to-great
journey and we firmly believe
in continuous improvement to
take Intertek to greater heights.
Our ‘Ever Better’ approach to
operational discipline makes
Intertek Ever Stronger,
every day.
The world of our clients is getting
more and more complex and
companies are increasing their
focus on risk, which creates ever
bigger growth opportunities for
Intertek given our unique TQA
value proposition.
Leveraging these ever bigger
growth opportunities ahead
with our ‘Ever Better’ operational
discipline in everything we do,
and continually innovating to
provide our clients with solutions
for a safer world, we are confident
in our ability to deliver sustained
progress moving forward.
OUR TQA CUSTOMER PROMISE
Intertek Total Quality Assurance expertise,
delivered consistently with precision, pace
and passion, enabling our customers to power
ahead safely.
INTERTEK AT A GLANCE
A PURPOSE-LED VISION
MAKING THE WORLD A
BETTER AND SAFER PLACE
OUR PURPOSE
Bringing quality and safety to life
OUR VISION
To be the world’s most trusted
partner for Quality Assurance
OUR VALUES
• We are a global family that
values diversity
• We always do the right thing with
precision, pace and passion
• We create sustainable growth
for All
• We trust each other and have fun
winning together
• We own and shape our future
OUR SERVICES
Intertek’s innovation-led, end-to-end Total Quality Assurance (‘TQA’) proposition helps
organisations operate safely, effectively and with complete peace of mind in an increasingly
complex, fast-changing world. As the global pioneers in the Quality Assurance industry,
we are the only company in the world that delivers – on a truly global scale – a fully
integrated portfolio of Assurance, Testing, Inspection and Certification services.
ASSURANCE
Enabling our customers to identify
and mitigate 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.
OUR GLOBAL NETWORK
The world of our customers is growing ever more complex. Our presence in more
than 100 countries worldwide, keeps us close to all our customers, understanding
their challenges, developing the insights that inspire innovation and continuously
delivering a superior customer service.
1,000+
LABORATORIES
AND OFFICES
3,000+
AUDITORS
100,000+
AUDITS
44,000+
EMPLOYEES
100+
COUNTRIES
80+
LANGUAGES
OUR SECTORS
By focusing on the three sectors of Products, Trade and Resources, we
concentrate the full power of our innovation capabilities onto those attractive growth
and high-margin sectors where we deliver most value for our customers.
Read more in our Operating Reviews on pages 44 to 51
PRODUCTS
TRADE
77% of profit
17% of profit
RESOURCES
6% of profit
Structural drivers include quality solutions
and sustainability demand, R&D,
regulation, brand and supply chain
expansion and risk management.
Structural drivers include global GDP
growth, quality and quantity control
requirements during transportation.
Structural drivers include capex and opex
investment, increased resources activity
and long-term demand for energy.
REVENUE
£1,680m
ADJUSTED OPERATING PROFIT
£371m
STATUTORY OPERATING PROFIT
£345m
REVENUE
£642m
ADJUSTED OPERATING PROFIT
£83m
STATUTORY OPERATING PROFIT
£78m
REVENUE
£479m
ADJUSTED OPERATING PROFIT
£28m
STATUTORY OPERATING PROFIT
£13m
FINANCIAL HIGHLIGHTS
Strategic Report
IN THIS REPORT
OVERVIEW
Intertek at a Glance
Financial Highlights
STRATEGIC REPORT
Ever Better, Ever Stronger – Solutions
for a safer world
Chief Executive Officer’s review
Executive Management Team
Sustainability report – Solutions
for a better world
Operating reviews
KPIs – Measuring our strategy
Principal risks and uncertainties and
Long-term Viability statement
Financial review
DIRECTORS’ REPORT
Chairman’s introduction
Corporate Governance
Board of Directors
Nomination Committee
Audit Committee
Remuneration report
Other statutory information
Statement of Directors’ responsibilities
FINANCIAL STATEMENTS
Contents
Consolidated primary statements
Notes to the financial statements
Intertek Group plc – Company
primary statements and notes
IFC
1
2
14
20
22
44
52
54
60
66
68
74
80
83
89
110
113
114
115
120
164
OTHER
Independent Auditor’s Report
Shareholder and corporate information
169
176
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 +4.7% at
constant currency rates, +1.2% at
actual rates
• Solid organic revenue growth at
constant rates of 3.7%: Products +5.2%,
Trade +2.2%, Resources +0.3%
• Portfolio strength and performance
management discipline driving margin
progression: adjusted +40bps at
constant rates, +30bps at actual rates
• Adjusted operating profit of £482m,
an increase of 6.9% at constant rates
and 3.0% at actual rates
• Statutory operating profit of £436m,
an increase of 7.2% at constant rates
and 3.2% at actual rates
• Strong adjusted diluted EPS growth:
adjusted +7.7% at constant rates,
+3.5% at actual rates; statutory +3.2%
at constant rates, (0.9)% at actual rates
• Full year dividend per share of
99.1p, an increase of 39.0%
• Free cash flow (restated) of £351m,
+2.6% year on year
• Statutory net profit after tax of £305m,
an increase of 3.8% at constant rates
and a decrease of 0.4% at actual rates
Actual rates
Constant currency1
REVENUE
£2,801m
(2017: £2,769m)
1.2%
4.7%
ORGANIC REVENUE1
£2,770m
(2017: £2,764m)
0.2%
3.7%
ADJUSTED OPERATING
PROFIT1,2
3.0%
6.9%
STATUTORY OPERATING
PROFIT
3.2%
7.2%
£482m
(2017: £468m)
£436m
(2017: £423m)
ADJUSTED OPERATING
MARGIN1,2
30bps
40bps
STATUTORY OPERATING
MARGIN
30bps
40bps
17.2%
(2017: 16.9%)
15.6%
(2017: 15.3%)
ADJUSTED DILUTED
EARNINGS PER SHARE1,2
3.5%
7.7%
STATUTORY DILUTED
EARNINGS PER SHARE
0.9%
3.2%
198.3p
(2017: 191.6p)
FREE CASH FLOW
(RESTATED)2,4
£351m
(2017: £342m)
174.7p
(2017: 176.3p)
2.6%
DIVIDEND PER SHARE3
99.1p
(2017: 71.3p)
39.0%
1. Definitions of the above metrics and constant
currency are set out on page 52.
2. 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 60 to 65.
3. Dividend per share for 2018 is based on the interim
dividend paid of 31.9p (2017: 23.5p) plus the
proposed final dividend of 67.2p (2017: 47.8p).
4 Free cash flow has been restated for 2017 as
explained on page 64.
Intertek Group plc Annual Report and Accounts 2018
1
Strategic Report | Ever Better, Ever Stronger – Solutions for a safer world
OUR 5X5 DIFFERENTIATED STRATEGY
FOR GROWTH
MOVING THE CENTRE
OF GRAVITY OF THE
COMPANY TOWARDS
HIGH-GROWTH,
HIGH-MARGIN
SECTORS
OUR 5 STRATEGIC PRIORITIES
• Position Intertek as the leading
Quality Assurance provider
• Build brand awareness across
sectors and geographies
• Create a compelling
Total Quality Assurance
brand positioning
• Build customer loyalty
and win new customers
• Consistently deliver
TQA customer service
• Develop innovative
ATIC solutions
SUPERIOR
CUSTOMER
SERVICE
• Increase existing
account penetration
• Drive ATIC-selling
• Accelerate business
development with
new accounts
EFFECTIVE
SALES
STRATEGY
DIFFERENTIATED
TQA BRAND
PROPOSITION
DIFFERENTIA
T
E
D
S
T
R
A
T
E
G
Y
F
O
R
5
• Prioritise business
lines, geographies
and service areas
• Invest in areas with
good growth and good
margin prospects
• Apply disciplined
resource, capital
and people allocation
• Continuously improve to
drive productivity
• Deliver best-in-class
management to reduce span
of performance
• Eliminate non-essential
costs – facilities/offices/
processes/ purchasing
GROWTH AND
MARGIN-
ACCRETIVE
PORTFOLIO
G
R
O
W
T
H
OPERATIONAL
EXCELLENCE
2
Intertek Group plc Annual Report and Accounts 2018
H
T
W
O
R
G
R
O
F
Y
G
E
T
A
R
T
S
D
E
T
D IF FERENTIA
Strategic Report
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 5 STRATEGIC ENABLERS
DISCIPLINED
PERFORMANCE
MANAGEMENT
SUPERIOR
TECHNOLOGY
ENERGISING
OUR PEOPLE
• Strong entrepreneurial
culture
• Customer-centric
mindset
• 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
• Improve customer
experience
• Leverage back-office
synergies
• Upgrade business
intelligence system
• 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 2018
3
LIVING OUR
CUSTOMER-
CENTRIC
CULTURE
H
T
W
O
R
G
5
R
O
F
Y
G
E
T
A
R
T
S
D
E
T
D IF FERENTIA
DELIVERING
SUSTAINABLE
RESULTS
DIFFERENTIA
T
E
D
S
T
R
A
T
E
G
Y
F
O
R
G
R
O
W
T
H
Strategic Report | Ever Better, Ever Stronger – Solutions for a safer world
A MORE COMPLEX WORLD BRINGS
EVER BIGGER OPPORTUNITIES
FOR INTERTEK
4
Intertek Group plc Annual Report and Accounts 2018
Strategic Report
Intertek Group plc Annual Report and Accounts 2018
5
Strategic Report | Ever Better, Ever Stronger – Solutions for a safer world
EVER BIGGER OPPORTUNITIES
TO ACCELERATE GROWTH
ATTRACTIVE STRUCTURAL GROWTH DRIVERS
We offer ATIC solutions to clients operating in three attractive sectors of the economy.
Products: delivering quality-
assurance solutions for end-products,
components, processes and supply
chains. Demand driven by increasing
brand and SKU numbers, increased
safety requirements and regulation,
faster innovation, growing consumer
focus on sustainability and greater
focus on risk management.
Trade: assuring that every product
shipped meets all relevant regulatory,
safety and quality standards.
Demand driven by population and
GDP growth, the development of
regional trade, increased focus
on traceability and growth in port
and transport infrastructure.
Resources: forming, establishing,
maintaining and assuring our
customers’ operating assets and
processes. Demand driven by long-term
energy demand, supply chain risk
management, sustainability of energy
supply, infrastructure investments,
growth in alternative energy and focus
on health and safety.
See our Products case studies
on page 45 and 47
See our Trade case study
on page 49
See our Resources case study
on page 51
PRODUCTS
60%
OF REVENUE
77%
OF PROFIT
TRADE
23%
OF REVENUE
17%
OF PROFIT
• Increased number of Brands
• Population growth
RESOURCES
17%
OF REVENUE
6%
OF PROFIT
• Long-term demand for
energy
• Supply chain risk management
& SKUs
• Increased regulation
• Improvements in safety,
performance and quality
• Faster innovation cycle
• Increased consumer focus on
sustainable products
• Increased corporation focus
on risk management
GDP
AGNOSTIC
GROWTH
DRIVERS
• Development of regional
trade
• Increased focus on traceability
• Sustainability of energy
• GDP growth
• Growth in transport
infrastructure
• Growth in port
infrastructure
GLOBAL,
REGIONAL
AND LOCAL
TRADE
GROWTH
supply
• Investment in infrastructure
• Growth in alternative energy
• Focus on health and safety
GLOBAL
GROWTH
DRIVERS IN
THE ENERGY
SECTOR
6
Intertek Group plc Annual Report and Accounts 2018
Strategic Report
EVER GROWING CORPORATE COMPLEXITY
EVER BIGGER GROWTH OPPORTUNITIES
The world never stands still and the corporate
environment in which our clients operate is becoming
more complex every day. With ever growing complexity,
our customers face unprecedented levels of risk across
every element of their businesses.
Intertek’s ATIC services are mission-critical for our
customers to manage risk across their supply and
distribution chains.
The global Quality Assurance market offers exciting
growth opportunities for Intertek. With the Total
Quality Assurance (‘TQA’) market poised for growth
due to supply chain expansion across the world and
an increasing focus on TQA, Intertek is moving beyond
the established US$250 billion ATIC market to a much
larger addressable opportunity.
CYBERSECURITY
A booming cybercrime economy has
resulted in $1.5 trillion in illicit
profits being acquired, laundered,
spent and reinvested by
cybercriminals.
PRODUCT QUALITY
Globally, product recalls are on the
rise. In a five-year period, the
number of products recalled
increased by nearly 40%. Tougher
regulations, global supply chains,
materials from fewer suppliers and
greater consumer awareness are
contributing to a rise in recalls.
SUSTAINABILITY
In 2016, cities generated
2.0 billion tonnes of solid waste.
This is forecast to increase by
70% to 3.4 billion tonnes by 2050.
GLOBAL ATIC MARKET
$50bn
CURRENTLY
OUTSOURCED
$200bn
CURRENTLY
IN-HOUSE
UNTAPPED
POTENTIAL
FOOD FRAUD
It is believed that food fraud may
affect 10% of all commercially sold
food products, with a potential cost
of $10-15 billion to the global food
industry every year.
By leveraging our global leadership position,
attractive structural growth drivers and innovative
ATIC solutions, we enable our clients to thrive
in a complex world.
Intertek Group plc Annual Report and Accounts 2018
7
Strategic Report | Ever Better, Ever Stronger – Solutions for a safer world
EVER BETTER
EVER STRONGER
We have made continuous progress over
the past four years, capitalising on our
strengths and implementing our 5x5
differentiated strategy for growth.
Leveraging the ever bigger growth
opportunities ahead with our ‘Ever Better’
operational discipline in everything we do,
we are confident in our ability to deliver
sustained progress moving forwards.
The world of our clients is getting more and more
complex and companies are increasing their focus on risk,
which creates ever bigger growth opportunities for
Intertek given our unique TQA value proposition that
offers systemic end-to-end ATIC services: Assurance +
Testing + Inspection + Certification.
We are on a good-to-great journey and we firmly believe
in continuous improvement to take Intertek to greater
heights. Our ‘Ever Better’ operational discipline is making
Intertek ever stronger, every day.
From our strong base, we see opportunities to
continuously improve on our value creation levers.
PRODUCT AND
SERVICE OFFERING
We listen to over 7,000 customers every month and have a
deep commitment to building on the strengths of our existing
products and services, developing innovative solutions to
better support their needs. Delivering the peace of mind our
customers require to power ahead, confidently and safely, is
one of the five core pillars of our differentiated strategy for
growth. Our rigorous approach to analysing customer data
helps to harness the resulting insights to develop compelling
innovations across our ATIC services, with the customer at
the heart of everything we do.
SALES MANAGEMENT
Making Intertek Ever Better, Ever Stronger means delivering
margin-accretive revenue growth. We have applied a
structured approach to selling across five Sales Goals as we
apply an Ever Better approach across the organisation to
sales planning: Customer Retention, Customer Penetration,
ATIC-selling, New Customer Wins and Customer Outsourcing.
8
Intertek Group plc Annual Report and Accounts 2018
OPERATIONS MANAGEMENT
We measure progress against a range of operational metrics
and use data intelligence to understand our customer service
levels, turnaround times and to create a positive atmosphere
where our people feel fully engaged in a safe working
environment. A dedicated focus on quality across every site,
every month, throughout the business, underpins our
operational and health and safety excellence, ultimately
ensuring that our customers receive a superior service.
MARGIN MANAGEMENT
Our 5x5 differentiated strategy for growth is based on
moving the centre of gravity of the Group towards the
high-growth and high-margin sectors in our industry.
We adopt a margin-accretive portfolio management strategy,
focused on the most attractive growth areas. This is
complemented by a systemic approach to performance
management across all business lines, countries and sites
based on leading and lagging indicators.
CASH MANAGEMENT
Operating a high-quality earnings model with a disciplined
approach to capital allocation, powers our strong cash
performance management, ensuring we are able to deliver
strong cash conversion from operations and robust free cash
flow. This in turn enables us to seek out attractive new
high-return markets, meeting growing customer demand
through insight and innovation and driving a business that’s
Ever Better, Ever Stronger.
Strategic Report
Intertek Group plc Annual Report and Accounts 2018
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Strategic Report | Ever Better, Ever Stronger – Solutions for a safer world
INTERTEK DELIVERS A SUPERIOR
CUSTOMER SERVICE
Always delivering a superior and continuously improving
customer service is central to achieving our vision of
being the world’s most trusted Quality Assurance
partner. It is to ensure this service excellence that we
have built an entrepreneurial culture supported by
world-class data intelligence and disciplined operations
at all our 1,000+ laboratories.
Since 2015, we have used the Net
Promoter Score (‘NPS’) process to listen
to our customers.
With 7,000+ customer interviews
conducted every month, it keeps us
laser-focused on delivering an Ever Better
service. Across all touchpoints this is a
positive reinforcement that we are
delivering on our TQA Customer Promise.
TOTAL QUALITY ASSURANCE
Our TQA value proposition gives our clients
the ATIC Advantage, our TIC Expertise plus
our Assurance Differentiation.
CUSTOMER CENTRICITY
We work with our customers every day to develop and deliver
the bespoke, customer-focused solutions they need to operate
safely and sustainably. It is by listening and responding to
their needs and challenges that we continuously improve and
strengthen our TQA proposition, evolving our own business
to be Ever Better, Ever Stronger.
NET PROMOTER SCORE (‘NPS’)
The NPS programme gives us the opportunity to capture
feedback from our customers. We capture key metrics at every site
monthly, which provides us with a rich set of insights. Upon
completion of a project, our TQA experts talk to customers to hear
their views on their experience, the solution itself and the quality
of customer service.
DATA INTELLIGENCE
We use these insights to drive faster and more effective solutions
which have a direct and positive impact on customer satisfaction
and loyalty, ensuring that all actions are driven by deep customer
insight and understanding. We use the data intelligence to
consistently deliver our services with zero defects.
TQA VALUE DELIVERY
On-time delivery and turnaround time comprise two of the key
metrics underpinning our 5x5 strategy and metrics. We constantly
invite customer feedback on this area, helping us innovate for
greater speed and enhanced precision to deliver on our TQA
Customer Promise.
10
Intertek Group plc Annual Report and Accounts 2018
EVER BETTER SERVICE
THROUGH INNOVATION
In an exciting market with
attractive structural drivers
and with corporations
facing ever growing
complexity, our Ever Better
approach to innovation is
supporting our clients to
thrive and is creating
growth opportunities
for Intertek.
A more complex corporate world means
more growth opportunities for Intertek
as we support our clients through Ever
Better solutions and customer service.
We innovate in our markets and business
lines through the insights generated
from our TQA experts and customer
feedback through our 7,000+ monthly
NPS interviews.
Intertek’s services, across areas including
Sustainability and CyberSecurity,
Product Assurance and Food Safety,
are mission-critical in reducing risk
and generating sustainable success
for our clients.
Strategic Report
WE HAVE THREE
CATEGORIES OF
INNOVATION:
BREAKTHROUGH
Technology that enables
solutions to create new markets
ADJACENT
Expanding into fast-growing
and high-margin areas
CORE
Building on the strengths of
existing products and services
Read more about how we
are constantly innovating
in our Operating Reviews
on pages 44 to 51
BREAKTHROUGH
Develop new breakthrough products
and services
ADJACENT
Develop new products
and services
CORE
Strengthen existing
products and services
Intertek Group plc Annual Report and Accounts 2018
11
Strategic Report | Ever Better, Ever Stronger – Solutions for a safer world
OUR HIGH-QUALITY
EARNINGS MODEL
Intertek’s earnings model is based on our value proposition of providing
customers in the Products, Trade and Resources sectors across 100+ countries
with high-quality Assurance, Testing, Inspection and Certification services.
1. OUR SERVICES
In today’s complex and competitive global trading environment, our Total Quality
Assurance services help more organisations operate more safely, more effectively
and with greater peace of mind, everyday.
ASSURANCE
TESTING
INSPECTION
CERTIFICATION
2. OUR SECTORS
We focus our operations and expertise on three global sectors: Products, Trade and Resources.
Each consists of Business Lines with similar mid- to long-term structural growth drivers.
These growth drivers are detailed on page 6 of this report
PRODUCTS
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.
TRADE
Three global Business Lines with similar mid- to long-term
structural growth drivers: Caleb Brett (Cargo & Analytical Assessment),
Government & Trade Services and AgriWorld.
RESOURCES
Helping customers in the Oil & Gas and Mining industries 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.
GDP+
GDP
GROWTH
LONG-TERM
GROWTH
12
Intertek Group plc Annual Report and Accounts 2018
Strategic Report
3. SUSTAINABLE VALUE CREATION
Intertek’s approach to sustainable value creation is based on the virtuous economics of our
business model. Year after year, their compounding effect supports strong and sustainable
value creation for our shareholders.
GDP+ ORGANIC
REVENUE GROWTH
INTERTEK
VIRTUOUS
ECONOMICS
INVESTMENTS
IN ATTRACTIVE
GROWTH AND
MARGIN SECTORS
WITH CAPEX /
M&A
MARGIN–
ACCRETIVE
REVENUE
GROWTH
DISCIPLINED
CAPITAL
ALLOCATION
STRONG FREE
CASH FLOW
Intertek Group plc Annual Report and Accounts 2018
13
Strategic Report | Chief Executive Officer’s review
CHIEF EXECUTIVE
OFFICER’S REVIEW
Ever Better, Ever Stronger Intertek
with Total Quality Assurance.”
André Lacroix
Chief Executive Officer
REVENUE
+1.2% +4.7%
ADJUSTED OPERATING PROFIT
+3.0% +6.9%
ADJUSTED OPERATING MARGIN
+30bps +40bps
ADJUSTED EPS
+3.5% +7.7%
WORKING CAPITAL
(20.7)%
ADJUSTED FREE CASH FLOW
+3.9%
DIVIDEND
+39.0%
Read more about our financial
performance on page 60
Actual rates
Constant rates
Intertek is going from strength to
strength, making consistent progress
on strategy and performance. We are
benefitting from higher demand from
our customers for global Total Quality
Assurance solutions in our Products,
Trade and Resources divisions.
In 2018 we have seen broad-based
revenue growth acceleration with 3.7%
organic revenue growth at constant rates
with continuing robust performance
in our Products division and performance
improvement in Trade and Resources.
The recent acquisitions in high-margin
and high-growth areas performed well.
The Group has delivered a strong margin
and free cash flow in 2018, with a diluted
EPS growth of 7.7% at constant currency,
being 1.6x faster than revenue, and a
strong cash conversion of 126%. In line
with our new dividend policy that targets
a payout ratio of circa 50%, and fuelled
by our high-margin and strongly
cash-generative earnings model,
we have announced a full year dividend
of 99.1p, an increase of 39.0%.
We have made continuous progress since
2015, capitalising on our strengths and
implementing our 5x5 differentiated
strategy for growth.
We are offering our clients a superior
customer service with our unique ATIC
value proposition and we have grown our
revenues and operating profit respectively
by 34% and 49% between 2014 and
2018 enabling us to deliver an operating
margin of 17.2%, a progression of 170bps
during the period. Further, we have
continued our working capital intensity
and our free cash flow has increased
by 90%. This progress, combined with
disciplined capital allocation, has delivered
a strong ROIC of 22.7% between 2015
and 2018.
The strength of our results demonstrates
the attractive growth opportunities in our
industry, Intertek’s high-quality earnings
model and the effectiveness of our 5x5
differentiated strategy for growth.
We are on a good-to-great journey and we
firmly believe in continuous improvement
to take Intertek to greater heights. Said
differently, our Ever Better operational
discipline is what makes Intertek Ever
Stronger, every day.
The world of our clients is getting more
and more complex and companies are
increasing their focus on risk, which
creates ever bigger growth opportunities
for Intertek given our unique TQA value
proposition that offers systemic end-to-
end ATIC services.
Leveraging the ever bigger growth
opportunities ahead with our Ever Better
operational discipline in everything we do,
we are confident in our ability to deliver
sustained progress moving forward.
Building on our strengths, we see
opportunities to make continuous
progress to deliver sustainable shareholder
value creation with our differentiated
service offering fuelled by margin-
accretive innovations; our customer-
centric approach to sales management;
our operational excellence discipline; our
systemic margin and cash management;
our end-to-end sustainability agenda and
our deep engagement activities inside
the organisation.
14
Intertek Group plc Annual Report and Accounts 2018
Strategic Report
• our 5x5 growth strategy positioning us
as the world’s only global provider of
truly integrated, end-to-end Assurance,
Testing, Inspection and Certification
(ATIC) services;
• our focus on innovation to accelerate
growth as we help our clients resolve the
increased complexities of their operations
by taking a systemic risk-based approach
to Quality Assurance ;
• how our Ever Better continuous
improvement approach is making
Intertek Ever Stronger with our
Ever Better operational discipline; and
• how this is creating sustainable value
for our shareholders.
EVER BIGGER OPPORTUNITIES
First, let’s remind ourselves of the sheer
scale of the market in which we operate.
The global quality assurance market is
considered to be worth approximately
US$250 billion. Of this, we estimate
that only 20 per cent is currently
outsourced. That means there is an
exciting opportunity to capture a share
of the US$200 billion that is currently
managed in-house.
The global trading landscape has changed
considerably over the last 50 years,
with the proportion of international trade
rising from around 25 per cent in the
1960’s to almost 60 per cent of global
GDP today. This major structural
change has fundamentally altered how
companies operate.
No longer do companies solely produce
locally for local customers. Instead,
corporations have embraced the value
of opportunities provided by low-cost
sourcing from across the world, enabling
them to remain focused on their own
core competencies.
While this has been beneficial, it has also
brought about a significant increase in
complexity for corporations in every
industry, working with multi-tiered supply
chains that expose them to increasing
levels of risk and uncertainty.
At the same time, the rise of consumer-led
demand in emerging markets, and the
growth of e-commerce and other
channels, have radically transformed
sourcing and distribution chains too. And,
with consumers seeking greater variety,
better quality and faster delivery, risk has
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
We are confident that Intertek will
continue to lead the industry through
our Ever Better operational discipline
approach, to make the company
Ever Stronger.
A PURPOSE-LED ORGANISATION
Everyone inside the organisation is
passionate about what we have already
achieved, and we are now focused on
making Intertek Ever Better, as we believe
this is the way for Intertek to become
Ever Stronger.
We are driven by a powerful and
meaningful purpose – to bring Quality and
Safety to life in a way that makes the world
a better and safer place for everybody.
This is important to all our people, as
having a meaningful and positive impact
on existing and future generations and
the future state of society is an enormous
source of energy and a critical driver
of engagement.
Intertek has a rich history having led the
industry for more than 130 years and
having contributed to the greater good
of society by raising quality and safety
standards across all industries.
We operate a decentralised operating
culture putting the customer first with
strong values that have been built
step-by-step, and these values guide our
behaviours every single day underpinning
a high energy culture that connects every
single colleague.
Our values are inspirational to all of us
and enable us to make the right decisions
to drive sustainable growth for All.
Our Values are:
• we are a global family that values
diversity;
• we always do the right thing with
precision, pace and passion;
• we trust each other and have fun
winning together;
• we own and shape our future; and
• we create sustainable growth for All.
I will cover a range of areas in this year’s
review, including:
• our views on how Quality Assurance is
evolving, creating ever bigger growth
opportunities for Intertek;
Intertek Group plc Annual Report and Accounts 2018
15
Strategic Report | Chief Executive Officer’s review
CEO'S REVIEW
continued
been heightened at every point of the
value chain, from R&D, raw materials
sourcing, component supply,
manufacturing, transportation,
distribution and retail to the point where
a product enters the consumer’s hands.
The positive news for Intertek is that this
phenomenon is driving demand from
corporations in all industries across the
world for quality assurance that is
systemic. Having gained this insight some
years ago, we are still the only global
company that is truly leveraging this
world-shift in the need for Testing,
Inspection and Certification (‘TIC’) alone,
to the additional demand for end-to-end
Assurance (‘A’) that only our ATIC value
proposition provides.
This is a vital step forward and Intertek
has redefined the industry from TIC to
ATIC. While TIC provides quality and
safety controls in high-risk areas of a
corporation’s activities, Intertek Total
Quality Assurance additionally delivers
an end-to-end assessment of its clients’
quality and safety processes. In this way,
we help organisations address the
complexity of what it takes to move
towards a zero-failure rate in their
operations. TQA is becoming mission-
critical for our customers, and every
conversation with them again reinforces
the need for ATIC solutions.
So we see the market opportunity to be
even greater than the US$250 billion,
driven by new risks emerging from ever
growing corporate complexity. Intertek is
in pole position to attract a substantial
share of the increasing TQA activity in
which companies will need to invest
during the years ahead. Our focus on the
highest levels of customer service and
our global network of more than 1,000
laboratories and offices and over 44,000
people in more than 100 countries will
enable us to meet their needs and help
them thrive in an increasingly complex
world, no matter the continuing pace
of change.
SEIZING THE OPPORTUNITIES
To capture this exciting growth
opportunity, in 2015 we launched our
good-to-great 5x5 strategy (see page 2).
Its purpose is to move the centre of
gravity of the Group towards
the attractive growth and margin areas
in the quality assurance market and
deliver sustainable growth for All.
Our people are at the heart of our
strategy. They deliver against our key
priority of delivering superior customer
service by living our values and
customer-centric culture every day.
A highly important factor in achieving this
is our unique, decentralised organisational
structure with our people located in our
1,000+ laboratories across the world.
We ensure that our people are close to our
customers, driving innovation from the
frontline to ensure the solutions we provide
are exactly what our customers and their
customers need. This ensures that taking
an innovative approach is embedded as
an intrinsic part of our value proposition,
which is truly exciting for our future.
The role of environmental, social and
corporate governance (‘ESG’) in our own
business is a fundamental aspect of this.
It is core to everything we do, as is our
ability to help our customers deliver
against their own sustainability priorities.
Critically, it matters to our people, it
matters to our customers and of course,
it matters to their end-consumers.
As a purpose-led company, sustainability
is core to our business, enabling us to
deliver value for all our stakeholders.
INTERTEK TQA SUPERIOR SERVICE
Intertek’s business model offers systemic
ATIC solutions across the three divisions
of ‘Products’, ‘Trade’ and ‘Resources’,
with each benefitting from its own set of
structural growth drivers. These range
from the expansion of supply chains
within the Products division, to the
increased focus on traceability in Trade
and growth in alternative energy
within Resources.
Moreover, no business today is immune
to the increasing complexity of the
operating environment in which we all
work. It’s driven by the expansion of
global trading relationships and supply
chains, demand for higher quality and
choice, increasingly vocal consumers on
social media and growing regulatory
demands. One of the most important
drivers is a greater focus on sustainability,
championed by a confident and ‘tech-
savvy’ millennial generation.
Structural changes in sourcing and
distribution mean that global
organisations require expert assistance
to navigate these challenges across their
entire supply chain operations.
Our focus is on making
further progress on all
fronts, with an Ever Better
approach to what we do,
every day, to make us
Ever Stronger.”
Intertek delivers a unique, systemic
end-to-end approach to risk management,
delivering TQA solutions across quality
and safety processes, including assuring
the training and performance of people.
Today, systemic end-to-end ATIC
solutions are becoming increasingly
essential for companies everywhere as
they seek to control risk at every point of
the value chain. The attractive structural
drivers underpinning our business,
combined with the growing complexity
facing our customers, together form
the basis of what is a truly exciting
opportunity to deliver margin-accretive
revenue growth based on GDP+ organic
growth over the mid- to long-term.
And the pace of change will continue to
accelerate. Developments such as artificial
intelligence (‘AI’), the internet of things
(‘IoT’), blockchain, the sharing economy,
autonomous and electric vehicles, the
growing middle classes, ageing
populations and much more are all forcing
companies to adapt. Risk will grow at the
same accelerating rate.
Growth in new products drives quality
risks. For example, analysis of trends over
more than 20 years in the US shows that
there is a 90 per cent correlation between
the number of new vehicles launched and
the number of vehicles recalled. The same
is happening in other industries – in every
country across the world, the rising rate
of hacking is the main driving force behind
increased data breaches. And safety
concerns in the food industry are also
growing fast, from allergic reactions
caused by unlisted ingredients to
deliberate food sabotage.
To add further to forces like these, the
relentless pressure on businesses to
launch new products and services to meet
burgeoning demand is causing many
organisations to launch new product lines
without adequate operating systems or
checks and balances in place. New and
16
Intertek Group plc Annual Report and Accounts 2018
Our global network of sustainability
experts helps customers achieve their
sustainability goals. Read more on
page 22
Strategic Report
innovative products require new and
innovative TQA solutions.
This is one area where our focus on
innovation really counts – identifying new
requirements and creating solutions,
often before our customers are aware of
the need.
Our unique, end-to-end, systemic approach
to quality assurance, delivered through
our global laboratory network, is helping
corporations to mitigate these and many
other causes of risk. Our constant focus on
innovation to address existing and future
risks is at the heart of our ability to
mitigate new risks on the horizon.
LEADING CUSTOMER INSIGHTS
The real fuel for innovation is insight –
deeply understanding what our customers
need and want – to drive our new ATIC
solutions. It’s to develop this insight that
we are such avid users of data, with the
ability to access world-class customer
intelligence site-by-site from anywhere
across our global network.
We are obsessed with understanding our
customers’ needs and how we can deliver
Ever Better solutions to meet their
developing requirements. To achieve this,
we carry out 7,000+ customer interviews
every single month. Every day, I and all
members of our senior management team
receive an email containing real-time
customer feedback from around the
world. And we actively use this feedback
to continuously improve the services
we deliver.
I am also determined that at a senior level
we gain first-hand understanding of our
customers and our people who most
regularly interact with them. This is why
I spend around 50% of my time in the
markets where we operate, meeting our
customers and our TQA experts, and the
other 50% participating in performance
reviews to maximise our knowledge
and understanding.
We are constantly harnessing our
customer insights and data to drive
innovative solutions.
THRIVING THROUGH INNOVATION
Intertek, always the pioneer, has led the
industry with our TQA value proposition.
Now, increasing corporate complexity
is presenting opportunities for us to
accelerate our growth by delivering
our ATIC services to our customers
with innovative solutions for today
and tomorrow.
Intertek has a proven track record of using
insight and innovation to anticipate the
growing needs of our clients, and this
approach forms the bedrock of our
entrepreneurial culture. So important, that
during 2018 we have appointed a Chief
ATIC Innovation Officer and are running
a company-wide focus on innovation for
the whole of 2019 and beyond.
Our considered and focused approach to
innovation uses a three-tiered method,
working alongside our internal seven-step
ATIC innovation process, which helps us
to accelerate our growth.
First, in what we call our ‘Core’ focus,
we seek to build on the strengths of our
existing products and services, ever
improving them for our existing markets
and customers. Secondly, we aim to
develop new products and services for
rapid-growth, high-margin markets that
are ‘Adjacent’ to those we already serve.
Thirdly, we aim to create ‘Breakthrough’
products and services that enable us to
create new attractive markets and target
emerging customer needs.
Across all three areas, we work closely
with our customers, often face-to-face,
to scope and develop new solutions that
better serve their needs. Let me provide
some examples.
Recent developments to our Core offering
include innovations in our Resources
THE SEVEN-STEP ATIC
INNOVATION PROCESS
1
INSIGHT
Generate some
great new ideas
2
IDEATE
What can you do
with these ideas?
3
EVALUATE
How will it work?
4
DEVELOP
How can you
make it happen?
5
PILOT
Prove your ideas
work in the real
world
6
SCALE-UP
Let’s make this
happen!
7
KAIZEN
Continually
evolve and
improve your idea
Intertek Group plc Annual Report and Accounts 2018
17
Strategic Report | Chief Executive Officer’s review
CEO'S REVIEW
continued
Read more on our Alchemy
acquisition on page 45
sector. In one, we have brought together
technologies including 3D laser scanning
and non-destructive testing to create
Intertek DeepView 3DTM, a new solution
that radically reduces the time and costs
involved in inspecting safety-critical
equipment in the offshore industries.
See page 51 for details.
Another innovation from the Core is
Intertek PipeAware, our unique pipeline
quality verification solution, which offers
pipeline owners and operators traceability
and easy access to the inspection, testing
and material data needed to make
informed decisions that ensure pipelines
operate safely and efficiently.
Extending our TQA reach, Intertek’s Voice
of the Customer leverages our customers’
consumer feedback to create holistic
product assurance plans, addressing
safety, quality and perception concerns
with actionable insights.
As a purpose-led company, sustainability
is core to our business, enabling us to
deliver value for all stakeholders. It is
because of this that one of the Adjacent
innovations we launched during the year
was our sustainability service offerings,
under one Sustainability brand, where our
global network of experts help our
customers to manage risk. We not only
provide valuable insight into companies’
current sustainability needs, we also
identify emerging trends, enabling our
customers to move towards a ‘circular
economy’ model, reducing any negative
social and environmental impacts and
mitigating reputational risk.
As IoT transforms the world in which we
live, in the area of product network
security, our Intertek ‘Connected World’
proposition addresses the emerging
security risks and performance challenges
of today’s sophisticated networks
throughout the product life cycle.
Additionally, our cybersecurity services
address growing cyberthreats as part of
our systemic approach to risk mitigation.
See page 47 for more details.
As supply chains and distribution channels
become increasingly complex, driving
employee operational excellence is
becoming increasingly challenging for
organisations. During the year, we made a
key acquisition (Alchemy) in the emerging
area of ‘People Assurance’, enabling us to
leverage our existing Assurance expertise
and global scale to close critical skills-gaps
through training, engagement and cultural
reinforcement among clients’ frontline
employees across the world. See details
on page 45.
We are truly excited about the potential
of People Assurance as a high-quality
service with scalable solutions that can be
rolled out across many different industries
and geographies.
So, innovating to help our customers
reduce risk by managing complexity more
easily is at the heart of our growth plans,
enabling us to pursue our strategy of
shifting the Company’s centre of gravity
to high-growth, high-margin markets.
Over the last three years, this has involved
massive growth in excess of 100 per cent
in the Assurance side of our business,
from 10 per cent of our total revenue in
2015 to 16 per cent of revenue in 2018.
This is where we have delivered the
majority of our organic growth – the
touchstone by which we measure
our progress.
We have also seen our Products division
grow as a proportion of our business
overall, to a point where today it is
responsible for generating some 60 per
cent of our revenues and around 75 per
cent of our profits. It is one of the
fundamental strengths of the Group.
But our core strength is, and always will
be, the way in which our people combine
passion and innovation with customer
commitment to create a single unbeatable
asset. This is a vital element of our
entrepreneurial, customer-centric culture,
and we do everything we can to nurture it
across the organisation.
ACCRETIVE PORTFOLIO
MANAGEMENT
Our 5x5 strategy focusing Intertek’s
centre of gravity on high-margin,
high-return sectors drives our margin-
accretive approach to portfolio
management, guiding where we invest
for growth. We categorise these areas
as four key strategic priorities:
• First, to grow those scale businesses,
such as Softlines, Hardlines and
Electrical, where we are already market
leaders. The scale involved means any
increase in penetration is a powerful
driver of profitability.
• Next comes a set of businesses from
which we see our fastest growth
emerging in the next few years,
including Business and People
Assurance, Food, Connected World and
Sustainability.
• Third, in all corporations there will be
businesses where there is room for
improvement. Due to the current phase
of the Resources cycle, our Industry
Services operations are focused on
improving revenue and margin.
• Our M&A focus is targeted tightly on
companies with attractive growth and
margin prospects, strong IP and market
positions and a highly cash-generative
business model. Since 2015,
acquisitions have added more than
£300 million to Intertek’s annual
revenues and given us ownership of
several sector-leading innovations that
we are now bringing to a wider market.
We underpin our approach to portfolio
management with our highly disciplined
and systemic approach to performance
management, targeting leading and
lagging indicators. It addresses a range
of key financial metrics, from revenue
growth, margin and customer profitability
to capital allocation and investments in
growth. Our operational metrics include
particularly powerful leading indicators,
like marketing leads, customer retention
and customer acquisitions.
EVER BETTER OPERATIONAL
DISCIPLINE
Across every area of the business, we are
on a journey of constant improvement.
We have made consistent progress in
2015, 2016, 2017 and 2018 across our
product and service offering, sales, cash
and margin management and in our
operational excellence.
Our ‘good-to-great’ journey driven by our
5x5 growth strategy is on track but we
are not stopping there.
With plenty in reserve, our focus is on
continuously improving and making
further progress on all fronts, leveraging
the tremendous growth opportunities
across our divisions with an Ever Better
approach to what we do, every day, to
18
Intertek Group plc Annual Report and Accounts 2018
Strategic Report
INNOVATING ACROSS
OUR BUSINESS
Read more about how we are
supporting our customers with our
innovative ATIC solutions.
PRODUCTS
Read more on page 44
TRADE
Read more on page 48
strategic progress having delivered
sustainable shareholder value and having
established a leading position at the
forefront of the world’s growing market
for systemic, end-to-end TQA services.
The growth prospects ahead are truly
exciting and the increased focus of
corporations on risks to deliver sustainable
performance is creating ever bigger
growth opportunities for our TQA services.
Our 5x5 strategic goals represent the
pillars underpinning our priorities as we
move forward in our industry.
Our core purpose of bringing Quality and
Safety to life will be achieved through
our fully engaged employees whose
entrepreneurial spirit is able to flourish.
We will provide a superior ATIC customer
service by harnessing our global laboratory
network, effectively enabling our
innovators and technicians to become a
global network of subject matter experts.
Delivering margin-accretive revenue
growth will enable us to maintain our
outstanding record of delivering strong
returns for our shareholders.
Our strong cash conversion from
operations and systemic working capital
management, underpinned by the Group’s
highly cash-generative earnings model
will deliver strong returns.
Through our accretive, disciplined capital
allocation policy, we will continue to seek
out and secure acquisition targets that
are providing breakthroughs in areas
that interest our customers, which we
can scale up to offer through our
global operations.
The growth prospects ahead for all
stakeholders are highly energising and we
are truly excited about our good-to-great
journey ahead.
We are confident that Intertek will
continue to lead the industry with our
unique TQA services.
We are committed to delivering
sustainable value creation with our
Ever Better operational discipline making
the company Ever Stronger.
André Lacroix
Chief Executive Officer
RESOURCES
Read more on page 50
Intertek Group plc Annual Report and Accounts 2018
19
make us Ever Stronger: our differentiated
service-offering with margin-accretive
innovations; a customer-centric approach
to sales with our unique ATIC offering ;
continuous progress in operational
excellence, value creation opportunity
in margin and cash management, an
innovative approach to sustainability
and an exciting growth agenda for all
of our colleagues.
