IMI plc Annual Report & Accounts 2019
Breakthrough
Engineering
for a better
world.
We are a specialist engineering company
that designs, manufactures and services
highly engineered products that control
the precise movement of fluids. We
aim to deliver great solutions that
tackle the most demanding engineering
challenges. We help some of the world’s
leading industrial companies operate
their processes safely, cleanly, efficiently
and cost effectively. We operate
through three divisions – IMI Precision
Engineering, IMI Critical Engineering
and IMI Hydronic Engineering – and
employ around 11,000 people in over
50 countries around the world.
Our business has many
strengths. First and
foremost, we employ
great people. We are
renowned for delivering
world-class engineering
expertise and support,
and our operational
platform and processes
are amongst the
very best.
Find out more:
www.imiplc.com
Roy Twite
Chief Executive
COVER
IMI Precision Engineering
Brno, Czech Republic
Our purpose
Our vision
Our purpose is our reason for
being. It’s what motivates us
all and makes us proud to
work for IMI.
Our vision explains more
about how we want to
achieve our purpose.
Breakthrough
Engineering
for a better
world.
IMI will create tremendous
value by solving key
industry problems in
attractive markets and
working with the best.
We deliver our sustainable, customer-focused solutions
ever mindful of our responsibilities to our employees, our
suppliers, our wider communities, and the environment.
And we constantly reference and reinforce IMI’s core
values throughout our business.
Our business model:
Turn to page 12
Introduction
Strategic Report
Corporate Governance
Financial Statements
Group overview
Chairman’s statement
02
04
Independent Auditor’s report
Primary statements
Notes to the accounts
104
112
116
Board of Directors
Letter from the Chairman
Corporate Governance Report
Audit Committee Report
Nominations Committee Report
Annual Directors’
Remuneration Report
Directors’ Report
Directors’ responsibilities
62
64
66
72
76
78
94
101
Chief Executive’s review
Business model
Strategic review
Environmental, Social &
Governance
Our stakeholders
Eco-system
Operational review – IMI Precision
Operational review – IMI Critical
Operational review – IMI Hydronic
Financial review
Key Performance Indicators
How we manage risk
08
12
14
22
36
37
42
44
46
48
52
54
01
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Group overview
We create
tremendous value
by solving key
industry problems in
attractive markets
and working with
the best.
Adjusted
revenue by
geography
4
Revenue by
division
3
2
3
1
2
2019 highlights
Adjusted revenue
Statutory revenue
£1,873m
2%
£1,873m
2%
Adjusted profit before tax
Statutory profit before tax
Flat
£251m
11%
£189m
1
Adjusted operating margin
Adjusted operating cash flow
20bps
14.2%
35%
£299m
1 Europe 44%
2 Americas 29%
1 IMI Precision Engineering 48%
2 IMI Critical Engineering 35%
3 Asia Pacific 21%
3 IMI Hydronic Engineering 17%
4 Middle East & Africa 6%
Adjusted basic earnings per share
Statutory basic EPS
Flat
73.2p
8%
57.6p
Gender mix across the Group*
Female Female% Male Male%
3,104
27% 8,335
73%
200
100
19% 866
17% 499
81%
83%
All
employees
Managers
Senior
managers
Board
3
38%
5
63%
» Results ahead of market expectations
» Profit improvement initiatives help 60bps second
half margin improvement
» Operating cash flow 35% higher than 2018
» £27m rationalisation savings for 2019, ahead of expectations
» Final dividend increased 1%, making a 1% increase
for the full year
» Structural re-organisation plans progressing well
* Including agency and contractors.
» Rationalisation charges for 2020 expected to be c.£45m;
savings c.£25m
» Commercial cultural shift driven by Growth Accelerator
gaining traction
» New customer-focused organisational structures
bedding-down well
02 IMI plc Annual Report & Accounts 2019
IMI Precision Engineering specialises in developing
motion and fluid control technologies for
applications where precision, speed and
reliability are essential.
IMI Critical Engineering’s highly specialised valves and
actuators help control the flow of steam, gas and
liquids in some of the world’s harshest environments.
Our engineered solutions are designed to withstand
extreme temperatures and pressures, as well as
intensely abrasive or corrosive cyclical operations.
IMI Hydronic Engineering is a leading global supplier
of products for hydronic distribution systems which
deliver optimal and energy efficient heating and
cooling systems to the residential and commercial
building sectors.
Operational review:
Turn to page 42
Operational review:
Turn to page 44
Operational review:
Turn to page 46
Key brands
Norgren, Bimba, Buschjost, Herion,
Kloehn, Maxseal, Thompson Valves
Key brands
IMI Bopp & Reuther, IMI CCI, IMI Fluid Kinetics,
IMI InterAtiva, IMI NH, IMI Orton, IMI PBM,
IMI Remosa, IMI STI, IMI Th Jansen, IMI Truflo Marine,
IMI Truflo Rona, IMI Truflo Italy, IMI Z&J, IMI Zikesch
Key brands
IMI Pneumatex, IMI TA, IMI Flow Design,
IMI Heimeier, IMI Aero-Dynamiek
Adjusted revenue
Adjusted revenue
Adjusted revenue
1%
£907m
5%
£651m
2%
£315m
Adjusted operating profit
Adjusted operating profit
Adjusted operating profit
3%
£148m
2%
£90m
9%
Number of employees
Number of employees
Number of employees
54%
Revenue by
geography
5,800
30%
3,200
16%
4
3
Revenue by
geography
4
1
Revenue by
geography
1 Europe 45%
2 Americas 38%
3 Asia Pacific 17%
4 Middle East & Africa 0%
2
1
1 Europe 22%
2 Americas 25%
3 Asia Pacific 37%
4 Middle East & Africa 16%
3
2
1 Europe 86%
2 Americas 8%
3 Asia Pacific 5%
4 Middle East & Africa 1%
£57m
1,800
3 4
2
1
Revenue by
market
Revenue by
market
Revenue by
market
Motion Control
2019 revenue: £369m
Commercial Vehicle
2019 revenue: £194m
Fluid Technologies
2019 revenue: £140m
Energy
2019 revenue: £81m
Life Sciences
2019 revenue: £81m
Rail
2019 revenue: £42m
Fossil Power
2019 revenue: £206m
Oil & Gas
2019 revenue: £189m
Petrochemical
2019 revenue: £129m
Nuclear
2019 revenue: £51m
Marine
2019 revenue: £30m
Pharmaceutical
2019 revenue: £4m
Balancing & Control
2019 revenue: £152m
Thermostatic Control
2019 revenue: £97m
Pressurisation & Water Quality
2019 revenue: £50m
1 Motion Control 41%
2 Commercial Vehicle 21%
3 Fluid Technologies 15%
4 Energy 9%
5 Life Sciences 9%
6 Rail 5%
4
3
6
5
2
1 Fossil Power 32%
2 Oil & Gas 29%
1
3 Petrochemical 20%
4 Nuclear 8%
5 Marine 5%
6 Other 5%
7 Pharmaceutical 1%
6 7
5
4
3
2
1 Balancing & Control 48%
1
2 Thermostatic Control 31%
3 Pressurisation
& Water Quality 16%
4 Other 5%
4
3
2
Find out more:
www.imiplc.com/what-we-do
1
03
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Chairman’s
statement
2019 was a year
of significant
change.
We appointed a new Chief Executive,
adopted a new strategy and took further
steps to ensure our culture is aligned with
our ambition to deliver increasing value for
all our stakeholders.
04 IMI plc Annual Report & Accounts 2019
New Chief Executive
In May 2019 Roy Twite became Chief
Executive of IMI plc. Roy, who joined
IMI in 1988, is a strong and experienced
leader who has been pivotal to the
Group’s continued success. He has
extensive operational experience, deep
knowledge of our core markets and
outstanding leadership qualities.
Strategy
Much of the Board’s time during the
year was spent considering and debating
the outputs from the strategic review
undertaken during the year. In November
2019 the Board approved our new
strategic plan that is being deployed
during the next phase of the Group’s
development. This plan is focused on
accelerating growth and increasing
value for all our stakeholders. Further
information about our strategy is
provided on pages 12 to 21.
Aside from long-term strategy actions,
I am pleased to say that the businesses
have also made important early strides
improving both commercial focus and
immediate profitability. Our divisions
Introduction
Strategic Report
Corporate Governance
Financial Statements
Lord Smith of Kelvin and the
IMI plc Board visited facilities
in Shanghai and Seoul in
October 2019
have shown considerable ingenuity
in deploying some of their new
initiatives - particularly when some
of our end-markets have been weaker.
The operational reviews that follow
on pages 42 to 47 of this Report
describe more about both our trading
performance and those initiatives.
Culture and purpose
The culture of a business starts with the
Board. IMI enjoys a long-held reputation
for being an open and diverse business
that operates ethically and fairly at all
times mindful of its responsibilities to
its stakeholders and society. This is the
right thing to do. Good governance
and responsible business also underpin
long-term value creation.
During 2019, we have introduced a
formal process to review our culture
that will build upon the successful IMI
Way campaign of recent years. Good
governance and responsible business
are not merely characteristics to check
but are rather prerequisites to both
sustainability and commercial success.
Further information about this new
process is set out on page 64.
We welcome the changes Roy has
introduced to enhance our culture.
In particular his focus on making IMI
an even more diverse and inclusive
meritocracy. Encouraging an innovative,
growth and commercial mindset
will have a positive impact on how
we do business and support our
strategic ambitions.
Value creation for all
stakeholders
At all times we must operate in a
responsible way. Further information
about our sustainable approach is
included on pages 22 to 35.
In our discussions and decision-making
processes we always take into account
our various stakeholders, all of whom
contribute to the success of our
business. During the year the Board
reviewed how we engage with the
Group’s stakeholders. Further
information about our stakeholders
and this review process is set out on
pages 36, 70 and 71.
The Board
Having served on the Board since
2012, Birgit Nørgaard steps down as a
non-executive director and as Chair of
the Remuneration Committee at the
end of February 2020. On behalf of the
Board, I would like to wish Birgit well for
the future and express our thanks for
her valuable contribution to IMI.
Following her retirement Carl-Peter
Forster will succeed Birgit as Chair of
the Remuneration Committee. At the
same time, Thomas Thune Andersen
will become the non-executive director
responsible for employee engagement
and for Environmental, Social and
Governance matters. Thomas will also
join the Audit Committee and will cease
to be a member of the Remuneration
Committee from 1 March 2020.
In January 2020, Caroline Dowling joined
the Board as a non-executive director.
Caroline brings considerable relevant
skills and experience to our Board having
enjoyed a long and successful career
in the technology industry. Further
information about Caroline, and
the other members of our Board,
is included on page 62 and 63.
Dividend
Reflecting the continued confidence in
the Group’s prospects, as well as our
ambition to build dividend cover, the
Board is recommending that the final
dividend is increased by 1% to 26.2p
(2018: 26.0p) making a total dividend
for the year of 41.1p, an increase of
1% over last year’s 40.6p.
Our people
IMI is proud to employ the best people.
During times when business can face
challenging markets, and when
significant internal change is being
made, their loyalty and efforts are
especially appreciated. On behalf of
the Board, I would like to thank all of
them for their continuing dedication.
Lord Smith of Kelvin
Chairman
05
How do you keep a
laparoscope camera
lens clean, whilst
conducting procedures
inside the human body?
Working in partnership with the customer, IMI Precision
Engineering developed a unique pneumatic circuit that controls
the pressure and delivery of measured ‘puffs’ of CO2 and saline,
that clean the camera lens whilst inside the body, making
surgery safer and more accurate. The established expertise
and close collaboration of IMI Precision engineers were
instrumental in their and their customer’s success.
06 IMI plc Annual Report & Accounts 2019
Strategic
Report
08
Chief Executive’s review
12
Business model
14
Strategic review
22
Environmental, Social & Governance
36
Our stakeholders
37
Eco-system
42
Operational review
48
Financial review
52
Key Performance Indicators
54
How we manage risk
07
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Chief Executive’s
review
I’m delighted to report good results for 2019,
given the anticipated market headwinds.
We have also made a solid start in the
pursuit of a new purpose: Breakthrough
Engineering for a better world.
Results overview
2019 was a year of important change for
the Group. I was appointed Chief Executive
in May, measures to improve short-term
profitability were initiated immediately
thereafter, and a new strategy was
launched in November. Updates on progress
with the strategy appear in the relevant
divisional reviews (see pages 42 to 47).
Trading environment
IMI Precision continues to deal with cyclical
headwinds in Factory Automation and
Commercial Vehicle markets, whilst other
markets have continued to grow. IMI Critical
operates in mixed markets. While some are
experiencing good conditions, including LNG
and Naval, others are undergoing structural
change, like Fossil Power. And IMI Hydronic
operates in markets whose prospects
remain stable, supported by its significant
exposure to environmental legislation,
building refurbishment and improvement.
08 IMI plc Annual Report & Accounts 2019
Accelerating
profitable
growth.
PBM acquisition
The acquisition of PBM was completed
on 20 September 2019. Acquired for a
cost of £69m, PBM is a manufacturer
of high-quality industrial valves and
flow control products and sells into the
Pharmaceutical, Chemical and Food
Processing industries. The business is
already making an impact on the division.
Integration is proceeding well and
PBM offers exciting opportunities for
IMI Critical to expand profitably into
new, growth markets.
Environmental,
Social & Governance
(ESG)
A very substantial proportion of the
products we make have a direct and positive
impact on the world. All elements of ESG
have formed an important part of our
management ethos and strategy for many
years. Diversity, health & safety, community
support and well-established protocols
for governance and risk management,
all contribute to IMI’s robust, sustainable
and ethical business model. We also take
great care around our own impact on
the environment. And we support the
Task Force on Climate-related Financial
Disclosures (TCFD) recommendations in
relation to the disclosure of information
about the risks and opportunities
presented by climate change.
More information about those various
products and solutions - as well as on all
of our ESG policies and practices - can be
found on our website: www.imiplc.com
and on pages 22 to 35.
Adjusted revenue
Down
2%
£1,873m
Adjusted profit before tax
Flat
£251m
Investment case
» Clear customer-focused
strategy delivering
Breakthrough Engineering
with the best people,
renowned expertise
and strong brands
» Increasingly exposed to
attractive global markets,
including through our Growth
Accelerator programme
» Robust social and governance
policies, for a stronger, more
responsible business
» Differentiating environmental
profile – particularly through
our customer solutions
targeting energy efficiency
and safety
» A clear business model
committed to delivering
sustainable value to all
our stakeholders
» Strong balance sheet offering
strategic flexibility
09
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Chief Executive’s review
In October 2019, the Board visited
IMI Critical Engineering
Paju, Republic of Korea
Strategic progress
In all cases, the divisions are progressing
well with their strategies to improve both
growth and profitability. In particular, the
divisions have clear plans to reach their
respective margin targets, as detailed in
our IMS presentation in November. Those
measures include complexity reduction,
material cost savings, productivity gains and
value-pricing, all of which have already had a
positive impact on results across the Group.
Also fundamental to the Group achieving
its strategic ambitions are the initiatives
designed to effect a change in culture
across the business, driving innovation,
customer intimacy and greater commercial
accountability throughout the organisation.
Our Growth Accelerator programme is
already having an impact, stimulating
innovation and identifying early
commercial opportunities.
Rationalisation charges for 2020 are
expected to be c.£45m, with savings
of c.£25m in the year (including some
impact from prior year projects).
10 IMI plc Annual Report & Accounts 2019
IMI Precision Engineering
The IMI Precision strategic initiatives
continue to advance well, with the new
customer-focussed business unit structure
in place in both Europe and America. Much
greater commercial accountability is being
driven throughout the organisation, and the
introduction of value-added new products
is supporting the division’s margin delivery.
The integration of Bimba remains on-track,
with significant benefits expected in 2020
from footprint consolidation.
The previously announced, multi-year
£75m restructuring programme is on-track
to deliver £35m of annualised benefit. Two
factories have already been consolidated,
with two more planned for the first half of
the year. For 2020, the charge is expected
to be c.£30m, with savings of £20m to be
delivered in the year.
IMI Critical Engineering
IMI Critical’s strategic re-alignment
continues to progress well. The introduction
of a simpler organisation structure,
removing a layer of complexity and cost,
is already delivering benefits. The PBM
acquisition, which completed in September,
is progressing well and provides the division
with access into the faster growing
Pharmaceutical and Food Processing
markets. IMI Critical has also successfully
secured its first orders generated through
the Growth Accelerator programme which,
although still early in the process, highlights
the opportunities available as customer
intimacy improves. The 20% to 30% of
IMI Critical’s lower margin business is still
under review, with local leadership pursuing
rapid improvement actions.
The division’s restructuring activity in 2019
supported its performance and delivered
in excess of the planned savings. In 2020,
additional actions will be taken to further
restructure our operations, leading to a
charge of c.£10m, and providing savings
of c.£5m in 2020.
Executive
Committee
IMI Hydronic Engineering
IMI Hydronic continues to make good
progress toward its published margin
targets. As with the other divisions,
considerable work has been done to improve
customer focus in a business that already
enjoys very strong brands and reputation.
The business recently announced plans
to optimise its footprint and supply chain.
The charge for these initiatives is expected
to be c.£5m in 2020 which will generate
annualised savings of c.£3m.
Outlook
It is difficult to predict the ultimate
impact the coronavirus will have on global
supply chains and demand. Based on no
worsening of the current situation, we
expect first half organic revenues to be
lower than the first half of 2019, given
the end market weakness in the Factory
Automation and Commercial Vehicle
sectors. Our continuing business
improvement initiatives are expected
to enable us to maintain our margins
in the first half of the year.
Roy Twite
Chief Executive
People
2019 has been a year of important
change for IMI, as we take our first
steps delivering our new purpose –
Breakthrough Engineering for a better
world. Having capable, diverse and
engaged people is essential to our
success and I would like to thank all of
our employees for their commitment
and efforts during the year.
Roy Twite
Chief Executive
Daniel Shook
Finance Director
Massimo Grassi
Divisional Managing Director
IMI Precision Engineering
Jackie Hu
Divisional Managing Director
IMI Critical Engineering
In October 2019, the Board visited
IMI Precision Engineering
Shanghai, China
Phil Clifton
Divisional Managing Director
IMI Hydronic Engineering
Geoff Tranfield
Group Human Resources
Director
John O’Shea
Group Legal Director
and Company Secretary
11
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Business model
IMI plc is a specialist
engineering company that
designs, manufactures and
services highly engineered
products that control the
precise movement of fluids.
Our values
Integrity
We do the right thing
and keep people safe
as we do it.
Excellence
We aim to achieve
industry best practice
and to continuously
learn and improve.
Inputs
Our key resources
Talented, committed people
Industry renowned fluid
engineering expertise
focused on solving
industry problems
Long-term customer
relationships
Technology and applications
engineering IP
Premium brand portfolio
and strong, differentiated
market positions
Sales, marketing and
distribution network focused
on growth markets
Strong operational
platform with continuous
improvement culture
Financial strength
Strategic objectives
How we create value
To drive sustainable profitable growth
we focus on:
1. Customer focus
Turn to page 15
2. Growth acceleration
Turn to page 17
3. Operational excellence
Turn to page 18
4. Commercial excellence
Turn to page 21
How we operate
Environmental,
Social & Governance
Turn to page 22
KPIs
Turn to page 52
12 IMI plc Annual Report & Accounts 2019
Customer focus
We put customers at
the centre of everything
we do.
Innovation
We understand customers’
changing needs and create
new solutions.
Collaboration
We believe in working
together to deliver
better results.
Priorities
How we maximise value
Health & safety
Keeping people safe is our first priority
Employee engagement
An engaged, collaborative and diverse
workforce
Customer satisfaction
Delight our customers by solving industry
problems
Continuous business improvement
Focusing on key deliverables
Profitable growth
Growth Accelerator; New Product
Development and M&A each play a key role
Sales effectiveness and
operational excellence
Highly competitive businesses generating
appropriate returns
Margin improvement
A key indicator of value delivery for
customers and business health
Operating sustainably
Operating our business in a sustainable
way for the long-term
Outputs
The value we create
Customers
We solve customer problems
with cleaner, safer, more
efficient solutions
Environment
Delivering solutions targetting
energy efficiency, safety and
reliability
Employees
A workforce that is proud
and inspired to work for IMI
Shareholders
Long-term supportive
shareholders, rewarded
for their investment
Our business partners
Building close and mutually
beneficial relationships with
our suppliers
Community
Local teams supportive of
their wider communities
Effective risk
management
Turn to page 54
Robust corporate
governance
Turn to page 66
13
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Strategy
IMI Hydronic Engineering
Berlin, Germany
14 IMI plc Annual Report & Accounts 2019
Customer focus
Putting customers at the centre of
our organisation means customer
requirements and our businesses
are totally aligned to deliver
exceptional value.
Our ambition is to get even closer to our customers. Our reporting
structures have changed to reflect that ambition.
In IMI Precision, the business is now fully aligned with our key sector
verticals. Each business segment enjoys control of all the functions
that combine to deliver world-class solutions. Sales, marketing, new
product development and operations – all in one co-ordinated unit.
In IMI Critical, a new, flatter regional structure has been introduced
to deliver increased customer intimacy. It also allows greater focus
on developing the Aftermarket business.
IMI Hydronic is further improving its customer focus and
strengthening its sales and commercial relationship functions.
15
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Strategy
IMI Critical Engineering
Paju, Republic of Korea
16 IMI plc Annual Report & Accounts 2019
Growth acceleration
Creating a culture of market-led
innovation forms a key part of
accelerating sustainable growth. It allows
us to more quickly develop new solutions
and technologies that create tangible
value for our customers and stakeholders.
The IMI Growth Accelerator programme is
in action across the whole business. All three
divisions have several sprint teams in operation,
each focused on identifying specific industry
problems to be solved using IMI expertise.
This will be a continuous process to build long-
term capability.
Creating market-led growth is the principle
objective. Actively encouraging and embedding
a culture based on innovation, teamwork
and customer engagement is another. When
exploring new ideas and applying expertise
imaginatively, teams are encouraged to learn
quickly and fail fast. They will ultimately
succeed earlier as a consequence.
We also aim to leverage solutions across
industries, not just single customers. If we
can help one heavy truck manufacturer to
reduce emissions, we will help many.
IMI Critical has already received its first order
from the process.
Growth Accelerator order:
Turn to page 60
17
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Strategy
Operational excellence
Continuing to promote a culture of
rapid, continuous improvement helps
us boost competitiveness, enhance
customer service and optimise our
financial performance.
All of our operations have benefitted from the adoption of
operational best practices, including Lean and Value-Engineering.
We work hard to retain those gains.
First among the benefits is sustaining the safest and cleanest
environment for our employees, our supply-chain partners, our
customers and our communities. The standards to which we hold
to are non-negotiable. Those standards are continuously challenged
and raised.
The benefits of excellence are also commercial. Disciplined,
continuous improvement delivers competitive operations, making us
world-class supply partners for our customers. Simplified operating
structures have also been supported with specific training for our key
managers. Not only will they enjoy greater accountability, they will
be empowered to make faster, more effective decisions about their
businesses and their profitability.
IMI Precision Engineering
Alpen, Germany
18 IMI plc Annual Report & Accounts 2019
19
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Strategy
IMI Precision Engineering
Brno, Czech Republic
20 IMI plc Annual Report & Accounts 2019
Commercial excellence
Focusing on differentiated
engineered solutions in the most
attractive markets delivers
sustainable returns for shareholders
and generates increasing value for
our other stakeholders.
Our expertise is renowned, and constantly developing. To maximise the
value we generate for our shareholders and stakeholders, we are applying
that expertise to segments that offer the greatest opportunity. All three
divisions operate in a number of attractive markets, but they also have
opportunities in close adjacencies which are being targeted. Acquisitions
can help, as both Bimba and PBM have shown.
An excellent customer experience comes from service as well as from
products. Service that customers value. Renowned customer and
application support is exemplified by our Engineering Advantage teams
in IMI Precision, by our Valve Doctors® in IMI Critical and by The Hydronic
College in IMI Hydronic.
But we can always do better. Bimba aims to quote for customised
products within hours and deliver within days. IMI Precision is now working
to achieve this performance across its business.
21
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social
& Governance
Our sustainable approach.
We operate our business in a responsible
way. This approach enhances the
strength and resilience of our business
over the long-term.
We implement a number of policies and procedures to support our
sustainable approach and we monitor our progress using a range
of metrics. These metrics are regularly reviewed by the Board and
our Executive Committee. In line with our purpose, we will continue
to work to identify opportunities to enhance the sustainability of
our operations and the value we create for our customers, people,
shareholders and society.
Roy Twite visits
IMI Precision Engineering,
Alpen, Germany
22 IMI plc Annual Report & Accounts 2019
We focus on the
following priorities:
Operating
ethically at all times
Turn to page 24
Living our values to
build a culture of
excellence and
customer-led innovation
Turn to page 26
Attracting, developing
and retaining the best
people
Turn to page 29
Delivering for our
customers and
society
Turn to page 31
Running our business
in a safe and
sustainable way
Turn to page 32
Contributing to the
communites where
we operate
Turn to page 35
23
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
Operating
ethically
at all times
It is essential that we act with integrity
and at all times run our business in an
ethical way. Integrity is one of our core
values and underpins everything we do.
It is a cornerstone of our culture.
Our Code of Conduct (“Code”) sets out the standards we
expect our employees to adhere to. It covers a range of issues
including anti-bribery and anti-corruption.
During the year we updated the Code primarily to simplify and
make it a more relevant and effective guide for our employees.
Every employee receives a copy of the Code upon joining the
Group and specific training about the Code is provided as part
of our employee induction programme. On an annual basis
we provide refresher Code training to our workforce and,
throughout the year, updates on specific compliance issues
to relevant employees.
IMI Code of Conduct:
www.imiplc.com/esg/ethics
IMI Critical Engineering
Rancho Santa Margarita, USA
24 IMI plc Annual Report & Accounts 2019
IMI Critical Engineering
Rancho Santa Margarita, USA
We also implement a number of policies
and procedures including regular on-site
legal and compliance reviews, which are
designed to help instil the highest ethical
standards and regulatory compliance.
These policies and procedures are
embedded in our risk assessment
processes, further details of which
are provided on page 54.
We encourage all employees to report
any incident that is not in keeping with
our values and behaviours and we
operate a confidential independent
hotline in 12 languages, which allows
anonymous reporting. The Group’s
Ethics and Compliance Committee
reviews hotline activity on a monthly
basis and reports are investigated
thoroughly and, where required,
appropriate action is taken to resolve
issues. During 2019, 21 cases were
reported via the hotline which
compared to 49 in 2018.
We conduct advanced due diligence on
our business partners including our agents
and distributors with whom we share our
anti-corruption requirements and policies.
In addition, all our businesses carry out
checks (including sanctions screening) to
understand potential customers’ activities
and to identify risks that may be involved
in supplying to them. We also conduct
regular audits to make sure that child
or forced labour is not used in our supply
chain and that suppliers’ workplaces
are safe. If suppliers are unable to
comply with our strict responsible
business requirements we terminate
our relationship with them.
We use a combination of general
corporate responsibility policies and
specific supply chain compliance actions
to avoid any potential for modern
slavery in our supply chain. Our full
Modern Slavery Act statement including
detail about the steps we take to ensure
that slavery and human trafficking
do not take place within our supply
chain or any part of our business is
available at the link below. The other
policies referred to in this section,
including our Anti-Bribery, Compliance
and Whistleblowing policies, are also
available to all employees.
Ethics at IMI:
www.imiplc.com/esg/ethics
25
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
Living our values to build
a culture of excellence and
customer-led innovation
In line with the development of our new strategy we have redefined our
purpose. We have also updated our vision statement and expanded our
values to include customer focus. Our people are key to our success and they
played a vital role in the development of our new purpose, expanded values
and vision statement. Relevant materials were shared with a number of
focus groups across all our businesses and their views were taken into
account. For more information on our values, please see pages 12 and 13.
Our purpose now explains in a tangible
and succinct way the value we create
for all our stakeholders and society.
And our vision statement and values
express our key objectives, including our
customer centric focus, in a clear and
simple way. These changes will have
a positive impact. In particular they
will help us establish and strengthen a
culture of excellence and customer-led
innovation. They also support our new
operational approach which is focused
on reducing complexity, becoming
more agile and enhancing our ability
to respond quickly to customer needs
and market opportunities in our fast
changing world.
We launched our new purpose
across the Group in August 2019 and
during the balance of the year we
have embedded it in everything we
do. For example, our leadership and
development programmes all include
modules that focus on our purpose
and the metrics we use to measure
performance now reflect our values
and purpose.
26 IMI plc Annual Report & Accounts 2019
How do you create a culture
of customer-led innovation?
Across each of our divisions we have established diverse
multi-functional Growth Accelerator teams that are working
together to generate innovative solutions that solve significant
industry problems. Based on industry knowledge and insight
from customers, we identify solutions that will create real value.
Within a short time-scale, the teams develop a proposition
which is tested with customers to determine engineering and
commercial effectiveness. Solutions that have been validated
by customers and satisfy strict growth potential criteria are
then pitched to divisional senior management for approval
to develop further. First piloted in IMI Critical in August 2018,
this Growth Accelerator process has gathered pace and
momentum across the business. During 2019, 12 teams
worked on customer propositions and had more than
1,500 customer interactions.
Turn to page 60 for more information on
our first Growth Accelerator order win
Diversity and inclusion
We believe it is essential that across
all parts of our business we employ
people from different backgrounds and
cultures to mirror our global footprint
and our diverse customer base. To
ensure that our workplace is inclusive
and that all employees and workers are
treated fairly in an environment which
is free from any form of discrimination,
as highlighted above, we operate a
Group-wide Diversity and Inclusion
Policy (“D&I Policy”), covering all aspects
of diversity. Its principles are embedded
in all our human resource processes
and procedures. We also implement a
number of specific initiatives aimed at
increasing diversity and inclusion across
all parts of our business including:
» Diversity awareness training
programmes, including an e-learning
module (translated into core
languages) which employees can
access via our global intranet.
» Shortlists for internal and external
vacancies must reflect our D&I Policy.
This a mandatory requirement.
» We monitor, set metrics, such as
diverse recruits to the businesses, and
measure our performance to ensure
we make progress in this key area. Our
internal management performance
process sets each Divisional Managing
Director objectives aimed at improving
diversity in their division and our
Human rights and
equality
Our ambition is to create an inclusive
organisation which operates as a
diverse meritocracy within which
everyone is treated fairly and with
respect. We deploy policies and
procedures which set out how people
should be treated and how we should
conduct our business.
Human Rights / Diversity and Inclusion:
www.imiplc.com/esg/people
Growth Accelerator teams work
together to solve significant
industry problems.
Group-wide bi-annual talent review
process tracks the diversity of our
talent pipeline. Using data from this
review process, we re-examine our
development plans and make any
required changes to ensure that we
continue to focus on recruiting and
developing the best talent regardless
of gender, race, age or any other
characteristic.
» In September 2019 we established
a number of cross-divisional teams
to accelerate our key objectives and
business priorities. One of these
teams is mandated to drive our
diversity agenda and in the coming
year they will be leading a series of
cross-divisional diversity and inclusion
initiatives in line with our D&I Policy.
Each of our divisions operate a range
of diversity and inclusion initiatives
across their operations. For example,
across its US business IMI Precision
has established a diversity council and,
during the year, all divisions engaged
in a range of activities in support of
the International Women’s Day
campaign “Balance for Better”.
» See page 28 for further information
about diversity initiatives at IMI
Critical Engineering’s IMI Truflo
Marine business.
27
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Gender mix across
the Group*
UK gender pay gap summary
as at 5 April 2019*
Female Female% Male Male%
3,104
27% 8,335
73%
Mean Gap
Median Gap
2019
34.5
22.4
2017
36.5
25.1
* We are a global business employing around 11,000
people around the world. The above summary only
covers our 1,111 UK employees and shows the
comparator since the regulations were introduced
in 2017. Further information about our UK gender
pay gap, together with an explanation of these
figures and the steps we are taking to narrow the
gap is included on our website at the link below.
UK gender pay gap:
www.imiplc.com/esg/ethics
Environmental, Social & Governance
Our gender mix across the Group is
shown in the table below. We support
the Hampton-Alexander Review and
the requirement that 33% of our
senior managers should be women by
2021. As at year end 2019, although
17% of our senior management
team were female, direct reports to
the Executive Committee were 20%
female, reflecting progress towards
the Hampton-Alexander requirements.
To support the achievement of the 33%
target, in addition to continuing to drive
the initiatives described above, using
our bi-annual review process we have
identified a pool of high-performing
female talent who are participating
in a mentoring and high potential
development programme. In addition
our divisions are mapping diverse talent
across key geographies and developing
a pipeline of external talent which we
can draw on when recruiting. A number
of recent appointments have been
made as a result of this initiative.
We are a global business and to
succeed we must properly serve our
diverse customer base. Accordingly
across all our geographies we focus
on recruiting and developing local
employees to ensure that our businesses
are aligned with our customers and the
communities in which we work.
All
employees
Managers
Senior
managers
200
100
19% 866
17% 499
81%
83%
Board
3
38%
5
63%
* Including agency and contractors.
As a result we have a very small
expatriate employee population.
As explained above our ambition is
to create a culture of excellence and
customer-led innovation. As diversity of
thought is key to innovation we ensure
that our Growth Accelerator teams are
as diverse as possible.To date individual
teams have included men and women,
employees at different stages of their
career, including graduates and long-
serving employees, and representatives
from all our key geographies and
functions including both operational
and support roles.
Creating a diverse and inclusive
working environment
We are active supporters of the WISE Campaign, a UK
initiative focused on increasing the participation, contribution
and success of women in science, technology, engineering
and mathematics. Read more about the WISE campaign
at www.wisecampaign.org.uk. During the year, in line with
WISE’s TEN steps campaign our IMI Critical Engineering
IMI Truflo Marine business established a diversity and inclusion
discussion forum to understand employees’ opinions and
identify areas for improvement. As a result of this forum
IMI Truflo Marine has introduced a number of key initiatives
including introducing training for managers to raise awareness
of the importance of creating a diverse and inclusive working
environment, introducing a mentoring scheme for female
employees and exploring the benefits of different flexible
working arrangements.
28 IMI plc Annual Report & Accounts 2019
Attracting, developing and
retaining the best people
Our people are key to our success. If we are to create value for our
all stakeholders by solving key industry problems we must employ
the best people. People who are curious, who listen, learn, innovate
and execute effectively and who are ambitious not for themselves
but for IMI, their teams and their customers.
Recruitment
We operate a robust process for
selecting and integrating new
employees and follow the principles
embedded in our Recruitment Policy
which aims to ensure our process is
fair and transparent.
To support our new strategy and,
in particular our customer centric
approach and focus on innovation,
our recruitment search process covers
a broad base. We consider potential
recruits from all sectors, including
consumer facing businesses and sectors
beyond our own engineering space
that are leading the way in terms
of innovation and value creation
for all stakeholders.
Development and
succession planning
We operate a wide and advanced range
of training and development programmes
specifically tailored to our business and
reflective of external best practice. They
enable our employees to enhance their
skills and progress their careers and they
support our ambition to develop our own
talent and future leaders. In recent years
we have made significant progress in
achieving this ambition. In 2019 over 60%
of senior vacancies were filled internally
compared to 40% in 2018.
During the year our training and
development programmes were
updated to reflect our purpose, our vision
statement and support our strategic
initiatives. In particular our senior
management programme now includes
modules dedicated to specific growth
initiatives and margin improvement
and our management development
programme is focused on delighting
the customer and profitability.
Training and
development in 2019
» 530 employees participated
in our most advanced
leadership programmes
» 21,000 hours dedicated to
learning and development
activities
29
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
How we develop industry
renowned experts
In 2019 our industry renowned Valve Doctor®
programme celebrated its 20th anniversary year.
The programme, which connects IMI Critical
Engineering’s top technical experts to customers
with demanding engineering challenges, also serves
as a mentoring and development scheme which
helps us attract and retain some of the very best
engineering talent in the world. The programme
takes on average seven years to complete and
encompasses valve design, plant operation and
system layout and control. Currently we have
80 Valve Doctors® working in partnership with
our customers across the world deploying their
deep application knowledge to solve process
flow problems and optimise plant performance.
Our other divisions also have well established
programmes which support the development
of expertise in key areas. Within IMI Precision
our Ignite programme focuses on developing
effective sales techniques and, within IMI Hydronic
Engineering, the division’s Hydronic College
provides world-leading training and knowledge
sharing programmes.
In addition to our central training
and development programmes, all
employees participate in on-the-job
training and where appropriate,
personal mentoring. We also support
our employees’ participation in
appropriate external programmes
to supplement the development
opportunities we provide in-house.
We run a robust performance
management process which enables
employees to discuss their personal
development objectives and contribute
their ideas and feedback. This
mechanism also enables us to provide
quality feedback which is essential
if we are to drive performance
improvement and help our people
understand the contribution they
are making to our success.
30 IMI plc Annual Report & Accounts 2019
Bi-annually we undertake an extensive
review of our management succession
plans to ensure that we have strength
and depth of leadership talent across
the Group. As part of this review
we assess the performance of our
managers against a number of criteria
including leadership skills, values
and behaviours and their business’
performance. Key output from this
review is used to build individual
development plans and inform our
future planning which helps ensure that
we continue to maintain a pipeline of
high calibre talent across the Group.
Further information about the career
opportunities we offer including
interviews with some of our people
is included at the link below.
Careers:
www.imiplc.com/careers/joining-our-team
Engagement
Given how important our people are
to our success we must maintain an
active dialogue with them. Some of
the channels we use to facilitate this
dialogue are described on page 31
and below, and include our annual
employee survey which is undertaken
during the course of our IMI Way Day.
In 2019 over 84% of our workforce
participated in this survey and once
again the feedback was encouraging.
Key questions, an example of which
is shown below, are scored out of ten
and show us at strong and improving
levels. We use the data generated from
this survey to continually improve our
organisation. In particular if specific
local issues are identified, we undertake
further work to gather more detail and
then implement appropriate measures
to drive improvement.
%
100
90
80
70
60
50
40
30
20
10
0
66
68
71
67
71
74
Employees see IMI as
a great place to work
Recommend our
business as a good
employer
2017
2018
2019
However, output from the survey
indicated that there are still some
areas where we need to improve
including helping our employees
better understand our strategic and
operational priorities. To address
this feedback we have strengthened
our Group Internal Communications
function and have introduced regular
Group and Divisional cascades of
information. We are also refreshing
our global intranet to ensure updates
and information are most rapidly
available digitally.
We also engage with our people on
a regular basis throughout the year.
Our European Communications
Forum, which is made up of employee
representatives from around ten
European countries, meets regularly
with senior management, including
Birgit Nørgaard, the non-executive
for employee engagement, to discuss
health and safety, strategic progress
and performance and following each
meeting minutes and newsletters are
produced and used by the employee
representatives to share information
with their colleagues. Our Divisional
Managing Directors hold quarterly
online town hall meetings, which cover
recent results and current initiatives,
and employees are invited to ask
questions and provide feedback on their
own concerns and share best practice
ideas on all topics. Where required,
we undertake quick and effective
localised real-time pulse surveys to
gather specific insights from employees
and we use the findings to inform
our plans for improvement.
Delivering for our
customers and society
Our purpose is to deliver innovative Breakthrough
Engineering for a better world. Our products help our
customers operate their systems and processes safely,
cleanly and cost effectively. They also help address
some of the biggest global challenges facing the world
today including climate change and resource scarcity.
