A Message from our CEO: Interim Management Statement - May 2009
16 May 2016
“We have made a good start to the year with trading in line with our expectations despite the challenging global market conditions. Our key business drivers remain robust and are expected to continue to produce good organic revenue growth throughout the year. Supporting our customers as they strive to be more competitive and cost effective in the face of slower markets, will underpin this growth. We expect to maintain a stable margin at prior year levels and to grow well for the remainder of 2009.” - Wolfhart Hauser, Chief Executive Officer of Intertek
Overview
Intertek has made a good start to the financial year with trading in line with management’s expectations. Total revenue for the first four months of 2009 compared to the same period last year (“the period”) increased by 42% at actual exchange rates. This comprised 7% organic revenue growth at constant exchange rates; 5% revenue growth from acquisitions made in 2008 and 2009; and 30% positive exchange rate movements. The Group continues to benefit from favourable exchange rates when translating foreign currency revenues into sterling, in particular the US dollar, HK dollar, and Chinese renminbi.
The key growth drivers behind Intertek’s business model remain robust as the business is only partially dependent on volumes of global trade. These drivers include:
- product variety and supply chain complexity;
- demand for safe, environmentally-friendly and quality products driven by ongoing regulation and end-customers; and
- outsourcing of in-house testing laboratories and services.
These resilient drivers, coupled with high geographic, industry and customer diversification are expected to continue producing good organic revenue growth.
In some areas Intertek has reduced its cost base to match the level of organic growth, for example in the trade related volume businesses and where there has been a significant decline in industry lines. Ongoing back-office consolidation and cross-selling initiatives under the Intertek as One programme continue to deliver cost saving opportunities and will also help to offset the impact of weaker market conditions.
Divisional Performance
Oil, Chemical & Agri (34% of group revenue) has started the year well despite the significantly weaker global oil and petrochemical trading market. Organic revenue grew by 5% for the period at constant exchange rates, driven largely by Latin America, the Caribbean, Europe, the Middle East and Asia and improvements in under-performing laboratories. Business in the USA and Canada was flat due to the effect of reduced imports of oil and petrochemicals, lower bio-fuel activity and lower refinery volumes.
The Government Services business is now integrated into the Oil, Chemical & Agri division and accounts for approximately 11% of divisional revenue. The decline in revenue in 2008 has continued into the first four months of 2009.
Excluding Government Services divisional organic revenue growth at constant exchange rates was 7%.
Consumer Goods (26% of group revenue) recorded excellent organic revenue growth of 18% for the period at constant exchange rates. Textiles and Footwear, the division’s largest business stream, continued to grow well particularly in China and India. The Toys and Hardlines business stream was the strongest performer. Increased demand from retailers and manufacturers of children’s products for safety and support services on the recently introduced US CPSIA regulation (US Consumer Product Safety Improvement Act) continues. Inspection, which accounts for approximately 10% of the division’s revenue, and is the part linked to volumes, declined in the period due to the slowing of global trade flows.
Commercial & Electrical (20% of group revenue) produced broadly flat organic revenue for the first four months of 2009 at constant exchange rates. In all regions the industrial electrical product business held up well in the face of the wider economic downturn. In Asia, the business was impacted by a weaker electrical home appliance market. North America was impacted by lower global demand in automotive components, wireless products and building products. There was a reduction and delay of some new product development in the period in these industries where the cost of development and R&D is high. However growth from new areas such as alternative energy, is supporting management’s view that performance will improve for the rest of the year.
Analytical Services (11% of group revenue) had 5% organic revenue growth for the period at constant exchange rates. Upstream oil and gas production has remained resilient and lubricant testing has been strong in advance of the introduction of new standards in the US. The downstream chemicals, materials and pharmaceutical markets have continued to experience delays and cancellations in contract orders.
Industrial Services (6% of group revenue) had excellent organic revenue growth for the period of 15% at constant exchange rates. Despite some delays in new infrastructure projects and reduced demand in systems certification, the division is performing well. Asset Integrity Management and maintenance services offer cost and time savings to the oil and power generation industries and remain in demand in the current market.
Minerals (3% of group revenue) has increased organic revenue by 12% for the period at constant exchange rates. Low commodity prices and the reduced level of funding for new exploration continue to suppress the minerals testing activity.