Becoming an Ever Better, Ever Stronger
business is only possible through
continuous improvement and innovation
across every facet of the business. It is
this mentality which unites everyone at
Intertek towards achieving the common
goal of making the world a better and
safer place. We have made good progress
along this path and the future is even
more exciting, as we leverage growth
opportunities to enable our clients to
power ahead with total peace of mind.
A HIGH-QUALITY EARNINGS MODEL
That brings me to the very core of what
makes us so successful – our high-margin,
strongly cash-generative earnings model,
based on the delivery of our unique TQA
value proposition. Our ability to profitably
deliver ATIC services to customers
operating in the structurally attractive
Products, Trade and Resources economic
sectors is based on our capital-light
business model and entrepreneurial
culture, which enable us to respond
quickly to new growth opportunities.
To maximise returns, we continue to
invest in margin-accretive innovation as
we have discussed, which is driving GDP+
organic revenue growth across the Group
in real terms. As a result, our adjusted
operating margin and free cash flow are
both growing substantially, while working
capital as a percentage of revenue is
reducing. Particularly pleasing is our
adjusted return on invested capital where
our progress is excellent.
We will invest in organic growth and
acquire businesses with strong growth
and margin prospects. At the same time,
we will continue our policy of making
index-leading shareholder returns
and focus on delivering a balance
sheet with the flexibility we need to
meet our ambitions.
AN EVER STRONGER INTERTEK
I am pleased that after three years on our
good-to-great journey, we are on track
both in terms of performance and
Strategic Report | Executive Management Team
EXECUTIVE MANAGEMENT TEAM
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2
3
5
6
7
8
9
10
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14
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Intertek Group plc Annual Report and Accounts 2018
1 André Lacroix
Chief Executive Officer
See full biography on page 74
2 Ross McCluskey
Chief Financial Officer
See full biography on page 74
3 Diane Bitzel
Chief Information Officer
Joined Intertek in May 2018 as Chief
Information Officer. Diane has over 22
years of global management experience,
particularly in the areas of IT strategy,
operations and management, HR
transformation, and business strategy
and process implementation. Diane’s
previous roles include CIO for global life
science and food companies including
Syngenta AG, Apetito AG and Lonza
Group, as well as a senior leader in
management consulting for leading
organisations including Capgemini.
Diane has a MSc in Maths, a PhD. from
Heidelberg University and an MBA from
Bocconi University.
4 Ann-Michele Bowlin
Chief ATIC Innovation Officer
Joined Intertek in 2009. Ann-Michele
leads Intertek’s ATIC Global Innovation
Strategy. She was previously Chief
Information Officer, responsible for IT
business processes, infrastructure and
cybersecurity. She 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.
5 Alex Buehler
Executive Vice President,
Global Resources
Joined Intertek in 2017. Alex has
responsibility for Global Resources,
comprising our business lines of Industry
Services and Minerals. 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 BSc in Civil
Engineering and an MBA in Finance.
Strategic Report
6 Ian Galloway
9 Patrick Lee
12 Julia Thomas
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, Caleb Brett
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.
7 Tony George
Executive Vice President,
Human Resources
Joined Intertek in 2015. Tony is
responsible for Human Resources. He has
over 31 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.
8 Ken Lee
Executive Vice President,
Marketing and Communications
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.
Executive Vice President, North
East Asia and Australasia
Senior Vice President,
Corporate Development
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.
10 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.
11 Rajesh Saigal
Executive Vice President,
South & South East Asia
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.
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.
13 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.
14 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.
Intertek Group plc Annual Report and Accounts 2018
21
Strategic Report | Sustainability report – Solutions for a better world
SOLUTIONS FOR
A BETTER WORLD
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, our customers, our people, our investors,
and our suppliers. Our objective is to create sustainable
growth for all.
OUR PURPOSE
BRINGING QUALITY
AND SAFETY TO LIFE
OUR VALUES
OUR VISION
TO BE THE WORLD'S
MOST TRUSTED
PARTNER FOR QUALITY
ASSURANCE
WE ARE A
GLOBAL FAMILY
THAT VALUES
DIVERSITY
WE CREATE
SUSTAINABLE
GROWTH
FOR ALL
WE OWN AND
SHAPE
OUR FUTURE
WE
ALWAYS DO
THE RIGHT THING
WITH PRECISION,
PACE AND
PASSION
WE TRUST
EACH OTHER
AND HAVE FUN
WINNING
TOGETHER
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Strategic Report
Strategic Report
OUR STAKEHOLDERS
OUR SUSTAINABILITY BRAND
Our integrated global services mean
Intertek is uniquely placed to help
organisations understand, achieve
and validate their existing and
emerging sustainability goals.
1
SUPPORTING
OUR CLIENTS’
SUSTAINABILITY
PRIORITIES
2
POSITIVE IMPACT
ON OUR PEOPLE,
SUPPLIERS AND
COMMUNITIES
OUR
SUSTAINABILITY
PRIORITIES
3
COMPREHENSIVE
NON-FINANCIAL
ESG KPIS
5
CORE TO
EVERYTHING
WE DO
4
ALIGNING TO THE
UN SUSTAINABLE
GOALS
OUR INVESTORS
OUR CUSTOMERS
OUR PEOPLE
OUR COMMUNITIES
OUR SUPPLIERS
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SUSTAINABILITY
REPORT
We are a purpose-led
organisation where
sustainability is at the heart
of what guides us every
single day.”
André Lacroix
Chief Executive Officer
At Intertek, our purpose is
to make the world a better
and safer place by bringing
quality and safety to life.
This is the true meaning of
what we stand for.
‘Doing business the right way’ is core
to our differentiated 5x5 strategy that
creates sustainable value and growth
opportunities for all our stakeholders - our
clients and their customers, our employees,
our investors, and the communities across
the world where we operate.
Sustainability is truly important for our
people and Intertek operations around the
world. We are passionate about
progressing our sustainability agenda as
well as helping our customers progress
their own sustainability agendas.
We are proud to lead the global quality
assurance industry responsibly, energised
about how we contribute to society, and
how what we do at Intertek positively
impacts everyone’s lives today - and the
lives of those that will follow.
Making the world a better and safer
place is what guides us every single day.
True to our Ever Better discipline,
we are deeply committed to minimising
our environmental impacts, to operating
with integrity by doing business the
right way, and to pursuing our corporate
social responsibility (CSR) activities
through living our strong values
everyday everywhere.
In our 2018 report, we share how our
dedicated colleagues around the world
work passionately to make significant
progress on the sustainability priorities
we articulated last year.
Furthermore, we share how, through our
global network of sustainability experts,
clients have come to rely on us to help
them understand, achieve and validate
their own sustainability goals, both
existing and emerging.
As the world’s only complete Total Quality
Assurance (TQA) solution provider,
Intertek is ideally positioned to support
its customers’ sustainability priorities by
helping them manage and mitigate risk,
operate effectively and act responsibly
across their global operations.
OUR TQA VALUE PROPOSITION
2
POSITIVE IMPACT
ON OUR PEOPLE,
SUPPLIERS AND
COMMUNITIES
OUR
SUSTAINABILITY
PRIORITIES
1
SUPPORTING
OUR CLIENTS’
SUSTAINABILITY
PRIORITIES
3
COMPREHENSIVE
NON-FINANCIAL
ESG KPIS
5
CORE TO
EVERYTHING
WE DO
4
ALIGNING TO THE
UN SUSTAINABLE
GOALS
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Intertek Group plc Annual Report and Accounts 2018
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Our customers trust us to evaluate the
quality, safety and sustainability of their
products, operations and services which
helps them protect their brands and gain
competitive advantage.
This is particularly important to me, as
creating sustainable growth for all is one
of our core values and is the guiding
principle we pursue on a daily basis to
bring quality, safety and sustainability to
life inside the operations of our clients.
SUSTAINABLE SOLUTIONS FOR
A CHANGING WORLD
As new risks emerge in a fast-changing and
increasingly complex world, we continue to
seek and explore new and innovative ways
of helping customers improve the quality,
safety and sustainability of their products
and services.
Strategic Report
Strategic Report
Strategic Report
IN THIS SECTION:
OUR SUSTAINABILITY
VALUE PROPOSITION
Read more on page 26
Supporting our customers’ sustainability
needs with our industry-leading
sustainability value proposition
OUR PEOPLE
Read more on page 28
Ensuring our people are engaged,
inspired, energised and working in a
safe environment
OUR COMMUNITIES
Read more on page 32
Engaging and partnering with the local
communities in which we operate
OUR ENVIRONMENT
Read more on page 34
Demonstrating our commitment to
reducing the environmental impact
of our operations
TRACKING OUR PROGRESS
WITH THE UN SDGS
Read more on page 40
Demonstrating our alignment with
the United Nations Sustainable
Development Goals
OUR SUSTAINABILITY
GOVERNANCE
Read more on page 42
Making continuous progress in
sustainability through an appropriate
organisational focus
During 2018, new regulatory
developments created the need to
develop innovative sustainability
solutions based, for instance, on the
announcement by the UK Government of
a new mandatory Streamlined Energy and
Carbon Reporting (SECR) framework;
the heightened prevalence of ‘duty of
care’ legislation in France; and the newly
updated California Proposition 65 List of
restricted chemicals.
Over recent years, sustainability issues
have dramatically grown in importance as
drivers of consumer choice. In fact,
according to research from Nielsen, 73%
of global millennials are willing to pay a
price premium for sustainable offerings.
Within this broad context, we have
deepened our focus inside the
organisation and I am proud about the
excellent progress on all aspects of our
sustainability agenda in 2018, based on
the five priorities we defined last year.
1 Supporting our clients’
sustainability priorities
We have launched a global Intertek
Sustainability brand to improve the
awareness of our industry-leading
sustainable solutions. We recognise the
need for the customers of our clients to
be sure about the sustainability of
products and services they buy and we
have developed a set of Intertek
Sustainability certification marks. We
launched our first Sustainability marks
– Clean Air certification and Zero Waste to
Landfill certification – in September 2018
(see customer story on page 27).
2 Positive impact on our people,
our suppliers and communities
Our sustainability agenda is very
energising for our colleagues and the
progress we have made is commendable:
we have broadened our company-wide
network of Sustainability Champions; we
have rolled-out globally our ‘10X Way!’
training programme to accelerate the
growth of our people; we have reported
on our UK gender pay gap for the first
time; we have seen good progress on our
health and safety monitoring and during
my visits around the Group I have been
inspired by the quality of our local
community activities.
3 Comprehensive non-financial
ESG KPIs
In our 2017 Sustainability Report, we
showed how sustainability is embedded
into our Group strategy. We have
improved our environmental reporting
which enabled us to improve our
Investor Relations engagement
activities with institutions that pursue
sustainable investment strategies. We
also benchmarked our environmental,
social, governance (ESG) performance
and we were delighted to be recognised
by the MSCI, with a rating of AAA.
4 Aligning to the UN Sustainable
Development Goals (UN SDGs)
Measuring progress on a regular basis
is central to our company performance
management approach based on
factual leading and lagging indicators.
We developed our reporting progress on
the UN SDGs for our core Business Lines
and Countries, effectively engaging
employees and leaders with the
appropriate ESG metrics.
5 Core to everything we do
To lead by example and ensure
continuous progress, I chair our monthly
Sustainability Committee and I receive
regular reports on the progress of
every sustainability priority, covering
internal initiatives as well as the
sustainability services we offer to our
clients. Our Board is deeply engaged
and kept up to date on our progress.
Each of our Countries and Business
Lines define their own sustainability
agendas, which are tied to our Group
priorities and focused on their local
operations and communities.
During 2018, we have broadened our
network of Sustainability Champions
across our Countries and Business Lines
and we have encouraged our
Sustainability Champions to focus on
all aspects of our sustainability agenda,
true to our Ever Better discipline.
In 2019 and beyond, we will continue
to deliver progress on our own
sustainability agenda – and to help
our clients progress on theirs.
We strongly believe that making the
world better and safer by bringing
quality, safety and sustainability to life is
the true meaning of what we stand for.
André Lacroix
Chief Executive Officer
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OUR SUSTAINABILITY
VALUE PROPOSITION
As the world’s only complete Total Quality Assurance
provider, Intertek is ideally positioned to support its
customers‘ existing and emerging sustainability priorities
by helping them identify, manage and mitigate risk,
operate effectively and act responsibly across their
global operations.
Companies are increasingly facing
challenges driven by growing complexities
in their operations, sourcing,
manufacturing and distribution. As
consumers’ expectations of corporate
responsibility evolve, demand is growing
for Total Quality Assurance (TQA)
solutions that enable organisations across
a wide range of sectors to keep ahead of
emerging sustainability requirements.
Through our global network of
sustainability experts and integrated ATIC
solutions, Intertek is uniquely placed to
help organisations understand, achieve
and validate their existing and emerging
sustainability goals.
Our passion for the sustainability agenda,
proven supply chain expertise, global
network and on-the-ground local
knowledge means we can give our
customers increased transparency to
help them manage the social, ethical and
environmental risks in their processes
and supply chains. At the same time, we
support their ability to operate effectively
and act responsibly.
In this section, we provide highlights of
the ATIC sustainability solutions Intertek
offers and specific programmes we
launched in 2018 to address the needs
of our clients.
We list full details of our sustainability
value proposition on our website at
www.intertek.com/sustainability/services.
Our customers trust us to ensure quality,
safety and sustainability in their business,
to protect their brands and to help them
gain competitive advantage. We not only
provide valuable insight into our clients’
current sustainability needs. We also
identify emerging trends, enabling our
customers to manage sustainability that is
material to their business and to safeguard
their reputation. Intertek’s TQA promise
extends to our ATIC sustainability services,
applicable to all industries and sectors.
INTEGRATED GLOBAL SUSTAINABILITY SERVICES
TOTAL QUALITY. ASSURED.
ATIC solutions extending beyond quality and
compliance to deliver sustainable solutions
for every industry.
ASSURANCE
Intertek’s sustainability
assurance services offer a
solutions-driven and holistic
approach to adoption of
increasingly prominent
environmental, social and
economic best practices.
TESTING
Increased scrutiny and demand
for transparency and safety of
products, food, chemicals,
packaging and processes has led
to the necessity for testing and
analysis services that support
and validate sustainable claims.
INSPECTION
Our inspections help clients
protect their financial, branding
and legal interests throughout
the value chain.
CERTIFICATION
Intertek’s certification and
verification programmes help
customers to ensure that their
products, assets, processes and
services meet leading standards
and requirements.
EXTENDED
PRODUCER
RESPONSIBILITY
LIFE CYCLE
ASSESSMENT
SUPPLY CHAIN
RESILIENCE
VOC
CERTIFICATION
ECO-LABELLING &
RECYCLABILITY
GLOBAL
SUSTAINABILITY
SERVICES
INGREDIENT
TRANSPARENCY
RESPONSIBLE
SOURCING
AUDITING
REPORTING &
DATA ASSURANCE
ENVIRONMENTAL
TESTING
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At Intertek our integrated global services
offer everything our clients need to
manage emerging sustainability
requirements for products, assets,
materials, processes and organisations.
Read more at
www.intertek.com/sustainability
Sustainability brand launch
Strategic Report
Strategic Report
OUR SUSTAINABILITY BRAND
We have offered sustainability services
for over 20 years, and in June 2018, we
officially unveiled our new Intertek
Sustainability brand at the Sustainable
Brands (SB’18) conference in Vancouver.
This brand serves to communicate
Intertek’s sustainability proposition to the
market, helping our clients understand,
achieve and validate their social and
environmental goals.
The launch highlighted the strength of
our existing ATIC sustainability services
and provided a platform to introduce
new programmes being developed to
meet continuously evolving demands.
Sustainability is core to our business and
true to our Ever Better discipline. We are
constantly evaluating and improving our
own processes and initiatives, as well as
the services we offer our customers.
An internal programme is in place to
harness the power of Intertek’s global
network of experts and maintain the
consistency and quality of our
sustainability services. In 2018, Intertek
sustainability teams developed an internal
and centralised location on our Group
intranet to provide access to resources,
templates and programmes. ATIC toolkits,
describing sustainability services, have
been developed across all Intertek
Business Lines and are available to all
colleagues to ensure we can connect
customers to the support and services
they need. Training of Intertek employees
on existing and new sustainability
services is underway, with continued
emphasis throughout 2019.
SUSTAINABILITY SERVICES: SCIENCE-
BASED METRICS AND MATERIALITY
Our sustainability services are now
integrated and delivered under the new
Intertek Sustainability brand. These
services support the growing demand
from companies to measure, track,
evaluate and report those sustainability
metrics that are material to their business.
Intertek enables clients to navigate
reporting frameworks and evaluate data
accordingly, whether for reporting or to
meet reduction targets and regulatory
requirements. For example, as part of its
commitment to sustainability, Mitsubishi
Electric Sales Canada (MESCA) retained
Intertek to evaluate its Scope 1, Scope 2
and material categories in Scope 3
greenhouse gas (GHG) emissions for
their entire product sales network.
SUSTAINABILITY CERTIFICATION
MARK
In addition to the Sustainability brand,
Intertek launched the Sustainability
certification mark in 2018 to serve
as the identifier of the Sustainability
certification schemes we deliver through
our innovative ATIC solutions.
SUSTAINABILITY CERTIFICATION
MARK: CLEAN AIR
Formerly known as ‘ETL Environmental
VOC Certification’, Clean Air uses a global
network of ISO 17025-accredited testing
labs to validate the level of volatile organic
compound (VOC) emissions from products
such as flooring, furniture, drywall, paint
and foam insulation.
One of the first programmes to be
inaugurated into the new Intertek
Sustainability mark, the Clean Air mark
responds to growing client demand for
product testing solutions that support
better indoor air quality. Manufacturer
Purple Mattress uses the Intertek Clean
Air certification mark to demonstrate that
there are no emissions from its bedding
products that may harm purchasers or
their families.
SUSTAINABILITY CERTIFICATION
MARK: ZERO WASTE TO LANDFILL
Zero Waste to Landfill, a programme
developed and executed through
Intertek’s Business Assurance team,
uses the Intertek Sustainability
certification mark to help clients
display their compliance with and their
continued commitment to the programme.
The Electrolux plant in São Carlos (Brazil)
has achieved the highest-level
certification (‘Zero Waste’) for diverting
99.9% of its waste from landfill. It is a
proud adopter of the programme and the
Intertek Sustainability certification mark.
ACQUIRING LEADING COMPANIES
FURTHER STRENGTHENS CYBER
SECURITY CAPABILITIES
Following the acquisitions of Acumen
and EWA Canada in 2017, Intertek
further strengthened its cyber security
capabilities during 2018 with the
acquisition of NTA Monitor, a leading
network security and assurance services
provider that is based in the UK and
Malaysia. This acquisition builds Intertek’s
presence, both in the UK and globally,
within the security assurance and
certification market.
LOGO
CERTIFIED
CLEAN AIR GOLD
LOGO VERIFIED
ZERO WASTE
TO LANDFILL
THIS PRODUCT WAS MANUFACTURED
IN A ZERO WASTE TO LANDFILL
CERTIFIED FACILITY
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OUR PEOPLE
We are focused on ensuring
that our strategy and
culture give our people the
right platform, not only to
grow and develop their
careers, but also to be
involved in socially
responsible activities that
support our purpose to
make the world a better
place by bringing quality
and safety to life everyday.
Our 44,720 passionate Intertek people
deliver sustainable value through
unmatched expertise and quality of work
for our customers globally and on a daily
basis. They contribute to the success of
our customers’ products, services and
operations, enabling us to succeed in our
vision of being the world’s most trusted
partner for Quality Assurance.
To achieve this, our 5x5 differentiated
strategy energises our people to take
Intertek to new heights, to deliver our
customer promise and live our values.
We foster a company culture where our
people are recognised for being inspired
to find innovative ways of continually
developing services and solutions for
our customers.
In this section, we detail the ways in
which we seek to engage and inspire our
people, ensuring the frameworks are in
place for them to succeed in a safe
working environment and ultimately
making them proud to work for Intertek.
Energising, inspiring and engaging
our talented people
To seize the exciting growth
opportunities arising from our
Total Quality Assurance (TQA) value
proposition, we continually invest in
the growth of our people. We aim to hire,
inspire, engage and retain the best people
to power our 5x5 strategy, providing
them with the skills to grow our business.
With an Ever Better mindset we
encourage them continuously to learn
new skills that help them advance their
careers and deliver our customer promise.
Our talent-mapping process is critical to
our future success in delivering our
strategy and fostering our culture and
values throughout Intertek.
Training
Following the successful launch of our
‘The 10X Way!’ training to Intertek leaders
in 2017, we continued the global roll out
of this unique programme to over 36,000
of our people in 2018. The content of
the training workshops was based on
internal feedback that identified the key
development needs across the business,
with a focus on delivering support, tools
and skills to drive 10X Performance.
The continued roll out of the training
across the entire organisation aims 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 message, we also
developed eLearning modules, available to
all our 44,720 employees via our digital
Learning Management System.
In order to further support a highly
engaged and high-performing workforce
of experts, we continue to embed our
performance and growth conversation
with ‘My 10X Journey’, which replaced
our previous appraisal process. This
transformational new development plan
creates better quality conversations
during performance reviews, helping
to better clarify expectations, foster
continual improvement and inspire
individual progress.
In addition to ‘The 10X Way!’, we provide
a range of in-house and external learning
opportunities to provide employees with
the skills and expertise they need to
deliver our TQA brand promise. We operate
across a wide range of sectors requiring
different types of technical training,
education and support, including
apprenticeships and internship
programmes, as well as college degrees
and professional qualifications.
ROLLED OUT TO OVER
36,000
INTERTEK COLLEAGUES
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Intertek Group plc Annual Report and Accounts 2018
44,720
EMPLOYEES
Sarah
Administration
Graham
Project Support Leader
Jincy
Operations Coordinator Assistant
Strategic Report
Strategic Report
INTERTEK TQA EXPERTS BY REGION
9,044
3,393
12,185 8,708
7,753
3,637
20,893
Asia
11,390
EMEA (inc. Central)
12,437
Americas
Male
Female
INTERTEK TQA EXPERTS BY GENDER
35%
65%
Male (28,982)
Female (15,738)
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
2,184
36,864
2,093
38,407
2,166
41,434
2,567
42,452
2,769
43,906
2,801
44,720
2013
2014
2015
2016
2017
2018
Revenue (£m)
Headcount
At Intertek, we are proud to be an equal
opportunities employer. We consider all
qualified applicants 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
on our website (intertek.com/careers) and
employ various ways of sourcing talented
people. These include 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, we seek
wherever possible to fill vacancies from
within the Company first.
UK GENDER PAY GAP
The gender pay gap measures the
difference between the pay and bonuses
of men and women across an organisation,
irrespective of role and level of seniority.
This is different to equal pay, which is the
legal requirement to pay the same to men
and women who are doing equal work.
At Intertek, men and women are paid
equally for doing equivalent roles.
Following the publication of our gender
pay gap results in 2018, we committed to
a number of measures to ensure we
provide an energising workplace, free of
any gender bias, where employees can
flourish based on their talent and effort.
To strengthen this, we ensure that our
shortlists of external-hire candidates have
a balance of gender diversity. We also
provide flexible working where possible
and provide mentorship to women to
address the gap in gender numbers at
senior levels. It is vital that our workforce
represents the best available talent,
reflects the communities in which we
operate and is free of gender or other
biases. We remain committed to equality.
UK Living Wage
In the UK, we were accredited in April
2018 as a Real Living Wage employer,
in accordance with the guidelines of the
Living Wage Foundation. We will continue
to align our directly employed staff with
the Real Living Wage UK, and are working
towards aligning third-party contractor
staff with the recommended guidelines.
INCLUSION, DIVERSITY AND
GENDER EQUALITY
To live our values and be sustainable and
inclusive global family that values diversity,
we apply all employment policies and
practices in a way that is informed, fair and
objective. This covers all policies relating to
recruitment, promotion, reward, working
conditions and performance management.
Our inclusion and diversity policy eliminates
discrimination to ensure that our employees
are treated fairly, feeling respected and
included in our workplaces. We are committed
to maintaining the highest standards of
fairness, respect and safety. We adhere
to the principles of the UN Convention
on Human Rights and the International
Labour Organization’s core conventions.
We recognise the importance of gender
diversity, not only in management but
across all levels of our business. In line with
the Hampton-Alexander Review, as well as
supporting gender diversity on our Board,
in June 2018 we contributed our data on
the gender balance across our senior
executive team and their direct reports:
2017
2018
Board
Executive
Management
Team (Exec)
Direct reports (DR)
Combined: Exec +
DR
Male Female Male Female
3
3
7
11
7
11
3
2
91
102
19
95
21 106
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Data submitted as at 30 June 2018.
We will continue to promote and endorse
fair, consistent and thoughtful working
practices that are in accordance with
our values.
OUR VALUES
WE ARE A
GLOBAL FAMILY
THAT VALUES
DIVERSITY
WE CREATE
SUSTAINABLE
GROWTH
FOR ALL
WE OWN AND
SHAPE
OUR FUTURE
WE ALWAYS
DO THE RIGHT
THING WITH
PRECISION,
PACE AND
PASSION
WE TRUST
EACH OTHER
AND HAVE FUN
WINNING
TOGETHER
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OUR PEOPLE
continued
DOING BUSINESS THE RIGHT WAY
Our vision to be the world’s most trusted
partner for Quality Assurance is at the
heart of everything we do at Intertek.
We can only deliver that vision if we
operate with integrity to maintain the
trust and confidence of all of our
stakeholders, including our shareholders,
our customers, our people and the
communities and environment
in which we operate. Integral to this is
‘Doing Business the Right Way’; our
internal risk, control, compliance and
quality programme.
At Intertek, ‘Doing Business the Right
Way’ means living our values, having the
highest standards of ethics and integrity
in how we conduct ourselves every day,
everywhere and in every situation.
The 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 in line with our
commitment to Total Quality,
• every colleague commits to the highest
standards of professional conduct; and
• we deliver sustainable growth by
managing our risks and doing the right
thing for the longer term.
Ethics, integrity and professional
conduct
A vital part of ‘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 through
the integrity principles set out in our Code
of Ethics (‘the Code’), available at www.
intertek.com/investors/ governance/
code-of-ethics. This 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 breach of our Code of Ethics
and any behaviour that fails to meet
our expected standards of integrity
as a trusted leader in the quality
assurance industry.
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. This
confirms 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.
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, all of our people are
required to complete our comprehensive
online ‘Doing Business the Right Way’
training course annually. This training
covers the Code and other important
professional conduct areas, such as data
security and operational controls. 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.
Whistleblowing hotline
To empower our people and stakeholders
to voice any concerns about breaches of
the Code or of any of our policies
(including our Labour and Human Rights
Policy and Modern Slavery Policy), we have
a well-publicised hotline which can be
used by all employees, contractors and
others representing Intertek, or by third
parties such as our customers or people
who are affected by our operations.
This whistleblowing hotline is run by an
independent, external provider. It is
multi-language and is accessible by phone
and by email to all employees 24 hours a
day. 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.
Intertek ensures that our colleagues are fully engaged in a safe working environment
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Intertek is committed to
the continuous review and
improvement of its health
and safety performance and
works towards achieving
zero incidents.”
Hazard Observation
Near Miss
First Aid
Lost time incidents
Medical treatment incidents
Fatalities
Total recordable incident rate (TRIR)*
2018
9,155
2,207
1,094
137
149
1
0.65
2017
7,758
2,544
874
104
180
1
0.70
% change
18%
(13)%
25%
32%
(17)%
–
(5)bps
* Rates refer to the number of lost time incidents (LTIs), medical treatment incidents (MTIs) and fatalities
occurring per 200,000 hours worked.
Note: Overall total recordable incidents (TRI) increased by 2, but would have shown a reduction in like-for-like
reporting. In 2018 we have included data for our acquired environmental service company, ABC Analitic.
If a report is made to the hotline, it is
followed up by Intertek’s Compliance
officers. Our Group Compliance function,
which is independent of our operational
businesses and reports directly to our
Group General Counsel, fully investigates
all reports received. Provided there is no
conflict of interest, all reports are also
notified immediately to our Group Ethics &
Compliance Committee, which consists of
our CEO, CFO, EVP for HR and Group
General Counsel. This ensures the
effective resolution both of individual
issues and of any systemic or process
improvements that can be made to
address them.
During 2018, 158 reports of non-
compliance with the Code were made to
our hotline. Of those reports, 45 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.
HEALTH AND SAFETY
A key corporate goal is to ensure that our
people are fully engaged in a safe working
environment. Managing the health, safety
and welfare of our people, clients and
third parties connected with the business
is therefore 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.
During 2018 we aligned our recent
acquisitions’ Health and Safety (H&S)
processes with our own to ensure
complete visibility of H&S incidents across
17%
REDUCTION IN MEDICAL
TREATMENT INCIDENTS
the Group. We also implemented further
H&S processes, enabling all Intertek sites
to report and track relevant activities with
our updated Global H&S Platform.
In 2018, we continued to grow the
number of proactive Hazard Observations
we recorded, broadening engagement
across all countries and achieving an
overall reduction in our total recordable
incident rate (TRIR) of 5bps. It is
encouraging that our TRIR continues
to reduce year on year.
We believe our move to proactive
reporting of Hazard Observations has
led to improved health, safety and
environmental (HSE) awareness at our
locations, resulting in incidents previously
recorded as ‘Near Miss’ being more
accurately recorded as Hazard
Observations. We believe that the
increases seen in First Aid incident
reporting are also linked with greater
awareness and reporting overall. First Aid
is a very clear type of incident and is now
being reported more comprehensively.
We are constantly improving our tracking
and reporting. During 2018, we improved
the time for reporting and reviewing
incidents, meaning that we can respond
more quickly and avoid future issues
earlier. Our monthly reporting is now
enhanced and richer, including ratios
of Hazard Observations with relation
to employee headcount for example.
Sadly, one fatality was recorded in
China. This occurred when a project
manager fell down a hoisting shaft on
a construction site.
We go to great lengths to train all our
employees on health and safety matters,
including as part of our induction process
emergency response procedures,
intervention and reporting of accidents,
incidents and near misses. Where relevant,
all employees and contractors are provided
with personal protection equipment when
performing work for the Company.
To ensure that we can operate safely,
there is a dedicated fire warden, first-aider
and health and safety representative at
each Intertek location. These
representatives are empowered not only
to investigate incidents and implement
preventative and corrective actions, but
also to disseminate safety information
through training and continual
improvement programmes to target
identified specific areas of concern.
SUPPORTING OUR CLIENTS IN
HEALTH AND SAFETY
People Assurance services
In 2018, Intertek expanded its People
Assurance services with the acquisition of
Alchemy Systems, a leading Software-as-
a-Service (SaaS) company.
Alchemy offers software learning and
compliance solutions for the food
industry. In a world of increasingly
complex supply chains and distribution
channels, employees are key in driving
operational excellence in multi-site
organisations. There is therefore a growing
demand for bespoke People Assurance
solutions to identify, monitor and
efficiently close critical skills gaps among
frontline employees. These solutions offer
an efficient and innovative platform to
help our clients achieve their sustainability
goals, especially in food safety and
workplace safety and compliance.
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OUR COMMUNITIES
The role we play in
supporting more sustainable
communities in which we
operate is vital to the
success of our business.
Fostering good relationships
provides benefits beyond
reputation, in areas including
recruitment, local education
and engagement. This is
because our passionate
and dedicated colleagues
are proud of improving the
lives of the people and
communities around them.
In this section, we have selected some
examples from across the world to show
how our passionate Intertek colleagues
have engaged with and supported local
communities during 2018.
CANADA: CREATIVE DAY FOR SOCIAL
GOOD – ALCHEMY SYSTEMS
Intertek’s newly acquired People
Assurance business Alchemy Systems,
in partnership with Capacity Canada,
Conestoga College, Him & Her, Manulife
Financial and the local creative
community, provides free marketing
communications work to charities from
across Canada through Creative Day
for Social Good (CD4SG).
CD4SG brings together teams of art
directors, writers, account managers
and other creative professionals who
donate their time for two days. They
guide graphic design and public relations
students from Conestoga College through
the professional creative process.
100
STUDENTS WERE SUPPORTED
BY OUR PROGRAMME FOR RURAL
SCHOOLS IN TURKEY
Supporting rural schools in Turkey
Creative Day for Social Good in Canada
CSR event to support the elderly in Hong Kong
TURKEY: SUPPORT RURAL SCHOOLS
Intertek Turkey supports an ongoing
initiative for local schools in poorer rural
regions through employee donations.
Volunteers from across the business liaise
with schools to collect and then circulate
a list of much needed items to all
employees. In 2018, following this
communication, Intertek Turkey
employees donated supplies including
stationery, toys, educational materials,
reading books, shoes, boots and coats
to the schools. Thanks to the combined
efforts of all, and the generous donations,
more than 100 students were helped as
a result of the programme.
UK: REUSABLE WATER BOTTLES FOR
ALL CALEB BRETT EMPLOYEES
To reduce the impact of single-use plastic
products on the environment, all
employees at Caleb Brett in the UK have
been issued with branded multi-use water
bottles to use at home as well as at work.
Simultaneously, the company removed
single-use cups from all sites. Managers
have also been asked to look at other
alternatives to single-use water bottles,
including water coolers and good quality
tap water.
HONG KONG: SUPPORT CLIENT’S
CHARITY EVENT
Although Hong Kong is one of the
wealthiest cities in the world, income
disparity is increasing and the city’s
wealth gap is at its widest in 45 years.
Our colleagues at Intertek in Hong Kong
were happy to join their client, A.S.
Watson, in taking time to visit elderly care
homes. Everyone who took part is proud
to have had the opportunity to assist
people in need and take part in a valued
client’s key charity event.
HONG KONG: ACTION TO RECYCLE
PLASTIC WASTE
Intertek Hong Kong took part in the
‘10 Tonne Challenge’, a city-wide plastic
recycling initiative supported by the
Hong Kong Environmental Protection
Department. A large recycling station was
placed in Intertek’s Hong Kong office to
ensure our 1,300 colleagues recycle their
used plastic. The plastic waste collected
will be remade into tote bags and other
products. The recycling process and
tote bag production also provide work
opportunities for the community, and the
proceeds from the sale of the bags are
donated to support the elderly and
the poor.
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Supporting flood relief efforts in Kerala
Butterfly Habitat Conservation in Taiwan
Women at risk: ‘Circles of protection’
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AID PACKAGES PROVIDED BY
INTERTEK FOR FLOOD SURVIVORS
IN KERALA
40
INTERTEK TAIWAN COLLEAGUES
VOLUNTEER TO PROTECT LOCAL
BUTTERFLY HABITAT
30
STUDENTS IN CHINA HAVE
RECEIVED SUPPORT AND
FINANCIAL ASSISTANCE FROM
PRIMARY SCHOOL THROUGH
TO UNIVERSITY
TAIWAN: SUPPORTING MARINE
HABITATS AND WILDLIFE
During 2018, colleagues in Taiwan took
part in several activities focused on
the preservation of marine wildlife.
This included 100 Intertek employees
participating in coastal clean-up activities
over a weekend, as well as delivering
sustainable management services to
clients designed to reduce marine
pollution and protect coastal ecosystems.
TAIWAN: BUTTERFLY HABITAT
CONSERVATION
In November, Intertek colleagues and
their families teamed up with The
Butterfly Conservation Society of Taiwan
to protect habitat in the Jian-nang
butterfly garden in Taipei. The Intertek
team worked to clear away overgrowing
plants around the park, providing space
for more butterfly-friendly vines and
plants to thrive. Butterflies play key
roles in plant pollination, and help to
promote natural ecological balance.
On the day of the event, volunteers
from the Society were on hand to
provide insights on the importance
of environmental conservation.
SURINAME: CALEB BRETT SPONSORS
KNOWLEDGE AND EDUCATION
Intertek Caleb Brett was one of the Gold
Sponsors for the Petroleum Engineering
Student Chapter at the Anton de Kom
University in Suriname, when it
participated in the 2018 PetroBowl
competition – a quiz challenge between
different universities relating to
competencies, expertise and technical
knowledge in the Oil & Gas industry.
CHINA: FUNDING EDUCATION FOR
THE POOR
2018 is the 11th year in which Intertek
China has campaigned to raise funds for
poor students in Chongming District,
Shanghai. Over this time, Intertek
colleagues have provided 30 students
with support and financial assistance,
from primary school through to university.
KERALA: PROVIDING RELIEF
FOLLOWING FLOODING
In August 2018, severe flooding caused
havoc in the Southern Indian state of
Kerala, leading to widespread destruction
of property and the tragic loss of close to
500 lives.
Intertek colleagues responded to the
needs of survivors following the disaster,
with voluntary deductions from their
monthly salary and the provision of
clothes, food, medicines, toiletries and
more. Our facilities team consolidated
these donations into more than 400 aid
packages for distribution across the most
affected villages of Annamanada and
Poovathussery and the nearby town
of Salakudi.
RAISING FUNDS TO PROTECT WOMEN
AT RISK OF TRAFFICKING
The Intertek team based in Allentown,
Pennsylvania, notably engaged with
Women At Risk (WAR) International during
2018. This Michigan based non-profit
organisation creates ‘circles of protection’
around people at risk, using a range of
culturally sensitive projects and
partnership to fund and provide safe
places to heal from abuse, trafficking and
other forms of exploitation. The Intertek
team sold unique items made by women
at risk and people rescued from slavery,
raising over US$1,000 – enough to pay
for more than three months in an
overseas safe house for a woman
rescued from trafficking.
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OUR ENVIRONMENT
Our environmental mission is to provide a better
quality of life today and a more environmentally
responsible world tomorrow. We will do this by
continually improving our business performance
in line with our Ever Better discipline to minimise
the impact of our operations on the environment.
Intertek’s environmental
software allows for
site-level energy tracking
to reduce carbon emissions”
492
INTERTEK SITES IMPROVED THEIR
NATURAL RESOURCE EFFICIENCY
OUR APPROACH
Intertek’s focus is deeply committed to
minimising our environmental impact.
To do so, we monitor site-level activities
across a range of environmental metrics
and work with our sites to reduce energy
consumption and limit greenhouse gas
(GHG) emissions. Intertek plays an
important role in raising awareness of
climate change and national resource
constraints among its employees,
suppliers and customers. As such, our aim
is to improve operational and natural-
resource efficiency in a consistent manner
across all our sites.
Last year, Intertek implemented a Global
Sustainability Environmental Software
platform. This is optimised specifically
to provide Intertek with the reporting,
analytics and auditability to support
site-level sustainability initiatives and
corporate reporting.
Our teams globally regularly upload
and monitor their data within the
environmental software. This provides
them with the deep intelligence they
need to understand their local
environmental impact. That enables them
to assess how they can manage their
consumption through:
• utilising renewable energy sources,
• implementing green waste
management practices,
• carrying out efficient water
management,
• minimising business travel; and
• operating quality management
systems.
To support this effort, our Environmental
and Climate Change policy is implemented
by country management to ensure
compliance with local guidelines
and regulations.
Through setting meaningful objective
targets and tracking accurately, we can
ensure that we are minimising our
environmental footprint while providing
our key stakeholders with the data they
need to understand our performance.
OUR DATA
Our annual GHG reporting cycle runs from
1 October 2017 to 30 September 2018.
The corresponding average number of
employees for this period was 44,255.
Due to the wider scope and depth of
reporting from 2017 onwards, and the
increased attention to detail and diligence
across all Intertek sites, we made
continual refinements to our
environmental data during 2018. This has
resulted in a restatement to our 2017
base year, reducing CO2 per employee
from 5.08 to 4.42.
As a Total Quality Assurance (TQA)
provider, we carry out testing on behalf
of our clients which involves the direct
consumption of fuel or the direct release
of emissions through testing procedures.
Our clients require the tests we perform
to help them determine the safety, quality
and environmental efficiency of their
products. While this increases our overall
Group reported emissions, it has a positive
longer-term impact on the item
being tested.
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GHG Emissions (tonnes of CO2e)1
2017
(restated)
2018
5,034
25,637
24,715
117,706
124,269
1,625
7,616
4,993
24,357
24,877
121,376
126,527
1,573
12,274
182,333
189,451
188,896
194,602
628
2,512
947
3,457
185,473
193,855
192,036
199,006
4.12
4.27
4.42
4.54
44,255
42,828
CO2e1 emissions from activities for which Intertek is responsible include:
Fugitive Emissions
Mobile Combustion – Owned Fleet
Stationary Combustion
Purchased and Used Electricity (location-based)
Purchased and Used Electricity (market-based)
Purchased Heat and Steam
Energy-Related Activities
Biomass
Fugitive Emissions
Scope 1
Scope 2
Scope 3
Total emissions (location-based)
Total emissions (market-based)
Outside of scope
Total emissions (location-based)
including outside of scope
Total emissions (market-based)
including outside of scope
Intensity ratio – Scope 1,2,3 emissions
CO2 per employee (location-based)
CO2 per employee (market-based)
Average # of employees during reported period
1. CO2e – Carbon dioxide equivalent.
Intertek uses the most
up-to-date GHG emission
factors available for
each country.”
242,485 MWh
TOTAL ELECTRICITY CONSUMPTION
IN 2018
5.48 MWh
PER EMPLOYEE
For 2018, Intertek’s electricity
consumption was reported to be
242,485 MWh (5.48 MWh per employee).
Gas consumption was reported to be
64,796 MWh (1.46 MWh per employee).
In 2017 we set our first emissions target
which was to reduce CO2 emissions per
employee by 5% by 2020 versus our 2017
base year. Our progress during 2018
resulted in an overall reduction in
emissions of 3.8% whilst at the same time
we saw a growth in employee headcount
of 3.3%, as such our CO2 per employee
reduced by 6.9%. As a result of this
reduction we are extending our target
to be a 5% decrease in CO2 per employee
from 2018 to 2023.
Intertek’s reporting complies with the
methodologies outlined by the GHG
Protocol ‘Corporate Accounting and
Reporting Standard’, ISO 140064-1,
and the UK Government’s ‘Environmental
Reporting Guidelines: including
mandatory greenhouse gas emissions
reporting guidance’.
In compliance with the above standards,
Intertek 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).
SCOPE 3 MATERIALITY ASSESSMENT
As part of our ongoing improvements to
our environmental data tracking and
reporting, during 2018 we engaged with
a reputable third-party vendor to carry
out a materiality assessment to determine
which Scope 3 emissions, as defined by
the GHG Protocol, are relevant to Intertek.
