Annual Financial Report

RNS Number : 2450U

Intertek Group PLC

06 April 2016

 

INTERTEK GROUP PLC

(the 'Company')

6 APRIL 2016

ANNUAL REPORT AND ACCOUNTS 2015 AND NOTICE OF 2016 ANNUAL GENERAL MEETING

In accordance with Listing Rule 9.6. and Disclosure and Transparency Rule ('DTR') 4.1, the Company announces that the following documents have been posted to shareholders and submitted to the UK Listing Authority via the National Storage Mechanism:

·      Intertek Group plc 2015 Annual Report and Accounts;

·      Notice of 2016 Annual General Meeting; and

·      Proxy Form for the 2016 Annual General Meeting.

The above mentioned documents (except for the Proxy Form) are available on our website at www.intertek.com and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm. The 2016 Annual General Meeting will be held on 25 May 2016 at 9.00am in the Park Room at the Westbury Hotel, Conduit Street, London, W1S 2FY.

In compliance with DTR 6.3.5R, the information contained in the Appendix below is extracted from the 2015 Annual Report and Accounts and should be read in conjunction with the Company's 2015 Full Year Results Announcement for the year ended 31 December 2015 issued on 2 March 2016. Both documents are available at www.intertek.com and together constitute the material required by DTR 6.3.5R to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the 2015 Annual Report and Accounts in full. Page numbers and cross references in the extracted information refer to page numbers and cross references in the 2015 Annual Report and Accounts.

Appendix

1.         Principal risks and uncertainties

This section sets out a description of the principal risks and uncertainties that could have a material adverse effect on the Group's strategy, performance, results, financial condition and reputation.

Risk framework

The Board has overall responsibility for the establishment and oversight of the Group's risk management framework which is described in the Directors' Report on pages 52 to 62 and 78 to 82.

The Head of Internal Audit and the Group General Counsel, who report to the Chief Financial Officer and Chief Executive Officer respectively, have accountability for reporting the key risks that the Group faces, the controls and assurance processes in place and any mitigating actions or controls. Both roles report to the Audit & Risk Committee, attend its meetings and meet with individual members each year as required.

Risks are formally identified and recorded in a risk register for the significant countries and for each business line and support function. The risk register is updated at least twice each year and is used to plan the Group's internal audit and risk strategy. In addition to the risk register, all senior executives and their direct reports are required to complete an annual return to confirm that management controls have been effectively applied during the year. The return covers Sales, Operations, IT, Finance and People.

The Risk Control and Assurance Committee ('RCA'), comprising senior Intertek executives, complements the work of the Audit & Risk Committee. The RCA oversees the development of the internal control framework, reviews the risk matrices and risk management procedures, monitors issues and provides guidance to management. The RCA makes recommendations to the Intertek Executive Management Team and develops the Group's integrated responses to changes in the regulatory environment.

Principal risks

The Group is affected by a number of risk factors, some of which, including macroeconomic and industry specific cyclical risks, are outside the Group's control. Some risks are particular to Intertek's operations. The principal risks of which the Group is aware are detailed on the following pages including a commentary on how the Group mitigates these risks. These risks and uncertainties do not appear in any particular order of potential materiality or probability of occurrence.

There may be other risks that are currently unknown or regarded as immaterial which could turn out to be material. Any of these risks could have the potential to impact the performance of the Group, its assets, liquidity, capital resources and its reputation.

Long-term viability statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the viability of the Group over a five-year period to 31 December 2020, by carrying out a robust assessment of the Group's current position and the potential impact of the principal risks and uncertainties, including those that would threaten the Group's business model, future performance, solvency or liquidity.

The Directors have determined that a five-year period is an appropriate period over which to provide the viability statement of the Group, as the Group's strategic review covers a five-year period.

In addition to the bottom-up strategic review process where the prospects of each business line are reviewed, a robust assessment has been made of the potential operational and financial impacts on the Group of combinations of principal risks and uncertainties (as set out in the following pages) in a number of severe, but plausible, scenarios, as well as the effectiveness of any mitigating actions.

The Group has a broad customer base across its multiple business lines and in its different geographic regions, and is supported by a robust Balance Sheet and strong operational cash flows. The Board considers that the diverse nature of business lines and geographies in which the Group operates significantly mitigates the impact that any of these scenarios might have on the Group's viability.

Based on this assessment, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2020.

