TOTAL QUALITY. ASSURED. ANNUAL REPORT 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION A GUIDE TO THIS PDF
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INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION CONTENTS
Go to main home page OUR HERITAGE OUR TQA SERVICES GLOBAL SCALE
Read more about our rich history Read more about our services Read more about our global scale on page 2 on page 8 on page 10 Search this PDF
Print PDF 5x5 STRATEGY EARNINGS MODEL CEO’S REVIEW
Read more about our strategy for Read more about our earnings Read more about our performance growth on page 12 model on page 14 and outlook on page 16 Go to previous page
Go to next page
Go to specific page OVERVIEW DIRECTORS’ REPORT 1 Financial highlights 52 Chairman’s statement 54 Chairman’s introduction STRATEGIC REPORT 56 Corporate Governance 2 Our Heritage 58 Board of Directors 4 Growth opportunities 65 Remuneration report 6 Demand For Total Quality Assurance 81 Audit Committee 8 Total Quality Assurance Solutions 86 Nomination Committee 10 Global scale 88 Other statutory information 12 Our 5x5 strategy 91 Statement of Directors’ responsibilities 14 Our Earnings model 16 Chief Executive Officer’s review FINANCIAL STATEMENTS 22 Intertek Executive Management Team 92 Contents 24 Operating reviews 93 Consolidated primary statements 32 KPIs – Measuring our strategy 98 Notes to the financial statements 34 Principal risks and uncertainties 140 Intertek Group plc – Company primary statements and notes 35 Long-term Viability Statement 40 Financial review OTHER 45 Sustainability and Corporate Social 145 Independent Auditor’s Report Responsibility (‘CSR’) 151 Shareholder and corporate information
INTERTEK INNOVATIONS
To find out more about our innovative approach, look out for the light bulb icon.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER STRATEGICOVERVIEW REPORT REPORT REPORT STATEMENTS INFORMATION TOTAL QUALITY. ASSURED.
Our pioneering forefathers include giants of innovation like Thomas Edison. Their sprit lives on today as Intertek continues to drive the global development of the Quality Assurance industry.
FCD INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION STRATEGIC REPORT
FCE STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION FINANCIAL HIGHLIGHTS
The Group has delivered strong revenue, earnings and cash performance, reflecting the Group’s performance management focus on margin-accretive revenue growth with strong cash conversion and disciplined capital allocation. STRONG REVENUE, EARNINGS AND CASH PERFORMANCE • Strong revenue growth: +8.8% at constant currency rates, +18.5% at actual rates • Recent acquisitions contributed £242m additional revenue • Stable organic revenue growth at constant rates: Products +5.5%, Trade +1.3%, Resources -13.0% • Portfolio strength and cost discipline driving margin progression: +30bps at constant rates, +10bps at actual rates • Strong adjusted diluted EPS growth: +9.6% at constant rates, +19.2% at actual rates • Statutory operating profit of £369m, compared to loss of £284m in prior year • Free cash flow of £318m, +35.2% year on year driven by 139% cash conversion • Full year dividend per share of 62.4p, an increase of 19.3%
REVENUE ADJUSTED OPERATING PROFIT1,2 ADJUSTED DILUTED EPS1,2 (£m) (£m) (pence) +18.5% 2 166 2 6 +19.3% 10 +19.2% 1 0 16
201 2016 201 2016 201 2016
CASH CONVERSION1,3 ADJUSTED FREE CASH FLOW1 DIVIDEND PER SHARE4 (%) (£m) (pence) +230 1 6 1 +35.2% 2 1 +19.3% 2 62 bps
201 2016 201 2016 201 2016
1. Adjusted operating profit, adjusted diluted earnings per share (‘EPS’), cash conversion and adjusted free cash flow are stated before Separately Disclosed Items, which are described in note 3 to the financial statements. A reconciliation between reported and adjusted measures is shown on page 42. 2. Statutory diluted EPS increased to 156.8p in 2016 (2015: statutory diluted loss per share of 224.2p). 3. Cash conversion is calculated as adjusted cash flow from operations before special contributions to pensions divided by adjusted operating profit. 4. Dividend per share for 2016 is based on the interim dividend paid of 19.4p (2015: 17.0p) plus the proposed final dividend of 43.0p (2015: 35.3p).
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 1 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION INTERTEK HAS BEEN A PIONEER FOR 130 YEARS
Intertek’s rich history reaches back over 130 years to some of the world’s leading pioneers in the Quality Assurance industry. Today we are a global force and continue to innovate to offer superior customer service.
1885 Caleb Brett founds his cargo certification Thomas Edison sets up the Lamp Testing 1927 Charles Warnock company is business in 1896 created in Canada to inspect the UK Bureau in the US (this later becomes the Electrical Testing Laboratories or ETL – steel products a mark that Intertek still applies today)
1911 Virginius Daniel Moody founds the Moody International oil and gas testing and certification 1885 business in the US
1973 Labtest is established in 1888 Milton Hersey Hong Kong, establishes his initially to focus chemical testing lab on testing in Canada textiles 1925 SEMKO (the Swedish Electronic Equipment Control Office) is founded
2 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
INTERTEK IN 2016
EMPLOYEES 42,000 COUNTRIES OPERATING IN 100+
LABS AND OFFICES 1,000+ ACQUISITIONS FIT-Italia Food quality assurance business EWA-Canada Cyber security assurance business ABC Analitic Joint Venture with environmental quality assurance business in Mexico
EXCITING GROWTH OPPORTUNITIES IN THE $250BN GLOBAL ATIC* MARKET
Intertek lists on Existing customers: Inchcape Testing 2002 1987 the London • Increase account penetration Services (ITS, the • ATIC cross selling Stock Exchange future Intertek) New customers: is founded and • New contracts completes the purchase of Caleb Brett 1994 ITS acquires $50bn SEMKO 2011 Intertek acquires currently outsourced Moody International $200bn currently in-house
Existing & new customers: • Outsourcing
2009 Intertek enters the FTSE 100 index
1988 ITS acquires ETL 1996 Inchcape sells ITS 2016 to Charterhouse Development Capital. ITS is 2015 Intertek acquires the PSI renamed Intertek building and construction ITS enters 1989 assurance business the Chinese market * ATIC – Assurance, Testing, Inspection and Certification
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 3 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION EXCITING GROWTH OPPORTUNITIES
The global ATIC market is worth $250bn. As companies seek to outsource their quality assurance activities, Intertek is uniquely positioned to be their end-to- end Quality Assurance partner.
