Interactive Investor

Intertek boosts NDT portfolio with £40 million purchase

3rd March 2014 10:21

Ceri Jones from interactive investor

Product tester Intertek announced on Monday the acquisition of Manchester-based company INSPEC from Lamprell Energy, for £40 million. As part of the acquisition, Intertek, which specialises in personal protective equipment and lab equipment testing, has entered into a multi-year preferred supplier agreement with Lamprell for the provision of non-destructive testing (NDT) and associated services.

NDT is a technique used to test the safety of products or industrial components such as pipelines, power stations, refineries and oil platforms, without disrupting operations using, for example, X-ray, gamma-ray, ultrasonic, magnetic particle testing and pipeline crawlers. Increasing regulation and fear of reputational damage has boosted demand for these services.

INSPEC is a mature business that operates across the Middle East from the UAE, with over 600 technical staff. The acquisition of INSPEC follows the acquisition of UK-based NDT Services in 2012 and US-based GXT in 2013, to create three regional NDT hubs.

The group made seven acquisitions for £122 million in the period, including a £6.6 million interest in E-TEST Laboratorio de Ensaios e Tecnologia Ltda., a toy and consumer products testing laboratory in Brazil; a £10.5 million purchase of Melbourn Scientific Limited in the pharmaceutical, biotech and healthcare field; £44.9 million on Global X-Ray & Testing Corporation, which services the oil and gas industry in the US; and £57.6 million on Architectural Testing Inc., a building products testing and certification company in North America.

It also ploughed back £145 million of organic capital investment by way of the latest technology in new laboratories, capital equipment and IT infrastructure. Last month the group expanded its textile and apparel presence in Sri Lanka by opening a textiles and apparel testing laboratory in Battaramulla to serve the country's $4 billion (£2.4 billion) apparel export industry. The Sri Lanka lab takes the total number of Intertek textile and apparel labs to 47.

The company also reported its final-year figures today, saying that while revenue rose 6.3% to £2.184 billion in the year to end-December, operating profit edged up by only 2.2% to £343 million and profit margin was flat at 15.7%. Profit before tax improved marginally, up 2.1% to £314.9 million. Cash generated from operations was up 14% to £394 million.

The company said that strong growth in major emerging countries was partially offset by a cyclical downturn in certain industries and geographies. Consumer Goods reported high single digit organic revenue growth helped by new requirements under the EU Toy Safety Directive. There was weakness in the Industry & Assurance division reflecting the reduction in discretionary spending in the US and the company's decision to exit lower-value contracts. The Commodities and Chemicals & Pharmaceuticals divisions suffered from the difficulties in the minerals exploration market.

While these conditions persist, the company said that its restructuring and cost reductions should produce progressively better profitability as the year moves on. In 2012 it started a comprehensive review of its portfolio to close businesses, locations and services which were underperforming or non-strategic. Three businesses were sold and 11 locations closed, with particular focus on Europe. The programme continued in 2013 with the cumulative cost of the restructuring activities in 2012 and 2013 being £23 million, of which £9 million has been recorded in 2013.

The full-year dividend per share was increased 12.2% to 46p. Investors warmed to the news and the shares rose 1.7% to 2,990p in early trading.