Throughout this report we have included specific
examples of our innovative solutions which are helping
our customers address these and other significant
modern day challenges.
We publish our Group magazine, the
IMI Eye bi-annually and via our Group-
wide intranet we also share information
about key developments and best
practice quickly and effectively.
A wide range of functional, regional
and divisional conferences are also
held annually to provide a further
key mechanism for team and
individual engagement.
How to reduce
energy consumption
IMI Hydronic Engineering designed
and installed the heating and cooling
system for the National Centre for
Infectious Diseases in Singapore. The
system incorporates the division’s TA
Modulator valves which ensure the system
is accurately balanced, maintains a
comfortable indoor climate with stable
and precise temperature control and
a high level of energy efficiency.
31
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
Running our
business in a safe
and sustainable way
We recognise our responsibility to respect and care
for the people and locations we impact.
Prioritising health and safety
Keeping our employees and any
individual entering any of our sites safe is
our number one priority. To achieve this
ambition, we take a proactive approach
and strive to continuously improve our
performance. To demonstrate this, our
Group functional head of health and
safety is a direct report of the Chief
Executive, who has Board responsibility
for health and safety. The Executive
Committee reviews health and safety
matters every month and regular reports
are made to the Board. The importance
attached to health and safety by the
leadership is reflected at site, regional
and divisional level.
Health and safety monitoring and
improvement is a core metric that is
embedded at multiple levels across our
entire reporting system. All parts of
our business continuously assess their
operations and at least once a year,
we undertake a formal Group-wide
health and safety audit at every major
operation to monitor the progress
against our formal improvement actions.
We also conduct due diligence regarding
health, safety and environment when
establishing new operations or when
acquiring businesses.
In line with our established policies and
procedures we strive to ensure that
accidents are avoided and that our
operations are as safe as possible. All
employees, as part of their induction,
receive health and safety training
32 IMI plc Annual Report & Accounts 2019
relevant to their role in line with health,
safety and environmental compliance
principles. Further on-site training
in relation to hazard identification,
risk assessment and action planning
is provided to employees engaged in
manufacturing operations. Following
the success of the initial “Learning to
See” training that was introduced in
2018, the programme continues to be
delivered throughout the business in
addition to ongoing refresher training.
We report and record every safety
incident and fully investigate those
cases requiring more than first aid. In
addition, a full root cause analysis of
every Lost Time Accident (“LTA”) is
presented to the relevant Divisional
Managing Director. Following a formal
review at divisional level, a remediation
plan is agreed and implemented, and
safety alerts are issued to share lessons
learned and increase safety awareness
across the Group.
During the year the total number of
LTAs reduced to 15 compared to 18 in
2018, with no fatalities in either year.
IMI Critical Engineering reported only
two LTAs in the year which is a 60%
reduction compared to the prior year.
The number of locations reporting
LTAs reduced from 14 to 11 and three
of the LTAs were to employees not at
an IMI location.
Health and safety:
www.imiplc.com/esg/health-safety
Protecting the environment
We operate globally with manufacturing facilities in more than 20 countries.
We are committed to operating these facilities in a sustainable way to minimise
their impact on the environment by reducing energy and water use, pollution and
waste. We monitor and report our environmental performance at the monthly
Executive meetings with a view to delivering continuous improvement, including
reducing our CO2 emissions and CO2e intensity year-on-year.
CO2 emissions
Turn to page 95
Energy efficiency
Given the nature of our production
processes, our main focus is improving
energy efficiency. Historically we have
undertaken internal reviews of our
energy consumption. However in 2019,
in accordance with the European Union
Energy Directive, we commissioned
independent energy assessment surveys
across our major European operations.
The surveys were managed by a
specialist environmental consultant and
detailed findings and recommendations
were reviewed by our Executive
Committee. Recommendations will
be evaluated on a site-by-site basis
and for locations where actions will be
implemented, progress will be regularly
monitored with best practices being
shared across the Group.
To underpin our commitment to
reducing our environmental impact,
several of our large manufacturing
facilities are certified to the international
standard for Energy Management
ISO 50001. This management system
provides a framework of requirements
for organisations to:
» Develop a policy for more efficient
use of energy
» Fix targets and objectives to meet
the policy
» Use data to better understand and
make decisions about energy use
» Measure the results
» Review how well the policy works, and
» Continually improve energy
management
33
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
CO2 emissions
We support the Carbon Disclosure
Project (“CDP”) climate change initiative
and submit annual CDP reports which
cover our risk management approach
to climate change and our emissions
performance.
Since 2015, on a like for like basis, we have
reduced our CO2 emissions by over 5%.
In line with our continuous improvement
culture and investment in our operations,
we are committed to further reducing
our emissions in the future.
‘000
tonnes
65
60
55
50
2015
2016
2017
2018
2019
Waste
As outlined on page 18, operational
excellence is one of our key strategic
priorities. By running our business
more efficiently we enhance our
competitiveness, save costs and
reduce waste and scrap levels.
How to reduce
plastic use
At our IMI Precision site in
Fradley, UK actuators are now
being packaged in recyclable
cardboard tubes instead of
bubble wrap. The tubes offer
better protection for the
actuators in transit and
reduce the use of plastic.
How to
reduce scrap
We updated the design of
our STAD manual balancing
valve, which delivers accurate
systems balancing across a
range of heating and cooling
systems. The resulting
more compact design
has significantly reduced
our scrap rate.
34 IMI plc Annual Report & Accounts 2019
Other environmental
initiatives
Across our Group a range of other
initiatives are being implemented by our
businesses to minimise their environmental
impact. These initiatives include reducing
the use of plastic, designing and utilising
Apps to manage internal processes and
limit paper consumption and purchasing
consumables, such as protective gloves,
that are manufactured using eco-
friendly materials.
Our recently constructed IMI Precision
site in India included technologies to
reduce their environmental impact
such as: energy efficient and motion
controlled lighting, new paper packaging
equipment to remove the use of plastics
when shipping our products and the
installation of a rainwater harvesting
system to reduce the volume of mains
water needed by the facility.
At our new IMI Critical Engineering
facility in Japan, as in other IMI Critical
facilities, a water reclamation system
has been installed for the Hydrostatic
testing operation. Following the testing
process, the water is filtered, cleaned
and returned to holding tanks for reuse
in the testing processes. These systems
minimise the requirement for additional
water for each test.
Sustainability:
www.imiplc.com/esg/sustainable-approach
Introduction
Strategic Report
Corporate Governance
Financial Statements
How we contribute
to the communities
where we operate
During the course of the 2019 IMI Way
Day employees across the Group took
part in a range of community activities
including volunteering with the Salvation
Army, visiting and donating items to
a local orphanage, planting trees in a
local park, volunteering at a children’s
respite centre and gardening at a large
community project.
Contributing to the communities
where we operate
We recognise our responsibility to the communities around the world in
which we operate.
We recognise our responsibility to the
communities around the world in which
we operate. We support a range of
local charities and contribute funding to
organisations who provide emergency
support in crisis situations. During
our IMI Way Day employees spend
time supporting a local community
charity or project. This day is an annual
event and, in addition to undertaking
community activities, our employees
also participate in discussions about
the IMI Way of doing business in line
with our values and our Code.
The support we provide to the local
communities where we operate helps
build trust and reinforces our team
building and collaborative approach.
It also helps us both recruit and
retain people who share our
values and purpose.
Non-financial information
statement
Our statement, which sets out where
information that relates to non-
financial matters can be in found in this
Annual Report, is included on page 99.
35
Our stakeholders
Fold out:
IMI Eco-system
Our ability to fulfil our purpose and generate
sustainable value is dependent on a wide range
of stakeholders. We run our business in a
responsible way and proactively engage with
and consider them when making decisions.
IMI Critical Engineering
Brno, Czech Republic
36 IMI plc Annual Report & Accounts 2019
Introduction
Strategic Report
Corporate Governance
Financial Statements
The table below shows our key stakeholder groups and summarises their key issues and how we engage with them.
For information about how stakeholder interests are addressed by our business model, see pages 12 and 13.
Our statement pursuant to Section 172 of the Companies Act 2006, which references stakeholder consideration
and other factors in Board decision-making appears on pages 70 and 71.
Our stakeholders
Their priorities
How we engage
Further information
Customers
Innovative solutions
and value
Excellent products and
customer service
Long-term relationship
Ongoing commercial dialogue and our Growth Accelerator
programme
Our Growth Accelerator
programme – see page 17
Customer satisfaction and service data including ”voice of
the customer” feedback, on time delivery metrics and net
promoter score
Training and knowledge sharing programmes including our
Hydronic College’s world renowned training programme
Active sales and marketing initiatives including participation
at industry trade fairs and exhibitions
Industry renowned experts
– see page 30
Employees
Positive culture and good
work environment
Annual Group-wide IMI Way Day
Annual Group-wide employee survey
Reward
Workforce engagement at Board and management levels
Development opportunities
Training and development programmes
European Communications Forum involving employee
representatives from ten European countries
Management and functional conferences
Town hall meetings
Union representation and participation (where relevant)
Group bi-annual magazine
Intranet
Independent confidential hotline
Corporate website
Shareholders
Performance
Annual General Meeting
Strategy and execution
Active Investor Relations programme
Sustainable approach
Investor and analyst engagement
Capital allocation
Chair and senior independent director
available to shareholders
Investor communications and corporate website
Remuneration related consultation
Suppliers
Long-term partnerships
Ongoing commercial dialogue
IMI Way Day survey –
see page 30
Workforce engagement
programme – see pages
30 and 31
Training and development
programmes – pages 29
and 30
Investor Relations
programme
– see page 70
Remuneration related
consultation – see page 81
Modern slavery statement
on our website www.imiplc.
com/esg/ethics
Supplier audits
Supplier summits
Community
Fair and timely payment/
commercial terms
Collaborative approach
Limited impact from
operations
Positive social impact
Employment opportunities
Environmental impact on
neighbourhood where we
operate
Local community outreach activities
Participation in and support of charitable initiatives
Community activities –
see page 35
Published environmental policy and metrics demonstrate a
responsible approach
Governments
Employment
Engagement in relation to specific issues on an ad hoc basis
Tax income
Sustainable approach to
business
Good corporate citizen with on time tax filings and other
submissions to regulators and governments
Tax policy on our website
www.imiplc.com/esg/ethics
41
IMI Eco-system
Our products and expertise are used in a
wide range of industries to help solve our
customers’ problems and allow them to
operate safely, cleanly and efficiently.
Breakthrough Engineering for a better world.
Offshore
Platform
Refinery
Industrial
Automation
How can a refiner ensure
reliability of application
when it is constantly
changing its feeds?
In a dynamic and rapidly changing
economy, a refiner can be required to
refine dozens of different feed stocks in
a single year, each one requiring different
process parameters, including flue gas
rates. IMI Critical’s Variable Orifice
Valves allow an upgrade to a version that
provides a precise flow control, regardless
of the flue gas rate. Working closely with
customers, IMI Critical used its leading
technology and engineering expertise
to deliver the solution.
How do you support a
customer who’s having a
problem with a competitor’s
actuator?
A company in North America was having
difficulty with a competitor’s actuator
where the compressed air system wasn’t
draining water effectively, leading to
corrosion problems. Bimba was able to
provide a replacement, with a stainless
steel spring, in less than 4 weeks. Bimba’s
distribution partner also supported the
customer with new and more flexible
stocking arrangements that more
closely matched the customer’s usage.
How can an offshore oil
and gas platform avoid
the need for dangerous
and wasteful flaring?
By applying technologies to keep
associated gas underground, including
inflow control devices in oil wells and
gas breakthrough control at the
surface, IMI’s use of high integrity
pressure protection systems (HIPPS)
avoids the need for flaring in case
of over pressurisation. IMI CCI’s
extensive experience in installing
and maintaining HIPPS is a reliable,
cost effective solution which reduces
customer’s capital expenditure
and never compromises on safety.
That expertise and close customer
collaboration ensures success for IMI.
37
Our role
in the world.
Shopping
Centre
Hospital
Life Sciences
How does a large shopping
centre manage many
tenants’ heating demands,
efficiently?
Kongahälla, is a new large shopping
centre close to Gothenburg. To
accommodate tenants moving in at
different times and each tenant’s specific
temperature control requirements,
IMI Hydronic created an adaptable
heating and cooling system to
accommodate tenants’ changing needs,
whilst optimising energy efficiency.
Established expertise and close customer
support helped to win this project.
How does a Swedish
medical centre manage
temperatures over a multi-
building site?
To monitor and control temperatures
for the Sodra Hospital in Sweden,
which includes 35 buildings spread over
50 acres, engineers from IMI Hydronic
developed a complex solution that reliably
and accurately monitors and controls
the indoor temperature across the entire
hospital. The unique expertise of IMI
Hydronic and close customer support
ensured success for IMI.
How do you make a
groundbreaking portable
diagnostic instrument
compact and reliable?
An instrument being developed by
a customer that allows diagnosis of
illnesses within hours, as opposed to days,
is truly groundbreaking and potentially
life-saving. IMI Precision worked alongside
the customer to develop a minute
manifold assembly that creates multiple
reliable flow paths. Collaboration and
quick turnaround of a prototype were
key factors in IMI Precision’s success.
Our expertise ranges from
emission controls in trucks
to micro-components in life-
saving diagnostic equipment.
Everywhere, adding value.
Massimo Grassi
Divisional Managing Director
IMI Precision Engineering
In both established and
targeted markets, customers
rely on IMI to improve safety,
increase efficiency and
reliability and reduce waste.
Jackie Hu
Divisional Managing Director
IMI Critical Engineering
Rail
Apartment
Complex
Commercial
Building
How do you guarantee a
reliable and safe journey
for 240 million passengers
each year?
A metro service provider in Australia
found that their air system was causing
premature failure to critical components,
voiding their warranty. Tackling this issue
has seen IMI Precision work closely with
the customer to develop an innovative
compressed air dryer solution that
enhances the operational efficiency
and ongoing reliability of their fleet.
This innovative technology and the
ability to provide a bespoke solution
for the customer played a key role in
IMI Precision’s success.
How can a large apartment
complex reduce energy
consumption and costs?
How does a large office
development achieve gold
level green building status?
As part of the refurbishment of the De
Viever Roermond apartment complex in
the Netherlands, IMI Hydronic products
were specified to change the heating
system from a crude “on/off” system
to one with a modulating function. As
a result, the complex’s annual energy
consumption was greatly reduced. IMI’s
expert knowledge of the whole system
and close collaboration with the customer
delivered success for both.
Orhideea Towers is a large office
development in Bucharest for which
IMI Hydronic has developed tailored
heating and cooling solutions that
deliver enhanced energy efficiency and
performance and contributed to the
development achieving “green building”
status and LEED Gold certification.
Technical expertise and close customer
support helped IMI to win.
We work closely with our
customers to solve industry
challenges, most particularly to
reduce energy usage in buildings,
whilst improving comfort.
Phil Clifton
Divisional Managing Director
IMI Hydronic Engineering
Commercial
Vehicle
LNG
Combined Cycle
Power Plant
How do commercial vehicle
operators comply with
regulations and avoid costly
maintenance or fines for
ineffective lift-axles?
Federal and state regulations have
strict lift-axle requirements for load
carrying and weight limits on commercial
vehicles. The IMI Intelligent Lift Axle
Control Module eliminates load weight
guesswork and offers automatic and
consistent deployment and retraction
of lift axles based on configurable
load settings through an app. Close
collaboration with key fleets and
distributors – as well as established
expertise – delivered a
high quality solution.
How can a LNG plant
operator be confident the
compression valves are
reliable and safe?
How does a Power Plant
operator evaluate and
resolve an unreliable and
leaking control valve?
Under cryogenic temperatures and
in the harshest of environments,
traditional ball valves can be problematic,
inefficient and unreliable. IMI has a
perfect solution, where traditional ball
valves are failing. The unique C-Rex
cryogenic ball valve design offers friction
free operation, and more cost-effective
automation and maintenance. It is also
fire-safe and suitable for hazardous
operations. This also makes it a perfect
candidate for long life service and high
endurance processes. Our technical
expertise and ability to engineer
solutions to customers’ specific
problems help ensure that we win.
After contacting IMI Critical for advice,
an IMI Critical Valve Doctor developed
a re-configured solution, drawing from
renowned technology but engineered
specifically for the customer’s
application. The new IMI CCI Drag
Valve was duly specified. IMI won the
commitment of the customer through
a combination of existing expertise and
close customer support, to create a
clean, efficient and safe solution.
40
Operational review
IMI Precision Engineering specialises in the design and
manufacture of motion and fluid control technologies
where precision, speed and reliability are essential to
the processes in which they are involved.
Adjusted revenue
£907m
Adjusted operating profit
Down
1%
£148m Down
3%
How does a manufacturing customer
improve competitiveness by eliminating time
consuming tool changes?
Customers for Norgren Automation Solutions’ new ‘Transforming Tooling’
system will be able to optimise complex material handling applications,
significantly reduce recurring tooling costs and replace manual tool change
with the instant tool changeover between applications the new system
provides. The combination of a proven solution, originally deployed by
IMI in Automotive manufacturing, with excellent application engineering
ensured early success with this exciting opportunity.
IMI Precision Engineering
Alpen, Germany
42 IMI plc Annual Report & Accounts 2019
2019 performance
2019 has been a year of mixed end markets
for IMI Precision, but one where the business
has nonetheless delivered a robust result.
The division continued to be impacted by
weakness in the early-cycle Industrial
Automation markets as volumes declined
throughout the year, with revenues of
£509m being 6% lower than in 2018 on
an organic basis. Both Europe and the
Americas experienced decline, while
Asia Pacific delivered modest growth.
Commercial Vehicle revenues grew in
the first half but ended the year 2%
lower than 2018 on an organic basis
at £194m. As expected, the business saw
a progressively weakening order and sales
pattern during the year, with Commercial
Vehicle sales down 13% on an organic basis
in the fourth quarter. The Life Sciences,
Energy and Rail segments did, however,
deliver growth in the year.
Continuing progress is being made with the
integration of Bimba into IMI Precision’s
North American operations and we remain
on-track to deliver our targeted returns.
Lower revenue led to the decline in profits
for the year. The margin impact was
minimised by the successful execution of
material cost reductions, value-pricing
and restructuring initiatives in the year.
Outlook
Reflecting the current market headwinds
in Factory Automation and Commercial
Vehicle segments, we currently expect
organic sales and profits in the first half
of 2020 to be c.7% to 10% lower than
in the same period in 2019.
Massimo Grassi
Divisional Managing Director
Key achievements
» European and Americas
customer-focused
organisation structure
successfully established
» Immediate profit
improvement actions
limited the margin decline
from revenue reduction
» Structural reorganisation
plans on track to streamline
operations
43
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Operational review
IMI Critical Engineering is a world-leading provider
of flow control solutions that enable vital energy and
process industries to operate safely, cleanly, reliably
and more efficiently. Our products control the flow
of steam, gas and liquids in harsh environments and
are designed to withstand temperature and pressure
extremes as well as intensely abrasive or corrosive
cyclical operations.
Adjusted revenue
£651m
Adjusted operating profit
Down
5%
£90m Up
2%
The Pharmaceutical sector is a
growing market for IMI Critical
Engineering, following the
acquisition of IMI PBM
44 IMI plc Annual Report & Accounts 2019
Jackie Hu
Divisional Managing Director
Key achievements
» Order intake growth includes
LNG and Marine strength
» Growth Accelerator
programme delivers
early wins
» Good progress with profit
improvement initiatives
2019 performance
Critical Engineering has made good
progress in the year, whilst successfully
balancing the improving conditions in a
number of sectors with the expected,
continuing structural decline in New
Construction Power.
Order Input for the year increased by 5%, on
an organic basis. New Construction orders
were £333m, 10% higher when compared
to 2018 on an organic basis. The business
continues to capitalise on the current LNG
investment wave, which has helped Oil & Gas
orders to return to growth. Fossil Power New
Construction orders fell by 25% on an organic
basis as expected, although IMI Critical
Engineering continues to win the more
attractive projects within the segment.
Growth in Marine was particularly strong in
the year, which helped offset anticipated
declines in Petrochemical and Water.
Aftermarket order input was £364m, 2%
higher than in 2018 on an organic basis.
Both Petrochemical and Nuclear segments
performed well, while the Oil & Gas segment
delivered modest growth. Power Aftermarket
declined 8% on an organic basis, principally
because the business could not offset the
one-off parts orders which came with New
Construction bookings in the prior year.
Upgrade Aftermarket orders were
particularly strong in the year, delivering
9% organic growth. The closing order book
for 2019 was £516m, 9% higher than the
previous year, with the mix of orders slightly
favouring New Construction.
Organic revenue at £651m was 6% lower
than in the previous year – in-line with the
opening 2019 order book and with our own,
earlier guidance. When the three-month
contribution of PBM and a £3m currency
benefit are included, adjusted revenue
was 5% lower.
Operating profit of £90m was 1% lower
than 2018 on an organic basis. The
successful execution of the division’s
reorganisation and profit improvement
initiatives contributed to this outcome.
The division’s margins improved 90bps
in the year, despite the fall in overall revenue.
Outlook
In the first half of the year we expect some
organic sales growth, compared with the
same period last year. Margins are also
expected to improve, supported by the
growth in revenue and further benefits
from restructuring.
How does a pharmaceutical
customer make its tanks drain
effectively and cleanly?
A major Pharmaceutical manufacturer had problems
with drain valves, reducing the efficiency and reliability
of its clean process. IMI PBM recently developed a
valve solution to this specific industry issue. Its draining
performance is significantly better. More importantly,
it is demonstrably ‘clean’. Close collaboration with the
customer, and the ability to deliver such a specialist
solution quickly, ensured IMI PBM’s success.
45
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Operational review
IMI Hydronic Engineering is a leading provider of
technologies that delivers energy efficient water-based
heating and cooling systems for the residential and
commercial building sectors.
Adjusted revenue
£315m
Adjusted operating profit
Up
2%
£57m Up
9%
How can a building engineer be
confident that a heating and cooling
system meets performance and low-
carbon emission targets?
The heating and cooling system in a building where there
are many and varied demands for temperature control in
different rooms, needs both excellent components and an
effective control system. The unique Hydronic College team
successfully developed and supported a solution that met
both comfort and efficiency expectations for the Bocconi
University campus in Milan, Italy. The renowned expertise
of Hydronic College and close customer support from
design to commissioning were key to IMI’s success.
46 IMI plc Annual Report & Accounts 2019
Phil Clifton
Divisional Managing Director
Key achievements
» Solid growth in core German,
Swiss and Nordic markets
» Continued good progress
towards 20% margins
» Supply chain and
manufacturing reorganisation
to generate £3m annual
savings
2019 performance
The majority of the markets in which IMI
Hydronic Engineering operates continue
to be stable. The division has made further,
good progress executing its plans to
improve profitability and re-invigorate
its platform for sustainable,
profitable growth.
Organic revenue was £315m, 3% higher
than in 2018. Including the impact of
foreign exchange, adjusted revenue
was 2% higher. Core markets including
Germany, Switzerland and the Nordic
region delivered good growth in the year,
offsetting some softness elsewhere.
Within the business segments, sales for
IMI TA Balancing & Control increased 1%,
compared to 2018 on an organic basis.
Europe delivered good growth, countering
the impact of our exit from lower
margin projects.
IMI Heimeier thermostatic control
products also grew sales by 1% versus
2018 on an organic basis – again reflecting
good growth in the core German market
offset by the closure of our low margin
Turkish business. There was also good
progress for IMI Pneumatex water quality
products in Switzerland, and successful
cross-selling of the Pneumatex range
across Europe, supporting 6% higher
revenue than in 2018.
The continuing focus on improving
profitability delivered an operating margin
of 18.0%, 120bps higher than in 2018.
Operating profits of £57m for the year
were 5% higher than the prior year.
Outlook
Given prevailing market conditions, we
expect first half organic revenue to show
some growth when compared to the same
period in 2019, with margin improvement
delivered through further efficiency gains.
Our Hydronic College provides
world-leading training and
knowledge sharing programmes
47
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Financial review
IMI achieved a good
financial result in 2019,
with improved margins
and cash generation
despite the difficult
trading environment.
Key highlights
Continuing
operations:
Revenue
Operating profit2
Operating margin2
Profit before tax
Basic EPS3
Operating cash flow4
Dividend per share
Net debt
Adjusted1
Statutory
2019 FY5
£1,873m
£266m
14.2%
£251m
73.2p
£299m
41.1p
£438m
2018 FY
£1,907m
£266m
14.0%
£251m
73.2p
£222m
40.6p
£405m
Change
Organic6
2019 FY
2018 FY
Change
-3%
-3%
£1,873m
£204m
£1,907m
£232m
£189m
57.6p
£213m
62.5p
-2%
-12%
-11%
-8%
-2%
0%
+20bps
0%
0%
+35%
+1%
1 Excluding the effect of adjusting items as reported in the income statement.
2 Operating profit and margin in 2018 excludes £0.8m non-adjusting
4 Operating cash flow, as described in Note 19 to the financial statements.
5 Including IFRS 16 and notional rent accounting changes, see Note 4 for
restructuring costs.
further details.
3 Statutory amounts for Basic EPS include both continuing and
6 After adjusting for exchange rates and excluding the impact of acquisitions
discontinued operations.
and disposals and lease accounting changes (see Note 4).
Results summary 2019
To facilitate a more meaningful review of performance, certain
alternative performance measures (‘APMs’) have been included
within this Annual Report. These APMs are used by the
Executive Committee to monitor and manage the performance
of the Group. We consider that the presentation of adjusted
results allows for improved insight to the trading performance
of the Group. Movements in adjusted revenue and adjusted
operating profit are given on an organic basis (see definition in
Note 3) so that performance is not distorted by acquisitions,
disposals and movements in exchange rates. A table
summarising the reconciliation of adjusted measures to
statutory measures is included in Note 4.
The Group delivered a good financial result in the year, as both
margins and cash flow improved despite the difficult trading
conditions experienced in certain end markets. Revenue
decreased by 2% to £1,873m (2018: £1,907m). After adjusting
for the favourable exchange rate impact of £12m, the £8m
contribution of IMI PBM in 2019 and £9m to represent a full
year of Bimba sales in 2018 (as the business was acquired on
31 January 2018, see Note 23), organic revenue was 3% lower
and reflects the challenging economic markets in IMI Critical
and IMI Precision. Statutory revenue decreased by 2% to
£1,873m (2018: £1,907m).
IMI Critical completed the acquisition of PBM in September
2019, providing the division access into the growing
pharmaceutical and food processing markets. Given the
acquisition timing, the impact on the Group’s results for
the year was minimal.
Adjusted operating profit of £266m (2018: £266m) was
flat and after removing the impact of exchange rates, the
acquisitions of PBM and Bimba, was lower by 3%. The adjusted
operating margin was 14.2% (2018: 14.0%) as the Group
was able to improve margins despite the market headwinds.
Both IMI Critical and IMI Hydronic grew margins in the year,
supported by cost and value-pricing initiatives. IMI Precision
saw a small margin reduction due to revenue declines in its
two largest market segments. Statutory operating profit
was £204m (2018: £232m).
48 IMI plc Annual Report & Accounts 2019
Adjusted net financing costs on net borrowings were £14.9m
(2018: £12.9m) and includes in 2019 the impact of £2.3m
interest cost following the adoption of the new IFRS 16
accounting standard on leases. Adjusted net financing costs
were covered 24 times (2018: 25 times) by continuing adjusted
earnings before interest, tax, depreciation, amortisation,
impairment and adjusting items of £357m (2018: £320m)
and included £32m of depreciation on our leased assets in
2019. The net pension financing expense under IAS 19 was
£0.5m (2018: £1.4m expense).
Adjusted profit before taxation was £251m (2018: £251m),
which is flat compared to 2018. Statutory profit before
taxation declined 11% to £189m (2018: £213m) as the
Group increased its restructuring activities to address current
market realities and improve long-term competitiveness.
Adjusting items and
discontinued operations
Adjusting Items
Reversal of net economic hedge contract
losses
Restructuring costs
Gains on special pension events
Impairment losses
Acquired intangible amortisation and other
acquisition items
Gain on disposal of subsidiaries
Gain on disposal of properties
Indirect taxes arising on reorganisation
Net financing income/(costs)
Tax in connection with the above adjusting items
2019
£m
4
(52)
9
(2)
(21)
-
-
-
-
17
2018
£m
2
(12)
7
(2)
(29)
1
3
(3)
(5)
9
Adjusting items that are excluded from profit before tax are
listed below:
» Changes in the fair value of economic hedges which are not
designated as hedges for accounting purposes, together with
the gains and losses on their settlements, are included in the
adjusted revenues and operating profit of the relevant
business segment with the net gain at £4m (2018: £2m).
The adjusting items at the operating level reverse this
treatment. The net financing adjusting items reflect the
change in value or settlement of these contracts with the
financial institutions with whom they were transacted.
» The restructuring costs of £52m (2018: £12m) are as a result
of a number of significant restructuring projects across the
Group. These include a cost and footprint rationalisation
program within IMI Precision, £25m in Europe and £5m in the
Americas, and cost reduction action within the Central team
of £1m. In IMI Critical, adjusted restructuring costs related
to a divisional reorganisation of £9m and restructure of the
EMEA region of £9m. In addition, there were restructuring
costs relating to the Corporate head office and IMI Hydronic
of £3m.
» In 2019, gains on special pension events were £9m (2018:
£7m). A gain in respect of an accounting adjustment for
Swiss disability benefits was recognised for £5m. In addition,
within Switzerland there was a gain of £3m in respect of a
restructure of the pension benefits and curtailment and
settlement gains of £1m.
» In 2019 the Group recorded an adjusting impairment charge
of £2m associated with the restructuring programme
ongoing in IMI Precision and IMI Critical. In 2018, an
impairment of £2m was recognised against the goodwill
associated with the IMI Hydronic services companies CGU
(Cash Generating Unit) in the IMI Hydronic division.
» Acquired intangible amortisation is excluded from adjusted
profits, to allow for better comparability of the performance
across divisions. This allows users of the financial statements
to gain a clearer understanding of the performance of the
business, with the impact of amortisation identified
separately in line with internal reporting to management.
Acquired intangible amortisation reduced to £20m (2018:
£25m). The decrease in 2019 reflects the amortisation of the
intangible assets recognised on the acquisition of Bimba in
2018, including the full amortisation of the Bimba order book
which contributed £4m to the charge. Also included is a
release of the fair value uplift to inventory, recognised as part
of the PBM acquisition accounting in accordance with IFRS 3
‘Business Combinations’, of £1m (2018: £4m relating to the
Bimba acquisition).
» A net gain arose on the revaluation of financial instruments
and derivatives under IFRS 9 of £0.4m (2018: £5m loss).
» There was a pre and post-tax gain of £3m (2018: nil) from
discontinued operations in 2019 relating to the release of an
indemnity provision for a historical discontinued operation.
There was no cash impact of this.
Taxation
The adjusted effective tax rate for the Group remained at 21%
(2018: 21%). The total adjusted tax charge for the year on
continuing operations was £53m (2018: £53m). The Group
seeks to manage its tax affairs within its core tax principles of
compliance, fairness, value and transparency, in accordance
with the Group’s Tax Policy which is available on the Group’s
corporate website.
Earnings per share
The Board considers that a more meaningful indication of
the performance of the Group is provided by adjusted earnings
per share. Adjusted basic EPS was 73.2p, flat on last year.
Statutory basic EPS decreased by 8% at 57.6p (2018: 62.5p)
and statutory diluted EPS decreased by 8% at 57.6p
(2018: 62.4p).
49
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Financial review
Cash flow
Movement in net debt
Adjusted EBITDA* from continuing operations
Working capital movements
Capital and development expenditure
Provisions and employee benefit movements**
Principal elements of lease payments
Other
Adjusted operating cash flow***
Adjusting items****
Operating cash flow
Interest
Derivatives
Tax paid
Cash generation
Additional pension scheme funding
Free cash flow before corporate activity
Dividends paid to equity shareholders
Acquisition of subsidiaries
Net purchase of own shares
Net cash flow (excluding debt movements)
Reconciliation of net cash to movement
in net borrowings
Net (decrease)/increase in cash and cash equivalents
excluding foreign exchange
Net repayment/(drawdown) of borrowings excluding
foreign exchange and net debt
disposed/acquired
Decrease/(increase) in net debt before acquisitions,
disposals and foreign exchange
Net cash/(debt) acquired
Currency translation differences
Movement in lease creditors
Movement in net borrowings in the year
Net borrowings at the start of the year
Net borrowings at the end of the year
2019
£m
2018
£m
357.3
320.1
12.9
(65.8)
6.5
(31.3)
19.2
(50.3)
(58.4)
2.3
-
7.8
298.8
221.5
(26.2)
(8.9)
272.6
212.6
(14.9)
16.1
(40.2)
(12.9)
(18.4)
(41.1)
233.6
140.2
(7.0)
(10.1)
226.6
130.1
(110.8)
(107.9)
(69.0)
(122.6)
(3.4)
43.4
(5.3)
(105.7)
(19.5)
(19.7)
62.9
(86.0)
43.4
(105.7)
1.0
12.7
(90.4)
(15.0)
(18.6)
-
(33.3)
(139.3)
(404.5)
(265.2)
(437.8)
(404.5)
* Adjusted profit after tax (£198.1m) before interest (£15.4m), tax (£52.6m),
depreciation (£76.2m) and amortisation (£15.0m).
** Movement in provisions and employee benefits as per the statement of
cash flows (£29.2m) adjusted for the movement in the restructuring and
discontinued operation provisions (£22.7m).
*** Adjusted operating cash flow is the cash generated from the operations
shown in the statement of cash flows less cash spent acquiring property,
plant and equipment, non-acquired intangible assets and investments; plus
cash received from the sale of property, plant and equipment and the sale
of investments, excluding the cash impact of adjusting items. This measure
best reflects the operating cash flows of the Group.
**** Cash impact of adjusting items.
Adjusted operating cash flow was £299m (2018: £222m).
After the £26m cash outflow from adjusting items (2018:
£9m outflow), the operating cash flow was £273m (2018:
£213m). This represents a conversion rate of total Group
adjusted operating profit against adjusted operating cash
flow of 112% (2018: 83%).
50 IMI plc Annual Report & Accounts 2019
Net working capital balances decreased £13m due to a
reduction in receivables of £45m as a result of good cash
collection across the Group. This was partially offset by a
decrease in payables of £17m due to overall payment timing
and an increase in inventory of £15m. The increase in 2018 of
£50m was due to an increase in receivables of £8m, a decrease
in payables of £47m offset by a decrease in inventory of £6m.
Cash spent on property, plant and equipment and other
non-acquired intangibles in the year was £66m (2018: £58m)
which was equivalent to 1.1 times (2018: 1.1 times) depreciation
and amortisation thereon. Research and development spend
including capitalised intangible development costs of £6m
(2018: £7m) totalled £49m (2018: £49m).
In 2019 the Group paid tax of £40m (2018: £41m) which was
76% (2018: 78%) of the adjusted tax charge for the year.
Dividends paid to shareholders totalled £111m (2018: £108m)
and there was a cash outflow of £3m (2018: £5m outflow)
for net share purchases to satisfy employee share options.
Balance sheet
Net debt at the year-end was £438m compared to £405m
at the end of the previous year. The increase reflects the
acquisition of PBM during the year of £69m and lease liabilities
recognised of £90m, partly offset by strong cash generation.
The net debt is composed of a cash balance of £88m (2018:
£132m), a bank overdraft of £60m (2018: £83m), interest-
bearing loans and borrowings of £376m (2018: £454m) and
lease liabilities of £90m (2018: nil).
The year-end net debt to adjusted EBITDA ratio was 1.2 times
(2018: 1.3 times) based on continuing adjusted EBITDA. At the
end of 2019, loan notes totalled £358m (2018: £454m), with
a weighted average maturity of 6.3 years (2018: 6.2 years)
and other loans including bank overdrafts totalled £78m
(2018: £83m). Total committed bank loan facilities available
to the Group at the year-end were £300m (2018: £300m),
of which £17m (2018: £nil) was drawn.
At 31 December 2019, the value of the Group’s intangible
assets was £619m (2018: £607m). The increase of £12m over
the prior year was predominately due to the recognition of
intangible assets following the PBM acquisition, offset by the
amortisation and impairment charges for the year of £35m
and a decrease arising from exchange movements of £27m.
The net book value of the Group’s PPE at 31 December 2019
was £271m (2018: £284m). Capital expenditure on PPE
amounted to £47m (2018: £38m), with the main capital
expenditure focused on a new Japan facility in IMI Critical,
which was funded from the sale of the existing older facility
in 2018. Including capitalised intangible assets, total capital
expenditure was £66m (2018: £58m) and was 1.1 times
(2018: 1.1 times) the depreciation and amortisation charge
(excluding acquired intangible amortisation and lease asset
depreciation) for the year of £59m (2018: £55m).
The net deficit for defined benefit obligations at 31 December
2019 was £31m (2018: £52m deficit). The UK surplus was
£48m (2018: £28m surplus) and constituted 76% (2018: 75%)
of the total defined benefit liabilities and 88% (2018: 87%) of
the total defined benefit assets. The deficit in the overseas funds
as at 31 December 2019 was £79m (2018: £80m deficit).
Return on capital employed (‘ROCE’)
The Group uses ROCE as an indication of IMI’s ability to deploy
capital effectively. The Group’s definition is Adjusted Operating
Profit after tax divided by Average Capital employed. Capital
employed is defined as net assets adjusted to remove net debt,
derivative assets/liabilities, defined benefit pension position
(net of deferred tax) and to reverse historical impairments of
goodwill and amortisation of acquired intangibles. ROCE was
11.4% in 2019 (2018: 12.8%) with the reduction partly due to
the new IFRS 16 leasing accounting standard, which reduced
the measure by 60bps. The figure was also impacted by the
acquisition of PBM in September 2019.
Impact of IFRS 16
The Group adopted the modified retrospective approach
regarding the new leasing accounting standard IFRS 16.
Therefore, the Group has not restated comparative disclosures
for the impact of IFRS 16, which came into effect from 1
January 2019. The impact of IFRS 16 is highlighted throughout
as required, with further details included in Note 4 and Note 13.
Acquisitions
Acquisitions are an important part of our strategic growth
plans. On 20 September 2019, the Group acquired 100% of
the share capital, and associated voting rights, of PBM Inc.
(PBM) for a cash consideration of £69.0m. PBM is a market
leading manufacturer of ball valves and flow control solutions
based in North America and provides IMI Critical with key
access into the growing pharmaceutical and specialty chemical
markets. The acquisition was funded from our existing banking
facilities. PBM contributed sales of £7.5m and profits of
£1.1m in 2019 to the Group’s results.
In January 2018, the Group acquired 100% of the share capital,
and associated voting rights, of Bimba Manufacturing Company
(Bimba) and its subsidiaries for cash consideration of £138.4m.
Bimba is a market leading manufacturer of pneumatic, hydraulic
and electric motion solutions based in North America. Bimba is
now well integrated into the Group and will provide a great
strategic fit with our North American business.
Foreign exchange
The income statements of overseas operations are translated
into sterling at average rates of exchange for the year, balance
sheets are translated at year end rates. The most significant
currencies are the euro and the US dollar – the relevant rates
of exchange were:
The movement in average exchange rates between 2018 and
2019 resulted in our adjusted 2019 revenue being 1% higher
and adjusted operating profit being 1% higher as the average
US dollar rate was 4% stronger and the Euro rate was
1% weaker.
