INTERTEK Group (Intertek) is a global inspection, product testing and certification company serving diversified markets. The company’s diversified business operations in various markets coupled with strong growth prospects strengthen its market presence. Declining cash reserves is a cause of concern for the company to look upon. Nevertheless, it can utilise opportunity arising from growing trends in the market coupled with strategic acquisitions and global shift to renewable energy. However, stiff competition coupled with increasing labour cost may hinder its growth plans, says Globaldata in a SWOT analysis of the company.
STRENGTHS
Diverse business operations: Intertek provides quality and safety services to diverse industries. Its major services include advisory, auditing, consulting, evaluation, inspection, outsourcing, risk management, testing and validation services. The company operates business through five segments, namely commodities; industry and assurance; consumer goods; commercial and electrical and chemicals and pharmaceuticals. Intertek serves diverse markets such as aeronautics, automotive, construction and real estate, consumer products, retailers, energy, industrial, IT, telecoms and electronic, mines and minerals, power and utilities, process industries, textiles, apparel and footwear.
Geographical presence: Wider reach in terms of geography would lead to greater benefits, improved profit margins, economies of scale and recognition on a worldwide basis. Intertek serves diverse industries and enjoys global presence. Intertek has operations worldwide, including the UK, the US, Uruguay, Vietnam, Chile, China, Colombia, Iraq, Ireland, Israel, Italy, Japan, the Netherlands, Spain, the Middle East, New Zealand, Argentina, Australia, and Germany. The company operates in three geographical segments, namely, Americas; Europe, Middle East and Africa; and Asia Pacific. For fiscal year ended 2012, the Asia Pacific region reported revenue of £730.5 million ($1,193 million), which accounted for 35.5 per cent of the company’s total revenue, followed by 32.9 per cent from the Americas segment; and 31.6 per cent from the Europe, Middle East and Africa. Geographical diversity provides the company a wider customer base, stronger brand presence and growth across emerging markets. It enables the company to mitigate market volatility and attain economic stability.
Increasing margins and returns: Intertek recorded strong revenue margins and return in fiscal year 2012. The company reported 17.4 per cent increase in total revenue in 2012 as compared to that in 2011. Revenue growth and increased gross margin was complimented by its controlled costs. The company’s operating cost as percentage of sales declined 86.21 per cent in 2012 from 86.62 per cent in 2011. As a result, the company reported increased returns in 2012 as compared to those in previous years. Increasing profitability ratios indicate the company’s sturdy performance and its ability to deliver returns expected by its shareholders.
WEAKNESSES
Declining cash reserves: Intertek reported a decrease in the cash and cash equivalents in fiscal 2012. The company had £166.50 million in cash and cash equivalents as of December 31, 2012 compared to cash and cash equivalents of £181.9 million in 2011, reflecting a decrease of 8.5 per cent. The decrease in cash reserves could be principally attributable to high current liabilities and negative cash flows from investing and financing activities. As a result, Intertek recorded net change in cash of (£15.5 million) during 2012, as against net change in cash in 2011. The decreasing cash reserves indicate the company’s inability to incur additional debt to finance acquisitions, business opportunities, capital expenditure or other capital requirements in the future.
OPPORTUNITIES
Agreements and expansion initiatives: The company implemented certain strategic initiatives that are aimed at enhancing its business operations and existing product line. This could help the company maintain its competitive position in the industry. In August 2013, the company secured an exclusive contract from China Resources New Energy Investment Co (CRNE) to supervise manufacture of wind turbine towers in a number of locations across China.
Besides, in January 2012, the company signed an agreement with the Research Centre for Energy, Environment and Technology (CIEMAT) for testing, validation and certification of small wind turbines at a new test site in Villar del Rio, Soria, Spain. In the same month, the company expanded and enhanced its lubricant testing and oil condition monitoring services (OCM) in Singapore by installing a new automated, robotic sampling handling system. In October 2012, the company signed an agreement with Chevron Oronite to offer analytical laboratory solutions to expand Chevron’s testing capabilities in China. This agreement provided an opportunity for the company to expand its laboratory services in China and other regions. In May 2012, Intertek signed a partnership agreement with Local Content Assurance Bureau to provide auditing and inspection services to the renewable energy industries. In March 2012, Intertek entered into a partnership with Federation Internationale de Motocyclisme (FIM), to provide fuel testing services for FIM Motorcycle race events. In January 2012, the company signed Enterprise Framework Agreements with Shell Global Solutions International to provide site, plant and asset inspection, quality assurance, and technical audit support services.
