Bringing Quality, Safety and Sustainability to Life
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Bringing quality, safety and sustainability to life Annual Report 2019 In this year’s report Strategic report IFC Financial highlights 01 Welcome to Intertek 02 Business summary 02 What we do Financial highlights 04 How we do it 06 Why we do it 08 Investment case 10 Business model 12 Our 5x5 strategy 14 Chief Executive Officer’s review 22 Key performance indicators 24 Sustainability Group revenue growth of +4.8% at constant 36 Operating reviews Continued progress in rates, +6.6% at actual rates 36 Products revenue, margin, ROIC Good organic revenue growth at constant 40 Trade rates of 3.3%: Products +2.3%, Trade +4.1%, 42 Resources Resources +5.7% 44 Financial review and cash reflecting the Portfolio strength and performance 50 Principal risks and uncertainties Group’s performance management discipline driving margin 56 Our stakeholders – Section 172 statement progression: adjusted +10bps at constant Directors’ report management discipline, rates, stable at actual rates 58 Chairman’s introduction focused on margin- Adjusted operating profit of £513m, +5.2% 60 Board of Directors at constant rates and +6.5% at actual rates 62 Leadership team accretive revenue Statutory operating profit of £486m, +10.2% 63 Corporate governance at constant rates and +11.4% at actual rates 74 Nomination Committee report growth and cash Strong adjusted diluted EPS growth: 76 Audit Committee report adjusted +5.2% at constant rates, +6.8% at 81 Remuneration Committee report conversion. actual rates; statutory +8.9% at constant 100 Other statutory information rates, +10.2% at actual rates 103 Statement of Directors’ Responsibilities Full-year dividend per share of 105.8p, an increase of 6.8% Financial statements Free cash flow of £380m, +8.4% year-on-year 105 Consolidated statement of comprehensive income Statutory net profit after tax of £334m, 106 Consolidated statement of financial position +8.1% at constant rates and +9.3% at 107 Consolidated statement of changes in equity actual rates 108 Consolidated statement of cash flows ROIC of 22.8%, +150bps at constant rates 109 Notes to the financial statements and +220bps at actual rates 159 Intertek Group plc – Company balance sheet 160 Intertek Group plc – Company statement of changes in equity 161 Notes to the Company financial statements 164 Independent Auditors’ Report £2,987M £2,926M 172 Shareholder and corporate information Revenue Organic revenue1 (2018: £2,801m) (2018: £2,783m) Quality £513M £486M Adjusted operating profit1,2 Statutory operating profit3 Safety (2018: £482m) (2018: £436m) 17.2% 16.3% Sustainability Adjusted operating margin1,2 Statutory operating margin3 (2018: 17.2%) (2018: 15.6%) 1. Definitions of the above metrics and constant rates are set out on page 22. 2. Adjusted operating profit, adjusted diluted earnings per share (‘EPS’) are non-GAAP measures. Adjusted 211.7P 192.6P 1,2 3 measures are stated on an IAS 17 basis and before Adjusted diluted earnings per share Statutory diluted earnings per share Separately Disclosed Items, which are described in (2018: 198.3p) (2018: 174.7p) 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. £380M 105.8P 3. The Group adopted IFRS 16 on 1 January 2019; as Free cash flow Dividend per share4 such the statutory measures are on an IFRS 16 basis (2018: £351m) (2018: 99.1p) for 2019 and IAS 17 basis for 2018. Reconciliations between IAS 17 and IFRS 16 measures are disclosed in note 24 to the financial statements on pages 153 to 158. 4. Dividend per share for 2019 is based on the interim 22.8% dividend paid of 34.2p (2018: 31.9p) plus the Return On Invested Capital1,2 proposed final dividend of 71.6p (2018: 67.2p). (2018: 20.6%) Printed in the UK by CPI Colour a CarbonNeutral® company, certificated to Environmental Management System ISO14001 and holders of FSC® chain of custody certification. The report is printed on UPM Fine SC. This paper is made from virgin wood fibre from well-managed forest independently certified according to the rules of the Forest Stewardship Council® (FSC®) and other controlled sources. It is manufactured at a mill that is certified to ISO14001 and EMAS environmental standards. The mill uses pulps that are totally chlorine free (TCF), and some pulp is bleached using an elemental chlorine free (ECF) process. The inks in printing this report are all vegetable-based. INTERTEK GROUP PLC Tel +44 20 7396 3400 33 Cavendish Square, [email protected] London, W1G 0PS intertek.com United Kingdom Strategic report Welcome to Intertek Welcome to Intertek Strategic report Total Quality report Directors’ Assurance for Financial statements complex times. In these complex and fast-moving times, consumers