If the average exchange rates for January 2020 of US$1.31
and €1.18 were projected for the full year and applied to our
2019 results, it is estimated that both adjusted revenue and
profits (including corporate costs) would be 3% lower.
Treasury
IMI has a centralised Treasury function that provides treasury
services to Group companies including funding liquidity, credit,
foreign exchange, interest rate and base metal commodity
management. The Group Treasury function effectively
manages financial risks in compliance with Board-approved
policies. An external audit of the Group Treasury function in
2019 confirmed the effectiveness of controls in the Group
Treasury function. Further details of the Group’s financial
risk management are included in Note 18.
Brexit
The Group generates 5% of sales in the United Kingdom.
Whilst not a significant percentage of the Group’s revenue,
the Group has taken steps to fully prepare for any potential
impacts following the UK’s withdrawal from the EU on 31
January 2020. We have fine-tuned our Brexit mitigation plan
and continue to hold a Brexit contingency stock of £3m at the
year end. Developments are being monitored and further
mitigation actions may be taken as appropriate. Brexit is
also considered within our principal risks, see page 56.
Capital allocation & dividend policy
The Board determines the appropriate capital structure for the
Group, specifically, how much cash is raised from shareholders
(equity) and how much is borrowed from financial institutions
(debt) in order to finance the Group’s activities both now and
in the future.
The Board considers the Group’s capital structure and dividend
policy at least twice a year ahead of announcing results in the
context of its ability to continue as a going concern and deliver
its business plan.
The Board is mindful that equity capital cannot be easily flexed
and raising new equity would normally be likely only in the
context of an acquisition. Debt can be issued and repurchased
more easily, but frequent changes lead to high transaction
costs and debt holders are under no obligation to accept
repurchase offers.
At 31 December 2019, IMI plc (the company) had distributable
reserves of £303m (2018: £320m).
Foreign Exchange
Euro
US Dollar
Average
Rates
Balance Sheet
Rates
2019
1.14
1.28
2018
1.13
1.33
2019
1.18
1.32
2018
1.11
1.28
Daniel Shook
Finance Director
51
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Key Performance Indicators
The Key Performance Indicators (‘KPIs’) set out below represent
financial and non-financial measures which are integral to the
delivery of our strategy and are used to track progress.
Lost Time
Accidents
Per
100,000
hours
0.2
0.15
0.1
0.05
0.11
0.08
0.072
2017
2018
2019
Organic
Sales
Growth
%
10
5
0
-5
0
5
-3
2017
2018
2019
Why is this a KPI?
The health and safety
of all who work at IMI is
paramount. Ensuring a
safe working environment
is closely linked to our
operational progress.
It is also important for
attracting and retaining
the best talent.
Definition
We measure our progress
in this area by tracking our
>1 day lost time accident
frequency rate (‘LTA rate’)
per 100,000 hours. This
includes visitors and
contractors.
Performance
In 2019 our LTA rate
reduced to 15 with no
fatalities, reflecting the
Group’s continued focus on
identifying and reducing
workplace hazards.
Why is this a KPI?
Delivering consistent growth
is an important part of
building sustainable value
for shareholders.
Definition
Organic sales is stated at
constant exchange rates
and excludes the
incremental effect of
acquisitions and disposals.
For 2019 that means we
are including 12 months of
Bimba sales in 2018 and
excluding PBM sales in 2019.
Performance
The decline since 2018
is mainly driven by the
impact of Fossil Power
New Construction
slowdown in IMI Critical
and the wider economic
impact on the IMI Precision
European Industrial
Automation sector.
52 IMI plc Annual Report & Accounts 2019
Employee
Engagement
%
100
75
50
25
67
71
74
2017
2018
2019
Adjusted
Operating
Profit
£m
300
200
100
Why is this a KPI?
The engagement of our
employees is key to retaining
the existing skills and
promoting and attracting
employees who bring new
ideas and capabilities.
Definition
We carry out an annual
employee survey as part
of our ‘IMI Way Day’ and
use the response to certain
questions as the gauge of
employee engagement. This
score is in response to the
percentage of employees
who would recommend
IMI as a good employer
to family and friends.
Performance
Based on the feedback
across the questionnaire
this increased to 74% from
the prior year of 71%.
Why is this a KPI?
Growing our profits will
ultimately generate value
for our shareholders and
create more opportunity
to invest further.
Definition
The Group’s Operating
Profit before the adjusting
items described in Note 3,
which ensures a consistent
basis for comparison.
Performance
We have maintained the
Adjusted Operating Profit
from 2018, despite lower
sales, through our self-help
initiatives in response to
the economic trading
environment, which also
means we have increased
our Operating Margin by
20bps to 14.2%.
239.2
265.5
266.1
2017
2018
2019
Adjusted Operating Profit is a target for the 2020 Annual Bonus. Return on
Capital Employed and Adjusted Earnings per Share are performance targets
for the 2020 IIP. See page 93 for further details.
Cash
Conversion
%
125
100
75
50
25
Why is this a KPI?
Cash generation supports
investment in our business
and enables the Group
to provide returns to
shareholders through
dividends. Strong cash
generation also ensures a
strong balance sheet, giving
customers and suppliers
confidence in the future
of the Group.
Definition
Cash Conversion is the
Adjusted Operating Cash
flow as a percentage of the
Adjusted Operating Profit.
Performance
The increase from prior
year reflects the increased
focus on debtor recoveries
during 2019.
Return on
Capital
Employed
Reflects proforma
adjustment for IFRS 16
%
20
15
10
5
91
83
112
2017
2018
2019
11.8
12.2
11.4
2017
2018
2019
Why is this a KPI?
The measure provides an
indication of IMI’s ability to
deploy capital effectively.
Definition
Adjusted Operating Profit
after tax divided by Average
Capital employed. Capital
employed is defined as net
assets adjusted to remove
net debt, derivative assets/
liabilities, defined benefit
pension position (net of
deferred tax) and to reverse
historical impairments of
goodwill and amortisation of
acquired intangible assets.
Performance
The reduction from prior
year reflects the similar
profit level, an adverse
impact of 0.6% from the
new leases accounting
standard and higher capital
from the PBM acquisition.
Why is this a KPI?
Creating consistent
long-term value for
shareholders.
Definition
Adjusted Profit after tax
divided by the weighted
average number of basic
ordinary shares.
Performance
Performance was flat
year over year, despite the
reduction in sales, due to
our margin improvement
initiatives.
Adjusted
Earnings
Per Share
Pence
100
75
50
25
65.3
73.2
73.2
2017
2018
2019
Our KPIs have been designed
to drive the Group towards
meeting our strategic objectives
outlined in our business model.
See pages 12 and 13 for details.
Business model:
Turn to page 12
Annual Directors’ Remuneration Report:
Turn to page 80
53
IntroductionStrategic ReportCorporate GovernanceFinancial Statements How we manage risk
Our risk management processes are embedded in all of
our businesses and are designed to identify, evaluate and
manage the risks which could impact our performance, our
reputation or our ability to successfully execute our strategy.
Our risk management framework
The Board has overall responsibility for ensuring that we
manage our risk exposure appropriately to achieve our
strategic objectives and build sustainable shareholder value.
This involves assessment of principal risks and emerging risks.
The Board determines our risk appetite and monitors and reviews
the risk management processes we operate. The Board delegates
responsibility for implementing and monitoring internal controls
and other elements of risk management to the Chief Executive
and the Executive Committee. The Board has also tasked its
committees with responsibility for key areas of risk, as follows:
» oversight of financial reporting, internal financial controls
and assurance processes – the Audit Committee;
» talent and succession risk – the Nominations Committee; and
» remuneration and incentive structure risk – the Remuneration
Committee.
Further information about the roles and responsibilities of the
Board and each Committee is set out on pages 62 to 69.
Our principal risks
The Board assesses the Group’s principal risks which are
detailed on pages 56 to 59. Our analysis of the likelihood
of each of these risks occurring and its potential impact is
illustrated in the graphic below. The Board also review and
discuss this analysis.
Our risk appetite
In determining the nature and level of risk we are prepared
to accept to achieve our strategic objectives, the Board takes
into account a number of factors including our strategic
opportunities, the risks that could affect our business and
our ability to mitigate their impact. During the year we
updated our risk appetite ratings as follows:
Risk appetite
rating
Very prudent
Prudent
Balanced
Receptive
Very
receptive
Definition
No/very low tolerance to risk, regardless of the
cost of the required controls.
A low risk approach via sufficient and proportional
controls and mitigation, in the knowledge this will
limit any potential reward.
Applied in circumstances where there is a high
chance of success, equal consideration is given
to the achievement of strategic objectives and
potential negative risk impact.
Risk reduction not carried out in instances of
disproportional cost.
Elevated levels of risk accepted in the case of
opportunities that offer improved returns.
High levels of risk accepted in the case of
unproven or new projects that offer significant
returns or growth potential.
Principal risk matrix
1. Global economic or political instability
2. Increasingly competitve markets
3. Failure to deliver major projects on time
4. Quality issues
5. Failure to integrate acquisitions
6. Unauthorised access to IT system
7. Failure to comply with legislation
8. New product development
Size = impact of risk
54 IMI plc Annual Report & Accounts 2019
w
o
L
e
m
o
S
h
g
H
i
l
o
r
t
n
o
c
f
o
t
n
u
o
m
A
7
1
2
5, 6 & 8
3 & 4
Remote
Possible
Likelihood
Probable
Emerging risks
The Board also assesses the risks that could impact the
Group which have not yet occurred but are at an early stage
of becoming known and are expected to become more
significant. We monitor and review emerging risks as part
of our monthly operational and Executive Committee review
processes. Consideration of emerging risks also forms part
of our strategy review process.
Emerging risks that could be relevant to our business include
new technological advances including the “Internet of Things”
and in particular digital capabilities embedded in products
that enable predictive maintenance and reduce unplanned
downtime. These advances could impact our business model
particularly if we are slow to respond to customer demand.
Climate change
Climate change is one of the global megatrends that is driving
demand for our products and services. Increasingly customers
are looking to us to provide fluid control engineering solutions
that help them minimise their impact on the environment and
operate their businesses efficiently and effectively. Examples of
some of our innovative solutions are set out on pages 38 to 41
and 46. As explained on pages 32 to 34 we are committed to
running our own operations in a responsible way to minimise
our impact on the planet.
Climate change also creates potential risk for our business.
For example extreme weather and natural hazards, which
are becoming more common, could impact our day-to-day
operations. We have contingency plans in place at each of
our manufacturing plants and key commercial operations to
mitigate the impact of our business being adversely affected
by climate events. Specifically in relation to our IT systems,
we have disaster recovery plans and implement stringent
back up procedures in all our businesses. We also maintain
comprehensive property damage and business insurance
interruption cover.
We support the Task Force on Climate-related Financial
Disclosures (“TCFD”) recommendations in relation to the
disclosure of information about the risks and opportunities
presented by climate change. In the coming year we will
enhance our governance and risk management processes to
ensure that climate issues, and their impact on our business,
are regularly assessed, considered and managed.
How we approach risk management
Across the Group we operate a “top-down, bottom-up
approach” to risk management which is illustrated in the
graphic below. This approach allows the Board and the
Executive Committee to actively assess strategic risks and
monitor the measures used to mitigate, transfer or avoid
such risks. It also ensures that operational risks are identified
and managed at multiple levels and that key risk information
is communicated effectively across the Group.
Our risk management process is embedded in all our
businesses and is a core element of our strategy review and
monthly operational meetings. It provides guidance in relation
to the identification, evaluation and management of risks,
including emerging risks, which could impact our performance
and our ability to implement our strategy.
Strategic risk management process
Operational risk management process
» Determines risk appetite.
Board
» Reviews bi-annually a detailed analysis of the Group’s risk profile including
» Reviews principal risks.
» Monitors and reviews risk management
processes.
» Responsible for ensuring risk management
culture is integrated across their division
and aligned to the Group’s objectives.
Divisional
and Group
Executive
» Determines principal risks and mitigation
strategies.
» Monitors changes in the risk profile.
» Monitors quality and effectiveness of
business level risk management processes.
supporting divisional data and the actions undertaken.
» Reviews annually the effectiveness of the Group’s internal controls.
» Develops bi-annually a detailed Group and divisional risk profile which
is based on information uploaded to the Group intranet by each
manufacturing operation. This profile analyses each division’s most
significant risks and outlines mitigation strategies.
» Horizon scans for new emerging risks using a number of mechanisms
including divisional strategic and monthly reviews and market, competitor
and product developments.
» Publish risk profiles for each manufacturing operation to the Group intranet
either once or twice a year depending on the operation’s risk profile.
» Operates and monitors an active and
effective risk management process.
Operating
companies
» Operates reporting systems that increase
management ownership
and accountability.
» Maintains an up-to-date risk profile which identifies the key risks facing
the business, assesses mitigating processes and controls, operates key
performance indicators to validate the effectiveness of those controls and
identifies areas for improvement.
» Provides monthly updates on key risks, mitigation and controls through
incorporation of risk profile data in monthly management reporting process.
55
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Our principal risks
The principal risks facing the Group are shown in order of priority in the table below. This analysis covers how each risk could
impact our strategy, our risk appetite to the particular risk, how our assessment has changed during 2019 and explains what
we are doing to monitor and mitigate each risk area.
Risk, link to strategy and risk appetite
Change
Risk mitigation including specific 2019 actions
Our divisions ensure their forecasting processes provide,
whenever possible, early indications of reduced customer
demand to allow proactive management of plant output.
We have managed the economic instability during the year
through restructuring programmes and footprint changes.
IMI Precision is engaged in a significant cost restructuring
programme. IMI Critical is continuing to right-size its business
and reduce administrative and manufacturing overheads. The
division has also introduced a flatter regional management
structure which will enable it to be more efficient and agile.
While IMI Hydronic’s markets are less sensitive to global
macro-economic factors, the division is continuing to
challenge its cost structure and grow market share through
commercial and technology partnerships and by focusing on
faster growth adjacent markets (for example radiant heating
and control/actuation).
We maintain a balanced portfolio operating across a range of
markets, sectors and geographies with no single dependency.
We undertake enhanced stress testing and sensitivity analysis
of business plans and regularly review key market and sector
metrics.
We have fine-tuned our Brexit mitigation and established,
ahead of the event, Brexit contingency stock. Developments
are being monitored and further mitigation actions may be
taken as appropriate.
We monitor competition risk via selected indicators during
the monthly operational reviews undertaken by each of
our businesses.
Our Growth Accelerator programme (see page 17) aims to
create significant customer-pull by solving industry problems
through applications engineering.
Our Value Engineering activities in all of our divisions are
helping us deliver more competitive products.
We continue to develop our market leading applications
engineering expertise and, in particular, our Valve Doctors in
IMI Critical, our Hydronic College and Engineering Advantage
teams in IMI Precision.
1. Global economic or political
uncertainty
The Group operates in diverse global
markets and demand for our products
is dependent on economic and sector-
specific environments. A downturn
in the global or a regional economy,
brought on by economic cycles, political
instability, health or environmental
emergencies, could impact end market
demand and as a result negatively
impact revenue and our ability to
deliver our strategy and achieve
market expectations.
Link to strategy
Growth acceleration
Commercial excellence
Risk appetite
Balanced
Increased
IMI Critical continues to face
highly competitive markets
and a continued slow-down
in the new construction fossil
power sector. Whilst still in a
strong position, IMI Precision
has also seen a decline in
markets, particularly industrial
automation and predominately
in its largest European market.
IMI Hydronic has seen some
growth opportunities but is
operating in relatively flat
markets.
Health or climate emergencies
can impact regional or global
economic demand and disrupt
supply and delivery chains.
Although the UK formally exited
the EU in January, uncertainty
remains regarding the long-
term economic arrangements.
2. Competitive markets
Increased competition in our core
markets, from both existing and new
competitors, including new entrants
from markets in decline as a result of
economic slowdown. This could create
strong pricing pressures, potentially
resulting in lost sales and
reduced profits.
Increased
In 2019 we saw a sales
downturn in the industrial
markets (in particular Industrial
Automation and Commercial
Vehicle) and continued
margin pressure in the
Fossil Power sector.
Link to strategy
Customer focus
Growth acceleration
Operational excellence
Commercial excellence
Risk appetite
Receptive
Strategy
Turn to page 14
56 IMI plc Annual Report & Accounts 2019
Risk, link to strategy and risk appetite
Change
Risk mitigation including specific 2019 actions
3. Failure to deliver major
transformational projects on
time and on budget
Increased
The Group is continually evolving and
taking opportunities in response to
external conditions and market pressures.
Our current strategy includes large
restructuring programmes and complex
IT system installations. Failure to deliver
the expected objectives on time and on
budget, could have an adverse revenue
and profit impact on the Group.
With the recent acquisition
of PBM and the initiation
of significant restructuring
programmes, project execution
risks have increased in 2019,
particularly given the pressure
that these projects impose on
management capacity and
resources.
We have deep and extensive restructuring and integration
expertise.
We operate robust and proven processes to manage
and monitor major projects, including setting clear and
measurable milestones which are reviewed regularly by our
Executive Committee and divisional management teams.
Divisional restructuring costs and the associated benefits
are tracked against targets on a monthly basis.
Standarised documentation and core processes underpin
all IT projects to support efficient ERP system roll out.
Link to strategy
Customer focus
Growth acceleration
Operational excellence
Commercial excellence
Risk appetite
Prudent
4. Quality issues leading to product
recall, warranty issues, injury,
damage or disruption to
customers’ business
Developing innovative and
technologically advanced products is
at the heart of IMI. The quality and
safety of our products and services is
of the highest importance and failure
to deliver the quality required could
result in negative financial and
reputational damage.
Link to strategy
Customer focus
Growth acceleration
Operational excellence
Commercial excellence
Risk appetite
Very prudent
No change
Inherent risk in this area has
increased primarily due to the
sale of more products with
greater complexity across a
larger geographic footprint. If
unmanaged this could result in
products being sold in territories
without the necessary in-depth
sales support and experience,
which could lead to higher
warranty claims.
However, year on year, the risk
profile remains similar due to
a continuing focus on product
quality and detailed mapping
of our engineering resources
across our customers and
geographies.
Across our operational platform we have well embedded
Lean Assessment quality improvement programmes, Obeya
reviews and Advanced Product Quality Planning processes.
Our most critical projects include extensive testing of the
finished product and customer sign-off.
IMI Hydronic is focusing on developing a smaller number
of new products to ensure its product development and
engineering resources are not overburdened.
57
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Our principal risks
Risk, link to strategy and risk appetite
Change
Risk mitigation including specific 2019 actions
We have in-house M&A expertise and, as highlighted
previously, operate a proven structured integration
process.
The Annual Strategic review process helps identify
value enhancing acquisitions which would align with
the Group’s strategy. Once identified, a formalised
acquisition approval, due diligence and integration
process is followed. Upon completion, a detailed
100-day process is used to ensure adequate resources
are in place, progress is on schedule and the identified
synergies (both hard and soft) are being realised.
We have a well-developed IT security strategy,
which is reviewed monthly. We continue to implement
improvements to our IT infrastructure to keep
abreast of new threats.
We continue to strengthen our security baseline
through the enablement of automated global
software updates and automatic lockdown
capabilities. We have also strengthened our digital
forensic capabilities and remediation processes in
the event of a cyber security incident occurring.
We regularly test our disaster recovery plans to ensure
we have stringent system back up procedures in place.
5. Failure to integrate acquisitions
successfully and deliver the required
synergies
No change
Underperforming acquisitions deliver
below expectation synergies and
reduced profit. If material, this can
significantly impact shareholder value.
Link to strategy
Growth acceleration
Operational excellence
Commercial excellence
Risk appetite
Receptive
6. Unauthorised access to our
IT systems
Unapproved access to our IT systems
could result in loss of intellectual
property, fraudulent activity, theft
and business interruption.
As the digital and security threat
environment is quickly evolving we
cannot guarantee that our actions
are keeping pace with the constantly
evolving threat environment.
Link to strategy
Operational excellence
Commercial excellence
Risk appetite
Very prudent
The acquisition of PBM (which gives us
access to the Pharmaceutical and Food
Processing markets) in the year was
completed quickly and efficiently. PBM
and divisional integration management
teams are well resourced and the
integration process is progressing well.
The recent integration of Bimba (which
is on track to deliver its acquisition case)
and the phased roll out of divisional
ERP systems demonstrates that we
have effective integration experience
and processes in place.
No change
During 2019, we continued to detect,
block and remediate threats on an
ongoing basis. These included malware,
ransomware, attempted data theft,
credential theft, phishing and external
hacking attempts.
The complexity and the frequency
of the speculative attacks observed
increased in 2019, although we have
no evidence that we were specifically
targeted.
To counter the increase in threat
activity in 2019 we have continued the
significant investment in our detective
and preventative IT measures by:
» further improving our Group-wide
Security Operations Centre (“SOC”)
monitoring service, which operates
24 hours a day;
» rolling out a wide programme of
new IT security protocols across the
Group’s infrastructure; and
» holding security compliance
workshops and IT security
awareness programmes.
58 IMI plc Annual Report & Accounts 2019
Risk, link to strategy and risk appetite
Change
Risk mitigation including specific 2019 actions
7. Failure to comply with legislation or
a breach of our own high standards
of ethical behaviour
We have established a framework
which demands the highest standards
of ethics and regulatory compliance
across all of our businesses. As we
expand our operations to achieve
growth, it is essential that we maintain
these standards. A breach of legislative
requirements in relation to tax, anti-
bribery, fraud and competition law
could result in financial and reputational
damage. The markets in which IMI
operates, particularly in IMI Critical,
make the risk of regulatory breach
an area of focus.
Link to strategy
Customer focus
Growth acceleration
Risk appetite
Very prudent
8. New Product Development
Failure to deliver market leading
products, on time and on budget,
could impact our ability to grow.
Link to strategy
Customer focus
Growth acceleration
Commercial excellence
Risk appetite
Receptive
No change
We continue to operate in
similar markets as last year,
with no significant changes in
legislation.
No change
While we continue to introduce
new products, launches are
planned to avoid new product
concentration risk and timed to
ensure relevant teams have the
bandwidth to deliver effectively.
Integrity is a cornerstone of our culture. It is one of our core
values and underpins everything we do. Read more about our
culture on pages 26 to 35.
Dedicated resources at both the Group and Divisional level
ensure employees are provided with the necessary training,
guidelines and standard operating policies to ensure that
everybody is aware of the conduct expected from them, in
particular in relation to the key risk areas of anti-bribery &
corruption, anti-trust and economic & trade sanctions. During
the year our Code of Conduct was updated (see page 24).
Each division assesses its own compliance risk and formulates
an annual divisional compliance plan which is implemented by
each Division’s General Counsel, who report to the respective
Divisional Managing Director. Due diligence on third parties,
trade sanctions and customers are the subject of standard
operating procedures and carried out by the divisions using
Group-wide software. In 2019 around half of the entire
workforce - some 5,635 employees - completed online training
modules on third party risk via eLearning. In addition, detailed
training is given to staff in more commercial roles who
have significant autonomy to contract with customers
and suppliers.
We operate a confidential independent hotline to report
concerns (see page 25).
Each division has a New Product Development strategy
which is regularly reviewed, with divisional engineering teams
reporting on the performance of our existing products and
new market or competitor developments.
We implement a robust New Product Development Process
which covers market analysis, design, prototyping, testing
and costing.
We have established centres of design and technological
excellence across our businesses.
Our Growth Accelerator programme, previously mentioned,
is enhancing our innovation and development capabilities.
59
IntroductionStrategic ReportCorporate GovernanceFinancial Statements How does a Power
Plant manager fix
poorly performing
competitor valves?
A Power Plant operator in North America was having
problems with competitor valves in severe applications.
He needed a solution that could be conceived and delivered
within a normal outage cycle. IMI used its extensive
expertise in critical valves and designed and built, by additive
manufacturing, a solution fitted inside the competitor’s
valve body, thus reducing time cost of the upgrade. Listening
to what the customer needed and applying best-in-class
expertise delivered a successful outcome for both parties.
This was the first order to success to come from IMI’s
exciting Growth Accelerator Programme.
Combining IMI Critical Engineering’s
expertise and the latest additive
manufacturing technology is
enabling the division to expand
its Aftermarket offering
60 IMI plc Annual Report & Accounts 2019
Corporate
Governance
62
Board of Directors
64
Letter from the Chairman
66
Corporate Governance Report
72
Audit Committee Report
76
Nominations Committee Report
78
Annual Directors’ Remuneration Report
94
Directors’ Report
101
Statement of directors’ responsibilties
61
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Board of Directors
Nationality
Committee
membership
Date of
appointment
Expertise
Key external
appointments
British
Nominations
Committee – Chair
2015
Lord Smith of Kelvin
Chairman (75)
Roy Twite
Chief Executive (52)
British
Executive
Committee
2019 as Chief
Executive
and 2007
as director
American British
Executive
Committee
2015
Daniel Shook
Finance Director (52)
Danish
Thomas Thune
Andersen
Independent non-executive
director (64)
2018
Nominations
Committee
Remuneration
Committee
(until 29 February
2020)
Audit Committee
(from 1 March 2020)
Non-executive director
responsible for
employee engagement
and ESG matters
(from 1 March 2020)
Non-executive Chairman
of Scottish Enterprise
Non-executive Chairman
of the British Business
Bank plc
Significant UK and
international board
experience
Extensive knowledge of
both engineering and
manufacturing
Strong track record in
private equity, mergers
and acquisitions
Specialist capability
in finance
Proven organisational and
engineering expertise
Non-executive director
of Halma plc*
Management capability
having run all of IMI’s
divisions
Extensive knowledge
of end-markets and
customer base
Extensive financial
management experience
Extensive knowledge
of complex process
manufacturing across a
range of industrial sectors
Strong international
perspective, having
worked in a number of key
geographies during his time
with two leading global
businesses
Experienced international
business leader in sectors
including oil, energy, marine
and critical infrastructure
Broad experience as a
non-executive director of
various public companies
Non-executive director
of Ultra Electronics
Holdings plc*
Chairman of Lloyds
Register Group
Chairman of Orsted
A/S*
Member of the Danish
Committee for Good
Corporate Governance
Non-executive director
of BW Group Ltd
International
business
responsibility
Public
company board
Engineering
Finance
Regulatory
& legal
Mergers &
acquisitions
Environmental,
Health & Safety
Board
experience
89%
66%
89%
66%
66%
89% 78%
62 IMI plc Annual Report & Accounts 2019
Nationality
Committee
membership
Date of
appointment
Expertise
Key external
appointments
Irish
Nominations
Committee
Remuneration
Committee
1 January 2020
Career in the technology
industry
Non-executive director
of DCC plc*
Senior executive leadership
of international operations
Caroline Dowling
Independent non-executive
director (53)
Carl-Peter Forster
Senior independent non-
executive director (65)
Katie Jackson
Independent non-executive
director (46)
Birgit Nørgaard
Independent non-executive
director (61)
Retires from the Board on 29 Feb 2020
Isobel Sharp
Independent non-executive
director (64)
German
Audit Committee
2012
Nominations
Committee
Remuneration
Committee
Chairman of Chemring Group plc*
Member of the PWC Advisory Board
Chairman of the Shareholder
Committee of HELLA GmbH & Co.
KGaA
Experienced international
business leader
In-depth knowledge of the
automotive sector
Expert in operational
excellence and Lean
manufacturing
Significant experience in
technology management
British
Nominations
Committee
Remuneration
Committee
2018
Senior executive experience
in major oil companies and
investment banking
Executive Vice President of
Commercial and New Business
Development at Royal Dutch Shell
Specialist knowledge
of the Oil & Gas sector
and excellent corporate
finance experience
Danish
Remuneration
Committee – Chair
Audit Committee
Nominations
Committee
Non-executive director
for employee
engagement
2012
Experienced non-executive
Held senior executive
positions in engineering
consultancy
Wide ranging sectoral
experience including energy,
water, infrastructure and
building industries
Experience in strategy
as well as finance and
accounting
Non-executive director of
DSV A/S* and NCC AB*
Non-executive director
of WSP Global Inc.*
British
Audit Committee –
Chair
Nominations
Committee
2015
Considerable accounting,
audit, governance and
transactions experience
including time as the
Senior Technical Partner
at Deloitte in London,
President of the Institute of
Chartered Accountants of
Scotland and membership
of the UK Accounting
Standards Board and the
Reporting Review Panel
Non-executive director and
Audit Committee Chair of The
Bankers Investment Trust PLC*
Non-executive director and
Audit Committee Chair of
Winton Group Limited
Honorary Professor at
Edinburgh University
Business School
* Listed company directorship.
63
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Chairman’s
Chairman’s governance letter
Governance letter.
Dear Shareholder
During the year we successfully transitioned
to a new Chief Executive and developed a
fresh strategy for the Group. At such times
it is particularly important that the Board
provides effective leadership and maintains
the highest standards of corporate
governance. In the Corporate Governance
section of this Annual Report on pages 62
to 100, we describe our governance
arrangements and the practical workings
of the Board and its committees.
Leadership
I am now in my fifth year as Chairman and have enjoyed an
interesting year in the Group’s development. We welcomed
Roy Twite to his new role as Chief Executive and oversaw the
smooth transition from his predecessor, Mark Selway.
The Board is fully engaged, able to both support and challenge
the executive team, and has the skills and experience to oversee
governance, strategy and risk management. The quality of
debate at meetings is excellent and we get valuable input
from all of our non-executive directors. I know Roy well and
as Chairman I value my close working relationship with him.
Strategic review
Once Roy assumed his new role in May 2019, the Board worked
with him and his Executive team to formulate the future
strategy for the Group which received final Board approval
and was announced in November 2019.
Culture
The Board sets the tone at the top and during the year we
conducted a review of the Group’s purpose, values and culture
alongside the strategy review. The Board has established clear
leadership values and behaviours which are underpinned by
our refreshed code of conduct and built into our leadership
development programmes and performance assessment
processes. Excellent leadership behaviours are requirements
for career advancement in the Group.
The Board’s review of culture looked at a range of indicators of
culture including Group-wide employee survey data, customer
satisfaction ratings and other stakeholder feedback. We also
reviewed stakeholder engagement and found indicators of
culture in the process.
During the year the Board adopted a new statement of
purpose for the Group and reaffirmed the IMI values which
were expanded to include “customer focus”. For further
information on customer focus, please refer to page 15
of this Report.
The Board will continue to oversee the Group’s culture to
ensure that it continues to develop in a way that is aligned
with our purpose and strategy.
Stakeholder engagement
During the year the Board reviewed the Group’s key
stakeholders and the engagement mechanisms and processes
we operate to engage with them. The Group’s key stakeholders
and engagement channels are summarised on page 41.
Board level engagement is conducted with shareholders (see
page 70) and employees (see page 68) including through the
non-executive director for employee engagement.
Management regularly updates the Board about the state of
relations and engagement with customers and employees and
there are active engagement and feedback processes in place
which form part of the Board’s regular review activity.
Governance highlights
» Oversaw the transition to Roy Twite as the new Chief
Executive with effect from 9 May 2019.
» Worked with the new Chief Executive and his team to
refine the Group’s strategy and fully endorsed the strategy
announced in November 2019 and set out in this
Annual Report.
» Succession plans for Birgit Nørgaard’s retirement from the
Board were put in place.
» Following an extensive search process led by the Nominations
Committee, Caroline Dowling was appointed to the Board as
a non-executive director.
» Approved and completed the acquisition of PBM for £69m.
64 IMI plc Annual Report & Accounts 2019
Audit tenure and independence
EY continued as the Group’s external auditor in 2019 following
an audit tender process. In line with statutory requirements,
the Audit Committee led an audit tender process in 2018
which resulted in the decision to re-appoint EY as the
external auditor.
EY is considered to be independent and receives £0.1m income
from non-audit work for the Group as detailed on page 75.
Internal audit
Details of the internal audit function are provided on page 74.
Culture
During the year the Board has reviewed the Group’s culture
in parallel with its work to formulate with the new Chief
Executive a fresh statement of IMI’s purpose, vision and values.
This was done alongside the development of the Group’s new
strategy. Further information with respect to culture is to be
found on pages 24 to 35.
Executive remuneration
Our remuneration policy was approved by shareholders in
2018 and its operation in practice complies with the Code as
demonstrated by the terms of appointment for the new Chief
Executive which are detailed in the Remuneration Report on
pages 78 to 93. The Remuneration Committee’s remit extends
to remuneration for the Chairman, Executive Directors and
other members of the Executive Committee.
Engagement with the workforce and
other key stakeholders
We have appointed a non-executive director for employee
engagement and information about that role is provided on
page 68 of this Annual Report. Other stakeholder engagement
is summarised on page 41.
Diversity
Information about the diversity of the Board appears on
pages 66 and 77. The Group’s Diversity Policy and what the
Group is doing to promote diversity in areas like management
succession and development is reported on pages 27 to 30.
Yours faithfully
Lord Smith of Kelvin
Chairman
27 February 2020
Compliance with the 2018 UK Corporate
Governance Code (the “Code”)
I am pleased to report that we complied with all of the
principles of the Code during the year and provide the following
summary with cross-references to other sections of this
Annual Report.
Independence
Over half of the Board comprises independent non-executive
directors and the composition of all Board committees
complies with the Code. Additionally, the Board considered
me to be independent on my appointment as Chairman.
More information about the Board members is provided
on pages 62 and 63.
Senior independent director
Our senior independent director is Carl-Peter Forster and
more information on his role appears in the IMI Corporate
Governance Framework which can be found on our website.
Accountability and election
There is a clear separation of duties between the roles of
Chairman and Chief Executive. All of the directors stand
for re-election at each Annual General Meeting after their
first election.
Evaluation
An internally facilitated evaluation was undertaken in 2019 in
accordance with the requirements of the Code. Further details
appear on page 67 of this Annual Report.
Attendance
All directors have attended an acceptable level of Board and
committee meetings, details of which appear on page 66 for
the Board and in each of the Committee Reports.
Committee chair experience
The Audit Committee chair has been in post since 2017 and
meets the specific Code requirements with regard to recent
and relevant financial experience.
The Remuneration Committee chair has been in post
since 2017 and a member of the Committee since 2012.
The successor as chair from 1 March 2020 has been a
member of the Committee since 2012.
The Nominations Committee chair has been in post since 2015.
Governance Framework and
Section 172 Statement
We have a detailed framework documenting the various roles
of the Board members, the Board and its committees and
the matters reserved to the Board. Further information
appears on page 69 of this Annual Report and the IMI
Governance Framework.
A statutory Section 172 Statement pursuant to the
Companies Act 2006 appears on pages 70 and 71.
65
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Corporate Governance Report
Code compliance statement
The Board is committed to maintaining good governance and
confirms that throughout the year-ending 31 December 2019
the Company has applied the principles contained in the Code
and complied with its best practice provisions. Highlights of
our compliance with the Code are given in the Chairman’s
governance letter on pages 64 and 65. Further details of how
we have applied the Code appear below, in the Directors’
Report and other cross-referenced sections of this Annual
Report, all of which are incorporated by reference into this
report. A description of the main features of the Company’s
internal control system and disclosures on other regulatory
matters including statements on going concern and viability
can be found in the Directors’ Report on pages 94 to 100.
A summary of our risk management systems and information
about the risks and uncertainties that relate to our business
is detailed on pages 54 to 59. Information on corporate
responsibility can be found in the Environmental,
Social and Governance section on pages 22 to 35.
Board composition
Eight directors served on the Board throughout 2019: the
Chairman; the Chief Executive; four independent non-executive
directors and the Finance Director. The former Chief Executive,
Mark Selway, retired as a director on 31 July 2019. In addition,
a new non-executive director was appointed with effect from
1 January 2020. Birgit Nørgaard will step down on 29 February
2020 and the Board will then comprise eight directors. All
continuing directors will stand for re-election at each Annual
General Meeting (or election if appointed since the previous
Annual General Meeting).
Independence of non-executive directors
The Board considers that all of the non-executive directors
are free from any business or other relationship which could
materially interfere with the exercise of their independent
judgement and all meet the criteria for independence under
the Code. All of the non-executive directors are regarded by
the Board as independent. The Chairman was also regarded
as independent at the date of his appointment.
Board diversity
The non-executive directors are a diverse group from different
backgrounds and nationalities and bring with them a wide
range of skills and experience in commerce, finance and
industry from around the world. Half the Board are non-British
and there are five different nationalities on the Board. Three
of the eight continuing directors are female. Our approach
to diversity is set out in more detail on pages 27 and 28 and
in the Nominations Committee Report on pages 76 and 77.
The charts below represent the Board membership excluding
Birgit Nørgaard who retires on 29 February 2020.
Non-executive /
executive directors*
2
Gender
3
5
5
5 Independent non-executive directors
2 Executive directors
5 Male
3 Female
* Under the 2018 Code, the Chairman is excluded when considering the
independent non-executive composition of the Board.
Nationality
4
Age
1
4
4
3
4 Other
4 British
1 40-49
3 50-59
4 60+
Dates of appointment
Length of tenure at 31 December 2019
Thomas Thune Andersen
Caroline Dowling
Carl-Peter Forster
Katie Jackson
Birgit Nørgaard
Isobel Sharp
Lord Robert Smith
0
1
2
3
4
5
6
7
Years
Date of first
appointment
Date of current letter
of appointment
Thomas Thune Andersen
1 July 2018
25 February 2020
Caroline Dowling
1 January 2020
25 February 2020
Carl-Peter Forster
1 October 2012
25 February 2020
Katie Jackson
Birgit Nørgaard
Isobel Sharp
1 July 2018
25 February 2020
6 November 2012
23 September 2019
1 September 2015
25 February 2020
Lord Robert Smith
7 May 2015
25 February 2020
66 IMI plc Annual Report & Accounts 2019
Share ownership for the Chairman and
non-executive directors
The Chairman and non-executive directors are encouraged to
hold some shares in IMI within a reasonable period after their
appointment. As at 31 December 2019, the Chairman and
serving non-executive directors all held IMI shares as set out
in the table on page 90.
Meetings and use of Board time
The Board met on six occasions during the year including
two results reporting meetings, a day dedicated to strategy
discussions and regular review meetings at which updates
are provided as appropriate covering health and safety,
operational and financial matters, investor relations, risk
and legal affairs. In addition, there were several days
spent on Board site visits and attendance at other events.
All Board meetings during the year included significant
time dedicated to the strategy review process.
2019 Board cycle
In addition to the regular agenda items for operational
matters, business performance and corporate affairs including
investor relations, the following matters were dealt with at
Board meetings in the year:
February
Approval of the preliminary results announcement and Annual Report
Approval of the final dividend recommendation
Approval of the Notice of Annual General Meeting
Review of the first monthly phased forecast for 2019
Strategy review process
Update training on governance and directors’ duties
May
Review of trading and other updates
Review of the Q2 Forecast
Approval of the interim management statement
Preparation for the Annual General Meeting
Strategy review process
IT and cyber security update
July
Approval of the half year results announcement
Approval of the interim dividend
Review of the Q3 Forecast
Interim risk review
Strategy review process
September
Strategy review process
Growth Accelerator presentation
Five-year business plan review
October
Site visit to operations in China and the Republic of Korea
Approval of the Company’s purpose, values and culture
Review of stakeholder engagement
Review of the Q4 Forecast
Review of current trading and outlook
Strategy review process
Approval of the interim management statement and strategy announcement
December
Budget for 2020
Annual risk review
Strategy review process
Board evaluation report
Annual compliance review
Board attendance
Director
Board meetings
% attended
where eligible
Thomas Thune Andersen
Carl-Peter Forster
Katie Jackson
Birgit Nørgaard
Isobel Sharp
Lord Smith
Mark Selway1
Daniel Shook
Roy Twite
1 Retired 31 July 2019
6/6
6/6
6/6
6/6
6/6
6/6
2/3
6/6
6/6
100
100
100
100
100
100
66
100
100
In 2020 to date the Board has met once with all members in
attendance.