WHY OUTSOURCE?
Companies are facing an increased number of challenges driven by the growing complexity in their operations creating unprecedented levels of supply chain risk. From increasingly decentralised manufacturing to multiple distribution channels with the release of immediate news in social media, the risks of doing business in an increasingly transparent global market place are escalating fast. As a result, demand is growing among companies for Total Quality Assurance solutions that extend above and beyond the quality and safety of physical components, products and assets to embrace and maximise the reliability of their processes and management. At Intertek, our global scale means we have more than 1,000 Testing, Inspection and Certification laboratories in over 100 countries across the world. And our 42,000 employees include 3,000 Assurance auditors carrying out more than 100,000 audits every year. We have evolved our Quality Assurance offering to meet the growing needs of our customers with our ATIC solutions.
4 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
$50BN CURRENTLY OUTSOURCED
EXISTING CUSTOMERS: Increase account penetration ATIC cross selling
NEW CUSTOMERS: New contracts
$200BN CURRENTLY IN-HOUSE
EXISTING & NEW CUSTOMERS: Outsourcing
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 5 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION INCREASING DEMAND FOR TOTAL QUALITY ASSURANCE
CORPORATIONS’ SUPPLY CHAIN OPERATIONS ARE GROWING IN COMPLEXITY…
DECENTRALISED TIER 3 TIER 2 TIER 1 MANUFACTURING INCREASING THE NUMBER OF SOURCING LOCATIONS
Components
Customers' growing demand for value is driving the use of low-cost materials
Materials
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Faster communications and better infrastructure Consumables make decentralised low- cost sourcing operations the preferred footprint
Manufacturing outsourcing
AS GREATER COMPLEXITY ESCALATES RISK IN THE SUPPLY AND DISTRIBUTION CHAIN...
6 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION INCREASING DEMAND FOR TOTAL QUALITY ASSURANCE
…AND DISTRIBUTION CHANNELS ARE BECOMING MORE GLOBAL, DIVERSE AND INTERTWINED.
CONSUMERS
Direct
eCommerce Packaging eRetailer Consumers are demanding greater product and brand variety
The share of global demand Warehouse
from emerging markets is rising
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Dealer Increasing numbers of trade channels make the traceability of quality complex
Direct Global social media adoption makes it easy for consumers to share their experience online ... CORPORATIONS NOW LOOK FOR A SYSTEMIC APPROACH TO QUALITY ASSURANCE
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 7 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION INTERTEK WELL POSITIONED TO SEIZE GROWTH OPPORTUNITIES
We are constantly evolving our services to help customers manage the increasingly complex risks they face.
OUR SERVICES Our ATIC services provide our customers with Total Quality Assurance ('TQA').
ASSURANCE TESTING Enabling our customers to identify and mitigate the Evaluating how our customers' products and intrinsic risk in their operations, their supply chains services meet and exceed quality, safety, and quality management systems. sustainability and performance standards.
8 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
In 2015 we took the pioneering step of placing Elevating the role of Assurance helps our Assurance at the forefront of our product offering, customers to operate more safely, more and have renamed the industry ‘ATIC’ (Assurance, effectively and with greater peace of mind. Testing, Inspection and Certification). True to our pioneering heritage, we are leading During 2016, we conducted in-depth research the industry to meet the growing needs of our with 600 customers across the globe. Customers customers with our Total Quality Assurance are challenged by the increased complexities proposition that offers our Assurance, Testing, of their supply chains and now need a Total Inspection and Certification solutions to our Quality solution that looks beyond TIC services clients worldwide. to one that gives them an additional service, the Assurance that their operating processes and quality management systems are operating properly.
INSPECTION CERTIFICATION Validating the specifications, value and safety of Formally confirming that our customers' our customers' raw materials, products and assets. products and services meet all trusted external and internal standards.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 9 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION END-TO-END QUALITY ASSURANCE ON A GLOBAL SCALE
We are uniquely positioned to benefit from exciting ATIC growth opportunities in markets across the world.
GLOBAL MARKET LEADER IN ASSURANCE
AUDITORS AUDITS 3,000+ 100,000+
GLOBAL MARKET LEADER IN TESTING, INSPECTION AND CERTIFICATION
LAB AND OFFICES COUNTRIES 1,000+ 100+
OUR SECTORS PRODUCTS
Structural drivers include quality solutions and We focus our operations sustainability demand, R&D, regulation, brand and and expertise on three supply chain expansion and risk management Read more on page 24 global sectors – Products, BUSINESS LINES OUTLOOK Trade and Resources. • Softlines Continuing growth from • Hardlines expanding investment Read more in our Operating Reviews • Electrical in quality and innovation on page 24 • Network Assurance • Business Assurance • Building & Construction • Transportation Technologies • Food • Chemicals & Pharma • Health, Environmental & Regulatory Services • Product Assurance
REVENUE OPERATING PROFIT* £1,466m £298m * Adjusted operating profit
10 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
TRADE RESOURCES
Structural drivers include: global GDP growth, Structural drivers include: capex & opex quality and quantity control requirements investment, increased resources activity during transportation and long-term demand for energy Read more on page 28 Read more on page 30
BUSINESS LINES OUTLOOK BUSINESS LINES OUTLOOK • Cargo & Analytical Global and regional • Industry Services Long-term growth Assessment trade flow growth • Minerals • Government & Trade Services • AgriWorld • Sustainability
REVENUE OPERATING PROFIT* REVENUE OPERATING PROFIT* £584m £82m £517m £30m
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 11 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION OUR DIFFERENTIATED 5X5 STRATEGY FOR GROWTH
Our 5x5 strategy aims to move the centre of gravity of the Company towards high growth and high margin areas in the industry.