and businesses everywhere are looking for safety, quality and sustainability. How can today’s risks be more effectively managed? What’s the best way to meet challenges we all face on a daily basis? At Intertek, we offer innovative solutions that encompass every aspect of life; through Assurance, Testing, Inspection and Certification. With our unique TQA offering, we make the world a safer, better and more sustainable place. That’s Total Quality Assurance. Find out more online: investors.intertek.com Our year in review PDF downloads Intertek Group plc Annual Report and Accounts 2019 01 Strategic report Business summary Business summary What we do We provide our clients with a risk-based approach to Quality Assurance As the world changes, operating safely, sustainably and delivering quality products and services becomes more difficult. Supply chains are rapidly growing in both size and complexity, bringing unprecedented levels of risk. In these challenging times, companies need a trusted partner. Intertek’s innovation-led, end-to-end Total Quality Assurance (‘TQA’) proposition is designed to support our clients 24/7, providing – on a global scale – a fully integrated portfolio of Assurance, Testing, Inspection and Certification (‘ATIC’) services to give our customers complete peace of mind for their products and services. 130 years of industry-leading services Delivering our TQA For more than 130 years, Intertek has promise to our customers been innovating to mitigate risk and deliver To become the most trusted partner quality and safety to organisations. From for Quality Assurance, we have made a We enable our clients our beginnings, certifying grain cargoes promise to our customers: Intertek TQA and then testing and ensuring the safety expertise, delivered consistently with to progress their product of Thomas Edison’s products, today we precision, pace and passion, enabling development by delivering are a global force; the industry leader for our customers to power ahead safely. quality, safety and now sustainability. expert services with The three words of precision, pace and consistent quality Although Testing, Inspection and passion are central to everything we do. Certification (‘TIC’) remain core to our They are what make us different. They mean and accuracy. industry, because of the growing risk from the consistent quality and accuracy of our Scott Rickard vast and complex supply chains, increasingly work; the speed of response, delivering rapid Senior Scientist, UK the focus is also on systemic assurance. and accurate feedback for clients; and the Our clients need to take an end-to-end desire and belief in what we do. We place approach to quality and safety across their our clients at the centre of our universe. entire value chain. TIC has become ATIC. To deliver this, we employ people with The ATIC solutions we deliver go beyond the right potential, attitude, intellect and the quality and safety of a corporation’s entrepreneurial spirit. Then we introduce physical components, products and assets to them to our culture of excellence and also look at the reliability of their operating innovation, and our demanding service processes and quality management standards. They become our TQA experts. systems. This is our Total Quality Assurance By aligning the quality of our people with offering, enabling our clients to mitigate our high-performance culture we can deliver risk at every stage of their operations. our promise to customers and build long- term and mutually rewarding relationships. Intertek Group plc 02 Annual Report and Accounts 2019 Strategic report Business summary OUR TQA CUSTOMER PROMISE Intertek’s Total Quality Assurance expertise, delivered Strategic report consistently with precision, pace and passion, enabling our customers to power ahead safely. OUR SERVICES report Directors’ Financial statements ASSURANCE TESTING INSPECTION CERTIFICATION Enabling our customers to Evaluating how our customers’ Validating the specifications, Formally confirming that our identify and mitigate intrinsic risk products and services meet and value and safety of our customers’ products and services in their operations, their supply exceed quality, safety, sustainability customers’ raw materials, meet all trusted external and and distribution chains and and performance standards. products and assets. internal standards. quality management systems. THE ATIC ADVANTAGE, OUR TIC EXPERTISE PLUS OUR ASSURANCE SOLUTIONS. RESEARCH & Our TQA DEVELOPMENT value proposition Read more on how RAW MATERIALS The Intertek roundel > we are transforming our CONSUMER SOURCING Our roundel is a shorthand business on page 8 MANAGEMENT for our logo and is inspired by a key moment in our history – the invention of the incandescent