Board roles and reserved matters
A description of Board roles and reserved matters is included in
the IMI Corporate Governance Framework and is summarised
in the Directors’ Report on pages 96 and 97.
Induction and continuing development
programme
A formal induction process for new non-executive directors is
well established and is the responsibility of the Chairman with
support from the Chief Executive and Company Secretary.
Business familiarisation is at the core of induction and
continuing development for non-executive directors at IMI and
is centred around gaining an understanding of the business
and getting to know the wider management team. Caroline
Dowling has had induction meetings with all of the members
of the Executive Committee and the auditor. In addition, all
new non-executive directors attend a corporate induction
day for senior managers held at head office. There is also a
committee induction process designed to brief new committee
members on the relevant committee and the issues it faces.
Non-executive directors are expected to visit business units
around the Group and to meet face-to-face with senior
operating management and key corporate staff. Site visits
are also a good opportunity to engage with a wider range of
employees. There is regular contact between management
and non-executive directors during site visits, formal meetings
and other Company events.
During 2019 the non-executive directors made several
individual site visits and the whole Board visited operations in
China and the Republic of Korea. Feedback on Board and
individual site visits is discussed with the Board.
Appropriate training and other continuing professional
development is available to all non-executive directors and
regular updates are given during the year where relevant to
the business arising at Board and committee meetings. For
example, appropriate best practice updates were provided to
the Remuneration Committee and to the Board during 2019
including sessions on elements of the Code and Section 172
of the Companies Act 2006. Non-executive directors are
encouraged to undertake appropriate external training and
several did attend external training during the year.
67
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Corporate Governance Report
October 2019 Board visit to China and the Republic of Korea
Board visits to operations
Site visits are an important, regular feature of the Board
calendar. They provide an excellent opportunity for the Board to
engage with a wide group of employees and they also facilitate
the non-executive directors’ understanding of the businesses.
IMI has a substantial presence in China which is home to
business units across all three divisions. In October 2019,
the Board visited IMI Precision Engineering’s manufacturing
facility in Shanghai, the division’s largest business unit in China.
The Board also visited IMI Critical Engineering’s state-of-the-
art manufacturing site in Paju, the Republic of Korea. During
both site visits members of the Board had the opportunity to
review the manufacturing process and meet local staff. In
particular, graduate trainees on placement in China joined the
Board for an informal lunch and senior managers from the
businesses met the Board.
Board-led employee engagement
Birgit Nørgaard has been the non-executive director for
employee engagement since 1 January 2019 and has reported
to the Board in respect of employee views presented to her.
In addition to engagement on site visits and at the annual
management conference, Birgit attended the European
Communications Forum at which representatives from the
Group’s European businesses were present. She also held an
employee forum event in China for local employees. Overall the
views expressed to Birgit were positive and constructive and
the new role of employee engagement non-executive director
will be further developed in 2020. Thomas Thune Andersen
will assume the role from 1 March 2020 following Birgit’s
retirement from the Board. In addition, Thomas will at the
same time become non-executive director for ESG matters.
Board evaluation
The Chairman arranged an internally facilitated evaluation
process in 2019, which was carried out through a questionnaire
process run by the Company Secretary and by the Chairman
canvassing the views of directors individually in face to face
meetings. While the overall outcome of the internal evaluation
was highly positive, the Board reviewed the findings and
agreed to the following improvement actions:
» the Board to do selected deep dive reviews as part of its
monitoring of culture; and
» increased support for directors’ knowledge and effectiveness
through further targeted training and updates.
The evaluation actions from the prior year, as reported in
the 2018 Annual Report, have been carried out resulting in
particular in more Board meeting time being dedicated to
the strategy process.
68 IMI plc Annual Report & Accounts 2019
As senior independent director, Carl-Peter Forster conducted a
review of the Chairman with the other non-executive directors
and shared the results with the Chairman. During the year
the Chairman also met with the non-executive directors
individually for performance review and feedback sessions and
as a group to review the performance of the Chief Executive.
The Chairman passed on to the Chief Executive appropriate
feedback from the review of his performance.
The Chairman is satisfied that the Board is fulfilling its
responsibilities appropriately and that the Board and its
committees are effective and that each director demonstrates
a valuable contribution and is committed to their role.
An externally facilitated evaluation process in conjunction
with Egon Zehnder is planned for 2020.
Standing committees of the Board
The standing committees of the Board are the Audit Committee, the Nominations Committee and the Remuneration
Committee. Each of these committees operates under written terms of reference which clearly set out their respective delegated
responsibilities and authorities. The full terms of reference of these committees are part of the IMI Corporate Governance
Framework. The committees report to the Board on their work, normally through their respective chair, following each meeting.
Reports from each of these committees appear in this Annual Report as follows: Audit Committee on pages 72 to 75;
Nominations Committee on pages 76 and 77 and Remuneration Committee on pages 78 to 93.
Audit Committee
Nominations Committee
Remuneration Committee
Isobel Sharp
Chair
Lord Smith of Kelvin
Chair
Membership
Thomas Thune Andersen
(from 1 March 2020)
Carl-Peter Forster
Birgit Nørgaard
(until 29 February 2020)
Membership
Thomas Thune Andersen
Caroline Dowling
Carl-Peter Forster
Katie Jackson
Birgit Nørgaard
(until 29 February 2020)
Isobel Sharp
Birgit Nørgaard
Chair
(until 29 February 2020)
Membership
Thomas Thune Andersen
(until 29 February 2020)
Caroline Dowling
Carl-Peter Forster
(Chair from 1 March 2020)
Katie Jackson
Main responsibilities
Main responsibilities
Main responsibilities
» Oversight role in relation to financial
» Board and committee composition
statements
» Oversight of succession plans for the Board
» Reviewing significant areas of judgement
and the Executive Committee
and accounting policies
» Reviewing the proposed statements on
going concern and viability to appear in the
Annual Report
» Search for and recommendation of candidates
for appointment as non-executive directors,
Chief Executive and other executive director
positions
» Advising the Board on whether the draft
» Diversity policy, promotion of diversity and
monitoring of progress
Annual Report is fair, balanced and
understandable
» Monitoring announcements in respect of
financial performance
» Monitoring the effectiveness of internal
financial controls
» Reviewing financial risks including fraud risk
» Oversight of internal audit and other key
processes for monitoring internal financial
control
» Overseeing the external audit process, its
objectivity, effectiveness and cost with
responsibility for setting the audit fee
» Making recommendations to the Board for
the appointment of the auditor including
oversight of any audit tender process
» Define and recommend the remuneration
policy for the Chairman and members of the
Executive Committee
» Determine the individual remuneration
packages for the Chairman and members of
the Executive Committee within the policy
approved by shareholders
» Set annual and long-term incentive metrics
and awards and determine the outcomes for
the members of the Executive Committee
» Report on remuneration matters and
constructively engage with shareholders
» Assess risk in respect of remuneration and
incentive structures in particular
69
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Corporate Governance Report
Executive Committee
The Executive Committee is chaired by the Chief Executive
and the other members are shown on page 11. The Committee
meets monthly and more often as may be required.
The Committee is the senior management body for the
Group and as part of the broad remit set by the Chief
Executive it monitors and manages business performance,
reviews progress against strategic objectives and formulates
budgets and proposals on strategy and resource allocation for
consideration by the Board. The Committee takes its authority
from the Chief Executive and is not a committee of the Board.
The Committee plays a key part in risk assessment and risk
management and monitoring processes and receives regular
reports on human resources, health and safety, internal audit,
compliance, legal, investor relations and other corporate affairs.
Investor relations
The Board oversees shareholder engagement and maintains a
balanced understanding of the issues and concerns of major
shareholders. The Chief Executive and Finance Director have
primary responsibility at Board level for investor relations and
they, and the Head of Investor Relations, report to the Board
on shareholder issues at every Board meeting during the year.
Financial analysts’ notes are circulated to the directors, and
the Board receives regular investor feedback reports from the
Company’s brokers and public relations advisers as well as
from management.
Dialogue is maintained with the principal shareholders and the
executive directors meet regularly with institutional investors.
Additional investor meetings were arranged in 2019 to ensure
appropriate engagement between the new Chief Executive
and major investors and he is committed to continuing
meaningful engagement with institutional shareholders.
During 2019 there were over 100 such meetings with
institutional and other shareholders. The Chairman and the
senior independent director also are available to shareholders
as needed. The Chairman has actively engaged with several
major shareholders at specifically arranged meetings.
The 2019 Annual General Meeting was presided over by the
Chairman and attended by all of the serving directors. The
Chairman and the other directors met shareholders informally
afterwards. Each substantively separate issue was put to the
Annual General Meeting as an individual motion. Notice of the
Annual General Meeting was issued more than twenty working
days in advance of the meeting and the level of votes lodged
for and against each resolution, together with details of
abstentions, are shown on the IMI website. The Board values
the support of shareholders and the poll results for all
resolutions proposed at the Annual General Meeting
were well above 80% in favour in each case.
In addition to the Annual Report, the Company issues
preliminary results and half year results announcements,
as well as two interim management statements between
results announcements. The IMI website includes recordings
of results presentations made by senior management,
recent annual and half year reports, interim management
statements, other corporate announcements and links to
the websites of the Group’s businesses.
Stakeholder voice and Section 172
statement
A statement pursuant to Section 172 of the Companies
Act 2006 is required content for the first time in this Annual
Report. The primary duty of the directors under Section 172 is
to act in the way they consider would be most likely to promote
the success of the Company for the benefit of its shareholders
as a whole and to do so having regard as appropriate to
certain statutory factors and other relevant matters.
All Board decisions are made with the Group’s long-term
success in mind and, as can be seen from this Annual Report,
the Board has regard to a broad range of matters including the
voice of stakeholders. The oversight and monitoring activity of
the Board includes maintaining an understanding of key
stakeholders and being receptive to the voice of stakeholders.
In particular, during the year the Board adopted a new strategy
focused on accelerating growth through the execution of a
plan which includes extensive operational change and a
significant restructuring programme. In considering the
strategy proposals the Board had regard to the relevant
statutory factors, which were helpfully referenced in specific
Board papers and in discussions. The strategy review looked
at capital allocation including the desirability of maintaining a
progressive dividend policy. After due and careful consideration
of other options and relevant factors, the Board concluded
that approving and implementing the new strategy is most
likely to promote the success of IMI for the benefit of its
shareholders as a whole.
Set out below is specific commentary in relation to each
of the Section 172 factors:
a) the likely consequences of any decision in the long-term
The Board has adopted a five-year business planning
period and sets strategy with a view to long-term success.
As highlighted above a strategic review process was
undertaken during the year with that in mind. Long-term
considerations had a particular influence in assessing which
are the most attractive markets for IMI to focus on and
how to optimise the businesses’ geographic footprint.
Our strategy drives our key investment decisions.
For example, the acquisition of PBM Inc., in September
2019 reflects the strategy of expanding into attractive
growth market segments and the Board’s thinking
around the longer-term trends. The acquisition case
for PBM submitted to the Board included a specific
section on Section 172 factors to inform the Board’s
decision-making process.
70 IMI plc Annual Report & Accounts 2019
The Board also reviews whether any businesses ought to
continue to be a focus for investment given longer-term
strategic considerations.
b) the interests of the Company’s employees
The Group depends on its employees for its success and
invests considerable time and resources on employee
engagement, training and development as summarised
on pages 25 to 27. Investment decisions including
rationalisation and relocation of activities are considered
with due regard to the interests of employees. For example,
the decision to invest in moving IMI CCI Japan to a new
purpose-built facility offered various benefits including
a more comfortable working environment for employees.
Consultations with employees are conducted in relation
to the significant site closures and headcount reductions
which are underway as part of the active and proposed
rationalisation projects. The Board approves and tracks
the progress of these programmes with regular updates
being provided at Board meetings.
Health and safety of our employees is of paramount
importance and receives appropriate Board and
management attention and investments. Reflecting
this importance we measure and track our performance.
See our key performance indicators on pages 52 and 53
for an update on our progress in this area.
Group pension scheme participants benefit from the
Group’s approach to pension provision and financial
prudence in reducing the funding deficit in relation to
defined benefit obligations. Further information on
employee benefits and pensions is on pages 144 to 150.
c) the need to foster business relationships with suppliers,
customers and others
Customer service and value are at the core of our business
model and strategy. The Board monitors indicators of the
customer experience and welcomes the increased emphasis
on the customer which management is building. For
example, the Board has received presentations and regular
updates on our Growth Accelerator programme. Further
information about this key strategic programme is included
on page 17. Locating facilities nearer to customers in the
most attractive growth markets is a key element in the
Board’s thinking about the footprint of the businesses,
as reflected in the Strategic Report.
Our businesses work closely with partners including
suppliers, distributors and agents who are closely managed
from a commercial and compliance perspective. Further
information can be found on page 25.
d) the impact of operations on the community and
the environment
Our business units are positive contributors to their local
communities as employers and through apprenticeships
and employee training and community activities including
the annual IMI Way Day, charitable activity and donations.
The Group supports such community involvement, more
detail on which can be found on page 35.
The Board approves and monitors the Group policy on
minimising our impact on the environment, which is
outlined on pages 33 and 34 with examples of energy
and waste initiatives. Our continued progress depends
upon the Board driving such initiatives and channelling
investment to projects with due regard for the environment.
For example, our recent investments in new, state of the
art facilities in Japan and India have improved the Group’s
environmental footprint as well as providing modern,
safer working conditions for our employees.
e) the desirability of maintaining a reputation for high
standards of business conduct
The Board is careful of the reputation of the Group
and its decisions reflect this and the great importance
attached to the Group’s reputation by all key stakeholders.
The Board demands high standards of conduct from
all directors and Group employees and expects
management to be mindful of how and with whom
business is conducted. For example, the Group has
declined to have dealings with third parties who display
poor business conduct. Further information about how
we ensure we operate ethically at all times and our purpose,
values and culture, which were specifically reviewed by the
Board in 2019 alongside the strategy, can be found on
pages 24 to 26.
f) the need to act fairly between shareholders
of the Company
The Board understands the importance of treating
shareholders fairly. IMI has only one class of share in
issue and all shareholders individually enjoy the same
shareholder rights as the others. Further information
on shareholder engagement is provided on page 70.
By order of the Board
John O’Shea
Group Legal Director and Company Secretary
27 February 2020
71
IntroductionStrategic ReportCorporate GovernanceFinancial Statements
Audit Committee Report
Dear Shareholder
I present my third report as Chair of the
Audit Committee. Our Committee’s role
is to monitor the integrity of the Group’s
financial reporting and financial
statements, to review the effectiveness of
internal financial controls, to monitor and
review the effectiveness of internal audit,
and to make recommendations to the
Board on the appointment of our external
auditor whose independence, objectivity
and effectiveness is reviewed by us. The full
terms of reference of the Committee can
be found in the IMI Corporate Governance
Framework on the Company’s website and
was revised with effect from 1 January
2019 to take account of the Code.
In addition to our regular cycle of challenge
and oversight activity, we have reviewed
the accounting treatment for the 2018
acquisition of Bimba, for which the
assessment of the fair value of assets and
liabilities acquired was finalised in February
2019. We also reviewed the September
2019 acquisition of PBM and the initial
assessment of fair value is included in the
2019 financial statements. Other particular
features this year have been considering the
adoption of IFRS 16 on leases and reviewing
the format changes in the annual report
and financial statements. We have also
reviewed the significant rationalisation
spend and the provisions for rationalisation
at the year end and satisfied ourselves
that the treatment of those disclosed
as adjusting items is appropriate.
Members of the Audit Committee
Birgit Nørgaard, Carl-Peter Forster and I were members of
the Audit Committee throughout the year. Thomas Thune
Andersen joins the Committee on 1 March 2020 following the
retirement of Birgit Nørgaard. All of the Committee members
are regarded by the Board as independent non-executive
directors. I have chaired the Audit Committee since 1 October
2017 and became a member on 1 September 2015. I spent
my early career in the accounting and audit profession and the
Committee, and the Board, is satisfied that I have significant
recent and relevant financial experience. I also currently chair
the audit committee at The Bankers Investment Trust PLC and
Winton Group Limited. In my role as Chair, I have significant
interactions with key senior executives, attended the Group’s
Senior Finance Executives Conference held in June 2019,
review in advance selected papers and agendas for meetings
of the Committee and meet with our external auditor prior
to Committee meetings.
The Board is also satisfied that the Committee members
have experience at audit committee level and collectively the
Committee has the financial and commercial and auditing
skills, experience and objectivity to be an effective Audit
Committee. During the year, Committee members received
updates covering key developments for 2019 annual reports,
changes in accounting and other key topics such as reviews
of the audit market. Furthermore, Committee members
attend as appropriate external training sessions to update
our knowledge.
Birgit Nørgaard retires from the Committee at the end of
February 2020. Birgit has provided incisive and challenging
comments and we thank her for her work on the Committee.
We look forward to welcoming Thomas Thune Andersen to the
Committee on 1 March 2020. He has been a regular attendee
at our meetings since he joined the Board in July 2018.
The Committee invites the following to join all or part of its
meetings: the Chairman, the Chief Executive, the Finance
Director, the Group Financial Controller, the Group Assurance
Director and the external auditor, Ernst & Young LLP (‘EY’).
In addition, other non-executive directors are welcome to
attend and often join the meetings.
The Committee holds at least part of several meetings each
year alone with the external auditor and with the Group
Assurance Director. The Committee has the power to call on
any employee to attend. The Secretary to the Committee is
the Company Secretary, who is also the Group Legal Director.
72 IMI plc Annual Report & Accounts 2019
Main areas of activity
The Audit Committee met four times in 2019. For two
meetings the focus was on the forthcoming results reporting
and for the other two the focus was on planning and review
matters. All meetings include a review of current accounting
matters within the Group, including in particular a review
of judgmental areas such as restructuring provisions,
impairment reviews and contingencies.
The effectiveness of internal financial controls continues
to be a key area for the Committee which has welcomed
management’s focused efforts to improve and strengthen
the Group’s internal financial control and assurance processes.
The processes include Internal Control Declarations (“ICD”)
which are submitted biannually by each business unit and cover
internal financial controls, IT, human resources and other key
areas. The process is managed by Group Assurance, which
follows up declarations with on-site visits to audit results and
track appropriate improvement actions. Over recent years
ICD scores have improved reflecting the strengthening of
the internal financial control environment. The Committee
therefore supported the proposal from the Chief Executive
that for high achieving business units the ICD process should
be completed once annually from 2020. This change is being
monitored by Group Assurance and regular reports are made
to the Committee. Further information on Internal and
External Audit is given below.
The Committee continues to seek out with management
constructive opportunities for improvement. A number of
further control initiatives were implemented in 2019 including
the Group-wide adoption of evidence binders for key financial
and IT controls. A revised Group policy on inventory provisioning
was implemented in 2019 to update, clarify and improve
consistency in this important area. The IT investment and
infrastructure programme is continuing and its implementation
facilitates improvements in external audit efficiency as well as
in internal controls.
Additionally, we reviewed the implementation in 2019 of the
new accounting standard relating to leases (IFRS 16), the
impact on the Group’s balance sheet and the appropriateness
of the disclosures in the financial statements.
An update on tax policy and compliance from the Head of Group
Tax was received by the Committee. Treasury matters, including
a positive external report on the effectiveness of internal
controls in that area, were discussed with the Group
Treasurer by the Committee.
The Committee monitors changes in senior finance roles and
recognises continuity of financial reporting standards following
team changes as a key requirement. It was pleased to see
management achieve successful internal transitions to key
leadership roles in finance during the year, as well as the
changes made to strengthen the finance function at
several operating companies.
The Committee reviewed and approved for submission to
the Board the statements on going concern and viability,
which are in the Directors’ Report on pages 94 to 101.
The Committee advises the Board on the fair, balanced and
understandable requirements for the Annual Report and half year
results statement. The Committee has made positive reports to
the Board against these criteria. The Committee’s review included
in particular the consideration of alternative performance
measures and the classification and presentation of adjusting
items in accordance with the Group accounting policy. The
Committee received a detailed account of the restructuring costs
disclosed as adjusting items and was satisfied that these were
appropriately categorised given the nature, scale and purpose of the
relevant projects. In respect of the Annual Report, the fair, balanced
and understandable criteria are also a review area for the external
auditor, in relation to which it did not report any exceptions.
The statement of Directors’ responsibilities on page 101 includes
confirmation by the Board that it considers the Annual Report,
taken as a whole, to be fair, balanced and understandable.
Oversight of financial reporting
The Committee acts in an oversight role in respect of the Annual
Report and other announcements with financial content, all of
which are prepared by management. The Committee received
reports on the annual and half year financial statements from
management and the external auditor.
The Committee reviewed and approved the revisions made
to the format of our financial statements and the Annual
Report generally and for the new accounting standard for leases,
IFRS 16. The changes are described in more detail on pages 116
and 141 to 143.
Significant judgements related to the
financial statements
In preparing the accounts, there are a number of areas requiring
the exercise by management of judgement and estimation.
These matters were the subject of appropriate detailed analysis
and commentary in papers and reports to the Committee
by management and the external auditor. The Committee
reviewed the most significant accounting areas involving such
judgements and estimates and these are described below.
Acquisition accounting for Bimba and PBM
There is a 12-month measurement period after the date
of acquisition to finalise the accounting for an acquisition.
Management exercises judgement on the types of intangible
assets acquired and estimates are made of the fair value of all
assets and liabilities. Provisional values in respect of Bimba were
included in the 2018 interim financial statements and adopted
at that year end subject to an adjustment of £1.9m reported
in the 2018 financial statements and Audit Committee Report.
As set out in Note 23 to the financial statements on page 166,
provisional values in respect of PBM are reflected in the 2019
financial statements. The Committee reviewed the judgement
made by management in this respect, including the assumptions
used to value the acquired intangibles and confirmed they are
appropriate. The external auditor provided confirmation that
the judgements made, including the assumptions used to value
the acquired customer relationships and the PBM brand, were
considered to be appropriate.
73
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Audit Committee Report
Impairment of goodwill and intangibles arising
from acquisitions
The Committee considered the level of goodwill and intangible
assets held on the Group’s balance sheet in respect of a
number of past acquisitions and whether, given the future
prospects of these businesses, the carrying value in each
case remained appropriate.
The year end balance sheet includes goodwill of £444.1m
and intangible assets arising on acquisitions of £84.5m. The
Committee reviewed the assumptions and calculations used by
management in the assessment of any impairment of goodwill
and intangible assets and agreed that no impairment of
goodwill was required. Impairment was also a key audit matter
for EY which reported its findings to the Committee. Note 11
to the financial statements on page 137 provides details
regarding the Group’s intangible assets and goodwill.
Revenue recognition
The Committee discussed the timing of revenue recognition on
some of the Group’s larger contracts. In addition, this is a key
audit matter on which EY reported to the Committee.
Having reviewed management’s process and EY’s report, the
Committee concluded that revenues were appropriately reflected
in the financial statements. Note 2 to the financial statements on
page 117 provides further information.
Inventory valuation
The year end balance sheet includes inventories of £280.8m
after £35.4m of provisions. The Committee reviewed the
judgements applied to standard costing valuations and
provisions against excess and obsolete inventory and concurred
with management’s assessment. The restated Group
methodology on inventory provisioning introduced in 2019 has
further improved the clarity regarding the judgements and
estimates made by management in this connection, although
this has not materially impacted the provisions. This was a
key audit matter for EY, in respect of which it reported to
the Committee that inventory valuation across the Group is
considered appropriate. Note 15 to the financial statements
on page 151 provides details of inventory valuation.
Other judgement areas
The Committee reviewed the appropriateness of the accounting
treatment in respect of pension scheme liabilities, including the
actuarial assumptions used and the impact of one-off special
pension events. The Committee also received a report reflecting
appropriate expert input from the external auditor, which
concurred with the accounting for pensions proposed by
management. The Committee supported management’s
on-going efforts to de-risk the Group’s pension obligations.
Further details can be found in Note 14 on page 144.
In addition the Committee reviewed the appropriateness of
restructuring costs disclosed as adjusting items, property sales
and the adequacy of taxation provisions. Further details on
these matters can be found in Notes 3 and 9 respectively,
on pages 120 and 132.
Internal audit
The Committee received reports from and monitored the
work of the Group’s internal audit function, known as Group
Assurance. Group Assurance reports through the Finance
Director to the Chief Executive. Group Assurance also has a
direct reporting line to the Committee. Group Assurance work
is primarily directed towards financial control audits but also
covers other selected areas including project planning and
implementation for major business changes and internal
control declarations. The principal projects reviewed in 2019
were major IT system implementations in each of the three
divisions and a financial control improvement review at
Bimba and a project margin review in part of IMI Critical.
During the year 41 internal audit reviews were completed
with 34 of these supported by divisional finance managers.
Centrally the Group Assurance team is led by experienced,
senior internal audit professionals and across the Group there
are over 100 staff trained to conduct internal financial control
audits. Locations to be reviewed each year are selected on a
risk assessed basis, discussed with the Audit Committee and
take account of the external audit plan. In 2019, the plan
included the audit of the Group treasury function which
was executed with the support of third party treasury audit
expertise. The completion of actions arising from internal audits
and reviews is monitored by the Committee and the track
record is excellent.
Group Assurance works closely with the divisions to implement
monitoring and review processes to complement the internal
and external audit coverage. The annual plan and resourcing
for internal audit were approved by the Committee and take
account of the enhanced monitoring and review activity within
the divisions. The scope of internal audits covers certain
operational and commercial risks in addition to financial
controls. To achieve this experienced financial managers
from the divisions work on combined audits covering financial,
operational and commercial matters. Group Assurance has
trained divisional finance managers in financial control auditing
skills and provided a toolkit to enable them to carry out
financial control audits at other sites in their division. Financial
control evidence binders have been introduced across the
Group to help improve internal controls and to make internal
audits more efficient. The binders also support transition
and continuity in the event of any changes in finance staff.
The Committee reviewed the effectiveness of Group Assurance
with management and received input from the external
auditor. The Committee supports the co-sourcing model
with the Group Assurance Team and experienced financial
managers from the divisions working together to enhance the
effectiveness of assurance processes. An area for improvement
which was identified is for Group Assurance to continue to
develop its capability to carry out operational and commercial
risk reviews. The improvement action for 2019 was to do more
to share best practice and progress has been made, most
notably with the creation of evidence binders including best
practice examples for key controls and how the best
sites operate.
74 IMI plc Annual Report & Accounts 2019
External audit independence and
performance review
The Committee approved the proposed external audit
approach and its scope based on the size and level of risk of
the entities concerned. The Group and EY take a risk based
approach to audit and other assurance activity. The key audit
matters identified by EY are set out in its report on pages 104
to 111 and were reviewed by the Committee in approving the
audit scope and plan.
The Committee considered the independence and objectivity
of the external auditor to be satisfactory. In assessing auditor
independence the Committee had regard to the Financial
Reporting Council’s best practice guidance for audit
committees. In addition, the external auditor confirmed
that its ethics and independence policies complied with the
requirements of the Institute of Chartered Accountants in
England and Wales.
The policy on the use of the auditor for non-audit work takes
account of developments in regulatory requirements and ethical
guidelines for the audit profession. The policy requires approval
by the Committee Chair for any non-audit engagement for
which the estimated fees exceed £10,000. The Finance Director
monitors any proposed non-audit engagements of EY and
refers to the Chair for approval as appropriate. The policy
does not allow work to be placed with the auditor if it could
compromise auditor independence, such as functioning in
the role of management or auditing its own work. Non-audit
fees paid to the auditor were £0.1m (2018: £0.1m), which
represents 3% of the audit fee and demonstrates the tight
control which is maintained in this area. The most significant
non-audit engagement during the year was in respect of the
interim results review which is technically not statutory audit
work and was approved by the Committee. The Committee
considers the level and nature of non-audit work to be modest
and not to compromise the independence of the external
auditor. We are satisfied that EY is fully independent from
the management and free of conflicts of interest.
Benchmarking of the audit fee was conducted in the context
of the full audit tender process carried out in 2018 and the fee
is considered by the Committee to be appropriate. Pursuant
to the power granted at the 2019 Annual General Meeting,
the Committee reviewed and approved the proposed audit
fee payable to EY.
To maintain the objectivity of the audit process, the external
audit partner responsible for the Group is rotated within the
audit firm at least every five years and the current Senior
Statutory Auditor, Simon O’Neill, was first appointed in
respect of the 2018 audit.
We formally reviewed the effectiveness of the external audit
process. As in other years, a questionnaire, sent to 30 business
unit finance directors, and interviews with members of the
Committee and selected executives were used to review the
external auditor’s performance. Based on the results of the
questionnaire and feedback received, the Committee believes
the external auditor’s performance has been good and
effective. To enhance further the external audit process,
certain improvement actions were identified and plans have been
put in place by EY to address these. These included EY providing
more insight into lessons learned and best practices at other
audit clients and more feedback on the quality of the finance
teams around the Group. The Committee has been pleased to
see progress with the action areas identified after the 2018
audit: action to improve continuity of junior level staff on the
audit and more rigorous structure in the audit process, especially
in relation to audit deliverable requests and progress meetings.
In September 2019, the Financial Reporting Council’s Audit
Quality Review Team (“AQRT”) completed a review of EY’s
audit of the Company’s financial statements for the period
ended 31 December 2018. The Committee considered the final
inspection report, which did not raise any significant findings,
and discussed the results with the lead audit partner. The
Committee agreed with the overall assessment by the AQRT,
which was consistent with its own positive view of the quality
and effectiveness of the external audit in respect of 2018.
The Committee also considered the FRC’s audit quality report
on the audit profession and noted the improved audit quality
score achieved by EY as a firm.
Audit tendering
A formal audit tender process led by the Committee was
completed in 2018 leading to the re-appointment of EY at the
2019 Annual General Meeting. The tender process complied
with the Competition and Market Authority’s Order. Current
legislation will require a change of auditor by not later than
2029 and the Company retains the freedom to make a change
earlier. The Committee considers it would be appropriate to
conduct an external audit tender process commencing the
year before any change of auditor is made and therefore
not later than 2028 in any event.
Committee attendance and evaluation
Director
Carl-Peter Forster
Birgit Nørgaard
Isobel Sharp
Audit Committee
meetings
% attended where
eligible
4/4
4/4
4/4
100
100
100
The Committee reviewed its own performance and terms of
reference and received positive feedback from the evaluation
exercise carried out in relation to the Board and each of its
standing committees. As a result of the evaluation in 2018,
the meeting cycle for future years was adjusted to improve
efficiency. The Committee reviewed how it had worked in
2019 and recommended no material changes for 2020.
The Committee approved this report on its work.
Yours faithfully
Isobel Sharp
Chair of the Audit Committee
27 February 2020
75
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Nominations Committee Report
Dear Shareholder
I am pleased to make my report as
Chair of the Nominations Committee.
This report is intended to give an
account of the Committee and its
activity. The core responsibilities of
the Committee are succession planning
and appointments at Board level and
oversight of appointments to the
Executive Committee. The full terms
of reference of the Committee can
be found in the IMI Corporate
Governance Framework on the
Company’s website.
Composition
Thomas Thune Andersen, Carl-Peter Forster, Katie Jackson,
Birgit Nørgaard, Isobel Sharp and I were members of the
Committee throughout the year. Caroline Dowling joined the
Committee on 1 January 2020. For the purposes of the Code,
all of the non-executive directors on the Committee are
regarded as independent non-executive directors.
Attendance
Director
Thomas Thune Andersen
Carl-Peter Forster
Katie Jackson
Birgit Nørgaard
Isobel Sharp
Lord Smith
Nominations
Committee
meetings
% attended
where eligible
4/4
4/4
4/4
4/4
4/4
4/4
100
100
100
100
100
100
Main areas of activity
Chief Executive succession
Following a rigorous selection process supported by Russell
Reynolds, in February 2019 the Board agreed on the
recommendation of the Committee to appoint Roy Twite
as IMI’s next Chief Executive with effect from 9 May 2019.
Following Roy’s promotion, the Committee recommended the
appointment of Jackie Hu as the new Divisional Managing
Director for IMI’s Critical Engineering division, which was
confirmed by the Board and announced in March 2019.
Board changes and recommendations for
election and re-election
In response to Birgit Nørgaard’s decision to step down on
29 February 2020, the Committee engaged Russell Reynolds
to undertake a full search process to find a new non-executive
director. The Committee recommended the appointment of
Caroline Dowling which was approved by the Board and the
appointment was made with effect from 1 January 2020.
76 IMI plc Annual Report & Accounts 2019
At Board level, half the directors are non-British and there are
five nationalities. Three of the continuing non-executive
directors are female, representing 37.5% of the Board, and
there is a broad mix of backgrounds and experience as detailed
on pages 62 and 63.
The Committee and management are supportive of the need
to improve gender diverse representation at senior executive
levels and are working hard to this end. Further information
about the initiatives we are implementing to increase
diversity and inclusion across the Group are detailed in the
Environmental, Social & Governance section on pages 27 to 30.
The Committee reviewed its own performance and terms of
reference and received positive feedback from the evaluation
exercise carried out in respect of the Board and each of
its committees.
The Committee approved this report on its work.
Yours faithfully
Lord Smith of Kelvin
Chair of the Nominations Committee
27 February 2020
Following Birgit’s retirement, Carl-Peter Forster will become
Chair of the Remuneration Committee and Thomas Thune
Andersen will become non-executive director for employee
engagement and for ESG matters. Caroline Dowling has joined
the Remuneration Committee and, from 1 March 2020,
Thomas will join the Audit Committee and step down from
the Remuneration Committee. These appointments were also
recommended by the Committee and approved by the Board.
All of the directors standing are recommended for re-election
or election at the Annual General Meeting following Board
approval of the recommendations made by the Committee
in this connection.
Succession planning
The Committee reviews Board composition and has
formulated a structured, medium-term plan for
Board succession.
During the year the Committee reviewed talent development
and succession planning for the top 212 roles in the Group
with the support of the Chief Executive and Group Human
Resources Director. We were encouraged to see that significant
progress continues to be made in terms of cultivating a
stronger pipeline of high-calibre talent as demonstrated by
the internal appointments of the new Chief Executive and
new Divisional Managing Director for Critical Engineering.
Further 2019 examples of senior internal promotions are
the appointees to the Divisional Finance Director roles in
IMI Precision and IMI Critical. Details of our leadership
development and succession planning processes are set
out in the Environmental, Social & Governance section
on pages 29 and 30.
Review of time commitments and contributions
The appointments of the Chairman and non-executive
directors are made on the basis of a formal letter of
appointment including a stated minimum time commitment
judged appropriate by the Committee. All significant external
commitments of directors are approved by the Board.
The Committee considers that the time given to IMI by each
non-executive director is sufficient. The Board is satisfied that
I have the necessary time to devote to my role as Chairman.
Diversity and inclusion
The Committee recognises the benefits a diverse pool of
talent can bring to a boardroom and remains committed to
increasing diversity across IMI. We will continue to review the
composition of our management teams and the Board to
ensure that we have the right mix of skills and experience
while maintaining our effectiveness and execution capabilities.
The Committee’s terms of reference and activity reflect its
responsibility under the Code for promoting broader diversity
at Board and senior management level.
77
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’ Remuneration Report
Annual Statement
from the Chair of the Committee
On behalf of the Board, I am pleased
to present the Annual Directors’
Remuneration Report for the year
ended 31 December 2019. As previously
announced, this will be my last as Chair
of the Remuneration Committee before
I stand down from the Board. Carl-Peter
Forster, a member of the Committee
since 2012, will take on the role of Chair.
Remuneration in 2019
Context
As I reported last year, Mark Selway stepped down as Chief
Executive at the 2019 Annual General Meeting before retiring
on 31 July 2019. Roy Twite, having served on the IMI Board as
a director since 2007, most recently as Divisional Managing
Director of IMI Critical Engineering, was appointed Chief
Executive from the end of the 2019 Annual General Meeting.
The remuneration arrangements relating to both Mark
Selway’s retirement and Roy Twite’s appointment complied
with our Directors’ Remuneration Policy (“Policy”) approved
by shareholders at the Annual General Meeting in May 2018.
The Committee was pleased to see that 97.3% of shareholders
at the 2019 Annual General Meeting supported the
Committee’s implementation of the Policy. Full details
of the remuneration arrangements for both Mark Selway
and Roy Twite can be found on page 82.
Pay for performance
Notwithstanding the change in leadership and strategy,
the Committee’s focus in 2019 continued to be on maintaining
a strong pay for performance relationship between the Policy
and its implementation.
The Committee aims to ensure that executive pay reflect IMI’s
desired culture and key stakeholder interests through strong
alignment between individual performance and business
performance. A high proportion of our executive directors’
remuneration is closely tied to business performance and the
Committee sets targets having considered several factors
including the strategic plan, annual budget, analysts’ forecasts
and economic conditions. Our objective is always to set
stretching targets while at the same time ensuring that
underlying performance takes into consideration external
factors such as macro economic conditions.
Further information about the process we follow when setting
targets and assessing performance is set out on page 84.
Key strategic and performance highlights in 2019 include:
» Results were ahead of expectations given the mixed
economic and market headwinds.
» Group adjusted profit before tax remained flat at £250.7m
while adjusted revenue decreased by 2% to £1,873m.
» Cash conversion increased to 112% in 2019 and shareholders
will receive a total dividend of 41.1p - an increase of 1% from
last year subject to approval at the forthcoming Annual
General Meeting.
Incentive outcomes
Annual incentives paid to executive directors in respect of
performance in 2019 were based on achievement of stretching
targets relating to Group adjusted profit before tax, organic
revenue growth, cash conversion and strategic and personal
objectives. The Committee determined annual incentive
outcomes ranging between 41% and 44% of maximum
for the executive directors, which fairly reflects business
and individual performance.
The 2017 IMI Incentive Plan (“IIP”) award which was subject
to stretching Return on Capital Employed, Group adjusted
profit before tax (PBT) growth and relative Total Shareholder
Return (TSR) targets measured over three financial years
will vest at 47.1% in March 2020.
As part of its determination of incentive outcomes, the
Committee considered the impact of the IFRS 16 accounting
change and the underlying performance of the business,
external factors such as macro economic conditions and
shareholder experience during the performance period.
The Committee concluded that the above outcomes were
a fair reflection of performance and did not consider it
necessary to exercise its discretion to adjust the level of
incentives payable according to the performance targets.
Full details on the targets set and performance against them
can be found on page 85 in respect of the annual incentive
and page 87 for the 2017 IIP award.
Chief Executive pay ratio
The Committee is pleased to present for the first time the
Chief Executive pay ratio in accordance with the new reporting
regulations which can be found on page 92.
78 IMI plc Annual Report & Accounts 2019
The Committee believe these changes in metrics will ensure
that executives are only rewarded if underlying earnings
improve, there is an acceptable return on capital employed
and shareholder returns outperform peers. The Committee
will continue to regularly monitor the reported KPIs along
with the underlying performance of the business when it
determines incentive outcomes.
