REG - Intertek Group Plc - Annual Financial Report

IntertekAnnouncement

22/03/2019 07:05

RNS Number : 6475T
Intertek Group PLC
22 March 2019
 


 
INTERTEK GROUP PLC
(the 'Company')
 
22 March 2019
 
ANNUAL REPORT AND ACCOUNTS 2018 AND NOTICE OF 2019 ANNUAL GENERAL MEETING
 
In accordance with Listing Rule 9.6.1R and Disclosure Guidance and Transparency Rule ('DTR') 4.1.3R, 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 2018 Annual Report and Accounts;
·      Notice of 2019 Annual General Meeting; and
·      Proxy Form for the 2019 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 2019 Annual General Meeting will be held on Thursday 23 May 2019 at 9.00 a.m. in the Marlborough Theatre, No.11 Cavendish Square, London W1G 0AN.
 
In compliance with DTR 6.3.5R, the information contained in the Appendix below is extracted from the 2018 Annual Report and Accounts and should be read in conjunction with the Company's 2018 Full Year Results Announcement for the year ended 31 December 2018 issued on 5 March 2019. 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 2018 Annual Report and Accounts in full. Page numbers and cross references in the extracted information refer to page numbers and cross references in the 2018 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. This work is complemented by the Group Risk Committee, whose purpose is to manage, assess and promote the continuous improvement of the Group's risk management, controls and assurance systems.
This risk governance framework is described in more detail in the Directors' Report on pages 83 to 88.
 
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 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.
 
 
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.
 
Our principal risks continue to evolve in response to our changing risk environment. We have added Brexit as a risk this year because of the continuing political uncertainty. We have considered the risks presented by Brexit based on potential scenarios. As part of our risk planning, we have taken steps to relocate our UK-based Notified Bodies to other EU member states as Brexit will have a direct impact on the ability of UK-based Notified Bodies to issue EC certificates for products being sold in the EU markets. Although we are keeping Brexit developments under review, we do not at this stage perceive any material risk to the Company's viability arising from Brexit.
 
Two previous risks are no longer identified as principal risks for 2018: litigation risk is no longer seen as a principal risk on a standalone basis as it is a sub-set of the quality and reputation risks; we believe our facilities risk has reduced based on our business continuity planning work.
 



Operational




PRINCIPAL RISK


CONTEXT


POSSIBLE IMPACT


MITIGATION


2018 UPDATE




Reputation


Reputation is key to the Group maintaining and growing its business. Reputation risk can occur in a number of ways: directly as the result of the actions of the Group or a Group company itself; indirectly due to the actions of an employee or employees; or through the actions of other parties, such as joint venture partners, suppliers, customers or other industry participants.


• Failure to meet financial performance expectations.
• Exposure to material legal claims, associated costs and wasted management time.
• Destruction of shareholder value.
• 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.
• Zero-tolerance approach with regard to any inappropriate behaviour by any individual employed by the Group, or acting on the Group's behalf.
• Whistle-blowing programme, monitored by the Audit Committee, where staff are encouraged to report, without risk, any fraudulent or other activity likely to adversely affect the reputation of the Group.
• Relationship management and communication with external stakeholders.


• This risk remains stable compared with 2017.
• The Group continues to invest in staff development,
quality systems and standard processes to prevent operational failures.




Customer
Service


A failure to focus on customer needs, to provide customer innovation or to deliver our services in accordance with our customers' expectations and our customer promise.


• May lead to customer dissatisfaction and
customer loss.
• Gradual erosion of market share and reputation if competitors are perceived to have better, more responsive or more consistent service offerings.


• Net Promoter Score ('NPS') customer satisfaction, customer sales trends and turnaround time tracking.
• Global and Local Key Account Management ('GKAM'/'LKAM') initiatives in place.
• Customer feedback meetings.
• Customer claims/complaints reporting.


• This risk remains stable compared with 2017.




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.


• This risk remains stable compared with 2017.




Operational Health,
Safety and
Security


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 (including due diligence on sub-contractors), 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 with 2017.




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.
Macroeconomic factors such as a global/market
downturn and contraction/changing requirements in certain sectors.


• 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.
• Failure to respond to macroeconomic factors.
• Sanctions and fines for non-compliance with new laws, etc.


• GKAM and LKAM initiatives in place.
• Diversification of customer base.
• Focus on new services and acquisitions.
• Tracking new laws and regulations.
• Regular strategic and business line reviews.
• Development of ATIC-selling initiatives.
• NPS customer research to understand customer satisfaction.


• This risk remains stable compared with 2017.
• 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.




UK Withdrawal from the EU (Brexit)


Flow of goods and services: increased friction at customs points could disrupt our customers' "just in time" supply chains in the short-term or lead to changes in global supply chains in the mid- to longer-term.
People: restrictions on the free movement of people between the UK and EU could make it more difficult to attract and retain talent in those markets.
Regulatory environment: de-harmonisation relating to product or manufacturing standards could increase the
regulatory burden on our customers and have an impact their investment decisions.


• Reduced work volumes or delays in anticipated
customer orders.
• Longer-term changes in global supply chains could lead to a need to refocus our service offering or delivery
locations to align optimally with customer requirements and to remain competitive.
• A failure to attract and retain talent could lead to a failure to optimise growth.
• A failure to identify, understand and align our service offering and delivery with additional or diverging regulatory barriers could lead to a loss of revenue/
profitability/market share.