Our purpose Bringing quality and safety to life. OUR 5 STRATEGIC PRIORITIES Our vision To become the world’s most trusted partner for Quality Assurance. Our TQA Customer Promise Intertek Total Quality Assurance expertise, delivered consistently with • Position Intertek as the leading precision, pace and passion, enabling Quality Assurance provider our customers to power ahead safely. • Improve brand awareness across STRONG BRAND sectors and geographies PROPOSITION • Compelling Total Quality Assurance brand positioning
• Build customer loyalty and win new customers • TQA customer service delivered SUPERIOR
CUSTOMER
consistently
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• Innovative ATIC solutions F
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• Business development with EFFECTIVE SALES A
A new accounts STRATEGY R T T E S G Y D E F 5 5 T O A R I T G N R E • Prioritised business lines, O W R geographies and service areas FE GROWTH AND TH IF • Invest in areas with good growth MARGIN D and good margin prospects ACCRETIVE • Disciplined resource, capital and PORTFOLIO people allocation
• Continuous improvement to drive productivity • Best in class management to reduce OPERATIONAL span of performance EXCELLENCE • Eliminate non–essential costs – facilities/ offices/processes/purchasing
12 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
Decentralised organisational model OUR 5 ENABLERS We operate a decentralised organisational model with common core operating principles that leverages the talent of our people. Empowered to make a difference, our people are close to the market opportunities and can react fast to • Strong entrepreneurial culture the growing needs of our customers. LIVING OUR • Customer centric culture CUSTOMER • Engagement at all levels By doing so, they provide the ultimate CENTRIC Intertek differentiator that enables us CULTURE to deliver truly bespoke Total Quality Assurance solutions that are at the heart of our drive for global growth.
• Performance management with financial and non-financial metrics DISCIPLINED • Forecast and review processes focused
PERFORMANCE on margin accretive revenue growth with
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D • Improve customer experience
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T T
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A R TECHNOLOGY T T E S G Y D E F 5 5 T O A R I T G N R E O • Invest in capability W ER T FF • Aligned reward system H DI ENERGISING • Promote internal growth OUR PEOPLE
• Sustainable growth for customers and shareholders DELIVERING • Importance of sustainability for SUSTAINABLE the community RESULTS • Right balance between performance and sustainability
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 13 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION HIGH-QUALITY EARNINGS MODEL
Intertek’s earnings model is OUR SERVICES based on our value proposition Read more on page 8 of providing customers in the
Products, Trade and Resources ASSURANCE sectors across 100+ countries with high-quality Assurance, Testing, Inspection and Certification services.
We are strongly focused on cash conversion OUR SECTORS and pursue an accretive disciplined approach Read more on page 6 to capital allocation to augment organic growth with selective acquisitions and capex investments. PRODUCTS
OUR MID- TO LONG-TERM VALUE CREATION Read more on page 19
GDP+
GDP+ ORGANIC REVENUE GROWTH
MARGIN-ACCRETIVE REVENUE GROWTH
14 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
OUR SERVICES Read more on page 8
TESTING INSPECTION CERTIFICATION
OUR SECTORS Read more on page 6
TRADE RESOURCES
OUR MID- TO LONG-TERM VALUE CREATION Read more on page 19
GDP GROWTH LONG-TERM GROWTH
CAPEX/ M&A STRONG FREE CASH FLOW
DISCIPLINED INVESTMENTS CAPITAL ALLOCATION IN GROWTH
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 15 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION CHIEF EXECUTIVE OFFICER’S REVIEW
In 2016, we delivered strong revenue, earnings and cash performance and continued to make progress with the implementation of our 5x5 strategy for growth.
The Group has delivered a strong revenue, earnings and cash To contextualise the growth opportunities ahead, let’s start by performance, reflecting the Group’s performance management setting out the historical and continuing development of global discipline focused on margin-accretive revenue growth with trade. This explains why it was so important to our customers strong cash conversion and accretive disciplined capital allocation. that Intertek took the step more than a year ago of evolving its We have announced a full year dividend of 62.4p, an increase of scope by adding Assurance ('A') to the established Testing, 19.3%, in line with our progressive dividend policy and Inspection and Certification ('TIC') service offering. With our underpinned by our excellent cash generation. differentiated Total Quality Assurance ('TQA') value proposition, Intertek is well positioned to seize these exciting opportunities The Products and Trade related divisions, which represent over and has the action plans in place to accelerate growth. 90% of the Group’s earnings, delivered an excellent performance with organic growth of 4.1% at constant rates while, as expected, This is what we call our ‘good to great’ journey. trading conditions continued to be challenging in the Resources- QUALITY ASSURANCE NEEDS ARE EVOLVING related division. The recent acquisitions delivered an excellent Intertek Group plc was born over 20 years ago in 1996, when performance contributing £242m of additional revenue. it was acquired as part of a management buy-out from the Moving forward, the growth opportunities are very attractive Inchcape Group and subsequently floated on the London Stock and Intertek is very well positioned to seize these as we execute Exchange. Its roots go back much further than this, to the 1880s, our differentiated 5x5 strategy for growth. We will leverage our when the founding fathers of the companies that ultimately position as a global market leader in the developing Assurance, formed Intertek included one Thomas Edison and gave birth to a Testing, Inspection and Certification ('ATIC') industry, and we see rich entrepreneurial heritage that thrives in our company today. tremendous opportunities ahead as we leverage our high-quality, This history is important, because it has been across this cash-generative earnings model. time-frame that global trade has developed to the level it is at today. Even as comparatively recently as 50 years ago, the great majority of companies sourced, produced and supplied locally, essentially for domestic customers. Clearly, major trading nations were already transacting with one another, but it is estimated that international trade represented just 25% of global GDP at the time. Levels of trade grew during the 1970s and 80s, but even then these were largely focused on supplies of raw materials. It was really in the 1990s, as companies increasingly strove to reduce their costs and Asia started its phenomenal growth as a manufacturing hub that consumers started to benefit from greatly increased choice. Today, we operate in a truly global market in which international trade accounts for nearly 60% of total global GDP. The ever-more complex operations that result from a global supplier base have created tremendous growth opportunities for Intertek over the years. To describe what we mean about this complexity, the automotive industry provides us with an excellent example of the impact of cost-driven, decentralised sourcing from a variety of locations.