Full detail on the PBT growth targets set for the annual bonus
will be disclosed in next year’s Annual Directors’ Remuneration
Report. The TSR, EPS and ROCE targets attaching to the 2020
IIP award are disclosed on page 93.
The annual bonus and IIP award level for the Chief Executive in
2020 will remain unchanged, as will the IIP award level for the
Finance Director. For 2020 the annual bonus opportunity for
the Finance Director will increase from 125% to 150% of
base salary, below the limit permitted by policy (200%).
The Committee approved the increase in recognition of
Daniel Shook’s consistently strong performance since joining
in 2015 and having taken into account movement amongst
global industry peers in the five years since.
Policy review
The Committee intends to undertake a full review of current
policy in 2020, before its expiration at the 2021 AGM when a
new policy will be presented for shareholder approval. At the
core of the review will be our new strategy, the remuneration
related provisions of the Code and evolving investor views.
The policy review will consider wider workforce remuneration
and policies when making decisions on executive remuneration.
The policy already includes a provision for both unvested and
vested awards to extend post-employment. However, it is
the Committee’s intention that it will formally adopt a post-
termination shareholding requirement as part of the new
policy. The Committee will also consider investor sentiment
regarding pension allowance for executive directors noting that
the Chief Executive is already receiving the average global
employee pension opportunity of 11% of base salary.
Finally, I would like to thank my fellow Committee members
for their support during my tenure as Chair. I believe that
under its new leadership IMI will continue to prosper and
create value for all its stakeholders.
Yours faithfully
Birgit Nørgaard
Chair of the Remuneration Committee
on behalf of the Board
27 February 2020
Employee Engagement
As designated non-executive director with the responsibility
for workforce engagement, I have during 2019 had the
opportunity to engage with our employees on items including
(but not limited to) business performance and company culture.
Further details can be found on page 68. I know that the Board
will continue to be well served in this regard by Thomas Thune
Andersen who succeeds me in this role.
Remuneration in 2020
Policy implementation
Consistent with prior years, salary increases effective
1 January 2020 considered a range of factors including the
increases for the wider workforce, the financial performance
of the Group and prevailing economic conditions. For 2020
the Chief Executive received no base salary increase and the
Finance Director received 2%, which is below the increase
awarded to the wider employee workforce for 2020 of 2.8%
but aligned to the general increase applied to UK employees.
The base salary for the Chief Executive will remain at
£720,000 in 2020 and for the Finance Director will be
£457,650 effective from 1 January 2020.
The Chairman and non-executive director fees were also
reviewed and increased by 2%, with effect from 1 January 2020.
Following the announcement of the new strategy in November
2019, the Committee reviewed the metrics that applied to
the annual bonus and IIP awards and considered whether
any changes were appropriate in accordance with the Policy.
To ensure immediate alignment with the new strategy and
to incentivise executives to realise the identified value creation
opportunities across our businesses, the Committee has
determined that the 2020 annual bonus will be contingent
on a PBT growth metric alongside strategic and personal
objectives for each executive director. The weighting of 80% to
financial metrics and 20% to strategic and personal objectives
will remain. The move to a single financial metric in PBT is a
purposeful one to ensure that in 2020 focus is concentrated on
accelerating profitable growth through short-term profitability
initiatives, cost and operational initiatives and margin
improvement. A new underpin will be introduced to allow for
downward discretion if there is a material underperformance
against budgeted free cash flow. The health and safety
underpin will also be expanded to take into account any
relevant environmental, social and governance (ESG) matters
when determining remuneration outcomes. The Committee
is also increasing the weighting on TSR targets for IIP awards
to 1/3, Return on Capital Employed (ROCE) to 1/3 and
introducing an adjusted Earnings Per Share (EPS) metric of
equal 1/3 weighting. Note that ROCE will now be calculated
in the same manner as defined in our KPIs on pages 52 and 53.
This replaces prior year IIP metrics of 25% Return on Capital
Employed, 25% Relative Total Shareholder Return and 50%
Group adjusted profit before tax growth. Prior to confirming
these changes to our incentive plan metrics to align to the
new strategy, in early 2020 the Committee informed and
engaged with our top ten investors.
79
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’
Remuneration Report
On behalf of the Board, the Remuneration
Committee (the “Committee”) presents
the Annual Directors’ Remuneration
Report, which will be put to shareholders
for an advisory (non-binding) vote at the
Annual General Meeting to be held on
7 May 2020. The report includes details
of the work of the Committee, the pay
received during the year in accordance
with our current directors’ remuneration
policy, approved by shareholders at the
Annual General Meeting in May 2018.
A copy of the approved Directors’
Remuneration Policy is included in
the 2017 Annual Report which can
be found on the IMI website.
The Committee
Composition
The members of the Committee throughout the year were
Birgit Nørgaard (Chair), Carl-Peter Forster, Thomas Thune
Andersen and Katie Jackson. In accordance with the Code,
all the non-executive directors are regarded by the Board as
independent. As previously noted, Birgit Nørgaard will stand
down from the Board on 29 February 2020 and Carl-Peter
Forster will become chair of the Committee from 1 March
2020. Caroline Dowling, who joined the Board on 1 January
2020, will, from that date, also be a member of the
Committee. Thomas Thune Andersen, who joined the
Committee in July 2018, will stand down and will be
joining the Audit Committee from 1 March 2020.
Responsibility
The Committee determines the remuneration policy and
rewards for the executive directors and other members of
the Executive Committee and the Chairman. The Committee
also considers the levels of pay and benefits across the Group.
A copy of the Committee’s terms of reference, which has
been updated to reflect the 2018 Code, is included in the
IMI Corporate Governance Framework and available on
our website.
Internal advisers to the Committee
During the year, the Committee consulted the Chief Executive,
regarding the packages of members of the Executive Committee.
It also received support from the Finance Director, the Group
Human Resources Director, the Head of Group Reward and the
Company Secretary, who is also secretary to the Committee.
None of these individuals were involved in determining their
own remuneration.
External advisers to the Committee
Independent remuneration consultant, Willis Towers Watson,
is formally appointed by the Committee and provided advice
on executive remuneration to the Committee in 2019.
The Committee noted that the firm are actuaries and
administrators for IMI’s UK Pension arrangements. The
Committee is comfortable that these activities do not
represent a conflict of interest and that objective and
independent advice continues to be received by the Committee
from the dedicated team servicing it at Willis Towers Watson.
The fees charged by Willis Towers Watson in respect of advice
and services to the Committee totalled £93,000 in 2019.
Willis Towers Watson are signatories to the Remuneration
Consultants’ Code of Conduct in the UK.
80 IMI plc Annual Report & Accounts 2019
A summary of the Committee’s
activities during 2019
The Committee had three formal meetings during the year;
attendance can be viewed in the table adjacent. The principal
agenda items were as follows:
» determining the remuneration arrangements relating to
the retirement of Mark Selway as Chief Executive and the
promotion of Roy Twite as his successor;
» a review of total compensation packages of the members
of the Executive Committee alongside a deep dive into the
wider workforce remuneration and related policies;
» approval of achievements and outcomes for 2018 under
the incentive plans;
» consideration of the fees for the Chairman;
» setting the target levels for the 2019 incentive cycle;
» approval of the 2019 share awards to members of the
Executive Committee;
Attendance
Director
Birgit Nørgaard
Carl-Peter Forster
Thomas Thune Andersen
Katie Jackson
Remuneration
Committee meetings
% attended where
eligible
3
3
2
3
100
100
67
100
Annual General Meeting 2019
voting outcomes
The following table summarises the details of votes cast for
and against the 2018 Annual Directors’ Remuneration Report
along with the number of votes withheld. The Committee
will continue to consider the views of, and feedback from,
shareholders when determining and reporting on
remuneration arrangements.
Voting item
Votes for
Votes against
Votes withheld
» review of the performance metrics and targets for the 2020
incentive cycle following announcement of our new strategy
in November 2019 and informing our top ten investors of
the outcome of this review;
Annual Directors’
Remuneration
Report
97.3%
2.7%
0.5%
» review of IMI’s gender pay gap data for 2019 against the
prior years’ data;
» review of IMI’s pay ratio of the Chief Executive to UK
employees and underlying calculation methodology;
» further review of the UK corporate governance and
regulatory environment and updated reporting regulations;
» review of the performance of the independent remuneration
consultants to the Committee;
» review of risks as they relate to executive compensation;
» review of the Committee’s own performance, constitution
and terms of reference;
» decided to attach non-compete covenants to performance
share awards under the IIP from 2020 including those for
the Executive Committee;
» review of executive director’s service agreements; and
» agreed themes for discussion and the coming policy
review and agreed a timetable for the review of Directors’
Remuneration Policy in 2020 in advance of its renewal
at the 2021 AGM.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’ Remuneration Report
Executive single figure table (audited)
Fixed pay
(£000)
Annual
variable pay
(£000)3
Long-term
variable pay
(£000)
Other items in the nature
of remuneration
(£000)
Director
See page
Roy Twite1
Daniel Shook
Mark Selway4
2019
2018
2019
2018
2019
2018
Base salary
Pension2
Taxable
benefits
Annual incentive
bonus
IMI Incentive
Plan (‘IIP’)
All-employee
share plans
Dividend
equivalent
payments
Total
(£000)
Page 83
Page 83
Page 83
Pages 84 to 86
Page 87
Page 89
636
475
449
439
617
822
112
166
90
88
144
247
30
30
41
40
49
67
516
405
248
409
389
1,232
409
312
277
211
706
673
4
4
4
3
4
4
-
-
-
-
1
2
1,707
1,392
1,109
1,190
1,910
3,047
Roy Twite served on the Board of Halma plc during the year and received fees of £58,125 in respect of this appointment which he retained.
Daniel Shook served on the Board of Ultra Electronics Holdings plc from 1 September 2019 and received fees of £21,166.68 in respect of his appointment
which he retained.
1 Amounts for 2019 reflect Roy Twite serving as Divisional Managing Director up to 9 May 2019 and Chief Executive thereafter.
2 From the date of his appointment as Chief Executive Roy Twite’s company pension contributions were reduced from 35% to 11% of base salary which is consistent
with the average global employee pension opportunity for employees.
3 For Roy Twite, the 2019 annual bonus was pro-rated to reflect the increase in maximum opportunity on his appointment as Chief Executive.
4 As disclosed in the 2018 Directors Remuneration Report, Mark Selway stepped down as Chief Executive at the 2019 AGM and retired from the Board on 31 July 2019.
Base salary for 2019 includes payment in lieu of notice for two months. Vesting in respect of the 2019 annual bonus and 2017 IIP award which were both pro-rated to
reflect time served by Mark Selway during the year.
These figures have been calculated as follows:
Base salary and fees:
the actual salary receivable for the year including
any payment in lieu of notice made.
Pension:
the cash allowance paid in lieu of pension.
Taxable benefits:
Annual incentive bonus:
IMI Incentive Plan (“IIP”):
the gross value of all taxable benefits (or benefits
that would be taxable for a person tax resident in
the UK) received in the year.
the value of the annual incentive payable for
performance in respect of the relevant financial year
(up to half is automatically delivered in the form of
deferred bonus share awards when the executive
director does not meet their share ownership
requirement) however the plan rules permit
payments to be made wholly in cash.
the value on vesting of the nil cost options that
were subject to performance conditions over
the three-year period ending on 31 December
in the relevant financial year (see share price
assumptions adjacent).
Share price assumptions: for shares vesting in 2020, that related to
performance in the three years to 31 December
2019, the average share price over the final three
months of 2019 (1,075.75 pence) is used to
estimate the value of shares on vesting. The value
of the award shown in the table that is attributable
to share price appreciation is nil.
All-employee share plans: the value of free shares at award and dividends
Dividend payments:
under the Employee Share Ownership Plan in the
relevant financial year and the intrinsic value of Save
as You Earn share options on the date of grant in the
relevant financial year (applying a 10% discount as
permitted under the Save as You Earn Share Plan).
For the IIP an additional number of shares
proportional to the dividends paid between the date
of the award and the date of vesting are delivered
on the vesting date (no further dividends are accrued
after the vesting date). This applies to both the
performance share awards and deferred bonus
share awards under the IIP. Dividend equivalent
payments arise from unexercised awards under
the legacy Performance Share Plan.
82 IMI plc Annual Report & Accounts 2019
Executive remuneration received in respect of 2019
Base salary
Salary increases effective 1 January 2019 took into account
a range of factors including the increases for the wider
workforce, the financial performance of the Group and
prevailing economic conditions. The average increase for
employees in 2019 was 3.0%, compared to an average
increase for executive directors of 1.2%. On appointment
as Chief Executive the Committee set Roy Twite’s salary
at £720,000 which is 12% lower than his predecessor.
Daniel Shook’s salary was increased by 2.2% effective
1 January 2019 to £448,650. Mark Selway was not
awarded a salary increase for 2019.
Pension
Effective from the date of his appointment as Chief Executive,
Roy Twite received a cash allowance equivalent to 11% of
base salary which is consistent with the average global
employee pension opportunity for employees.
Daniel Shook received a cash allowance of 20% of salary
and the Committee intends to review the appropriateness
of this level as part of the policy review in 2020.
Pension benefits for past service
Roy Twite was previously an active member of the defined
benefit IMI Pension Fund, the assets and liabilities under which
were transferred to either the IMI 2014 Pensioner Fund or
the IMI 2014 Deferred Fund (‘the Fund’) in 2014. He opted
out with effect from 1 February 2007, before he became an
executive director, and as a result he retains past pensionable
service up to that date in the Fund.
The key elements of the benefits in the Fund are
summarised below:
» the normal retirement age under the Fund is 62 and Roy
Twite may retire from employment with IMI any time after
age 60 without an actuarial reduction applied to his pension.
» on death after retirement, a dependant’s pension is provided
equal to 50% of the member’s pension.
» should he die within the first five years of retirement, the
dependant’s pension is increased to 100% of the member’s
pension for the remainder of the five-year period.
» pensions in payment more than any guaranteed minimum
pension, are increased each year in line with price inflation
up to a maximum of 5% in respect of pension built up before
1 January 2006, and 2.5% in respect of pension built up
after 1 January 2006.
Accrued pension in the Fund
as at 31 December 2019
Accrued pension in the Fund
as at 31 December 2018
Roy Twite
£000pa
76
£000pa
74
Benefits
During the year the executive directors received several
benefits, which are summarised below.
Roy Twite
Daniel Shook
Mark Selway
2019
2018
2019
2018
2019
2018
Non-cash
benefits (£000)
11
13
19
17
27
14
26
16
14
11
22
20
Company
car and fuel
allowance
(£000)
Allowances and
reimbursement
(£000)
-
-
-
-
22
25
Total
30
30
41
40
49
67
Note: Mark Selway received no benefits following his retirement.
In addition to the above benefits and allowances that are
included in the single figure table (refer to table on page 82),
the executive directors are also beneficiaries of company
policies that have no taxable value, including directors’ and
officers’ insurance, death in service cover, travel insurance
and personal accident cover.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’ Remuneration Report
Annual incentive bonus
In setting targets and assessing performance the following process is adopted by the Committee:
1. Set performance
measures aligned
with strategy
and budget
2. Set stretching
performance
targets
3. Assess
performance
4. Take account
of wider
circumstances
5. Apply discretion
if required
As per the Policy, the Committee reviews and selects
performance measures, targets and ranges annually,
which take account of the economic conditions, strategy
and the priorities of IMI at the time.
» Group revenue decreased to £1,873m in 2019 from
£1,907m in 2018, representing a 2% decrease;
» Cash conversion was 112% in 2019, compared
with 83% in 2018;
1. Set performance measures aligned with
» Adjusted Basic EPS remained at 73.2p;
strategy and budget
The Committee reviewed and selected performance
measures for 2019 that were fully aligned to the business
strategy and the annual budget as approved by the Board
in December 2018. The 2019 annual incentive bonus
focused on several financial metrics and non-financial
metrics and the financial metrics were consistent with
the prior years. These included:
» Group adjusted profit before tax (40%)
» Organic revenue growth (20%)
» Cash conversion (20%)
» Strategic and personal objectives (20%)
There was also a health and safety underpin to allow
bonuses to be paid only when minimum standards
were achieved.
For 2020, see page 93 for information regarding the
financial metrics to align to the new strategy that
was announced in November 2019.
2. Set stretching performance targets
In setting stretching performance targets the Committee
considered a range of influencing factors that included the
strategic plan, the annual budget, analysts’ forecasts,
economic conditions, individuals’ areas of responsibilities
and the Committee’s expectations over the relevant period.
The performance target range itself was established
based on the annual budget and required significant
outperformance for executive directors to achieve
the maximum.
3. Assess performance
Results were ahead of expectations given the mixed
economic and market headwinds:
» Group adjusted profit before tax remained flat
at £250.7m in 2019;
» The total dividend for the year increased by 1%
compared to 2018.
4. Take account of wider circumstances
The Committee believes that the range of measures
used to assess performance of the annual incentive
bonus ensures that performance is assessed using
a balanced approach, that is fully aligned with the
business strategy. The Committee also considers
the wider workforce remuneration and policies when
making decisions on executive remuneration. Given
the performance noted above and wider operational
achievements, the Committee is comfortable that the
2019 annual incentive bonus outcomes represent a fair
reward for performance delivered.
5. Discretion to override formulaic outcomes
and to apply malus and clawback
Depending on the circumstances, the Committee may
exercise judgement in assessing performance and
determining the level of achievement. The Committee has
full discretion to override formulaic outcomes and to reduce
the amount of any annual bonus, to reduce the number of
shares subject to any form of share award and/or to require
a repayment to the Company in the event it is discovered
that the Company has misstated its financial results,
there has been an error or miscalculation in respect of an
award, there has been gross misconduct or in any other
circumstances as the Committee sees fit. Such other
circumstances may include, but are not limited to,
serious reputational damage or corporate failure.
The broad discretion would allow the Committee
to make a downward adjustment for ESG reasons.
The Committee has considered the position and determined
that for 2019 it is not appropriate for any reason to exercise
the discretion to override formulaic outcomes or recover
amounts previously awarded.
84 IMI plc Annual Report & Accounts 2019
IMI Critical Engineering
Paju, Republic of Korea
Summarised in the table below is the achievement against Group targets applicable for Daniel Shook and Mark Selway (pro-rated
to retirement in July 2019) and from 9 May 2019, for Roy Twite.
Director
Measure
Maximum opportunity
(% of bonus opportunity)
Performance Targets
Threshold
Target
Maximum
Actual
performance
(£m)4
All Executive
Directors
Group adjusted profit before tax1
Group organic revenue growth2
Group cash conversion3
Strategic and personal objectives
£235.9m
£262.1m
£288.3m
£244m
£1,845m
£1,915m
£1,984m
£1,842m
74%
87%
96%
107%
See table on page 86
40%
20%
20%
20%
100%
1 Adjusted Group profit before tax, as set out in the Income Statement on page 112, adjusted for the impact of IFRS 16, foreign exchange and acquisitions.
2 Growth of organic revenue, as set out in Note 4 on page 123, adjusted for the impact of foreign exchange.
3 This is calculated as management operating cash flow divided by management operating profit at the stated exchange rates used in the targets.
4 Actual performance is stated at the exchange rates used in the targets.
Strategic and personal objectives
As part of the strategic growth plan, the Committee sets each executive director several strategic and personal objectives
each year. Upon Roy Twite’s appointment to Chief Executive, his strategic and personal objectives were updated in line with
expectations of the role and as summarised in the table below.
Performance against these objectives is assessed using a combination of quantitative and qualitative reference points to ensure
a robust assessment process. Mid-way through the year the executive is reviewed against their progress towards achieving the
strategic and personal objectives with a full review undertaken by the Committee at the end of the performance period. As well
as performance against strategic and personal objectives, the Committee considers the wider performance of the Group.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’ Remuneration Report
A summary of the strategic and personal objectives set for 2019 and the performance against them is provided in the table below.
Weighting
(% of
maximum)
Performance
achieved
(% of
maximum)
20%
17.6%
Director
Strategic and personal objectives for 2019
Commentary
Roy
Twite
Strategic growth: review market segments for each division
for long-term profitable growth; drive P&L accountability
and focus the organisation on profitable growth and cash
generation; continue to develop acquisition options and
relationships; present the strategic plan to the Board,
investors and employees; ensure the Group’s values (including
new customer focus value) are communicated and understood.
Market segment review fully developed for the divisions
and presented to investors as part of strategic review and
significant progress made to leadership and management
accountability to drive long-term growth. Incentive structure
simplified and aligned with new strategy. Strategic plan and
values successfully communicated to key stakeholders including
the Board, investors and employees in November 2019.
Strengthen organisation: Optimise divisional performance
focusing on bookings, SG&A reduction, smart pricing in the
aftermarket, material cost reduction and execution of the
2019 rationalisation projects. Actively sponsor and support
the Group’s diversity agenda. Drive HSE improvements
across the business.
Business improvement initiatives successfully delivered in the
second half of the year resulting in improved margins and
order book at the year end. Rationalisation projects delivered
on time and Group and Divisions remain actively engaged with
Diversity plans. Robust HSE improvement plans delivered
with a reduction in lost-time accidents and hand injuries.
Deliver projects: Continue with customer led, new product
development and introduction; develop plan to review and
optimise manufacturing footprint. Continue to refine and
build relationships with acquisition targets.
Introduction of growth accelerator programme creating a
culture of market led innovation now embedded in strategy.
Plan to review and optimise manufacturing footprint presented
to the Board in late 2019. PBM successfully acquired in Q3 2019.
Daniel
Shook
Strengthen finance organisation: execute strong planning
and robust transition arrangements for key internal
succession movements for both finance and IT; continue
to improve internal controls and support the process
improvements and subsequent changes to internal
audit, treasury and tax to achieve this.
Key internal transitions successfully completed with minimal
disruption and improved performance across finance, tax and
IT. Internal controls continue to align to industry best practice
and improvements made now resulting in efficiencies across
the divisions. Consistently strong performance from tax and
treasury functions.
20%
17.8%
Deliver projects: continue to strengthen IMI capabilities
through enhanced IT improvement plans e.g. ERP; IT
advancements; desktop collaboration standards; and
the security enhancement programme. Support M&A
integration projects and develop relationships.
Mark
Selway
Organisation: Engage and support divisions with
organisational design for optimal performance going
forward. Continue to sponsor diversity plans throughout
the divisions and develop and refine diversity roadmap.
Fully transition Chief Executive responsibilities to Roy
Twite including employee engagement activities, executive
meetings, investor relationships, accountability and strategy.
Successful delivery of IT projects including Security
Enhancement Programme and loT advancement, ensuring
that divisions continue to effectively develop focused initiatives
to advance IMI’s IT agenda and manage associated risks.
Full support provided for successful PBM acquisition and
continuing well with post acquisition integration.
Successful delivery of organisational plans and footprint
analysis. Continual support to improve diversity plans and
commitment to the WISE ten steps initiative. Commenced
implementation of roadmap to achieve compliance with
Hampton Alexander. Full transition of responsibilities completed
on time and with all key stakeholders including investors.
Deliver projects: Establish internal control and improvement
plans and monitoring of progress. Oversee successful
handover for the new Divisional Managing Director for IMI
Critical Engineering ensuring robust and seamless transition.
Continue to reduce the Group’s balance sheet exposure
in regards pension liabilities. Review key global operating units
and report findings and recommendations.
Internal control and declaration process improvements
established, strengthening the finance team rhythms.
New Divisional Managing Director for IMI Critical Engineering
successfully transitioned with no loss of business continuity.
Successfully completed the planned pension liability
management related exercises as per the agreed strategy.
Robust review of key operating units reviewed with findings
and recommendations made to the Executive in Q3 2019.
20%
14.2%
Based on the performance described above, the annual incentive bonus outcomes for 2019 are set out below:
Director
Roy Twite
Daniel Shook
Mark Selway
2019 maximum
bonus opportunity
(% of salary)
2019 maximum
bonus achieved
(% of maximum)2
Total bonus
awarded
(£000)2
Total bonus
awarded
(% of salary)2
Achievement of share
ownership guidelines
at 31 Dec 20193
Bonus delivered
in form of cash
(£000)
Bonus delivered
in form of share
awards (£000)3
182%1
125%
200%
43%
44%
41%
516
248
389
81%
55%
81%
95%
95%
-
354
186
3894
162
62
-
1 Reflects the pro-rating of annual incentive opportunity for 2019 for Roy Twite.
2 Prior to his appointment as Chief Executive on 9 May 2019, the 2019 annual bonus for Roy Twite was to be determined partly on the basis of strategic and personal objectives
and partly on the basis of financial performance of IMI Critical Engineering, of which Roy was previously Managing Director. In determining the bonus achieved for Roy, the
Committee considered the profit, revenue and cash conversion performance of IMI Critical Engineering against the targets originally set and what his bonus outcome would
have been had he remained in that role. The total bonus awarded to Roy reflects this determination by the Committee and Roy’s contribution to the financial performance
of both Group and IMI Critical Engineering during the year. Mark Selway’s bonus was calculated as a percentage of his base salary until his retirement on 31 July 2019.
3 Deferred bonus share awards are made where the executive director is yet to reach their share ownership guidance. Details of the share ownership guidelines can be found on page 88.
4 Mark Selway’s pro-rated 2019 annual bonus was paid in cash as he was not eligible for a deferred bonus share award.
86 IMI plc Annual Report & Accounts 2019
Awards vesting under the IIP
In March 2017, performance share awards were made to the executive directors under the IIP. The vesting of the awards was
subject to the achievement of three independent performance conditions as described below, measured over the three-years
ending 31 December 2019. The 2017 IIP award will vest in March 2020 at 47.1% of maximum.
Director
Initial award
Value on date of
award¹ (£000)
Number of initial
shares vesting
Additional dividend
equivalent shares
Total shares
vesting
Value of shares on
vesting2 (£000)
Roy Twite
Daniel Shook
Mark Selway
72,287
48,946
156,323
926
627
2,002
34,047
23,054
58,7143
3,996
2,705
6,891
38,043
25,759
65,605
409
277
706
1 The three-day average mid-market price on the date of award was 1,281.00 pence.
2 The price on vesting is unknown at this time and so the total number of shares vesting is valued at the average price over the last quarter of 2019 (1,075.75 pence)
3 Pro-rated for time served during the performance period (to 31 July 2019)
Return on capital employed (ROCE)
25% of the award was subject to the achievement of ROCE.
This measure is defined as segmental operating profit as a
percentage of the capital employed during the financial year
ended 31 December 2019. Capital employed being Intangible
Assets (excluding Acquired Intangibles and Goodwill), Property
Plant and Equipment and Working Capital. This calculation
excludes right-of-use assets recognised under IFRS 16 in 2019 for
the first time. It compares the earnings of the Group with the
Capital invested. ROCE was chosen as a measure as it represents
how well the Group has used its investment made by shareholders
and capital from creditors to generate a profit.
The portion of the share award that will vest related to ROCE
depends on ROCE in the final year of the performance period.
For ROCE of less than 40% no award under this element will
vest. 25% of the award will vest for ROCE of 40%, rising on
a straight-line basis to full vesting for ROCE of 50%. At the
end of the performance period return on capital employed
was 40.1% resulting in this element vesting at 6.4%.
Total Shareholder Return (TSR)
25% of the award was subject to the achievement of a relative
TSR performance measure against a defined group of companies
adjusted during the performance period to take account of
merger and acquisition activity during the performance period in
line with the Committee’s established guidelines. TSR is defined
as the movement in share price during the performance period,
measured in local currency, with adjustment to take account of
changes in capital structure and dividends, which are assumed
to be reinvested in shares on the ex-dividend date. TSR was
chosen as a measure as it is an external, relative benchmark for
performance that aligns executives’ rewards with the creation
of shareholder value.
The portion of the award that will vest related to TSR depends on
where IMI ranks in the comparator group. For a TSR rank that is
below median, no award under this element will vest. 25% of the
award will vest for median TSR, rising on a straight-line basis to
full vesting for upper quartile TSR. At the end of the three-year
performance period, the Group ranked 15th of the peer group.
The resultant vesting outcome for this element of the award is nil.
Group adjusted profit before tax growth
50% of the award was subject to the achievement of the Group
adjusted profit before tax growth measure. This measure is
defined as the profit before tax before adjusting items as shown
in the audited accounts of the Group, adjusted for any exceptional
items, including significant acquisition and disposal and foreign
exchange movements, at the Committee’s discretion.
Adjusted profit before tax growth is a key measure for IMI as it
gives an indication of the strength of the Group’s financial
performance and shows the amount available to reinvest into
the business and pay a return to shareholders through dividends.
For growth of less than 2.5% per annum, no award under this
element will vest. 25% of the award will vest for growth of 2.5%
per annum rising on a straight-line basis to full vesting for growth
of 7.5% per annum.
Over the three-year performance period ending 31 December
2019 IMI delivered group profit before tax growth of 6.3%. The
resultant vesting outcome for this element of the award is 40.7%.
Deferred bonus share awards
In March 2017, deferred bonus share awards were also made
under the IIP which vest in March 2020. These are the form of
share award used for mandatory bonus deferral into shares of
up to 50% of annual bonus payable where the executive director
is yet to reach their share ownership guideline.
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Discretion to override formulaic
outcomes and to apply malus
and clawback
Depending on the circumstances, the Committee may exercise
judgement in assessing performance and determining the level
of achievement. The Committee has full discretion to override
formulaic outcomes and to reduce the amount of any IIP
award, to reduce the number of shares subject to any form
of share award and/or to impose an obligation to make a
payment to the Company in the event it is discovered that the
Company has misstated its financial results for any reason,
there has been an error or miscalculation in respect of an
award, gross misconduct or in such other circumstances
as the Committee sees fit. Such other circumstances may
include, but are not limited to, serious reputational damage
or corporate failure.
The Committee has considered the position and determined
that for 2019 it is not appropriate for any reason to exercise
the discretion to override the formulaic outcome of the 2017
IIP awards or recover amounts previously awarded.
Share ownership guidelines
It is a requirement of the Policy that executive directors are
subject to guidelines which require them to build a shareholding
in IMI worth at least 250% of salary for Roy Twite and 150%
of salary for Daniel Shook. The Policy permits the Committee
discretion to determine that up to 50% of any annual bonus
earned is deferred into shares until the share ownership
guideline is achieved together with 50% of any vested share
awards. Each executive is then required to maintain this share
ownership guideline (subject to allowances for share price
fluctuations and changes in base salary thereafter). When
assessing compliance with this guideline the Committee
reviews both the level of beneficial share ownership and vested
but unexercised share incentive awards on a post-tax basis.
Prior to his appointment as Chief Executive Roy Twite had
already exceeded the shareholding requirement of 200% that
applied to his former role. On appointment as Chief Executive
the shareholding requirement was increased to 250% and
the Committee has determined that up to half of the annual
bonus payable to Roy Twite and Daniel Shook as outlined on
page 86 will be delivered in the form of deferred bonus share
awards which must be held for a period of at least three years
and until the share ownership guideline has been met.
Further, the Committee has determined that half of the
performance share awards made to Roy Twite and Daniel
Shook in March 2017, and due to vest in March 2020, should
be retained (net of sales required to meet tax liabilities arising
on vesting) until the share ownership requirement is met.
Mark Selway did not dispose of any shares in IMI plc while
employed but was not required to retain shares he held in
IMI plc after leaving the Company in line with the 2018
Directors’ Remuneration Policy.
88 IMI plc Annual Report & Accounts 2019
Share interests granted to executive
directors during 2019 (audited)
Grants made under the IIP
Performance share award grants under the IIP were made on
18 March 2019 in the form of nil-cost options. Awards are due
to vest on 18 March 2022, subject to performance in three core
areas aligned to our longer-term strategic priorities: ROCE
(25%), relative TSR (25%) and Group adjusted profit before
tax (50%). After vesting a holding period of two years applies
subject to the sale of shares as required to meet tax liabilities
arising on vesting.
The performance targets, which consider the Group’s approach
to implementing accounting changes under IFRS 16, and
vesting scale that apply to the 2019 IIP awards are as follows:
ROCE
Relative TSR
Threshold
Maximum
Weighting
40%
50%
25%
Median
Upper quartile
25%
Group
adjusted
profit before
tax growth1
2.5%
7.5%
50%
Level of
vesting
25%
100%
-
1 Annualised Compound Annual Growth Rate over 3 years.
Further details of the above performance targets can be found
in the awards vesting under the IIP section on page 87. The
following performance share award grants were approved and
made in 2019.
IIP shares
awarded
Value on date of
award1
(£000)
Award as a
percentage of
salary2
Roy Twite
Daniel Shook
120,758
66,962
1,214
673
250%
150%
1 The three day average mid-market price on the date of award was
1,005.00 pence.
2 Based on Roy Twite’s salary as Divisional Managing Director for
IMI Critical Engineering.
Mark Selway was not granted an IIP award in 2019.
The IIP is also used to grant deferred bonus awards exercisable
after three years to satisfy bonuses delivered in the form of
shares. Details of these additional IIP awards made in 2019
are shown in the table on page 90 under the ‘without
performance conditions’ column. No performance
conditions apply to these awards.
For share awards granted in 2019 the TSR group included 17 companies to ensure complete alignment with our peers and
comparison to companies with similar products, customers and global spread. The 2019 peer group includes the following
companies which is consistent with our 2018 peer group, and in line with the Committee’s guidelines:
TSR comparator group companies
1. AirTAC
2. Belimo
3. Curtiss-Wright
4. Eaton
5. Emerson Electric
6. Flowserve
7. Ingersoll-Rand
8. ITT
9. Morgan Advanced Materials
10. Parker-Hannifin
11. Rockwell Automation
12. Rotork
13. SMC
14. Smiths Group
15. Spectris
16. SPX
17. The Weir Group
All-employee share plans
Executive directors are eligible to participate in the all-employee share plans on the same terms as other eligible employees at IMI.
All Employee Share Ownership Plan
IMI Sharesave Scheme
Number of shares
awarded
Value of free
share award1
(£000)
Number of options
awarded
Value of
options
(£000)
Dividends
(£000)
Total value under the
all-employee share
plans (£000)
Roy Twite
Daniel Shook
Mark Selway
2019
2018
2019
2018
2019
2018
359
336
359
304
359
336
4
4
4
3
4
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
4
4
3
4
4
1 In 2019 free shares were awarded at a share price of 1,000.64 pence (1,071.00 pence in 2018).
Payments to past directors (audited)
Other than those relating to the departure of Mark Selway
as Chief Executive there were no payments to past directors
during the year. Dividend equivalent payments for vested but
unexercised nil-cost option awards will continue to be made
to past directors under the terms of the original grant.
Payments for loss of office
Mark Selway stepped down as Chief Executive immediately
following the Company’s Annual General Meeting on 9 May
2019 and retired on 31 July 2019. The remuneration
arrangements relating to his retirement as determined
by the Committee were in full compliance with the Policy
and are set out below.
Base salary
Mark Selway continued to receive his base salary of £822,000
payable in equal monthly instalments in arrears up to 31 July
2019. He also received a payment in lieu of notice in respect of
the two months’ notice period of £137,000.
Annual incentive bonus
Mark Selway was eligible for an annual incentive payment
for 2019 subject to performance conditions and pro-rated
to reflect the time served in 2019. Details of Mark Selway’s
bonus for 2019 are set out on page 86.
Awards vesting under the IIP
The Committee determined to treat Mark Selway a good
leaver for reason of retirement and agreed that unvested
performance share awards would continue until their normal
vesting date, subject to pro-rating and achievement of the
performance conditions attaching to them. Details of Mark
Selway’s awards vesting in respect of the IIP awards made
in March 2017 are set out on page 87. The performance
share awards made under the IIP in March 2018 will continue
to the normal vesting date again subject to pro-rating and
the achievement of applicable performance conditions.
No performance share awards were made under the IIP
to Mark Selway in 2019.
Unvested deferred bonus share awards made under the IIP
vested on retirement and remain exercisable for 12 months
from retirement.
All Employee Share Ownership and SAYE plan awards held
by Mark Selway at retirement were released to him on
31 July 2019.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’ Remuneration Report
Chairman’s and non-executive directors’ single figure table (audited)
The following table summarises the total fees and benefits paid to the Chairman and non-executive directors in respect
of the financial years ending 31 December 2019 and 31 December 2018.
Director
2019 (£000)
Base fees
Additional
fees
Taxable
benefits1
Lord Smith of Kelvin
Carl-Peter Forster2
Birgit Nørgaard3
Isobel Sharp4
Thomas Thune Andersen5
Katie Jackson5
327
66
66
66
66
66
-
11
21
16
-
-
7
10
10
2
8
4
Total
Base fees
334
320
87
97
84
74
70
64
64
64
32
32
2018 (£000)
Additional
fees
Taxable
benefits1
-
11
16
16
-
-
5
8
8
5
5
1
Total
325
83
88
85
37
33
1 Taxable benefits includes travel and hotel expenses plus tax costs associated with Board meetings held at IMI HQ.
2 Includes fee for Senior Independent Director.
3 Includes fee for being Chair of the Remuneration Committee and the non-executive director with responsibility for employee engagement.
4 Includes fee for being Chairman of the Audit Committee.
5 Pro-rata fee from date of appointment on 1 July 2018.
Directors’ shareholdings and share interests (audited)
The following table summarises the share interests of any director who served during the year as at 31 December 2019
or at the date of leaving the Board.
During the period 31 December 2019 to 27 February 2020 there were no changes in the interests of any current director
from those shown save for purchases within the IMI All Employee Share Ownership Plan on 14 January 2020 of 10 shares
each on behalf of Roy Twite and Daniel Shook at 1,183.00 pence per share, and 11 February 2020 of 12 shares on behalf
of Roy Twite and 11 shares on behalf of Daniel Shook at 1,115.50 pence per share.
Director
Total
interests
Beneficial
interests
Scheme interests
Nil-cost options
Roy Twite
Daniel Shook
Mark Selway2
Lord Smith of Kelvin
Carl-Peter Forster
Birgit Nørgaard
Isobel Sharp
Thomas Thune Andersen
Katie Jackson
445,702
272,891
556,952
14,300
2,625
2,625
3,000
2,625
2,618
140,082
27,323
10,125
14,300
2,625
2,625
3,000
2,625
2,618
With performance conditions
Without performance conditions
(deferred bonus share awards)
Unvested1
Vested but
unexercised
297,416
187,410
229,969
-
-
84,727
-
-
-
-
-
-
-
-
-
-
-
-
Unvested
-
56,351
-
-
-
-
-
-
-
Vested but
unexercised
-
-
229,498
-
-
-
-
-
-
All-employee
share plans
8,204
1,807
2,633
-
-
-
-
-
-
1 Vesting dates of share awards are shown in Note 6, page 127.
2 Shareholding as at the date of stepping down from the Board on 31 July 2019
90 IMI plc Annual Report & Accounts 2019
Relative importance of spend on pay
The following information is intended to provide additional
context regarding the total remuneration for executive
directors.
Dividends
Total employment costs for Group
(see Note 5 on page 126)
2019
(£m)
110.8
588.0
2018
(£m)
107.9
615.8
Change
2.7%
-4.5%
In 2019, the total dividend for the year of 41.1 pence
represented an increase of 1.2% over last year’s 40.6 pence.
Relative percentage change in
remuneration for the Chief Executive
The Committee actively considers any increases in base pay
for the Chief Executive relative to the broader IMI employee
population. Benefits and bonus payments are not typically
comparable given they are driven by a broad range of factors,
such as geographical location, local practices, eligibility,
individual circumstances and role.