Inorganic growth strategies: Inorganic growth strategies generally help companies enhance value for their shareholders. The company continues to view acquisitions as a critical part of its growth strategy. These acquisitions help supplement Intertek’s core growth and assure expansion of its business, including new technologies, services, and regions. In March 2013, the company completed 85 per cent share capital acquisition of E-Test Laboratorio de Ensaios e Tecnologia Ltda. (E-Test), a privately owned testing laboratory serving Brazil’s toy market. In March 2013, the company completed acquisition of FSA – Food Safety Assessment, a leading food assurance company, based in Johannesburg, South Africa. Acquisition will expand its capacity to provide auditing, certification and training services for food producers and manufacturers in South Africa and the Sub-Saharan region. In April 2013, the company completed acquisition of Atlantic Verification Cape Ltd (AVCape), a provider of statutory and non-statutory technical inspection services to industries including refrigeration, food production, power generation, petrochemical and oil and gas. In January 2013, the company acquired Tickford Test Technology Limited, a company that provides vehicle engine (petrol and diesel engines) testing services including durability, performance and catalyst effectiveness.
Global shift to renewables: Intertek provides a wide variety of services in all sectors of alternative energy such as wind, nuclear, solar and biomass and it could take advantages of the growing opportunities in the market. Renewable energy sources (renewable) require a projected $5.7 trillion of cumulative investments from 2010 to 2035 for generating electricity. China emerged as the leader in photovoltaic and wind power production with higher investments. Middle East and Africa are other potential markets. Renewable energy is projected to account for about 55 per cent in the cumulative electricity generation by 2035 from the current level of 19 per cent. The growth is expected to be led by wind and hydropower with biofuels and a considerable share of about 2 per cent from solar photovoltaics in 2035.
The company offers a wide range of services to the alternative energy industry such as wind farm project certification services, complete certification and testing services for solar PV modules, biofuel blending services and different alternative fuel services. Intertek has a good opportunity to cash in on the growing environmental concerns and the resultant demand for renewable energy.
Demand for green projects: Intertek could capitalise on the growing demand for green projects to sustain its growth. The company adopted Think Green Initiative (TGI), which offers companies to develop safer, greener products and projects, and to run safer operations. Go Green indicates concern for the preservation, restoration and improvement of natural environment. Intertek’s TGI helps clients to reduce costs, improve material efficiency and practice green manufacturing good practice.
THREATS
Intense competition: Intertek operates in conformity assessment solutions domain, which is characterized by intense competition. The major geographical markets in which the company operates are highly competitive and in recent years, competition intensified considerably due to highly maturing and saturating markets. Moreover, competition increased during the current economic downturn leading to consolidation of businesses. Intertek competes with major global players and some are market leaders in their respective home countries. The main factors for competition for the company include price, service quality, brand reputation and customer service, among others. Decreasing barriers to entry in different regions intensified the competition further. If the company is not able to maintain its service quality and consumer loyalty, rising competition will force the company to reduce its prices, which may adversely affect its margins.
Foreign currency fluctuations: The international operations of the company increase its exposure to foreign currency fluctuations. The company operates throughout the world. It operates in different countries and transacts business in various currencies including the Euro, Chinese Renminbi, US Dollar, Sterling, Hong Kong Dollar and other currencies. The company makes efforts to mitigate risks through foreign currency hedging. However, these hedging activities may not offset more than a portion of the adverse financial impact resulting from the unfavorable movement in foreign currency exchange rates. Constant fluctuations in currency would adversely affect the results of operations of the company.
Change in labour laws: The changing labour laws in Europe, the Middle East and Africa, France, Asia Pacific, Americas and other parts of the world could limit Intertek’s ability to find qualified personnel.
