Profits soar but shares plunge in Intertek – so what went wrong for the stock market darling?
Intertek is just the kind of business one would expect to see flourishing in the wake of COVID-19.
One of the lesser-known companies in the FTSE 100, in spite of having a stock market valuation of £9bn, it is the world’s biggest provider of quality assurance.
It employs nearly 44,000 people around the world in more than 1,000 offices and laboratories, providing assurance, testing, inspection and certification services to clients in sectors as wide-ranging as chemicals, food, healthcare, transportation, energy and construction.
On Friday morning it reported a 23% rise in pre-tax profits, to £186.3m, for the six months to the end of June.
However, despite what appeared to be a confident trading update, the company’s share price plunged by more than 9% at one point – wiping £849m from its stock market value.
So what went wrong?
In a word, it seems that expectations were just a little too high.
According to Oscar Val Mas, analyst at investment bank JP Morgan Cazenove, underlying earnings came in 7% lower than the market had been expecting and noted that the company had not changed its guidance to investors on profit margins for the year.
Steve Clayton, manager of the HL Select UK Growth Shares fund, which owns shares in Intertek, added: “These interim (results) were always going to be a tough act for Intertek to pull off.
“Demand has been highly volatile and only relatively recently translated into robust growth.
“But expectations for Intertek’s ability to translate any recovery into higher (profit) margins were high.
“So far, the group is lagging a little on the margin front, even though pretty much all parts of the business are now seeing demand bouncing back.
“Full year forecasts are likely to edge down, so no surprise to see the market pushing the stock lower.”
It is a rare setback for a company which, since going public in 2002 and joining the Footsie in 2009, has been a stock market darling.
It has a strong track record of growing both via takeovers and organically and also of predicting accurately what its customers will be demanding next.
Yet Andre Lacroix, the chief executive, insisted today he was confident demand will keep growing and said the company had “exciting growth opportunities” in the post-COVID-19 environment.
He told analysts today: “The total value of the global product assurance market is $250bn.
“Only $50bn of this is outsourced.
“Given the increased complexity in global corporations, we expect companies to continue to invest in new quality assurance areas to mitigate risk in the supply chain.
“These are what we call untapped quality assurance opportunities. And, indeed, COVID-19 has demonstrated there were major risks in the operations of our clients, which were not all mitigated.
“We expect the increased focus on quality assurance essentially in three areas moving forward – safer supply chain, better personal safety and sustainability.
“And this is why the industry is expected to grow faster post-COVID-19.”
Mr Lacroix, who joined in May 2015 from Inchcape – coincidentally the company from which Intertek was spun out of 25 years ago – said a recent survey of customers had revealed that 87% of them were planning to invest in the next two years to strengthen their supply chains.
He said that recent shortages in supply around the world – a good example currently being how shortage in chips is hampering car production around the world – had highlighted the need for supply chains to be more resilient.
He went on: “We need to ensure health, safety and well-being for employees and consumers. COVID-19 has raised the bar for health and safety in public and factories and workplaces forever.
“And they all face higher operational complexity, which is driven by the explosion of e-commerce and, of course, the ever-faster innovation cycle.”
One area where investors appear to be concerned, in the immediate term, is inflation.
Intertek employs a lot of specialist and highly-qualified people, such as scientists with PhDs, while it also has a policy of giving employees pay rises every year.
The expectation is that it will be seeing a high level of wage inflation.
Mr Lacroix insisted that this was not the case – pointing out that, when lots of businesses were undergoing large restructurings with a lot of redundancies during the pandemic, Intertek had deliberately not gone down that road.
He went on: “To basically reduce our capability and then start hiring again was going to be very costly and not the right thing from a customer service standpoint.
“So we are not seeing any issues with shortages of labour. We have to hire, we do it all the time, but we don’t have a huge gap in our capability.”
He said the company would be quite capable of returning to its pre-pandemic productivity level without having to take on more employees.
And there could be another big growth opportunity in coming years, too.
As Mr Clayton put it: “There is a quiet revolution going on in business, as firms start to put net zero plans into place.
“Intertek has a vital role to play here, with its ability to provide quality assurance of supply chains and audits of key environmental performance data.
“In short, there are whole new markets opening up for the business and the shares should increasingly recognise the potential of these opportunities, as well as the issues the existing business faces day to day.”
So, a tough day for Mr Lacroix, a former chairman and chief executive of Euro Disney.
But, once the dust has settled, he has plenty of opportunities to prove to sceptics that his company’s prospects are anything but Mickey Mouse.
Financial crash could have been far worse for UK were it not for Alistair Darling
Even before Northern Rock collapsed and the financial crisis exploded, Alistair Darling was already wrangling with an unenviable inheritance as chancellor of the exchequer.