Operational
Principal risk	Context	Possible impact	Mitigation	2015 Update
REPUTATION	Reputation is key to the Group maintaining and growing its business. Ethical breaches and poor quality service, either within Intertek's own operations, its supply chain, or by its sub-contractors, could damage its reputation. A failure to manage any subsequent crisis through a lack of reactive procedures could also exacerbate the potential damage.	• Failure to meet financial performance expectations. • Exposure to material legal claims, associated costs and wasted management time. • Share price may fall. • Loss of existing or new business. • Loss of key staff.	• Quality Management Systems; adherence to these is regularly audited and reviewed by external parties, including accreditation bodies. • Risk Management Framework and associated controls and assurance processes, including contractual review and liability caps where appropriate. • Code of Ethics which is communicated to all staff, who undergo regular training. • Whistle-blowing programme, monitored by the Audit & Risk Committee, where staff are encouraged to report, without risk, any fraudulent or other activity likely to adversely affect the reputation of the Group. • Zero-tolerance policy with regard to any inappropriate behaviour by any individual employed by the Group, or acting on the Group's behalf. • Media comments with regard to Group activities are centrally reviewed so that senior management can, where necessary, take appropriate action on a timely basis. • Relationship management and communication with external stakeholders.	• This risk remains stable compared to 2014. • The Group continues to robustly defend claims where they are without merit, as well as investing in staff development, quality systems and standard processes to prevent operational failures.
ACCREDITATION	The Group relies on being awarded and retaining appropriate accreditations and affiliations around the world in order to provide its certification services. Illegal use of Intertek marks by others abuses the accreditation process and risks negative perceptions of Intertek.	• Inability to deliver certain services. • Inability to operate in certain territories. • Loss of business in the relevant industry/country causing damage to the Group's reputation.	• Quality assurance procedures and controls embedded in the operations to ensure that the Group holds and maintains the necessary accreditations and that the required operational standards are applied. • Accreditor relationship management - Operations are regularly subjected to audit and review by external parties including accreditation bodies, governments, trade affiliations, retailers, manufacturers and clients. • Accreditation is usually held at an industry, country or site level and loss of accreditation will not mean loss of accreditation across the Group.	• This risk remains stable compared to 2014. • The Group regularly refines its quality assurance procedures. • While illegal use of Intertek marks is a growing problem, the Group continues to work with Regulatory and Government bodies to identify and take swift action where false marks are identified.
PEOPLE RETENTION	The Group operates in specialised sectors and needs to attract and retain employees with relevant experience and knowledge in order to take advantage of all growth opportunities.	• Poor management succession. • Lack of continuity. • Failure to optimise growth. • Impact on quality, reputation and customer confidence. • Loss of talent to competitors and lost market share.	• HR strategy policies and systems. • Development and reward programme to retain and motivate employees. • Succession planning to ensure effective continuation of leadership and expertise. • Employee surveys. • Intertek Executive Academy to develop the next generation of global leadership.	• This risk remains stable compared to 2014. • 71 senior managers have been through the Intertek Executive Academy since 2012.
OPERATIONAL HEALTH AND SAFETY	Any health and safety incident arising from our activities. This could result in injury to Intertek's employees, sub-contractors, customers and/or any other stakeholders affected.	• Individual or multiple injuries to employees and others. • Litigation or legal/regulatory enforcement action (including prosecution) leading to reputational damage. • Loss of accreditation. • Erosion of customer confidence.	• Quality management and associated controls, including safety training, appropriate PPE (Personal Protective Equipment), Health & Safety policies, meetings and communication. • Avoiding fatalities, accidents and hazardous situations is paramount. It is expected that Intertek employees will operate to the highest standards of health and safety at all times and there are controls in place to reduce incidents.	• This risk remains stable compared to 2014. • There were zero work-related fatalities in the year, compared to one in 2014.
BUSINESS CONTINUITY AND CORPORATE SOCIAL RESPONSIBILITY ('CSR')	Continuity: a major incident impacting business continuity in terms of damage to premises and IT systems (potential causes being natural disasters, significant accidents and incidents, major staff illness, etc.). Environment: an adverse impact on the environment due to inadequate sample storage/disposal, and/or inappropriate use of materials dangerous to the environment. Leases: Failure to secure the renewal of a critical lease, or having to agree unfavourable renewal terms.	• Potential injury to our people, loss  of premises permanently or property damage for an extended period. • Increased environmental impact, increased costs, lack of compliance with law, regulation or the requirements of certification bodies and/or customers. • Damage to reputation and impact on customer confidence and share price.	• Business Continuity Plans ('BCPs') and Disaster Recovery Plans ('DRPs') in place. • Health & Safety policies, Environmental policy and Sample Storage policy implemented. • Regular review of leases and pipeline.	• This risk remains stable compared to 2014. • No BCPs or DRPs have had to be put in place in 2015, and therefore there has been no downtime in operational activity, except for where tests of BCPs or DRPs have been conducted.
INDUSTRY AND COMPETITIVE LANDSCAPE	A failure to identify, manage and take advantage of emerging and future risks. Examples include the opportunities provided by new markets and customers, a failure to innovate in terms of service offering and delivery, the challenge of radically new and different business models, and the failure to foresee the impact of, or adequately respond to and comply with, changing or new laws and regulations.	• Failure to maximise revenue opportunities. • Failure to take advantage of new opportunities. • Lack of ability to respond flexibly. • Erosion of market share. • Impact on share price. • Sanctions and fines for non-compliance with new laws, etc.	• Ongoing development of Global Key Accounts ('GKA') management. • Diversification of customer base. • Focus on new services and acquisitions. • Tracking new laws and regulations. • Regular strategic and business line reviews.	• This risk remains stable compared to 2014. • The Group's results have been impacted by the lower levels of capital expenditure in the energy sector, driven by lower oil prices, but more than offset by the diverse nature of the Group and its ability to grow revenue and manage the cost base.
