Intertek Annual Report 2015
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Intertek Group plc Intertek Group Bringing Quality Annual report 2015 and Safety to Life Intertek Group plc Annual report 2015 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb Contents OVERVIEW 24 Operating reviews 85 Other statutory information 1 Financial highlights 34 Financial review 88 Statement of Directors’ responsibilities 2 Intertek timeline 39 Principal risks and uncertainties 39 Long-term Viability Statement FINANCIAL STATEMENTS STRATEGIC REPORT 46 Sustainability and Corporate Social 89 Contents 4 Our Mission Responsibility (‘CSR’) 90 Consolidated primary statements 6 Our culture 95 Notes to the financial statements 8 Market context DIRECTORS’ REPORT 133 Intertek Group plc – Company primary 10 Our sectors 52 Chairman’s introduction statements and notes 12 Our strategy 54 Corporate Governance 14 Chairman’s statement 56 Board of Directors OTHER 16 Chief Executive Officer’s review 63 Remuneration report 138 Independent Auditor’s Report 21 KPIs – Measuring our strategy 78 Audit & Risk Committee 141 Shareholder and corporate information 22 Intertek Executive Management Team 83 Nomination Committee 142 Global Reporting Initiative Index WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb Financial highlights OVERVIEW Powering Ahead Solid full year performance in 2015 • Improved organic growth performance • Cost discipline delivers margin improvement • Adjusted diluted Earnings per Share1 (EPS) up 6.5% • Strong cash conversion at 136% and disciplined capital allocation • Full year dividend per share of 52.3p, an increase of 6.5% • Non-cash impairment of £577m in Industry Services Revenue (£m) Adjusted operating profit1 (£m) +3.5% +5.9% 2015 2,166 2015 343 2014 2,093 2014 324 Adjusted operating margin1 (%) Cash conversion1,2 (%) +40bps 136% 2015 15.9% 2015 136.4% 2014 15.5% 2014 124.7% Adjusted diluted EPS1 (pence) Dividend per share3 (pence) +6.5% +6.5% 2015 140.7 2015 52.3 2014 132.1 2014 49.1 1. Adjusted operating profit, adjusted operating margin, cash conversion and adjusted 2. Cash conversion is calculated as adjusted cash flow from operations before special diluted earnings per share (‘EPS’) are stated before Separately Disclosed Items, which contributions to pensions divided by adjusted operating profit. are described in note 3 to the financial statements. Statutory operating loss was 3. Dividend per share for 2015 is based on the interim dividend paid of 17.0p (2014: 16.0p) £283.5m (2014: profit £276.6m) and statutory diluted loss per share in 2015 plus the proposed final dividend of 35.3p (2014: 33.1p). was (224.2)p (2014: diluted EPS 108.8p). INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2015 OVERVIEW 01 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb Intertek timeline Building On Our Heritage Intertek’s history dates back over 130 years to some of the world’s early pioneers in scientific innovation and trade. Intertek enters ACQUISITION the FTSE 100 Moody International £1bn for the first time Revenue (2,500 new employees) exceeds £1bn 2008 2009 2011 Intertek listed on Inchcape Testing Services 750 London Stock Exchange bought by Charterhouse laboratories and offices and becomes Intertek Group plc Market capitalisation of £614m, joining the FTSE 250 in the 10,500 Support Services sector employees 2002 1996 Charles Warnock Company (Canada) founded Caleb Brett Charles Warnock established (UK) founded a steel products inspection Caleb Brett founded a marine company in Montreal, Canada. surveying business in 1885 to offer independent testing and certification of grain cargo aboard ships and vessels prior to shipment. 1885 1888 1896 1925 1927 Milton Hersey Edison Lamp Testing SEMKO (Sweden) founded (Canada) founded Bureau (USA) founded SEMKO is founded in Sweden to provide In 1888, Milton In 1896, Thomas Edison, one of electrical and electronic product safety Hersey established a history’s foremost innovators, testing. SEMKO registers the ‘S-Mark.’ It small chemical testing established the Lamp Testing becomes a product testing organisation laboratory in Montreal, Bureau, later named the Electrical accredited by the Swedish government Canada, pioneering the Testing Laboratories (ETL), which for its mandatory certification. idea of independent is the ‘ETL’ mark that Intertek testing laboratories. applies today. 