The relevance of each of the 15
categories was established based on the
Intertek business model. Data was then
collected and analysed to assess the
materiality of those that were determined
to be relevant. The available information
and data from each relevant category was
then used to calculate an estimate of the
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OUR ENVIRONMENT
continued
total global emissions in those categories.
ASSESSMENT OF INTERTEK SCOPE 3 MATERIALITY
The review established that Scope 3
emissions are a material portion of
Intertek’s total footprint. As such, the
materiality of each GHG Protocol category
was set as 5% of total Scope 3 emissions
in order to ensure that future data
gathering and reduction strategies will be
focused on the most impactful areas.
After determining that seven categories
were relevant to Intertek, five were
deemed to be material as they each
represent more than 5% of the total
Scope 3 emissions. During 2019, Scope 3
data under the five material categories
will be assessed in further detail with the
objective of reporting on these categories
as part of Intertek’s future global
emissions reporting.
Purchased Goods & Services
Fuel and Energy-Related Activities
Employee Commuting
Capital Goods
Business Travel
Upstream Transportation & Distribution
Waste Generated in Operations
5% materiality
Threshold
CATEGORY
RELEVANCE MATERIAL DETAILS
1. Purchased Good & Services
Emissions associated with goods and services that Intertek
procures through routine operational expenditure
2. Fuel and Energy-Related Activities
Emissions associated with transmission losses from electricity
3. Employee Commuting
Emissions associated with employees commuting to work
4. Capital Goods
5. Business Travel
6.
Upstream Transportation
& Distribution
7. Waste Generated in Operations
8. Upstream Leased Assets
9.
Downstream Transportation
& Distribution
10. Processing of Sold Products
11. Use of Sold Products
12. End-of-Life Treatment of
Sold Products
13. Downstream Leased Assets
14. Franchises
15. Investments
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Emissions associated with goods and services that Intertek
procures through capital expenditure
Emissions from travel undertaken by employees on
company business
Emissions associated with shipping and transportation of
goods
Emissions associated with disposal of waste generated
Not considered relevant due to limited sub-leasing of
Intertek assets
Not considered relevant due to Intertek being a service provider
Not considered relevant due to Intertek being a service provider
Not considered relevant due to Intertek being a service provider
Not considered relevant due to Intertek being a service provider
Not considered relevant due to limited sub-leasing of
Intertek assets
Not considered relevant due to no franchises in operation
Intertek has employee pension schemes but due to their
external management, under GHG guidelines these can
be excluded
–
–
–
–
–
–
–
–
–
–
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Intertek worked with
OCTAL to carry out
a carbon footprint analysis,
demonstrating its novel
approach to PET
manufacture and new
technologies.”
Intertek’s research into regulation
preventing wastewater pollution ensures
access to information on key
environmental regulatory mechanisms
that are crucial to Roche’s customers’
operations. It also provides insight into
evolving sustainability targets across
various jurisdictions.
PET plastic resin
Novel approach to PET plastic
manufacturing
As part of its strong commitment to
sustainability, OCTAL, a global PET resin
manufacturer, has developed innovative
and efficient means of producing PET
plastic that reduces environmental
impact through an overall reduction in
carbon emissions.
Intertek worked with OCTAL to carry out
a carbon footprint analysis, demonstrating
its novel approach to PET manufacture
and new technologies. OCTAL also
enlisted Intertek to evaluate the
environmental impacts associated with
end-of-life recycling. This contrasts
with traditional disposal via landfill
and demonstrates the effectiveness
of the recycling programme in reducing
the overall carbon footprint of PET
plastic products.
SUPPORTING OUR CLIENTS IN
ENVIRONMENTAL MANAGEMENT
Our Sustainability Services provide
multiple ways in which we can support
our clients achieve their environmental
monitoring and management goals:
LCA evaluation of products
Life Cycle Assessment
Life Cycle Assessment (LCA) has emerged
as an essential and widely recognised
framework to understand and measure
the environmental and carbon impacts of
a product, material or process. LCA tools
can be leveraged to support value chain
decision-making, production optimisation,
innovation in design and end-of-life
management. Intertek is working with a
popular global e-commerce company to
assess the cradle-to-grave impacts of
their core product. The evaluation offers
insight into the environmental impacts
and avoided impacts associated with the
product from the selection of materials
and shipping networks to recycling, reuse
and end-of-life management.
Environmentally conscious and
accountable business practices are
essential to our client’s vision and they
intend to use the science-based metrics
from the LCA to continuously improve
their impacts and meet corporate
sustainability goals.
Experts evaluating GHG data
Carbon Footprint Assessment
for Mitsubishi Electric Sales
Canada (MESCA)
As part of the global push to reduce GHG
emissions, organisations are assessing
their carbon impacts through science-
based metrics that provide accurate
and reliable information to key decision-
makers and stakeholders.
Intertek’s sustainability teams are working
with companies to determine or validate
their GHG emissions throughout their
entire value chain and achieve carbon-
reduction targets. As an example,
Intertek’s sustainability experts have
been retained by Mitsubishi Electric Sales
Canada to collect data, calculate and
report their Scope 1, 2 and 3 GHG
emissions for the country’s entire sales
network. Intertek is collecting and
evaluating data, not only for regional sales
offices, but also such Scope 3 categories
as the upstream purchase of goods and
transportation, business travel and
employee commuting as well as the
downstream distribution network and use.
The project involves supporting internal
teams to collect the correct information,
to perform technical reviews of data and
calculations in accordance with the GHG
Protocol and ISO standards, and to prepare
a report outlining the science-based
metrics. Mitsubishi Electric Sales Canada is
undertaking this in-depth analysis as part
of its corporate sustainability initiatives
and carbon reduction goals.
Management of wastewater
Wastewater global regulatory
requirements study for Roche
Intertek worked with F. Hoffmann-La
Roche Ltd in Switzerland to identify
wastewater pollutant discharge limits in
multiple jurisdictions worldwide. Managing
the prevention of wastewater pollution
from industrial, institutional and
commercial sources is an important
environmental mechanism to protect
fresh and groundwater resources against
harmful and restricted substances.
Municipalities and regional jurisdictions
across the world regulate and enforce
specific concentrations of subject
pollutants and substances that can be
discharged into the sanitary sewer to
protect important infrastructure, human
health and impacts on the environment.
As a global healthcare business, this
company is a leader in sustainability
and committed to promoting healthy
lives and wellbeing for all.
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OUR ENVIRONMENT
continued
OUR GLOBAL ENVIRONMENTAL ACHIEVEMENTS 2018
As we operate a decentralised business model, it’s our local teams who
look for ways to become more environmentally efficient and reduce
the impact of operations. Here we provide some examples of these
achievements in 2018. Through actively performance managing our
GHG emissions in 2019, we hope to make further improvements.
1 TRANSPORTATION
TECHNOLOGIES, UK
Intertek Transportation Technologies UK
was awarded certification to the ISO
14001 Environmental Management and
to BS OHSAS 18001 Occupational Health
and Safety Management standards.
2 MALTA
Intertek in Malta moved offices in
August 2018. The new office is
equipped with double glazing apertures
and LED lighting.
3 CANADA, BC OPERATIONS,
6 TURKEY
COMMODITIES
In Canada, Intertek partnered with a plastic
recycling company to recycle all used
sample bags.
4 INTERTEK CALEB BRETT
DENMARK, KALUNDBORG
In Denmark, Intertek recycles cooling water
during RON petroleum analysis.
5 DOMINICAN REPUBLIC
In the Dominican Republic the Accuvio
system is used to monitor petrol
and electricity consumption.
In Turkey feasibility studies are underway
for a solar energy project.
7 GHANA, TARKWA MINERALS
In Ghana, Intertek planted 500 trees on site.
8 AUSTRALIA, HONG KONG, JAPAN,
NEW ZEALAND, SOUTH KOREA,
TAIWAN
Intertek upgraded to LED lighting in labs
in these countries.
3
1
4
2
6
5
7
8
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INDEPENDENT ASSURANCE
STATEMENT TO INTERTEK GROUP
PLC MANAGEMENT
We have performed a limited assurance
engagement on selected performance
data presented on page 35 of the Intertek
Group plc (“Intertek Group”) Annual Report
2018 (“the Report”).
Respective responsibilities
Intertek Group management is responsible
for the collection and presentation of the
information within the Report. Intertek
Group management is also responsible
for the design, implementation and
maintenance of internal controls relevant
to the preparation of the Report, so that
it is free from material misstatement,
whether due to fraud or error.
Our responsibility, in accordance with our
engagement terms with Intertek Group
management, is to carry out a ‘limited
level’ assurance engagement on the
selected data (“the Subject Matter
Information”) outlined under the following
headings in the Report:
• Greenhouse gas emissions – scope 1;
• Greenhouse gas emissions – scope 2;
and
• Greenhouse gas emissions – intensity
ratio.
We do not accept or assume any
responsibility for any other purpose
or to any other person or organisation.
Any reliance any such third party may
place on the Report is entirely at its
own risk.
Our assurance engagement has been
planned and performed in accordance with
the International Standard for Assurance
Engagements (ISAE) 3000 Revised,
Assurance Engagements Other Than
Audits or Reviews of Historical Financial
Information. The Report has been
evaluated against the following criteria
(collectively “the Criteria”):
Completeness
• Whether all material data sources have
been included and that boundary
definitions have been appropriately
interpreted and applied.
Consistency
• Whether the Intertek Group scope and
definitions for the Subject Matter
Information have been consistently
applied to the data.
Accuracy
• Whether site and business-level data
have been accurately collated by
Intertek Group management at a
Global level.
• Whether there is supporting
information for the data reported by
sites and businesses to Intertek Group
management at a Global level.
Summary of work performed
The procedures we performed were based
on our professional judgement and
included the steps outlined below:
1.
2.
3.
4.
5.
6.
Interviewed a selection of
management to understand the
management of greenhouse gas data
within the organisation.
Reviewed a selection of management
documentation and reporting tools
including guidance documents.
Performed a review of the Accuvio
online data collection tool, including
testing outputs and selected
conversions made within the tool.
Reviewed underlying documentation
for a sample of site-level data points.
Reviewed and challenged the
validation and collation processes
undertaken by Intertek Group
management in relation to the Subject
Matter Information.
Reviewed the Report for the
appropriate presentation of the
Subject Matter Information,
including the discussion of limitations
and assumptions relating to the
data presented.
Limitations of our review
Our evidence gathering procedures
were designed to obtain a ‘limited level’
of assurance (as set out in ISAE3000
(Revised)) on which to base our
conclusions. The extent of evidence
gathering procedures performed is less
than that of a reasonable assurance
engagement (such as a financial audit)
and therefore a lower level of assurance
is provided.
Completion of our testing activities has
involved placing reliance on Intertek
Group’s controls for managing and
reporting sustainability information,
with the degree of reliance informed by
the results of our review of the
effectiveness of these controls. We have
not sought to review systems and
controls at Intertek Group beyond those
used for selected data (defined as the
Subject Matter Information above).
The scope of our engagement was limited
to the reporting period, and therefore
2018 performance only.
The responsibility for the prevention
and detection of fraud, error and non-
compliance with laws or regulations rests
with Intertek Group management. Our
work should not be relied upon to disclose
all such material misstatements, frauds,
errors or instances of non-compliance that
may exist.
Conclusion
Based on the procedures we have
performed and the evidence we have
obtained, nothing has come to our
attention that causes us to believe that
the Subject Matter Information was not
prepared, in all material respects, in
accordance with the Criteria, which were
applied by management.
Our independence
We have implemented measures to comply
with the applicable independence and
professional competence rules as
articulated by the IFAC Code of Ethics for
Professional Accountants and ISQC11. EY’s
independence policies apply to the firm,
partners and professional staff. These
policies prohibit any financial interests in
our clients that would or might be seen to
impair independence. Each year, partners
and staff are required to confirm their
compliance with the firm’s policies.
We confirm annually to Intertek Group
whether there have been any events,
including the provision of prohibited
services that could impair our
independence or objectivity. There were
no such events or services in 2018.
Our assurance team has been drawn
from our global Climate Change and
Sustainability Services Practice, which
undertakes engagements similar to this
with a number of significant UK and
international businesses.
Ernst & Young LLP
London
4 March 2019
1. Parts A and B of the IESBA Code, and the
International Standard on Quality Control 1
(ISQC1).
Intertek Group plc Annual Report and Accounts 2018
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Strategic Report | Sustainability report – Solutions for a better world
TRACKING OUR PROGRESS
WITH THE UN SDGs
As a purpose-led
organisation and Total
Quality Assurance provider,
we are in a strong position
to align with each of the
United Nations Sustainable
Development Goals (‘UN
SDGs’). This is due both to
the internal activities we
carry out for our people,
our communities and the
environment, and to the
sustainability services we
provide to our customers.
We use the UN SDGs as a third party,
independent framework to track our
Country and Business Line progress in
sustainability. In our 2017 report, we
announced that from 2018 each of our
major Business Lines and Countries will
provide quarterly updates on their
progress towards achieving the UN SDGs
that they have chosen to align with
and embed in their daily activities.
A wide and impressive range of goals
is targeted across the organisation.
Quantitative and qualitative reporting
demonstrated during the year how our
countries have contributed to the goals.
Here we provide an overview of many of
the Group’s activities across all the UN
SDGs. We also include examples of
highlights from the year on a selection
of the goals, from both an internal and
a client services perspective.
LOOKING AHEAD
We will continue to update stakeholders
on our progress on the UN SDGs, providing
annual examples of our activities across
different Business Lines and Countries, both
from an internal and a client perspective.
INTERTEK ACTIVITIES ALIGNED TO ALL UN SDGs
• Charity and community
support initiatives
• Commitment to inclusion
and diversity policy
• Charity and community
support initiatives
• Charity and community
support initiatives
• Food testing services
for our clients
• Colleague health and
wellbeing programmes
• 10X training and
development for
Intertek colleagues
• Community education
support initiatives
• Workplace Gender Equality
report Australia
• EDGE certifications provided
to clients in Australia
• Real-time inequality
monitoring system in France
• Water quality testing
services for our clients
• Intertek China partners WWF
• Installation of Stem Battery
Solution in US
• Intertek certified several leading
regional quality alliances in China
• Environmental audits, training
and services for our clients
• Commitment to UK
Living Wage
• Charity and community
support initiatives
• Commitment to
‘Doing Business
the Right Way’
• Waste initiatives in the US,
Australia, UK, Hong Kong
• Verifying new sustainable
materials in Hong Kong
• Supporting sustainable
production of plastics
• Environmental audit
services for clients
• Environmental monitoring and
control in Intertek locations
• Fitting labs with LED lighting
• Charity and community
support initiatives
• Charity and community
support initiatives
• Commitment to ‘Doing
Business the Right Way’
• Global network of
Sustainability Champions
drive engagement with UN
SDGs locally
• Charity and community
support initiatives
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Intertek Group plc Annual Report and Accounts 2018
MAKING OUR OWN PROGRESS WITH THE UN SDGs…
Strategic Report
Strategic Report
CLIMATE ACTION
ABC Analitic, Intertek’s leading
environmental services
company based in Mexico, received
the government’s Certificate of
Environmental Compliance in June.
In achieving this, we reaffirmed
our commitment to caring for
and preserving the environment.
The Certification in Environmental
Compliance is an evaluation strategy
used to help improve the quality of
sustainable processes, products
and services.
INSTALLATION OF A STEM
BATTERY SOLUTION
The United States has a significant role to
play in Intertek’s energy use and how we
are meeting the carbon reduction goals
outlined in this report.
We therefore continue to implement better
ways for all of our US-based locations to
reduce their energy consumption. These
activities are fully aligned to the Affordable
and Clean Energy goal, focusing on energy
efficiency projects and clean energy
purchasing options.
In October 2018, Intertek’s Lake Forest
California site installed a Stem battery
system which is designed to reduce peak
energy demand. This battery storage
system also plays a part in strengthening
the California electricity grid by
supporting renewable energy in the state.
REDUCING GENDER INEQUALITY
Intertek first produced a Gender Pay Gap
report in 2017 for its UK operations.
We are highly committed to reducing the
pay gap and improving our gender balance
across the whole organisation globally.
We have, for example, ensured compliant
reporting to the Australian Government
Workplace Gender Equality Agency and
implemented a permanent system to
monitor inequalities in France.
In addition, we provide our clients with
key auditing services for Gender Equality,
such as Economic Dividends for Gender
Equality (EDGE). Intertek is the first
certification body fully approved to certify
companies against the EDGE standard,
which is the only global assessment
methodology and business certification
standard for gender equality.
…AND SUPPORTING CLIENTS’ PROGRESS WITH OUR SUSTAINABILITY SERVICES
WATER QUALITY TESTING SERVICES
Our wide range of water testing services
assists clients operating in all water-
related sectors, including water utilities,
industry, Oil & Gas, ports and harbours,
food, power generation, desalination and
pharmaceuticals. We help our clients use
practical technologies to explore water
properties and produce quality
improvements.
Partnership with WWF China
Intertek China established a partnership
with the World Wide Fund for Nature
(WWF China) in 2017, and since then has
participated in a project called ‘WWF
Water Management Innovation Action’.
By providing water management solutions
to the textile industry, Intertek aims to
improve corporations’ water use efficiency
within their value chain and pollutant
discharge conditions, as well as reducing
water related crises and adverse
environmental impacts in manufacturing
operations. We continue to offer training
services to increase textile companies’
water risk awareness.
Responding to crisis averts
environmental disaster
When several dead manatees were
spotted in rivers in the Mexican state
of Tabasco, a team from Intertek ABC
Analitic quickly rose to the challenge of
testing the water for toxins. When no high
levels of toxic substances were found
through conventional approaches, the
team needed to develop and implement
a series of entirely new tests in just
five days.
Because our labs are capable of quickly
processing the complex matrices required
in these instances, our involvement was
mission-critical in enabling local
government bodies to make informed
decisions and act quickly to prevent wider
environmental impacts.
RESPONSIBLE PRODUCT
PRODUCTION
Intertek is at the forefront of ensuring
the safe and sustainable execution and
delivery of products to their intended
markets. Our capabilities in a range of
industries – including electrical and
electronic products, medical devices,
IT and telecoms, toys and games,
juvenile products, textiles and apparel,
food and more – give clients access
to an interconnected knowledge base
that provides solutions to everything
from regulatory issues to supply
chain challenges.
Total Quality Assurance validation
of sustainable material
In Hong Kong, our client manufactures
Chitosan yarn, a sustainable new material
that’s based on a natural compound
derived from the shells of crab and
shellfish. Intertek has created a unique
and innovative testing method both to
verify the material’s existence within yarn
and to assure its recycling lifecycle. This
Total Quality Assurance solution validates
the material’s anti-bacterial, odour
repellent and biodegradable properties.
First ‘Water Footprint’ Green Leaf
Mark awarded
A product developed by the Ming Fai
Group, the leading company in the Chinese
hotel industry’s consumer goods sector,
has received the first water footprint
Green Leaf mark. The Reeco product
reduces the foam produced in the laundry
process, cutting washing time and water
consumption to reflect the key
importance of addressing water scarcity.
The Green Leaf mark award follows
Intertek’s work evaluating the life cycle
of the Reeco product, from manufacture
to implementation.
Intertek Group plc Annual Report and Accounts 2018
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Strategic Report | Sustainability report – Solutions for a better world
OUR SUSTAINABILITY GOVERNANCE
At Intertek, sustainability is
core to our business and
everything we do. We are
constantly evaluating and
improving our processes,
both in the services that
we offer to our customers
and in our own business
processes and initiatives.
In 2017 we established a set of five Group
sustainability priorities, linked to our 5x5
differentiated strategy for growth. We
further developed these over 2018,
under the leadership of the Sustainability
Operating Committee.
THE SUSTAINABILITY OPERATING
COMMITTEE
The purpose of the Sustainability
Operating Committee (the ‘Committee’) is
to advance Intertek’s initiatives, both in
our external sustainability services for
clients and our internal sustainability
activities. The core elements the
Committee focuses on include:
• Oversight of the development of
Intertek’s sustainability service
offerings;
• Oversight of the progress made on
internal sustainability activities, including
Intertek’s environmental footprint, GHG
emissions, contribution to the UN SDGs,
tracking and reporting of key ESG
metrics and reporting to the Executive
Management Team and the Board.
To enhance engagement across our
sustainability initiatives, the Committee is
supported by a network of Sustainability
Champions across our major Countries
and Business Lines. Their roles include:
SUSTAINABILITY NETWORK
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 as well as through
encouraging sustainability engagement
with local stakeholders.
• Maintaining best-in-class internal labour
and human rights practices, activity
monitoring and improving social
sustainability metrics.
Business Line network:
• Engaging the sales organisation within
the Business Line to ensure it is aware
of all the sustainability services that
can be offered to customers.
• Working with colleagues globally to help
develop our suite of sustainability
services.
• Helping to generate new and innovative
ways of offering sustainability services
to our customers.
We aim to expand this network over time
to include more Countries and Business
Lines, enhancing engagement across our
business in sustainability activities.
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.
Each of our Countries and Business
Lines defines its own sustainability
agenda, tied to our Group priorities.
This ensures that the objectives and
activities being performed locally are
understood, and that we benefit from
best practice globally.
RESPONSIBLE INVESTMENT
Generating sustainable, long-term returns
is a key enabler of our 5x5 strategy for
growth. We achieve this by means of a
Responsible Investment (‘RI’) approach.
RI includes the evaluation of ‘ESG’ risks as
part of the investment process.
ESG due diligence forms a key part of our
acquisition review process. We also use it
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.
As appropriate, acquired businesses
will be provided with access to our
Group Environmental Data Software
and will be required to submit their
environmental data as part of the
ongoing reporting cycle.
SUPPORTING OUR CLIENTS –
ETHICAL SOURCING FORUM
Our Sustainability value proposition also
supports our clients in their supply chain
risk assessments.
Since 2001, Intertek’s Global Business
Assurance business line has leveraged its
supply chain expertise in shaping the
Ethical Sourcing Forum (ESF). This is an
industry-leading event focused on supply
chain social responsibility and responsible/
ethical sourcing. The conference’s main
theme, ‘Be Part of the Solution’,
emphasises ESF’s role in the continuously
improving and ever-changing areas
of working conditions, human rights
and environmental conditions in the
supply chain.
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
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Intertek Group plc Annual Report and Accounts 2018
Intertek Group plc Annual Report and Accounts 2018
In 2018 we held two ESF events,
one in New York and one in London.
These covered, among other topics,
Modern Slavery and hidden labour risks
in the UK and US, as well as global supply
chain trends.
In the UK, a panel of industry experts
who were invited to speak and take part
in roundtable discussions included:
• Ethical Trade Manager, Sainsbury’s
Group;
• Head of Global Ethical Policy, BBC
Studios;
• Director of Operations, Gangmasters
Labour Abuse Authority;
• Human Rights, Modern Slavery and
Responsible Sourcing Consultant; and
• Intertek Group General Counsel and
Head of Risk & Compliance.
The forum provided an opportunity for
senior compliance and ethical sourcing
representatives from UK brands and
retailers to discuss and learn about the
risks of sourcing from the UK, especially
around the subject of worker exploitation.
This topic is important because the
current access to a labour market via
labour agencies is increasing
organisational risks such as compromised
brand reputation and reduced visibility
and control during sourcing and due
diligence practices.
Strategic Report
Strategic Report
In the US, the panel included a
representative of the US government,
Senior Policy Advisor Forced Labour
Programmes, US department of Homeland
Security Investigations, providing
different perspectives on business and
government initiatives.
Going forward, the Intertek Business
Assurance team will build on these events.
It is scheduling future Ethical Sourcing
Forums in 2019 in key sourcing markets.
NON-FINANCIAL INFORMATION STATEMENT
We aim to comply with non-financial reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006.
The below table, and information it refers to, is intended to assist stakeholders in understanding our position on key non-financial
matters. This builds on existing reporting under the following frameworks: Global Reporting Initiative, Guidance on the Strategic
Report (UK FRC) and UN Sustainable Development Goals.
REPORTING
REQUIREMENT
Environmental
matters
Employees
Social matters
Human rights
POLICIES AND STANDARDS WHICH GOVERN
OUR APPROACH
• Environmental and Climate Change Policy1
• GHG Protocol’s: ‘Corporate Accounting and Reporting Standard’ and
‘Corporate Value Chain (Scope 3) Standard’
ISO 140064-1
•
• UK Government’s ‘Environmental Reporting Guidelines: including
mandatory greenhouse gas emissions reporting guidance’
IMPLEMENTATION, OUTCOMES
AND ADDITIONAL INFORMATION
Our Environment – pages 34 to 39
• Board Diversity Policy
• Code of Ethics2
• Group Health & Safety Policy1
• Hampton-Alexander Review
•
•
• UK Gender Pay Gap
• UK Real Living Wage
Inclusion and Diversity Policy2
International Labour Organization’s Core Conventions
• Our Approach to CSR1
•
Integrated Global Sustainability Services
• Labour and Human Rights Policy1
• Modern Slavery Statement2
• Modern Slavery Policy2
• Privacy Policy2
• UN Convention on Human Rights
Our People – pages 28 to 31
Nomination Committee – pages 80 to 82
Our Communities – pages 32 to 33
Our Sustainability Value Proposition – pages 26 to 27
Our People – pages 28 to 31
Anti-corruption and
anti-bribery
• Anti-Bribery Policy2
• Anti-Bribery External Relationships Policy2
• Whistleblowing Hotline
Principal Risks and Uncertainties – pages 54 to 59
Accountability – page 83 to 88
Our People – pages 28 to 31
Description of principal risks and impact of business activity
Principal Risks and Uncertainties – pages 54 to 59
Description of the business model
Non-financial key performance indicators
Our 5x5 Strategy – pages 2 to 3
Our Earnings Model – pages 12 to 13
Our People – pages 28 to 31
Our Environment – pages 34 to 39
1. Certain Group Policies and internal standards and guidelines are not published externally.
2. Certain Group Policies and internal standards and guidelines are published on our website, www.intertek.com.
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 2018
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Strategic Report | Operating reviews
PRODUCTS
Excellent performance with
strong margin-accretive
revenue growth
BUSINESS LINES
Softlines
Hardlines
Transportation Technologies
Food
Electrical & Connected World
Chemicals & Pharma
Business Assurance
Building & Construction
REVENUE
£1,680.2m
FINANCIAL HIGHLIGHTS 2018
ADJUSTED OPERATING PROFIT
Revenue
£371.0m
STATUTORY OPERATING PROFIT
£344.5m
Organic revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2018
£m
1,680.2
1,654.4
371.0
22.1%
344.5
20.5%
2017
£m
1,625.5
1,620.6
350.5
21.6%
335.5
20.6%
Change at
actual
rates
Change at
constant
rates
6.6%
5.2%
9.5%
60bps
3.4%
2.1%
5.8%
50bps
2.7%
(10)bps
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,
people assurance, process performance
analysis, facility plant and equipment
verification and third-party certification.
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.
INNOVATION
We continue to invest in innovation to
deliver a superior customer service in
our Products-related businesses:
360º Brand Assurance and
E-Reputation
• Customer Insight: Our Food Industry
customers are taking an increasingly
holistic approach to risk in their supply
chain and organisation; with the rise
of social media, detailed E-Reputation
monitoring is becoming a key part
of their risk management and
mitigation strategies
• Food innovation: Intertek has
developed a unique TQA solution
providing an end-to-end mapping of
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Intertek Group plc Annual Report and Accounts 2018
Strategic Report
EVER BETTER SOLUTIONS
PEOPLE ASSURANCE
I
N
S
I
G
H
T
In a world of increasingly complex supply chains and
distribution channels, employees are key in driving
operational excellence. As corporations around the world
increase their focus on quality, safety, productivity and
compliance, our clients are seeking ‘People Assurance’
solutions that enable them to identify, monitor and close
skills gaps amongst employees – particularly frontline
employees. These services are mission-critical for our
clients to deliver the highest standards in customer service.
As we engage with our clients and as we continue to build
our Business Assurance services, we acquired Alchemy
Systems, a leading People Assurance specialist with
a unique Software as a Solution (‘SaaS’) offering.
I
N
N
O
V
A
T
O
N
I
Alchemy’s cloud-based technology platforms, industry-
specific training content, and bespoke employee
communications programmes help identify and close skills
gaps quickly and efficiently. Alchemy engages with over
three million frontline employees at 50,000 locations
around the world to drive safety, operational excellence,
and customer service. The Alchemy, Wisetail, Ontrack, and
Catalyst platforms are scalable across multiple industries
and ensure an organisation’s workforce is empowered with
the right knowledge and confidence to consistently perform
their jobs in the right way.
T
Q
A
S
O
L
U
T
O
N
S
I
E
V
E
R
B
E
T
T
E
R
Assurance
Intertek’s People Assurance solutions are industry-agnostic
and uniquely designed to address the skill gaps and
increase the level of engagement to empower employees to
work at their maximum potential. We continue to use
customer insights, data and innovation to expand our
Assurance proposition, together with our scale position in
100+ countries with our TQA experts operating at a local
level. We can now offer People Assurance solutions to our
global client base across multiple industries to continue to
drive operational excellence and mitigate risk.
Intertek Group plc Annual Report and Accounts 2018
45
• We delivered robust organic revenue
growth in our Electrical & Connected
World business driven by higher
regulatory standards in energy
efficiency and by the increased demand
for wireless devices and cybersecurity.
• We continue to benefit from the
increased focus of corporations on food
safety and delivered robust organic
revenue growth in our Food business.
• We delivered robust 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 and
we benefited from the increased focus
on product safety and traceability.
• Driven by the growing demand for more
environmentally friendly and higher
quality buildings and infrastructure
in the US market, our Building &
Construction business reported
robust organic revenue growth.
2019 OUTLOOK
We expect our Products division to
benefit from good 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
our customers’ E-Reputation and
Operational data to deliver tailored 360º
Brand Assurance Reports
• Customer benefit: Our customers now
have a 360º view of the risk areas
across their food service site networks,
as well as ATIC action plans to mitigate
those risks
First and Only Oligonucleotide
Expert Centre Globally
• Customer insight: Our customers’
ground-breaking research and
development into DNA- or RNA-based
therapeutics (oligonucleotides) needs
highly experienced analytical scientists
and state-of-the-art technology to
enable efficient drug development for
the treatment of diseases including
cancer, neurodegenerative disorder
and cardiovascular diseases
• Chemicals and Pharma innovation:
In the UK, Intertek has established a
unique, dedicated centre for regulatory-
driven analytical development and
quality control support for
oligonucleotide therapeutics, offering
unrivalled product specific expertise to
our global clients. Our world leading
oligonucleotide scientists provide
innovative and comprehensive
analytical support throughout the
pharmaceutical development life cycle
• Customer benefit: With access to
Intertek’s world leading subject matter
experts and specialist analytical
technology, we empower our clients to
ensure the safety, purity and quality of
their oligonucleotide products through
highly efficient development support,
helping them to bring their treatments
to the market, and to the patients that
need it, faster
Accelerated Screening of Restricted
Substances
• Customer insight: Our customer, a
luxury watch manufacturer, urgently
needed to determine whether their
product contained any of 950+ banned
substances before they could enter a
new market
• Assurance innovation: We provided
an accelerated screening programme,
supported by our proprietary Material
Risk Database, which contains 50,000+
data points. Through the programme,
we assessed each product component’s
risk of containing a banned substance.
We then mobilised our extensive lab
network to rapidly assess the material
risk components
• Customer benefit: Thanks to our
accelerated screening programme, our
customer was able to enter the market
successfully and faster than they had
expected, benefitting from Intertek’s
proprietary technology, lab network
and efficient assurance approach
2018 PERFORMANCE
In 2018 our Products business delivered
an excellent performance with strong
margin-accretive revenue growth.
Our organic revenue growth at constant
rates was 5.2%, driven by broad-based
revenue growth across business lines and
geographies. We delivered strong adjusted
operating profit of £371m, up 9.5% at
constant currency enabling us to deliver
a margin of 22.1%, up 60bps versus
last year:
• Our Softlines business reported solid
organic growth performance. We are
leveraging the investments we have
made to support the expansion of our
customers into 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 good organic
revenue growth performance across
our main markets of China, Hong Kong,
India and Vietnam.
• Our Transportation Technologies
business delivered double digit 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 strong 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 and
increased consumer and government
focus on ethical and sustainable supply.
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Intertek Group plc Annual Report and Accounts 2018
Strategic Report
EVER BETTER SOLUTIONS
CONNECTED WORLD
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In recent years, cybercrime has grown from a threat to
corporations’ IT systems, to one that permeates every
element of operations. Everything from automated
manufacturing sites to the connected products sold to
customers is affected. This is a new dimension of risk for
consumer goods as diverse as lightbulbs to fridges, vehicles
to pacemakers. In addition to the familiar requirements of
electrical, physical and chemical safety testing is now
added cybersecurity assurance, of which clients rarely have
significant experience. Intertek’s Connected World business
has a deep knowledge of product cybersecurity. We help
clients to mitigate new and ever-evolving risks. This allows
their customers – securely – to experience the benefits
connectivity brings to their daily lives.
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Intertek’s Connected World provides cybersecurity
solutions for clients based on risk factors of specific
products and systems. Our testing for the medical device
sector (to which Intertek already provides extensive
services for electrical safety testing) is at the forefront of
product cybersecurity. Connectivity brings huge
advantages to both individual patients, such as real-time
remote monitoring and diagnosis, and society more broadly
as medical Big Data collected from connected devices
speeds the development of new medicines. However, the
associated risks are significant, from data privacy concerns
about individuals’ most sensitive information being
accessed through to fatal risks associated with
compromised embedded devices.
To help clients launch products which harness these
huge benefits of connectivity whilst mitigating the risks,
Intertek provides a range of services from basic penetration
tests through to full evaluation under US Food and
Drug Administration guidelines. Work on products as
diverse as surgical robots to hospital monitoring equipment
help our clients eliminate security flaws and launch
successful products.
Assurance
Testing
Inspection Certification
Regulators are increasingly focusing on product
cybersecurity in addition to existing data privacy laws.
Notably EU and Californian regulation is expected in H2
2019 and Q1 2020 respectively. Intertek is ready to help all
our clients meet these challenges, with support at every
point in their product life cycle. In addition to securing the
physical product, Intertek’s Network Security businesses
provide a range of cybertesting such as penetration tests
and social engineering. These tests provide assurance over
data generated by connected products held in the cloud and
test the security of underlying IT systems. In this way
Intertek helps clients’ protect their businesses against all
facets of cybercrime.
Intertek Group plc Annual Report and Accounts 2018
47
Strategic Report | Operating reviews
TRADE
Solid performance with an
acceleration in the second
half of the year
BUSINESS LINES
Caleb Brett (Cargo/AA)
Government & Trade
Services
AgriWorld
REVENUE
£642.1m
ADJUSTED OPERATING PROFIT
£83.4m
STATUTORY OPERATING PROFIT
£78.3m
FINANCIAL HIGHLIGHTS 2018
Revenue
Organic revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2018
£m
642.1
636.5
83.4
13.0%
78.3
12.2%
2017
£m
647.8
647.8
88.7
13.7%
82.8
12.8%
Change at
actual
rates
Change at
constant
rates
(0.9)%
(1.7)%
(6.0)%
3.1%
2.2%
(1.3)%
(70)bps
(60)bps
(5.4)%
(60)bps
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:
• Our Cargo/AA business, newly
rebranded Caleb Brett, 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.
INNOVATION
We continue to invest in innovation to
deliver a superior customer service in our
Trade-related businesses:
Rapid Response to Extreme Weather
Events
• Customer insight: With the increase
in extreme weather events and the
effects of climate change, our insurance
industry customers are finding that
large and complex ‘Catastrophic Loss’
claims are becoming more frequent.
The ability of our customers to manage
their risks quickly and safely is vital
when dealing with these claims
• Trade innovation: Intertek has created
a unique ‘rapid response’ solution to
requests for support on these large
and complex claims, attending the site
within 24 hours and working to assess
safety, environmental impacts and to
advise on remedial strategies in
mitigating the loss
• Customer benefit: With Intertek’s
support, our insurance industry
customers are able to mitigate
catastrophic losses faster than ever
before, while continuing to ensure
safety and compliance
ScanCal Laser Scanning
• Customer insight: For Intertek’s Caleb
Brett customers, accurate and timely
storage tank stock measurement is key
for robust stock management, allowing
them to identify stock losses and
loading issues. However, traditional
volumetric approaches can interrupt
operations and cause safety risks
• Caleb Brett innovation: Intertek’s
proprietary ScanCal platform uses laser
scanning technology to collect and
analyse minutely detailed calibration
imaging in real time, avoiding
interrupting operations, cutting
calibration time by over 90% and
reducing safety risks
• Customer benefit: Our customers’
newfound ability to identify issues
quickly, accurately and without stopping
operations, has allowed them to realise
significant operational efficiency gains
Scanning Electron Microscopy
• Customer insight: When the extreme
wear conditions of our customers’
48
Intertek Group plc Annual Report and Accounts 2018
mechanical equipment cause concern,
they look to Intertek to determine how
this debris was produced and whether
this has implications for the life
expectancy of the equipment
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• Caleb Brett innovation: Our experts
have leveraged cutting edge Scanning
Electron Microscope technology,
not normally used for this purpose,
in an innovative new way. Using this
technology, our experts can analyse
the wear debris with unprecedented
accuracy
• Customer benefit: With this new level
of accuracy, our customers can take
maintenance and replacement decisions
with confidence, with greater certainty
on the condition of their equipment
and the potential impact of any damage
on the quality of the end product and
safety of their staff
2018 PERFORMANCE
Our Trade-related businesses delivered
an organic revenue growth of 2.2% at
constant rates, driven by broad-based
revenue growth across business lines and
geographies and we delivered an adjusted
operating profit of £83.4m, down 1.3% at
constant currency driven by portfolio mix.
• Our Caleb Brett 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.
• Our AgriWorld business delivered an
organic revenue lower than last year
due to lower export activities in a few
markets that benefited from strong
trading activity in 2017.
2019 OUTLOOK
We expect our Trade-related businesses
to benefit from good organic 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.
Strategic Report
EVER BETTER SOLUTIONS
INTERTEK INTERPRETTM
As the global demand for energy increases,
so too does the need to ensure complex
hydrocarbon compounds are accurately analysed
and effectively utilised.
Oil and gas companies are looking for innovative
solutions to help them improve efficiency and data
accuracy during hydrocarbon processing within
production and refining environments. Rapid access
to composition measurement data, characterisation
analysis and evaluation are critical for increasing
productivity, reducing costs, improving efficiency
and growing profits. This customer insight led
Intertek to develop the innovative ‘Interpret’
software solution.
Interpret was developed to give clients rapid access
to the vital data required to make informed
decisions on product quality, saving time and cost
while maximising margins. This game-changing
breakthrough has led us to create a vast database
of the world’s crude oils, radically streamlining the
processes involved in analysing crude oil chemistry.
By leveraging expertise from across Intertek we
enable refineries to accurately predict, in real time,
the economics of the oil they refine. This is truly a
new layer of specialist support and domain
expertise, from our centres of excellence in
Aberdeen and oil industry hubs across the world,
including Houston, Rotterdam and Singapore.
Intertek is the only company in the world that
combines global modelling expertise, technically
advanced software and a vast crude oil database
to enable real-time, traceable insight on crude
oil compositions.
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By combining these insights to deliver one unique
solution, Interpret provides our clients with faster,
real-time data to make informed decisions on
product quality and quantity. This solution is being
used by increasingly more major refineries around
the world as it provides them with a tangible
competitive advantage. Given the high scalability
of the Interpret platform Intertek can help its
clients not only in the oil and gas sector but also
in other industries.
Intertek Group plc Annual Report and Accounts 2018
49
Strategic Report | Operating reviews
RESOURCES
Improved performance
following several
years of challenging
trading conditions
BUSINESS LINES
Industry Services
Minerals
REVENUE
£478.9m
ADJUSTED OPERATING PROFIT
£27.4m
STATUTORY OPERATING PROFIT
£13.4m
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.
FINANCIAL HIGHLIGHTS 2018
Revenue
Organic revenue
Adjusted operating profit
Adjusted operating margin
Statutory operating profit
Statutory operating margin
2018
£m
478.9
478.9
27.4
5.7%
13.4
2.8%
2017
£m
495.8
495.8
28.5
5.7%
4.4
0.9%
Change at
actual
rates
Change at
constant
rates
0.3%
0.3%
(0.4)%
(10)bps
(3.4)%
(3.4)%
(3.9)%
0bps
204.5%
190bps
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 allows 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:
Microwave Interferometry
• Customer insight: A major
petrochemical customer had a vast
network of fibre-reinforced plastic
piping systems in urgent need of
integrity assessments
• Industry Services innovation:
Intertek’s experts developed a new
inspection solution based on an
innovative application of the advanced
technique of Microwave Interferometry,
allowing for rapid and precise
microwave scanning of the pipelines,
delivering substantial integrity
assessment productivity gains
• Customer benefit: Our customer
gained assurance over the integrity of
their piping quickly and without having
to stop operations
Ultrasonic Sensors Incorporated
into Intertek Aware
• Customer insight: Our Oil and Gas
customers monitor the corrosion of
their equipment to determine its life
expectancy and to prevent failures.
Traditional inspection methods are
manual, involving shutting down
equipment, and can present safety risks
when equipment is hard to reach
• Industry Services innovation:
Intertek’s experts place remote
ultrasonic sensors on our customers’
equipment in precisely the right areas
to measure the rate of corrosion with
the greatest accuracy. The data is
automatically fed into Intertek’s
proprietary Aware software, where
it is analysed to predict when the
equipment should be replaced, before
failures occur
• Customer benefit: Intertek’s
innovative approach removes the need
for operations to be interrupted and
the risk to safety. Our Aware software
empowers our customers to predict
equipment corrosion rates in real
time, allowing for timely repairs
or replacement
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Intertek Group plc Annual Report and Accounts 2018
Extreme Conditions Simulation
• Customer insight: Our Oil Industry
customers see managing corrosion as
vital in protecting our environment from
damaging oil spills. The injection of
corrosion inhibitor chemicals is an
important corrosion control strategy
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• Industry Services innovation: To test
whether our customers’ corrosion
inhibitors will perform reliably, our
experts have developed advanced test
methods and equipment to simulate
worst-case operating conditions,
through manipulating factors including
brine chemistries, flow rates,
temperature, acid gas partial pressures
and pipeline condition
• Customer benefit: Our customers can
continue their production operations
with the confidence that the
environment and their equipment
are protected
2018 PERFORMANCE
Our Resources-related businesses
reported an organic revenue growth of
0.3% at constant rates. We delivered an
adjusted operating profit of £27.4m, and
our disciplined approach to cost control
enabled us to report an operating margin
that was broadly stable:
• The revenue from Capex Inspection
Services was lower than last year
and our Opex Maintenance Services
continued to benefit from stable
volume in a price competitive
environment.