Base salary
Benefits
Annual bonus
Chief Executive1
Employees2
-12%
-55%
-58%
3%
10%
-47%
1 The percentage change takes into account the appointment of a new Chief
Executive in 2019.
2 All UK head office employees. This comparison excludes our international
workforce which we believe would not provide a true comparison given differing
local market factors.
Historical performance and
remuneration
In addition to considering executive remuneration in the
context of internal comparisons, the Committee reviews
historical outcomes under the variable pay plans.
The graph below compares IMI’s TSR to the FTSE100 and
FTSE250 over the last ten years. We compare performance
to the FTSE100 as IMI has been included in the index in the
past and it is a position where IMI aspires to be. TSR measures
the returns that a company has provided for its shareholders,
reflecting share price movements and assuming reinvestment
of dividends (source: CapIQ), with data averaged over the final
30 days of each financial year. As the graph below illustrates,
IMI’s absolute and relative TSR performance has been strong
over the last ten years.
Value of a hypothetical £100 investment
£500
£400
£300
£200
£100
£0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
IMI
FTSE100
FTSE250
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’ Remuneration Report
The following table summarises the total remuneration for the Chief Executive over the last ten years, and the outcomes of short
and long-term incentive plans as a percentage of maximum.
Financial year-ended 31 December
20101
20111
20121
20131
20142
20152
20162
20172
20182
20193
Total remuneration (single figure, £000)
4,439
12,289
7,954
6,688
1,567
1,667
1,9013
2,773
3,047
1,707
85%
47%
62%
36%
40%
50%
95%
75%
43%
Annual variable pay (% of maximum)
Long-term variable pay (% of maximum)
- Share Matching Plan
Long-term variable pay (% of maximum)
- Performance Share Plan
Long-term variable pay (% of maximum)
- IMI Incentive Plan
95%
97%
95%
100%
100%
100%
100%
100%
82.6%
-
-
-
-
-
-
-
-
-
-
-
3.5%
-
-
-
-
-
-
-
6.55%
29.2%
47.1%
1 Represents remuneration for Martin Lamb, who was Chief Executive from before 2010 until 31 December 2013.
2 Represents remuneration for Mark Selway, who was appointed Chief Executive on 1 January 2014.
3 Represents remuneration for Roy Twite, who was appointed Chief Executive on 9 May 2019.
Pay ratio reporting
This reporting year legislation has come into force which requires quoted companies with 250 or more employees to publish
information on the pay ratio of the Group Chief Executive to UK employees. In line with the new regulatory requirements, the table
below sets out the ratio at median, 25th and 75th percentile of the total remuneration received by the Group Chief Executive
compared to the total remuneration received by our UK employees – as well as comparing to base salary only. Total remuneration
reflects all remuneration received by an individual in respect of the relevant years, and includes salary, benefits, pension, and value
received from incentive plans.
Financial year
2019
Methodology
P25 (Lower Quartile)
P50 (Median)
P75 (Upper Quartile)
Option C
83:1
62:1
45:1
Total remuneration
» The 2019 Chief Executive single figure is calculated considering the Chief Executive succession on 9 May 2019. The remuneration
for Mark Selway is reported for the period from 1 January 2019 to 9 May 2019 and Roy Twite’s remuneration from 9 May 2019
to 31 December 2019. The remuneration calculation includes base salary, fees, pension, taxable benefits, annual bonus and
shares paid during this period.
» As is permitted by Option C of the regulations the Gender Pay Gap data for 2019 based on a snapshot in April 2019 was
used to identify our three quartile employees, P25, P50 and P75. Having identified P25, P50 and P75, we chose to review
the single figure data for an additional 10 employees at each of the quartiles for the full year ended on 31 December 2019.
The remuneration calculation included base salary, allowances, pension, taxable benefits, annual bonus and shares.
This method provides a like for like comparison with the Chief Executive’s single figure total for the 2019 calendar year.
Gathering data on more than 3 employees provides a better opportunity to capture all pay and benefits of employees
to get a true median value at each of the three bandings.
» Our principles for pay setting and progression in our wider workforce are the same as for our executives – total reward being
sufficiently competitive to attract and retain high-calibre individuals without over-paying and providing the opportunity for
individual development and career progression to attract and retain great talent. The pay ratios reflect how remuneration
arrangements differ as accountability increases for more senior roles within the organisation and the ratios reflect the
weighting towards long-term value creation and alignment with shareholder interests for the Chief Executive.
» We are satisfied that the median pay ratio reported this year is consistent with our wider pay, reward and progression
policies for employees. All IMI employee’s receive competitive pay and benefits and have the opportunity for annual pay
increases and career progression and development opportunities.
92 IMI plc Annual Report & Accounts 2019
The regulations require the total pay and benefits and the salary component of total pay and benefits to be set out as follows:
Base salary (£)
Total pay and benefits (£)
Chief Executive remuneration
25th Percentile employee
50th Percentile employee
75th Percentile employee
758,550
25,000
26,607
48,552
2,353,014
28,415
38,070
51,812
Application of the Policy for 2020
Executive director fixed pay
Consistent with prior years, salary increases effective
1 January 2020 considered a range of factors including the
increases for the wider workforce, the financial performance
of the Group and prevailing economic conditions. For 2020
the Chief Executive received no base salary increase and
the Finance Director received 2% which is below the increase
awarded to employees for 2020 of 2.8% but aligned to the
general increase applied to UK employees. The base salary
for the Chief Executive will remain at £720,000 in 2020
and for the Finance Director will be £457,650 effective
from 1 January 2020.
Other elements of fixed pay (benefits and allowances) will
remain unchanged, although pension allowances are a fixed
percentage of salary.
Incentive pay
Annual bonus
Following the strategy announcement made in November
2019 the Committee reviewed the appropriateness of
continuing with the metrics that applied to the 2019
annual bonus to ensure alignment with the new strategy.
The Committee determined that the 2020 annual bonus will
be contingent on a Profit Before Tax growth target alongside
strategic and personal objectives for each executive director.
The weighting of 80% to financial metrics and 20% to
strategic and personal objectives will remain unchanged.
Free cash flow, if it should materially underperform against
budget, will be added as an explicit reason for the Committee
to apply downward discretion. The health and safety underpin
will be expanded to take into account any relevant ESG matter
when determining remuneration outcomes. Revenue will
remain a critical key performance indicator for the business
and the Committee will monitor performance of this area,
as it will the underlying performance of the business, when
determining bonus outcomes. Due to the commercially
sensitive nature of the Group adjusted Profit Before Tax
target and strategic and personal objectives, they will be
disclosed retrospectively in next year’s report along with
performance against them.
The maximum bonus opportunity will remain at 200% of
salary for Roy Twite. As noted earlier in the Annual Statement,
the annual bonus opportunity for the Finance Director will
increase from 125% to 150% of base salary in recognition of
Daniel Shook’s consistently strong performance since joining
in 2015 and having taken into account movement amongst
global industry peers in the five years since. On-target bonus
is set at 50% of maximum bonus opportunity.
Performance share awards under the IIP
At the same time as the review of annual bonus metrics,
the Committee also reviewed those attaching to IIP awards.
The Committee, also considering shareholder feedback,
has decided to increase the weighting on TSR and ROCE to
1/3 and introduce an EPS metric of equal (1/3) weighting.
This, the Committee believes, will ensure that executives are
only rewarded if underlying earnings are increased over the
performance period and shareholder returns outperform peers.
2020 awards will remain at 250% for Roy Twite and 150%
for Daniel Shook and will be subject to a two-year post-vesting
holding period, extending the total time horizon to five years
from grant.
The performance targets that will apply to the 2020 IIP
awards are as follows:
Relative TSR
Adjusted
EPS
Threshold
Median
Maximum
Upper quartile
Weighting
1/3
3%
10%
1/3
ROCE
11.5%
14.5%
1/3
Level of
vesting
25%
100%
-
Service contracts
The unexpired terms of the non-executive directors’ service
contracts can be reviewed in the Board’s Corporate
Governance Report on page 66.
Fees for the Chairman and non-executive directors
The Chairman and non-executive directors’ remuneration
increased by 2%, with effect from 1 January 2020 and
compares with a 2.8% increase across the wider workforce.
Birgit Nørgaard
Chair of the Remuneration Committee
for and on behalf of the Board
27 February 2020
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Report
The directors present their report, together with the audited financial statements,
for the year ended 31 December 2019.
Strategic Report
The Strategic Report is incorporated by reference and includes
the content on pages 8 to 60.
Results and dividend
The Group consolidated income statement is shown on page
112. Adjusted operating profit amounted to £266.1m (2018:
£265.5m), adjusted profit before taxation and discontinued
operations amounted to £189.3m (2018: £212.9m).
The directors recommend a final dividend of 26.2p per share
(2018: 26.0p per share) on the ordinary share capital payable,
subject to shareholder approval at the Annual General Meeting
to be held on 7 May 2020, on 15 May 2020 to shareholders on
the register at the close of business on 3 April 2020. Together
with the interim dividend of 14.9p per share paid on 13
September 2019, this final dividend will bring the total
distribution for the year to 41.1p per share (2018: 40.6p
per share).
Research and development
See Note 5 to the financial statements on page 126.
Shareholders’ funds
Shareholders’ funds increased from £666.2m at the end
of 2018 to £709.9m at 31 December 2019.
Share capital
As at 31 December 2019, the Company’s share capital
comprised a single class of share capital which was divided
into ordinary shares of 28 4/7p each. Details of the share
capital of the Company are set out in Note 22 to the financial
statements on page 165. The Company’s ordinary shares are
listed on the London Stock Exchange.
The Company has a Level 1 American Depositary Receipt
(‘ADR’) programme for which Citibank, N.A. acts as depositary.
See page 180 for further details.
As at 31 December 2019, 1,079,189 shares were held in an
employee trust for use in relation to certain executive incentive
plans representing 0.4% of the issued share capital (excluding
treasury shares) at that time. The independent trustee of the
trust has the same rights as any other shareholder other than
as specifically restricted in the governing trust deed. The trust
has agreed to waive any right to all dividend payments now
and in the future. Participants in option schemes do not hold
any voting rights on the shares until the date of exercise.
During 2019, 104,297 new ordinary shares were issued under
employee share schemes: 104,297 under save as you earn
plans and nil under executive share plans. Shares acquired
through Company share schemes and plans rank equally
with the shares in issue and have no special rights.
Pursuant to the Company’s articles of association a tracing
exercise was conducted which matched certain beneficiaries
with shares held by shareholders who had been out of contact
for over 12 years. A balance of 17,376 held in the names of
other such out of contact shareholders were not matched with
beneficiaries and were forfeited and sold with sale proceeds
being retained by the Company.
The rights and obligations attaching to the Company’s
ordinary shares are set out in the Company’s articles of
association, copies of which can be obtained from Companies
House in the UK, from the Company’s website or by writing to
the Company Secretary. Changes to the articles of association
must be approved by a special resolution of the shareholders
(75% majority required) in accordance with the legislation in
force at the time. Subject to applicable statutes, shares may
be issued with such rights and restrictions as the Company
may by ordinary resolution decide or (if there is no such
resolution or so far as it does not make specific provision)
as the Board may decide.
Holders of ordinary shares are entitled to receive the
Company’s report and accounts, to attend, speak and vote
at general meetings of the Company, and to appoint proxies
to exercise their rights. Holders of ordinary shares may receive
a dividend and on a liquidation, may share in the assets of
the Company.
Subject to meeting certain thresholds, holders of ordinary
shares may requisition a general meeting of the Company or
propose resolutions at Annual General Meetings. Voting rights
for ordinary shares held in treasury are suspended and the
treasury shares carry no rights to receive dividends or other
distributions of assets.
There are no restrictions on the transfer of ordinary shares
in the Company other than:
» certain restrictions as may from time to time be imposed by
laws and regulations (for example insider trading laws); and
» pursuant to the Company’s share dealing code whereby the
directors and certain employees of the Company require
approval to deal in the Company’s shares.
The Company is not aware of any arrangements between
shareholders that may result in restrictions on the transfer of
ordinary shares or on voting rights. None of the ordinary shares
carry any special rights with regard to control of the Company.
The only restrictions on voting rights are those that apply to
the ordinary shares held in treasury. Electronic and paper proxy
appointments and voting instructions must be received by the
Company’s registrars not later than 48 hours (excluding any
non-working days) before a general meeting, or (subject to the
Company’s articles of association) any adjournment thereof.
94 IMI plc Annual Report & Accounts 2019
Treasury shares
The Company was granted authority at the Annual General
Meeting held on 9 May 2019 to purchase up to 27,210,271 of
its ordinary shares. This authority will expire at the conclusion
of the next Annual General Meeting to be held on 7 May 2020,
where shareholders will be asked to give a similar authority,
details of which will be given in the Notice of Annual
General Meeting.
As at 31 December 2019, 14,248,836 ordinary shares (nominal
value £4,071,096) were held in treasury representing 5% of
the issued share capital (excluding treasury shares) at that
time. The maximum number of shares held in treasury during
the year ended 31 December 2019 was 14,248,836.
Substantial shareholdings
Information provided to the Company pursuant to the Disclosure
Guidance and Transparency Rules is published on a regulatory
information service at www.imiplc.com. As at 31 December
2019, the following voting interests in the ordinary share capital
of the Company, disclosable under the Disclosure Guidance
and Transparency Rules, had been notified to the Company:
Artisan Partners Limited Partnership
Massachusetts Financial Services Company
Ameriprise Financial Inc
Standard Life Investments (Holdings) Limited
Legal & General Group plc
1 As of the date in the notification to the Company.
% Held1
10.37
9.89
5.01
4.97
3.03
Subsequent to 31 December 2019 and up to the date of this
Annual Report, no changes in the voting interests have been
notified to the Company in accordance with the Disclosure
Guidance and Transparency Rules save that Artisan Partners
Limited Partnership notified the Company on 10 January 2020
that its voting interest was 9.90%. As far as the Company is
aware, there are no persons with substantial holdings in the
Company other than those noted above.
Statement on corporate governance
The required disclosures are contained in the Corporate
Governance Report on pages 61 to 93 and are incorporated
into this Directors’ Report by reference.
Employee matters
Every effort is made to ensure that applications for
employment from disabled employees are fully and fairly
considered and that disabled employees have equal
opportunity in training, succession planning and promotion.
Further disclosures relating to employee diversity, employee
engagement and related policies are set out on pages 27
to 31.
Details of employee share schemes are set out in Note 6
of the financial statements on pages 127 to 129.
Health, safety and the environment
It is Group policy to improve continuously safe and healthy
working conditions and more details appear on page 32.
It is Group policy to operate always in an environmentally
responsible manner.
Our carbon reporting statistics demonstrate that our recent
performance of CO2e has continued to improve. On a like
for like basis, we achieved our target to keep emissions at
or below 2018 levels for 2019. We achieved a 2.5% reduction
in emissions compared to 2018. Of the 2019 total, our direct
(Scope 1) emissions of CO2, essentially gas, diesel and fuel oil
consumed amounted to 16,000 tonnes. Our indirect (Scope 2)
emissions of CO2, essentially the emissions generated on our
behalf to provide our electricity, amounts to 41,500 tonnes.
In addition to gross tonnes of CO2, we report CO2e intensity
relative to £million sales; our result for 2019 is 31.2 and is
comparable to the 2018 performance.
Our CO2e accounting methodology follows the DEFRA
guidelines and includes all material emissions across IMI.
See page 34 for further CO2e and energy efficiency details.
Political donations
No political donations were made during the year.
Directors
The membership of the Board and biographical details of the
directors are given on pages 62 and 63 and are incorporated
into this report by reference.
The rules for the appointment and replacement of directors
are set out in the Company’s articles of association. Each new
appointee to the Board is required to stand for election at the
next Annual General Meeting following their appointment. In
addition, the Company’s articles of association require each
director to stand for re-election every year.
Qualifying indemnity provisions and
liability insurance
The Company maintains directors’ and officers’ liability
insurance and all directors of the Company benefit from
qualifying third party indemnity provisions which were in place
during the financial year. At the date of this Annual Report
there are such indemnity arrangements with each director in
respect of the costs of defending civil, criminal and regulatory
proceedings brought against them, as a director or employee,
subject always to the limitations set by the Companies
Act 2006.
95
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Report
IMI Critical Engineering
Rancho Santa Margarita, USA
The Group operates pension schemes in the UK which provide
retirement and death benefits for employees and former
employees of the Group. The corporate trustee of the pension
schemes is IMI Pensions Trust Limited, a subsidiary of the Company.
Qualifying pension scheme indemnity provisions, as defined in
section 235 of the Companies Act 2006, were in force for the
financial year ended 31 December 2019 and remain in force for
the benefit of each of the directors of the corporate trustee of the
pension schemes. These indemnity provisions cover, to the extent
permitted by law, certain losses or liabilities incurred as a director
or officer of the corporate trustee of the pension schemes.
The Group also has in place third party qualifying indemnity
provisions, as defined in section 234 of the Companies Act 2006,
in favour of certain employees who discharge responsibilities
for various wholly-owned subsidiary companies and these
indemnities are given on a similar basis to the above.
Role of the Board
The role of the Board is:
» to promote the long-term success of the Company for the
benefit of its members;
» to understand the views of key stakeholders and review
engagement mechanisms;
The Board provides leadership, direction and governance for the
Company and oversees business and management performance.
The Board has adopted a corporate governance framework
which defines Board roles and includes the list of matters
reserved to it and written delegations of authority for its
committees and the Executive Committee. Board reserved
matters include strategy and key areas of policy, major
operational and strategic risks, significant investment decisions
and material changes in the organisation of the Group.
In the IMI Corporate Governance Framework (updated in 2019),
the Board has clearly defined in writing those matters which are
reserved to it and the respective delegated authorities of its
committees and it has also set written limits of authority for the
Chief Executive. The Group has a clear organisational structure
and well-established reporting and control disciplines. Managers
of operating units assume responsibility for and exercise a high
degree of autonomy in running day-to-day trading activities. They
do this within a framework of clear rules, policies and delegated
authorities regarding business conduct, approval of proposals for
investment and material changes in operations and are subject
to regular senior management reviews of performance.
Division of responsibilities amongst directors
Chairman:
» to set and monitor the Company’s values, purpose and strategy
» setting the Board agenda and shaping the culture in the
and ensure that these and its culture are aligned;
boardroom;
» to select and appoint the Executive Committee and ensure
» chairing meetings and encouraging the active engagement
that the necessary resources are available to them;
of all Board members;
» to ensure that the Company’s obligations to shareholders
are understood and met;
» to demonstrate ethical leadership and high standards of
behaviour and to oversee governance, risk and the control
environment; and
» to ensure that the Board has the policies, processes,
information, time and resources it needs to function
effectively and efficiently.
» building a Board with a mix of people, skills, knowledge and
experience and ensuring its effectiveness, including the quality
of debate and decisions;
» developing a productive working relationship with the
Chief Executive;
» seeking regular engagement with major shareholders; and
» getting the right executive leadership and succession
plans in place.
96 IMI plc Annual Report & Accounts 2019
There is a clear division of responsibility between the Chairman and
Chief Executive, which is reflected in the IMI Corporate Governance
Framework approved by the Board. In summary, the Chairman is
responsible for the leadership and effectiveness of the Board but
does not have any executive powers or responsibilities. The Chief
Executive leads the Executive Committee in running the businesses
and implementing operational and strategic plans under authority
delegated by the Board.
The Chairman is responsible for ensuring that the Board
meetings operate to an appropriate agenda, and that adequate
information is provided sufficiently in advance of meetings to
allow proper consideration. He is supported by the Company
Secretary, who also assists in ensuring that the Board operates in
accordance with good corporate governance under the Code and
relevant regulatory requirements. The Company Secretary acts
as secretary to all of the standing committees of the Board.
The Board has a recognised procedure for any director to obtain
independent professional advice at the Company’s expense
and all directors have access to the Company Secretary who
is a solicitor.
Chief Executive:
» leadership of the Executive Committee;
» developing business plans and strategy for consideration
of the Board and implementing the same;
» communicating to the people within the Company the
expectations of the Board in relation to the Company’s culture,
values and behaviours, including ensuring the highest
compliance and governance standards;
» building an effective operational management team and
developing the organisation structure; and
» resourcing, talent development and succession plans.
Directors’ powers
The powers of the directors are determined by UK legislation and
the articles of association of the Company in force from time to
time. The directors were authorised to allot and issue ordinary
shares and to make market purchases of the Company’s ordinary
shares by resolutions of the Company passed at its Annual
General Meeting held on 9 May 2019 by the passing of new
resolutions. The current authorities will expire at the conclusion
of the next Annual General Meeting to be held on 7 May 2020,
at which new authorities will be sought.
Further details of authorities the Company is seeking for the
allotment, issue and purchase of its ordinary shares will be set
out in the separate Notice of Annual General Meeting.
Directors’ interests
The interests of the persons (including the interests of any
connected persons) who were directors at the end of the year,
in the share capital of the Company, and their interests under
share option and incentive schemes, are shown on page 90.
Management of conflicts of interest
The Company’s articles of association include certain provisions
relevant to the activity of the Board and its committees and can
be viewed on the Company’s website. These provisions include
requirements for disclosure and approval by the Board of
potential conflicts of interest. These procedures apply, inter alia,
to external directorships and it is the Board’s view that they
operated effectively during 2019.
Each director has a duty under the Companies Act 2006 to avoid
a situation in which they have or may have a direct or indirect
interest that conflicts or possibly may conflict with the interests
of the Company. This duty is in addition to the duty that they
owe to the Company to disclose to the Board any interest in
any transaction or arrangement under consideration by the
Company. If any director becomes aware of any situation which
may give rise to a conflict of interest, that director informs the
rest of the Board and the Board is then permitted under the
articles of association to decide to authorise such conflict. The
information is recorded in the Company’s register of conflicts and
a conflicts authorisation letter is issued to the relevant director.
Change of control
The Company and its subsidiaries are party to a number of
agreements that may allow the counterparties to alter or
terminate the arrangements on a change of control of the
Company following a takeover bid, such as commercial contracts
and employee share plans. Other than as referred to in the next
paragraph, none of these is considered by the Company to be
significant in terms of its likely impact on the Group as a whole.
In the event of a change of control of the Company, the Group’s
main funding agreements allow the lenders to renegotiate terms
or give notice of repayment for all outstanding amounts under
the relevant facilities.
The Company does not have agreements with any director or
employee that would provide compensation for loss of office or
employment specifically resulting from a takeover, although the
provisions of the Company’s share schemes include a discretion
to allow awards granted to directors and employees under
such schemes to vest in those circumstances.
Information to be disclosed under Listing Rules
9.8.4R
Listing Rule statement
Detail
Note reference of financial
statements/page number
9.8.4R (1-2)(5-14)
Not applicable
9.8.4R (4)
Long-term
incentive schemes
-
6 / page 127
97
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Report
Internal control
The Board has responsibility for oversight of the Group’s system
of internal control and confirms that the system of internal
control takes into account the Code and relevant best practice
guidance including the Financial Reporting Council’s September
2014 publication, ‘Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting’.
All operating units prepare forward plans and forecasts which are
reviewed in detail by the Executive Committee and consolidated
for review by the Board. Performance against forecast is
continuously monitored at monthly meetings of the Executive
Committee and, on a quarterly basis, by the Board. Minimum
standards for accounting systems and controls, which are
documented and monitored, are promulgated throughout the
Group. Certified annual reports are required from senior
executives of operating units, confirming compliance with Group
financial reporting requirements. The internal audit function,
Group Assurance, operates a rolling programme of internal
assurance on site reviews at selected operating units. Additionally,
visits to operations are carried out by senior Group finance
personnel. These internal assurance processes are co-ordinated
with the activity of the Company’s external auditor.
Capital investments are subject to a clear process for investment
appraisal, authorisation and post-investment review, with major
investment proposals referred for consideration by the Executive
Committee and, according to their materiality, to the Board. In
addition, the Executive Committee regularly reviews the
operation of corporate policies and controls including those
relating to ethics and compliance matters, treasury activities,
environmental issues, health and safety, human resources and
taxation. Compliance and internal audit reports summaries are
made available to the Board, the Audit Committee and the
Executive Committee, to enable control issues and developments
to be monitored.
Control processes are dynamic and continuous improvements
are made to adapt them to the changing risk profile of
operations and to implement proportionate measures to
address any identified weakness in the internal control system.
More information in relation to risk is given on pages 54 to 59.
The internal control declaration process is fully embedded and
enables improvement in control. Action plans to improve controls
as a result of these assessments are being tracked and reported
to the Audit Committee.
Through the procedures outlined here, the Board has considered
the effectiveness of all significant aspects of internal control
for the year 2019 and up to the date of this Annual Report.
The Board believes that the Group’s system of internal control,
which is designed to manage rather than eliminate risk, provides
reasonable but not absolute assurance against material
misstatement or loss.
Financial reporting processes
The use of the Group’s accounting manual and prescribed
reporting requirements by finance teams throughout the Group
are important in ensuring that the Group’s accounting policies are
clearly established and that information is appropriately reviewed
and reconciled as part of the reporting process. The use of a
standard reporting package by all entities in the Group ensures
that information is presented in a consistent way that facilitates
the production of the consolidated financial statements.
Compliance hotline
During 2019 the Board reviewed the operation of the independent
compliance hotline for reporting concerns, reviewed the more
significant reports received and considered how these are investigated
and followed up. The Board believes that the hotline process and
investigations are effective and that proportionate action is taken by
management in response. In line with the Code, this responsibility
was transferred to the Board from the Audit Committee at the
start of 2019.
Viability statement
In accordance with the Code, the directors have assessed the
viability of the Company over a relevant period, taking into account
the Group’s financial and trading position as summarised in this
Annual Report, the principal risks and uncertainties set out on
pages 54 to 59 and the five-year business plan reviewed by the
Board in September 2019. Based on this assessment, and other
matters considered and reviewed by the Board, 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 from the date of this
Annual Report to 31 December 2024.
The directors have determined that the period to 31 December
2024 constitutes an appropriate period over which to make its
assessment of viability. Whilst the directors have no reason to
believe the Company will not be viable over a longer timing horizon,
the five-year period to 31 December 2024 was chosen as it aligns
with the Company’s business and strategic planning timing
horizon and is a sensible period for such an assessment. It is
believed this period provides readers of the Annual Report with
an appropriately long-term view with which to assess the
Company’s prospects although future outcomes cannot be
predicted with certainty.
In making its assessment, the Board recognised the principal
risks facing the Company, including those that would threaten
its business model, future performance, solvency or liquidity.
A summary of these risks can be found on pages 54 to 59.
The five-year business plan was used to assess the headroom
on the Company’s facilities and to stress test ongoing covenant
compliance under scenarios where its principal risks materialise.
The analysis considered both ‘running business’ risks, such as
reducing revenues and margins, as well as one-off ‘event’ risks such
as product recalls. The Board also considered the Company’s ability
to raise capital in the future, as well as both the ongoing actions
undertaken to prevent occurrence and the potential actions to
mitigate the impact of any particular risk.
98 IMI plc Annual Report & Accounts 2019
IMI Precision Engineering
Palézieux, Switzerland
The directors also recognised a number of key features of the
Company’s operations. The Company’s wide geographical and
sector diversification, and the lack of a single major production
site, help minimise the risk of serious business interruption.
Furthermore, our business model is structured so that the
Company is not overly reliant on a few large customers.
Our largest customer constitutes only 2% of Group revenue and
our top 20 customers account for just over 16% of Group revenue.
In addition, our ability to flex our cost base reduces our exposure
to sudden adverse economic conditions.
Going concern
Accounting standards require that directors satisfy themselves
that it is reasonable for them to conclude whether it is
appropriate to prepare financial statements on a going concern
basis. The Group’s business activities, together with the factors
likely to affect its future development, performance and
position are set out in the Strategic Report. Principal risks are
detailed on pages 54 to 59. The financial position of the Group,
its cash flows, liquidity position and borrowing facilities are
described in the financial statements. In addition, Note 18
to the financial statements includes the Group’s objectives,
policies and processes for managing its capital; its financial
risk management objectives; details of its financial instruments
and hedging activities; and its exposures to credit risk and
liquidity risk. Note 14 to the financial statements addresses
the management of the funding risks of the Group’s employee
benefit obligations.
The Group has considerable financial resources together
with long-standing relationships with a number of customers,
suppliers and funding providers across different geographic
areas and industries. The Group’s forecasts and projections,
taking account of potential and realistic changes in trading
performance, indicate that the Group is able to operate within
the level of facilities either in place on 31 December 2019, or
renewed since, without the need to renew any further facilities
before 1 March 2021. As a consequence, the directors believe
that the Group is well-placed to manage its business risks
successfully despite the uncertainties inherent in the current
economic outlook. Such uncertainties as have been identified
are not regarded as material uncertainties for the purpose of
the going concern assessment.
After making due enquiry, the directors have a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing
the financial statements.
Non-financial information statement
We aim to comply with the Non-Financial Reporting
requirements contained in sections 414CA and 414CB of
the Companies Act 2006. The table set out on page 100, and
the information it refers to, is intended to help stakeholders
understand our position on key non-financial matters.
99
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Report
Reporting requirement
Environmental matters
Employees
Human rights
Social matters
Policies and standards which govern our approach
Additional information
Environmental policy
Code of Conduct
Hotline for reporting concerns
Health and Safety policy
Diversity and Inclusion policy
Modern Slavery Act
IMI Way Day
Our purpose
Contributing to communities
page 33
page 24
page 25
page 32
page 27
page 25
page 35
page 01
page 35
page 25
pages 54 - 59
pages 12 and 13
pages 37, 70 and 71
page 95
page 30 and 52
pages 27 and 28
page 32 and 52
Anti-corruption and anti-bribery
Compliance policies including anti-bribery policy
Description of principal risks
Description of the business model
Stakeholder engagement
-
-
-
Outcome of non-financial policies and standards
Carbon emissions reporting
Due diligence processes implemented in pursuance of
promoting non-financial policies and standards
Employee engagement survey results
Gender diversity reporting
Health and safety reporting
Customer satisfaction surveys
Carbon emissions reporting and monitoring
Scrap and waste reduction
Monitoring of expenses, hospitality and entertainment
Monitoring employee engagement surveys
All employees receive the Code of Conduct
Hotline reports reviewed by the Board
Health and safety reporting and monitoring
Modern slavery training and risk assessments
Compliance training
Compliance risk assessments and tailored programmes by division
Compliance implementation reviews and internal audits
Know your customer policy and due diligence reviews
Third party agent and distributors policy and due diligence reviews
Internal control declarations and compliance declarations
Disclosure of information to the auditor
Each director confirms that, so far as they are each aware,
there is no relevant audit information of which the Company’s
auditor is unaware and each director has taken all the steps
that he or she ought to have taken as a director to make
himself or herself aware of any relevant audit information
and to establish that the Company’s auditor is aware of
that information.
Annual General Meeting
The Annual General Meeting will be held at Crowne Plaza
Hotel, Pendigo Way, Marston Green, Birmingham B40 1NT
on 7 May 2020 at 10am. Notice of the Annual General
Meeting will be published on the Company’s website.
By order of the Board
John O’Shea
Company Secretary
27 February 2020
IMI is registered in England No. 714275
100 IMI plc Annual Report & Accounts 2019
Statement of directors’
responsibilites
Statement of directors’ responsibilities in respect of the Annual Report and the
financial statements.
The directors are responsible for preparing the Annual Report,
which includes the Directors’ Report, the Strategic Report,
Remuneration Report and Corporate Governance Statement,
and the Group and parent company financial statements in
accordance with applicable law and regulations.
Directors’ responsibility statement under
the Disclosure and Transparency Rules
Each of the directors, as at the date of this report,
confirms that:
» the Group and parent company financial statements in this
Annual Report, which have been prepared in accordance with
applicable UK law and with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Group; and
» the Annual Report (which includes the Directors’ Report
and the Strategic Report) includes a fair review of the
development and performance of the business and the
position of the Company and the Group taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
The directors are responsible for preparing the Annual Report
in accordance with applicable laws and regulations. Having
taken advice from the Audit Committee, the Board considers
the report and accounts, taken as a whole, are fair, balanced
and understandable and provide the information necessary
for shareholders to assess the Group’s performance, business
model and strategy.
By order of the Board
John O’Shea
Company Secretary
27 February 2020
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors are required to prepare the Group financial
statements in accordance with those International Financial
Reporting Standards as adopted by the European Union and
the parent company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law).
Under company law the directors must not approve the
financial statements unless they are satisfied that they
present fairly the financial position, financial performance
and cash flows for that period. In preparing those financial
statements, the directors are required to:
» select suitable accounting policies and then apply
them consistently;
» make judgements and estimates that are reasonable;
» present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
» state that the Group financial statements have complied
with IFRSs as adopted by the European Union, subject to any
material departures disclosed and explained in the financial
statements; and
» state for the parent company financial statements whether
applicable United Kingdom Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Group and the parent company
and enable them to ensure that the Group and parent
company financial statements comply with the Companies
Act 2006 and Article 4 of the IAS Regulation as appropriate.
They are also responsible for safeguarding the assets of
the Group and the parent company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
101
IntroductionStrategic ReportCorporate GovernanceFinancial Statements How do you help a
leading technology
research institute to
have a building that
optimises energy use?
The Industrial Technology Research Institute of Taiwan, a
leading research and development body that focusses on
innovating a better future for society, wanted to improve the
energy efficiency of its headquarters. Buildings represent a
significant proportion of energy use - and therefore emissions
- across our planet. IMI Hydronic Engineering sent engineers
from our technical centre to evaluate their system and provide
enhancements, both in configuration and products. The result
was a 15% annual reduction in energy usage. Technical expertise,
close customer support and excellent local IMI people, all helped
IMI Hydronic support this customer.
102 IMI plc Annual Report & Accounts 2019
Introduction
Strategic Review
Corporate Governance
Financial Statements
Financial
Statements
104
Independent Auditor’s Report to
the Members of IMI plc
112 Consolidated income statement
113
113
Consolidated statement of
comprehensive income
Consolidated statement of
changes in equity
151 15. Inventories
152
16. Trade and other receivables
154
17. Financial assets and liabilities
156 18. Financial risk management
160 19. Net debt
163 20. Provisions
114 Consolidated balance sheet
164
21. Trade and other payables
115
Consolidated statement of
cash flows
116 1. Basis of preparation
117
2. Significant accounting policies
120
3. Alternative Performance Measures
(‘APMs’) & Adjusting Items
122 4. Segmental information
126 5. Operating costs
127 6. Share-based payments
130
7. Earnings per ordinary share
131 8. Net financing costs
132 9. Taxation
136 10. Dividends
137 11. Intangible assets
140
12. Property, plant and equipment
141 13. Leases
144 14. Retirement benefits
165 22. Share capital
166 23. Acquisitions
167 24. Disposals
167 25. Contingent liabilities
167
26. Related party transactions
167 27. Subsequent Events
167
28. Discontinued Operations
168 Company balance sheet
169
170
Company statement of changes
in equity
Company notes to the
financial statements
173 Subsidiary undertakings
177
Geographic distribution
of employees
178 Five year summary
180
Shareholder and general
information
103
Independent Auditor’s Report
to the Members of IMI plc
Opinion
In our opinion:
• IMI plc’s Group financial statements and parent company financial statements
(the “financial statements”) give a true and fair view of the state of the Group’s
and of the parent company’s affairs as at 31 December 2019 and of the Group’s
profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with
IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006, and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of IMI plc which comprise:
Group
Parent company
Consolidated income statement for the year ended 31 December 2019
Consolidated statement of comprehensive income for the year then ended
Consolidated statement of changes in equity for the year then ended
Balance sheet as at 31 December 2019
Statement of changes in equity for the year then ended
Related notes C1 to C10 to the financial statements including a summary
of significant accounting policies
Consolidated statement of cash flows for the year then ended
Consolidated balance sheet as at 31 December 2019
Related notes 1 to 28 to the financial statements,
including a summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted
Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are independent of the Group and parent
company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as
applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require us to report to you whether
we have anything material to add or draw attention to:
• the disclosures in the Annual Report set out on pages 56 to 59 that describe the principal risks and explain how they are being managed or mitigated;
• the directors’ confirmation set out on page 98 in the Annual Report that they have carried out a robust assessment of the principal risks facing the entity,
including those that would threaten its business model, future performance, solvency or liquidity;
• the directors’ statement set out on page 99 in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve
months from the date of approval of the financial statements;
• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit; or
• the directors’ explanation set out on page 99 in the Annual Report as to how they have assessed the prospects of the entity, over what period they have done
so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to
continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
104 IMI plc Annual Report & Accounts 2019
Overview of our audit approach
Key audit matters
Audit scope
- Revenue recognition – Cut off in Critical Engineering and risk of management override
- Inventory valuation
- Carrying value of goodwill and acquired intangible assets
- We performed an audit of the complete financial information of 15 components (including the parent company) and audit
procedures on specific balances for a further 23 components (including four corporate entities)
- The components where we performed full or specific audit procedures accounted for 83% of Adjusted profit before tax,
80% of Revenue and 84% of Total assets
Materiality
- Overall Group materiality of £12.5m which represents 5% of adjusted profit before tax
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and
include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the
greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed
in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Revenue recognition (£1,873m,
PY comparative £1,907m)
Refer to the Audit Committee Report (page 72);
Accounting policies (pages 117); and Note 4 of the
Consolidated Financial Statements (page 122).
There is a risk in the Critical Engineering division
of inappropriate revenue recognition if deliveries
are recorded within the wrong accounting period.
The cyclical nature and value of deliveries results
in significant shipments near the December period
end and an associated cut off risk.
There is a risk in all three divisions of inappropriate
revenue being recognised if there is management
override through manual topside journal entries.
RISK MOVEMENT
Our response to the risk
Cut-off
We performed the following audit procedures at 9 full and 8 specific scope Critical Engineering locations where
revenue is in scope. Revenue at these locations represents 88% of the total Critical Engineering revenue balance
of £651m.
We performed walkthroughs of revenue at the 9 full and 8 specific scope locations and assessed the design
effectiveness of key controls. For 15 components we tested the operating effectiveness of controls.
We performed cut-off testing by tracing a sample of transactions around the period end to third party delivery
note documentation and customer acceptance.
We performed tests of detail for a sample of revenue transactions to confirm the transactions had been
appropriately recorded in the income statement with reference to IFRS 15 and corroborated that control
of the products had been transferred to the customer by:
• analysing the contract and terms of the sale to determine that the Group had fulfilled the requirements
of the contract;
• confirming revenue could be reliably measured by reference to underlying documentation; and
• confirming collectability of the revenue was reasonably assured by agreeing to collection history.
For the 18 Critical Engineering components considered as not significant to the Group we performed
specified procedures for a sample of transactions within these entities to test cut-off.
Management override
At 14 full and 19 specific scope locations we obtained support for unusual and/or material revenue journals.
Revenue at these locations represents 63% of the total revenue balance. For the components we considered
as not significant to the Group we analysed the monthly gross margin recorded and obtained and corroborated
explanations for movements in margin that we considered unusual.
Cut-off and management override
For all locations we performed analytical procedures to compare revenue recognised with our expectations
from past experience, management’s forecasts and, where possible, external market data.
Key observations communicated to the Audit Committee:
Our audit procedures did not identify evidence of material misstatements in revenue recognition arising from the risk of cut-off in the Critical Engineering division or
management override through manual topside journal entries in any of the three divisions.
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Independent Auditor’s Report
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Risk
Our response to the risk
Inventory valuation (£281m, PY
comparative £273m)
Refer to the Audit Committee Report (page 72);
Accounting policies (pages 117 and 151);
and Note 15 of the Consolidated Financial
Statements (page 151).