André Lacroix Chief Executive Officer
16 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
In this industry, a manufacturer will source its gearboxes from a INTERTEK INNOVATIONS Tier-1 supplier. This supplier, in turn, will have sourced components from a network of Tier-2 suppliers, and these will have sourced their raw materials from a number of Tier-3 suppliers. Figures OUR BRAND REINVENTION from the Society of Motor Manufacturers and Traders ('SMMT') demonstrate how much things have changed from the 1970s, We’re unveiling a bold new brand identity across the world when 90% of the parts in a typical UK-built car were sourced of Intertek to reflect our commitment to superior customer domestically. Today, that figure stands at just over 40%. service with Total Quality Assurance. Cost reduction through global sourcing is only one side of Intertek has always been a pioneer, anticipating the needs the coin. The more demanding consumer is an almost equally of its clients with bold innovations. True to the innovative powerful driver of increased complexity. As consumers seek spirit of our founders, we’re redefining the industry with greater variety, better quality and shorter response times, choice our Total Quality Assurance value proposition – going has proliferated in the shape of increased numbers of products, beyond physical quality control through our Testing, a massively expanded universe of brands and rapid growth in Inspection and Certification services to offering Total routes to market. Peace of Mind, as we additionally provide Assurance It is extraordinary to consider, for example, that there were services, ensuring our customers’ operating procedures just eight craft breweries in the US in 1980. By 2015, there and systems are functioning properly. We sum this up were more than 4,000. In the 1980s, if you had a headache in our new brand USP, ‘Total Quality. Assured.’ you needed to go to the pharmacy to buy painkillers. Today, As part of our brand reinvention, we’re rolling out a bold you can go to a pharmacy, to a supermarket, to a convenience new brand identity, inspired by a key moment in our store, a department store, a fuel station – or online. company history – our founder Thomas Edison’s invention Alongside these ‘domestic’ changes we are also seeing a huge of the first practical incandescent light bulb. Our new rise in consumer demand from developing countries, with the identity is much more than just a new logo. Behind it lies rapid growth of new, aspirational middle classes. our Customer Promise – Intertek Total Quality Assurance expertise, delivered consistently with precision, pace and So opportunities for corporations have grown significantly over passion, enabling our customers to power ahead safely the last 30 or 40 years. But, equally, so have the complexities – as we firmly position Intertek as the trusted partner involved in managing their supply-chain operations. These are for end-to-end Total Quality. Assured. not the only factors. Regulators are demanding increased transparency and social media presents very significant threats to organisations’ reputations. We regularly see product safety recalls following failures in supply-chain management. Powerful structural growth factors are underway including global trade, evolving regulation, increasing quality standards, heightened consumer demands, technology, proliferating brands and corporations’ tighter focus on managing supply-chain risks. Given the increased risk of operating a global supply chain and distribution network, there is a growing realisation among Boards and executive management teams that their businesses need to take a systemic, end-to-end approach to Quality Assurance. INNOVATING TO STAY AHEAD Intertek has a proven track record of innovating and anticipating the growing needs of its clients. We have been the pioneers of our industry across the world for 130 years and we continue to be its chief innovator, constantly evolving and improving our offer to customers to meet their changing needs. Importantly, this entrepreneurial spirit among our people is a fundamental aspect of our differentiated 5x5 strategy for growth.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 17 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
CEO’S REVIEW continued
In identifying that our customers now need systemic and INTERTEK TOTAL QUALITY. ASSURED. in-depth Assurance, Testing, Inspection and Certification Our value proposition is now based on Total Quality Assurance services, we added last year a new dimension to our traditional underpinned by our TQA Customer Promise every day, everywhere: Quality Control offering by placing Assurance as the cutting edge Intertek Total Quality Assurance expertise delivered consistently of our product offering. The intensifying focus by corporations on with precision, pace and passion, enabling our customers to power managing risk in the supply chain has substantially increased the ahead safely. role of Assurance in their day-to-day risk-mitigation activities. As first outlined in 2015, we are shifting our ‘centre of gravity’ Today, the truly systemic Total Quality Assurance solutions towards the business sectors and geographies with the most we can deliver go beyond assuring the quality and safety of a attractive growth and margin prospects. We believe we already corporation’s physical components, products and assets to also have a number of important advantages as we move forward look at the reliability of their operating processes and quality on this journey. management systems. Our TQA approach is fundamental to First, there is our sheer scale. Today, we have more than 1,000 enabling our clients to operate safely and with complete laboratories based in over 100 countries worldwide. We are where peace of mind. our clients and prospects are, offering global solutions in local Our differentiated TQA value proposition is set to lead our languages, with local branding and with an understanding growth trajectory in the years ahead. We have evolved our service of local priorities and culture. offerings to meet the needs of our customers, positioning Intertek Scale only counts when it is allied with quality and our people strongly to leverage these truly exciting opportunities with our in all our locations across the world are focused on consistently differentiated TQA value proposition. delivering against our demanding service standards. By achieving this, on time every time, and providing straightforward access to market-leading expertise and flexible solutions, they build and develop the long-term relationships that we and our customers are looking for.
INTERTEK TQA VALUE PROPOSITION
RESEARCH AND DEVELOPMENT
CONSUMER RAW MATERIALS MANAGEMENT SOURCING INTERTEK TOTAL QUALITY ASSURANCE: ASSURANCE + TESTING + INSPECTION + CERTIFICATION DISTRIBUTION COMPONENT AND RETAIL SUPPLIERS CHANNELS
TRANSPORTATION MANUFACTURING
18 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
Second, we have been steadily growing our Assurance capability over the years, and now operate a workforce of some 3,000 highly PRODUCTS trained and experienced auditors who conduct an annual average of 100,000 audits across the Americas, Asia Pacific and Europe. Read more on page 24 Third, and most important of all, we have broadened our Assurance offering over the years. Our global Business Assurance team offers a broad range of solutions that go far beyond simply helping customers meet their ISO certification needs. TRADE They also offer customised audit solutions – and this ability Read more on page 28 lies directly at the heart of the Intertek advantage. Today, we are a global market leader in offering and providing customers with genuinely bespoke Assurance solutions. A concrete example of what we can do for our clients is to help them mitigate the risks inherent in their entire global supplier RESOURCES base. We have designed an end-to-end Supplier Qualification Read more on page 30 Operating System (known as GSM), which enables our customers to track the compliance of all their suppliers with the organisation’s code of conduct in the areas of human rights and labour practices, worker health and safety, environmental management and Read more about the sectors we work in on page 6 business integrity.