• Accelerating the trend seen in 2017,
we saw robust growth in demand for
testing activities in the Minerals
business.
2019 OUTLOOK
We expect to deliver a solid organic
revenue growth in our Resources division.
MID- TO LONG-TERM OUTLOOK
Our Resources division will grow in the
mid- 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
EVER BETTER SOLUTIONS
INTERTEK DEEPVIEW 3DTM
In the complex world of offshore oil and gas
production, the time and costs involved in
inspecting safety-critical equipment are major
issues for drilling contractors and operators.
To gain a competitive edge, they require access to
precise, digital data on equipment condition that
helps monitor performance and improve safety.
Under traditional inspection and maintenance
programmes, key components often need to be
broken down and taken onshore in a time-
consuming inspection process. This ties up
mission-critical and expensive resources, while
the transportation contributes significantly to a
company’s carbon footprint.
Following in-depth customer conversations
drawing on TQA expertise from across our ATIC
value chain, Intertek developed a practical,
lower-cost process to enable rapid on-deck
inspections. DeepView 3D TM is a new, innovative
inspection methodology that combines 3D laser
scanning and precise metrology data with advanced
non-destructive testing (‘NDT’) results that are
then joined in 3D space. By combining established
technologies to create an innovative new
solution, DeepView 3D TM produces a digital
equipment condition record, while reducing
typical inspection time and significantly
minimising a company's environmental impact.
In addition, over time this new solution allows
clients to move away from time-based
maintenance to a more efficient condition-based
programme, generating significant cost savings.
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Inspection
Using innovation and cutting-edge technologies,
Intertek now sets a new standard for digital
mechanical integrity data and condition assessment
of critical drilling and offshore operational assets.
This margin-accretive, differentiated solution will
also allow Intertek to diversify into other areas that
involve expensive and hazardous testing
requirements, including the aerospace, nuclear,
defence, automotive and construction industries.
As a result, DeepView 3D TM has generated
considerable interest amongst existing and new
clients in the oil and gas industry.
Intertek Group plc Annual Report and Accounts 2018
51
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
62 and 63.
Non-financial KPIs are shown in the Sustainability report on
pages 22 to 43.
DEFINITIONS
• Constant currency rates (‘CCY’): Growth at constant
exchange rates compares both 2018 and 2017 figures
at the average and year-end exchange rates for 2018,
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 2017.
• Operating Profit: Revenue less Operating costs.
• Operating Margin: Operating Profit divided by Revenue.
• Return on Invested Capital: Adjusted Operating Profit
less 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 119.
Adjusted actual rates
Adjusted constant rates
Statutory actual rates
2018 Adjusted
2017 Adjusted
Proforma excluding Alchemy
Statutory
REVENUE# (£m)
Revenue growth measures how well the Group is expanding
its business, and includes currency impacts.
2018
2017
1.2%
4.7%
2,801
2,769
OPERATING PROFIT1,# (£m)
Measures profitability of the Group and includes currency impacts.
2018
2017
3.0%
6.9%
3.2%
436
482
423
468
DILUTED EARNINGS PER SHARE1 (pence)
A key measure of value creation for the Board and for
shareholders.
2018
2017
3.5%
7.7%
0.9%
174.7
198.3
176.3
191.6
CASH FLOW FROM OPERATIONS1 (£m)
Shows the ability of the Group to turn profit into cash.
2018
2017
1.1%
0.3%
581
603
579
596
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Strategic Report
ORGANIC REVENUE (£m)
Revenue growth, excluding acquisitions
and disposals.
IN THIS SECTION
2018
2017
0.2%
3.7%
2,770
2,764
This section demonstrates the Group’s
performance against Key Performance
Indicators, summarises the Group’s
principal risks and uncertainties and
provides commentary on the financial
performance of the Group in 2018.
OPERATING MARGIN1 (%)
Margin measures profitability as a proportion of revenue.
2018
2017
30bps
40bps
30bps
15.6
17.2
15.3
16.9
DIVIDEND PER SHARE2 (pence)
Dividend per share measures returns provided to shareholders.
2018
2017
39.0%
99.1
71.3
RETURN ON INVESTED CAPITAL AT CONSTANT EXCHANGE
RATES3,# (%)
Measures how effectively the Group generates profit from its
invested capital.
2018
2017
20.6%
26.9%
(excl. Alchemy)
20.6
26.9
24.9
# Revenue, Adjusted Operating Profit and Return on Invested Capital (‘ROIC’)
are recalculated using 2017 exchange rates to form the basis for Executive
Director remuneration, as described in more detail on pages 98 to 99.
1. Adjusted operating profit, adjusted operating margin, adjusted cash flow
from operations and adjusted diluted earnings per share are stated before
Separately Disclosed Items, which are described on pages 62 to 63. There is no
difference between adjusted and statutory revenue.
2. Dividend per share is based on the interim dividend of 31.9p (2017: 23.5p) plus
the proposed final dividend of 67.2p (2017: 47.8p).
3. 2017 ROIC has been prepared using 2018 average exchange rates for Adjusted
Operating Profit and Adjusted Tax, and year end 2018 exchange rates for
Invested Capital. 2017 ROIC at actual rates was 26.7%.
KPIs
Read more on page 52
PRINCIPAL RISKS AND UNCERTAINTIES
Read more on page 54
FINANCIAL REVIEW
Read more on page 60
Intertek Group plc Annual Report and Accounts 2018
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Strategic Report | Principal risks and uncertainties and Long-term Viability statement
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 83 to 88.
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.
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
Operational
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.
Our principal risks continue to evolve in response to our changing
risk environment. We have added Brexit as a risk this year
because of the continuing political uncertainty. We have
considered the risks presented by Brexit based on potential
scenarios. As part of our risk planning, we have taken steps
to relocate our UK-based Notified Bodies to other EU member
states as Brexit will have a direct impact on the ability of
UK-based Notified Bodies to issue EC certificates for products
being sold in the EU markets. Although we are keeping Brexit
developments under review, we do not at this stage perceive
any material risk to the Company’s viability arising from Brexit.
Two previous risks are no longer identified as principal risks for
2018: litigation risk is no longer seen as a principal risk on a
standalone basis as it is a sub-set of the quality and reputation
risks; we believe our facilities risk has reduced based on our
business continuity planning work.
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 2023, 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.
PRINCIPAL RISK
CONTEXT
POSSIBLE IMPACT
MITIGATION
2018 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.
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.
54
Intertek Group plc Annual Report and Accounts 2018
• Quality Management Systems; adherence to these is regularly audited and
• This risk remains stable compared with 2017.
reviewed by external parties, including accreditation bodies.
• The Group continues to invest in staff development,
• Risk Management Framework and associated controls and assurance processes,
quality systems and standard processes to prevent
including contractual review and liability caps where appropriate.
operational failures.
• 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.
• Whistleblowing 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.
• Net Promoter Score (‘NPS’) customer satisfaction, customer sales trends and
• This risk remains stable compared with 2017.
Strategic Report
SCENARIO
ASSOCIATED PRINCIPAL RISKS
DESCRIPTION
Regulatory environment change
Customer service issue
Ethical and/or quality breach
IT systems breach
• Industry and competitive landscape
• Customer service
• Regulatory and political change
• People retention
• Reputation
• Brexit
• Industry and competitive landscape
• Customer service
• Business ethics
• People retention
• Reputation
• Brexit
• Customer service
• Business ethics
• People retention
• Financial risk
• Operational health, safety and security
• Reputation
• Brexit
• Customer service
• People retention
• IT systems and data security
• Reputation
• Brexit
Failure to identify, understand and
respond to regulatory or political changes
results in loss of revenue, profitability,
market share and/or adversely changes
the competitive landscape.
Failure to respond/adapt to a customer
service issue leads to a loss of key customers
and detrimentally impacts reputation.
An ethical and/or quality breach
leads to litigation (including significant
fines and debarment from certain
territories / activities), reputational
damage, loss of accreditation and
erosion of customer confidence.
A serious data security / IT systems breach
results in a significant financial penalty
and a loss of reputation among customers.
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 2023. The statement on going
concern is in the Directors’ Report on page 88.
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
ways: directly as the result of the actions of the Group
and 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
2018 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.
• Whistleblowing 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 2017.
• 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 customer loss.
• Net Promoter Score (‘NPS’) customer satisfaction, customer sales trends and
• This risk remains stable compared with 2017.
customer innovation or to deliver our services in
• Gradual erosion of market share and reputation if
accordance with our customers’ expectations
and our customer promise.
competitors are perceived to have better, more
responsive or more consistent service offerings.
turnaround time tracking.
• Global and Local Key Account Management (‘GKAM’/’LKAM’) initiatives in place.
• Customer feedback meetings.
• Customer claims/complaints reporting.
Intertek Group plc Annual Report and Accounts 2018
55
MITIGATION
• HR strategy policies and systems.
• Development and reward programme to retain and motivate employees.
• Succession planning to ensure effective continuation of leadership
and expertise.
2018 UPDATE
• This risk remains stable compared with 2017.
• Quality management and associated controls, including safety training,
• This risk remains stable compared with 2017.
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.
• 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-selling initiatives.
• NPS customer research to understand customer satisfaction.
• This risk remains stable compared with 2017.
• 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.
Strategic Report | Principal risks and uncertainties and Long-term Viability statement
PRINCIPAL RISKS AND UNCERTAINTIES
continued
Operational
PRINCIPAL RISK
CONTEXT
POSSIBLE IMPACT
• 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.
• 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.
• 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.
• Reduced work volumes or delays in anticipated
• Monitoring of legal / regulatory / political developments affecting Group
• This has been added as a new risk as political
customer orders.
• Longer-term changes in global supply chains could lead
to a need to refocus our service offering or delivery
locations to align optimally with customer requirements
and to remain competitive.
• A failure to attract and retain talent could lead to
a failure to optimise growth.
• A failure to identify, understand and align our service
offering and delivery with additional or diverging
regulatory barriers could lead to a loss of revenue /
profitability / market share.
• 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.
companies and our ability to operate.
uncertainty remains.
• Engagement with customers to monitor developments, views and feedback.
• Brexit has a direct impact on our U.K. Notified Bodies
• Monitoring of media and public statements by customers / regulatory bodies /
and we have taken steps to relocate these
• Liaising with UK Government departments to gather intelligence and explore
• We continue to monitor developments.
businesses to address that risk.
other stakeholders.
opportunities to support.
service delivery.
• Access to market sector analysis from advisers.
• Prioritised investment in growth / strategic areas.
• Brexit planning to mitigate impacts on Notified Bodies, people and customer
• Information systems policy and governance structure.
• Regular system maintenance.
• Backup systems in place.
• This risk remains stable compared with 2017.
• Additional work being undertaken to ensure
continued adherence to the EU’s General Data
• Disaster recovery plans that are constantly tested and improved to minimise
Protection Regulation since implementation in
the impact if a failure does occur.
May 2018.
• 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.
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.
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.
Industry and
Competitive
Landscape
UK Withdrawal
from the EU
(Brexit)
IT Systems and
Data Security
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.
Flow of goods and services: increased friction at
customs points could disrupt our customers’ “just in
time” supply chains in the short-term or lead to changes
in global supply chains in the mid- to longer-term.
People: restrictions on the free movement of people
between the UK and EU could make it more difficult
to attract and retain talent in those markets.
Regulatory environment: de-harmonisation relating to
product or manufacturing standards could increase the
regulatory burden on our customers and have an impact
their investment decisions.
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.
56
Intertek Group plc Annual Report and Accounts 2018
People Retention
The Group operates in specialised sectors and needs
• Poor management succession.
to attract and retain employees with relevant
• Lack of continuity.
experience and knowledge in order to take advantage
• Failure to optimise growth.
of all growth opportunities.
• Impact on quality, reputation and customer confidence.
• Loss of talent to competitors and lost market share.
Operational
Any health and safety incident arising from our
• Individual or multiple injuries to employees and others.
Health, Safety
activities. This could result in injury to Intertek’s
• Litigation or legal/regulatory enforcement action
and Security
employees, sub-contractors, customers and/or
(including prosecution) leading to reputational damage.
any other stakeholders affected.
• Loss of accreditation.
• Erosion of customer confidence.
Industry and
Competitive
Landscape
A failure to identify, manage and take advantage of
• Failure to maximise revenue opportunities.
emerging and future risks. Examples include the
• Failure to take advantage of new opportunities.
opportunities provided by new markets and customers,
• Lack of ability to respond flexibly.
a failure to innovate in terms of service
• Erosion of market share.
offering and delivery, the challenge of radically new and
• Impact on share price.
different business models, and the failure to foresee
• Failure to respond to macroeconomic factors.
the impact of, or adequately respond to and comply
• Sanctions and fines for non-compliance with
with, changing or new laws and regulations.
Macroeconomic factors such as a global/market
downturn and contraction/changing requirements
in certain sectors.
new laws, etc.
People: restrictions on the free movement of people
between the UK and EU could make it more difficult
to attract and retain talent in those markets.
Regulatory environment: de-harmonisation relating to
product or manufacturing standards could increase the
regulatory burden on our customers and have an impact
their investment decisions.
and to remain competitive.
• A failure to attract and retain talent could lead to
a failure to optimise growth.
• A failure to identify, understand and align our service
offering and delivery with additional or diverging
regulatory barriers could lead to a loss of revenue /
profitability / market share.
Operational
PRINCIPAL RISK
CONTEXT
POSSIBLE IMPACT
MITIGATION
• HR strategy policies and systems.
• Development and reward programme to retain and motivate employees.
• Succession planning to ensure effective continuation of leadership
and expertise.
Strategic Report
2018 UPDATE
• This risk remains stable compared with 2017.
• Quality management and associated controls, including safety training,
• This risk remains stable compared with 2017.
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.
• 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-selling initiatives.
• NPS customer research to understand customer satisfaction.
• This risk remains stable compared with 2017.
• 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.
UK Withdrawal
Flow of goods and services: increased friction at
• Reduced work volumes or delays in anticipated
• Monitoring of legal / regulatory / political developments affecting Group
• This has been added as a new risk as political
from the EU
(Brexit)
customs points could disrupt our customers’ “just in
customer orders.
time” supply chains in the short-term or lead to changes
• Longer-term changes in global supply chains could lead
in global supply chains in the mid- to longer-term.
to a need to refocus our service offering or delivery
companies and our ability to operate.
• Engagement with customers to monitor developments, views and feedback.
• Monitoring of media and public statements by customers / regulatory bodies /
locations to align optimally with customer requirements
other stakeholders.
uncertainty remains.
• Brexit has a direct impact on our U.K. Notified Bodies
and we have taken steps to relocate these
businesses to address that risk.
• Liaising with UK Government departments to gather intelligence and explore
• We continue to monitor developments.
opportunities to support.
• Brexit planning to mitigate impacts on Notified Bodies, people and customer
service delivery.
• Access to market sector analysis from advisers.
• Prioritised investment in growth / strategic areas.
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
shortages/cuts etc.
potential fines.
• Information systems policy and governance structure.
• Regular system maintenance.
• Backup systems in place.
• Disaster recovery plans that are constantly tested and improved to minimise
• Potential costs of IT systems replacement and repair.
the impact if a failure does occur.
• This risk remains stable compared with 2017.
• Additional work being undertaken to ensure
continued adherence to the EU’s General Data
Protection Regulation since implementation in
May 2018.
• 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.
• 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.
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 2018
57
Strategic Report | Principal risks and uncertainties and Long-term Viability statement
PRINCIPAL RISKS AND UNCERTAINTIES
continued
Legal and Regulatory
PRINCIPAL RISK
CONTEXT
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.
POSSIBLE IMPACT
• 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 or
management time.
• Corresponding loss of value and reputation could result
in funding being withdrawn or provided at higher
interest rates.
• Possible adverse publicity.
MITIGATION
2018 UPDATE
• Annual Code of Ethics training and sign-off requirement.
• This risk remains stable compared with 2017.
• Whistleblowing programme, monitored by the Group Risk Committee,
• Ongoing annual confirmations ensure that staff
where staff are encouraged to report, without risk, any fraudulent or other
verify compliance with the Code of Ethics.
activity likely 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 2018, 158 (2017: 202) non-compliance
• The Group employs local people in each country who are aware of local legal
issues were reported through the whistleblowing
and regulatory requirements. There are also extensive internal compliance
hotline and other routes. All were investigated
and audit systems to facilitate compliance. Expert advice is taken in areas
with 45 (2017: 36) substantiated and corrective
where 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 remains stable compared with 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 2017.
that the Group’s assets are protected from major financial risks.
• Adherence to Authorities Grid (which sets approval limits for
financial transactions).
• ‘Doing Business the Right Way’ established as core
principle within Intertek.
• 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.
58
Intertek Group plc Annual Report and Accounts 2018
Strategic Report
POSSIBLE IMPACT
MITIGATION
2018 UPDATE
• Annual Code of Ethics training and sign-off requirement.
• Whistleblowing programme, monitored by the Group Risk Committee,
where 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
• This risk remains stable compared with 2017.
• Ongoing annual confirmations ensure that staff
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 2018, 158 (2017: 202) 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.
• Monitoring of regulatory environment and political developments.
• Analysis of impact of regulatory and political changes on operational SOPs
and Group policies.
• Membership of relevant associations, e.g. IFIA with related advocacy and
liaison activities.
issues were reported through the whistleblowing
hotline and other routes. All were investigated
with 45 (2017: 36) substantiated and corrective
action taken.
• This risk remains stable compared with 2017.
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
that the Group’s assets are protected from major financial risks.
• Adherence to Authorities Grid (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 2017.
• ‘Doing Business the Right Way’ established as core
principle within Intertek.
• Review and update of core mandatory controls for
year-end compliance certification.
Legal and Regulatory
PRINCIPAL RISK
CONTEXT
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,
• Loss of accreditation.
and committed either by our people or sub-contractors
• Erosion of customer confidence.
who must also abide by the Code.
• Impact on share price.
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.
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
and/or provide a competitive customer offering in any
the competitive landscape.
existing or new industry sector or market.
Financial
employees. On acquisitions or investments, the
• Large-scale losses can affect financial results.
financial risk or exposure arising from due diligence,
• Potential legal proceedings leading to costs and or
integration 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.
Intertek Group plc Annual Report and Accounts 2018
59
Strategic Report | Financial review
FINANCIAL REVIEW
We have continued to make strong progress in
the delivery of our 5x5 differentiated strategy for
growth. In 2018, we accelerated organic revenue
growth, further improved operating profit margin
to a record 17.2% and delivered strong EPS
growth. Our focus on cash and balance sheet
efficiency delivered strong cash conversion
and continued improvements in ROIC on an
underlying basis.”
Ross McCluskey
Chief Financial Officer
Improved organic revenue growth and
a focus on cost and operational initiatives
delivered a record margin for the Group.
CONSOLIDATED INCOME STATEMENT COMMENTARY
Revenue for the year was £2,801.2m, up 1.2% (up 4.7% at
constant exchange rates), with organic revenue growth
of 3.7% at constant exchange rates.
+1.2% +4.7%
Revenue up to £2,801m
+39.0%
Dividend per share
+3.0% +6.9%
Adjusted operating profit
up to £482m
+3.2% +7.2%
Statutory operating profit
up to £436m
+30bps +40bps
Adjusted operating margin
up to 17.2%
+30bps +40bps
Statutory operating margin
up to 15.6%
+3.5% +7.7%
Adjusted diluted EPS
(0.9)% +3.2%
Statutory diluted EPS
£389m
Acquisitions
£113m
Organic investment spend
£110m (20.7)%
Working capital
3.9% (110)bps
Working capital % revenue
Actual rates
Constant rates
The Group’s organic revenue reflected 5.2% growth in the
Products division and 2.2% growth in the Trade division, while
trading conditions in our Resources division resulted in a stable
revenue performance in 2018.
The Group’s adjusted operating profit was £481.8m, up 3.0%
on the prior year (up 6.9% at constant exchange rates).
The adjusted operating margin was 17.2%, an increase of 40bps
from the prior year at constant exchange rates, representing a
record for the Group. Adjusted organic operating margin at
constant rates increased by 30bps as we benefited from positive
operating leverage and margin-accretive divisional mix. It is also
pleasing to note the positive contribution of acquisitions to the
Group, which added 10bps to margin in 2018.
In March 2016, the Group announced its 5x5 differentiated
strategy for growth and our implementation continued at pace
in 2018, and after three years we are now over halfway through
our portfolio review. Consistent with the delivery of our 5x5
strategy for growth enablers, we also continued to refine our
organisational structure to effectively support our business
model. In line with this, a £13.6m restructuring cost has been
recognised in Separately Disclosed Items (SDIs) in the year,
which impacted 18 business units in the year, taking the total
programme to 76 business units.
The Group’s statutory operating profit for the year was £436.2m
(2017: £422.7m), with statutory operating margin of 15.6%,
up 30bps on the prior year. The Group’s statutory profit for
the year after tax was £305.2m (2017: £306.4m) reflecting
higher SDIs in the year and an increased tax charge.
60
Intertek Group plc Annual Report and Accounts 2018
Strategic Report
NET FINANCING COSTS
The Group benefitted from a lower adjusted net financing cost of
£25.3m (2017: £28.9m) in the year. Adjusted net financing costs
pre-foreign exchange movements declined by £0.1m in the year
to £26.8m (2017: £26.9m), despite the acquisition of Alchemy in
August 2018. Foreign exchange movements resulted in a gain of
£1.5m in the year (2017: £2.0m loss). The statutory net financing
cost of £31.7m included £6.4m (2017: £0.5m) relating to SDIs.
TAX
The Group effective tax rate on adjusted profit before income
tax was 24.7% (2017: 24.5%) reflecting the unwind of the
one-off 2017 benefit from the US tax reforms being offset by
the recognition of additional deferred tax assets. The adjusted
tax charge, which excludes the impact of SDIs, is £112.8m
(2017: £107.5m).
The statutory tax charge, including the impact of SDIs, of
£99.3m (2017: £86.9m), equates to an effective rate of 24.5%
(2017: 22.1%) and the cash tax on adjusted results is 20.4%
(2017: 23.0%).
RESULTS FOR THE YEAR
Key financials
Revenue
Adjusted Group operating profit
Adjusted diluted EPS
Statutory Group operating profit
Statutory diluted EPS
Adjusted profit after tax
Statutory profit after tax
Adjusted cash flow from operations
Statutory cash flow from operations
Dividend per share
Dividends paid in the year
2018
£m
2,801.2
481.8
198.3p
436.2
174.7p
343.7
305.2
602.9
580.9
99.1p
128.3
2017
£m
2,769.1
467.7
191.6p
422.7
176.3p
331.3
306.4
596.1
579.2
71.3p
107.0
FIVE-YEAR PERFORMANCE
Adjusted Diluted EPS1 (pence)
+7.4% CAGR3
2018
2017
2016
2015
2014
2013
Dividend per Share2 (pence)
+16.6% CAGR3
2018
2017
2016
2015
2014
2013
198.3
191.6
167.7
140.7
132.1
138.6
99.1
71.3
62.4
52.3
49.1
46.0
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 2018 is based on the interim dividend paid of 31.9p
(2017: 23.5p) plus the proposed final dividend of 67.2p (2017: 47.8p).
3. CAGR represents the compound annual growth rate from 2013 to 2018.
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
Revenue
Adjusted operating profit
2018
£m
1,680.2
642.1
478.9
2,801.2
Change at
actual rates
%
3.4
(0.9)
(3.4)
1.2
Change at
constant
rates
%
6.6
3.1
0.3
4.7
Notes
2
2
2
14
6
7
Change at
actual rates
%
5.8
(6.0)
(3.9)
3.0
Change at
constant
rates
%
9.5
(1.3)
(0.4)
6.9
4.0
3.7
3.5
8.3
8.0
7.7
2018
£m
371.0
83.4
27.4
481.8
(25.3)
456.5
112.8
343.7
198.3p
Intertek Group plc Annual Report and Accounts 2018
61
Strategic Report | Financial review
FINANCIAL REVIEW
continued
EARNINGS PER SHARE
The Group delivered adjusted diluted earnings per share (‘EPS’) of
198.3p (2017: 191.6p). Diluted EPS after SDIs was 174.7p (2017:
176.3p), and basic EPS was 176.8p (2017: 178.6p).
DIVIDEND
In line with our new dividend policy that targets a payout of circa
50%, the Board recommends a full-year dividend of 99.1p per
share, an increase of 39%. 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 99.1p represents a total cost of
£159.9m or 50% of adjusted profit attributable to shareholders
of the Group for 2018 (2017: £115.1m and 37%). The dividend is
covered 2.0 times by earnings (2017: 2.7 times), based on
adjusted diluted earnings per share divided by dividend per share.
5X5 STRATEGY IMPLEMENTATION
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 and the refinement of our
organisational structure.
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 £13.6m 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 reorganisation
of various management structures either in-country or across
multiple countries in a region; or the fundamental reorganisation
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.
PENSIONS
The Group’s net pension liabilities reduced to £12.5m (2017:
£17.8m) driven by periodic update to our actuarial assumptions.
The Group has noted the recent High Court ruling regarding
guaranteed minimum pension liabilities and our work to
quantify the impact is underway, although it is not expected
to be meaningful.
In 2018, the Group recorded a £5.4m (2017: nil) pension
curtailment gain on the UK defined benefit scheme.
62
Intertek Group plc Annual Report and Accounts 2018
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.
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 related to acquisition activity; 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 as part
of our 5x5 differentiated strategy for growth 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 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 in order to provide useful information regarding
the underlying performance of the Group’s operations.
The SDIs charge for 2018 comprises amortisation of acquisition
intangibles of £24.6m (2017: £16.0m); acquisition costs relating
to successful, active or aborted acquisitions of £8.5m
(2017: £3.2m); restructuring costs (as described above) of
£13.6m (2017: £12.4m); and gain on disposal of subsidiaries
and associates of £1.1m (2017: £nil).
2018 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
Statutory
2,801.2
436.2
15.6%
(31.7)
(99.3)
305.2
SDIs
–
45.6
1.6%
6.4
(13.5)
38.5
Adjusted
2,801.2
481.8
17.2%
(25.3)
(112.8)
343.7
580.9
602.9
22.0
Basic EPS (p)
Diluted EPS (p)
176.8p
174.7p
23.9p
23.6p
200.7p
198.3p
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
579.2
178.6p
176.3p
Adjusted
2,769.1
467.7
16.9%
(28.9)
(107.5)
331.3
596.1
194.1p
191.6p
16.9
15.5p
15.3p
Further information on Separately Disclosed Items is given in
note 3 to the financial statements.
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 four (2017: two) acquisitions in the year
with 2018 cash consideration of £387.9m (2017: £27.4m),
net of cash acquired of £5.6m (2017: £2.1m).
In March 2018, the Group acquired Aldo Abela Surveys Limited
(“AAS”), a leading provider of quality and quantity cargo
inspection services, based in Malta.
In April 2018, the Group acquired Proasem S.A.S. (“Proasem”),
a leading provider of laboratory testing, inspection, metrology
and training services to the Oil & Gas sector, based in Colombia.
In June 2018, the Group acquired NTA Monitor Limited (“NTA”),
a leading network security and assurance services provider,
based in the UK and Malaysia.
In August 2018, the Group acquired Alchemy Investment
Holdings, Inc. (“Alchemy”), an industry leader in People Assurance
solutions for the food industry, based in the USA.
These acquisitions provide valuable additional service lines
and new geographic locations for the Group, and will help
drive future profitable revenue growth and further accelerate
the growth momentum of our high-margin and capital-light
assurance business.
In 2018, £0.1m (2017: £7.8m) was spent in relation to
consideration for prior-year acquisitions.
Organic investment
The Group also invested £113.2m (2017: £112.9m) organically
in laboratory expansions, new technologies (including software)
and equipment and other facilities. This investment represented
4.0% of revenue (2017: 4.1%).
Strategic Report
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 52 to 53.
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 2017) 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
2018
£m
2,801.2
2017
£m
2,769.1
Change
%
1.2%
(31.4)
2,769.8
(4.9)
2,764.2
0.2%
–
92.5
2,769.8
2,671.7
3.7%
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 2018 of 20.6% compares to 24.9% in the prior year at
constant exchange rates. Excluding the impact of Alchemy which
was acquired in August 2018, ROIC in 2018 was 26.9%, 200bps
up versus prior year.
Return on Invested
Capital at constant
currency
Adjusted operating
profit
less: Adjusted tax*
Adjusted profit after tax
Invested capital*
ROIC %
Return on Invested
Capital at constant
currency (excluding
Alchemy)
Adjusted operating
profit
less: Adjusted tax*
Adjusted profit after tax
Invested capital*
ROIC %
2018
£m
2017
£m
Change
%
481.8
(119.1)
362.7
1,764.2
20.6%
450.8
(110.5)
340.3
1,366.2
24.9%
6.9%
7.8%
6.6%
29.1%
(430)bps
2018
£m
2017
£m
Change
%
483.2
(119.4)
363.8
1,354.9
26.9%
450.8
(110.5)
340.3
1,366.2
24.9%
7.2%
8.1%
6.9%
(0.8)%
200bps
* Definitions of the above measures are given on page 52.
Intertek Group plc Annual Report and Accounts 2018
63
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:
2018
£m
2017
£m
Change
%
FIVE-YEAR TREND – ADJUSTED CASH FLOW FROM
OPERATIONS (£m)
+8.9% CAGR1
2018
2017
2016
580.9
579.2
0.3%
2015
22.0
16.9
30.2%
602.9
596.1
1.1%
2014
2013
2.0
2.8
(28.6)%
1. CAGR represents the compound annual growth rate from 2013 to 2018.
602.9
596.1
565.3
465.7
403.7
394.1
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 %
604.9
125.6%
598.9
128.1%
1.0%
(250)bps
A reconciliation of cash generated from operations to free cash
flow is provided below:
Free Cash Flow Reconciliation
Cash Generated from Operations
less: Net capital expenditure
add back: Interest received
less: Interest paid
less: Income tax paid
Free cash flow
add back: SDI Cash outflow
Adjusted free cash flow
2018
£m
580.9
(109.7)
1.8
(29.3)
(93.1)
350.6
22.0
372.6
2017
Restated1
£m
579.2
(109.7)
1.2
(28.3)
(100.8)
341.6
16.9
358.5
1. 2017 adjusted and statutory free cash flows have been restated from £341.6m
and £308.7m respectively as disclosed in the 2017 Annual Report and Accounts.
The restatement was required to correctly reconcile the Separately Disclosed
Items and amortisation of acquired intangibles.
64
Intertek Group plc Annual Report and Accounts 2018
Working capital
During 2018, we have continued our working capital intensity
and through disciplined performance management working
capital has reduced by £28.6m to £109.7m. Working capital has
declined to 3.9% of sales reflecting 110bps improvement
year-on-year, contributing to continued strong cash conversion.
FIVE-YEAR TREND – WORKING CAPITAL AS % OF REVENUE
(540)bps1
2018
2017
2016
2015
2014
3.9
5.0
7.1
8.8
9.3
1. Reduction in working capital as a percentage of revenue from 2014 to 2018.
Strategic Report
Net debt
Net debt has increased from £544.1m at 31 December 2017
to £778.2m at 31 December 2018, primarily reflecting the
acquisition of Alchemy in August 2018.
In the year, the Group drew on facilities it had in place at
31 December 2017. Total undrawn committed borrowing facilities
as at 31 December 2018 were £247.9m (2017: £443.2m).
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
19%
Less than one year
One to five years
Over five years
14%
67%
Under existing facilities the Group has available debt headroom
of £248m at 31 December 2018. The components of net debt
at 31 December 2018 are outlined below:
1 January
2018
£m
135.9
(680.0)
(544.1)
Cash flow1
£m
55.2
(266.3)
(211.1)
Exchange
adjustments
£m
12.1
(35.1)
(23.0)
31 December
2018
£m
203.2
(981.4)
(778.2)
Cash
Borrowings
Net debt
FOREIGN CURRENCY MOVEMENTS
The Group transacts in over 80 currencies across more than 100
countries, and revenue and profit are impacted by the currency
fluctuations. However, the diversification of the Group’s revenue
base provides a partial dilution to this exposure.
At constant exchange rates, revenue grew 4.7% (actual exchange
rates 1.2%) and adjusted operating profit grew 6.9% (actual
exchange rates 3.0%).
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:
Value of £1
US dollar
Euro
Chinese renminbi
Hong Kong dollar
Australian dollar
Statement of financial
position rates
Income
statement rates
2018
1.26
1.11
8.69
9.90
1.80
2017
1.34
1.13
8.79
10.47
1.72
2018
1.34
1.13
8.84
10.47
1.79
2017
1.29
1.14
8.72
10.05
1.68
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, including the impact of the new accounting
standards applicable for the first time in 2018, being IFRS 9 and
IFRS 15, are shown in note 1 to the financial statements.
1. Cash flow includes £0.8m of non-cash movements related to amortisation of
facility fees (see note 14 of the financial statements).
Ross McCluskey
Chief Financial Officer
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 2018,
analysed by currency is as follows:
BORROWINGS BY CURRENCY
94%
USD
CHF
EUR
AUD
CAD
1%
1%
3%
1%
The Strategic Report was approved by the Board on
4 March 2019
By order of the Board.
André Lacroix
Chief Executive Officer
Intertek Group plc Annual Report and Accounts 2018
65
Directors' Report | Chairman's introduction
CHAIRMAN'S INTRODUCTION
The Board is committed to long-term
sustainable growth through a
combination of revenue growth
and returns on investment to drive
shareholder value underpinned
by strong corporate governance.”
Sir David Reid
Chairman
DEAR SHAREHOLDER
As you will have seen from our Strategic Report, Intertek
continued to execute well and deliver on its strategic priorities in
2018 focusing on Total Quality Assurance solutions underpinning
our customer centricity. Organic growth of 3.7% at constant rates
was the highest in five years, we improved margins for the fourth
consecutive year and cash conversion was once again over 125%
with net debt of £778m and a good performance on return on
invested capital at the year end. This cash flow and a strong
financial position provide us with options to create sustainable
shareholder value through our disciplined capital allocation policy.
We invested £113m in capital expenditure and in addition made
four acquisitions for a total cost of £389m, the most significant
being Alchemy, based in the US, a leading software provider in
People Assurance solutions for the food industry that will further
accelerate the growth momentum of our Assurance Business in
the US and also our international network.
In 2018, our progressive dividend policy saw us return £128m
to shareholders through cash dividends. We aim to deliver
sustainable dividend growth over time, and announced in March
2018 that we would increase the dividend payout ratio to circa
50% from 2018. The Board is recommending a final dividend of
67.2p bringing the total to 99.1p for the full year 2018, an
increase of 39% compared with 2017.
Your Board has maintained its commitment to achieving the
highest standards of corporate governance. But governance
goes well beyond simple compliance with codes and regulations.
It is about culture, practices and how our people act. It is about
integrity and accountability. It is about ensuring that our values
are embedded and upheld throughout the organisation. It is
a strong framework and means we have a Board that both
supports and challenges the executive team. It is critical
underpinning for generating long-term value and benefit for
all stakeholders.
The aim of this report is to provide shareholders and other
readers with a clear perspective of your Board’s approach to
corporate governance, how we have complied with the 2016
UK Corporate Governance Code ('Code’) and the work of the
Board and its Committees during 2018.
CORPORATE GOVERNANCE DEVELOPMENTS
Since 2017 the focus on corporate governance in the UK has
continued to evolve and the Board has paid close attention to
66
Intertek Group plc Annual Report and Accounts 2018
these developments. We noted the publication of the 2018 UK
Corporate Governance Code ('new Code') and the issuing of the
Companies (Miscellaneous Reporting) Regulation 2018, which
updates the Companies Act 2006, both marking the culmination
of the Government’s suite of governance reforms aiming to build
trust in business.
The Board is strongly supportive of the revisions to the Code and
the approach to refresh the existing framework, given the impact
on wider society and the greater corporate responsibility large
organisations have in an ever-evolving environment. The new
Code is effective from 1 January 2019 and steps have been taken
to ensure implementation during the year.
The Board is already committed to providing focus and upholding
high standards of corporate governance in areas relating to
corporate culture; diversity; strengthening the stakeholder voice
and adopting appropriate remuneration structures. We hope that
this is evidenced through both the Directors’ and Strategic Reports.
BOARD CHANGES
On 22 August 2018, we welcomed Ross McCluskey who was
promoted to the Board as Executive Director and Chief Financial
Officer, succeeding Edward Leigh. We thank Ed for his significant
contribution to our performance over his five years with the Group.
PERFORMANCE EVALUATION
As Chairman, I am responsible for ensuring the effectiveness
of the Board, its Committees and individual Directors.
Recognising the many attributes required of an effective
Board, focus has been given to our own composition and
the diversity this represents.
As announced last year, the evaluation and performance review
of the Board was undertaken with the assistance of an
independent party, Lorna Parker. I am pleased to report that the
evaluation concluded that the Board operates effectively, with
each Director making significant contributions to debate and
discussion. Further details on the outcome of the evaluation
and its process can be found on pages 78 and 79.
Through the annual evaluation process and the work of our
Nomination Committee, we have reviewed and challenged where
appropriate our succession plans, the skills and knowledge
required by the Board now and in the future, and relevant
developments including the Hampton-Alexander and Parker
Reviews and the revision of the Code.
PEOPLE
The new Code encourages boards to ensure the voices of our
employees are heard in the boardroom and we fully endorse
the moves to stimulate engagement with our workforce.
This engagement is highlighted in the table on page 77 showing
the site visits by Non-Executive Directors. I meet employees
when I visit our operations – 12 businesses in the past two years
– having open conversations, listening to what they have to say
and report back to the Board. These meetings have confirmed
that we have world-class people at the core of our business. I am
constantly impressed by their contribution, drive and commitment
to our customers and admire their sense of responsibility and
focus on improving performance which is so important to
Intertek’s ongoing growth and success.
We are of course very aware of the role of the Board in promoting
and supporting diversity in all its forms throughout Intertek, as
well as the Board and Executive Management Team. Your Board
fully supports the principles and has implemented the
recommendations of the Parker Review on ethnic and cultural
diversity. We recognise our obligation to society and that the
quality and diversity of our people are key to understanding the
needs and serving the communities in which we work. We firmly
believe that a diverse workforce is a key foundation and can be a
competitive advantage of our business to ensure we deliver
long-term value to our shareholders.
SUSTAINABILITY
Sustainability is at the heart of our business 'bringing safety and
quality to life' and accordingly we set our five Group Sustainability
priorities in 2017 and put in place two integrated networks and
reporting structures to keep the Executive Management Team
and the Board updated. In 2018, we continued on the journey
to improve our sustainability performance by focusing on the
environmental footprint of our operations, development of our
people, our work with local communities and progress against the
UN Sustainable Development Goals. And we have continued to
provide services to our customers to improve the sustainability
of their businesses through our industry-leading Sustainability
value proposition.
SHAREHOLDER ENGAGEMENT
We have maintained a comprehensive engagement programme
with shareholders throughout the year. The detail is outlined
on pages 108 and 109. This year we are putting to shareholders
a new Remuneration Policy and have been actively consulting
with shareholders as set out in the Remuneration Report in
the letter from the Chair of the Remuneration Committee on
page 89 and 90.
The views of our shareholders are essential to the Board and it is
important that we understand these when considering strategic
options available to the Group.
Finally, I would like to thank our CEO André and all his team, my
Board colleagues and all our employees for their hard work during
the year and our shareholders for their continued support.
Sir David Reid
Chairman
Directors' Report
IN THIS SECTION
This report provides an insight
into how, through its actions,
the Board and its Committees
have fulfilled their governance
responsibilities throughout 2018.
LEADERSHIP
Read more on page 68
EFFECTIVENESS
Read more on page 76
ACCOUNTABILITY
Read more on page 83
REMUNERATION
Read more on page 89
SHAREHOLDER ENGAGEMENT
Read more on page 108
Intertek Group plc Annual Report and Accounts 2018
67
Directors' Report | Corporate Governance
LEADERSHIP
COMPLIANCE WITH THE 2016 UK CORPORATE
GOVERNANCE CODE ('CODE')
This report has been prepared in order to provide 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 available at www.frc.org.uk. During
2018, 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 110
to 112.
conduct and success of the business through entrepreneurial
and innovative leadership, and setting the strategic aims of the
Company, its values, standards and culture. The Board also
decides and reviews all key policies and regulations, its strategy,
operating plans, large acquisitions, corporate governance, major
investments and disposals, the 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 AND ITS RESPONSIBILITIES
The Board has the ultimate responsibility to promote the
long-term sustainable success of the Company, generating value
for shareholders and contributing to wider society, to the
Company’s shareholders and our stakeholders for the proper
The Board is 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 65.
Intertek Board of Directors
Biographical details can be found on pages 74 and 75.
Audit Committee
Nomination Committee
Remuneration Committee
Membership as at
31 December 2018
- Andrew Martin (Chair)
- Dame Louise Makin
- Jean-Michel Valette
- Lena Wilson
Read more on pages 83 to 88.
Membership as at
31 December 2018
- Sir David Reid (Chair)
- Graham Allan
- Gurnek Bains
- Dame Louise Makin
- Lena Wilson
Read more on pages 80 to 82.
Membership as at
31 December 2018
- Gill Rider (Chair)
- Graham Allan
- Gurnek Bains
- Andrew Martin
Read more on pages 89 to 107.
Membership
as at 31
December
2018
Role
Ethics &
Compliance
Committee
- André Lacroix
- Tony George
- Mark Thomas
Responsible for the
monitoring of
ethical, compliance
and HSE issues
affecting any part
of the Intertek
Group.
Group Risk
Committee
- André Lacroix
- Tony George
- Mark Thomas
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-wide approach to
identifying and managing the Group’s
emerging and systemic risk environment.
