Intertek Group Regulatory News (ITRK)

Operational

Principal risk

Context

Possible impact

Mitigation

2014 Update

Harm to the Group's

reputation

The Group relies on its reputation to maintain and grow business. Adverse litigation, ethical breaches and operational failures have the potential to damage its reputation.

There is also a risk that poor performance of services leads to a loss of confidence in the Group's standards and reputation for quality and safety service excellence.

· 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.

· Risk Management Framework and associated controls and assurance processes, including contractual review and liability caps where appropriate.

· Quality Management Systems; adherence to these is regularly audited and reviewed by external parties, including accreditation bodies.

· 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 2013.

· 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.

Loss or abuse of accreditation

leading to loss

of business

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.

· Loss of business in the relevant industry and 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.

· Operations are regularly subjected to audit and reviewed 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 2013.

· 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.

Key staff reliance and

depth of management

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.

· Reduced ability to

compete effectively.

· Increased recruitment costs.

· 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 2013.

· Further senior managers within Intertek have been through the Intertek Executive Academy in the last year, taking the number of participants to 71 since 2012.

Operational Health and Safety

Many employees undertake work which could be hazardous. Not having a good record of safety can damage trust with clients and employees.

· Injury to employees and others.

· Loss of customers.

· Damage to trust and reputation.

· Quality management and associated controls.

· 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 2013.

· There was one work related fatality in the year, compared to two in 2013.

Political risk

The Group operates in over 100 countries including some where political instability can result in disruption to operations and the suspension, change or termination of contracts at short notice.

The Group receives tax incentives in certain jurisdictions, resulting in a lower tax charge to the income statement. There is no guarantee that these reduced rates will continue to be applicable in the future.

· Reduction in opportunities in a particular geography.

· Changes to terms of contracts.

· Reduction or confiscation of Group assets, potentially without reasonable recompense; or increase in the Group's effective tax rate.

· Monitoring of any incidents of political or social unrest and taking mitigating action.

· Operations across many industries and countries diversifies the risk profile of the Group.

· The Group utilises internal and external experts to keep abreast of tax and other legislation.

· This represents an increasing risk compared to 2013, as pockets of social and political unrest continue around the globe. Our work with Russian customers is subject to continuous review to ensure compliance with EU sanctions relating to Ukraine.

Environment and Climate Change

Intertek operates many laboratories and offices which create greenhouse gas emissions and waste, and consume water.

· Failure to manage and control emissions and waste impacts the environment and our communities, as well as the Group's reputation. In addition, failure to manage the business' environmental impact could result in remediation costs.

· Tracking energy usage and emissions to manage the business' environmental impact is important for remaining compliant, controlling costs, controlling environmental externalities and satisfying customers' supply chain governance requirements.

· This risk remains stable compared to 2013.

· The Group continues to improve its data collection to understand and help mitigate energy usage and reduce its CO2e emissions.

Labour and Human Rights

Operating in high risk countries known to have poor labour and human rights' records.

· Loss of employees.

· Loss of business.

· Damaged reputation.

· Respect for human rights is enshrined in regulation in most jurisdictions where Intertek operates and underpins the Group's Labour and Human Rights policy. This is important for compliance, employee relations and employer legitimacy, and is linked to competitiveness in terms of having engaged employees and demonstrating to clients that this is important for running a good business.

· This risk remains stable compared to 2013.

Cyclical risk

All businesses are subject to cycles, with supply and demand fluctuating for economic or other factors over time. During times

of cyclical strength this can place the business under pressure to meet peaks in demand whilst maintaining quality standards,

whilst in cyclical downturns there is a requirement to restructure the business.

· A sustained downturn in the economic cycle can result in a lower return on invested capital, as revenue and margin levels come under pressure.

· 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 2013.

· The Group's results are impacted by the lower levels of capital expenditure in the energy sector, driven by lower oil prices, but partially offset by the diverse nature of the Group and its ability to flex the cost base.

IT systems risk

· The Group is dependent on IT systems for principal business processes. The failure of one of these systems can cause significant operational disruption and loss of revenue.

· Damage to reputation leading to loss of business and media attention.

· Cost to rectify.

· Loss of systems and data impacts the ability to perform services and earn revenue in an efficient manner.

· Information systems policy and governance structure.

· Disaster recovery and business continuity 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 remains stable compared to 2013.

· While the Group's reliance on IT grows, the implementation of regional data centres and supporting expertise ensures robust platforms and recovery processes are in place.

Legal and Regulatory

Major claims

The Group is involved in claims where an event is found or is

perceived to be caused by the negligence of the Group. It could

subject the Group to claims for personal injury or property damage by customers, sub-contractors, employees or members of the public which could lead to the payment of damages and

result in reputational damage which could in turn lead to a loss of business. There is a risk that a legal dispute could adversely affect the reputation of the Group and result in significant financial loss.

· Financial impact (fines by regulators, suspension of accreditation, compensation).

· Loss of business (contract termination).

· Criminal and civil action.

· Damaged reputation.

· Effective Quality Management Systems and assurance procedures and controls, including contractual review and liability caps where appropriate.

· 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 Head of Legal reports any significant claims to the Audit & Risk Committee. External legal counsel is appointed where appropriate.

· Crisis management policy in place.

· Seeking contractual protection from loss or insurance cover for loss where possible.

· This risk remains stable compared to 2013.

· 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.

Business ethics and bribery and corruption

The Group operates in countries which are recognised to have higher bribery and corruption risks.

· Legal action and fines against the Group.

· Debarment from being able to participate in tenders.

· Loss of reputation.

· Media activity.

· Code of Ethics and training, risk assessments, Audit & Risk Committee review, whistle-blowing policy and policies and systems.

· 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.

· This risk remains stable compared to 2013.

· 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 2014, 256 HR and non-compliance issues were reported through the whistleblowing hotline and other routes. All were investigated and 31 substantiated and corrective action taken.

Financial

Financial

irregularity risk

The Group could suffer financial loss either through

misappropriation of assets or the misrepresentation

of financial results.

· Corresponding loss of value and reputation could result in funding being withdrawn or provided at higher interest rates.

· Negative market sentiment could impact the Group's share price.

· The Group has financial and management controls in place to ensure that the Group's assets are protected from major financial risks.

· 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 2013.

· The Group continues to build a shared service centre infrastructure to ensure appropriate skilled personnel review actual and forecast results, as well as improve segregation of duties.

2014

£m

2013

£m

Short-term benefits

5.8

4.7

Post-employment benefits

0.4

0.4

Equity-settled transactions

2.0

2.8

Total

8.2

7.9