MACRO-ECONOMIC RISK	Macro-economic factors such as a global/market downturn and contraction/changing requirements in certain sectors. Further influenced by related risks such as potential acquisition failure or the effect on liquidity of the inability to renew bank funding or secure additional funding.	• A sustained downturn in the economic cycle can result in a lower return on invested capital, as revenue and margin levels come under pressure. • Falling market share. • Shrinking customer base. • Impact on share price.	• The Group has a diversified service offering to a wide range of industries and geographies. This reduces the risk of a downturn in any one sector or region having a material impact on the long-term viability of the Group. Where a downturn does occur, the Group seeks to reduce, where possible, the cost base whilst retaining its core capability to take advantage of the cyclical upturn when it comes.	• This represents an increasing risk compared to 2014. • Commodity prices and particularly oil have reduced in the year. • Group revenue and margin have improved despite GDP growth in China and some emerging markets starting to slow from previous high levels. • These impacts have been materially mitigated by strong cost   control and restructuring activities.
CYBER AND DATA SECURITY, IT SYSTEMS INTEGRITY	Major IT systems integrity issue, or data security breach, either due to internal or external factors such as deliberate interference or power shortages / cuts etc.	• Loss of revenue due to down time. • Potential loss of sensitive data with associated legal implications. • Potential costs of IT systems replacement and repair. • Loss of customer confidence. • Damage to reputation.	• Information systems policy and governance structure. • Regular system maintenance. • Backup systems in place. • Disaster recovery plans that are constantly tested and improved to minimise the impact if a failure does occur. • Global Information Security policies in place. • Internal and external audit testing.	• This risk represents an increasing risk compared to 2014. • Review of data security performed including data storage, retention policy, access controls and encryption.
Legal and Regulatory
LITIGATION	Claims resulting from mistakes in Intertek's work resulting in disputes with clients and/or other relevant third parties. Closely linked to the risk of engaging in contracts with non-standard, unfavourable or onerous terms, e.g. high or non-existent liability caps; liability for consequential losses or third party losses; poorly- defined scope of work etc.	• Financial impact (fines by regulators, suspension of accreditation, compensation). • Financial impact from defending and settling claims. • Impact of fines. • Potential impact on insurance premiums. • Loss of customer confidence. • Damage to reputation. Impact on share price. • Reduction in profitability if contract scope creeps or costs escalate and prices remain fixed. • Potential for disproportionate or unquantifiable liabilities if something goes wrong and caps are absent or inadequate.	• Effective Quality Management Systems and assurance procedures and controls, including contractual review and liability caps where appropriate. • Claims management policy and process in place. • All significant incidents that could potentially result in a claim against the Group are immediately reported to compliance officers and logged in an incident database so that they can be properly managed. The Group General Counsel reports any significant claims to the Audit & Risk Committee. External legal counsel is appointed where appropriate. • Insurance liaison - seeking contractual protection from loss or insurance cover for loss where possible.	• This risk remains stable compared to 2014. • Additional compliance personnel have been employed in the year to increase the bandwidth available to manage contract reviews and assist the wider legal framework. • Ongoing training and education in respect of contractual liabilities being assumed. • Review of approval limits for liability caps.
BUSINESS ETHICS	Non-compliance with Intertek's Code of Ethics (Code) and/or related laws such as anti-bribery, anti-money laundering, and fair competition legislation. Non-compliance could be either accidental or deliberate, and committed either by our people or sub-contractors.	• Litigation, including significant fines and debarment from certain territories/activities. • Reputational damage. • Loss of accreditation. • Erosion of customer confidence. • Impact on share price.	• Annual Code of Ethics training and sign-off requirement. • Whistle-blowing programme, monitored by the Audit & Risk Committee, where staff are encouraged to report, without risk, any fraudulent or other activity likely to adversely affect the reputation of the Group. • Zero-tolerance policy with regard to any inappropriate behaviour by any individual employed by the Group, or acting on the Group's behalf. • The Group employs local people in each country who are aware of local legal and regulatory requirements. There are also extensive internal compliance and audit systems to facilitate compliance. Expert advice is taken in areas where regulations are uncertain. • The Group continues to dedicate resources to ensure compliance with the UK Bribery Act and all other anti-bribery legislation, and internal policy.	• This risk remains stable compared to 2014. • Ongoing annual confirmations ensure that staff verify compliance with the Code of Ethics. • Internal Audit samples that contractors have signed the Group's Code. • During 2015, 249 (2014: 256) HR and non-compliance issues were reported through the whistleblowing hotline and other routes. All were investigated with 51 (2014: 31) substantiated and corrective action taken.
Financial
FINANCIAL RISK	Risk of theft, fraud or   financial misstatement by employees. Other risks such as impact of FX movements on operating margins on  cross currency contracts.	• Financial losses with a direct impact on the bottom line. • Large scale losses can affect financial results. • Potential legal proceedings leading to costs and management time. • Corresponding loss of value and reputation could result in funding being withdrawn or provided at higher interest rates. • Possible adverse publicity.	• The Group has financial, management and systems controls in place to ensure that the Group's assets are protected from major financial risks. • Treasury policy, management system and framework in place. • Monthly monitoring of FX variances and remedial actions. • A detailed system of financial reporting is in place to ensure that monthly financial results are thoroughly reviewed. The Group also operates a rigorous programme of internal audits and management reviews. Independent external auditors review the Group's half year results and audit the Group's annual financial statements.	• This risk remains stable compared to 2014. • Internal audit carried out 64 reviews in 2015 (81 in 2014). • 'Doing Business the Right Way' established as core principle within Intertek. • Review and roll out of 53 core mandatory controls for year-end compliance certification.