Clearly, being able to develop such a solution for a customer already provide to each individual organisation and by cross- with a global supply chain underlines the advantage that the selling between the various components of our integrated breadth and depth of our capability in this area provides. Further, ATIC offering. the strength of our diversified global network and our ability to adapt our operations demonstrates that we can meet the needs Second, we will continue to leverage our global portfolio of of our customers, wherever in the world that may be. industry leading solutions to win new customer relationships with new and fast growing local, regional and global companies. This enables us to present a complete value proposition based around Total Quality Assurance. We can satisfy all Third, as companies see the value in our Total Quality Assurance of our customers’ existing and emerging Quality Assurance approach, there will also be tremendous growth potential in requirements in operational areas including R&D, sourcing raw convincing corporations that currently conduct this work in-house materials, component supply, manufacturing, transport/ to outsource their quality assurance requirements to us. distribution, retail channels and consumer management. Fourth, our industry is highly fragmented and we will look at That advantage also extends beyond a market opportunity seizing the right M&A opportunities to enable us to expand our alone because the Assurance business has some highly attractive geographic coverage where needed, providing access to a new financial characteristics – it is capital light and delivers margins kind of offering or strengthening our existing operations. that are above the Group average. Our highly cash-generative earnings model and strong balance ATTRACTIVE OPPORTUNITIES FOR GROWTH sheet provide the flexibility to accelerate organic growth with The total value of the global ATIC market is, we estimate, $250 value-enhancing acquisitions. billion of which ‘only’ $50 billion is currently outsourced. That OUR HIGH QUALITY EARNINGS MODEL means there is a total $200 billion in-house opportunity. The Intertek earnings model is to provide ATIC solutions with Companies are certainly doing far more today to improve quality superior customer service levels to businesses in the three and safety than they were even five years ago, but there is much economic sectors of ‘Products’, ‘Trade’ and ‘Resources’ across that needs to be done to establish a robust, reliable, end-to-end more than 100 countries. These sectors provide the framework Total Quality Assurance approach that reduces risk. That is what of our high-quality earnings model, and each benefits from its we offer and will continue to bring our clients, leveraging our own set of structural growth drivers. broad service portfolio, our technical expertise and our global The Products sector, which currently delivers over 70% of laboratory network to allow corporations to concentrate on our profit, comprises consumer goods; electrical and wireless; their core value-generating activities. building and construction; chemicals and pharmaceuticals; We see four growth opportunities. softlines and hardlines; transportation technologies; food; and business assurance. We see the sector as continuing to benefit First, we will be looking to leverage the growth opportunities from corporations’ growing investments in quality and innovation presented by our existing customers. We aim to increase and anticipate continuing growth in response to rising consumer customer account penetration, both within the services we demand and a higher regulatory burden.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 19 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
CEO’S REVIEW continued
Specifically, we see two key growth drivers for Intertek In Resources, our third business sector, which contributed less in this sector: than 10% of our profit, we anticipate long-term growth driven by increasing demand for global energy to support GDP and • Growth in stock-keeping units (SKUs) or brands, driven by population growth, but we recognise this is a cyclical business increasing numbers of products worldwide, shorter product that is currently in the challenging part of the cycle. life-cycles and the rise of e-commerce. Just consider the speed of product development over the last 30 years in the mobile We offer both capex and opex services – we can help companies phone sector, as companies have competed for consumer investing in new capacity and operating existing facilities. attention through investments in technology, innovation, We will also see continued expansion in the different types variety and brand development; and of energy consumed, with an increasing role for renewables in • Growth in the number of tests that need to be taken for driving sustainability, carbon reduction and cleanliness of supply. each SKU or brand, driven by rising regulatory standards, At the Group level, in the medium- to long-term we expect to concerns for safety, demand for higher quality and deliver GDP plus organic revenue growth that is margin accretive continuous innovation. and strongly cash generative. This will enable us to allocate our We expect our Products sector to continue growing faster resources in a disciplined fashion, to create further value via than GDP as our ATIC services support customers in their carefully selected capital expenditure and M&A investments that determination to: in turn feed further accelerated margin-accretive revenue growth. • Innovate ahead of their competitors; OUR STRATEGIC FRAMEWORK Our earnings model supports our 5x5 differentiated strategy for • Maintain or improve quality while expanding their growth, which aims to move the centre of gravity of the company supply chains; towards high-growth, high-margin areas in our industry. The • Meet more demanding regulatory standards; strategy comprises five strategic priorities and five strategic enablers, targeted at the achievement of five corporate goals • Raise the sustainability standards of their products that help us measure progress. and processes; Our five medium- to long-term corporate goals are: • Sharpen their risk-management focus; and • Fully engaged employees working in a safe environment • Protect their reputations. • Superior customer service in Assurance, Testing, Inspection Our second key business sector is Trade, which comprises cargo; and Certification agriculture; and government and trade services and accounts for around 20% of our profit. By drawing on our services, • Margin-accretive revenue growth based on GDP+ particularly in the Inspection area, companies have the organic growth assurance of knowing that their cargoes comply with all • Strong cash conversion from operations relevant regulations and quality standards. • Accretive, disciplined capital-allocation policy Our Trade business will continue to benefit from ongoing growth in global trade and the development of stronger regional trade Read more about our 5x5 strategy on page 12 in Asia, the Indian Ocean, the Mediterranean and the Americas. Our five strategic priorities are: We expect this growth to be at a rate similar to global GDP through the cycle, driven by the increases in global population • A strong brand proposition that positions Intertek as the and demand from emerging markets that are causing cargo market-leading provider of Quality Assurance services tonnage, shipping numbers and trading routes to grow. • Delivering superior service with our Total Quality Assurance I am confident about the long-term future of value proposition, building customer loyalty and attracting the ATIC industry. An increased focus on risk new customers management, continuing growth in global • An effective sales strategy that develops our business by attracting new clients and growing account penetration with trade, demand for energy and innovation existing customers, through increasing the focus on the and growing demand for quality and systematic cross-selling of our ATIC solutions sustainability will all play key roles in • Operating a growth- and margin-accretive portfolio strategy, its future development. that delivers focused growth among the business lines, countries and services with good growth and margin prospects Together, these forces represent a compelling opportunity. Just • Delivering operational excellence in every operation to to take soya exports as an illustrative example, the total quantity drive productivity exported grew at a CAGR of 6.2% per annum between 2001 and 2015 – a similar growth rate to those of many other globally traded agriculture and resource products.