02 OVERVIEW INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2015 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb OVERVIEW Intertek in 2015 2015 £2,166m Revenue 41,400 £343m Employees Adjusted Profit ACQUISITION Professional Service Industries, Inc. (‘PSI’) Leading US-based provider of testing and 100+ 1,000 assurance services to commercial and civil construction markets Countries Labs and Offices ACQUISITION ACQUISITION ACQUISITION SEMKO Warnock Hersey ETL Testing Laboratories 1994 1992 1988 Warnock Hersey (Canada) founded ACQUISITION ACQUISITION ACQUISITION In 1954 Milton Hersey and Charles Warnock merge Caleb Brett Foreign Trade Intertek Testing their companies to create ‘Warnock Hersey’, one of the largest testing and inspection entities Standards Services, Intertek in Canada (1954). The company expands into Government Services International minerals, lumber testing and the US market. Trade & Inspection Government Trade & Services (UK) Inspection Services (US) 1954 1973 1984-87 1984-87 1984-87 Inchcape establishes Inchcape Testing Labtest (Hong Kong) Services formed Labtest originally focuses Inchcape expands through on textile testing and later a series of acquisitions. broadens across other consumer goods. INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2015 OVERVIEW 03 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb Strategic report – Our Mission Our Mission Our mission is to exceed our customers’ expectations with innovative and bespoke Assurance, Testing, Inspection and Certification services for their operations and supply chain. Assurance Testing Assurance ensures our customers Testing is evaluating how products identify and mitigate the intrinsic risk and services meet and exceed quality, in their operations, supply chain and safety, sustainability and performance quality management systems. standards. Inspection Certification Inspection is validating the specifications, Certification is certifying that products value and safety of raw materials, and services meet trusted standards. products and assets. 04 STRATEGIC REPORT INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2015 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb OUR PURPOSE: Bringing Quality and Safety to Life. OUR VISION: To Become the World’s STRATEGIC REPORT Most Trusted Partner for Quality Assurance. INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2015 STRATEGIC REPORT 05 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb Strategic report – Our culture Living Our Customer-Centric Culture We want to leverage our In a decentralised and diverse passionate culture to deliver a global service business fostering superior customer service with the right customer-centric culture engaged employees, excellence, will make our Total Quality diversity, innovation, agility, Assurance proposition a strong teamwork and collaboration. competitive advantage. We have revisited our values to drive the right cultural behaviours and we have identified five values that are true to who we are. 06 STRATEGIC REPORT INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2015 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb Living Our Customer-Centric Culture STRATEGIC REPORT We always do the right thing. With precision, pace and passion. We are a global We own and family that values shape our future. diversity. We trust each We create other and have sustainable growth. fun winning For All. together. INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2015 STRATEGIC REPORT 07 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb Strategic report – Market context Attractive Global Growth Opportunities within the Quality Assurance Market Growth Opportunities We see four key attractive growth opportunities in the Quality Assurance Market: • First, the structural growth drivers in both Assurance, and Testing, Inspection and Certification (‘TIC‘) taking advantage of our customers’ needs for Total Quality Assurance; • Second, growing our market share with existing customers and through providing additional services across more products or projects and a wider coverage of the supply chain; • Third, gaining new customers and convincing those businesses performing in-house testing that they should outsource; and • Fourth, leveraging our highly cash-generative business model and strong balance sheet through selective acquisitions. We are extremely well-positioned to take advantage of the growth opportunities in the Quality Assurance market and deliver GDP plus organic revenue growth over the medium to long term given our broad service portfolio, our technical expertise and global network of facilities. 08 STRATEGIC REPORT INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2015 WorldReginfo - 4c1d4275-6341-49f1-aa2b-94af49e03ceb The Quality Assurance Market Market size $250bn STRATEGIC REPORT We estimate that the wider market opportunity for our Assurance, Testing, Inspection and Certification (‘ATIC‘) solutions is $250bn with significant growth opportunities. It is currently dominated by in-house testing, while the external market is extremely fragmented. Structural Growth Drivers Assurance Increased corporate focus on risk Outsourcing of supply chain Focus on ethical supply Sustainability of supply chain Increased management and board focus on risk management Increased shareholder