The valuation of inventory across the Group is
dependent on establishing appropriate valuation
processes. This includes the appropriate design
and effective operations of controls. Management
performs formulaic calculations for standard
costing and excess and obsolete inventory
provisions and then applies judgement to adjust
these calculations. If these judgements are not
appropriate then this increases the risk that
inventory is incorrectly valued.
RISK MOVEMENT
We performed the following audit procedures at 14 full and 15 specific scope locations where inventory
is in scope. Inventory at these locations represents 74% of the total inventory balance.
We performed walkthroughs of inventory at 14 full and 15 specific scope locations and assessed the design
effectiveness of key controls. For 18 components we tested the operating effectiveness of controls. We
performed tests of detail for a sample of inventory items to check the accumulation of cost within inventory
and to confirm the valuation reflected the products’ stage of completion. We also agreed our samples from
the physical inventory counts which we attended to the inventory subledger and performed rollforward
procedures to year end.
We obtained evidence to support the standard costs used and performed procedures to assess whether only
normal production variances had been capitalised in the year end inventory balance and material abnormal
inefficiencies had been appropriately expensed. This included comparing actual production rates to budget.
We obtained evidence to support inventory is held at the lower of cost and net realisable value by auditing the
adequacy of excess and obsolete provisions held against inventory. This included comparing forecast product
usage to customer orders, considering historical usage, historical accuracy of provisioning and understanding
management’s future plans to utilise the inventory.
We performed clerical procedures on the formulaic calculations to evaluate the accuracy of the inventory
provisioning. We performed procedures to validate the appropriateness of any management adjustments
to the formulaic calculation.
For the components we considered as not significant to the Group we:
• investigated any significant standard to actual cost variances posted to the income statement or recorded
within inventory and obtained supporting evidence for the adjustments; and
• analysed the management judgement applied to the excess and obsolete provision and obtained supporting
evidence where this was significant.
Key observations communicated to the Audit Committee:
Inventory valuation across the Group is considered appropriate including the adequacy of the excess and obsolete provision. Our audit procedures confirmed variances
between standard and actual costs and the overheads absorbed in the inventory valuation had been appropriately calculated and accounted for.
106 IMI plc Annual Report & Accounts 2019
Risk
Our response to the risk
Carrying value of goodwill and acquired
intangible assets
Refer to the Audit Committee Report (page 72);
Accounting policies (pages 117, 137 and 138); and
Note 11 of the Consolidated Financial Statements
(page 137).
As a consequence of the Group’s growth strategy
a significant value of goodwill and intangible
assets has arisen from acquisitions.
There is a risk that cash generating units (‘CGUs’)
may not achieve the anticipated business
performance to support the carrying value of
these assets leading to an impairment charge
that has not been recognised by management.
Significant judgement is required in assessing the
future cash flows of the CGUs, together with the
rate at which they are discounted.
RISK MOVEMENT
We examined management’s methodology as detailed in Note 11 of the consolidated financial statements,
the models for assessing the valuation of significant goodwill balances to understand the composition
of management’s future cash flow forecasts, and the process undertaken to prepare them. This included
confirming the underlying cash flows were consistent with the Board approved budgets and assessing
the identified CGUs for completeness. We also re-performed the calculations in the model to test the
mathematical integrity.
For all CGUs we calculated the degree to which the key assumptions would need to fluctuate before
an impairment was triggered and considered the likelihood of this occurring.
In respect of the CGUs identified as having impairment indicators or lower levels of headroom we performed
detailed testing with support from our valuation specialists to critically assess and corroborate the key inputs
of the forecast cash flows including:
• assessing the discount rate used by obtaining the underlying data used in the calculation and benchmarking
it against an EY range derived from comparable organisations and market data;
• considering the growth rates assumed by comparing them to economic and industry forecasts;
• analysing the historical accuracy of budgets to actual results to determine whether forecast cash
flows are reliable based on past experience; and
• assessing the sales multiple used to determine fair value less costs to sell and benchmarking it against
market data.
We audited the disclosures in respect of goodwill and intangibles with reference to the requirements
of IAS 36 and confirmed their consistency with the audited impairment models.
The audit procedures performed to address this risk have been performed by the Group audit team.
Key observations communicated to the Audit Committee:
Our year end audit procedures did not identify evidence of material misstatement regarding the carrying value of goodwill and acquired intangible assets
in the Group.
In the prior year, our auditor’s report included key audit matters in relation to “Accounting for the acquisition of Bimba Manufacturing” and “Profit recognition”.
Accounting for the acquisition of Bimba Manufacturing
In the absence of further acquisitions of the scale of Bimba Manufacturing in the current year, the risk with respect of “acquisition accounting” was not evaluated
as a Key Audit Matter in the current year audit. All procedures with respect of the accounting for the acquisition of Bimba Manufacturing were completed during
the prior year audit, with only one immaterial fair value adjustment being recognised in the current year.
Profit recognition
Following changes implemented over recent years by management of the Critical Division designed to change the type of contracts entered into, ensure appropriate
pricing and tracking of costs to complete for contracts and identify and record loss making contracts as appropriate (as evidenced by no prior year audit findings
nor heightened risk identified at the audit planning stage), we concluded that the likelihood of material misstatement had reduced and this area was no longer
a Key Audit Matter.
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Independent Auditor’s Report
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An overview of the scope of our audit
Group Adjusted profit before tax
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of
performance materiality determine our audit scope for each entity within the
Group. Taken together, this enables us to form an opinion on the consolidated
financial statements. We take into account the contribution to Group revenue
and pre-tax income, risk profile (including country risk, risk determined to be
associated based on the grading of internal audit findings, controls findings,
historical knowledge and risk arising from change in the period including
changes to IT systems and key management personnel), the number of
significant accounts based on performance materiality and any other known
factors when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements,
and to ensure we had adequate quantitative coverage of significant accounts
in the financial statements, of the 156 reporting components of the Group, we
selected 38 components covering entities within Austria, Bermuda, Brazil, China,
Czech Republic, Germany, India, Italy, Japan, South Korea, Poland, Singapore,
Sweden, Switzerland, UK and USA, which represent the principal business units
within the Group.
Of the 38 components selected, we performed an audit of the complete financial
information of 15 components (“full scope components”) which were selected
based on their size or risk characteristics. For the remaining 23 components
(“specific scope components”), we performed audit procedures on specific
accounts within that component that we considered had the potential for the
greatest impact on the significant accounts in the financial statements either
because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted
for 83% (2018: 88%) of the Group’s Adjusted profit before tax measure used
to calculate materiality, 63% (2018: 61%) of the Group’s Revenue and 84%
(2018: 78%) of the Group’s Total assets.
For the current year, the full scope components contributed 45% (2018: 36%)
of the Group’s Adjusted profit before tax measure used to calculate materiality,
45% (2018: 41%) of the Group’s Revenue and 66% (2018: 63%) of the Group’s
Total assets. The specific scope components contributed 38% (2018: 52%) of
the Group’s Adjusted profit before tax measure used to calculate materiality,
18% (2018: 20%) of the Group’s Revenue and 18% (2018: 15%) of the Group’s
Total assets. The audit scope of these components may not have included testing
of all significant accounts of the component but will have contributed to the
coverage of significant accounts tested for the Group.
Of the remaining 118 components that together represent 17% of the
Group’s Adjusted profit before tax, none are individually greater than 4% of
the Group’s Adjusted profit before tax. For these components, we performed
other procedures, including analytical review, testing of consolidation journals,
intercompany eliminations, foreign currency translation recalculations, and
enquiries of management to respond to any potential risks of material
misstatement to the Group financial statements.
45% (28%)
Full scope
components
38% (48%)
Specific scope
components
Group Revenue
45% (38%)
Full scope
components
18% (20%)
Specific scope
components
20% (23%)
Other procedures
Group Total assets
66% (57%)
Full scope
components
18% (17%)
Specific scope
components
16% (26%)
Other procedures
17% (24%)
Other procedures
17% (19%)
Procedures on
marketing companies
The charts opposite illustrate the coverage obtained from the work performed
by our audit teams.
Changes from the prior year
The number of full scope entities has increased to 15 (2018: 14). This change
reflects the unpredictability incorporated into our audit scoping and a change
in the size and risk profile of certain entities.
108 IMI plc Annual Report & Accounts 2019
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type
of work that needed to be undertaken at each of the components by us, as the
Group audit engagement team, or by component auditors from other EY global
network firms operating under our instruction. Of the 15 full scope components,
audit procedures were performed on one of these (the Parent Company) directly
by the Group audit team. For the 23 specific scope components, audit procedures
were performed on four of these directly by the Group audit team. Where the
work was performed by component auditors, we determined the appropriate level
of involvement to enable us to determine that sufficient audit evidence had been
obtained as a basis for our opinion on the Group as a whole.
The Group audit team continued to follow a programme of planned visits that has
been designed to ensure that the Senior Statutory Auditor or his delegate visit the
majority of full and specific scope locations at least once every three years. During
the current year’s audit cycle, visits were undertaken by the Group audit team to
the component teams in Germany, Singapore, South Korea, Sweden, UK and USA.
These visits involved meeting with our local component team, where applicable,
to discuss and direct their audit approach, reviewing and understanding the
significant audit findings in response to the key audit matters including revenue
recognition and inventory valuation, holding meetings with local management,
undertaking factory tours and obtaining updates on local regulatory matters
including tax, pensions and legal. The Group team interacted regularly with the
component teams where appropriate during various stages of the audit, reviewed
key working papers and were responsible for the scope and direction of the audit
process. This, together with the additional procedures performed at Group level,
gave us appropriate evidence for our opinion on the Group financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in
evaluating the effect of identified misstatements on the audit and in forming
our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the
aggregate, could reasonably be expected to influence the economic decisions
of the users of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £12.7 million (2018: £12.6
million), which is 5% (2018: 5%) of Adjusted profit before tax. We believe that
Adjusted profit before tax provides us with the most relevant performance
measure to the stakeholders of the entity and therefore have determined
materiality based on this number.
We determined materiality for the parent company to be £11.5 million
(2018: £11.8 million), which is 2% (2018: 2%) of equity shareholders’ funds.
During the course of our audit, we reassessed initial materiality and concluded
that our planned materiality remained appropriate.
Performance materiality
The application of materiality at the individual account or balance level. It is set
at an amount to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the
Group’s overall control environment, our judgement was that performance
materiality was 75% (2018: 75%) of our planning materiality, namely £9.5m
(2018: £9.5m). We have set performance materiality at this percentage due
to the level of uncorrected misstatements in recent years being low, the level
of control effectiveness remaining high, there being no significant changes in
circumstances of the business, and that there are no events outside of the
normal course of business.
Audit work at component locations for the purpose of obtaining audit coverage
over significant financial statement accounts is undertaken based on a
percentage of total performance materiality. The performance materiality
set for each component is based on the relative scale and risk of the component
to the Group as a whole and our assessment of the risk of misstatement at that
component. In the current year, the range of performance materiality allocated
to components was £1.72m to £2.15m (2018: £1.30m to £2.16m).
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them all
uncorrected audit differences in excess of £0.5m (2018: £0.5m), as well
as differences below that threshold that, in our view, warranted reporting
on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the Annual Report
set out on pages 1 to 102, other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in this report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement in the
financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
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Independent Auditor’s Report
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In this context, we also have nothing to report in regard to our responsibility to
specifically address the following items in the other information and to report as
uncorrected material misstatements of the other information where we conclude
that those items meet the following conditions:
• Fair, balanced and understandable set out on page 101
the statement given by the directors that they consider the Annual Report and
financial statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group’s
performance, business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
• Audit Committee reporting set out on pages 72 to 75
the section describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee / the explanation
as to why the Annual Report does not include a section describing the work
of the Audit Committee is materially inconsistent with our knowledge
obtained in the audit; or
• Directors’ statement of compliance with the UK Corporate Governance
Code set out on page 66
the parts of the directors’ statement required under the Listing Rules relating
to the company’s compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in accordance with
Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
Opinions on other matters prescribed by
the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has
been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the
financial year for which the financial statements are prepared is consistent
with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance
with applicable legal requirements.
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the Group and the parent
company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company,
or returns adequate for our audit have not been received from branches
not visited by us; or
• the parent company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the accounting
records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for
our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on
page 101, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and
for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing
the Group and parent company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or the parent
company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of
the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of
these financial statements.
Explanation as to what extent the audit was
considered capable of detecting irregularities,
including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the
risks of material misstatement of the financial statements due to fraud; to obtain
sufficient appropriate audit evidence regarding the assessed risks of material
misstatement due to fraud, through designing and implementing appropriate
responses; and to respond appropriately to fraud or suspected fraud identified
during the audit. However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of the entity
and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that
are applicable to the Group and determined that the most significant are
frameworks which are directly relevant to specific assertions in the financial
statements are those that relate to the reporting framework (IFRS, FRS 101,
the Companies Act 2006 and UK Corporate Governance Code). In addition, we
concluded that there are certain significant laws and regulations which may
have an effect on the determination of the amounts and disclosures in the
financial statements being the Listing Rules of the UK Listing Authority, and
those laws and regulations relating to health and safety and employee matters.
• We understood how IMI plc is complying with those frameworks by making
enquiries of management, internal audit, those responsible for legal and
compliance procedures and the company secretary. We corroborated our
enquiries through our review of Board minutes, papers provided to the
Audit Committee and correspondence received from regulatory bodies.
110 IMI plc Annual Report & Accounts 2019
Use of our report
This report is made solely to the company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s members those matters we
are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body,
for our audit work, for this report, or for the opinions we have formed.
For and on behalf of Ernst & Young LLP, Statutory Auditor
Birmingham
27 February 2020
Simon O’Neill
Senior statutory auditor
Notes:
1. The maintenance and integrity of the IMI plc website is the responsibility
of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
• We assessed the susceptibility of the Group’s financial statements to material
misstatement, including how fraud might occur by meeting with management
from various parts of the business to understand where it considered there
was susceptibility to fraud. We also considered performance targets and their
influence on efforts made by management to manage earnings or influence the
perceptions of analysts. We considered the programmes and controls that the
Group has established to address risks identified, or that otherwise prevent,
deter and detect fraud; and how senior management monitors those programs
and controls. Where the risk was considered to be higher, we performed audit
procedures to address each identified fraud risk. These procedures included
testing manual journals and were designed to provide reasonable assurance
that the financial statements were free from fraud or error.
• Based on this understanding we designed our audit procedures to identify
non-compliance with such laws and regulations. Our procedures involved
journal entry testing, with a focus on manual consolidation journals and journals
indicating large or unusual transactions based on our understanding of the
business; enquiries of legal counsel, Group management, internal audit, divisional
management and full and specific scope management; and focused testing,
as referred to in the key audit matters section above.
• Component teams reported any non-compliance with laws and regulations
through their audit deliverables based on the procedures detailed in the
previous paragraph. Further, the Group team communicated any instances
of non-compliance with laws and regulations to component teams through
regular interactions with local EY teams. There were no significant instances
of non-compliance with laws and regulations.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Other matters we are required to address
• Following the recommendation of the Audit Committee, we were appointed as
auditors by the shareholders and signed an engagement letter on 27 July 2017.
We were appointed by the company at the AGM on 9 May 2019 to audit the
financial statements for the year ended 31 December 2019. The period of total
uninterrupted engagement including previous renewals and reappointments is
11 years, covering the years ending 31 December 2009 to 31 December 2019.
• The non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group or the parent company and we remain independent of
the Group and the parent company in conducting the audit.
• The audit opinion is consistent with the additional report to the Audit
Committee.
111
Consolidated income statement
For the year ended 31 December 2019
IFRS 16 was adopted on 1 January 2019 without restating prior year figures. As a result, the primary statements are shown on an IFRS 16 basis for 2019 and on an
IAS 17 basis for 2018. Note 13 provides a reconciliation of the two measures.
Revenue
Cost of sales
Gross profit
Operating costs
Operating profit
Financial income
Financial expense
Net financial expense relating to defined benefit pension schemes
Net financial expense
Profit before tax
Taxation
Profit of continuing operations after tax
Profit from discontinued operations after tax
Total profit for the year
Earnings per share
Basic - from profit for the year
Diluted - from profit for the year
Basic - from continuing operations
Diluted - from continuing operations
Notes
Adjusted
£m
2019
Adjusting
items
£m
Statutory
£m
Adjusted
£m
2018
Adjusting
items
£m
Statutory
£m
1,873
(1,059)
814.4
(548.3)
266.1
4.5
(19.4)
(0.5)
(15.4)
250.7
(52.6)
198.1
198.1
(1)
(1.1)
(60.7)
(61.8)
13.4
(13.0)
0.4
(61.4)
16.6
(44.8)
2.8
(42.0)
4
5
8
8
14
9
28
7
1,873
(1,060)
813.3
(609.0)
204.3
17.9
(32.4)
(0.5)
(15.0)
189.3
(36.0)
153.3
2.8
156.1
57.6p
57.6p
56.6p
56.5p
1,907
(1,089)
817.6
(552.1)
265.5
5.8
(18.7)
(1.4)
(14.3)
251.2
(52.8)
198.4
(4)
(3.7)
(30.2)
(33.9)
16.1
(20.5)
(4.4)
(38.3)
9.3
(29.0)
198.4
(29.0)
1,907
(1,093)
813.9
(582.3)
231.6
21.9
(39.2)
(1.4)
(18.7)
212.9
(43.5)
169.4
-
169.4
62.5p
62.4p
62.5p
62.4p
112 IMI plc Annual Report & Accounts 2019
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Profit for the year
Items that may be reclassified to profit and loss
Change in fair value of effective net investment hedge derivatives
Exchange differences on translation of foreign operations net of hedge settlements and funding revaluations
Fair value gain on available for sale assets
Related tax effect on items that may subsequently be reclassified to profit and loss
Items that will not subsequently be reclassified to profit and loss
Re-measurement (loss)/gain on defined benefit plans
Fair value loss on available for sale financial assets not held for trading
Related taxation effect
Other comprehensive expense for the year, net of taxation
Total comprehensive income for the year, net of taxation
2019
2018
£m
£m
£m
£m
156.1
169.4
2.6
(15.4)
6.0
(0.1)
-
0.1
1.9
(4.5)
0.2
(0.3)
(6.8)
(2.7)
11.6
(9.8)
(3.5)
-
(6.8)
149.3
(1.7)
(4.4)
165.0
Consolidated statement of changes in equity
For the year ended 31 December 2019
As at 1 January 2018
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Issue of share capital
Dividends paid
Share-based payments (net of tax)
Shares acquired for:
employee share scheme trust
As at 31 December 2018
Changes in equity in 2019
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense)
Issue of share capital
Dividends paid
Share-based payments (net of tax)
Shares acquired for:
employee share scheme trust
As at 31 December 2019
22
10
6
22
10
6
Notes
Share
capital
£m
81.8
Share
premium
account
£m
Capital
redemption
reserve
£m
12.7
174.4
-
0.6
Hedging
reserve
£m
Translation
reserve
£m
Retained
earnings
£m
1.0
1.8
1.8
29.8
(4.5)
(4.5)
307.7
169.4
(1.7)
167.7
(107.9)
7.0
Total
equity
£m
607.4
169.4
(4.4)
165.0
0.6
(107.9)
7.0
81.8
13.3
174.4
2.8
25.3
-
0.8
2.6
2.6
(9.4)
(9.4)
81.8
14.1
174.4
5.4
15.9
(5.9)
368.6
(5.9)
666.2
156.1
-
156.1
(110.8)
8.6
156.1
(6.8)
149.3
0.8
(110.8)
8.6
(4.2)
418.3
(4.2)
709.9
113
Consolidated balance sheet
At 31 December 2019
Assets
Intangible assets
Property, plant and equipment
Right of use assets
Employee benefit assets
Deferred tax assets
Other receivables
Total non-current assets
Inventories
Trade and other receivables
Other current financial assets
Current tax
Investments
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Trade and other payables
Bank overdraft
Interest-bearing loans and borrowings
Lease liabilities
Provisions
Current tax
Other current financial liabilities
Total current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Employee benefit obligations
Provisions
Deferred tax liabilities
Other payables
Total non-current liabilities
Total liabilities
Net assets
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Approved by the Board of Directors on 27 February 2020 and signed on its behalf by:
Lord Smith of Kelvin
Chairman
114 IMI plc Annual Report & Accounts 2019
Notes
2019
£m
2018
£m
11
12
13
14
9
15
16
17
17
19
21
19
19
13
20
17
19
13
14
20
9
21
22
618.8
271.3
90.1
47.9
22.2
2.3
1,052.6
280.8
389.7
6.2
2.5
3.6
88.2
771.0
1,823.6
(359.4)
(60.1)
(17.6)
(25.6)
(39.8)
(57.7)
(1.9)
(562.1)
(357.9)
(64.8)
(79.2)
(13.0)
(27.5)
(9.2)
(551.6)
(1,113.7)
709.9
81.8
14.1
195.7
418.3
709.9
606.7
284.4
-
27.8
17.0
3.2
939.1
272.5
450.3
1.0
4.0
3.7
132.2
863.7
1,802.8
(390.9)
(82.6)
(78.8)
-
(12.5)
(62.5)
(4.0)
(631.3)
(375.3)
-
(80.1)
(14.6)
(29.8)
(5.5)
(505.3)
(1,136.6)
666.2
81.8
13.3
202.5
368.6
666.2
Consolidated statement of cash flows
For the year ended 31 December 2019
Cash flows from operating activities
Operating profit for the year from continuing operations
Operating profit for the year from discontinued operations
Adjustments for:
Depreciation and amortisation
Impairment of property, plant and equipment and intangible assets
Gain on disposal of subsidiaries
Other acquisition items
Gain on special pension events
Profit on sale of property, plant and equipment
Equity-settled share-based payment expense
(Increase)/decrease in inventories
Decrease/ (increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Increase/(decrease) in provisions and employee benefits
Cash generated from operations
Income taxes paid
Cash generated from operations after tax
Additional pension scheme funding
Net cash from operating activities
Cash flows from investing activities
Interest received
Proceeds from sale of property, plant and equipment
Net sale of investments
Settlement of transactional derivatives
Settlement of currency derivatives hedging balance sheet
Acquisitions of subsidiaries net of cash
Acquisition of property, plant and equipment and non-acquired intangibles
Net cash from investing activities
Cash flows from financing activities
Interest paid
Shares acquired for employee share scheme trust
Proceeds from the issue of share capital for employee share schemes
Net (repayment)/drawdown of borrowings
Principal elements of lease payments
Dividends paid to equity shareholders
Net cash from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the start of the year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year*
* Net of bank overdrafts of £60.1m (2018: £82.6m).
Notes
2019
£m
2018
£m
11, 12, 13
11, 12
3
14
12
6
15
16
21
14, 20
9
14
8
12
17
17
23
11, 12
8
22
22
19
13
10
19
19
204.3
2.8
110.7
1.5
-
1.1
(8.6)
(0.7)
8.8
(14.7)
44.9
(17.3)
29.2
362.0
(40.2)
321.8
(7.0)
314.8
4.5
7.7
-
(3.5)
19.6
(68.0)
(65.8)
(105.5)
(19.4)
(4.2)
0.8
(63.9)
(31.3)
(110.8)
(228.8)
(19.5)
49.6
(2.0)
28.1
231.6
-
79.7
3.2
(0.6)
3.7
(6.8)
(3.0)
8.2
5.5
(8.4)
(47.3)
(7.6)
258.2
(41.1)
217.1
(10.1)
207.0
5.8
12.8
0.1
(1.3)
(17.1)
(137.6)
(58.4)
(195.7)
(18.7)
(5.9)
0.6
100.9
-
(107.9)
(31.0)
(19.7)
67.6
1.7
49.6
115
Notes to the consolidated financial statements
1. Basis of preparation
Introduction
Basis of accounting
IMI plc (the ‘Company’) is a company incorporated and domiciled in the United
Kingdom. The consolidated financial statements of the Company comprise the
Company and its subsidiaries (together referred to as the ‘Group’). The Company
financial statements present information about the company as a separate
entity and not about the Group. The consolidated financial statements have
been prepared in accordance with International Financial Reporting Standards
as adopted by the EU and applicable law (‘IFRSs’). The Company Financial
Statements have been prepared in accordance with FRS 101 and these are
presented on pages 168 to 172. The financial statements were approved by
the Board of Directors on 27 February 2020.
The financial statements are presented in Pounds Sterling (which is the
Company’s functional currency), rounded to the nearest hundred thousand,
except revenues and cost of sales, which are rounded to the nearest whole million.
They are prepared on the historical cost basis except for derivative financial
instruments; financial assets classified as fair value through profit and loss or
other comprehensive income; assets and liabilities acquired through business
combinations which are stated at fair value and retirement benefits. Non-
current assets and liabilities held for sale are stated at the lower of their carrying
amounts and their fair values less costs to sell.
The accounting policies described in the notes to the financial statements
have been applied consistently throughout the Group for the purposes of these
consolidated financial statements.
During 2019, management has reviewed and amended the format of the income
statement from that used in the 2018 Annual Report and Accounts. Changes have
been made to the presentation of the income statement which enhance the users
understanding of the Group’s financial performance by presenting gross margin
information on the face of the income statement and removing the additional
disclosure of non-adjusting restructuring costs. This is a change in presentation
only and has no impact on the prior year operating profit and profit after tax.
New or amended EU Endorsed Accounting Standards
adopted by the Group during 2019
Following the adoption of IFRS 16 ‘Leases’, effective from 1 January 2019, the
Group amended its accounting policies. The impact of the adoption of IFRS 16
‘Leases’ and the new accounting policies is set out in Note 13.
Noted below are the other amended and new International Financial Reporting
Standards which became effective for the Group as of 1 January 2019, none of
which has a material impact on the financial statements:
• IFRIC 23 ‘Uncertainty over Income Tax Treatments’
• IFRS 9 ‘Financial Instruments’ - amendments to Prepayment
Features with Negative Compensation
• IAS 28 ‘Long-term Interests in Associates and Joint Ventures’ –
minor amendments
• IAS 19 ‘Employee Benefits’ – amendments
116 IMI plc Annual Report & Accounts 2019
2. Significant accounting policies
Where appropriate the significant accounting policies are presented in the note to which it applies to aid the reader’s understanding of their application.
Set out below are the significant accounting policies which do not have a specific note.
A. Subsidiaries
The Group financial statements consolidate the financial statements of IMI plc
and the entities it controls (its subsidiaries) for the year to 31 December 2019.
The Group has no significant interests which are accounted for as associates
or joint ventures.
Subsidiaries are consolidated from the date of their acquisition, being the date
on which the Group obtains control, and continue to be consolidated until the date
that such control ceases. Control comprises the power to govern the financial and
operating policies of the investee so as to obtain benefit from its activities and
is achieved through direct or indirect ownership of voting rights; currently
exercisable or convertible potential voting rights; or by way of contractual
agreement. The financial statements of subsidiaries used in the preparation
of the consolidated financial statements are prepared for the same reporting
year as the parent company and are based on consistent accounting policies.
All intragroup balances and transactions, including unrealised profits arising
from them, are eliminated in full.
A change in the ownership interest of a subsidiary, without loss of control,
is accounted for as an equity transaction. If the Group loses control over a
subsidiary, it:
• derecognises the assets (including any goodwill relating to the subsidiary)
and liabilities of the subsidiary;
• derecognises the carrying amount of any non-controlling interest;
• derecognises the cumulative translation differences recorded in equity;
• recognises the fair value of the consideration received;
• recognises the fair value of any investment retained;
• recognises any surplus or deficit in profit or loss; and
• reclassifies the parent’s share of components previously recognised in other
comprehensive income to profit or loss or retained earnings, as appropriate.
Taxation on the above accounting entries would also be recognised
where applicable.
B. Use of judgements and estimates
The preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
i. Key judgements
The key judgements are disclosed in Notes 3 and 13.
ii. Key estimates and assumptions
The key estimates and assumptions concerning the future and other sources of
estimation uncertainty at the reporting date are described below. The Group bases
its assumptions and estimates on information available when the consolidated
financial statements are prepared. Market changes or circumstances arising
beyond the control of the Group are reflected in the assumptions and estimates
when they occur. Revisions to accounting estimates are recognised in the period
in which the estimate is revised and in any future periods affected. The key
estimates are disclosed in Notes 11, 14, 15, 16, 20 and 23.
iii. Changes in judgements, estimates and assumptions
Management has reassessed the key judgements and estimates presented
in the 2019 Annual Report and Accounts and concluded that, in the current
year, the following change to the estimates and judgements applied in 2019
are required:
- Addition of a key judgement relating to the assessment of lease terms
following the adoption of IFRS 16.
C. Revenue recognition
Revenue is recognised when obligations under the terms of a contract with our
customer are satisfied. This generally occurs when the goods are transferred, or
the services are provided, to our customer. Revenue is measured as the amount
of consideration we expect to receive in exchange for transferring goods or
providing services. Sales and other taxes collected from customers are excluded
from revenue. The nature of the equipment, valve and other contracts into which
the Group enters means that:
• the contracts usually contain distinct performance obligations, each of which
transfers control of the goods to the customer. Where such distinct performance
obligations are present, revenue is recognised on each element in accordance
with the policy on the sale of goods.
• the service element of the contract is usually insignificant in relation to the
total contract value and is often provided on a short-term or one-off basis.
Where this is the case, revenue is recognised when the service is complete.
As a result of the above, the significant majority of the Group’s revenue is
recognised on a sale of goods basis. Each of the divisional revenue streams
set out in Note 4 can consist of the sale of goods, the provision of services or
a combination of the two. The specific methods used to recognise the different
forms of revenue earned by the Group are set out below:
i. Sales of Goods
Revenue from the sale of goods is recognised in the income statement net of
returns, trade discounts and volume rebates when control has been transferred
to our customer. No revenue is recognised where recovery of the consideration is
not probable or there are significant uncertainties regarding associated costs,
or the possible return of goods. In Hydronic, the amount of consideration received
and the revenue recognised varies in line with discounts and promotions offered
to our customers and their customers.
The timing of the transfer of control to our customer varies depending on the
nature of the products sold and the individual terms of the contract of sale. Sales
made under internationally accepted trade terms, Incoterms 2010, are recognised
as revenue when the Group has completed the primary duties required to transfer
control as defined by the International Chamber of Commerce Official Rules
for the Interpretation of Trade Terms. Sales made outside Incoterms 2010 are
generally recognised on delivery to the customer. In limited instances, a customer
may request that the Group retains physical possession of an asset for a period
after control has been transferred to the customer. In these circumstances,
the Group provides this storage as a service to the customer and therefore
revenue is recognised prior to delivery of the asset.
117
E. Financial instruments and fair value hedging
Financial instruments are initially recorded at fair value plus directly attributable
transaction costs unless the instrument is a derivative not designated as a
hedge (see below). Subsequent measurement depends on the designation
of the instrument, which follows the categories in IFRS 9:
• Short-term borrowings and overdrafts are classified as financial liabilities at
amortised cost.
• Derivatives, comprising interest rate swaps, foreign exchange contracts and
options, metals futures contracts and any embedded derivatives, are classified
as ‘fair value through profit or loss’ under IFRS 9, unless designated as hedges.
Derivatives not designated as hedges are initially recognised at fair value;
attributable transaction costs are recognised in profit or loss when incurred.
Subsequent to initial recognition, changes in fair value of such derivatives
and gains or losses on their settlement are recognised in net financial
income or expense.
• Long-term loans and other interest bearing borrowings are generally held at
amortised cost using the effective interest rate method. Where the long-term
loan is hedged, generally by an interest rate swap, and the hedge is regarded
as effective, the carrying value of the long-term loan is adjusted for changes
in fair value of the hedge.
• Trade receivables are stated at cost as reduced by appropriate impairment
allowances for expected irrecoverable amounts.
• Trade payables are stated at cost.
• Financial assets and liabilities are recognised on the balance sheet only when
the Group becomes a party to the contractual provisions of the instrument.
• Available for sale financial assets are carried at fair value with gains and losses
being recognised in equity, except for impairment losses which are recognised
in the income statement.
2. Significant accounting policies (continued)
ii. Rendering of services
As noted above, revenue from the rendering of services is usually insignificant
in relation to the total contract value and is generally provided on a short-term
or one-off basis. Accordingly, revenue is usually recognised when the service
is complete.
Where this is not the case, revenue from services rendered is recognised in
proportion to the stage of completion of the service at the balance sheet date.
The stage of completion is assessed by reference to the contractual performance
obligations with each separate customer and the costs incurred on the contract
to date in comparison to the total forecast costs of the contract. Revenue
recognition commences only when the outcome of the contract can be reliably
measured. Installation fees are similarly recognised by reference to the stage of
completion on the installation unless they are incidental to the sale of the goods,
in which case they are recognised when the goods are sold.
iii. Combined services and goods
When a transaction combines a supply of goods with the provision of a significant
service, distinct performance obligations are identified and recognised in line
with the applicable policy. If the service is essential to the functionality of the
goods supplied then combined performance obligations, including the provision
of goods and services, are identified at the lowest level and the transaction price
is allocated to each performance obligation on an appropriate basis. Revenue
from a service that is incidental to the supply of goods is recognised at the
same time as the revenue from the supply of goods.
D. Foreign currencies
i. Foreign currency transactions
Monetary assets and liabilities denominated in foreign currencies have been
translated into sterling at the rates of exchange ruling at the balance sheet date.
Foreign exchange differences arising on translating transactions at the exchange
rate ruling on the transaction date are reflected in the income statement. Non-
monetary assets and liabilities that are measured at historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction.
Non-monetary assets and liabilities denominated in foreign currencies that are
stated at fair value are translated into sterling at foreign exchange rates ruling
at the balance sheet date.
ii. Foreign operations
The income statements of overseas subsidiary undertakings are translated at the
appropriate average rate of exchange for the year and the adjustment to year end
rates is taken directly to reserves.
The assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on acquisition, are translated at foreign exchange rates ruling
at the balance sheet date.
Foreign exchange differences arising on retranslation are recognised directly
as a separate component of equity. Since 1 January 2004, the Group’s date of
transition to IFRSs, such differences have been recognised in the translation
reserve. When a foreign operation is disposed of, in part or in full, the relevant
amount in the translation reserve is transferred to profit or loss.
118 IMI plc Annual Report & Accounts 2019
F. Other hedging
H. Discontinued operations
i. Hedge of monetary assets and liabilities, financial commitments
or forecast transactions
Where a derivative financial instrument is used as an economic hedge of the
foreign exchange or metals commodity price exposure of a recognised monetary
asset or liability, financial commitment or forecast transaction, but does not meet
the criteria to qualify for hedge accounting under IFRS 9 no hedge accounting is
applied and any gain or loss resulting from changes in fair value of the hedging
instrument is recognised in net financial income or expense.
When the Group has assets and liabilities that have been sold in the year or
are likely to be sold rather than being held for continuing use, these assets and
liabilities are included in current assets and liabilities and denoted ‘held for
sale’ rather than in their usual categories. They are recognised at the lower of
carrying amount and fair value less costs to sell. Impairment losses on the initial
classification of assets as held for sale are included in the Income Statement,
even for assets measured at fair value, as are impairment losses on subsequent
remeasurement and any reversal thereof. Once classified as held for sale,
assets are no longer depreciated or amortised.
If they represent a significant enough proportion of the Group, they are also
treated as discontinued operations. A discontinued operation is a component of
the Group’s business that represents a separate major line of business that has
been disposed of, is held for sale or is a subsidiary acquired exclusively with a view
to re-sale. This means that their trading performance, i.e. their revenues, costs
and other items of income and expense, are no longer reported within the headline
figures in the Income Statement and are instead reported in a separate line,
net of tax, called ‘discontinued operations’. These amounts no longer form part
of continuing earnings per share. Comparative figures are restated to be shown
on the same basis.
This enables the Income Statement for the current and prior year to be presented
on a consistent basis and to convey a more forward-looking version of the results
for the year.
In 2019 there was a profit after tax of £2.8m (2018: £nil) from discontinued
operations in 2019. See Note 28 for further details.
Where such a derivative is a formally designated hedge of a forecast transaction
for accounting purposes, movements in the value of the derivative are recognised
directly in other comprehensive income to the extent the hedge is effective.
The Company assesses the effectiveness of the hedge based on the expected
fair value of the amount to be received and the movement in the fair value of
the derivative designated as the hedge.
For segmental reporting purposes, changes in the fair value of economic hedges
that are not designated hedges, which relate to current year trading, together
with the gains and losses on their settlement, are allocated to the operating
profit of the relevant business segment.
ii. Hedge of net investment in foreign operation
Where a foreign currency liability or derivative financial instrument is a formally
designated hedge of a net investment in a foreign operation, foreign exchange
differences arising on translation of the foreign currency liability or changes in the
fair value of the financial instrument are recognised directly in equity via other
comprehensive income to the extent the hedge is effective. The Group assesses
the effectiveness of its net investment hedges based on fair value changes of its
net assets, including relevant goodwill designated as foreign currency assets, and
the fair value changes of both the debt designated as a hedge and the relevant
financial instrument.
G. Investments not held for trading
Investments that are designated as being not held for trading are initially
recognised at fair value. Subsequently the fair value of the investment is
reassessed at each balance sheet date with movements in the fair value
recognised in other comprehensive income.
119
3. Alternative Performance Measures (‘APMs’)
& adjusting items
Key judgement
Management has applied judgement in the selection of the Alternative Performance Measures (‘APMs’) used in the Annual Report and Accounts. The APMs
presented are used in discussions with the investment analyst community and by the Board and management to monitor the trading performance of the Group.
We consider that the presentation of APMs allows for improved insight to the trading performance of the Group. We consider that the term Adjusted, together
with an adjusting items category, best reflects the trading performance of the Group.
The adjusting items in the income statement include restructuring costs, special pension events, gains/losses on disposals of subsidiaries, impairment losses,
the reversal of gains/losses on economic hedges, gains on property disposals, acquisition costs, acquired intangible amortisation and other acquisition items.
Movements in adjusted revenue and adjusted operating profit are given on an organic basis (see definition below) so that performance
is not distorted by acquisitions, disposals and movements in exchange rates.
The table below details the definition of each APM and a reference to where it can be reconciled to the equivalent statutory measure.
APM
Adjusted revenue
Adjusted profit before tax
Adjusted net interest cost
Adjusted earnings per share
Adjusted effective tax rate
Adjusted EBITDA
Definition
Reconciliation to statutory measure
These measures are as reported to management and do not include the impact
of adjusting items described in this note.
This measure reflects adjusted profit after tax before interest, tax, depreciation
and amortisation.
See income statement on page 112.
See Note 7.
See Note 9.
See Note 19.
Adjusted operating profit
and margin
These measures are as reported to management and do not include the impact
of adjusting items described in this note.
See income statement on page 112 and
segmental reporting note in Note 4.
Organic growth
This measure removes the impact of adjusting items, acquisitions, disposals,
movements in exchange rates and, in 2019 only, the impact of IFRS 16.
Adjusted operating cash flow
This measure reflects cash generated from operations as shown in the statement
of cash flows less cash spent acquiring property, plant and equipment, non-
acquired intangible assets and investments; plus cash received from the sale of
property, plant and equipment, the sale of investments less the repayment of
principal amounts of lease payments excluding the cash impact of
adjusting items.
See Note 19.