20 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
The five enablers that will support the execution of our The second priority is to deliver sustainable returns for our strategy are: shareholders through the payment of progressive dividends with a dividend payout ratio of circa 40% of earnings. • Our entrepreneurial spirit and decentralised organisation that underpins our customer-centric culture The third priority for capital is M&A activity to strengthen our portfolio in the right growth areas, provided we can deliver good • Disciplined performance management, driving margin-accretive returns. This means focusing on those existing business lines revenue growth with strong cash conversion and strong or countries with good growth and margin prospects, where we returns on capital have leading market positions, or entering new exciting growth • Superior technology, increasing productivity and adding value areas, be that geography or services. to our customers The fourth priority is to maintain an efficient balance sheet that • Engaging our people through the appropriate reward gives us the flexibility to invest in growth with a net debt to strategy and investing in the right capabilities to support EBITDA ratio of 1.5 to 2 times. our growth agenda LOOKING AHEAD • Achieving sustainable growth for customers, We believe that the strength of our results in 2016 employees, shareholders, suppliers and communities and demonstrate the attractive nature of our industry, Intertek's ensuring we have the right balance between performance high-quality earnings model and the effectiveness of our 5x5 and sustainability differentiated strategy for growth. FOCUSED PORTFOLIO STRATEGY We are confident about the growth prospects of the global Pursuing a growth- and margin-accretive portfolio is one of Quality Assurance market. our five strategic priorities. When managing our day-to-day We are uniquely positioned to seize these attractive growth performance and allocating our capital and people resources, opportunities, underpinned by the increased complexities we will pursue a three-tier portfolio strategy: of corporate supply chains and the associated challenges First, we will focus on our large businesses with good growth of maintaining a high level of quality assurance end to end. and margin prospects. These areas of focus are: Leveraging our industry-leading expertise and innovative and • at the Business Line level: Softlines, Hardlines, Electrical entrepreneurial culture, we service a diversity of industries, & Wireless, Cargo/AA and GTS geographies and customers with multiple Total Quality Assurance solutions with our global network enabling • at the Geographic level: North America and Greater China us to follow the supply chains of our customers wherever Second, we will invest in the fast-growing businesses with they are in the world. good margin prospects where the focus areas are: We have a strong track record of creating sustainable growth • at the Business Line level: Business Assurance, Agriculture, and shareholder value, leveraging our high-margin and highly Building & Construction, Transportation Technologies cash generative earnings model. We are moving the Company’s and Food centre of gravity towards our industry’s most attractive growth and margin areas with a disciplined approach to performance • at the Geographic level: South Asia, South East Asia, management and capital allocation. South America, Middle East and Africa The strength of Intertek is first and foremost the excellence Third, we will focus on improving the performance: of our 42,000 entrepreneurially-minded professionals, who • at the Business Line level: Industry Services and Minerals take immense pride in delivering customer service standards that exceed expectations. I would like to thank all my colleagues • at the Geographic level: Europe and Australasia around the world for their passion and expertise every day that ACCRETIVE DISCIPLINED CAPITAL ALLOCATION makes Intertek a trusted partner for its clients. In our view, to deliver shareholder returns on a consistent basis, I am tremendously excited about Intertek’s future as we the right formula is sustainable earnings growth with accretive continue on our ‘good to great’ journey to deliver our unique disciplined allocation of capital. Intertek Customer Promise of Total Quality. Assured. We pursue a disciplined approach to capital allocation that enables us to reinvest our growing earnings and create long-term value and sustainable shareholder returns. The first priority when it comes to capital allocation is investment to support organic growth. In the medium- to long-term, we will invest circa 5% of revenue in capital expenditure.
