IMI plc annual report 2012

ENGINEERINGADVANTAGEPRINCIPAL RISKS & UNCERTAINTIESIMI could be affected by a number of risks which might have a material adverse effect on our reputation, operations andfinancial performance. The Group has in place an established risk management structure and internal controls frameworkwhich together are designed to identify, manage and mitigate business risk. A summary of the Group’s risk managementprocesses is given on page 45 and the Group’s approach to corporate social responsibility and associated risks is describedon pages 26 to 31. In addition to the risks described here, the Group is also exposed to a number of financial market risksincluding credit risk, liquidity risk, counterparty risk, fluctuations in foreign exchange rates, interest rates and commodity prices.A description of these risks and the Group’s centralised approach to managing them is described in note 18 to the financialstatements. Further information about pension liabilities is given in note 19 to the financial statements.The following table shows the principal risks, the potential impacts and mitigation actions. For each principal risk the currentrisk rating and change in risk in the year is shown, the latter by means of an arrow.Risk Description of risk and potential impact Examples of mitigating actionsFailure inhealth,safety andenvironmentalcontrolsresulting inemployeefatality/serious injuryHighNoncompliancewithlegislation andregulationHighEconomicand marketenvironmentHighPensionfundingHighThe Group recognises that it has a duty of careto all of its employees. The Group has madesignificant progress in the past year in relation tohealth, safety and environmental key metrics asdetailed elsewhere in this report. However in theevent of any failure in the Group’s health, safetyand environmental procedures there is a potentialrisk of injury or death to IMI’s employees or others;or environmental damage, with the consequentialimpact on the operations and the risk of regulatoryaction against the Group.The Group’s worldwide operations and expansionin emerging markets expose it to different legal andregulatory requirements and standards in each ofthe jurisdictions in which it operates. If the Groupfails to understand and comply with all applicablelegislation it could lead to a breach of anti-trust,anti-bribery, fraud or tax laws. Any breach couldhave a financial impact and damage the Group’sreputation.The status of the global economy could adverselyaffect the Group’s revenues. The Group’s cost baseincludes many costs that cannot be reduced in theshort-term in line with reductions in profitability. TheGroup may also be required to reassess the carryingvalue of acquired goodwill and other assets ifcertain end markets deteriorate further or for longer,which may result in impairment charges.The Group’s defined benefit pension arrangementsare exposed to the risk of changes in interest ratesand the market values of investments as well asinflation, increased longevity of members andstatutory requirements. This may result in the costof funding defined benefit pension arrangementsbecoming an increasingly significant burden on theGroup’s financial resources.• Established systems in place under the ‘IMI Safety First, SafetyAlways’ slogan, to ensure that health, safety and environmentalmatters are appropriately addressed and any such risks are minimisedincluding monthly reporting to, and review at, the Executive andquarterly review at the IMI Board• Increase of full-time health, safety and environmental officers acrossthe Group to ensure policies are embedded and measured• Regular review of Group safety performance including introduction ofnew incident reporting metrics•Group Environment, Health and Safety function with experiencedspecialist employees to provide support and guidance to businesses- including the conduct of regular risk control and health and safetyaudits•Maintenance of insurance for costs associated with any employers’liability, workers’ compensation or equivalent claims and also certainenvironmental incidents• Commitment to good governance practices which are embodied inThe IMI Way providing a guiding set of values that exemplify how IMIemployees should behave• The IMI Way was refreshed in 2012 and a corporate IMI Way Day washeld in June which included face-to-face training for all employees• Policies, manuals, training, business processes and monitoring of keycompliance, tax and legal risks• Increase in resources dedicated to legal and regulatory compliance• Training of employees on The IMI Way and key risk areas such ascompetition law and anti-corruption• Availability and promotion of the IMI Hotline to report concernsanonymously• Internal control audits by IMI Group Assurance• Anti-bribery, corruption and fraud workshops carried out• Regular updating of contingency plans•held••and emerging markets•focus on southern Europe• Cost base reduction initiatives• Effective cash management•Regular Treasury monitoring of southern Europe receivables and cashDiverse business portfolio serving different customers and marketsAccelerate growth agenda: Investment in new product developmentMonitoring of customer and supplier financial security with particularAllocation of resource to more resilient customers, markets andgeographies and focus on global growth trends (climate change,resource scarcity, urbanisation and ageing population)• Deficit reduction plans where appropriate•accrual where permissible•Closure of overseas defined benefit plans to new members and futureActive management of pension scheme assets and long term view ofliability assumptions32 Board reports