Not only was he having to follow in the footsteps of the longest-serving chancellor of modern times – a man who presided over an almost unprecedentedly long period of stability and growing prosperity – he was doing so under the shadow of that same man.
After years of waiting, in June 2007 Gordon Brown had finally taken over as prime minister, and he had little intention of allowing anyone else to meddle with the economic plans he had laid out in his time at the Treasury.
Most officials would have crumpled in the face of this task, but Darling was a consummate politician – a smooth, unshowy operator who rarely ruffled feathers, despite having led some of the most challenging departments in Whitehall.
He had been work and pensions secretary, transport secretary and trade secretary too.
Competent and capable, he was also, crucially, less cursed with ego than most of his counterparts.
And when he got the job it seemed quite likely that he would spend most of his time being overshadowed by the prime minister, but then, a couple of months in, Britain’s mortgage securitisation market froze.
Within a few weeks, Northern Rock was in big trouble.
By September, the high street lender was effectively finished, seeking emergency support from the Bank of England and triggering the first bank run since Victorian times.
Darling’s time in office would be defined by the financial crisis, by the collapse not just of Northern Rock but of other British banking icons, by the nationalisation of RBS and, more importantly still, the deep recession that followed.
This was a global financial crisis, but Britain, with its global banking system and strong dependence on the sector, was worse hit than most countries.
The slump was deep and so too was the impact on Britain’s public finances.
Moreover, having managed and steered this system for more than a decade up until recently, there was no mistaking which politician was most responsible for Britain’s part in the malaise: the new PM.
Yet for most of his time in office Darling maintained his composure and attempted to clean up the mess without briefing about his predecessor’s part in it.
A scarred relationship with Gordon Brown
Tellingly, the moment that most scarred his relationship with Gordon Brown came when Darling warned that Britain was facing “the worst downturn in 60 years”.
While Darling suggested that crisis would be “more profound and long-lasting than people thought”, Brown believed (or wanted to believe) that it would all be over in six months.
There were furious briefings from “Gordon’s attack dogs”, as Darling later put it, suggesting that the chancellor had lost the plot. It was, Darling said, like the “forces of hell” had been deployed against him.
“I won’t deny,” he wrote in his memoirs some years later, “that this episode was deeply hurtful and that it shaped a difficult relationship for the rest of our term in office”.
The gentlemanly path
It was a telling moment in other respects. For it underlined what mattered most to Darling.
While Brown was desperate to avoid having to internalise or publicise the bad news facing the country, Darling was compelled to be honest.
While Brown would routinely use his press officials to brief against his opponents, Darling preferred to take the gentlemanly path.
But the rift that grew between No 10 and No 11 would in other respects prove a blessing to Alistair Darling. In the following years he grew in stature and independence.
No-one suggested in the months that ensued, as he implemented the tax cuts and then rises in the face of recession, that he wasn’t his own man.
And while it is hard to take much that is positive from this period in British history, it would arguably have been very different (and potentially far worse) had it not been for Alistair Darling.
Perhaps the most significant moment came when he resisted the pressure (including aggressive phone calls from the US Treasury Secretary Hank Paulson) for Barclays to take over Lehman Brothers as the American investment bank careered towards collapse.
How different Britain’s fate would have been had it absorbed Lehman’s toxic waste and instruments onto its balance sheet.
An elder statesman
After leaving office, Darling did much as he had while in office.
He tried to be the statesman. He led the Better Together campaign during the Scottish independence referendum.
He sat in the House of Lords until 2020. He did not shout from the side lines but very quickly became an elder statesman, respected and admired across political divides.
Perhaps his greatest legacy is something else, something quite intangible.
It is hard to think of many politicians who will be remembered with such affection – as a good man, a kind man.
His loss, so much earlier than expected, leaves British politics a sadder, somewhat less dignified place.
RMT: Rail workers accept deal to end their long-running dispute over pay and conditions
Rail workers have voted to accept a deal to end their long-running dispute over pay and conditions.
Members of the Rail, Maritime and Transport (RMT) union have agreed to an offer from train companies for a backdated pay rise of 5% for 2022-2023 and job security guarantees.
It follows a bitter 18-month row with the Rail Delivery Group (RDG) and the government, resulting in regular strike action which has caused chaos for passengers.
The deal means RMT’s mandate to strike has been withdrawn, so there will be no more walkouts until at least spring next year.
RMT general secretary Mick Lynch said: “Our members have spoken in huge numbers to accept this offer and I want to congratulate them on their steadfastness in this long industrial campaign.
“We will be negotiating further with the train operators over reforms they want to see. And we will never shy away from vigorously defending our members terms and conditions, now or in the future.