Investment
Committee
Disclosure
Committee
- André Lacroix
- Ross McCluskey
- André Lacroix
- Mark Thomas
Executive
Management
Team
Sustainability
Operating
Committee
Biographical
details of the team
can be found on
pages 20 and 21.
Responsible for
overseeing the
Group’s compliance
with securities
dealing as well as
continuous and
periodic disclosure
requirements.
Responsible for
Intertek’s global
operations, the
Team meets
regularly to discuss
and review business
and operational
issues.
Responsible for
reviewing
significant
contracts, leases
and acquisitions,
undertaking post
investment
appraisal reviews,
overseeing capital
expenditure and
investments as
described in the
Group’s Authorities
Grid.
- André Lacroix
- Nimer Al-Hafi
- Darrin Harkness
- Ann-Michele
Bowlin
- Josh Egan
- Matthew Allen
Responsible for
advancing Intertek’s
initiatives in both
our internal
sustainability
activities, as well as
our external
sustainability
services for clients.
Products, Trade and Resources
Business Lines and Country Management
Support
Functions
68
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
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 has reviewed the terms of reference for each of these
Committees and is satisfied that they 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 Core Mandatory Controls and the Group Authorities Grid,
which are regularly reviewed and refreshed. This agreed
framework of controls enables strategic aims and financial
performance to be delivered whilst also allowing risk to be
assessed and managed.
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
Graham Allan
Senior
Independent
Non-Executive
Director
RESPONSIBILITIES
• Leading and governing the Board to ensure its effectiveness in directing the Company.
• Assessing and monitoring the culture within the Company and ensuring that it aligns
to the Company’s purpose.
• Ensuring the Directors receive accurate, timely and clear information to enable them to
discharge their duties to promote the long-term sustainable success of the Company.
• Ensuring effective two-way communication between the Board and shareholders
and stakeholders.
• 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, sustainability 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 and other stakeholders 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.
Intertek Group plc Annual Report and Accounts 2018
69
BOARD BALANCE & COMPOSITION
As at 31 December 2018, 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 74 and 75. 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.
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.
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 80 to 82.
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 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.
Directors' Report | Corporate Governance
LEADERSHIP
continued
MEETING, ATTENDANCE & INDEPENDENCE
The table below sets out the Board and Committee attendance
during the year to 31 December 2018. 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.
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 and CEO.
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.
The Board reviews the independence of the Non-Executive
Directors, other than the Chairman, as part of its annual Board
effectiveness review. The Chairman is committed to ensuring
the Board comprises a majority of independent Non-Executive
Directors, who objectively challenge management, balanced
against the need to ensure continuity on the Board.
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.
Board and Committee meeting attendance
DIRECTOR
Sir David Reid
Chairman
André Lacroix
Chief Executive Officer
Edward Leigh1
Chief Financial Officer
Ross McCluskey2
Chief Financial Officer
Graham Allan
Senior Independent
Non-Executive Director
Gurnek Bains
Non-Executive Director
Dame Louise Makin
Non-Executive Director
Andrew Martin
Non-Executive Director
Gill Rider
Non-Executive Director
Jean-Michel Valette
Non-Executive Director
Lena Wilson
Non-Executive Director
BOARD AUDIT NOMINATION REMUNERATION
5/5
5/5
3/3
2/2
5/5
5/5
–
–
–
–
–
–
5/5
4/4
5/5
4/4
5/5
–
5/5
4/4
3/3
–
–
–
3/3
3/3
3/3
–
–
–
5/5
4/4
3/3
–
–
–
–
3/3
3/3
–
3/3
3/3
–
–
When required the Board also met at short notice on a quorate basis.
1. Edward Leigh ceased to be a Director on 22 August 2018.
2. Ross McCluskey was appointed to the Board with effect from 22 August 2018.
70
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
GENDER DIVERSITY OF THE BOARD
30%
70%
TENURE OF THE NON-EXECUTIVES
AS AT 31 DECEMBER 2018
37.5%
50%
12.5%
1 to 3 years
3 to 6 years
6 to 9 years
COMPOSITION OF THE BOARD
7
Male
Female
1
2
Chairman
Executives
Non-Executives
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 and
sector experience as at 31 December 2018.
Professional Experience
OUR
DIRECTOR
Sir David Reid
André Lacroix
Ross McCluskey
Graham Allan
Gurnek Bains
Dame Louise Makin
Andrew Martin
Gill Rider
Jean-Michel Valette
Lena Wilson
•
•
SECTORS CONSULTING
• • •
• • •
• • •
•
• • •
• •
•
• •
•
• • •
•
•
•
RISK
MANAGEMENT
•
•
•
•
•
•
•
•
•
•
CUSTOMER
SERVICE/CARE
•
•
PEOPLE
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
FINANCE
•
•
•
•
•
•
•
•
INTERNATIONAL
•
•
•
•
•
•
•
•
•
•
LISTED
COMPANY
DIRECTOR
•
•
•
•
•
•
•
•
•
PREVIOUS/
CURRENT
CHIEF
EXECUTIVE
•
•
•
•
•
•
PREVIOUS
NED
EXPERIENCE
•
•
•
•
•
•
•
•
PRODUCTS
TRADE
RESOURCES
Intertek Group plc Annual Report and Accounts 2018
71
Directors' Report | Corporate Governance
LEADERSHIP
continued
BOARD ACTIVITY DURING THE YEAR
The Chairman, and the 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.
To maintain the highest standards of governance, the Directors
receive a reminder of the Directors' duties under section 172 of
the Act and Directors received refresher training on their
responsibilities under section 172 of the Act during the year.
The Board considers its major stakeholder groups as shown
in the diagram below when agreeing its strategic priorities
and enablers.
Since the year end, the Board approved the Annual Report and
Accounts for 2018 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 external effectiveness of
the Board during 2018.
BOARD AND STAKEHOLDERS
ENABLERS
R I C C U L T U R E
T
N
E
R - C
E
M
COMMUNITIES
T A K E HOLDERS
S
G OUR C U S T O
LIVIN
DELIVERIN
G S
U
S
T
AI
N
A
B
L
E
G
R
O
W
T
H
T
N
E
M
E
G
A
N
A
M
E
C
N
A
M
R
O
F
R
E
D P
DISCIPLINE
CUSTOMERS
INVESTORS
THE BOARD
S
U
P
E
R
I
O
R
T
E
C
H
N
O
L
O
G
Y
SUPPLIERS
PEOPLE
ENERGISING OUR P E O P L E
72
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
BOARD AGENDA IN 2018
Corporate Governance
Reports of the activities of the Audit, Nomination and Remuneration Committees
AGM Preparation (Chairman’s script, Questions & Answers, proxy votes and
voting reports)
Re-election of Directors at the 2018 AGM
Directors' Conflicts of Interest
2017 Board, Director and Committee Evaluation Process
2018 External Board Effectiveness Review Process
Purchase of shares by ESOT
Compliance & Risk
Integrated Risk, Control, Compliance and Quality Report
Modern Slavery Statement
Customers
TQA Customer Value Proposition
ATIC Innovation Strategy
ATIC Update
People Management
Group People Strategy
Global Talent Planning
Executive Committee Succession Planning
Performance Management
CEO Report
Finance Report
Financial forecasts
Funding Report
Approval of full-year results, Annual Report and Accounts, half-year results, the AGM
circular and dividends
Group Portfolio update
Shareholder Engagement
Chairman’s Shareholder Roadshow Feedback
IR Report
Strategy
2018 Board Strategic Agenda
Group M&A Strategy
Group Strategy & Strategic Plan
Global Macro-trends
Geopolitical Perspective
Group IT Strategy
Assurance Strategy
Topics for 2018 Strategy Session
2019 Annual budget and Five-year plan
Sustainability
Group Sustainability Strategy
Other
Presentations by regions, country and business lines
Updates on developments, acquisitions and disposals
Feb
May
Aug
Oct
Dec
• • •
• • •
• • •
• • •
•
• •
•
•
• • • • •
• • • • •
•
•
• • • • •
• • • • •
• • • • •
• • • • •
•
•
•
•
•
•
• • • • •
•
• • • • •
•
•
•
• • • • •
•
•
• • • • •
•
•
• • • • •
•
•
•
•
•
•
•
•
• • • •
• •
•
•
•
• • •
•
• • • • •
• • • • •
• • •
• • • • •
•
• • • • •
•
• • • • •
CUSTOMERS
COMMUNITIES
INVESTORS
PEOPLE
SUPPLIERS
OTHER
Intertek Group plc Annual Report and Accounts 2018
73
Directors' Report | Corporate Governance
LEADERSHIP
continued
1
2
3
4
5
BOARD OF DIRECTORS
2 André Lacroix
Chief Executive Officer
Committees:
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 (now RELX Group), 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 Lacroix 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 was formerly the Senior Independent
Director of Reckitt Benckiser Group plc.
3 Ross McCluskey
Chief Financial Officer
Appointed to the Board as Chief Financial
Officer in August 2018. Ross McCluskey joined
Intertek in August 2016 as the Group’s
Financial Controller. Prior to that, he spent five
years at Inchcape plc, where he held senior
operational financial positions, including
Finance Director of Inchcape’s Australasian
and UK businesses. From 2002 to 2011,
Ross worked within the investment banking
sector, specialising in mergers and acquisitions,
and held roles at J.P. Morgan, Gleacher
Shacklock and Greenhill & Co.
4 Graham Allan
Senior Independent
Non-Executive Director
RN
Appointed to the Board as a Non-Executive
Director in October 2017. Graham Allan is a
Non-Executive Director of Associated British
Foods plc and a member of their Audit and
Remuneration Committees. He is also a Board
member of IKANO Pte Ltd, an Asian retail and
property company. Until August 2017, he was
the Group Chief Executive of Dairy Farm
International Holdings Limited, a pan-Asian
retailer and a subsidiary of Jardine Matheson.
Prior to joining Dairy Farm in 2012, he had been
President and CEO 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.
He was previously a Non-Executive Director of
InterContinental Hotels Group plc, Yonghui
Superstores Co. Ltd 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 Ltd, a premier global
business psychology consultancy. He led the
business as CEO 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
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.
74
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
6
7
8
9
10
6 Dame Louise Makin
Non-Executive Director
NA
8 Gill Rider CB
Non-Executive Director
R
10 Lena Wilson CBE
Non-Executive Director
NA
Appointed to the Board as a Non-Executive
Director in July 2012. Until October 2017,
Lena Wilson was the Chief Executive Officer
of Scottish Enterprise, Scotland's national
economic development agency, a member of
Scotland's Financial Services Advisory Board
and Chair of Scotland Oil and Gas Taskforce.
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.
Appointed to the Board as a Non-Executive
Director in July 2015. Gill Rider 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 Pro-Chancellor of the University of
Southampton (previously Chair from 2012 to
2018) and was the President of the Chartered
Institute of Personnel & Development for five
years until 2015. 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 Valette
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, Chair of the
Nomination Committee 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 &
Tea, Inc. He has an MBA from Harvard
Business School.
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 Ltd from 2000, holding the roles of
Vice President, Strategy & Business
Development Europe, and from 2001, President
of their Biopharmaceuticals division, where she
was responsible for Europe, Africa and the
Middle East. Prior to her time at Baxter, she was
a Director of Global Ceramics at English China
Clays PLC, 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. Andrew Martin is
Chairman of Hays plc and Chairman of their
Nomination Committee, 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 a Non-Executive Director of
the John Lewis Partnership Board and Chairman
of their Audit and Risk Committee. 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 (now TUI Group). Andrew also
previously held senior financial positions with
Forte plc and Granada Group plc (now ITV plc)
and was a partner at Arthur Andersen LLP.
Intertek Group plc Annual Report and Accounts 2018
75
Directors' Report | Corporate Governance
EFFECTIVENESS
DIRECTORS’ INDUCTION AND DEVELOPMENT
There is a full, formal and extensive induction programme which
is tailored to ensure that Directors joining the Board are provided
with the knowledge and materials to add value from an early
stage. 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. This process is kept under
review, taking into account Directors' feedback.
Ongoing and continual development is crucial to our Directors
remaining highly engaged, effective and well informed. All
Directors are kept up to date with information about Intertek’s
business and there is an ongoing programme of information
dissemination throughout the year. 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 together with presentations from
external advisors on regional micro and macro-economic trends.
The Chairman and the Group Company Secretary also put
together a schedule of external training for the Directors to
attend which included Audit Committee technical updates,
Remuneration Committee briefings and general Board Directors'
updates and discussions.
BOARD VISITS AND WORKFORCE ENGAGEMENT
Visit to the US — October 2018
Every year, one of the board meetings is held overseas and a
detailed itinerary is prepared to allow plenty of time for Directors
to visit the local laboratories and meet management and
employees. In October 2018, the Board visited the US to give
the Board an in-depth view of our business across this region
and the itinerary is outlined below:
VISIT TO THE US — OCTOBER 2018
Monday, 15 October
Board members arrived in the US and travelled to Syracuse.
Tuesday, 16 October
Wednesday, 17 October
Thursday, 18 October
The Board travelled to our laboratory in Cortland. In the morning, there was a Health & Safety
briefing and the Board received an introduction to the laboratory in Cortland by Tim Corcoran
(Executive Vice President, Electrical & Connected World). The Board was then split into two
groups for a three-hour tour of the laboratory visiting the different departments, meeting the
staff and seeing the huge variety of testing undertaken in Cortland ranging from light bulbs,
washing machines to safety equipment used by fire fighters to mention just a few. In the
afternoon, presentations were made to the Board by:
Gregg Tiemann – Executive Vice President, Americas
Carlos Velasco – Vice President, Latin America
Michael Grigsby – CFO, Americas
Gavin Campbell – Senior Vice President, Building & Construction
In the evening, there was an informal dinner with the Board and the Americas senior team.
In the morning, presentations continued to provide a detailed overview of the different US
businesses and were made to the Board by:
Tony Walker – Global Business Line Leader, Connected World
Nimer Al-Hafi – President, Caleb Brett
Andrew Gleason – Vice President, Products, Resources and Transportation
Matthew Allen – Vice President, Global Operations
In the afternoon, the Board meeting convened, and the Directors had two presentations by
external speakers on the US economic and political environment.
The Board meeting reconvened and concluded with a discussion on the visit to the US.
The Board agreed that the commitment and pride of the team working in Cortland shone
through and they really appreciated the time taken by the Cortland staff to demonstrate with
passion the services provided. The US management team had also provided very clear and
detailed analysis of their businesses in the US and future strategy.
76
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
OUR NON-EXECUTIVE DIRECTORS' SITE VISITS 2017-2018
The Non-Executive Directors have visited a number of Intertek
facilities across the world to improve their understanding of the
operations of the Group and provide an opportunity to engage
with the wider workforce. The map below shows some of
the visits undertaken over the previous two years:
Sir David Reid and Graham Allan in India
AMERICAS
EUROPE &
CENTRAL ASIA
CHINA &
NORTH
ASIA
Gurnek Bains and Gill Rider in Turkey
SOUTH & SE ASIA,
AUSTRALASIA
AMERICAS
Destination
Mexico
Cortland, USA
Menlo Park, USA
EUROPE & CENTRAL ASIA
CHINA & NORTH ASIA
NEDs
Destination
NEDs
Destination
1
8
1
Sunbury, England
Aberdeen, Scotland
Milton Keynes, England
Turkey
Switzerland
Germany
Dubai
2
2
4
3
1
2
1
China
Hong Kong
NEDs
4
1
SOUTH & SE ASIA, AUSTRALASIA
Destination
Bangladesh
India
Australia
Indonesia
Singapore
NEDs
2
2
1
3
8
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.
Intertek Group plc Annual Report and Accounts 2018
77
Directors' Report | Corporate Governance
EFFECTIVENESS
continued
BOARD, COMMITTEE AND DIRECTORS'
PERFORMANCE CYCLE
2018
Externally
facilitated
evaluation
conducted by an
independent
consultant
2020
Internal Review
2019
Internal Review
2018 BOARD AND COMMITTEE EVALUATION
The effectiveness of the Board and its Committees is reviewed
annually and an independent externally facilitated review is
conducted every three years.
The 2017 internal Board review covered 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 last year’s report were
very positive, confirming that the Board was performing at a high
level demonstrating the right behaviours, culture and tone.
The Board refreshment programme had been successfully
concluded and the Board strengthened by the addition of three
new members bringing new skills, experience and attributes
to bear.
For 2018, a full externally facilitated Board 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;
• One-to-one meetings with each Board member;
• Discussions on the Board evaluation outcomes and
recommendations with the Chairman and CEO;
• Discussion of the results of the evaluation with the relevant
Committee and the Board as a whole; and
• The Board identifying and agreeing areas for improvement –
the strategy and strategic agenda having already been
agreed at the Board meeting in December 2018.
A similar process was followed for the evaluation of each
Committee with the results of each evaluation discussed by
the relevant Committee and future steps agreed.
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Intertek Group plc Annual Report and Accounts 2018
As planned, and recommended by the Code, the formal
evaluation process was facilitated by an independent third party,
Lorna Parker, under the direction of the Chairman at the end of
2018. Lorna Parker has no other connection to the Company and
was appointed after a review of independent advisors in the field
of formal Board evaluations.
The last external review undertaken in 2015 flagged the sense
of early progress and improved Board effectiveness once
André was in post as CEO, with the general recognition that
the Board understood the scale of the challenges and
opportunities in realising the value they could deliver for
shareholders and were optimistic that it could be done. Over the
last two years, the reviews had demonstrated 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 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 is functioning well and demonstrates strong
corporate governance.
• Intertek is part-way through a major strategic, organisational
and operational transformation, going from being a good
company to a truly great company. The progress that has
been made in a relatively short time is hugely impressive,
especially given the scale, complexity and geographical
spread of the business.
• Three years on, the strategy development and review process
are comprehensive, detailed, rigorous and clear, with well-
planned and articulated priorities and targets. The strategy is
being executed effectively and is delivering great results.
• Over the last three years, the share price has nearly doubled;
revenues increased by over 29%, operating margin by 130bps
and EPS by over 40%.
• Since the last external review there has been a significant
evolution of the Board both in terms of Executive Directors
and Non-Executive Directors and, with the changes in the past
two years, this feels like a relatively new Board which is settling
in well and has made huge progress.
• André has brought clarity to Intertek’s purpose, mission, vision,
values and strategy.
• This is a collegiate, supportive, committed and engaged Board
with an impressive and diverse mix of complementary skills,
experiences and backgrounds.
• The Board continues on a journey from good-to-great,
alongside that of the business, and while there are enduring
aspects of the role of any Board, emphasis and tone evolve.
During the past three years, the focus has been on reshaping
the Board and executive team, improving behaviours and tone
in the Boardroom, further refining and delivering the growth
strategy and moving from a decentralised, entrepreneurial
portfolio approach to a more integrated, customer-centric,
FTSE 50-calibre company.
Directors' Report
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 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.
The Board recommends that shareholders should be supportive
of their election or re-election to the Board at the 2019 AGM.
• The culture has evolved massively and is one of high
performance and high integrity with a sense of purpose:
driven by ambitious, transparent, proud scientists who
always want to do the right thing and are increasingly
customer focused.
• The pace and energy in the business have increased
significantly. The sharper focus on customers through
TQA has been another key success factor.
• There is also clarity and alignment around strategic priorities
from a portfolio perspective in the near term with much focus
on the shift from TIC to ATIC.
• People, including talent development, retention, succession
and employee engagement figure high on the agenda given
the importance of the relatively highly qualified employee
base to the ongoing success of Intertek.
• The Board recognises the key challenges and risks facing
Intertek. There is confidence in the thoroughness of risk
management processes, controls and reporting which have
been transformed over the last couple of years.
• As the Company continues on its journey from good-to-great,
the Board should continue to evolve its role, style, engagement
and 'value add'.
• There is clarity and broad alignment on the role of the Board
during this next phase in Intertek’s development which is
around supporting, motivating, inspiring and appropriately
encouraging management to sustain pace and progress on
multiple fronts to create shareholder value.
Lastly, as with all good companies, the Board culture is to aim for
best in class and also for continuing improvement which we call
'Ever Better, Ever Stronger'. So, we will be implementing plans to
push on in what we call our 'journey areas' such as sustainability,
where we believe we can deliver for society at large and also our
customers for whom we can provide our expertise and services
in the key areas of sustainability. We will also be following up on
actions to implement the provisions of the UK Corporate
Governance Code. This would include understanding views of
our stakeholders, in particular focusing on engagement with
our workforce, which is already a priority of our Board. As part
of this, inter alia, we will be increasing the number of site visits
our Non-Executive Directors will make to the businesses around
the world as part of their monitoring of culture at ground level.
Intertek Group plc Annual Report and Accounts 2018
79
Directors' Report | Corporate Governance
EFFECTIVENESS
continued
Sir David Reid
Chair of the Nomination Committee
NOMINATION COMMITTEE
ROLE AND KEY RESPONSIBILITIES OF THE COMMITTEE
• Review the structure, size and composition of the Board
and its Committees;
• Identify, review and nominate candidates to fill Board
vacancies1;
• Evaluate the balance of skills, independence, 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 its
Committees; and
• Review the time commitment required from
Non-Executive Directors.
For the Committee’s terms of reference, see www.intertek.com.
1. Neither the Chairman nor the CEO participates in the recruitment of their
own successor.
MEMBERSHIP OF THE COMMITTEE
The membership of the Committee at the year end was Sir David
Reid (Committee Chair), Graham Allan, Gurnek Bains, Dame Louise
Makin and Lena Wilson.
During the year, the Committee held three formal meetings.
Attendance of members at formal meetings is shown in the table
on page 70. The Group Company Secretary attends all formal
meetings of the Committee. The Committee invites the CEO and
the EVP, Human Resources to attend meetings when the subject
matter deems their presence appropriate.
ACTIVITIES OF THE COMMITTEE DURING THE YEAR
Performance Evaluation
The evaluation of the performance of the Committee was
conducted during the year and it was shown that the Committee
continues to be effective.
Board and Committee Composition
During the year, the Committee undertook its annual review
of 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 required of future Directors including qualities of
DEAR SHAREHOLDER
As the Chair of the Nomination Committee (‘Committee’), I am
pleased to present to you the Nomination Committee Report for
2018. Over the past 18 months we have spent our time on the
Board refreshment programme and were pleased to welcome
three new Non-Executive Directors and one Executive Director
to the Board. These appointments have strengthened our Board
bringing new skills, experiences and attributes. During 2018, the
Committee continued discussions on the core skills and attributes
required by our Board now, and those of future candidates, to
support and drive the long-term sustainable success of our 5x5
differentiated strategy for growth as outlined in pages 2 to 3.
To ensure that members of the Board and senior management
have the appropriate balance of skills and experience to support
the Group’s strategic objectives, succession planning is a matter
that the Board as a whole considers. This ensures that the
Company benefits from the views and experience of all Board
members in this discussion. During the year, we reviewed the
Group People Strategy and the Executive Management Team
succession planning and the progress being made to develop
the skills and capabilities we need going forward. We aim to
ensure both our Directors and members of the Executive
Management Team and other senior managers, who are potential
successors to the Executive Management Team or Board, are
well equipped with the right skills and experience and, where
necessary, address any developmental needs.
ACTIVITIES OF THE COMMITTEE 2018
Performance Evaluation
• Reviewed the results of the 2017 Committee evaluation.
Board and Committee Composition
• Continued to monitor the composition of the Board and its principal Committees,
and the independence of its Non-Executive Directors.
• Evaluated the current composition of the Board.
Board Appointments and
Reappointments
• Rigorously reviewed the reappointment of Dame Louise Makin and Lena Wilson as
Non-Executive Directors for their third three-year term.
• Reviewed the reappointment of Gill Rider as a Non-Executive Director for her second
three-year term.
• Recommended to the Board the appointment of Ross McCluskey, to succeed Edward Leigh,
in the role of Chief Financial Officer.
Talent Mapping and Succession
Planning
• Discussed the skills and attributes desired for the pipeline of future Non-Executive Directors.
• Actively evaluated the objective criteria, and enhanced skills, experience and diversity desired
of future Board members.
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Intertek Group plc Annual Report and Accounts 2018
Directors' Report
the individual required to ensure the right fit with the culture
and style of Intertek. The skills matrix is outlined on page 71.
The review concluded that the current composition of the Board
and each Committee contained a good balance of skills, industry
and geographic experience, as well as diversity.
The Committee unanimously agreed, following the consideration
of the independence of each Non-Executive Director, that each
Non-Executive Director continued to be independent in
accordance with the criteria set out in the Code.
Board Appointments and Reappointments
The Board, upon the recommendation of the Committee,
approved the internal appointment of Ross McCluskey as Chief
Financial Officer. Ross joined the Board as an Executive Director
and the Executive Management Team on 22 August 2018.
He joined Intertek in August 2016 as the Group’s Financial
Controller, which enabled him to gain an extensive understanding
of the complexities of the Group. Prior to Ross’ employment with
Intertek, he held senior operational finance positions at Inchcape
plc for five years, including Finance Director of Inchcape’s
Australasian and UK businesses. Between 2002 and 2011,
Ross worked within the investment banking sector, specialising
in mergers and acquisitions, holding roles at J.P. Morgan, Gleacher
Shacklock and Greenhill and Co.
Both Dame Louise Makin and Lena Wilson have been members
of our Board for six years. During 2018, a detailed and rigorous
review was carried out, following which the Committee agreed
to recommend to the Board that they both be reappointed for
a third term of three years from 1 July 2018. Having come to
the end of her first term, Gill Rider’s appointment was also
reviewed. Following this review, the Committee was pleased to
recommend the reappointment of Gill for a further three years,
from 1 July 2018. Where the reappointment of a member of
the Committee is being discussed, they are precluded from
any involvement in the discussions. In the instance where
the reappointment of the Chairman is being discussed,
the Senior Independent Non-Executive Director would chair
the Committee meeting.
Biographies for all of the Directors are available on pages 74
and 75 and a resolution for each Director will be proposed
at the forthcoming AGM for their election or re-election.
Talent Mapping and Succession Planning
The Committee, over the last 18 months, have focused their
discussions on the objective criteria they require of future
Board members, and in turn highlighting the “must-have” skills,
experience, personal characteristics and behaviours they deem
necessary to lead Intertek. Such criteria have been used to
actively refresh the Board with three new members in 2017,
and one new member in 2018, representing a high quality
and balanced Board, which functions effectively.
The Committee recognises the increased emphasis on providing
oversight of the development of a diverse pipeline for succession.
Due to the strategic importance of talent mapping and
succession planning to the long-term sustainable success of
the Group, the Board, as a whole, discuss and support succession
planning on the Executive Management Team, as well as talent
mapping across the Group in respect to Regional, Country and
functional roles. This has enabled the Board to gather insights on
the key success factors desired for senior roles within the Group.
During 2018, the following appointments were made to the
Executive Management Team. On 1 January 2018, Patrick Lee
was appointed as Executive Vice President, North East Asia
and Australasia. Prior to joining Intertek, Patrick was CEO of
Inchcape 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.
Patrick’s appointment has added depth to the Group’s
leadership pool and gives Intertek more strength in pursuing
the good-to-great journey.
In May 2018, Dr Diane Bitzel was appointed to the Executive
Management Team in the role of Chief Information Officer,
succeeding Ann-Michele Bowlin who was subsequently promoted
as Chief ATIC Innovation Officer, a role in which she leads the
development and drives the ATIC innovation strategy and
roadmap across the organisation. Diane has over 22 years of
global management experience, particularly in the areas of IT
strategy, operations and management, HR transformation,
and business strategy and process implementation. Diane has
previously held roles as CIO for global life science and food
companies, including Syngenta AG, Apetito AG and Lonza Group.
Diane’s appointment, and Ann-Michele’s promotion, further
strengthens the Executive Management Team, and in turn
provides additional focus on the areas that will make a difference
to the Group’s success.
Full biographical details of the Executive Management Team can
be found on pages 20 to 21.
DIVERSITY POLICY
The Board is committed to achieving a Board which will include
and make the best use of differences in culture, gender, skills,
background, regional and industry experience and other qualities.
All of these factors are considered in determining the
composition of the Board, and all Board appointments will
continue to be made on merit, in the context of the skills,
diversity and experience the Board, as a whole, requires for it to
be effective. In reviewing Board composition, the Committee aims
to maintain an appropriate balance of skills, experience, and
background on the Board, by considering all aspects of diversity,
including gender. In identifying suitable candidates to recommend
for appointment to the Board, the Committee considers
candidates on merit, against objective criteria, and with due
regard for the benefits of diversity on the Board to achieve the
most effective Board possible. We expect to continue to make
further progress as our existing Non-Executive Directors rotate
in the ordinary course of business.
The Committee and the Board are collectively mindful of the
recommendations of both Lord Davies in his report “Women on
Boards”, and the Hampton-Alexander Review (the ‘Review’),
complementary to Davies’ report, which encourages FTSE 350
companies to achieve at least 33% female representation at
Board level by 2020. As at 31 December 2018, there were three
female Non-Executive Directors on the Company’s Board,
Intertek Group plc Annual Report and Accounts 2018
81
Directors' Report | Corporate Governance
EFFECTIVENESS
continued
representing a 30% female membership; following the Review in
November 2018, Intertek was ranked as having the potential to
be on target or high performing. However, when recommending
new candidates to the Board, the Committee ensures that the
correct balance of skills, knowledge and experience is maintained,
as this is paramount for Intertek’s long-term sustainable success.
Further detail regarding gender diversity across the Group and in
the Executive Management Team, and their direct reports, can be
found within the Sustainability Report on page 29.
The Group also supports, and already complies with, the Parker
Review ‘Beyond One by 21’ recommendation that FTSE 100
company boards should have at least one ethnically diverse
director by 2021. The Committee continues to monitor the
overall diversity of Intertek’s leadership at Board and senior
management level, to ensure the broadest spectrum of leaders
are considered for new appointments.
Sir David Reid
Chair of the Nomination Committee
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Intertek Group plc Annual Report and Accounts 2018
ACCOUNTABILITY
Directors' Report
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.
INTERNAL CONTROL AND RISK MANAGEMENT
The Board is ultimately responsible for monitoring the Group’s
system of internal control and risk management and has overall
responsibility for ensuring its effectiveness. The Audit
Committee is responsible for monitoring and reviewing the
effectiveness of the Group’s internal control and risk
management controls and reports to the Board on its evaluation
of the systems in place. The Board confirms that the Company
has fully complied with the FRC's Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting.
Further information on the framework and its effectiveness can
be found on pages 87 to 88.
Risk management and internal controls are embedded in the
running of each division, 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 uses the Group Risk Footprint for the year
under review with associated mitigation action plans as its
baseline, to then add new risks and/or plans facilitated by the
GRC’s quarterly risk review process. The Group General Counsel
then presents at each Board meeting an integrated risk, control,
compliance and quality report including a review of:
• The Group’s emerging risk environment, the status of the
quarterly emerging risk mitigation action plans and the new
quarterly emerging risk mitigation plans;
• The specific systemic risks including quarterly hotline and
whistleblowing reports, key claims and unlimited liability
contracts; and
• The Group’s systemic risk environment, the status of the
quarterly systemic risk mitigation action plans and the new
quarterly systemic risk mitigation plans.
COMPLIANCE, WHISTLEBLOWING AND FRAUD
Intertek is committed to maintaining a culture where issues of
integrity and professional ethics can be raised and discussed,
which is aligned to our sustainability priority to always do the right
thing with precision, pace and passion and also forms part of our
5x5 differentiated strategy for growth. 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 report on pages 30 to 31.
The Group has a whistleblowing process, which includes a global
hotline system enabling all employees, contractors and others
representing Intertek to confidentially report suspected breaches
of the Code of Ethics. This is supported by dedicated Compliance
Officers across the Group’s markets who undertake investigations
of issues that arise 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
AUDIT COMMITTEE
DEAR SHAREHOLDER
On behalf of the Board, I am pleased to present the report
of the Audit Committee ('Committee') for the year ended
31 December 2018.
We were pleased to welcome Dame Louise Makin as a member
of the Committee from 1 January 2018 adding her valuable
expertise to our discussions. One of the key responsibilities
of the Committee is to monitor the integrity of the financial
statements of the Company and measure the performance
of the Company against the financial goals of our strategy.
This is key for our shareholders and other stakeholders in order
for them to understand the financial strength of the business.
During 2018, the Committee’s primary focus centred on the
accuracy of the Group’s financial reporting, together with the
ongoing improvements in internal control activities and risk and
compliance matters. PricewaterhouseCoopers LLP (‘PwC’)
completed their second full audit of the Company for the year
ended 31 December 2017. During the year, the Committee
reviewed and agreed that the audit process continued to be
effective with PwC being independent from management,
establishing positive relationships and providing a good level of
service to the Company whilst seeking continual improvements
in the audit of Intertek.
Throughout the year the Committee also ensured that separate
meetings with the CFO, Group Audit Director and the external
auditor took place without management present in order to
provide an open forum for any issues to be raised.
The internal evaluation of the Committee was conducted during
the year and 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.
This report aims to outline the activities and the responsibilities
of the Committee, on behalf of the Board, in scrutinising the
conduct of the business, its management and auditors to protect
the interests of our shareholders, the livelihoods of our
employees, and the confidence of our customers and suppliers
in the long-term financial strength of our business.
Intertek Group plc Annual Report and Accounts 2018
83
Directors' Report | Corporate Governance
ACCOUNTABILITY
continued
COMMITTEE MEMBERSHIP
The membership of the Committee at the year end was Andrew
Martin (Committee Chair), Dame Louise Makin, Jean-Michel Valette
and Lena Wilson. With effect from 1 January 2018, Dame Louise
Makin was appointed a member of the Committee. Andrew
Martin, who is a qualified accountant, has extensive recent and
relevant financial experience as required by the Code as he was
until 2012 the Group Finance Director of Compass Group plc and
through his other current and previous appointments. The Board
considers that, as a whole, the Committee has the competence
and broad experience relevant to the sectors in which Intertek
operates as Dame Louise Makin, Jean-Michel Valette and Lena
Wilson all have experience in those sectors. An overview of
the background, knowledge and experience of the Committee
Chair and each of the Committee members can be found on
pages 74 and 75 and in the table on page 71.
On appointment, new Committee members receive an appropriate
induction, consisting of the review of the terms of reference,
previous Committee meeting papers and minutes, 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 70. The Group
Company Secretary attends all the meetings of the Committee.
At the invitation of the Committee, the Chairman, CEO, CFO,
Deputy 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 necessary.
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.
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,
including the implementation of new 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.
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Intertek Group plc Annual Report and Accounts 2018
Internal control and risk management systems
• Keep under review the adequacy and effectiveness of the
internal financial controls and the internal control and risk
management and assurance systems.
• Review and approve the statements to be included in
the Annual Report and Accounts concerning internal controls
and risk management and assurance.
Whistleblowing 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 regular reports
on non-compliance and keep under review the effectiveness
of the compliance function.
Internal audit
• Monitor the effectiveness and resources of the internal
audit function.
• Approve the appointment and removal of the Group Audit Director.
• 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, reappointment 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.
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 estimates and areas of judgement to be exercised
in the application of the accounting policies:
Directors' Report
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, that these activities are aligned with the Group's
strategy for growth and their classification as a separately
disclosed item is appropriate. 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
In August 2018, the Group made the significant acquisition
of Alchemy Investment Holdings, Inc in the US. 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 2018, management concluded its final
assessment of these assets and liabilities for acquisitions
made in 2017 and presented an update to the Committee.
The Committee reviewed management’s final accounting paper
on acquisitions made in 2017 and 2018, and took into account
the report presented by the external auditor, before determining
that the acquisition accounting was 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 was 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 169 to 175.
The Committee reviewed and answered the correspondence
received from the Financial Reporting Council (FRC)
following their thematic review of Alternative Performance
Measures carried out on our 2016 Annual Report and Accounts.
The Committee has overseen the incorporation of reporting
improvements agreed with the FRC following their review.
The FRC’s review only covered the specific disclosures relating
to their thematic review and the Committee notes that the FRC
does not provide assurance that the Annual Report and Accounts
are correct in all material respects as the FRC’s role is to consider
compliance with reporting requirements.
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 2018, 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;
• A verification process dealing with the factual content
of the reports to ensure accuracy and consistency;
Intertek Group plc Annual Report and Accounts 2018
85
Directors' Report | Corporate Governance
ACCOUNTABILITY
continued
• 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.
ACTIVITIES DURING THE YEAR
During the year the Committee discussed the following items:
AUDIT COMMITTEE AGENDA ITEMS 2018
Financial statements and reports
Full-year results 2017
Annual Report and Accounts 2017
Management highlights memorandum
Going concern assessment
Fair, balanced and understandable assessment
Review of significant accounting policies
Half-year results 2018
Risk Register and Viability Statement process
External audit
PwC 2018 audit plan
Audit fee proposal 2018
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
2019 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
2018 Rolling Committee agenda
2017 Evaluation of the Committee and Committee terms of reference
IFRS accounting standards update
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 2018 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.
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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 tender its audit 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 sought confirmation from the auditor
that they are fully independent from the Company’s
management, are free from conflicts of interest and have
assessed the nature and level of non-audit fees paid to PwC
and have determined that PwC are fully independent.
86
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
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:
• Annually, PwC presents to the Committee its approach to
maintaining audit quality including addressing any risks they
face in maintaining audit quality across their network;
• The views of management and the Directors on PwC’s service
are obtained via a questionnaire/survey and the 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.
Following this review, the Committee considered in detail the
feedback received from a selection of Intertek personnel,
including Committee Members, Group functions, regional finance
teams and country finance managers. Overall the feedback was
positive and demonstrated that there had been improvements
year-on-year with better communication with local audit teams
and finance. Teams across the globe approached the audit with
an appropriate mindset and were focused on the key risk areas.
The audit findings were discussed at the May 2018 Committee
meeting and PwC effectively addressed questions and challenges
provided by Committee members. However, it was felt that,
while maintaining quality, further improvements in efficiencies
and in areas such as the use of a centralised audit team could
still be achieved.
The Committee concluded, at the meeting held in May 2018,
that PwC remained independent and that overall, PwC completed
a robust and fit-for-purpose audit process across the Group with
a satisfactory level of resource and continued to build their
knowledge of the business.
The effectiveness for the 2018 audit of the Group will be
reviewed by the Committee in May 2019.
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;
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 re-approves 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 twice
a year. For 2018, the Committee pre-approved a total non-audit
spend of £250,000. As per the policy, all non-audit services have
to be approved by the CFO, and in the event that the pre-
approved limit is exceeded, the Committee Chair and the CFO
have to approve an increase to the pre-approved limit. In 2018,
this process operated effectively.
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 128.
AUDIT FEE BREAKDOWN FOR SERVICES PROVIDED BY
PwC IN 2018
Total non-audit fees
– audit-related services
– tax services
– other non-audit services
Audit fee
% of audit fee
2018
£m
0.2
0.2
–
–
3.9
5%
2017
£m
0.2
0.2
–
–
3.6
5%
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.
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 (v4.0) has been developed reflecting
feedback on the existing framework and how the Group’s risk
environment has evolved during the year.
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
Intertek Group plc Annual Report and Accounts 2018
87
Directors' Report | Corporate Governance
ACCOUNTABILITY
continued
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 the
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 2018, and up to the date on which these
financial statements were approved. No significant failings or
weaknesses had been identified.
INTERNAL AUDIT
The Group has an Internal Audit function whose activities are
overseen by the Committee, and which provides assurance
over compliance with the Group’s framework of financial CMCs.
In 2018, the Committee:
• Oversaw the independence of Internal Audit by maintaining
a direct independent reporting line between the Group Audit
Director and the Committee Chair, and by meeting with the
Group Audit Director without the presence of management;
• Approved the Internal Audit Charter, which sets out the basis
on which audits are carried out in the Group;
• Oversaw investment in the Internal Audit function, to ensure
adequate resourcing that provides value for money assurance;
• Reviewed and approved the audit plan that has ensured all
significant businesses have received multiple audits since
the launch of the controls framework in 2016;
• Reviewed reports on internal audit activities including overall
progress in delivering the plan and summaries of each audit
performed, with commentary on compliance with the controls
framework, areas of good practice and areas for improvement;
the Committee has noted a steady improvement in audit scores
over the period since the introduction of the mandatory
controls framework;
• Monitored management's progress on addressing audit actions;
and
88
Intertek Group plc Annual Report and Accounts 2018
• Reviewed the annual assessment on the effectiveness of
the Group Internal Audit function which included feedback
from key business stakeholders and an action plan for areas
of improvement; an independent review of effectiveness,
carried out every three years, will be undertaken in 2019.
PRIORITIES FOR 2019
The priorities for the Committee over the next 12 months are
as follows:
• Continue to monitor 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
• Review the 2018 UK Corporate Governance Code and
incorporate any changes as necessary into the Committee's
terms of reference.
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 2023.
With the exception of US$20m of facilities that matured and
were repaid in January 2019, all the current borrowing facilities,
as disclosed in note 14 of the financial statements, are expected
to be available at 31 December 2019.
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
Directors' Report
Gill Rider
Chair of the Remuneration Committee
DEAR SHAREHOLDER
I am delighted to present our Remuneration Report for the year
ended 31 December 2018.
Policy review
The Remuneration Report includes our proposed Remuneration
Policy, which, subject to shareholder approval, will apply for the
three years from the 2019 AGM.
During the year, the Remuneration Committee (the 'Committee')
completed a thoughtful review of the Remuneration Policy to
ensure it continues to support the delivery of Intertek’s
differentiated 5x5 strategy for growth as well as recognising
the changes in the governance environment since 2016 when
the current Remuneration Policy received 96.38% support from
our shareholders. The Committee also undertook a detailed
consultation with our largest shareholders and the proxy
advisory bodies and I would like to thank our shareholders
for their engagement.
The proposed Policy is based on doing what is right for Intertek,
embracing the spirit of recent changes in corporate governance,
and taking into consideration the feedback we have received
from our shareholders.
Our Remuneration Policy underpins the delivery of the Group’s
strategic objectives of margin-accretive revenue growth, strong
cash generation and disciplined allocation of capital to invest in
attractive growth and margin sectors. We achieve this by using
a balanced set of metrics for our incentives: Revenue, Operating
Profit, Return on Invested Capital ('ROIC'), Total Shareholder
Return and Earnings per Share. This ensures close alignment
between our shareholder interests and management focus.