• Monitoring of legal/regulatory/political developments affecting Group
companies and our ability to operate.
• Engagement with customers to monitor developments, views and feedback.
• Monitoring of media and public statements by customers/regulatory bodies/
other stakeholders.
• Liaising with UK Government departments to gather intelligence and explore opportunities to support.
• Brexit planning to mitigate impacts on Notified Bodies, people and customer
service delivery.
• Access to market sector analysis from advisers.
• Prioritised investment in growth/strategic areas.


• This has been added as a new risk as political uncertainty remains.
• Brexit has a direct impact on our U.K. Notified Bodies and we have taken steps to relocate these
businesses to address that risk.
• We continue to monitor developments.




IT Systems and
Data Security


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.
Systems functionality: a failure to define the right IT strategies, maintain existing IT systems or implement new IT systems with the required functionality and which are fit for purpose, in each case to support the Group's growth, innovation and competitive customer offering.
Data security: a failure to adequately protect the Group's confidential information, customer confidential information or the personal data of the Group's employees, customers or other stakeholders.


• Loss of revenue due to down time.
• Potential loss of sensitive data with associated legal
implications, including regulatory sanctions and
potential fines.
• Potential costs of IT systems replacement
and repair.
• Loss of customer confidence.
• Damage to reputation.
• Loss of revenue/profitability if we fail to adopt an IT investment strategy which supports the Group's growth,
innovation and customer offering.


• 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 (IT, Data Protection, Cyber Security).
• Adherence to IT finance systems controls (part of Core Mandatory Controls ('CMCs')).
• Adherence to IT general controls.
• Internal and external audit testing.


• This risk remains stable compared with 2017.
• Additional work being undertaken to ensure continued adherence to the EU's General Data Protection
Regulation since implementation in May 2018.




Legal and Regulatory




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 who
must also abide by the Code.


• 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 Group Risk Committee, where
staff are encouraged to report, without risk, any fraudulent or other activity likely to adversely affect the reputation of the Group.
• Enhanced processes for engagement with suppliers and third parties.
• Zero-tolerance approach 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 with 2017.
• Ongoing annual confirmations ensure that staff verify compliance with the Code of Ethics.
• Local compliance officers perform due diligence on sub-contractors to check that they have signed the Group's Code.
• During 2018, 158 (2017: 202) non-compliance issues were reported through the whistle-blowing hotline and other routes. All were investigated
with 45 (2017: 36) substantiated and corrective action taken.




Regulatory and
Political Landscape


A failure to identify and respond appropriately to a change in law and/or regulation, or to a political decision, event or condition which could impact demand for the Group's services or the Group's ability to grow, innovate and/or provide a competitive customer offering in any existing or new industry sector or market.


• Loss of revenue, profitability and/or market share.
• Increase to costs of operations, reduction in profitability.
• Reduction in the attractiveness of investment in specific
business, sectors or markets and/or adverse change the competitive landscape.


• Monitoring of regulatory environment and political developments.
• Analysis of impact of regulatory and political changes on operational SOPs
and Group policies.
• Membership of relevant associations, e.g. IFIA with related advocacy and
liaison activities.


• This risk remains stable compared with 2017.




Financial




Financial Risk


Risk of theft, fraud or financial misstatement by employees. On acquisitions or investments, the financial risk or exposure arising from due diligence, integration or performance delivery failures.


• 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.
• Adherence to Authorities Grid (which sets approval limits for financial transactions).
• Legal, financial and other due diligence on M&A and other investments.
• 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 with 2017.
• 'Doing Business the Right Way' established as core principle within Intertek.
• Review and update of 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:
 







2018
£m


2017
£m




Short-term benefits


10.6


9.3




Post-employment benefits


0.8


0.8




Equity-settled transactions


8.5


7.2




Total


19.8


17.3



 
More detailed information concerning Directors' remuneration, shareholdings, pension entitlements 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.
 
At a General Meeting of the Company's shareholders held on 16 January 2019, a resolution was passed which constituted a related party transaction under IAS 24. For further details please see page 110.
 
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 financial statements in accordance with applicable law and regulations.
 
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law). 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 Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to:
 
·      select suitable accounting policies and then apply them consistently;
·      state whether applicable IFRSs as adopted by the European Union have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements;
·      make judgements and accounting estimates that are reasonable and prudent; and
·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.
 
The Directors are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
 
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
 
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom 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
 
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy.
 
Each of the Directors, whose names and functions are listed in the Directors' Report confirm that, to the best
of their knowledge:
 
·      the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;
·      the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
·      the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.
 
The Directors' Report comprising pages 66 to 113 and the Group Strategic report comprising pages 2 to 65 have been approved by the Board and signed on its behalf by the Chief Executive Officer.
 
The Company's 2018 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
 
33 Cavendish Square
London
W1G 0PS
 
Registered Number: 4267576
Telephone:            +44 (0)20 7396 3400
 
Contacts
For further information, please contact:
 
Denis Moreau, Investor Relations
Telephone:            +44 (0) 20 7396 3415         investor@intertek.com 
 
Jonathon Brill, FTI Consulting
Telephone:            +44 (0) 20 3727 1000         intertek@fticonsulting.com
 
 

Intertek is a leading Total Quality Assurance provider to industries worldwide.
Our network of more than 1,000 laboratories and offices and over 44,000 people in more than 100 countries, delivers innovative and bespoke Assurance, Testing, Inspection and Certification solutions for our customers' operations and supply chains.
Intertek Total Quality Assurance expertise, delivered consistently, with precision, pace and passion, enabling our customers to power ahead safely.

 




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