André Lacroix Chief Executive Officer
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 21 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION INTERTEK EXECUTIVE MANAGEMENT TEAM
1 2 3
4 5 6
7 8 9
10 11 12
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22 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
André Lacroix 1 Tony George 6 Rajesh Saigal 10 Chief Executive Officer Executive Vice President, Executive Vice President, Human Resources South & South East Asia See full bio on page 58 Joined Intertek in 2015. Tony is Joined Intertek in 2007. Rajesh has Edward Leigh 2 responsible for Human Resources. He has responsibility for South & South East Asia. Chief Financial Officer over 28 years’ experience in HR, General Prior to this he was Regional Managing See full bio on page 58 Management and Business Development Director for Intertek’s South Asia having held senior leadership positions operations. He has over 27 years’ general Nimer Al-Hafi 3 in international FMCG, chemicals, management and operational experience Senior Vice President, Group ATIC telecommunications and retail companies with Fortune 500 companies covering Operational Excellence, North-East including Vodafone plc, Starbucks, Diageo consumer durables, industrial products Asia and Australasia plc and ICI. Prior to joining Intertek, he was and engineering. Before joining Intertek, Joined Intertek in 1995. Nimer is Group HR & Business Development Rajesh was CEO South Asia for GEWISS responsible for the Group’s ATIC Director at Inchcape plc. and General Manager at Honeywell. operational excellence as well as Ken Lee 7 Julia Thomas 11 sustainability and health & safety Executive Vice President, Senior Vice President, programmes, and has responsibility for Marketing and Communications Corporate Development North-East Asia and Australasia. Prior to this, he was responsible for the Group's Joined Intertek in 2016. Ken has Joined Intertek in 2013. As SVP Corporate Global Customer Service agenda and responsibility for Intertek’s marketing Development, Julia has responsibility President of Intertek’s US Products group as well as internal and external for Intertek’s acquisition and disposal covering testing, inspection, certification, communications. He joined the company activities. Before joining Intertek, consulting and quality assurance services, from Inchcape plc where he spent 13 Julia spent 12 years in investment having started with the Company as an years in various senior marketing roles, banking with J.P. Morgan Cazenove Engineer in 1995. most recently as Chief Marketing and and Rothschild, focusing primarily Communications Officer. Prior to this he on mergers and acquisitions. Ann-Michele Bowlin 4 held marketing leadership positions with Chief Information Officer Mark Thomas 12 RAC Motoring Services and Hyundai Group General Counsel Joined Intertek in 2009. Ann-Michele Car (UK) Ltd. is Chief Information Officer and joined Joined Intertek in 2015. Mark has Jan-Jörg Müller-Seiler 8 Intertek from Ernst & Young consulting responsibility for Intertek’s legal, risk and Executive Vice President, where she led shared services compliance functions. He joined Intertek Global Resources transformation programmes. Prior from Inchcape plc where he was Group to Ernst & Young, Ann-Michele held Joined Intertek in 2008. Jan-Jörg has General Counsel. Prior to this, Mark was in leadership and operations roles in responsibility for Global Resources private practice with Slaughter and May in technology companies, including comprising our business lines of Industry London, advising on a wide range of public Hotels.com, and in the manufacturing Services and Minerals. Prior to assuming and private M&A transactions, equity and and services sectors. his current role, Jan-Jörg was President of debt financing, and general corporate Industry Services and Country Managing law issues. Ian Galloway 5 Director for Germany, Switzerland and Executive Vice President, Middle- Gregg Tiemann 13 Austria. Before joining Intertek, he worked East, Africa and Global Trade Executive Vice President, Americas for TÜV SÜD Industrie Service GmbH, as a Joined Intertek in 2011. Ian is responsible member of the Board, with responsibility Joined Intertek in 1993. Gregg has for the Middle-East, Africa and Global for their plant engineering and foreign responsibility for the Americas. Prior Trade comprising our business lines of business sectors. to assuming his current role, Gregg was Government & Trade Services, Cargo & responsible for the Americas, North Asia Graham Ritchie 9 Analytical Assessment and Agricultural and Australasia as well as the former Executive Vice President, Europe Services. Prior to assuming his current Consumer Goods and Commercial & role Ian held senior finance and business Joined Intertek in 2014. Graham is Electrical divisions, having started as roles within Intertek. He has previously responsible for Intertek’s operations in General Manager of the Los Angeles held international roles in finance Europe, including Russia, and Central Asia. laboratory in 1993. Before joining Intertek, management with BG Group in the UK, Prior to assuming his current role, Graham Gregg worked in sales and marketing Egypt and Tunisia. Ian is a qualified was Intertek’s Group Financial Controller. for the software industry. Chartered Accountant. Before joining the Company he held senior financial positions at BT Group plc and other technology services organisations, having started his career with PwC.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 23 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION PRODUCTS
Excellent revenue performance with double-digit growth benefiting from robust organic revenue growth and the contribution from recent acquisitions.
BUSINESS LINES SERVICES & CUSTOMERS SOFTLINES Our Products-related businesses consist of business lines that are focused on ensuring the quality and safety of HARDLINES physical components and products, as well as minimising risk through assessing the operating processes and quality ELECTRICAL management systems of our customers. As a trusted partner to the world’s leading retailers, NETWORK ASSURANCE manufacturers and distributors, our Products business BUSINESS ASSURANCE lines support a wide range of industries including textiles, footwear, toys, hardlines, home appliances, consumer BUILDING & CONSTRUCTION electronics, information and communication technology, automotive, aerospace, lighting, building products, TRANSPORTATION TECHNOLOGIES industrial and renewable energy products, food and hospitality, healthcare and beauty, and pharmaceuticals. FOOD Across these industries we provide a wide range of ATIC services including, laboratory safety, quality and CHEMICALS & PHARMA performance testing, second-party supplier auditing, sustainability analysis, product assurance, vendor HEALTH, ENVIRONMENTAL compliance, process performance analysis, facility & REGULATORY SERVICES plant & equipment verification and 3rd party certification. PRODUCT ASSURANCE
24 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
STRATEGY
Our Total Quality Assurance 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.