Our results have demonstrated continuous progress on revenue,
margin, EPS, cash and ROIC with impressive CAGR between
2014 and 2018 of:
• +7.6% in Revenue
• +10.4% in Operating Profit
• +10.7% in EPS growth
• +17.4% in Free Cash Flow growth
• +19.2% in Dividend per Share growth
In 2018, we delivered record operating margin of 17.2%, up 170bps
since 2014 and our average ROIC over the last four years has been
22.7%. Total Shareholder Return growth has been over five times
that of the FTSE 100 over the same period.
Aligning with the wider workforce
With regard to the Committee's oversight of the Core Purpose,
Culture and Values and the wider workforce, at Intertek,
remuneration for all employees follows the same policy and
principles as the senior executives. All of the short-term
and long-term incentive schemes, shareholding requirements
and other provisions, where applicable, are followed consistently.
The core elements of the Policy will continue to include
competitive base salaries, benefits, pensions, annual incentive
and long-term incentive. The annual incentive, covering the
majority of our 44,720 people around the world, supports
sustainable financial performance by focusing on growth in
Revenue and Operating Profit, margin accretion and ROIC.
The long-term incentive ('LTI') in which about 110 employees
take part, focuses on Earnings per Share and Total Shareholder
Return, over a three-year cycle
Proposed Policy changes
• To increase the time horizon for the LTI from
three and a half to five years from date of grant.
• To introduce a ROIC quality of earnings underpin
for the LTI awards.
• To introduce post-cessation shareholding
requirements.
• To reduce the pension benefits for new
appointments in the UK to be in line with
the majority of the UK workforce.
Return on Invested Capital
ROIC is very important to us and is already included in our annual
incentive. For LTI awards, each year the Committee reviews
the level of vesting to ensure it is consistent with the overall
business performance and earnings. Following feedback from a
few of our shareholders who believe in the importance of Return
on Capital when considering our LTI awards, we will additionally
introduce an ROIC quality of earnings underpin to vesting.
Historically our ROIC performance has been very strong and we
have delivered an average ROIC of 22.7% since 2015.
Post-Employment Shareholding
With regards to the post-employment shareholding requirement,
our proposed approach enforces the retention of unvested,
outstanding Deferred and LTI awards for leavers through their
normal time horizons. In the event that an executive is treated
as a good leaver, the pre-tax value of outstanding awards at
cessation of employment could be up to 1,300% of base salary.
Where an executive is a bad leaver, this could have a pre-tax
value of up to 500% of base salary. The Committee believes
that in line with the UK Corporate Governance Code this provides
significantly improved alignment with shareholder interests
post-cessation of employment.
Intertek Group plc Annual Report and Accounts 2018
89
Directors' Report | Corporate Governance
REMUNERATION REPORT
continued
Shareholding requirements during employment remain
unchanged. Currently our CEO holds 345,353 shares in the
Company valued at over 1,700% of his current base salary.
Pay for performance
As set out earlier in the Annual Report, Intertek has continued
to perform well in 2018, with 1.2% growth in revenue (4.7% at
constant currency) and 3.0% growth in adjusted OP (6.9% at
constant currency), a record operating margin of 17.2% (up 40bps
at constant currency), a proposed full year dividend of 50%
and ROIC of over 20%. In light of performance delivered,
the Committee approved an annual incentive result of 75.5%
of maximum.
Over the longer-term, the three-year performance of the Group
has delivered EPS CAGR growth of 9.7% and Total Shareholder
Return in the upper quartile of the comparator group, which
resulted in a payout of 98.32%.
With regards to salary, the Committee has awarded the CEO
a 2% salary increase in line with the wider UK workforce.
Board succession
As announced on 22 August 2018, following a review of the
Group’s organisation structure, Ross McCluskey was appointed
as Group CFO, with Ed Leigh stepping down with immediate
effect. Given the change to the organisational structure,
Ed was treated as a good leaver for the purpose of outstanding
incentive awards (see further details on page 103).
On joining the Board, Ross’ remuneration arrangements were
set in line with his predecessor (salary: £475k; annual incentive:
200%; long-term incentive: 200%); in line with the updated UK
Corporate Governance Code, his pension arrangements were set
in line with wider UK workforce at 5% of salary (previously 20%).
CEO pay ratio
In line with investor expectations, Intertek has also decided to
voluntarily report the CEO’s pay ratio, in anticipation of
regulations coming into force for accounting periods starting
on or after 1 January 2019. This can be found on page 104.
The elements of this Report specifically required to be
audited within the bordered sections of pages 98 to 103 have
been audited by PwC in compliance with the requirements of
the regulations.
The Board is confident that remuneration at Intertek is aligned
to our shareholder interests and carefully designed to support
the sustainable delivery of Intertek’s clear and powerful
differentiated 5x5 growth strategy. I look forward to your
support at our forthcoming 2019 AGM.
Yours sincerely,
Gill Rider
Chair of the Remuneration Committee
90
Intertek Group plc Annual Report and Accounts 2018
DIRECTORS’ REMUNERATION
POLICY REPORT
The section below sets out the Remuneration Policy for
Executive and Non-Executive Directors, which is subject to a
binding vote of the shareholders and will, if approved, be effective
from the date of the 2019 AGM.
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 aligned to the Company’s strategy and is in the best
interests of the Company and its stakeholders. It is directed
to deliver continued sustainable profitable growth.
Our remuneration strategy is to:
• Align and recognise the individual’s contribution to help us
succeed in achieving our 5x5 growth strategy and long-term
Ever Better, Ever Stronger 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.
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
OPERATION
MAXIMUM
OPPORTUNITY
PERFORMANCE
MEASURES
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.
The Committee normally reviews
salaries annually, taking account
of factors including, but not
limited to, 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 any 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 Board.
Incentive outturns are normally
assessed by the Committee at
the year end, taking into account
performance against the targets
and the underlying performance
of the business.
Normally, 50% of any incentive is
paid in cash and 50% deferred
into shares which will vest after
a period of three years subject
to continued employment.
Malus and clawback
provisions apply.
Individual performance is taken
into account when salary levels
are reviewed.
There is no prescribed maximum
salary or annual increase.
In awarding any salary increases,
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.
n/a
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.
n/a
For new Executive Directors
pension provisions will be in line
with those of the wider UK
workforce (currently 5% of
salary). For current Executive
Directors – up to 30% of salary.
The maximum opportunity in
respect of a financial year is
200% of salary for each
Executive Director.
The Committee has the ability
to reduce incentive 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 incentive outturn
(up to the maximum set out
above) to recognise very
exceptional circumstances or to
recognise circumstances that
have occurred which were beyond
the direct responsibility of the
executive and the executive has
managed and mitigated the
impact of any loss.
The annual incentive will be
measured against a range of key
Group financial measures.
The current intention is that none
of the incentive 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
incentive. 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
incentive payout if threshold
targets are not met.
Intertek Group plc Annual Report and Accounts 2018
91
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.
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 normally be based on each of
these measures, with the split
determined 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.
200% of salary.
n/a
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 normally be
subject to a two-year holding
period after vesting.
Performance targets are set
annually for each three-year
performance cycle by
the Board.
Vesting is normally assessed by
the Committee after the end of
the performance period, taking
into account performance against
the targets and the underlying
performance of the business
(including return on invested
capital performance).
Malus and clawback provisions
apply.
Executive Directors are expected
to retain any vested shares (net
of tax) under the Group’s share
plans until the guideline is met.
The guideline should normally be
met within five years of the
guideline being set.
Further details of the share
ownership guidelines and the
new post-cessation shareholding
guidelines are set out in the
Directors' Remuneration Report.
To ensure alignment of
sustainable performance
between executives
and shareholders.
Holding and vesting periods for all
share awards will be adhered to
post-employment.
n/a
n/a
POST-
CESSATION
OF
EMPLOYMENT
SHARE-
HOLDING
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Intertek Group plc Annual Report and Accounts 2018
Directors' Report
PERFORMANCE
MEASURES
n/a
ELEMENT
OF PAY
PURPOSE AND
LINK TO STRATEGY
OPERATION
MAXIMUM
OPPORTUNITY
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.
NON-
EXECUTIVE
DIRECTORS’
FEES
To attract and retain
high-calibre Non-Executive
Directors through the provision
of market-competitive fees.
A proportion of the fees
(at least 50%) are paid in cash,
with the remainder used to
purchase shares.
Fees are primarily determined
based on the responsibility and
time committed to the Group’s
affairs and appropriate
market comparisons.
The Chairman receives an
all-inclusive fee. Non-Executive
Directors receive a base fee and
further fees for additional Board
responsibilities. Additional fees
may be paid in the exceptional
event that Non-Executive
Directors are required to commit
substantial additional time above
that normally expected for
the role.
With the exception of benefits-in-
kind arising from the performance
of duties (and any tax due on
those benefits which is
reimbursed by the Company),
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
As set out in the statement from the Committee Chairman, there are no major changes to the remuneration structure proposed
as part of the new policy. The key changes that have been made are:
(a) increasing the holding period for LTIP Awards to two years from the date of vesting;
(b) introduction of a ROIC quality of earnings underpin for the LTI awards;
(c)
in line with the 2018 Corporate Governance Code, reducing the pension provision for new Executive Directors to be aligned
with the wider workforce;
(d) introduction of post-cessation of employment shareholding guideline; and
(e) a few minor changes to clarify the policy and to reflect developments in market practice since the last policy was approved
at the Company's 2016 Annual General Meeting.
SELECTION OF PERFORMANCE METRICS
The annual incentive plan 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.
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. Overall, the Committee
consider that the complementary nature of the performance measures used for the annual incentive plan and the LTIP provide
executives with the right balance between revenue growth, margin progress, cash generation, disciplined capital allocation and return
on investment to deliver sustainable returns for our shareholders.
When setting the targets for the annual incentive and the LTIP, the Committee takes into account a range of factors, including the
business plan, prior-year performance, market conditions and consensus forecasts.
Intertek Group plc Annual Report and Accounts 2018
93
Directors' Report | Corporate Governance
REMUNERATION REPORT
continued
TERMS OF INCENTIVE AWARDS
Deferred awards and LTIP awards may include the right to receive
(in cash or shares) the value of the dividends that would
have been paid on the shares that vest up to the time of vesting
(or for LTIP awards, up to the end of the relevant holding period).
The Committee’s intention is that such dividends would normally
be settled in shares.
The Committee will operate the annual incentive plan and LTIP
according to the respective rules of the plans. The Committee
will retain flexibility in a number of areas regarding the operation
and administration of these plans, including (but not limited to)
the following:
• How to deal with a change of control or restructuring of the
Group, or a demerger or similar event (including how to assess
performance conditions and whether to time pro-rate awards);
• How and whether any award may be adjusted in certain
circumstances (including in the event of a variation of share
capital, demerger, special dividend, or similar event).
The Committee also retains the discretion within the Policy to
adjust targets and/or set different measures and weightings if it
considers it is required so that the targets or conditions achieve
their original purpose. Revised targets/measures will be, in the
opinion of the Committee, no less difficult to satisfy than the
original conditions.
The Committee may accelerate the vesting and/or the release
of awards if an Executive Director moves jurisdictions following
grant and there would be greater tax or regulatory burdens on
the award in the new jurisdiction.
REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS
The chart below illustrates how the Executive Directors’
remuneration packages vary at different levels of performance
under the revised Policy, which will apply in 2019 for both the
Chief Executive Officer (‘CEO’) and Chief Financial Officer (‘CFO’).
APPROACH TO RECRUITMENT AND PROMOTIONS
The remuneration package for a new Executive Director –
base salary, benefits, pension, annual incentive 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 incentive and long-term incentive
awards, or any combination thereof) 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 buyouts
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
VALUE OF REMUNERATION PACKAGES AT DIFFERENT LEVELS OF PERFORMANCE
£’000
7,000
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
£6,950
52%
£5,739
42%
34%
28%
£3,559
34%
27%
£1,379
100%
39%
24%
20%
LTIP award
Annual incentive
Basic salary, benefits and pension
£2,420
39%
39%
22%
£2,895
49%
33%
18%
£1,470
32%
32%
36%
£520
100%
Minimum
On-target
Maximum
Maximum 2
Minimum
On-target
Maximum
Maximum 2
A Lacroix, Chief Executive Officer
R McCluskey, Chief Financial Officer
Points relating to the above table:
1. Salary levels are based on those applying on 1 April 2019.
2. The value of taxable benefits is based on the cost of supplying those benefits (as disclosed) for the year ended 31 December 2018.
3. The value of pension receivable by the CEO and CFO in 2019 is taken to be 30% of salary and 5% of salary respectively.
4. The on-target level of annual incentive is taken to be 50% of the maximum 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 first three scenarios. Share price growth of 50% has been assumed
on the LTIP in the final scenario.
94
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
for the purpose of making an award to ‘buyout’ 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.
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
Common law and contractual
principles apply
Remuneration entitlements
Change of control
An incentive 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 annual
incentive awards and
outstanding Share Awards will
be treated in line with the
relevant plan rules.
There is no automatic entitlement to an annual incentive award
in the year of cessation of employment. The Committee may
determine however, that for certain leavers an annual incentive
award 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 for deferred share awards is that any outstanding
awards lapse on cessation of employment. However, in certain
'good leaver' circumstances (as described under the 2011 LTIP
below), 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.
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, injury, disability, retirement or other circumstances
at the discretion of the Committee, ‘good leaver’ status may
be applied.
For good leavers, awards will normally vest on the original
vesting date (and will normally, where appropriate, be subject to
any holding period), 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.
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.
The Committee reserves the right to make any other payments
(including appropriate legal fees) in connection with an Executive
Director's cessation of office or employment where the payments
are made in good faith on discharge of an existing legal obligation
(or by way of damages for breach of their obligation) or by way of
settlement of any claim arising in contravention with the
cessation of an Executive Director's office or employment.
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.
Intertek Group plc Annual Report and Accounts 2018
95
Directors' Report | Corporate Governance
REMUNERATION REPORT
continued
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 2018
One month/23 months
Graham Allan
1 October 2017
One month/21 months
Gurnek Bains
1 July 2017
One month/18 months
Dame Louise
Makin
1 July 2012
Reappointed:
1 July 2018
One month/30 months
Andrew Martin
26 May 2016
One month/6 months
1 July 2015
Reappointed:
1 July 2018
One month/30 months
1 July 2017
One month/18 months
Gill Rider
Jean-Michel
Valette
Lena Wilson
CONSIDERATION OF SHAREHOLDER VIEWS
The Committee takes the views of the Group’s shareholders
very seriously. Prior to the 2019 AGM, the Committee consulted
with shareholders on the proposed policy and the changes that
were being made. The proposed policy reflects the extensive
discussions with shareholders during the consultation process.
LEGACY ARRANGEMENTS
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 outstanding share awards (including exercising any discretions
available to it in connection with such commitments) 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.
1 July 2012
Reappointed:
1 July 2018
One month/30 months
ANNUAL REPORT ON REMUNERATION
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, annual incentive 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.
COMMITTEE MEMBERSHIP AND MEETING ATTENDANCE
The membership of the Committee at the year end was Gill Rider
(Committee Chair), Graham Allan, Gurnek Bains and Andrew
Martin. With effect from 1 January 2018, Dame Louise Makin
stepped down and Gurnek Bains was appointed a member of
the Committee. Meeting attendance is shown on page 70.
Throughout the year, the composition of the Committee
was compliant with the Code. All members are independent
Non-Executive Directors. Prior to joining Intertek and becoming
Chair of the Remuneration Committee Gill had previously acted
as Chair of the Remuneration Committee at Charles Taylor Plc.
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 and other relevant stakeholders.
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
decisions made by the Committee. The Group Company Secretary
acts as Secretary to the Committee.
96
Intertek Group plc Annual Report and Accounts 2018
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 senior
executive management;
• 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.
THE ACTIVITY OF THE COMMITTEE
During the year the Committee discussed the following items:
FEB AUGUST DEC
•
•
Executive Directors’ remuneration
Salary for senior management and the
determination of the annual incentive
payments for 2017
The TSR and EPS performance results for
the 2015 to 2017 share plan award cycles
The 2018 annual incentive targets and
performance measures
Share plan awards for 2018 to 2020 and
TSR and EPS performance criteria
The review of the Directors’ Remuneration
report to ensure compliance with
Remuneration Reporting Regulations
The annual Committee evaluation
Amendments to Share plan rules to comply
with EU General Data Protection regulation
Timetable for review of Directors
Remuneration Policy
2018 AGM update and Corporate
Governance bodies' voting
recommendations
Review of market trends in remuneration
Remuneration proposals or departure
terms for senior employees
Updates on Corporate Governance
developments
Timetable for review of Directors'
Remuneration Report
Outcomes from shareholder consultation
The annual Committee agenda schedule
•
•
•
•
•
•
•
•
•
•
Directors' Report
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 2018, 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 Company 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 £66,597. 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.
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 was the Senior Independent Non-Executive Director
at Reckitt Benckiser Group plc for which his earnings from
1 January to 31 December 2018 were £142,000 which he
retained. André retired as a Non-Executive Director of Reckitt
Benckiser Group plc on 31 December 2018.
STATEMENT OF SHAREHOLDER VOTING
At the 2018 AGM, a resolution was proposed to shareholders to
approve the Directors’ Remuneration Report for the year ended
31 December 2017. This resolution received the following votes
from shareholders:
In favour
Against
Total
Withheld
VOTES
112,789,998
19,312,605
132,102,603
415,015
%
85.38
14.62
81.851
•
•
•
•
•
1. Percentage of total issued share capital voted.
At the 2016 AGM, a resolution was proposed to shareholders to
approve the Remuneration Policy. This resolution received the
following votes from shareholders:
Remuneration Policy:
In favour
Against
Total
Withheld
VOTES
116,806,831
4,383,570
121,190,401
1,386,204
%
96.38
3.62
75.091.
1. Percentage of total issued share capital voted.
Intertek Group plc Annual Report and Accounts 2018
97
Directors' Report | Corporate Governance
REMUNERATION REPORT
continued
The following sections on pages 98 to 103 have been audited.
DIRECTORS’ REMUNERATION EARNED IN 2018
The table below summarises Directors’ remuneration received for 2018 and the prior year for comparison.
Executive Directors
André Lacroix
Edward Leigh
Ross McCluskey
2018
2017
20186
2017
20187
Base
salary
or fees
£’000
945
927
302
414
172
Benefits1
£’000
117
104
21
27
10
BIK arising
from
performance
of duties
£'000
8
–
7
–
1
Pension
£’000
284
278
61
83
9
Annual
incentive2
£'000
1,434
1,862
456
832
260
Long-term
incentives
£’000
3,4383
4,1704
9903
1,4494
493
Total
£'000
6,226
7,341
1,837
2,805
501
Total
including
other
awards
£’000
6,226
11,417
1,837
2,805
501
Other
£'000
–
4,0765
–
–
–
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 (£55,279).
2. This relates to the payment of the annual incentive and Deferred Share Award for the financial year end. Further details of this payment are set out on the
following pages.
3. This relates to the vesting of the 2016 LTIP award. The value shown is based on the share price of £46.42 which was the average mid-market share price in the fourth
quarter of 2018. Further details on performance are set out on page 100.
4. This figure has been updated to show the actual value of the vested LTIP share awards based on the share price of £48.50 the share price at vesting as the 2017 Report
included figures based on the share price for the final quarter of 2017 (£52.01).
5. This relates to the vesting of the second and final tranche of the awards granted on joining to buy out André’s share awards with his previous employer. This tranche
vested in May 2017 at a vesting price of £42.95 which represented 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.
6. This relates to the period from 1 January 2018 to 22 August 2018 when Edward Leigh ceased to be a Director.
7. This relates to the period from 22 August 2018 when Ross McCluskey was appointed as a Director.
Non-Executive Directors
Sir David Reid
Graham Allan
Gurnek Bains
Dame Louise Makin
Andrew Martin
Gill Rider
Jean-Michel Valette
Lena Wilson
2018
2017
2018
20173
2018
20174
2018
2017
2018
2017
2018
2017
2018
20174
2018
2017
Base
salary
or fees
£’000
320
320
87
17
75
25
75
68
90
78
76
73
71
29
75
68
BIK arising
from
performance
of duties
£'000 2
7
6
–
–
–
–
–
–
–
–
1
–
4
2
11
3
Benefits1
£’000
25
25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£'000
352
351
87
17
75
25
75
68
90
78
77
73
75
31
86
71
1. 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 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. The 2017 fees for Graham Allan, relate to the period from 1 October 2017, the date he was appointed to the Board.
4. The 2017 fees for Gurnek Bains and Jean-Michel Valette relate to the period from 1 July 2017, the date they were appointed to the Board.
98
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
ANNUAL INCENTIVE
The annual incentive for 2018 was based solely on financial measures:
• 80% based on a matrix based on revenue and adjusted operating profit growth; and
• 20% based return on invested capital ('ROIC').
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 above threshold noted above.
The Company’s performance resulted in a Group annual incentive payout of 75.5% of maximum opportunity. Performance of individual
components is shown below.
2018 Company Performance against annual incentive targets (at 2017 constant currency)
Financial measures
Total External Revenue1
Adjusted Operating Profit1
Revenue/Profit Matrix
Return on invested capital1
Total
%
Weighting
80%
20%
100%
2018
Target2
2018
Threshold
2018
Actual
£2,811.3m £2,868.7m £2,926.1m £2,904.1m
£501.5m
2018
Maximum
£481.8m
£511.6m
£496.7m
26.8%
27.0%
27.2%
28.8%4
1. Calculated using constant 2017 exchange rates. Adjusted results exclude the impact of Separately Disclosed Items.
2. Target is equivalent to 50% payout.
3. Percentage achieved against maximum targets.
4. ROIC achieved excludes the impact of the acquisition of Alchemy.
For 2018, the annual incentive outturn in cash and shares is as follows:
André Lacroix
Edward Leigh1
Ross McCluskey2
1. Values shown reflect the period 1 January 2018 to 22 August 2018.
2. Values shown reflect the period 22 August 2018 to 31 December 2018.
Achieved3
Weighted
achievement
69.3%
100%
55.5%
20%
75.5%
Payable
in cash
£’000
717
228
130
Deferred
Share Award
£’000
717
228
130
The Committee has the discretion to adjust the final incentive 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 annual incentive 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 annual incentive outturn as it felt that
the payouts were reflective of the underlying performance of the Group. Both the cash and share elements of the annual incentive are
subject to malus and clawback (see page 102 for further details). Overpayments may be reclaimed in the event of performance
achievements being found to be significantly misstated.
Intertek Group plc Annual Report and Accounts 2018
99
Directors' Report | Corporate Governance
REMUNERATION REPORT
continued
VESTING OF LTIP SHARE AWARDS
The LTIP Share Awards granted in 2016 are subject to performance for the three-year period ended 31 December 2018.
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 targets
Threshold
target
4%
Stretch
target
10%
Actual
performance
9.73%
Vesting
level
96.63%
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%
98.32%
1. TSR performance calculation was calculated by Deloitte; Intertek was ranked 12th of the 90 members of the comparator group of companies.
The LTIP Share Awards granted in 2016 to the Executive Directors were as follows:
Executive Director
André Lacroix
Edward Leigh
Ross McCluskey
Total vesting
Number of
shares at
grant
71,9822
25,7362
3,1174
100,835
Number of
shares based
on accrued
dividends
3,341
1,157
108
4,606
Total number
of shares1
75,323
26,893
3,225
105,441
Number of
shares
to lapse
(1,266)
(5,567)3
(55)
(6,888)
Number of
shares
to vest
74,057
21,326
3,170
98,553
Value of
vested
shares
£’0001
3,438
990
147
4,575
1. The value shown is based on the share price of £46.42 which is based on the average mid-market share price in the fourth quarter of 2018.
2. Due to vest in March 2019.
3. This figure includes the 5,005 share awards and the 197 dividend share awards which lapsed as a result of pro-ration to 22 August 2018, the date of Edward Leigh's
departure.
4. Due to vest in September 2019.
The Committee considered the LTIP outturns in the context of the underlying financial performance of the Group and determined it
was appropriate not to exercise its discretion, as the business performance merited the award.
LTIP SHARE AWARDS GRANTED DURING THE YEAR
The following LTIP Share Awards were granted to the Executive Directors on 21 March 2018:
Executive Director
André Lacroix
Edward Leigh
Ross McCluskey
Type of
award
LTIP Share
Award
LTIP Share
Award
LTIP Share
Award
Basis of
award
granted
250% of
salary
200% of
salary
50% of
salary
Share price
at date
of grant
£
49.49
Number of
shares over
which award
was granted
47,037
% of face
value that
would vest at
threshold
performance
25%
Face value
of award
£’000
2,328
49.49
19,195
49.49
2,244
950
111
25%
25%
Vesting
determined
by
performance
over
Three
years to
31 December
2020
The LTIP Share Awards granted in 2018 are conditional share awards subject to performance for the three-year period ending
31 December 2020. This note relates to performance shares only; details of Deferred Shares granted in 2018 are set out in the table
opposite (Share Plan Awards).
The performance conditions attached to this award and the targets are as follows:
Metric
Earnings Per Share (50%)
Total Shareholder Return (50%)
Performance condition
Annualised fully diluted, adjusted EPS growth, calculated on the basis
of foreign exchange rates adopted at the start of the performance targets
Relative TSR performance against the FTSE 31 to 130 (excluding banks
and investment trusts)
Threshold
target
4%
Median
Stretch
target
10%
Upper
Quartile
100
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
SHARE PLAN AWARDS
The table below shows the Directors’ interests in the Intertek Share Plans, all of which are restricted stock units (‘RSUs’):
31 December
2017
Number
of shares
Granted
in 2018
Number of
shares
Award
price1
£
Dividend
accrued
in 20182
Vested
in 2018
Number
of shares
Lapsed
in 2018
Number
of shares
31 December
2018
Number
of shares
Date of
vesting
Type of Award
André Lacroix
2015
2016
2017
2018
90,440
3,411
71,982
2,226
17,376
536
58,636
846
16,474
237
–
–
–
–
–
–
–
–
–
47,037
24.74
–
31.084
–
31.084
–
38.922
–
38.922
–
49.49
18,815
49.49
LTIP Share4,5
Dividend
LTIP Share4,6
Dividend
Deferred
Share6
Dividend
LTIP Share4,8
Dividend
Deferred
Share8
Dividend
LTIP Share4,9
Dividend
Deferred
Share9
Dividend
Total
262,164
65,852
–
761
–
1,115
–
268
–
907
–
254
728
291
4,324
(82,182)
(3,791)
–
–
–
(8,258)
(381)
–
–
–
–
–
–
–
–
–
–
–
–
–
Sep 2018
–
–
71,982 Mar 2019
3,341
17,376 Mar 2019
804
58,636 Mar 2020
1,753
16,474 Mar 2020
491
47,037 Mar 2021
728
18,815 Mar 2021
(85,973)
(8,639)
291
237,728
31 December
2017
Number
of shares
Granted
in 2018
Number of
shares
Award
price1
£
Dividend
accrued
in 20182
Vested
in 2018
Number
of shares
Lapsed
in 2018
Number
of shares
31 December
2018
Number
of shares
Date of
vesting
Type of Award
LTIP Share4,5
Dividend
Deferred
Share3
Dividend
LTIP Share4,6
Dividend
Deferred
Share6
Dividend
LTIP Share4,8
Dividend
Deferred
Share8
Dividend
LTIP Share4,9
Dividend
Deferred9
Share
Dividend
32,336
1,217
5,405
272
25,736
795
12,425
383
20,965
302
7,362
–
–
–
–
–
–
–
–
–
–
–
106
–
–
–
–
19,195
–
8,408
–
107,304
–
27,603
24.74
–
25.572
–
31.084
–
31.084
–
38.922
–
38.922
–
49.49
–
49.49
–
–
272
–
–
–
362
–
191
–
246
–
113
–
179
–
(28,566)
(1,315)
(5,405)
(272)
–
–
–
–
–
–
–
–
–
–
–
(3,770)
(174)
–
–
(5,005)
(197)
–
–
(11,065)
(253)
–
–
(16,530)
(139)
–
Sep 2018
–
–
– Mar 2018
–
20,731 Mar 2019
960
12,425 Mar 2019
574
9,900 Mar 2020
295
7,362 Mar 2020
219
2,665 Mar 2021
40
8,408 Mar 2021
129
1,492
–
(35,558)
–
(37,133)
129
63,708
Edward Leigh
2015
2016
2017
2018
Total
Intertek Group plc Annual Report and Accounts 2018 101
Directors' Report | Corporate Governance
REMUNERATION REPORT
continued
SHARE PLAN AWARDS (CONTINUED)
31 December
2017
Number
of shares
Granted
in 2018
Number of
shares
Award
price1
£
Dividend
accrued
in 20182
Vested
in 2018
Number
of shares
Lapsed
in 2018
Number
of shares
31 December
2018
Number
of shares
Ross McCluskey
2016
2017
2018
Total
Type of Award
LTIP Share4
Dividend
DSP-Deferred
Shares7
Dividend
LTIP Share4,8
Dividend
Deferred
Share8
Dividend
LTIP Share4,9
Dividend
Deferred
Share9
Dividend
3,117
60
3,000
58
2,826
40
715
10
–
–
–
–
–
–
–
–
–
–
–
2,244
–
2,244
–
9,826
–
4,488
35.288
–
35.288
–
38.922
–
38.922
–
49.49
–
49.49
–
–
48
–
25
–
42
–
11
–
33
–
–
–
(3,000)
(83)
–
–
–
–
–
–
–
33
192
–
(3,083)
–
–
–
–
–
–
–
–
–
–
–
–
–
Date of
vesting
Sep 2019
Sep 2018
3,117
108
–
–
2,826 Mar 2020
82
715 Mar 2020
21
2,244 Mar 2021
33
2,244 Mar 2021
33
11,423
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 9 March 2018 on which date the market price of shares was £50.01 having been granted on 9 March 2015 on which date the closing market price
was £25.70.
4. 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).
5. LTIP awards vested on 24 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 and 90.87% of the awards vested.
6. Awards will vest on 21 March 2019, subject to continued employment or good leaver status, 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.
7. Award vested on 5 September 2018 on which date the market price of shares was £50.56 having been granted on 5 September 2016 on which date the closing market
price was £35.53.
8. Awards will vest on 20 March 2020, subject to continued employment or good leaver status, 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.
9. Awards will vest on 21 March 2021, subject to continued employment or good leaver status, having been granted on 21 March 2018 on which date the closing market
price was £49.55. Awards were made on a share price of £49.49 being the share price obtained by averaging the closing share prices for the five dealing days before
the date of grant.
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 annual incentive 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.
102
Intertek Group plc Annual Report and Accounts 2018
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 has share options
or share awards.
André Lacroix5
Edward Leigh6
Ross McCluskey7
Sir David Reid
Graham Allan
Gurnek Bains
Dame Louise Makin
Andrew Martin
Gill Rider
Jean-Michel Valette
Lena Wilson
Beneficially
owned at
31 December
2017 or on
appointment
299,788
Beneficially
owned at
31 December
2018 or on
ceasing to
be a Director1
345,353
4,271
185
5,919
–
–
852
137
395
10,000
836
7,279
1,813
6,244
110
112
956
251
509
10,112
940
Outstanding
LTIP Share
Awards2
183,477
Outstanding
Deferred
Shares3
54,251
Shareholding
as a % of
salary4
1,745.34
Shareholding
Guideline
met
Yes
34,591
8,410
–
–
–
–
–
–
–
–
29,117
3,013
–
–
–
–
–
–
–
–
73.56
38.40
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
No
No
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1. No changes in the above Directors’ interests have taken place between 31 December 2018 and the date of this report.
2. Subject to performance conditions.
3. Subject to continued employment or good leaver status.
4. Based on a share price of £48.00 as at 31 December 2018 being the last trading day and applied to the annual salary for 2018.
5. Appointed 16 May 2015 with the guideline to hold 200% of base salary in shares by 16 May 2020, which has been exceeded.
6. Guideline to hold 200% of base salary in shares by May 2021. Edward Leigh ceased to be a Director on 22 August 2018.
7. Joined Intertek in August 2016 with the guideline to hold 35% of base salary in shares by August 2021. This guideline was increased on his appointment
to Chief Financial Officer on 22 August 2018 to 200% to be achieved by August 2023.
PAYMENTS TO PAST DIRECTORS
No payments were made to past directors during the year ended 31 December 2018.
PAYMENTS FOR LOSS OF OFFICE
No payments were made in respect of loss of office during the year ended 31 December 2018, however a payment of £3,810 will be
paid to Edward Leigh for loss of office when his employment terminates.
ARRANGEMENTS FOR EDWARD LEIGH
As set out on stepping down from the Board, Edward Leigh ceased to be a director of the Company with effect from 22 August 2018.
Edward was paid in respect of accrued salary and contractual benefits up to and including the 22 August 2018. He remains an
employee of the Company potentially until 21 August 2019 and during the period of continued employment, he will be paid his salary
and contractual benefits (other than car allowance) in accordance with his Service Agreement. If Edward serves notice on the Company
terminating his employment before 21 August 2019 he will be paid, within 30 days of the Termination Date, an amount equal to his
basic salary and a sum in lieu of pension contributions for the period from the termination of his employment up to 21 August 2019.
The annual incentive payable to Edward for 2018 has been pro-rated for the period to 22 August 2018 to reflect Edward’s time as a
Director during the financial year. This incentive has been determined based on performance achieved, in line with our Executive
Directors, as set out on page 99. 50% of the incentive will be paid in cash in March 2019, and 50% will be deferred into shares (which
will vest after a period of three years). Edward is being treated as a good leaver in respect of his existing deferred share awards, which
will, accordingly, vest on their original vesting dates. All deferred share awards are subject to malus and clawback provisions.
As set out in the Chair's letter, Edward is being treated as a good leaver in respect of his unvested LTIP share awards under the Long
Term Incentive Plan. The awards will vest on their original vesting dates, subject to the satisfaction of the original performance
conditions and will be pro-rated up to 22 August 2018. All LTIP awards will continue to be subject to malus and clawback provisions.
32,336 LTIP share awards were due to vest to Edward on 22 September 2018 but following the application of pro-ration and
performance criteria 29,881 shares vested at a share price of £48.50 giving a total value of £1,449,228. With regards to other
outstanding LTIP awards, Edward has the following outstanding awards (which have been pro-rated for time): 2017 = 9,900;
2018 = 2,665. These awards will vest at the normal time subject to performance.
The Company made a payment to Edward Leigh’s legal advisers of £1,000 plus VAT to cover legal fees.
Intertek Group plc Annual Report and Accounts 2018 103
Directors' Report | Corporate Governance
REMUNERATION REPORT
continued
PERCENTAGE CHANGE IN REMUNERATION LEVELS
The table below shows the average movement in salary and annual incentive for UK employees between the 2017 and 2018
financial year ends.
CEO (A Lacroix1)
Average pay based on Intertek’s UK employees2
Salary
2.0%
5.5%
Incentive
45.2%
50.9%
Benefits
25.3%
7.0%
1. The percentage change for incentive and benefits for André Lacroix are based on actual amounts earned in 2017 and 2018.
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.
CEO PAY RATIO
For accounting periods starting on or after 1 January 2019, UK companies have to report on pay ratio information in relation to the
total remuneration of the Director undertaking the role of Chief Executive Officer. To meet the spirit of the legislation, Intertek has
decided to voluntarily report one year early the required data, comparing the CEO’s total remuneration against that of all of its UK
employees. The table below shows the required information.
Year
2018
Method
Option B
25th
percentile
pay ratio
262:1
Median
pay ratio
189:1
75th
percentile
pay ratio
123:1
In terms of reporting options, the Company chose option B, using the most recent gender pay gap information to determine
the relevant employees at the 25th, 50th and 75th percentile to compare to CEO pay, as that data was already available
and is used for other reporting purposes. It refers to gender pay data as of 1 April 2018.
With regards to representativeness of the ratios, Intertek is a very diverse employer and has employees in many UK locations.
Our employees have many different qualifications and are working in and serving almost all major industries. As a consequence,
it is unlikely that there is any one single individual whose pay and benefits is representative of Intertek UK as a whole. Intertek
have therefore also looked at the total pay of the individuals immediately above and below the 25th, 50th and 75th percentile.
Looking at the spread of resulting ratios, it was decided that the “best equivalent” would be the arithmetic mean of the total pay
of three individuals around each reporting point:
• For the three employees around the 25th percentile: Ratios ranged from 239:1 to 280:1, with an arithmetic mean of 262:1.
• For the three employees around the 50th percentile: Ratios ranged from 165:1 to 210:1, with an arithmetic mean of 189:1.
• For the three employees around the 75th percentile: Ratios ranged from 110:1 to 143:1, with an arithmetic mean of 123:1.
When calculating total pay and rewards, no pay components were omitted. The Company used the calculation methodology as set out
in the relevant regulations (The Companies (Miscellaneous Reporting) Regulations 2018). For part-time employees their relevant pay
and benefit components have been adjusted to the equivalent full-time figure for the relevant business. Full-time equivalent hours can
vary across locations and legal entities.
RELATIVE IMPORTANCE OF THE SPEND ON PAY
The table below shows the movement in spend on staff costs between the 2017 and 2018 financial years, compared to dividends.
Staff costs1
Dividends
2018
£m
1,239.0
128.3
2017
£m
1,220.8
107.0
% change
1.5%
19.9%
1. Staff costs are shown at actual rates. At constant currency, staff costs increased by 4.9%, reflecting a 3.4% foreign exchange impact.
104
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
PERFORMANCE GRAPH
Consistent with prior years, the graph below shows the TSR in respect of the Company over the last 10 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 and Intertek is a constituent of the FTSE 100. 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
£
800
700
600
500
400
300
200
100
0
2008
Intertek Group
FTSE 100
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
CEO TOTAL REMUNERATION
The total remuneration figures for the CEO during each of the past 10 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 incentive
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 incentive 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 incentive (%)
LTIP award vesting (%)
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
Year ended 31 December
2014
2,011
38.4
25.2
W Hauser
2015
876
90.6
–
A Lacroix
2015
1,824
96.6
–
2016
2017
5,4521 11,4171
100.0
70.24
90.87
–
2018
6,223
75.5
98.32
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.
Intertek Group plc Annual Report and Accounts 2018 105
Directors' Report | Corporate Governance
REMUNERATION REPORT
continued
CEO TOTAL REMUNERATION
The graph below shows the total remuneration of the Intertek CEO over the 10 year period from 2009 to 2018.
CEO TOTAL REMUNERATION FIGURE
Mirror awards5
LTIP (share price increase)4
LTIP (award share price)3
Annual incentive
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
2018
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 2019
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. No change is proposed to the CFO's salary, given his appointment in August 2018.
The Executive Directors’ salaries are:
André Lacroix
Ross McCluskey
1. Salary on appointment.
Base salary
from
1 April 2018
£’000
950
4751
Base salary
from
1 April 2019
£’000
969
475
% increase
2.0%
0.0%
Annual incentive and LTIP awards to be granted in 2019
For 2019, the annual incentive opportunity expressed as a percentage of base salary will be 200% for the CEO and CFO. The
Committee has determined that for 2019 the basis for calculating the annual incentive 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 incentive 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, the Committee will disclose the performance
targets for the annual incentive in the following year.
106
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
For 2019, the LTIP opportunity for the CEO and CFO will be 250% and 200% of salary respectively with targets based on the Group
Remuneration Policy and decisions taken by the Committee as below:
Metric
Earnings Per Share (50%)
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%
Total Shareholder Return (50%) Relative TSR performance against the FTSE index members 31
Median
to 130 (excluding banks and investment trusts)
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 were implemented 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
1. Increase took effect from 1 April 2019.
To 31 March
2018
£’000
From 1 April
2018
£’000
320
58
12
20
15
–
10
7.5
2.5
320
62
12
20
15
–
10
10
5
20191
£'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 4 March 2019.
Gill Rider
Chair of the Remuneration Committee
Intertek Group plc Annual Report and Accounts 2018 107
Directors' Report | Corporate Governance
SHAREHOLDER ENGAGEMENT
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 report on pages 22 to 43 sets out our
sustainability priorities, our commitment and engagement
with our people, the environment and wider communities.
Details of our significant shareholders are disclosed on page 111.
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 Board retains overall
responsibility for shareholder engagement. This is discharged
through the Chairman, supported by the Executive Directors and
the Group Company Secretary, who is responsible for ensuring
Intertek has regular and effective communication with its
investors. Throughout the year, the Chairman, Non-Executive
Directors and Executive Directors are available to meet with
institutional shareholders.
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.
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 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 include a wealth of information
that may be of interest to shareholders and investors and is
supplemented by videos, webcasts and presentations.
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 Kepler Cheuvreux Autumn 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.
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,
Chicago, Montreal and Toronto.
In addition, further roadshows were held and a full list of
roadshows held, and attended, is included in the calendar below.
JANUARY
• Oddo BHF Lyon
stock-picker
Conference
• Denmark and Finland
Roadshow
MAY
AUGUST
OCTOBER
DECEMBER
• Trading Statement
• Half Year Results
2018
• London, Edinburgh,
New York, Montreal,
Boston, Chicago -
Interim Results
Roadshows
• Stockholm Roadshow
• Helsinki Roadshow
• Credit Suisse San
Francisco 8th Annual
European Business
Services Conference
• Denver Roadshow
• Chicago roadshow
• Berenberg London
Testing, Inspection &
Certification (TIC)
Conference
• Dublin Roadshow
• Zurich Roadshow
• Geneva Roadshow
• Frankfurt Roadshow
• Munich Roadshow
• Milan Roadshow
MARCH
JUNE
SEPTEMBER
NOVEMBER
• Full Year Results 2017
• Goldman Sachs
• London, Edinburgh,
Toronto, New York –
Annual Results
Roadshow
London European
Business Services,
Transport & Leisure
Conference
• Trading Statement
• Paris Roadshow
• Bernstein London
Strategic Decisions
Conference
• UBS London Business
Services, Leisure and
Transport Conference
• Kepler Cheuvreux Paris
Autumn Conference
108
Intertek Group plc Annual Report and Accounts 2018
Shareholder Engagement
Directors' Report
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 2018, shareholders holding more than
55.10% 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 2018 AGM provided
all shareholders with 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.
The 2019 AGM will be held on 23 May 2019 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 is sent to
shareholders by e-communications or by post and is also available
at www.intertek.com.
DIVIDEND PAYMENTS
Dividend payments to shareholders were made twice during
2018. The 2017 final dividend payment was made on
6 June 2018 to all shareholders present on the register as
at 18 May 2018. The 2018 interim dividend payment was
made on 19 October 2018 to all shareholders on the register
as at 5 October 2018.