“This campaign shows that sustained strike action and unity gets results and our members should be proud of the role they have played in securing this deal.”
The pay rise could provide an increase of around £1,000 in take home pay in the first year of the deal for a member earning a salary of £31,000, the government said.
A pay rise for this financial year is still to be discussed.
Transport Secretary Mark Harper said the breakthrough was “welcome news for passengers” and gives “workers a pay rise before Christmas and a pathway to delivering long overdue reforms”.
However, he hit out at the train drivers’ union ASLEF, which is still involved in industrial action.
Mr Harper said: “It remains the case that the train drivers’ union ASLEF continue to block their members from having a say on the offer that would take train drivers’ median salaries from £60,000 to £65,000 for a 35-hour, 4-day week – ASLEF should follow the RMT’s lead and give their members a say.”
But in a post on X – formerly Twitter – the union said the offer made to them “included a land grab for all our terms and conditions… so it could never work and was rejected”.
It added: “Don’t be fooled by bad faith actors. ASLEF members are united in continuing industrial action to secure a fair deal.”
Members of ASLEF will start a week-long overtime ban on Friday and will stage a series of strikes next week in their dispute over pay.
The RMT, which is the biggest rail workers’ union, announced a so-called memorandum of understanding last month with the Rail Delivery Group (RDG) which set out a way forward and paved the way for the ballot of union members.
As well as a backdated pay rise of 5% for last year, the offer includes job security guarantees such as no compulsory redundancies until the end of 2024. The scrapping of plans to close railway ticket offices also helped break the deadlock.
After the new offer was agreed, Mr Lynch said while the pay rise was “modest”, the “conditions” attached to previous proposals from the RDG – including accepting ticket office closures and job losses – had been dropped.
He told Sky News: “Basically, the government has had to do a U-turn since their massive defeat over ticket offices and other matters, and they’ve now made up a proposal that is not conditional on ripping up our members’ contracts of employment and making thousands of people redundant.
“So we’ve got a guarantee of no compulsory redundancies through to the end of next year – something that we were told we would never get by the pundits and people in the media… and now we’ve got a proposal that does just that.”
DCMS issues public interest intervention notice over Telegraph and Spectator purchase
The culture secretary has launched an investigation into the takeover of The Daily Telegraph by a state-backed Abu Dhabi-based fund.
An inquiry by communications watchdog Ofcom and competition regulator the Competition and Markets Authority (CMA) has been triggered by Lucy Frazer, confirming reporting by Sky News.
Ms Frazer on Thursday issued a public interest intervention notice (PIIN) into RedBird IMI’s prospective ownership of the newspaper.
The CMA has been tasked with examining the “jurisdictional and competition matters” while Ofcom will look at the media public interest consideration, “namely, the need for accurate presentation of news and free expression of opinion in newspapers”, she added.
Both regulators must report back by 26 January next year.
Ms Frazer also said she reserved the right to take “such further action” under the Enterprise Act, a reference to the ability to force independent governance of the newspapers during the PIIN process.
The RedBird IMI investment vehicle includes funding from Sheikh Mansour bin Zayed al Nahyan, a member of Abu Dhabi’s royal family and owner of Manchester City.
It’s led by the former CNN president Jeff Zucker.
The paper came up for sale after it was placed into receivership when its former owners, the Barclay family, did not meet loan payments.
Lloyds had called for repayments to be made that the family could not afford.
The lender had been locked in talks with the Barclays for years about refinancing loans made to them during the 2008 banking crisis.
The PIIN could approve the takeover of the Telegraph title as well as The Spectator magazine or ignite an auction of two of the country’s most influential publications.
Prospective bidders for the titles, such as the hedge fund billionaire and GB News shareholder Sir Paul Marshall, had been pushing for the launch of a PIIN.
Sky News last week reported that Ed Richards, the former boss of media regulator Ofcom, is acting as a lobbyist for RedBird IMI.
Interest has also come from the Daily Mail proprietor Lord Rothermere and National World, a London-listed local newspaper publisher.
The Telegraph auction has now been paused until next month.
The original deadline for bids was moved from 28 November to 10 December in case Lloyds was repaid in full by the Barclay family by 1 December.
On Wednesday, Lloyds wrote to the Department for Culture, Media and Sport (DCMS) notifying officials that the Barclay family will repay a £1.16bn loan to it in the coming days, thanks to the RedBird IMI purchase.
“We welcome the opportunity to provide the government with the information needed to scrutinise our deal, and we will continue to cooperate fully with the government and regulator throughout this process,” a RedBird IMI statement said.
“RedBird IMI remains entirely committed to maintaining the existing editorial team of the Telegraph and Spectator publications and believes that editorial independence for these titles is essential to protecting their reputation and credibility.”
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