ADJUSTED OPERATING REVENUE PROFIT
£1,465.5m £297.7m
INTERTEK INNOVATIONS INTERTEK SUPPORTS MORE EFFICIENT NASAL DRUG DEVELOPMENT
Intertek launched an innovative technology offering that provides clients with a new tool in the development of Orally Inhaled and Nasal Drug Products, in particular for generic nasal suspensions, providing generics developers with a more efficient route to market. This new technology uses Morphologically- Directed Raman Spectroscopy ('MDRS'), allowing direct measurement of Active Pharmaceutical Ingredient ('API') particle size in the nasal suspension. This was previously difficult to achieve without the Raman function as excipient particles are often a similar size and shape to the API particles. MDRS allows Raman spectra to be produced for selected particles, with this additional chemical information providing robust identification of both drug and excipient. Meeting regulatory requirements through cost- effective and efficient approaches, such as the inclusion of MDRS data, is of huge interest to generics developers and should support the development and approval of more generic nasal products in the future.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 25 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
PRODUCTS continued
2016 PERFORMANCE We delivered solid organic growth Excellent revenue Our Products-related businesses delivered in Electrical & Wireless driven by an excellent revenue performance with higher regulatory standards in energy growth benefiting double-digit growth rates. efficiency and by the increased demand for wireless devices. from robust organic We benefited from a robust organic revenue growth performance that We continue to benefit from the increased revenue growth and delivered organic margin accretion and focus of corporations on food safety and the contribution from recent acquisitions delivered good organic growth in our the contribution from was strong. Food business. recent acquisitions. Our Softlines business delivered a robust We saw a solid organic growth in organic growth performance across our our Chemicals & Pharma business markets. We continue to benefit from as we continue to leverage the structural INNOVATION strong demand from our customers for growth opportunities in the healthcare We continue to invest in innovation within chemical testing. We are also leveraging markets in both developed and our Products-related businesses to meet the investments we have made to support emerging economies. the evolving needs of our clients: the expansion of our customers in new Our Building & Construction markets and to seize the exciting growth Our Business Assurance division business delivered a robust organic opportunities in the footwear sector. has developed a proprietary supplier growth performance driven by the management platform known as GSM. Our Hardlines and Toy business growing demand for greener and higher GSM maximises supply chain visibility for continues to take advantage of our quality buildings and infrastructure in both buyers and suppliers through supply strong global account relationships, the the US Market. PSI benefited from a good chain management, evaluation and expansion of our customers’ supply chain revenue momentum and delivered the improvement. One of our major clients has into new markets and our innovative expected synergies in year one. asked us to help them mitigate the risks technology for factory inspections. 2017 OUTLOOK of their entire global supplier base by We delivered a robust organic growth We expect our Products division to designing an end-to-end Supplier performance across our main markets benefit from good organic growth Qualification Operating System to track of China, Hong Kong, India and Vietnam. the compliance of these suppliers based at constant currency. Our Transportation Technologies on their code of conduct in the areas of MID- TO LONG-TERM OUTLOOK business delivered strong organic growth human rights and labour practices, worker Our Products division will benefit from across our main markets in the USA, UK, health and safety, environmental mid- to long-term structural growth Germany and China. We continue to management and business integrity. drivers including product variety, brand capitalise on our clients’ investments in and supply chain expansion, product Our Transportation Technologies new powertrains as they strive to adopt innovation and regulation, and on the business became one of the first facilities more stringent emissions and fuel increasing quality and sustainability in Europe to be accredited to perform economy standards. power certification testing on electric demand of developed and emerging motors, following a significant investment Our Business Assurance business economies, the acceleration of we made in our electric vehicle testing delivered double-digit organic growth e-commerce as a sales channel, and capabilities in the UK. Recognising the in our three regions of North America, the increased corporate focus on risk. changing landscape of traditional gasoline Europe and Asia. We continue to benefit and diesel engines, our business from the increased focus of corporations responded swiftly to the evolving needs on risk management resulting in strong of our clients and can now provide both growth in Supply Chain Audits. testing and certification services in the same location, providing a more efficient solution for our customers.
FINANCIAL HIGHLIGHTS 2016 Change at Change at 2016 2015 actual constant £m £m rates rates Revenue 1,465.5 1,110.6 32.0% 19.9% Organic revenue 1,260.7 1,086.6 16.0% 5.5% Adjusted operating profit 297.7 233.8 27.3% 16.5% Adjusted operating margin 20.3% 21.1% (80)bps (60)bps
26 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
INTERTEK INNOVATIONS INTERTEK INTRODUCES REMOTE VIBRATION MONITORING
Our Building & Construction business has implemented an innovative remote vibration monitoring solution for clients in New York City. Using specialist sensory equipment, vibration levels caused by construction activity are recorded and documented during the course of the working day. Our experts apply data analysis techniques to interpret the stresses being placed on the building, and if an event occurs that exceeds a certain trigger level, an email or text message alert is automatically sent to the client allowing them to mitigate their level of current activity.
INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 27 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION TRADE
Our Trade-related businesses delivered solid organic growth.
BUSINESS LINES STRATEGY CARGO & ANALYTICAL ASSESSMENT Our Total Quality Assurance proposition assists our Trade- related customers in protecting the value and GOVERNMENT & TRADE SERVICES quality of their products during their custody-transfer, storage and transportation, globally, 24/7. Our expertise, AGRIWORLD service innovations and advanced analytical capabilities allow us to optimise the return on our customers’ cargoes SUSTAINABILITY and help them resolve difficult technical challenges. Our independent product assessments provide peace-of-mind SERVICES & CUSTOMERS to our government clients that the quality of products imported into the country meet their standards and Our Trade division consists of business lines with differing import processes. services and customers, but with similar mid- to long-term structural growth drivers: –– Our Cargo & Analytical Assessment ('Cargo/AA') business provides cargo inspection, analytical assessment, ADJUSTED OPERATING calibration and related research and technical services REVENUE PROFIT 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. £584.5m £81.8m –– Our Agriculture business provides analytical and testing services to global agricultural trading companies and growers.
28 INTERTEK GROUP PLC ANNUAL REPORT AND ACCOUNTS 2016 STRATEGIC DIRECTORS’ FINANCIAL OTHER OVERVIEW REPORT REPORT STATEMENTS INFORMATION
INNOVATION 2016 PERFORMANCE INTERTEK INNOVATIONS Providing innovative solutions is a key Our Trade-related businesses delivered point of differentiation for our Trade- solid organic growth overall with moderate related businesses: margin progression at constant currency. INTERTEK TAKES Our Agriculture business has recently Our Cargo/AA business reported solid #1 POSITION IN developed the Soil Manager App to organic growth performance benefiting Support Local Farmers in Africa. Africa from the structural growth drivers in the MEXICO'S FAST is home to more than 10 million farmers Crude Oil and Refined Product global with 50% owning a mobile device. The app trading market. As expected we saw GROWING allows 24/7 access to a range of services a normalisation of the supply situation ENVIRONMENTAL which can assist with enriching soil fertility following the build-up of the high level and increase yields whilst minimising input of inventory we saw in 2015. MARKET costs. It is available free of charge from The demand for GTS continued to weaken online app stores, and is an innovative way following the slowdown seen in the During 2016, Intertek expanded its for local farmers to connect with qualified second half of 2015 and was below last Analytical Assessment offering by specialists, fertiliser merchants, and even year. The volume of regional trade in the entering into an agreement with the allowing for direct investments by Middle/East and Africa has reduced given shareholders of ABC Analitic to form sponsors. After submitting test samples, the economic challenges and uncertainties an environmental services Joint the results are directly available along with in these regions. Venture in Mexico. fertiliser recommendations on the app. In addition, farmers can connect with a Our Agriculture business continues to ABC Analitic has been a leading qualified agronomist to discuss the results, benefit from the expansion of the supply provider of water testing services in a service that is often beyond the reach of chain of our clients in markets such as Mexico since 197