2.         Related parties

Identity of related parties

The Group has a related party relationship with its key management.

Transactions between the Company and its subsidiaries and between subsidiaries have been eliminated on consolidation and are not discussed in this note.

Transactions with key management personnel

Key management personnel compensation, including the Group's Directors, is shown in the table below:

	2015 £m	2014 £m
Short-term benefits	6.9	5.8
Post-employment benefits	0.5	0.4
Equity-settled transactions	1.1	2.0
Total	8.5	8.2

More detailed information concerning Directors' remuneration, shareholdings, pension entitlements, share options and other long-term incentive plans is shown in the audited part of the Remuneration report.

Apart from the above, no member of key management had a personal interest in any business transactions of the Group.

3.         Statement of Directors' responsibilities

Statement of Directors' Responsibilities in respect of the Annual Report and the financial statements

The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the EU and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK Accounting Standards, including FRS 101 Reduced Disclosure Framework.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

·      for the Parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Parent Company financial statements; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic report, Directors' report, Directors' Remuneration report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the Directors in respect of the annual financial report

Each of the Directors, whose name and functions are listed on pages 56 and 57, confirm that to the best of their knowledge:

·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

·      the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

·      the Company's 2015 Annual Report and Accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

The Directors' report comprising pages 52 to 88 and the Group Strategic report comprising pages 4 to 51 have been approved by the Board and signed on its behalf by the Chief Executive Officer.

The Company's 2015 Annual Report and Accounts will be delivered to the Registrar of Companies in due course and copies of all of these documents may also be obtained from:

Fiona Evans

Group Company Secretary

25 Savile Row

London

W1S 2ES

Registered Number: 4267576

Telephone:        [phone]

For further information, please contact:

Investor Relations

Telephone:        [phone]     [e-mail]

Jonathon Brill, Oliver Winters FTI Consulting

Telephone:        [phone]     [e-mail]

 

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