Intertek Group plc Annual Report and Accounts 2018 109
Directors' Report | Corporate Governance
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
74 to 75.
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 2018,
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 and the FCA under
Article 19 of the Market Abuse Regulation, are disclosed in
the Remuneration Report on pages 89 to 107.
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 67.2p per
ordinary share (2017: 47.8p) making a full-year dividend of 99.1p
per ordinary share (2017: 71.3p) which will, if approved at the
AGM, be paid on 4 June 2019 to shareholders on the register
at the close of business on 17 May 2019.
GENERAL MEETING
During the year to December 2018, the Directors became aware
that the payment of the interim dividend paid on 19 October
2018 (the ‘Relevant Distribution’) totalling £51.4m had been
made otherwise than in accordance with the Companies Act
2006 (‘the Act’) because interim accounts had not been filed
at Companies House prior to payment. At a General Meeting
of the Company’s shareholders held on 16 January 2019, a
resolution was passed, the effect of which was to return all
potentially affected parties so far as possible in the position
in which they were always intended to be had the Relevant
Distribution been made in accordance with the procedural
requirements of the Act. This constituted a related-party
transaction under IAS 24. The Company had at all times sufficient
distributable reserves to justify the payment of dividends.
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 455,463 shares held by the
Intertek Group Employee Share Ownership Trust (‘Trust’) as at
31 December 2018. 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 2018, the shareholders generally and
unconditionally authorised the Directors to allot relevant
110
Intertek Group plc Annual Report and Accounts 2018
Directors' Report
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 of AGM.
At the AGM in 2018 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.
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 and is announced
contemporaneously with the allotment, or has taken place in the
preceding six-month period and is disclosed in the announcement
of the allotment.
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. The Company currently holds
no shares in treasury.
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 2018 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 4 March 2019, 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
Fundsmith LLP
Number of
voting rights
10,473,019
9,547,182
8,110,417
8,037,714
8,485,236
8,215,293
% of voting
rights
6.49
5.92
5.03
4.98
5.26
5.10
EMPLOYMENT
Information about the Group’s employees, employment of disabled
persons and employment practices is contained within the
Sustainability report on pages 28 to 31. Information on employee
share schemes is in note 17 to the financial statements.
GREENHOUSE GAS EMISSIONS (‘GHG’)
Information about the Group’s Greenhouse Gas emissions is given
in the Sustainability report on pages 34 to 36.
POLITICAL DONATIONS
At the AGM in 2018, 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
(2017: £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 of AGM.
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
158 to 163.
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.
Intertek Group plc Annual Report and Accounts 2018 111
Other Statutory Information Directors' Report | Corporate Governance
OTHER STATUTORY INFORMATION
continued
ANNUAL GENERAL MEETING
The Notice of AGM, which is to be held on 23 May 2019,
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.
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 65) which
provides an overview of the development and performance of
the Company’s business during the year ended 31 December
2018 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 89 to 107)
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 111)
Not applicable
Other statutory information
(page 110)
Other statutory information
(page 110)
Not applicable
112
Intertek Group plc Annual Report and Accounts 2018
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Directors' Report
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 financial statements in accordance with applicable law
and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and 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 Company and of
the profit or loss of the Group and Company for that period. In
preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the European
Union have been followed for the group financial statements
and United Kingdom Accounting Standards, comprising FRS
101, have been followed for the company financial statements,
subject to any material departures disclosed and explained in
the financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
RESPONSIBILITY STATEMENT OF THE DIRECTORS
IN RESPECT OF THE ANNUAL FINANCIAL REPORT
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Group and Company’s position and performance, business
model and strategy.
Each of the Directors, whose names and functions are
listed in the Directors' Report confirm that, to the best
of their knowledge:
• the Company financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 'Reduced Disclosure Framework', and
applicable law), give a true and fair view of the assets, liabilities,
financial position and profit of the Company;
• the Group financial statements, which have been prepared
in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit of the Group; and
• the Directors' Report includes a fair review of the development
and performance of the business and the position of the Group
and Company, together with a description of the principal risks
and uncertainties that it faces.
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business.
André Lacroix
Chief Executive Officer
4 March 2019
Registered Office
33 Cavendish Square
London
W1G 0PS
Registered Number: 04267576
The Directors are also responsible for safeguarding the assets
of the group and company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy
at any time the financial position of the Group and 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.
The Directors are responsible for the maintenance and integrity
of the Company’s 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 2018 113
Contents
FINANCIAL STATEMENTS
IN THIS SECTION
CONTENTS
Consolidated income statement
Consolidated statement of comprehensive income
C onsolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the financial statements
Intertek Group plc – Company balance sheet
Intertek Group plc – Company statement of
changes in equity
Notes to the Company financial statements
NOTES TO THE FINANCIAL STATEMENTS
Note
1 Significant accounting policies
2 Operating segments and presentation of results
3 Separately Disclosed Items
4 Expenses and auditor’s remuneration
5 Employees
6 Taxation
7 Earnings per ordinary share
8 Property, plant and equipment
9 Goodwill and other intangible assets
10 Acquisitions
11 Trade and other receivables
12 Trade and other payables
13 Provisions
14 Borrowings and financial instruments
15 Capital and reserves
16 Employee benefits
17 Share schemes
18 Subsequent events
19 Capital management
20 Non-controlling interest
21 Related parties
22 Contingent liabilities
23 Principal Group Companies
115
116
117
118
119
120
164
165
166
120
124
127
128
128
129
132
133
135
139
141
142
142
143
150
151
155
156
156
157
157
157
158
114
Intertek Group plc Annual Report and Accounts 2018
Financial Statements | Consolidated primary statements
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2018
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
Earnings per share**
Basic
Diluted
2
2
14
14
6
2
20
7
7
* See note 3.
** Earnings per share on the adjusted results is disclosed in note 7.
Adjusted
results
£m
2,801.2
(2,319.4)
481.8
1.8
(27.1)
(25.3)
456.5
(112.8)
343.7
322.9
20.8
343.7
Separately
Disclosed
Items*
£m
–
(45.6)
(45.6)
–
(6.4)
(6.4)
(52.0)
13.5
(38.5)
(38.5)
–
(38.5)
Separately
Disclosed
Items*
£m
–
(45.0)
(45.0)
–
(0.5)
(0.5)
(45.5)
20.6
(24.9)
(24.9)
–
(24.9)
Total
2018
£m
2,801.2
(2,365.0)
436.2
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
1.8
(33.5)
(31.7)
404.5
(99.3)
305.2
284.4
20.8
305.2
176.8p
174.7p
Total
2017
£m
2,769.1
(2,346.4)
422.7
1.2
(30.6)
(29.4)
393.3
(86.9)
306.4
287.4
19.0
306.4
178.6p
176.3p
Intertek Group plc Annual Report and Accounts 2018 115
Financial Statements Financial Statements | Consolidated primary statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
Profit for the year
Other comprehensive income
Remeasurements on defined benefit pension schemes
Tax on items that will never be reclassified to profit or loss
Items that will never be reclassified to profit or loss
Foreign exchange translation differences of foreign operations
Net exchange (loss)/gain on hedges of net investments in foreign operations
Gain/(loss) on fair value of cash flow hedges
Items that are or may be reclassified subsequently to profit or loss
Total other comprehensive income/(expense) 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
6
14
20
2018
£m
305.2
(0.8)
(0.5)
(1.3)
45.3
(32.6)
1.1
13.8
12.5
317.7
299.7
18.0
317.7
2017
£m
306.4
12.6
(1.7)
10.9
(107.3)
77.3
(16.4)
(46.4)
(35.5)
270.9
252.2
18.7
270.9
116
Intertek Group plc Annual Report and Accounts 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2018
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
2018
£m
2017
£m
8
9
9
6
11
14
14
12
13
14
6
16
12
13
15
20
441.2
874.9
329.5
0.3
58.4
1,704.3
18.3
684.4
206.9
19.7
929.3
420.6
579.6
178.2
0.3
59.4
1,238.1
18.3
641.7
137.0
17.3
814.3
2,633.6
2,052.4
(138.3)
(62.5)
(515.1)
(26.8)
(742.7)
(846.8)
(80.8)
(12.5)
(26.5)
(16.0)
(982.6)
(77.1)
(46.8)
(452.2)
(32.2)
(608.3)
(604.0)
(47.4)
(17.8)
(21.6)
(9.1)
(699.9)
(1,725.3)
(1,308.2)
908.3
744.2
1.6
257.8
7.1
607.5
874.0
34.3
1.6
257.8
(9.5)
459.8
709.7
34.5
908.3
744.2
Working capital of £109.7m (2017: £138.3m) comprises the asterisked items in the above Statement of Financial Position less
refundable deposits aged over 12 months of £8.6m (2017: £6.6m).
The financial statements on pages 115 to 163 were approved by the Board on 4 March 2019 and were signed on its behalf by:
André Lacroix
Chief Executive Officer
Ross McCluskey
Chief Financial Officer
Intertek Group plc Annual Report and Accounts 2018 117
Financial Statements Financial Statements | Consolidated primary statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the Company
For the year ended 31 December 2018
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
non-controlling interest
Issue of share capital
Purchase of own shares
Tax paid on Share Awards vested*
Equity-settled transactions
Income tax on equity-settled transactions
Total contributions by and distributions
to the owners of the Company
At 31 December 2017
At 1 January 2018
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
non-controlling interest
Issue of share capital
Purchase of own shares
Tax paid on Share Awards vested*
Equity-settled transactions
Income tax on equity-settled transactions
Total contributions by and distributions
to the owners of the Company
At 31 December 2018
15
20
15
15
17
17
6
15
20
15
15
17
17
6
Notes
Share
capital
£m
1.6
Share
premium
£m
257.8
Translation
reserve
£m
14.6
Other reserves
Total
before
non-
controlling
interest
£m
567.7
Non-
controlling
interest
£m
34.7
287.4
(35.2)
252.2
19.0
(0.3)
18.7
Total
equity
£m
602.4
306.4
(35.5)
270.9
Other
£m
20.7
–
(16.4)
(16.4)
Retained
earnings
£m
273.0
287.4
9.6
297.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(28.4)
(28.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(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
–
1.6
–
257.8
–
(13.8)
–
4.3
(110.2)
459.8
(110.2)
709.7
(18.9)
34.5
(129.1)
744.2
1.6
257.8
(13.8)
4.3
459.8
709.7
34.5
744.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.5
15.5
–
284.4
1.1
1.1
(1.3)
283.1
284.4
15.3
299.7
20.8
305.2
(2.8)
18.0
12.5
317.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(128.3)
(128.3)
(18.2)
(146.5)
–
–
(16.7)
(9.9)
20.9
(1.4)
–
–
(16.7)
(9.9)
20.9
(1.4)
–
–
–
–
–
–
–
–
(16.7)
(9.9)
20.9
(1.4)
–
1.6
–
257.8
–
1.7
–
5.4
(135.4)
607.5
(135.4)
874.0
(18.2)
34.3
(153.6)
908.3
*
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.
118
Intertek Group plc Annual Report and Accounts 2018
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2018
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 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
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 in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange adjustments
Cash and cash equivalents at 31 December
Notes
2018
£m
2017
£m
2
8
9
9
8,9
17
14
6
16
14
10
8,9
15
20
15
14
14
14
14
305.2
306.4
76.2
12.5
24.6
–
20.9
31.7
99.3
(1.1)
0.4
569.7
1.0
(16.0)
35.2
(7.0)
(2.0)
580.9
(29.3)
(93.1)
458.5
3.5
1.8
(387.9)
0.1
(113.2)
(495.7)
(16.7)
(9.9)
341.4
(75.9)
(18.2)
(128.3)
92.4
55.2
135.9
12.1
203.2
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
The notes on pages 120 to 163 are an integral part of these consolidated financial statements.
Cash outflow relating to Separately Disclosed Items was £22.0m for year ended 31 December 2018 (2017: £16.9m).
Free cash flow of £350.6m (2017: £341.6m) comprises the asterisked items in the above consolidated Statement of Cash Flows.
Intertek Group plc Annual Report and Accounts 2018 119
Financial Statements 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 2018 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 Company financial statements present information about the Company as a separate entity and not about its Group.
The Company has elected to prepare its Company financial statements in accordance with UK GAAP, comprising FRS 101 and
applicable law; these are presented on pages 164 to 168.
Significant new accounting policies
IFRS 9 Financial Instruments came into effect on 1 January 2018. Management has performed its reviews of the standard, and
identified the following areas of note, although there is no material impact in the year ending 31 December 2018 as a result of
implementing the new standard. The Group has applied the limited exemption in IFRS 9 and has elected not to restate comparative
information in the year of adoption. As a result, the comparative information provided has been accounted for in accordance with
Group's previous accounting policy.
• Classification and measurement of financial assets – the Group's financial assets comprise trade receivables, contract assets
and cash and cash equivalents. The disclosures relating to both trade receivables, contract assets and cash and cash equivalents
continue to be applicable and have not been 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 contract assets. For trade
receivables and contract assets, the Group has applied the simplified approach permitted by IFRS 9, which requires the use of the
lifetime expected loss provision for all receivables, whereas IAS 39 operated under an incurred loss model and would only recognise
impairments when there was objective evidence. There has been no material change to the impairment provision of receivables.
• Hedge accounting – the Group has continued to apply IAS 39 accounting and has provided additional IFRS 7 disclosures required
for taking that option.
IFRS 15 Revenue from contracts with customers came into effect on 1 January 2018. During the year ended 31 December 2017
the Group carried out a detailed review of the recognition criteria for revenue applying the requirements of IFRS 15 and to ensure
that the same principles were being applied consistently across the Group. Management assessed the potential impact of IFRS 15 by
i) discussing the changes in accounting for revenue under the new standard with major countries and business lines; ii) reviewing a
cross-section of different revenue contracts across the Group; and iii) considering the impact of IFRS 15 on both short-term and
long-term contracts. 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 contract assets 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 has continued in the same way, this is in line with the "over time"
recognition under IFRS 15.
Whilst IAS 18 is based on deliverables and risks and rewards of transfer, IFRS 15 identifies performance obligations. There may be more
than one performance obligation per contract, for example Alchemy Training Solutions contracts have multiple elements which are split
between recognising revenue at a point in time for services such as software licences and over time for other services delivered under
the same contract. The application to the Group's long- and short-term contracts remains the same. IFRS 15 provides guidance on
variable consideration that was not included under IAS 18, however no material variable consideration exists within the Group.
120
Intertek Group plc Annual Report and Accounts 2018
Financial Statements | Notes to the financial statements 1 Significant accounting policies (continued)
IFRS 15 has been implemented retrospectively, but the comparative figures have not been restated because the new standard does
not have a material impact on the timing of revenue recognition based on the Group’s current revenue streams. The economic factors
affecting revenue for both short-term and long-term contracts are consistent within each. The operating segment revenue disclosures
(note 2) provided under IFRS 8 are consistent with the disaggregated revenue disclosure and recognition and measurement
requirements of IFRS 15.
IFRSs announced but not yet effective
IFRS 16 Leases (effective 1 January 2019) requires that, to the extent that a right-of-control exists over an asset subject to a lease,
with a lease term exceeding one year and subject to exceptions for leases of low-value assets, a right-of-use asset, representing
the Group's right to use the underlying leased asset and a lease liability representing the Group's obligation to make lease payments,
are recognised in the consolidated statement of financial position at the commencement of the lease.
The Group will be applying the modified retrospective approach, where the cumulative effect of applying IFRS 16 is recognised in
retained earnings with no restatement to prior years.
On transition, the majority of leases will be recognised using modified retrospective B, whereby the right-of-use asset is equal to
the lease liability at 1 January 2019, being the present value of the remaining future minimum lease payments at the date of initial
application, including any early termination or extension options if they are deemed reasonably certain to be adopted. For certain
leases the modified retrospective A approach will be applied, whereby the right-of-use asset recognised at 1 January 2019 is equal
to the right-of-use asset had IFRS 16 been applied since the beginning of the lease.
The Group has applied the practical expedient within the standard whereby IFRS 16 has been applied to contracts that were previously
identified as leases when applying IAS 17 Leases and IFRIC 4 Determining whether an Arrangement Contains a Lease.
Management has completed the data collection exercise to determine the estimated quantitative impact of IFRS 16 on the Group’s net
assets and income statement as a result of IFRS 16 coming into effect from 1 January 2019:
• The Group’s assets would increase by between £230m and £250m and liabilities would increase by between £250m and £270m.
The overall impact on the Group’s statement of financial position as at 31 December 2018 is expected to be a reduction in the
Group’s net assets of £20m.
• Operating lease rental charges for those leases accounted for under IFRS 16 are replaced by depreciation and finance costs.
The impact on the Group’s 2018 income statement is not material.
IFRS 16 will primarily affect the accounting for the Group’s operating leases, to which the Group had commitments of £303.6m at
31 December 2018 as reported in note 8. This is the gross value and does not reflect a discounting of the commitments to their
present value, as required by IFRS 16. IFRS 16 will not have any impact on the underlying commercial performance of the Group,
nor the cash flows generated in the year.
There are no other standards that are not yet effective and that would be expected to have a material impact on the Group in
the current or future reporting periods and on future transactions.
Changes in accounting policies
The accounting policies set out in these financial statements have been applied consistently to all years presented except for
the policy on the useful economic lives of intangible assets that has been updated to reflect the longer useful economic lives
of the intangibles assets recognised following the acquisition of Alchemy. A number of new standards, amendments to standards
and interpretations are effective for annual periods beginning on or after 1 January 2018, but do not have a material effect on
the consolidated financial statements of the Group. Details of these standards can be found on page 120.
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.
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.
Intertek Group plc Annual Report and Accounts 2018 121
Financial Statements 1 Significant accounting policies (continued)
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 2018
1.26
1.11
8.69
9.90
1.80
31 Dec 2017
1.34
1.13
8.79
10.47
1.72
2018
1.34
1.13
8.84
10.47
1.79
2017
1.29
1.14
8.72
10.05
1.68
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.
122
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 1 Significant accounting policies (continued)
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 reassessment
of the uncertain tax provisions for the full year and reassessment 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. In 2018 the Group made a number of acquisitions, as disclosed in note 10, and it was determined
that the Group has control over all subsidiaries acquired in the year.
Intangible assets
When the Group makes an acquisition, e.g. Aldo Abela Surveys Limited, Proasem S.A.S., NTA Monitor Limited and Alchemy Investment
Holdings, Inc. in 2018, management determines initially whether any intangible assets (e.g. customer relationships, trade names
and technology) should be recognised separately from goodwill, and the provisional amounts at which to recognise those assets.
Certain assumptions are used in determining the provisional values for such intangible assets, including, but not limited to, future
growth rates and customer attrition rates. 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 the 2017 acquisitions of KJ Tech Services GmbH and Acumen Security LLC
during the current year – see note 10.
Restructuring
In making a provision and classifying costs as restructuring as part of our ‘5x5’ differentiated strategy for growth, 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.
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 and including
current year acquisitions (e.g. Alchemy), 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 growth rates and discount rates – see note 9. No risk has
been identified of a goodwill impairment in the next twelve months, as detailed in the sensitivity analysis in 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 and forward-looking judgmental factors, such as specific customer
knowledge and country-specific risk factors. Further details are included in note 11.
Intertek Group plc Annual Report and Accounts 2018 123
Financial Statements 1 Significant accounting policies (continued)
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
2 Operating segments and presentation of results
ACCOUNTING POLICY
Revenue
Revenue represents the total amount receivable for services rendered when there is transfer of control to the customer, 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 or test/inspection certificate is issued. Short-term projects are considered to be those
of less than two months' duration.
On long-term projects revenue is recognised using the five steps for revenue recognition. The majority of contracts are for less than
one year. 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 contract assets, if billing has yet to be completed. Performance obligations
vary across business lines and regions, and on a contract-by-contract basis. There may be more than one performance obligation
per contract, for example Alchemy Training Solutions contracts have multiple elements which are split between recognising revenue
at a point in time for services such as software licences and over time for other services delivered under the same contract.
Long-term projects consist of two main types:
• time incurred is billed at agreed rates on a periodic basis, such as monthly; or
• 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 contract liabilities where services have not yet been rendered.
The Group does not expect to have any contracts where the period between the transfer of promised goods or services to the
customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices
for the time value of money.
The Group has applied practical expedients in i) recognising assets from the costs incurred to obtain or fulfil a contract; and ii)
in disclosing unsatisfied performance obligations in contracts as contracts have an expected duration of less than a year.
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. When aggregating operating segments into the three divisions
we have applied judgement over the similarities of the services provided, the customer-base and the 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.
124
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 2 Operating segments and presentation of results (continued)
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 and equipment verification and third party certification.
Trade – Our Trade division consists of three global business lines with similar global and regional trade-flow structural growth drivers
with demand driven by population and GDP growth, the development of regional trade, increased traceability and growth in port and
transport infrastructure.
The division provides differing services which reflect the breadth of our ATIC offering, but the services provided are similar in nature
and include analytical assessment, inspection and technical services that are delivered to the customers through issuing certificates
or reports. The three business lines all assist our Trade-related customers in protecting the value and quality of their products during
their custody-transfer, storage and transportation, globally. Our Trade-related customers are all dependent on, and intrinsically linked
to, global shipping and trade flows.
Our Caleb Brett 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 demonstrating similar mid- to long-term structural growth drivers
closely linked to our end-customer capital investment. Demand is driven by long-term energy demand, supply chain risk management,
sustainability of energy supply, infrastructure investments, growth in alternative energy and focus on health and safety.
The division offers similar services across our range of Total Quality Assurance solutions to the oil, gas, nuclear, power and minerals
industries. Our Resources customers typically extract natural resources from the ground and our services enable our customers to
optimise the use of their assets and to minimise risk in their supply chains. Delivery of our services is through issuing certificates
or reports.
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 2018 125
Financial Statements 2 Operating segments and presentation of results (continued)
The results of these divisions for the year ended 31 December 2018 are shown below:
Year ended 31 December 2018
Products
Trade
Resources
Total
Group operating profit
Net financing costs
Profit before income tax
Income tax expense
Profit for the year
Year ended 31 December 2017
Products
Trade
Resources
Total
Group operating profit
Net financing costs
Profit before income tax
Income tax expense
Profit for the year
Revenue
from
contracts with
customers
£m
1,680.2
642.1
478.9
2,801.2
Depreciation
and
software
amortisation
£m
(58.6)
(19.2)
(10.9)
(88.7)
Revenue
from
contracts with
customers
£m
1,625.5
647.8
495.8
2,769.1
Depreciation
and
software
amortisation
£m
(60.3)
(19.9)
(13.2)
(93.4)
Adjusted
operating
profit
£m
371.0
83.4
27.4
481.8
481.8
(25.3)
456.5
(112.8)
343.7
Adjusted
operating
profit
£m
350.5
88.7
28.5
467.7
467.7
(28.9)
438.8
(107.5)
331.3
Separately
Disclosed
Items
£m
(26.5)
(5.1)
(14.0)
(45.6)
(45.6)
(6.4)
(52.0)
13.5
(38.5)
Separately
Disclosed
Items
£m
(15.0)
(5.9)
(24.1)
(45.0)
(45.0)
(0.5)
(45.5)
20.6
(24.9)
Operating
profit
£m
344.5
78.3
13.4
436.2
436.2
(31.7)
404.5
(99.3)
305.2
Operating
profit
£m
335.5
82.8
4.4
422.7
422.7
(29.4)
393.3
(86.9)
306.4
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
2018
£m
872.8
530.3
186.4
1,211.7
2,801.2
2017
£m
863.3
528.4
183.0
1,194.4
2,769.1
2018
£m
1,034.7
56.9
116.2
438.1
1,645.9
2017
£m
583.4
55.0
106.5
433.8
1,178.7
MAJOR CUSTOMERS
No revenue from any individual customer exceeded 10% of total Group revenue in 2017 or 2018.
126
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes 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 non-current 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, which is a non-GAAP measure, 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 as part of our 5x5 differentiated strategy for
growth are excluded from adjusted operating profit where they represent fundamental changes in individual operations around the
Group and where they reflect the refinement of our operational structure 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
Gain on disposal of business
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)
2018
£m
(24.6)
(8.5)
(13.6)
1.1
–
–
(45.6)
(6.4)
(52.0)
13.5
(38.5)
2017
£m
(16.0)
(3.2)
(12.4)
–
(16.8)
3.4
(45.0)
(0.5)
(45.5)
20.6
(24.9)
(a) Of the amortisation of acquisition intangibles in the current year, £3.6m (2017: £nil) relates to the customer relationships, trade
names, technology and non-compete covenants acquired with the purchase of Alchemy Investment Holdings, Inc ("Alchemy")
in 2018.
(b) Acquisition costs comprise £8.5m (2017: £3.6m) for transaction costs in respect of successful, active and aborted acquisitions
in the current year, and £nil in respect of prior-years’ acquisitions (2017: £0.4m income).
(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) £1.1m of small non-core businesses were disposed of in 2018 (2017: £nil).
(e) No impairment charges have been recorded in 2018. Consistent with the corporate 5x5 strategy objective of "Superior Technology"
announced in 2016, the Group recorded an impairment of other assets of £8.0m in 2017 following a comprehensive strategic
review of the Global IT organisation structure and system finalised in April 2017. In addition, in 2017 £8.8m 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 £6.4m (2017: £0.5m) 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 2018 127
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
Loss/(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
128
Intertek Group plc Annual Report and Accounts 2018
2018
£m
2017
£m
1,239.0
88.7
–
1,037.3
2,365.0
1,220.8
93.4
18.2
1,014.0
2,346.4
2018
£m
77.6
25.7
0.4
2018
£m
0.5
3.4
3.9
0.2
–
–
–
4.1
2018
£m
1,052.0
21.0
120.0
46.0
1,239.0
2018
23,961
10,550
8,025
1,926
44,462
44,720
2018
£m
5.0
4.5
–
9.5
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
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes 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 2018 is £99.3m (2017: £86.9m).
The Group’s consolidated effective tax rate for the 12 months ended 31 December 2018 is 24.5% (2017: 22.1%).
The income tax expense for the adjusted profit before tax for the 12 months ended 31 December 2018 is £112.8m (2017: £107.5m).
The Group’s adjusted consolidated effective tax rate for the 12 months ended 31 December 2018 is 24.7% (2017: 24.5%).
Differences between the consolidated effective tax rate of 24.5% and notional statutory UK rate of 19.0% 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 27.1% (2017: 27.0%). 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).
Intertek Group plc Annual Report and Accounts 2018 129
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
2018
£m
106.1
0.7
106.8
(4.8)
(2.7)
(7.5)
99.3
112.8
(13.5)
99.3
2017
£m
94.3
(0.2)
94.1
(9.2)
2.0
(7.2)
86.9
107.5
(20.6)
86.9
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 19.00% (2017: 19.25%)
Differences in overseas tax rates
Withholding tax on intercompany 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
2018
£m
404.5
76.9
15.0
6.5
24.3
(14.1)
–
(9.2)
(2.0)
1.9
99.3
2017
£m
393.3
75.7
17.6
12.1
4.4
(4.5)
(12.5)
(6.5)
1.8
(1.2)
86.9
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 associated deferred tax has also been recorded.
2. The Other category contains R&D tax credits of £1.3m (2017: £1.2m).
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 which 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
2018
£m
Tax charge
2018
£m
Net of tax
2018
£m
Before tax
2017
£m
Tax charge
2017
£m
Net of tax
2017
£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
Total other comprehensive (expense)/income
45.3
(32.6)
1.1
(0.8)
–
45.3
(107.3)
–
(107.3)
–
–
(0.5)
(32.6)
1.1
(1.3)
77.3
(16.4)
12.6
–
–
(1.7)
(1.7)
77.3
(16.4)
10.9
(35.5)
for the year
13.0
(0.5)
12.5
(33.8)
130
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes 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
2018
£m
20.9
Tax charge
2018
£m
(1.4)
Net of tax
2018
£m
19.5
Before tax
2017
£m
17.5
Tax credit
2017
£m
1.7
Net of tax
2017
£m
19.2
DEFERRED TAX
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
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
Assets
2018
£m
0.5
12.1
2.6
8.2
41.9
10.9
76.2
Assets
2017
£m
0.8
11.6
3.2
8.2
42.5
11.6
77.9
Liabilities
2018
£m
(91.1)
(7.8)
–
–
0.3
–
(98.6)
Liabilities
2017
£m
(52.7)
(8.7)
–
–
(4.5)
–
(65.9)
Net
2018
£m
(90.6)
4.3
2.6
8.2
42.2
10.9
(22.4)
58.4
(80.8)
(22.4)
Net
2017
£m
(51.9)
2.9
3.2
8.2
38.0
11.6
12.0
59.4
(47.4)
12.0
*
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 £17.8m, but the net liability of £22.4m is the same in both cases.
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
2018
£m
(51.9)
2.9
3.2
8.2
38.0
11.6
12.0
Exchange
adjustments
£m
(2.2)
(0.9)
–
(0.1)
0.7
(0.9)
(3.4)
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
(41.9)
–
–
–
–
5.3
(36.6)
Acquisitions
£m
(3.4)
–
–
–
–
–
(3.4)
Recognised
in income
statement
£m
5.4
2.3
0.2
1.5
2.8
(4.7)
7.5
Recognised
in income
statement
£m
17.9
7.7
0.8
0.4
(6.5)
(13.1)
7.2
Recognised
in equity
and OCI
£m
–
–
(0.8)
(1.4)
0.7
(0.4)
(1.9)
Recognised
in equity
and OCI
£m
–
–
1.0
1.8
(1.0)
0.4
2.2
31 December
2018
£m
(90.6)
4.3
2.6
8.2
42.2
10.9
(22.4)
31 December
2017
£m
(51.9)
2.9
3.2
8.2
38.0
11.6
12.0
Intertek Group plc Annual Report and Accounts 2018 131
Financial Statements 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
* The majority of tax losses can be carried forward indefinitely.
2018
£m
–
–
26.1
–
0.2
29.1
55.4
2017
£m
36.0
–
27.6
–
12.3
65.9
141.8
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 £235.8m (2017: £240.0m) 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:
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
132
Intertek Group plc Annual Report and Accounts 2018
2018
£m
284.4
38.5
322.9
160.9
1.9
162.8
176.8p
(2.1)p
174.7p
200.7p
(2.4)p
198.3p
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
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the 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 2018 133
Financial Statements 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 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
Cost
At 1 January 2018
Exchange adjustments
Additions
Disposals
Businesses acquired (note 10)
At 31 December 2018
Depreciation
At 1 January 2018
Exchange adjustments
Charge for the year
Impairments
Disposals
At 31 December 2018
Net book value at 31 December 2018
Fixtures,
fittings,
plant and
equipment
£m
Land and
buildings
£m
98.3
(3.8)
0.1
(0.2)
–
94.4
29.5
(2.2)
3.4
–
0.2
30.9
63.5
94.4
6.0
3.3
(0.2)
0.5
104.0
30.9
2.7
3.3
–
–
36.9
67.1
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
1,087.6
27.7
85.5
(27.2)
4.3
1,177.9
730.5
25.9
72.9
–
(25.5)
803.8
374.1
Total
£m
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
1,182.0
33.7
88.8
(27.4)
4.8
1,281.9
761.4
28.6
76.2
–
(25.5)
840.7
441.2
In 2017, consistent with the corporate 5x5 strategy objectives announced in 2016, the Group 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 related to
computer hardware.
Fixtures, fittings, plant and equipment include assets in the course of construction of £33.0m at 31 December 2018 (2017: £30.3m),
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
134
Intertek Group plc Annual Report and Accounts 2018
2018
£m
62.6
1.6
2.9
67.1
2017
£m
58.4
1.8
3.3
63.5
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the 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
2018
£m
64.3
139.8
63.0
267.1
Other
2018
£m
17.4
19.0
0.1
36.5
Total
2018
£m
81.7
158.8
63.1
303.6
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
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 £5.2m (2017: £8.0m).
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 2018 135
Financial Statements 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
Technology and know-how
Trade names
Licences
Covenants not to compete
Up to 7 years
Up to 20 years
Up to 15 years
Up to 18 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.
136
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 9 Goodwill and other intangible assets (continued)
INTANGIBLES
The intangibles employed by the business are analysed below:
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
Cost
At 1 January 2018
Exchange adjustments
Additions
Transfers
Reclassifications
Disposal
Businesses acquired (note 10)
At 31 December 2018
Amortisation
At 1 January 2018
Exchange adjustments
Transfers
Charge for the year
Disposal
At 31 December 2018
Net book value at 31 December 2018
Other intangible assets
Goodwill
£m
Customer
relationships
£m
Licences
£m
Other
acquisition
intangibles
£m
Computer
software
£m
Total other
intangible
assets
£m
1,138.6
(60.5)
–
–
28.1
1,106.2
552.5
(25.9)
–
–
–
526.6
579.6
1,106.2
41.8
–
(8.3)
–
–
278.3
1,418.0
526.6
16.5
–
–
–
543.1
874.9
351.1
(30.0)
4.9
(0.1)
5.2
331.1
238.3
(9.0)
14.5
–
–
243.8
87.3
331.1
11.9
–
10.4
7.4
–
91.8
452.6
243.8
8.4
0.3
19.4
–
271.9
180.7
9.4
(0.4)
–
–
–
9.0
9.4
(0.4)
–
–
–
9.0
–
9.0
0.3
2.2
–
–
–
–
11.5
9.0
0.2
–
0.4
–
9.6
1.9
18.9
12.4
–
–
0.7
32.0
18.4
0.2
1.5
–
–
20.1
11.9
32.0
1.3
–
1.3
(7.4)
–
52.1
79.3
20.1
0.8
0.2
4.8
–
25.9
53.4
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
174.5
9.3
22.2
–
–
(0.6)
0.2
205.6
95.5
4.7
–
12.5
(0.6)
112.1
93.5
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
546.6
22.8
24.4
11.7
–
(0.6)
144.1
749.0
368.4
14.1
0.5
37.1
(0.6)
419.5
329.5
Other intangible assets
Computer software additions of £22.2m (2017: £21.2m) relates to separately acquired computer software of £6.8m and internally
developed intangible assets of £15.4m. Licence additions of £2.2m (2017: £nil) relates to separately acquired intangible assets.
The other acquisition intangibles of £53.4m (2017: £11.9m) consist of guaranteed income, order backlog, covenants not to compete
and know-how. The average remaining amortisation period for customer relationships is eight years (2017: six years).
Computer software net book value of £93.5m at 31 December 2018 (2017: £79.0m) includes software in construction of £48.5m
(2017: £38.5m). Research and development expenditure of £31.6m (2017: £26.9m) was recognised as an expense in the year.
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
2018
£m
275.0
3.3
–
278.3
2017
£m
29.0
(0.9)
–
28.1
Intertek Group plc Annual Report and Accounts 2018 137
Financial Statements 9 Goodwill and other intangible assets (continued)
Goodwill (continued)
The total carrying amount of goodwill by CGU is as follows, which is also used for the assessment of the Group’s impairment review.
Industry Services
Business Assurance
Food & AgriWorld
Caleb Brett
Government & Trade Services
Minerals
Softlines
Hardlines
Electrical & Wireless
Transportation Technologies
Building & Construction
Chemicals & Pharma/Health, Environmental & Regulatory
Net book value at 31 December*
2018
£m
15.2
286.5
17.4
57.3
0.8
38.5
6.3
9.4
90.0
45.2
226.4
81.9
874.9
2017
£m
14.7
12.4
17.3
52.6
0.8
39.7
6.3
9.4
88.6
43.1
215.3
79.4
579.6
* 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 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 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. Goodwill arising in year from
acquisitions is assessed for impairment separately from the above CGUs and on an acquisition-by-acquisition basis. No impairments
were required on goodwill arising in 2018.
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 1.8% to 2.5% (2017: 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 9.1% to 10.3%
(2017: 9.6% to 11.9%).
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 2020 to 2023 from the 2019 budgeted revenues, with margins increasing
with base assumptions.
(ii) Assuming zero growth in operating profit margins in 2019 to 2023 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.
138
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 10 Acquisitions
ACQUISITIONS IN 2018
On 20 August 2018, the Group acquired Alchemy Investment Holdings, Inc. ('Alchemy'), an industry leader in People Assurance
solutions for the food industry, for an estimated purchase price of £378.5m, (£375.3m net of cash acquired), generating goodwill
of £270.6m.
On 6 March 2018, the Group acquired Aldo Abela Surveys Limited ('AAS'), a leading provider of quality and quantity cargo inspection
services, based in Malta. On 30 April 2018, the Group acquired Proasem S.A.S. ('Proasem'), a leading provider of laboratory testing,
inspection, metrology and training services, based in Colombia. On 5 June 2018, the Group acquired NTA Monitor Limited ('NTA'),
a leading network security and assurance services provider, based in the UK and Malaysia. The estimated purchase price for these three
acquisitions was £15.7m (£13.3m net of cash acquired, of which £0.7m has been paid in January 2019), generating goodwill of £7.7m.
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.
Alchemy Investment Holdings, Inc.
Total
Property, plant and equipment
Goodwill
Other intangible assets
Inventories
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Net assets acquired
Others
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
1.8
20.9
14.9
2.1
10.3
(23.7)
0.5
26.8
Book value
prior to
acquisition
£m
3.2
–
–
2.9
(4.2)
–
1.9
2018
Provisional
fair value
adjustments
£m
–
249.7
123.0
(1.7)
(0.6)
10.1
(32.0)
348.5
2018
Provisional
fair value
adjustments
£m
(0.2)
7.7
6.2
(0.4)
(0.3)
(1.6)
11.4
Fair value
to Group on
acquisition
£m
1.8
270.6
137.9
0.4
9.7
(13.6)
(31.5)
375.3
Fair value
to Group on
acquisition
£m
3.0
7.7
6.2
2.5
(4.5)
(1.6)
13.3
Goodwill and intangible assets
The total goodwill arising on acquisitions made during 2018 was £278.3m, none of which is expected to be deductible for tax
purposes. 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 goodwill recognised following
the acquisition of Alchemy represents the significant synergies and scalability the Alchemy platforms can provide to existing and
new customers and markets across the world. The intangible assets of £144.1m primarily represent the value placed on customer
relationships, trade names and technology. The deferred tax thereon was £33.1m.
Consideration paid
The total cash consideration paid for the acquisitions in the year was £393.5m (2017: £29.5m), with further contingent consideration
payable of £0.7m (2017: £9.0m) which is recognised in note 13. Cash consideration includes cash and debt acquired of £5.6m. The
estimated purchase price net of cash and debt acquired was £388.6m, of which £0.7m has been paid in January 2019.
Contribution of acquisitions to revenue and profits
In total, acquisitions made during 2018 contributed revenues of £18.5m and a statutory net loss after tax of £4.3m from their
respective dates of acquisition to 31 December 2018. The Group revenue and statutory profit after tax for the year ended
31 December 2018 would have been £2,829.6m and £298.7m respectively if all the acquisitions were assumed to have been made
on 1 January 2018.
Intertek Group plc Annual Report and Accounts 2018 139
Financial Statements 10 Acquisitions (continued)
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 a 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 a purchase price of £25.6m (£23.8m net of cash acquired), generating goodwill
of £16.9m.
The fair value adjustments 12 months from the date of acquisition were:
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
2018
Fair value
adjustments
£m
–
16.9
9.5
0.6
(1.1)
(2.6)
23.3
2018
Fair value
adjustments
£m
–
7.6
5.9
–
–
(2.0)
11.5
Fair value
to Group on
acquisition
£m
–
16.9
9.5
1.4
(1.4)
(2.6)
23.8
Fair value
to Group on
acquisition
£m
0.6
7.6
6.0
0.6
(0.3)
(2.0)
12.5
2017
Book value
prior to
acquisition
£m
–
–
–
0.8
(0.3)
–
0.5
Provisional
fair value
adjustments
£m
–
23.4
–
–
–
–
23.4
Provisional fair
value to Group
on acquisition
£m
–
23.4
–
0.8
(0.3)
–
23.9
2017
Book value
prior to
acquisition
£m
0.6
–
0.1
0.6
(0.3)
–
1.0
Provisional
fair value
adjustments
£m
–
7.6
5.9
–
–
(2.0)
11.5
Provisional fair
value to Group
on acquisition
£m
0.6
7.6
6.0
0.6
(0.3)
(2.0)
12.5
Goodwill in respect of 2017 acquisitions decreased by £6.5m.
Key assumptions
The key assumptions in deriving the contingent consideration to be recognised include the weighted probability of making a payout
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 £0.4m, and a 1% decrease in the discount rate would have increased the financial liability by £0.4m. 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 £0.2m, whilst a decrease of 10% in the probability used would have decreased the financial liability by £1.5m.
140
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the 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. The Group applies the simplified approach permitted by IFRS 9, which requires the use of the lifetime expected loss provision
for all receivables, including contract assets. The provision calculations are based on historic credit losses and specific country-risk
classifications with higher default rates applied to older balances. This approach is followed for all receivables unless there are specific
circumstances, such as the bankruptcy of a customer or emerging market risks, which would render the receivable irrecoverable and
therefore require a specific provision. A provision is made against trade receivables and contract assets until such time as the Group
believes the amount to be irrecoverable, after which the trade receivable or contract assets balance is written off.
In 2017, under IAS 39, impairment losses only related to trade receivables and were calculated based on historical default rates.
No impairment allowance was made for trade receivables less than six months outstanding and the Group provided for trade
receivables over 12 months old that were considered irrecoverable, 25% of balances 6 to 12 months old and specific provisions
for known doubtful debts regardless of age.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are analysed below:
Trade receivables
Contract assets
Other receivables
Prepayments
Total trade and other receivables
2018
£m
485.2
99.7
62.7
36.8
684.4
2017
£m
469.6
90.4
51.3
30.4
641.7
Trade receivables and contract assets are shown net of allowance for impairment losses of £16.3m (2017: £24.0m) and £9.6m
(2017: £nil) respectively and are all expected to be recovered within 12 months. Impairment on trade receivables and contract assets
charged as part of operating costs was £1.3m (2017: £8.8m) and £3.5m (2017: £nil) respectively.
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 and contract assets 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 and contract assets
Allowance for impairment
Trade receivables and contract assets, net of allowance
2018
£m
489.1
54.2
30.0
37.5
610.8
(25.9)
584.9
2017
£m
473.3
52.9
24.7
33.1
584.0
(24.0)
560.0
Included in trade receivables under three months of £404.9m (2017: £397.0m) are trade receivables of £351.9m (2017: £340.6m) that
are not yet due for payment.
The movement in the allowance for impairment in respect of trade receivables and contract assets during the year was as follows:
Impairment allowance for doubtful trade receivables and contract assets
At 1 January
Exchange differences
Acquisitions
Impairment loss recognised
Receivables written off
At 31 December
2018
£m
24.0
0.3
0.6
4.8
(3.8)
25.9
2017
£m
23.9
(2.0)
–
8.8
(6.7)
24.0
Sensitivity analysis
Trade receivables and contract assets are assessed for impairment using a calculated credit loss assumption. A 0.25% variance in
the assumed credit risk factor would impact impairment by £1.9m. There were no material individual impairments of trade receivables
or contract assets.
Intertek Group plc Annual Report and Accounts 2018 141
Financial Statements 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
Contract liabilities
Total trade and other payables
Current
2018
£m
154.0
57.3
240.0
63.8
515.1
Current
2017
£m
126.7
45.5
227.1
52.9
452.2
Non-current
2018
£m
–
18.6
2.3
5.6
26.5
Non-current
2017
£m
–
17.5
3.6
0.5
21.6
The Group’s exposure to liquidity risk related to trade payables is disclosed in note 14. £40.8m of contract liabilities at the end of 2017
was recognised in revenue in 2018. 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 2018
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 2018
Included in:
Current liabilities
Non-current liabilities
At 31 December 2018
Contingent
consideration
£m
14.7
0.9
–
0.7
8.2
(2.2)
(5.6)
16.7
0.7
16.0
16.7
Claims
£m
14.0
–
1.8
–
–
(2.9)
(2.5)
10.4
10.4
–
10.4
Other
£m
12.6
0.8
13.8
–
–
–
(11.5)
15.7
15.7
–
15.7
Total
£m
41.3
1.7
15.6
0.7
8.2
(5.1)
(19.6)
42.8
26.8
16.0
42.8
The maximum contingent consideration, on a discounted basis, that could be paid in relation to acquisitions is £19.2m.
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 £10.4m (2017: £14.0m) 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 £15.7m (2017: £12.6m) includes restructuring provisions. The timing of the cash outflow is uncertain,
but is likely to be within one year.
142
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the 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 cross currency interest rate swaps and foreign currency forwards, 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 cross currency interest rate swaps is estimated using the present value of the estimated future cash flows based
on observable yield curves.
The fair value of foreign currency forwards is estimated using present value of future cash flows based on the forward exchange rates
at the balance sheet date.
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 foreign operations
The Group is exposed to foreign exchange risk exposure arising from its net investment in foreign currency operations and net assets.
The Group uses a combination of debt and cross currency interest rate swaps to hedge foreign exchange risks.
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 value in relation to the hedge instrument that
is held within the cumulative foreign currency translation reserve is recycled through the income statement. If the instrument is no
longer deemed effective, then future movements in fair value are posted to the income statement.
Cash flow hedges
Cash flow hedges comprise derivative financial instruments designated in a hedging relationship to manage interest rate risk
and foreign exchange risk to which the cash flows of certain assets and liabilities are exposed. The Group is exposed to the variability
in cash flows arising from the foreign exchange risk exposure in a USD private placement bond. In accordance with the Group’s hedging
strategy, the Group has cross currency interest rates swaps designated as cash flow hedges.
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 value in relation to the hedge instrument that is held within the cumulative cash flow hedge
reserve (disclosed within other reserves) is recycled through the income statement. If the instrument is no longer deemed effective,
then future movements in fair value are posted to the income statement.
Intertek Group plc Annual Report and Accounts 2018 143
Financial Statements 14 Borrowings and financial instruments (continued)
Impairment
A financial asset is assessed for impairment at each reporting date by application of an expected loss model in line with IFRS 9
requirements. In previous periods an assessment was made to determine whether there was any objective evidence that a balance
was impaired. In line with IAS 39, a financial asset was considered to be impaired if objective evidence indicated that one or more
events had a negative effect on the estimated future cash flows of that asset.
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 £6.4m (2017: £0.5m) 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:
2018
£m
1.8
1.8
(26.2)
(0.4)
1.5
(8.4)
(33.5)
(31.7)
2018
£m
206.9
(3.7)
203.2
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
Cash
Borrowings:
Revolving credit facility US$800m 2021
Bilateral term loan facilities US$100m 2018
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
1 January
2018
£m
135.9
Cash flow
£m
55.2
Non-cash
movements
£m
–
Exchange
adjustments
£m
12.1
31 December
2018
£m
203.2
(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)
(223.8)
74.6
–
–
–
–
–
–
–
–
(116.3)
(265.5)
(210.3)
–
–
–
–
–
–
–
–
–
–
(0.8)
(0.8)
(0.8)
(7.1)
–
(0.8)
(6.6)
(0.7)
(6.2)
(1.8)
(5.5)
(1.8)
(3.4)
(1.2)
(35.1)
(23.0)
(384.8)
–
(15.8)
(118.6)
(11.8)
(110.7)
(31.6)
(98.9)
(31.7)
(59.3)
(118.2)
(981.4)
(778.2)
* Includes other uncommitted borrowings of £118.6m and facility fees of £0.9m (2017: £2.1m).
144
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 14 Borrowings and financial instruments (continued)
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
*Includes facility fees of £2.1m.
BORROWINGS
Borrowings are split into current and non-current as outlined below:
1 January
2017
£m
158.8
Cash flow
£m
7.0
Non-cash
movements
£m
–
Exchange
adjustments
£m
(29.9)
31 December
2017
£m
135.9
(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
–
–
–
–
–
–
–
–
–
–
–
(0.7)
(0.7)
(0.7)
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)
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
Current
2018
£m
15.0
119.6
134.6
Current
2017
£m
73.9
2.1
76.0
Non-current
2018
£m
846.8
–
846.8
Non-current
2017
£m
604.0
–
604.0
2018
£m
134.6
118.2
538.9
189.7
981.4
2017
£m
76.0
14.2
380.9
208.9
680.0
Description of borrowings
Total undrawn committed borrowing facilities as at 31 December 2018 were £247.9m (2017: £443.2m).
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 2018 were £384.8m (2017: £153.9m).
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. This facility was fully repaid in June 2018 and was no longer available at
31 December 2018. Drawings under this facility at 31 December 2018 were £nil (2017: £74.6m).
Intertek Group plc Annual Report and Accounts 2018 145
Financial Statements 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 60.
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
2018
£m
485.2
203.2
688.4
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
2018
£m
134.1
191.8
159.3
485.2
2017
£m
469.6
135.9
605.5
2017
£m
127.1
180.6
161.9
469.6
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. Counterparty credit risk inherent in all hedge relationships is monitored throughout the
period of the hedge but this risk is not expected to be significant.
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.
146
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the 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 2018). The table has been updated to include cross currency interest swaps
for 2018 and 2017:
2018
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)
Foreign currency forwards
Outflow
Inflow
Cross currency interest rate swaps
Outflow
Inflow
Total
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)
Foreign currency forwards
Outflow
Inflow
Cross currency interest rate swaps*
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
861.9
119.5
154.0
863.3
119.5
154.0
9.6
1,145.0
9.9
1,146.7
0.3
–
360.2
(359.9)
7.7
–
8.0
1,153.0
88.4
(85.3)
3.4
1,150.1
15.8
118.6
141.2
–
275.6
360.2
(359.9)
0.9
(1.5)
(0.3)
275.3
–
0.9
11.1
–
12.0
–
–
0.9
(1.5)
(0.6)
11.4
515.3
–
1.4
–
516.7
–
–
86.6
(82.3)
4.3
521.0
241.2
–
0.2
9.9
251.3
–
–
–
–
–
251.3
91.0
–
0.1
–
91.1
–
–
–
–
–
91.1
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
–
(1.0)
11.9
–
10.9
826.3
777.4
2.1
126.7
9.2
915.4
440.9
(441.9)
88.2
(83.4)
3.8
919.2
10.5
–
122.1
–
132.6
440.9
(441.9)
0.9
(1.5)
(1.6)
131.0
85.1
2.1
2.9
–
90.1
–
–
0.9
(1.5)
(0.6)
89.5
164.8
–
1.3
–
166.1
–
–
1.7
(2.9)
(1.2)
164.9
327.5
–
0.3
9.2
337.0
–
–
84.8
(77.5)
7.3
334.3
189.5
–
0.1
–
189.6
–
–
–
–
–
189.6
* 2017 comparatives have been restated to include disclosure of the cross currency interest rate swaps in accordance with IFRS 7.
Intertek Group plc Annual Report and Accounts 2018 147
Financial Statements
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 achieve this, the Group uses bank debt facilities, US private
placements and cross currency interest rate swaps.
Sensitivity
At 31 December 2018, 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 £9.6m (2017: £5.4m). 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:
2018
Cash
Trade receivables (note 11)
Trade payables (note 12)
2017
Cash
Trade receivables (note 11)
Trade payables (note 12)
Carrying
amount
£m
203.2
485.2
154.0
135.9
469.6
126.7
Sterling
£m
26.3
42.6
14.0
US dollar
£m
26.4
162.6
63.0
Chinese
renminbi
£m
49.7
48.0
16.4
Hong Kong
dollar
£m
1.5
15.6
3.4
Other
currencies
£m
99.3
216.4
57.2
13.7
43.6
13.6
10.3
156.7
39.8
24.3
44.6
17.1
3.4
14.5
3.5
84.2
210.2
52.7
RECOGNISED ASSETS AND LIABILITIES
Changes in the fair value of foreign currency forwards that economically hedge monetary assets and liabilities in foreign currencies,
and for which no hedge accounting is applied, are recognised in the income statement.
CASH FLOW HEDGE
The Group holds a US$150m fixed interest rate USD private placement bond maturing in December 2020.
A proportion of the bond is hedged using 100m USD/GBP fixed-to-fixed cross currency swaps maturing in December 2020 to eliminate
the changes in the cash flows of the repayment of coupon and principal related to changes in foreign exchange rates.
The timings of both hedge and bond cash flows are expected to match since the maturity profile and coupon profile for bond
and hedge matches. In 2018, £4.4m of the cash flow hedge reserve was recycled through to the income statement to offset the
impact of the hedged US$100m bond. The remaining balance of the cash flow hedge reserve is expected to be recycled through
to the income statement up to the expiry of the bond in December 2020.
HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS
The Group’s foreign currency denominated loans are designated as a hedge to protect the same amount of net investment in the
Group's foreign currency operations and net assets, against adverse changes in exchange rates. The carrying amount of these loans
at 31 December 2018 was £902.8m (2017: £580.4m).
93.8m EUR/GBP fixed-to-fixed cross currency swaps maturing in December 2020, including all coupons, are designated as a hedge to
protect the same amount of net investment in the Group's Euro operations and net assets, against adverse changes in exchange rates.
A foreign exchange loss of £32.6m (2017: gain £77.3m) was recognised in the translation reserve in equity on translation of these
loans to sterling and the impact of changes in fair value of the cross currency interest rate swaps.
148
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 14 Borrowings and financial instruments (continued)
The Group has the following hedging instruments:
Cash flow hedges – foreign exchange
and interest rate risk
Cross currency interest rate swaps
Hedges of net investment in a foreign
operation – foreign exchange risk
Cross currency interest rate swaps
Foreign currency borrowings
Nominal
amounts
in local
currency
Carrying
value
Liabilities
£m
1 January
2018
£m
Other comprehensive income
Fair value
gain/(loss)
deferred
to OCI
£m
FX (gain)/loss
recycled
to the income
statement
£m
31 December
2018
£m
US$100m
(11.6)
(2.1)
5.5
(4.4)
(1.0)
EUR93.8m
£902.8m
19.3
896.4
904.1
(18.0)
(226.9)
(247.0)
(1.3)
(31.3)
(27.1)
n/a
n/a
(4.4)
(19.3)
(258.2)
(278.5)
The Group has entered into US$100m of cross currency interest rate swaps which pay EUR denominated interest and principal;
and receive USD denominated interest and principal; maturing in December 2020.
The cross currency interest rate swaps are bifurcated into two relationships: 1) A cash flow hedge of US$100m versus GBP foreign
currency and interest rate risks in USD denominated borrowings; and 2) A net investment hedge of EUR versus GBP foreign currency
risk in EUR denominated net assets of the group.
The weighted average exchange rates of the swaps are GBP/USD 1.5207 and EUR/GBP 0.7009.
The cross currency interest rate swaps are disclosed within other payables in the statement of financial position.
The critical terms of the swap contracts and their corresponding hedged items are matched and the Group expects highly effective
hedging relationships. Net ineffectiveness on the cash flow and net investment hedges recognised in the income statement was nil.
The carrying values of the hedging instruments; US$ 505m senior notes and RCF drawings US$418m, EUR12.5m, CHF6.5m, AUD45m
and CAD22m are included within long-term borrowings within the statement of financial position.
Fair value gains and losses on the hedging instruments designated in the cash flow and net investment hedges have been presented
as 'fair value on cash flow hedges' and 'net exchange on hedges of net investments in foreign operations' respectively within the
statement of other comprehensive income.
Foreign exchange gains recycled from the cash flow hedge reserve are presented as finance expenses within the income statement.
SENSITIVITY
It is estimated that an 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 2018 by approximately £21.1m (2017: £21.6m). This analysis assumes all other
variables remain constant.
It is estimated that an increase of 10% in the value of sterling against the currencies of the hedging instruments would have increased
OCI by approximately £89.8m (2017: £60.6m) which would be offset by the retranslation of the Group's investment in foreign
operations in the same currencies. This analysis assumes all other variables remain constant.
Intertek Group plc Annual Report and Accounts 2018 149
Financial Statements 14 Borrowings and financial instruments (continued)
FAIR VALUES
The table below provides a comparison of book values and corresponding fair values of all the Group’s financial instruments by class.
Financial assets
Cash and cash equivalents
Trade receivables (note 11)
Foreign currency forwards*
Total financial assets
Financial liabilities
Interest-bearing loans and borrowings*
Trade payables (note 12)
Foreign currency forwards*
Put option liability over non-controlling interest
Cross currency interest rate swaps*1
Total financial liabilities
Book value
2018
£m
Fair value
2018
£m
Book value
2017
£m
Fair value
2017
£m
203.2
485.2
–
688.4
981.4
154.0
0.3
9.6
7.7
1,153.0
203.2
485.2
–
688.4
974.5
154.0
0.3
9.6
7.7
1,146.1
135.9
469.6
1.0
606.5
680.0
126.7
–
8.7
11.9
827.3
135.9
469.6
1.0
606.5
679.1
126.7
–
8.7
11.9
826.4
*
1
Interest-bearing loans and borrowing, cross currency interest rate swaps 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.
2017 comparatives have been restated to include disclosure of the cross currency interest rate swaps in accordance with IFRS 7.
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
2018
Number
161,390,540
2,587
161,393,127
2018
£m
1.6
–
1.6
1.6
2017
£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 2,587 (2017: 3,765) ordinary shares in respect of all share plans.
Purchase of own shares for trust
During the year ended 31 December 2018, the Company financed the purchase of 340,000 (2017: 350,000) of its own shares with
an aggregate nominal value of £3,400 (2017: £3,500) for £16.7m (2017: £15.6m) 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, 421,823 shares
were utilised to satisfy the vesting of share awards (note 17). At 31 December 2018, the ESOT held 455,463 shares (2017: 541,211
shares) with an aggregate nominal value of £4,555 (2017: £5,412). The associated cash outflow of £16.7m (2017: £15.6m) has been
presented as a financing cash flow.
Dividends
Amounts recognised as distributions to equity holders:
Final dividend for the year ended 31 December 2016
Interim dividend for the year ended 31 December 2017
Final dividend for the year ended 31 December 2017
Interim dividend for the year ended 31 December 2018
Dividends paid
150
Intertek Group plc Annual Report and Accounts 2018
2018
£m
–
–
76.9
51.4
128.3
2018
Pence per
share
–
–
47.8
31.9
79.7
2017
£m
69.2
37.8
–
–
107.0
2017
Pence per
share
43.0
23.5
–
–
66.5
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 15 Capital and reserves (continued)
After the reporting date, the Directors proposed a final dividend of 67.2p per share in respect of the year ended 31 December 2018,
which is expected to amount to £108.5m. 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 4 June 2019.
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.
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)
2018
£m
(43.1)
(2.9)
(46.0)
2017
£m
(46.9)
(3.2)
(50.1)
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 2018. 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
2018 for IAS 19 purposes. The Switzerland Scheme was valued for IAS 19 purposes as at 31 December 2018. 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 2018 151
Financial Statements 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
Curtailment gain on United Kingdom Scheme
Scheme administration expenses
Net pension interest cost (note 14)
Total charge
2018
£m
(2.7)
5.4
(0.2)
(0.4)
2.1
2017
£m
(2.9)
–
(0.3)
(0.7)
(3.9)
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
2018
£m
0.8
7.4
1.3
(10.1)
(0.2)
(0.8)
2017
£m
1.4
0.2
(0.7)
11.6
0.1
12.6
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 2019 the Group expects to make normal contributions of £1.0m (2018: £0.8m) and has made a special
contribution of £2.0m (2018: £2.0m). 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 2019.
Pension liability for defined benefit schemes
The amounts recognised in the statement of financial position for defined benefit schemes were as follows:
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
152
Intertek Group plc Annual Report and Accounts 2018
United
Kingdom
Scheme
£m
108.1
(114.5)
(6.4)
Hong Kong
Scheme
£m
21.4
(24.8)
(3.4)
Switzerland
Scheme
£m
15.1
(17.8)
(2.7)
2018
£m
152.3
3.3
1.6
2.0
0.6
(6.9)
2.0
(10.1)
(0.4)
0.2
144.6
Total
£m
144.6
(157.1)
(12.5)
2017
£m
143.5
3.3
1.7
2.8
0.5
(7.9)
(3.1)
11.6
(0.3)
0.2
152.3
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 16 Employee benefits (continued)
ASSET ALLOCATION
Investment statements were provided by the Investment Managers which showed that, as at 31 December 2018 the invested assets
of the United Kingdom Scheme totalled £108.1m (2017: £114.7m) and of the Hong Kong Scheme totalled £21.4m (2017: £23.1m)
broken down as follows:
Asset class
Equities
Property
Bonds
Absolute Return Fund*
Liability-Driven Investment*
Cash
Total
United Kingdom Scheme
Hong Kong Scheme
2018
£m
49.6
11.6
–
24.3
16.5
6.1
108.1
2017
£m
54.8
11.2
–
25.8
17.2
5.7
114.7
2018
£m
12.6
–
8.7
–
–
0.1
21.4
2017
£m
15.2
–
7.9
–
–
–
23.1
*
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 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 £0.9m as at 31 December 2018 (2017: £0.5m).
The United Kingdom Scheme invested assets comprise both quoted and unquoted assets. The value of quoted assets in 2018 was
£24.0m (2017: £24.9m), included within equities in the above table, with the remaining assets being unquoted. 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
Curtailment gain on United Kingdom Scheme
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.
2018
£m
170.1
2.7
3.7
0.2
(6.9)
2.2
(9.5)
(5.4)
157.1
2017
£m
175.3
2.9
4.0
0.3
(7.9)
(3.6)
(0.9)
–
170.1
United Kingdom Scheme
Hong Kong Scheme
Switzerland Scheme
2018
%
2.8
2.4
–
2.4
1.9
2017
%
2.5
2.3
2.3
2.3
1.8
2018
%
2.0
n/a
4.0
n/a
n/a
2017
%
1.8
n/a
4.0
n/a
n/a
2018
%
0.8
n/a
1.0
n/a
n/a
2017
%
0.7
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 2018 153
Financial Statements 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
2018
48.8
22.0
50.9
23.9
2017
49.0
22.1
50.9
24.0
2018
n/a
n/a
n/a
n/a
2017
n/a
n/a
n/a
n/a
2018
42.8
19.7
45.4
21.9
2017
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 2018 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 2017 the S2PA tables were used, based on the CMI 2016 mortality projection model. For the
Switzerland Scheme, the mortality table adopted in both 2018 and 2017 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 2018
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
114.5
109.5
119.8
118.2
111.0
Increase/
(decrease)
in deficit
£m
–
(5.0)
5.3
3.7
(3.5)
Liabilities
£m
24.8
24.3
25.4
n/a
n/a
Increase/
(decrease)
in deficit
£m
–
(0.5)
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 £5.1m and decreases by £5.2m 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 2019 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.
Guaranteed Minimum Pension Liability
On 26 October 2018, the High Court of Justice of England and Wales issued a judgement in a claim between Lloyds Banking Group
Pension Trustees Limited (the claimant) and Lloyds Bank plc (defendant) that UK pension schemes should equalise pension benefits
for men and women for the calculation of their guaranteed minimum pension liability. This court ruling impacts with the majority of
companies with a UK defined benefit plan, including the Intertek Pension Scheme. Formal calculation of the impact will be undertaken
during 2019 as part of the scheme’s three-yearly valuation process, however, the scheme actuary estimates the impact will not be
meaningful to both the Scheme and the Group, based on the scheme’s demographics.
154
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the 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.
Outstanding Awards
At beginning of year
Granted*
Vested**
Forfeited
At end of year
Deferred
Share
Awards
869,796
308,885
(239,087)
(44,012)
895,582
2018
LTIP
Total
Share
awards
Awards
1,950,018
1,080,222
647,271
338,386
(590,502)
(351,415)
(104,536)
(148,548)
962,657 1,858,239
2017
Deferred
Share
Awards
817,586
317,302
(193,628)
(71,464)
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
Includes 11,933 Deferred Share Awards (2017: 11,173) and 17,725 LTIP Share awards (2017: 15,691) granted in respect of dividend accruals.
*
** Of the 590,502 awards vested in 2018, 2,587 were satisfied by the issue of shares and 402,266 by the transfer of shares from the ESOT (see note 15). The balance
of 185,649 awards represented a tax liability of £9.3m which was settled in cash on behalf of employees by the Group, of which £8.5m was settled by the Company.
Deferred Share Plan
Awards may be granted under the Deferred Share Plan ('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. 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.
Outstanding Awards
At beginning of year
Granted*
Vested**
Forfeited
At end of year
2018
2018
2017
2017
Deferred
Share
Awards
66,154
103,086
(32,098)
(17,128)
120,014
Total
Awards
66,154
103,086
(32,098)
(17,128)
120,014
Deferred
Share
Awards
117,537
44,915
(94,313)
(1,985)
66,154
Total
awards
117,537
44,915
(94,313)
(1,985)
66,154
Includes 697 Deferred Share Awards (2017: 945) granted in respect of dividend accruals.
*
** Of the 32,098 awards vested in 2018, 19,557 were satisfied by the transfer of shares from the ESOT (see note 15). The balance of 12,541 awards represented a tax
liability of £0.6m which was settled in cash on behalf of employees by the Group, of which £0.5m was settled by the Company.
Intertek Group plc Annual Report and Accounts 2018 155
Financial Statements 17 Share schemes (continued)
Equity-settled transactions
During the year ended 31 December 2018, the Group recognised an expense of £20.9m (2017: £17.5m). 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)
4,516
4,516
–
–
1-3
Deferred
Share
Awards (DSP)
4,679
4,679
–
–
1-3
2018 Awards
Share
Awards
4,751
4,751
–
–
3
LTIP Share
Awards EPS
element
4,651
4,651
–
–
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
2,608
4,651
21.9%
1.0%
3
LTIP Share
Awards TSR
element
2,385
3,860
23.9%
0.15%
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
No post balance sheet events were identified between 31 December 2018 and the date of signing this report.
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.
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.
156
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 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
2018
£m
34.5
(2.8)
20.8
–
(18.2)
–
34.3
2017
£m
34.7
(0.3)
19.0
–
(18.7)
(0.2)
34.5
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
2018
£m
10.6
0.8
8.5
19.8
2017
£m
9.3
0.8
7.2
17.3
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.
At a General Meeting of the Company’s shareholders held on 16 January 2019, a resolution was passed which constituted a related
party transaction under IAS 24. For further details please see page 110.
22 Contingent liabilities
Guarantees, letters of credit and performance bonds
2018
£m
27.5
2017
£m
26.5
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 EU State Aid investigations following the EU Commission opening a State Aid
investigation into the Group Financing Exemption in the UK’s Controlled Foreign Company regime in October 2017. In line with current
UK tax law, the Group applies this regime. Based on its current assessment, the Group does not consider any provision is required in
relation to this issue.
Intertek Group plc Annual Report and Accounts 2018 157
Financial Statements 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 2018.
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) Equity shareholding 85%, company controlled by the Group based on management’s assessment; Registered office address is: 2nd Floor (West Zone), No 707
Country of Incorporation
and principal place of operation
England
England
USA
England
Hong Kong
China
USA
China
USA
England
Hong Kong
England
USA
Activity
Finance
Holding
Trading
Holding
Trading
Trading
Trading
Trading
Trading
Finance
Trading
Holding
Holding
ZhangYang Road, Pilot Free Trade Zone, Shanghai, China.
(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 2018. 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 (i)
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
Alchemy Investment Holdings, Inc.
1209 Orange Street, Wilmington, New Castle, DE, 19801, United States
Alchemy Systems L.P.
8015 Shoal Creek Blvd, Suite 100, Austin, TX, 78757, United States
Alchemy Systems Training, Inc.
8015 Shoal Creek Blvd, Suite 100, Austin, TX, 78757, United States
Alchemy Systems Training Limited
Arcadia House, Maritime Walk, Ocean Village, Southampton, SO14 3TL,
United Kingdom
Alchemy Training Technologies, Inc.
1 Germain Street, Suite 1500, Saint John, NB E2L 4V1, Canada
Aldo Abela Surveys Limited
98 Triq Patri Magri, Marsa, MRS 2200, Malta
Alex Stewart Assayers Private Limited (ii)
Unit No. D1, Udyog Sadan No.3, M.I.D.C. Central Road, Andheri (East), Mumbai,
400093, India
158
Intertek Group plc Annual Report and Accounts 2018
Alta Analytical Laboratory, Inc. (i)
200 Westlake Park Blvd., Westlake Building 4, Suite 400, Houston, TX 77079,
United States
Amtac Certification Services Limited
Angus Management, LLC
1209 Orange Street, Wilmington, New Castle, DE 19801, United States
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
Bigart Ecosystems, LLC
1021 Hunters Way, Bozeman, MT 59718, 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
Capcis Limited
Catalyst Awareness, Inc.
43 Carolinian Lane, Cambridge, ON N1S 5B5, Canada
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
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 23 Principal Group companies (continued)
FULLY OWNED SUBSIDIARIES (CONTINUED)
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 Street North, 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, Telangana, 500081, India
Frameworks Inc.
1595 Sixteenth Avenue, Suite 301, Richmond Hill, ON L4B 3N9, Canada
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
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.
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.
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(ii)
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 Group plc Annual Report and Accounts 2018 159
Financial Statements 23 Principal Group companies (continued)
FULLY OWNED SUBSIDIARIES (CONTINUED)
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, Pilot 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 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 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. (vi)
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 Holdings (Pty) Ltd
53 Phillip Engelbrecht Drive, Woodhill Office Park Building 2, 1st Floor Unit 8B
Meyersdal, Gauteng, 1448, South Africa
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
160
Intertek Group plc Annual Report and Accounts 2018
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 61, 1st 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, QC 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, Suite 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 Medical Notified Body AB
Torshamnsgatan 43, Box 1103, Kista, S-164 22, Sweden
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
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 23 Principal Group companies (continued)
FULLY OWNED SUBSIDIARIES (CONTINUED)
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 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
Intertek Resource Solutions, Inc.
24900 Pitkin Road, Suite 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, Alnarp, SE-230 53, 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 Testing and Analysis PLC (i)
Bole Sub City Woreda 04, House Number 064/A/, Abune Yosef, Addis Ababa, 4260,
Ethiopia
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, South Africa
Intertek Testing Services (Fiji) Limited
c/o 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
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, DE 19901,
United States
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 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
Intertek Group plc Annual Report and Accounts 2018 161
Financial Statements MT Operating of New York, LLC
145 Sherwood Avenue, Farmingdale NY 11735, United States
N T A Monitor Limited
NDT Services Limited
Northern Territory Environmental Laboratories Pty Ltd (i)
Level 3, 235 St Georges Terrace, Perth WA 6000, Australia
NTA Academy Limited
NTA Monitor (M) Sdn Bhd
No. 18-B, Jalan Kancil off Jalan Pudu, 55100 Kuala Lumpur,
Wilayah Persekutuan, Malaysia
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
Profesionales Contables en Asesoría Empresarial y de Ingenieria S.A.S.
Calle 120, No. 45A – 32, Bogota, Colombia
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, 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, DE
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 Road, Suite 200, The Woodlands TX 77386, United States
Shanghai Orient Intertek Testing Services Company Limited
Room 301,401, No 1,4,5, Lane 2028, Changzhong Road, Jin’an district,
Shanghai, 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.com International Limited
11/F, Unit IJK, Garment Centre, 576 Castle Peak Road, Kowloon, Hong Kong
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
Youngever Holdings Ltd.
Ritter House, Wickhams Cay II, Road Town, Tortola, VG 1110, British Virgin Islands
23 Principal Group companies (continued)
FULLY OWNED SUBSIDIARIES (CONTINUED)
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
Laboratory Services International Rotterdam B.V.
Pittsburghstraat 9, 3047 BL, Rotterdam, The Netherlands
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, Shanghai,
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
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 (i)
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 Road, 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
162
Intertek Group plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the financial statements 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 Geronimo JV Limited (i) (70%)
1, North Industrial Area, Klan Street, Accra, Ghana
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 South Africa Holdings (Pty) Ltd (75%)
5th Floor, Charter House, 13 Brand Road, Glenwood, Kwazulu-Natal, South Africa
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 (49.5%)
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 (60%)
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 (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
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
Laboratorio Fermi S.A. de C.V. (10%)
Jacarandes #15, San Clemente, Alvaro Obregon, Ciudad de Mexico,
C.P. 01740, Mexico
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
Moody International Bangladesh Limited (99.9%)
House 6, Road 17/A, Block E, Ground Floor, Banani, Dhaka, 1213, Bangladesh
Moody International Holdings Chile Ltda (99%)
Avenida Las Condes N° 11287 Torre A, oficina 301 A Las Condes, Santiago, Chile
Moody International Lanka (Private) Ltd. (99.9%)
no.5, St Albans Place, Colombo-4, Sri Lanka
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 (i) (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
Decernis LLC (20%)
1250 Connecticut Avenue, NW, Suite 200, Washington WA DC 20036,
United States
Lynx Diagnostics Inc.(viii) (50%)
#220, 8 Perron Street, St Albert AB T8N 1E4, Canada
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 Morocco (30%)
28, Rue de Provins, 2 eme etage, Casablanca, Morocco
Moody International SA (35%)
4 Rue Des Brasseurs, Zone 3 Abidjan, Cote d'Ivoire
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 2018 163
Financial Statements Financial Statements | Intertek Group plc – Company primary statements and notes
INTERTEK GROUP PLC – COMPANY BALANCE SHEET
As at 31 December 2018
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
2018
£m
2017
£m
(D)
334.4
324.9
(E)
(F)
(G)
(G)
(G)
634.5
0.3
634.8
(284.5)
(284.5)
350.3
684.7
187.6
0.3
187.9
(164.1)
(164.1)
23.8
348.7
684.7
348.7
1.6
257.8
425.3
684.7
1.6
257.8
89.3
348.7
The profit for the financial year was £469.1m (2017: £1.6m loss).
The financial statements on pages 164 to 168 were approved by the Board on 4 March 2019 and were signed on its behalf by:
André Lacroix
Chief Executive Officer
Ross McCluskey
Chief Financial Officer
164
Intertek Group plc Annual Report and Accounts 2018
INTERTEK GROUP PLC – COMPANY STATEMENT
OF CHANGES IN EQUITY
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
At 1 January 2018
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 2018
Notes
Share
capital
£m
1.6
Share
premium
£m
257.8
Retained
earnings
£m
202.0
Total
equity
£m
461.4
(1.6)
(1.6)
(107.0)
(15.6)
(6.3)
17.8
(111.1)
348.7
–
–
–
–
–
–
–
257.8
(1.6)
(1.6)
(107.0)
(15.6)
(6.3)
17.8
(111.1)
89.3
257.8
89.3
348.7
–
–
–
–
–
–
469.1
469.1
469.1
469.1
(128.3)
(16.7)
(9.0)
20.9
(128.3)
(16.7)
(9.0)
20.9
(B)
(C)
(D)
(B)
(C)
(D)
–
–
–
–
–
–
–
1.6
1.6
–
–
–
–
–
–
–
1.6
–
257.8
(133.1)
425.3
(133.1)
684.7
Intertek Group plc Annual Report and Accounts 2018 165
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.
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.
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Intertek Group plc Annual Report and Accounts 2018
Financial Statements | Notes to the Company 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.
Significant new accounting policies
• IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers came into effect on 1 January 2018.
Management has performed its review of IFRS 9 and having assessed the history of credit losses no provisions have been made
in the Company financial statements. As a result of implementing the new standard there has been no material impact in the year
ending 31 December 2018. IFRS 15 is not relevant to the Company as there is no revenue from contracts with customers.
Further details of the work performed around these standards are given in note 1 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
2018
£m
76.9
51.4
128.3
2017
£m
69.2
37.8
107.0
The aggregate amount of dividends proposed and recognised as liabilities as at 31 December 2018 is £nil (2017: £nil). The aggregate
amount of dividends proposed and not recognised as liabilities as at 31 December 2018 is £108.5m (2017: £77.1m).
(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
2018
£m
324.5
20.9
(11.0)
334.4
2017
£m
318.1
17.4
(11.0)
324.5
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 £20.9m (2017: £17.4m). 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 2018: 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 2018 167
Financial Statements (E) DEBTORS DUE WITHIN ONE YEAR
Amounts owed by Group undertakings
2018
£m
634.5
2017
£m
187.6
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
2018
£m
284.5
2017
£m
164.1
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 profit for the financial year, before dividends paid to shareholders of £128.3m (2017: £107.0m), was £469.1m (2017: £1.6m loss)
which was mainly in respect of dividend income in relation to 2018.
The Company has sufficient distributable reserves to pay the 2018 final dividend and the anticipated 2019 interim dividend.
When required the Company can receive additional dividends from its subsidiaries to further increase distributable reserves.
The Group settled in cash the tax element of the Share Awards vested in 2018 amounting to £9.9m of which the Company settled
£9.0m (2017: £6.3 m).
During the year ended 31 December 2018, the Company purchased, through its Employee Benefit Trust, 340,000 (2017: 350,000)
of its own shares with an aggregate nominal value of £3,400 (2017: £3,500) for £16.7m (2017: £15.6m) 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 £3.4m at 31 December 2018 (2017: £1.5m).
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.
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NOTES TO THE COMPANY FINANCIAL STATEMENTScontinuedFinancial Statements | Notes to the Company financial statements Independent Auditors' Report
Other Information
INDEPENDENT AUDITORS' 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 2018 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 ('IFRS')
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 group consolidated statement of
financial position and company balance sheet as at 31 December 2018; the group consolidated income statement and consolidated
statement of comprehensive income, the consolidated statement of cash flows, and the consolidated and company statements of
changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant
accounting policies.
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 Auditors’ 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 2018 to 31 December 2018.
OUR AUDIT APPROACH
Overview
Materiality
Audit scope
Key audit
matters
• Overall group materiality: £20 million (2017: £20 million), based on 5% of profit before tax.
• Overall company materiality: £9.7 million (2017: £5.1 million), based on 1% of total assets.
• We performed full scope audit procedures over 62 legal entities and performed specified audit
procedures on a further 5 entities, covering 27 territories in total.
• The group engagement team held regular meetings with component teams, and visited the China,
UK, USA, Hong Kong, Mexico and Germany 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 key audit matters.
• Taken together, the entities over which audit work was performed accounted for 82% of
the group’s revenue and 90% of the group’s statutory profit before tax.
• Carrying value of goodwill and intangible assets (Group).
• Valuation of current and deferred tax balances (Group).
• Completeness and valuation of customer claims (Group).
• Presentation and valuation of acquisitions (Group).
Intertek Group plc Annual Report and Accounts 2018 169
Other Information | Independent Auditors' Report
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.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to indirect and direct tax laws and anti-bribery laws, and we considered the extent to which non-compliance might
have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the
preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities
for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal
risks were related to posting inappropriate journal entries to increase revenue or reduce expenditure, and management bias in
accounting estimates. The group engagement team shared this risk assessment with the component auditors so that they could
include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group engagement
team and/or component auditors included: 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; testing manual journals and focusing testing on balances and transactions,
in addition to those listed as key audit matters below, that are subject to estimation, such as contract assets.
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 we would become aware of it.
Also, 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.
Key audit matters
Key audit matters are those matters that, in the auditors’ 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 auditors, 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 (Group).
Refer to the Audit Committee report on page 85
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 and assumptions.
We identified no issues in this testing.
The group had £874.9m of goodwill and a
further £329.5m of other intangible assets
recognised on the balance sheet at 31 December
2018. The carrying values of goodwill and
intangible assets are dependent 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 may 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 it
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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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF INTERTEK GROUP PLC continued Other Information
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Valuation of current and deferred tax
balances (Group).
Refer to the Audit Committee report on page 85
and to note 6 in the financial statements.
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.
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.
In assessing uncertain tax positions, we obtained management’s calculations
and evaluated the methodology and assumptions used.
Where relevant, 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 or interpretation of existing legislation by local tax
authorities, in particular the US Tax Cuts and Jobs Act.
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.
Completeness and valuation of customer
claims (Group).
Refer to the Audit Committee report on page 85
and to note 13 in the financial statements.
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.
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 potential cost is
often unknown, management must exercise their
judgement in calculating the liability.
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 checked 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 provision
was not appropriate.
Intertek Group plc Annual Report and Accounts 2018 171
Other Information | Independent Auditors' Report
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Presentation and valuation of acquisitions
(Group).
Refer to the Audit Committee report on page 85
and to note 10 in the financial statements.
The group’s strategy is to use acquisitions to
augment organic revenue growth, and during the
year made four acquisitions: Aldo Abela Surveys
Limited, Proasem S.A.S., NTA Monitor Limited
and Alchemy Investment Holdings, Inc..
In addition, the 12-month hindsight period for
reassessing the provisional purchase price
allocation in respect of the KJ Tech Services GmbH
and Acumen Security LLC acquisitions 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.
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.
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;
• assessed the reasonableness of the inputs and assumptions used in
calculating contingent consideration; and
• assessed the accounting policies applied by the new subsidiaries against the
accounting standard requirements, particularly in relation to deferred revenue.
We noted no material exceptions through performing these procedures.
For the acquisitions made in 2017, 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. We are also
satisfied that the disclosures included in note 10 are appropriate.
We determined that there were no key audit matters specifically applicable to the company to communicate in our report.
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 was 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, 25 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 intermediate holding companies, and those entities with highly immaterial revenue, leaving 55 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 USA, Canada and Brazil, there is no statutory audit requirement and so we considered whether
procedures needed to be performed to supplement our coverage. We selected seven of the largest entities in the US and Canada for
full scope audits, representing those with the largest contribution to Group profit, and a further one entity in the USA and two entities
in Brazil, over which we performed specified procedures over the complete financial information.
We also identified a further two entities in Japan over which we instructed specific audit procedures to be performed over revenue
and receivables to supplement coverage over these key financial line items.
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INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF INTERTEK GROUP PLC continued Other Information
In total we performed procedures over 67 legal entities in 27 countries, which together accounted for 82% of the group’s revenue
and 90% of the group’s profit before tax.
During the year, members of the group engagement team visited the China, UK, USA, Hong Kong, Mexico and Germany component
teams, and we held planning workshops with seven 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:
Overall materiality
£20 million (2017: £20 million).
£9.7 million (2017: £5.1 million).
GROUP FINANCIAL STATEMENTS
COMPANY FINANCIAL STATEMENTS
How we determined it
5% of profit before tax.
1% of total assets.
Rationale for
benchmark applied
We believe that profit before tax is the primary
measure used by the members in assessing
the performance of the group.
These are a single set of company financial
statements for an entity which has no external
revenue and takes advantage of the exemption
offered under S408 of Companies Act 2006 not
to present its income statement in its financial
statements - which are presented alongside the
group financial statements within the Annual
Report. As a result, the determination of materiality
was 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 £1.3million and £9.7million. 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 £1 million
(group audit) (2017: £ 900,000) and £1 million (company audit) (2017: £ 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. For example, the terms on which
the United Kingdom may withdraw from the European Union, which is
currently due to occur on 29 March 2019, are not clear, and it is difficult to
evaluate all of the potential implications on the group’s and company’s trade,
customers, suppliers and the wider economy.
We have nothing to report.
Intertek Group plc Annual Report and Accounts 2018 173
Other Information | Independent Auditors' Report
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
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 2018 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 55 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 54 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 in respect of our responsibility to report when:
• The statement given by the directors, on page 85, 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 83 to 88 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 auditors.
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)
174
Intertek Group plc Annual Report and Accounts 2018
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF INTERTEK GROUP PLC continued 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 113, 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.
Auditors’ 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 auditors’ 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 auditors’ 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 members 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 3 years, covering the years ended 31 December 2016 to 31 December 2018.
Ian Chambers
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
4 March 2019
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 2018 175
Other 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 telephone number or the address on this page.
ELECTRONIC SHAREHOLDER COMMUNICATIONS
Shareholders can elect to receive communications 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.
INVESTOR RELATIONS
E: investor@intertek.com
T: +44 (0) 20 7396 3400
REGISTRAR
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
T: 0371 384 2030 (UK)*
T: +44 (0) 12 1415 7047 (outside UK)
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 complete dividend mandates online
which 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 2018
5 March 2019
16 May 2019
17 May 2019
23 May 2019
4 June 2019
1 August 2019
26 September 2019
27 September 2019
11 October 2019
* 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
176
Intertek Group plc Annual Report and Accounts 2018
SHAREHOLDER AND CORPORATE INFORMATION Printed in the UK by Pureprint Group, a CarbonNeutral® company,
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The report is printed on UPM Fine SC. This paper is made from virgin
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INTERTEK GROUP PLC
33 Cavendish Square,
London, W1G 0PS
United Kingdom
Tel +44 20 7396 3400
info@intertek.com
intertek.com