Operating cash flow
Free cash flow before
corporate activity
These measures are sub-totals in the reconciliation of adjusted EBITDA to
Net Debt and are presented to assist the reader to understand the nature
of the current year’s cash flows.
See Note 19.
120 IMI plc Annual Report & Accounts 2019
Impact of IFRS 16
The Group adopted IFRS 16 on 1 January 2019 and applied the modified retrospective approach (please see Note 13 for more details). For this reason, the Group’s
operating profit is not comparable against prior year for this reporting period only, memorandum results for 2019 excluding the impact of IFRS 16 have been included in
Notes 4 and 13.
The adjusting items category in the income statement includes those items which are removed from statutory measures to provide insight as to the performance of the Group.
Accordingly, adjusting items are included in a separate column on the face of the income statement. Outlined below are the adjusting items impacting the current results.
Recognised in arriving at operating profit from continuing operations
Reversal of net economic hedge contract losses
Restructuring costs
Gains on special pension events
Impairment losses
Acquired intangible amortisation and other acquisition items
Gain of disposal of subsidiaries
Gain on disposal of properties
Indirect taxes arising on reorganisation
Recognised in net financial expense
Financial income
Financial expense
a) Reversal of net economic hedge contract losses/gains - For segmental reporting
purposes, changes in the fair value of economic hedges which are not designated as
hedges for accounting purposes, together with the gains and losses on their settlement,
are included in the adjusted revenues and operating profit of the relevant business
segment. The adjusting items at the operating level reverse this treatment. The net
financing adjusting items reflect the change in value or settlement of these contracts
with the financial institutions with whom they were transacted.
b) Restructuring costs - The restructuring costs treated as adjusting items total
£51.8m (2018: £12.4m) are as a result of a number of significant restructuring projects
across the Group. This includes a restructuring of our European business totalling
£24.4m in IMI Precision, £4.6m in the Americas and £1.2m in the divisional central
team. In IMI Critical, adjusted restructuring costs related to a divisional reorganisation
of £9.2m and restructure of the EMEA region of £9.5m. In IMI Hydronic, there were
restructuring costs of £0.3m due to the finalisation of the Global Restructuring
Programme initiated in 2018 and there were restructuring costs of £2.6m relating
to the Corporate head office.
Adjusting restructuring costs in 2018 included £8.6m relating to the closure of one of
our IMI Critical sites in Sweden and right sizing of operations, the Global Restructuring
Programme within IMI Hydronic of £2.5m, the finalisation of restructuring projects
related to the Swiss Controls & Nuclear business in IMI Critical of £0.7m and the
European business in IMI Precision of £0.6m.
c) Gains on special pension events - During 2019, a gain in respect of an accounting
adjustment for Swiss disability benefits was recognised for £4.7m. A gain was
recognised in respect of a restructure of the pension benefits in Switzerland resulting
in a gain of £2.8m. A curtailment gain of £0.8m was recognised in relation to a
restructuring event in Switzerland. A settlement gain of £0.5m was recognised in
respect of the buy-out of retirees in Switzerland. Professional fees of £0.2m have
been recognised as adjusting associated with ongoing de-risking projects.
During 2018, de-risking activities relating to our defined benefit schemes continued
including the conversion of certain pension benefits to being non-inflation linked,
occurring in the UK which resulted in net gains of £1.4m. Regulatory changes and
the completion of a buy-out in Switzerland resulted in gains totalling £3.0m. The
completion of the transfer of £409m of liabilities covered by insurance policies to the
insurance companies through a formal buy-out transaction resulted in a net gain of
£2.8m. An expense of £0.4m, arising from the equalisation of the UK defined benefit
schemes, has been recognised following the ruling on the test case on Guaranteed
Minimum Pensions.
d) Impairment losses - In 2019, £1.5m impairment losses were recorded as adjusting
items relating to impairments of fixed assets associated with the restructuring projects
discussed in (b) above.
Key
2019
£m
2018
£m
a)
b)
c)
d)
e)
f)
g)
h)
a)
a)
4.0
(51.8)
8.6
(1.5)
(21.1)
-
-
-
13.4
(13.0)
1.9
(12.4)
6.8
(2.0)
(28.8)
0.6
3.2
(3.2)
16.1
(20.5)
In 2018 the Group recorded an adjusting impairment charge of £2.0m against the
goodwill associated with the Hydronic service companies CGU. The carrying value
of the goodwill was reassessed after a sales process for the CGU was cancelled.
e) Acquired intangible amortisation and other acquisition items - For segmental
purposes, acquired intangible amortisation is excluded from adjusted profit, to allow
for better comparability of the performance across divisions. This allows users of
the financial statements to gain a clearer understanding of the performance of the
business, with the impact of amortisation identified separately in line with internal
reporting to management. Acquired intangible amortisation in 2019 totalled
£19.5m (2018: £25.1m).
The decrease in 2019 reflects the one-off full amortisation of the Bimba order book
which contributed £3.9m to the charge in 2018. An analysis by segment of acquired
intangible amortisation is included in Note 4.
In 2019 the acquisition of PBM resulted in a fair value uplift to inventory of £1.1m
recognised in accordance with IFRS 3 ‘Business Combinations’ as an adjusting item
to cost of sales and professional fees of £0.5m.
In 2018 the release of the fair value uplift to inventory, recognised as part of the
Bimba acquisition accounting in accordance with IFRS 3 'Business Combinations',
of £3.7m was recognised as an adjusting item to cost of sales.
f) Gain on disposal of subsidiaries - No subsidiaries have been disposed of in 2019.
A gain of £0.6m was recognised in 2018 following the expiry of an indemnity provided
on a historical disposal.
g) Gain on disposal of properties - No adjusting gains were realised on the sale of
properties in 2019. A gain of £3.2m was recognised in 2018 following the disposal of
the IMI Critical site in Seishin Japan. The proceeds of the sale will be used to construct
a purpose built facility in Japan which will allow IMI Critical to better meet customer
demand in this region.
h) Indirect taxes arising on reorganisation - Following a retrospective change to
European tax law in 2018 on the transfer of assets a provision of £3.2m to reflect the
probable exposure has been recognised. The provision is recognised as an adjusting
item in operating profit as it relates to indirect taxes.
The tax effects of the above items are included in the adjusting items column of the
income statement.
Adjusting items associated with discontinued operations are disclosed in Note 28.
121
4. Segmental information
Segmental information is presented in the consolidated financial statements for each of the Group's operating segments. The operating segment reporting format
reflects the Group's management and internal reporting structures and represents the information that was presented to the chief operating decision-maker, being
the Executive Committee. As described on page 3, each of the Group’s three divisions has a number of key brands across its main markets and operational locations.
For the purposes of reportable segmental information, operating segments are aggregated into the Group’s three divisions, as the nature of the products, production
processes and types of customer are similar within each division. Inter-segment revenue is insignificant.
IMI Precision Engineering
IMI Precision Engineering specialises in the design and manufacture of motion and fluid control technologies where precision, speed and reliability are essential to the
processes in which they are involved.
IMI Critical Engineering
IMI Critical Engineering is a world-leading provider of flow control solutions that enable vital energy and process industries to operate safely, cleanly, reliably and more
efficiently. Our products control the flow of steam, gas and liquids in harsh environments and are designed to withstand temperature and pressure extremes as well
as intensely abrasive or corrosive cyclical operations.
IMI Hydronic Engineering
IMI Hydronic Engineering is a leading provider of technologies that deliver operational and energy efficient water-based heating and cooling systems for the residential
and commercial building sectors.
Performance is measured by the Executive Committee based on adjusted operating profit and organic revenue growth which are defined in Note 3. These two measures
represent the two short-term key performance indicators for the Group.
Businesses enter into forward currency and metal contracts to provide economic hedges against the impact on profitability of swings in rates and values in accordance
with the Group's policy to minimise the risk of volatility in revenues, costs and margins. Adjusted operating profits are therefore charged/credited with the impact of
these contracts. In accordance with IFRS 9, these contracts do not meet the requirements for hedge accounting and gains and losses are reversed out of operating
profit and are recorded in net financial income and expense for the purposes of the consolidated income statement.
The following table illustrates how the results for the segments reconcile to the overall results reported in the income statement.
Revenue
Operating profit
Operating margin
Continuing operations
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Corporate costs*
Total adjusted revenue/operating profit and margin
Reversal of net economic hedge contract losses
Restructuring costs
Gains on special pension events
Acquired intangible amortisation and other acquisition items
Gain on disposal of subsidiaries
Gain on disposal of properties
Impairment losses
Indirect taxes on reorganisation
2019
£m
907
651
315
2018
£m
916
682
309
1,873
1,907
266.1
2019
£m
2018
£m
2019
%
2018
%
16.7%
12.9%
16.8%
16.3%
13.8%
18.0%
13.9%
148.0
90.1
56.7
(28.7)
265.5
4.0
(51.8)
8.6
(21.1)
-
-
(1.5)
-
153.2
88.3
52.0
(28.0)
14.2%
1.9
(12.4)
6.8
(28.8)
0.6
3.2
(2.0)
(3.2)
Statutory revenue/operating profit
1,873
1,907
204.3
231.6
Net financial expense
Statutory profit before tax from continuing operations
(15.0)
189.3
(18.7)
212.9
* Non-adjusting restructuring costs of £0.8m for the year ended 31 December 2018 which were previously disclosed separately in 2018 are now included
in Corporate costs.
122 IMI plc Annual Report & Accounts 2019
The following table illustrates how revenue and operating profit have been impacted by movements in foreign exchange, the impact of IFRS 16, acquisitions and disposals.
Adjusted revenue
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Total
Adjusted operating profit
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Corporate costs**
Total
As
adjusted
916
682
309
1,907
153.2
88.3
52.0
(27.2)
266.3
Year ended 31 December 2018
Year ended 31 December 2019
Exchange
Acquisitions
Organic
adjusted Acquisitions
IFRS 16
Organic
As
Adjusted
Organic
growth (%) growth (%)
11
3
(2)
12
2.2
0.8
0.8
3.8
9
-
-
9
0.3
-
-
-
0.3
936
685
307
1,928
155.7
89.1
52.8
(27.2)
270.4
907
651
315
1,873
148.0
90.1
56.7
(28.7)
266.1
-
(8)
-
(8)
-
(1.1)
-
-
(1.1)
-
-
-
-
(2.0)
(1.1)
(1.0)
2.3
(1.8)
907
643
315
1,865
146.0
87.9
55.7
(26.4)
263.2
14.1%
-1%
-5%
2%
-2%
-3%
2%
9%
0%
-3%
-6%
3%
-3%
-6%
-1%
5%
-3%
Adjusted operating profit margin (%) 14.0%
14.0%
14.2%
**Corporate costs for 2018 excludes £0.8m non-adjusting restructuring costs.
The following table illustrates how the segmental assets and liabilities reconcile to the overall total assets and liabilities reported in the balance sheet.
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Total segmental assets/liabilities (including lease liabilities)
Corporate items
Employee benefits
Investments
Net debt items (excluding lease liabilities)
Net taxation and others
Total assets and liabilities in Group balance sheet
Impact of IFRS 16 on segment disclosures
Assets
Liabilities
2019
£m
667.0
771.4
206.8
1,645.2
14.0
47.9
3.6
88.2
24.7
1,823.6
2018
£m
669.7
723.7
215.8
1,609.2
11.4
27.8
3.7
132.2
18.5
1,802.8
2019
£m
165.8
241.1
69.9
476.8
36.9
79.2
-
435.6
85.2
1,113.7
2018
£m
135.8
186.6
66.8
389.2
43.3
80.1
-
536.7
87.3
1,136.6
Segment assets and segment liabilities for 2019 all increased as a result of the change in accounting policy. The 2018 IMI Precision Engineering, IMI Critical Engineering
and IMI Hydronic Engineering segments have been restated below to include the impact from this change as at 1 January 2019.
Segment Assets
Segment Liabilities
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Other
Total
Pre IFRS 16
(31 Dec 2018)
£m
669.7
723.7
215.8
193.6
IFRS 16
£m
42.4
38.7
12.8
6.5
Impact of Post IFRS 16
Pre IFRS 16
(1 Jan 2019) (31 Dec 2018)
£m
£m
Impact of Post IFRS 16
(1 Jan 2019
£m
IFRS 16
£m
712.1
762.4
228.6
200.1
135.8
186.6
66.8
747.4
42.6
38.4
12.8
6.6
178.4
225.0
79.6
754.0
1,802.8
100.4
1,903.2
1,136.6
100.4
1,237.0
123
4. Segmental information (continued)
The following table includes other information to show how certain costs are allocated between the segments of the Group.
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Corporate costs
Total
Adjusting
restructuring costs*
Capital expenditure
Amortisation**
Depreciation ***
2019
£m
30.2
18.7
0.3
49.2
2.6
51.8
2018
£m
0.7
9.2
2.5
12.4
-
12.4
2019
£m
27.5
27.3
10.9
65.7
0.1
65.8
2018
£m
28.6
18.5
11.2
58.3
0.2
58.5
2019
£m
11.0
17.4
5.8
34.2
0.3
34.5
2018
£m
16.4
16.7
3.3
36.4
0.5
36.9
2019
£m
35.5
24.7
14.8
75.0
1.2
76.2
2018
£m
20.6
13.5
8.2
42.3
0.5
42.8
* In 2018, £0.8m of restructuring costs were included within adjusted operating profit that are not included in the table above.
** The amortisation figures above includes the amortisation of acquired intangibles. £7.5m (2018: £13.2m) is included in respect of IMI Precision,
£12.0m (2018: £11.9m) is included in respect of IMI Critical and £nil (2018: £nil) is included in respect of IMI Hydronic.
*** The depreciation figures above include the impact of IFRS 16 in 2019 of £31.8m, 2018 has not been restated as described in Note 13. £0.7m is included in
respect of Corporate, £13.2m is included in respect of IMI Precision, £11.6m is included in respect of IMI Critical and £6.3m is included in respect of IMI Hydronic.
The following table shows a geographical analysis of how the Group’s revenue is derived by destination.
UK
Germany
Rest of Europe
Total Europe
USA
Rest of Americas
Total Americas
China
Rest of Asia Pacific
Total Asia Pacific
Middle East & Africa
Total statutory revenue
2019
Revenue
£m
2018
Revenue*
£m
90
234
494
818
440
98
538
158
246
404
90
288
519
897
427
88
515
109
248
357
113
1,873
138
1,907
* 2018 has been restated following a change in the classification of geographical destinations.
The following table shows a geographical analysis of the location of the Group’s intangible assets, property, plant and equipment, and right of use assets.
UK
Germany
Rest of Europe
USA
Asia Pacific
Rest of World
Total
Right of use assets are included in 2019 of £90.1m (2018: nil).
124 IMI plc Annual Report & Accounts 2019
2019
Revenue
£m
2018
Revenue
£m
84.1
234.2
265.1
309.3
51.7
35.8
980.2
76.6
251.1
219.7
263.5
60.4
19.8
891.1
Adjusted revenue by destination (2019)
Adjusted revenue by destination (2018)
Total
Asia Pacific
21%
Total Americas
29%
Middle East & Africa
6%
Total Europe
44%
Total
Asia Pacific
19%
Total Americas
27%
The Group's revenue streams are disaggregated in the table below. For details of the performance obligations relating to these revenue streams
please refer to Note 2C.
Sector
Industrial Automation*
Commercial Vehicle
Energy
Life Sciences
Rail
IMI Precision Engineering
New Construction
Aftermarket
IMI Critical Engineering
TA
Heimeier
Pneumatex**
Other
IMI Hydronic Engineering
Total revenue
* 2019 Industrial Automation sales disaggregate as Factory Automation of £369m and Process Fluid Control of £140m.
** The Pneumatex service sales of £5m (2018: £4m) have been reclassified from Other to Pneumatex.
Middle East & Africa
7%
Total Europe
47%
2019
Revenue
£m
2018
Revenue
£m
509
194
81
81
42
907
277
374
651
152
97
50
16
315
1,873
525
196
77
77
41
916
361
321
682
151
98
47
13
309
1,907
125
5. Operating costs
Operating costs by function
Research and development expenditure
The following table is included to show how much of the operating costs
disclosed in the Income Statement relate to selling and distribution
costs and administrative expenses.
The continuing cost of research and development expenditure charged directly to the
income statement was £42.9m (2018: £41.2m), included within this is amortisation
of capitalised intangible development costs which amounted to £2.6m (2018: £3.5m)
and across the Group a further £5.7m (2018: £7.1m) was capitalised in the year.
Exchange on operating activities net of hedging arrangements
The transactional foreign exchange gains in the Group were £1.8m
(2018: gains of £2.2m).
Audit fees
The Group engages its auditor, EY, to perform other assurance assignments in
addition to their statutory audit duties where their expertise, experience and
knowledge of the Group should enable them to perform these assignments
more efficiently than other similar service providers.
The Group’s policy on such assignments is set out in the Audit Committee Report
on page 75. Fees earned by EY and its associates during the year are set out below:
Fees earned by the Company’s auditor for the audit of
the Company’s annual accounts
The audit of the Company’s subsidiaries,
pursuant to legislation
Other assurance services
Total
2019
£m
0.2
2.8
0.1
3.1
2018
£m
0.2
2.6
0.1
2.9
Selling and distribution costs
Administrative expenses
Employee information
2019
£m
(253.5)
(294.8)
(548.3)
2018
£m
(242.2)
(309.9)
(552.1)
The average number of people employed by the Group during the year was:
IMI Precision
IMI Critical
IMI Hydronic
Corporate
Total Group
2019
5,979
3,217
1,770
108
11,074
2018
5,933
3,274
1,790
109
11,106
The decrease in 2019 is due to the results of restructuring, offset by the
acquisition of PBM.
The aggregate employment cost charged to operating profit for the year was:
Wages and salaries
Share-based payments
Social security costs
Pension costs*
Total
2019
£m
499.5
8.8
82.8
(3.1)
588.0
2018
£m
519.4
8.2
87.7
0.5
615.8
* Pension costs include the £8.6m gain (2018: £6.8m gain) on special pension
events which are disclosed as adjusting items, see Note 3.
The aggregate gains made by directors on the exercise of share options was
£3.7m (2018: £0.1m). The remuneration, as defined in the Companies Act 2006
Schedule 5, for the executive directors' comprises fixed and annual variable
pay as set out in the table on page 82 of the Remuneration Report. For details
of the non-executive directors’ remuneration please refer to page 90 of the
Remuneration Report.
126 IMI plc Annual Report & Accounts 2019
6. Share-based payments
The Group operates a number of equity and equity-related compensation benefits to reward its employees. The estimated cost of awarding these share options is
charged to the income statement over the period that the Group benefits from the employees’ services. This cost is then added back to retained earnings, to reflect
that there is no overall impact on the Group’s balance sheet until the shares are issued to the employees when the options are exercised.
The individual share option schemes, the number of options outstanding under each of them, the estimated cost of these options recognised in the income statement
and the assumptions used in arriving at this estimated cost are described below.
Accounting policy
The fair value of the employee services received in exchange for the grant of the options is recognised as an expense each year. The total amount to be expensed
over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example,
profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become
exercisable. The fair value of the options is determined based on the Monte Carlo and Black-Scholes option-pricing models.
At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original
estimates, if any, in the income statement.
For newly issued shares, the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium
when the options are exercised.
Outstanding share options
At 31 December 2019, options to purchase ordinary shares had been granted to, but not yet exercised by, participants of IMI share option schemes as follows:
Date of
grant
Number
of shares
Price
Dates from which exercisable
IMI Sharesave Scheme
Global Employee Share
Purchase Plans
IMI Incentive Plan
IMI Share Option Plan
Total
06.05.14
05.06.15
29.04.16
21.04.17
04.04.18
04.04.19
15.08.18
16.08.19
07.05.15
09.03.16
09.03.17
12.03.18
18.03.19
22.03.10
23.03.11
04.05.12
27.11.12
12.03.13
22.10.13
11.03.14
4,929
16,274
56,159
30,103
68,500
182,633
358,598
47,534
33,269
80,803
2,969
48,535
634,129
629,396
736,335
2,051,364
4,500
95,000
190,750
12,200
228,150
14,000
264,050
808,650
3,299,415
1384.02p
1075.32p
845.10p
1106.00p
1012.68p
884.16p
1049.31p
902.72p
-
-
-
-
-
645.00p
971.83p
980.67p
1007.33p
1322.70p
1518.33p
1467.00p
01.08.17 or 01.08.19
01.08.18 or 01.08.20
01.08.19 or 01.08.21
01.08.20 or 01.08.22
01.08.21 or 01.08.23
01.08.22 or 01.08.24
15.08.20
12.08.21
07.05.17 or 07.05.18
09.03.18 or 09.03.19
09.03.19 or 09.03.20
12.03.20 or 12.03.21
18.03.21 or 18.03.22
22.03.13
23.03.14
04.05.15
27.11.15
12.03.16
22.10.16
11.03.17
127
6. Share-based payments (continued)
Schemes under which options
are outstanding
The options in the table on page 127 relate to the following share-based
payment schemes:
IMI Sharesave Scheme (‘SAYE’)
This scheme is open to the majority of the Group’s UK employees, including
the executive directors, and allows the grant of options to all participants at a
discount of up to 20% below the market price. Such schemes are not subject to
performance conditions and offer tax incentives to encourage employees to use
their own money to purchase IMI shares. SAYE options may be exercised within
six months of the date they first become exercisable.
Global Employee Share Purchase Plans (‘GESPP’)
These plans were introduced in 2011 for the US and Germany. The German and
US GESPP’s offer the opportunity to buy shares in IMI at a fixed price at a future
date. The German GESPP mirrors the UK Sharesave Scheme, with a minimum/
maximum savings limit per month and contract duration of three to five years.
The US GESPP also operates in a similar way to the UK Sharesave Scheme, with
a minimum/maximum savings limit per month, but the contract duration is for a
fixed period of two years and different taxation conditions apply for the exercise
period. No further awards are intended to be granted under the German GESPP.
IMI Share Option Plan (‘SOP’)
Share option awards were made from 2009 to selected senior managers
and certain other employees under the SOP. These awards are not subject
to performance conditions, but are subject to a three year vesting period.
The purpose of the SOP is to give selected IMI employees (who are not
executive directors of the Company) the opportunity to share in the benefits
of share price growth and to increase their IMI shareholding.
Options granted during the year
Other share-based payment arrangements
The Group also operates the following employee share plans:
Share Incentive Plan (‘SIP’)
The SIP is open to the majority of the Group’s UK employees, including the
executive directors. This scheme covers two separate opportunities for
employees to share in IMI’s success as follows:
• Partnership shares – allow employees to invest up to the statutory maximum
from pre-tax pay, which is used to buy IMI shares.
• Free shares – allows a grant of shares to employees each year, up to the
statutory maximum.
Shares acquired or awarded under the SIP are not subject to performance
conditions and offer tax incentives to encourage employees to build up their
shareholdings with the Company.
The IMI Incentive Plan (‘IIP’)
In light of the expiry in 2015 of both the PSP and SMP, the IIP was introduced to
act as the Company’s sole senior executive long-term incentive plan. The IIP acts
as an umbrella plan which allows the Company to grant different types of award
to different employee groups in an efficient way. The IIP is to be used annually to
grant ‘Performance Share Awards’ in respect of ordinary shares to the executive
directors and other members of senior management subject to performance
conditions. The IIP will also be used annually to grant ‘Bonus Share Awards’ below
Board level. The IIP also gives the Company the ability to grant ‘Restricted Stock
Unit Awards’ and ‘Share Options’. It is currently intended that Restricted Stock
Unit Awards and share options will only be granted in response to specific
business requirements.
Number of
options
granted
(thousand)
Weighted
average
option
price
Normal
exercisable
date
100
200
54
33
835
845
1013p 2021-2024
884p 2022-2025
1409p
903p
2020
2021
- 2020-2021
- 2021-2022
SAYE
2018
2019
GESPP
2018
2019
IIP
2018
2019
128 IMI plc Annual Report & Accounts 2019
Movement in outstanding options in the year
Outstanding at 1 January 2018
Exercisable at 1 January 2018
Granted
Exercised
Lapsed
Outstanding at 31 December 2018
Exercisable at 31 December 2018
Granted
Exercised
Lapsed
Outstanding at 31 December 2019
Exercisable at 31 December 2019
Options not granted at nil cost 1
Number of
options
(thousand)
Weighted
average
option prices option price
Range of
1,718
1,340
153
164
153
1,555
1,156
233
189
109
1,490
1,067
441-1518p
441-1518p
1013-1049p
441-1322p
845-1467p
645-1518p
645-1518p
884-903p
645-1067p
845-1384p
645-1518p
645-1518p
1162p
1218p
1026p
989p
1208p
1162p
1229p
887p
815p
1022p
1173p
1264p
Options
granted at
nil cost 2
Number of
options
(thousand)
Total
Number of
options
(thousand)
2,802
118
1,222
68
699
3,257
128
1,194
655
1,105
2,692
202
4,520
1,458
1,375
232
852
4,812
1,284
1,427
844
1,214
4,181
1,269
1 Options not granted at nil cost include options granted under the following schemes: IMI Sharesave Scheme, Global Employee Share Purchase Plans and
IMI Share Option Plan.
2 Options granted at nil cost are those granted under the Performance Share Plan, Share Matching Plan and IMI Incentive Plan.
Share-based payment charge for the year
Other share-based payment disclosures
The total expense recognised for the year arising from share-based payments
was £8.8m (2018: £8.2m) which comprises a charge of £13.8m (2018: £13.9m)
for the year offset by a credit of £5.0m (2018: £5.7m) in respect of lapses.
£3.5m (2018: £4.7m) of the total charge and £3.4m (2018: £2.3m) of the
total credit is in respect of options granted to directors.
The weighted average remaining contractual life for the share options outstanding
as at 31 December 2019 is 6.18 years (2018: 6.48 years) and the weighted
average fair value of share options granted in the year at their grant date
was £8.66 (2018: £10.11).
The weighted average share price at the date of exercise of share options
exercised during the year was £9.98 (2018: £11.83).
Share-based payment valuation methodology
The fair value of services received in return for share options granted are
measured by reference to the fair value of share options granted, based on
Black-Scholes and Monte Carlo option pricing models. The assumptions used for
grants in 2019 included a dividend yield of 3.7% (2018: 4.3%), expected share
price volatility of 24% (2018: 26%), a weighted average expected life of 3.3 years
(2018: 3.2 years) and a weighted average interest rate of 0.6% (2018: 0.8%).
The expected volatility is wholly based on the historical volatility (calculated based
on the weighted average remaining life of the share options), adjusted for any
expected changes to future volatility due to publicly available information.
129
7. Earnings per ordinary share
Earnings per share (‘EPS’) is the amount of post-tax profit attributable to each share (excluding those held in the Employee Benefit Trust or by the Company).
Basic EPS measures are calculated as the Group profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue
during the year. Diluted EPS takes into account the dilutive effect of all outstanding share options priced below the market price, in arriving at the number of shares
used in its calculation.
Both of these measures are also presented on an adjusted basis, to assist the reader of the financial statements to get a better understanding of the performance
of the Group. The note below demonstrates how this calculation has been performed.
Weighted average number of shares for the purpose of basic earnings per share
Dilutive effect of employee share options
Weighted average number of shares for the purpose of diluted earnings per share
Statutory profit for the year
Statutory profit from discontinued operations, net of tax
Continuing statutory profit for the year
Total adjusting items charges included in profit before tax
Total adjusting items credits included in taxation
Earnings for adjusted EPS
Statutory EPS measures
Statutory basic EPS
Statutory diluted EPS
Statutory basic continuing EPS
Statutory diluted continuing EPS
Adjusted EPS measures
Adjusted basic EPS
Adjusted diluted EPS
Key
A
B
2019
million
270.8
0.4
271.2
Key
£m
C
D
156.1
(2.8)
153.3
61.4
(16.6)
2018
million
271.0
0.3
271.3
£m
169.4
-
169.4
38.3
(9.3)
E
198.1
198.4
Key
2019
2018
C/A
C/B
D/A
D/B
E/A
E/B
57.6p
57.6p
56.6p
56.5p
73.2p
73.0p
62.5p
62.4p
62.5p
62.4p
73.2p
73.1p
Discontinued earnings per share
Statutory basic discontinued earnings per share were 1.0p (2018: nil). Statutory diluted discontinued earnings per share were 1.0p (2018: nil).
Impact of IFRS 16 on earnings per share
Earnings per share decreased by 0.1p per share for the year ended 31 December 2019 as a result of the adoption of IFRS 16.
130 IMI plc Annual Report & Accounts 2019
8. Net financing costs
Accounting policy
Financial income comprises interest receivable on funds invested, income from investments and gains on hedging instruments that are recognised in the income
statement. Interest income is recognised in the income statement as it accrues, taking into account the effective yield on the asset. Dividend income is recognised
in the income statement on the date that the dividend is declared.
Financial expense comprises interest payable on borrowings calculated using the effective interest rate method, the interest related element of derivatives and
losses on financial instruments that are recognised in the income statement. The interest expense component of lease payments is recognised in the income
statement applying territory specific incremental borrowing rates.
Net finance expense relating to defined benefit pension schemes represents the assumed interest on the difference between employee benefit plan liabilities
and the employee benefit plan assets.
The finance income or expense on mark-to-market movements on interest and foreign exchange derivatives and other financing costs are excluded from
adjusted earnings.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get
ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur.
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Recognised in the income statement
Interest income on bank deposits
Financial instruments at fair value through profit or loss:
Other economic hedges
- current year trading
- future year transactions
Financial income
Interest expense on interest-bearing loans and borrowings
Interest expense on lease arrangements
Financial instruments at fair value through profit or loss:
Other economic hedges
- current year trading
- future year transactions
Financial expense
Net financial income relating to defined benefit pension schemes
Net financial expense
2019
Financial
instruments
£m
Interest
£m
4.5
2018
Financial
instruments
£m
Total
£m
4.5
Interest
£m
5.8
7.5
5.9
13.4
(9.3)
(3.7)
(13.0)
0.4
7.5
5.9
17.9
(17.1)
(2.3)
(9.3)
(3.7)
(32.4)
(0.5)
(15.0)
4.5
(17.1)
(2.3)
(19.4)
(0.5)
(15.4)
13.9
2.2
16.1
(15.9)
(4.6)
(20.5)
(4.4)
5.8
(18.7)
-
(18.7)
(1.4)
(14.3)
Total
£m
5.8
13.9
2.2
21.9
(18.7)
-
(15.9)
(4.6)
(39.2)
(1.4)
(18.7)
Included in financial instruments are current year trading gains and losses on economically effective transactions which for management reporting purposes are included
in adjusted revenue and operating profit (see Note 4). For statutory purposes, these are shown within net financial income and expense above. Gains or losses for future
year transactions are in respect of financial instruments held by the Group to provide stability of future trading cash flows.
Recognised in other comprehensive income
Change in fair value of effective portion of net investment hedges
Foreign currency translation differences
Change in fair value of other financial assets
Income tax on items recognised in other comprehensive income
Total items recognised in other comprehensive income (net of tax)
Recognised in:
Hedging reserve
Translation reserve
2019
£m
2.6
(15.4)
-
6.0
(6.8)
2.6
(9.4)
(6.8)
2018
£m
1.9
(4.5)
0.2
(0.3)
(2.7)
1.8
(4.5)
(2.7)
131
Tax laws are often complex, which can lead to inconsistent interpretations
by different stakeholders. Where this occurs, IMI may reduce uncertainty and
controversy through various actions, including proactive discussion with the fiscal
authorities to obtain early resolution and securing external tax advice to ensure
the robust interpretation of tax laws and practices.
Fairness: IMI seeks to record its profits across the subsidiary companies around
the world on an arm’s length basis in accordance with internationally accepted
best practices, recognising the relative contributions of people, assets, intellectual
property and risks borne by the various businesses. The resulting allocation
of profits is regularly tested for compliance with this standard. IMI has taken
action to ensure that it meets the enhanced transfer pricing disclosures and
documentation requirements by tax authorities as a result of the Base Erosion
& Profit Shifting (commonly referred to as BEPS) initiative by the OECD.
Value: IMI manages the impact of taxation on its businesses in a responsible
manner by only adopting legitimate, commercial and generally acceptable
positions. In particular, IMI seeks to follow not only the law itself but the
intention of the local laws where this can reasonably be ascertained. As a UK
Headquartered group, IMI’s profits are ultimately subject to UK taxation,
although as the Group pays significant taxes overseas, the overall effective
tax rate for the Group is marginally above the UK statutory tax rate.
Transparency: IMI aims to build positive working relationships with tax authorities
by co-operating in a constructive, open and timely manner. IMI seeks to disclose
its tax affairs in its published accounts and taxation returns fully in accordance
with the applicable standards and, where appropriate, will supplement its tax
disclosures with further information to better inform, and to be transparent to,
its stakeholders.
Risk: IMI engages external support to manage tax risks and achieve the strategic
objectives outlined above. Tax risks are regularly assessed for all companies within
the Group, promptly addressed and reported so that they may be appropriately
provided and disclosed in the relevant accounts and tax returns. To the extent that
identified tax risks are material they will be reported to the Executive Committee
through the Group’s process for strategic risk management as described at
page 54.
UK Corporation tax
The average weighted rate of corporation tax in the UK for the 2019 calendar
year was 19.0% (2018: 19.0%). Changes to the rate of UK corporation tax were
substantively enacted in 2015 to reduce the rate to 19% from 1 April 2017
and to 18% from 1 April 2020. The budget of 16 March 2016 then proposed to
further reduce the rate to 17% from 1 April 2020. This additional change was
substantively enacted on 6 September 2016. UK deferred tax assets and liabilities
have therefore been calculated using a rate of 17% (2018: 17%).
9. Taxation
IMI operates through subsidiary companies all around the world that pay many
different taxes such as corporate income taxes, VAT, payroll withholdings, social
security contributions, customs import and excise duties. This note aggregates
only those corporate income taxes that are or will be levied on the individual
profits of IMI plc and its subsidiary companies for periods leading up to and
including the balance sheet date. The profits of each company are subject to
certain adjustments as specified by applicable tax laws in each country to arrive
at the tax liability that is expected to result on their tax returns. Where these
adjustments have future tax impact then deferred taxes may also be recorded.
Accounting policy
Current tax payable/receivable represents the expected tax payable/
receivable on the taxable income for the year, using tax rates enacted or
substantively enacted at the balance sheet date and taking into account
any adjustments in respect of prior years.
Deferred tax is provided, using the balance sheet method, on temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for the following temporary differences: the
initial recognition of goodwill, the initial recognition of assets or liabilities in
a transaction that is not a business combination and that affects neither
accounting nor taxable profit, and differences relating to investments in
subsidiaries to the extent that the timing of the reversal of the differences
can be controlled and it is probable that the differences will not reverse in
the foreseeable future. Deferred tax is measured at the tax rates that are
expected to apply when the temporary differences reverse, based on the
tax laws that have been enacted or substantively enacted by the balance
sheet date.
A deferred tax asset is recognised to the extent that it is probable that
future taxable profit will be available against which the temporary
difference can be utilised.
Tax governance, risk and strategy
IMI recognises its corporate responsibility to ensure that all businesses within
the IMI Group follow responsible tax practices. Accordingly, the IMI Tax Policy
sets the core principles of compliance, fairness, value and transparency for the
management of the Group’s tax affairs.
This Policy has been approved by the Board, fully communicated to subsidiary
businesses and is reviewed to ensure responsible business practices across the
Group are maintained. The Group Finance Director has ultimate responsibility for
all tax matters and keeps the Board appraised of any significant issues or changes
to the Tax Policy. A robust tax governance framework has also been established
under which the Executive Committee and the IMI Board are appraised on a
regular basis of any material or significant tax matters, so that appropriate
action can be effected. Through the IMI Global Intranet, the Group communicates
policies, procedures, guidance and best practices to improve the management of
taxation across its subsidiary companies worldwide.
Compliance: IMI seeks to manage its taxation obligations worldwide in compliance
with all applicable tax laws and regulations, as well as fully in line with the Group’s
Code of Conduct. Accordingly, the tax contribution by the individual businesses
is monitored and robust standard tax compliance processes operate together
with appropriate financial controls to ensure that all tax returns are complete,
accurate and filed on a timely basis with the tax authorities around the world and
the declared taxes paid on time. UK legislation regarding third party tax evasion
has also been incorporated in to the Group’s prevention procedures, including
employee training. Furthermore, the preparation and filing of the corporate
income tax returns for IMI subsidiary companies worldwide have been largely
outsourced to one tax advisory firm.
132 IMI plc Annual Report & Accounts 2019
Tax payments
Recognised in the income statement
During the year, the Group made payments of corporate income tax of £40.2m
(2018: £41.1m), principally arising as follows:
This section sets out the current and deferred tax charges, which together
comprise the total tax charge in the income statement.
Jurisdiction of companies making corporate income tax payments:
Other £5.8m
Australia £1.0m
South Korea £1.7m
Czech £1.4m
China £1.1m
Austria £0.8m
Sweden £0.9m
UK £13.9m
2019 £40.2m
Germany £3.3m
US £(0.6)m
Italy £6.9m
Japan £2.2m
Switzerland £1.8m
Current tax charge
Current year charge
Adjustments in respect of prior years
Deferred taxation
Origination and reversal of temporary differences
Total income tax charge
2019
£m
41.4
0.4
41.8
(5.8)
36.0
2018
£m
46.1
(4.3)
41.8
1.7
43.5
The above income tax charge is apportioned between continuing and discontinued
operations in the income statement as follows:
Other territories (<£1m), £5.4m
Czech £1.4m
Poland £1.2m
Austria £1.1m
Sweden £0.7m
UK £12.2m
2018 £41.1m
Germany £9.5m
Current tax charge
Continuing operations
Deferred tax (credit)/charge
Continuing operations
Total income tax charge
Continuing operations
US £0.3m
Italy £2.7m
Japan £1.7m
Switzerland £4.9m
2019
£m
2018
£m
41.8
41.8
(5.8)
1.7
36.0
43.5
There is normally an element of volatility in the annual payments of corporate income
taxes due to the timing of assessments, acquisition and disposals, adjusting items and
payments on account in the many countries in which the Group operates. Changes
in the jurisdictions in which profits are earned can have an impact on cash flow levels
which may take time to be reflected in the tax cash flow.
The level of payments made during 2019 decreased slightly compared to 2018.
The Group continued to recover tax debtors in Germany, Switzerland and the US.
Other territorial movements in payments largely reflect shifts in trading.
In addition, the Group makes substantial other tax payments relating to employment,
consumption, procurement and investment to local authorities around the world.
133
9. Taxation (continued)
Reconciliation of effective tax rate
As IMI's head office and parent company is domiciled in the UK, the Group references its effective tax rate to the UK corporation tax rate, despite only a small portion
of the Group's business being in the UK. Therefore, the following tax reconciliation applies the UK corporation tax rate for the year to profit before tax, both before and
after adjusting items. The resulting tax charge is reconciled to the actual tax charge for the Group, by taking account of specific tax adjustments as follows:
Section
Adjusted
£m
Profit before tax from continuing operations
Profit before tax from discontinued operations
Profit before tax
28
Income tax using the Company's domestic rate of tax of 19.00% (2018: 19.00%)
Effects of:
Non-deductible items
Non taxable impairment / loss on disposal of businesses / discontinued operations
Utilisation of losses on which no deferred tax had been recognised
Current year losses for which no deferred tax asset has been recognised
Recognition of deferred tax asset on previously unprovided timing differences
Differing tax rates
Under/(Over) provided in prior years
Total tax in income statement
Income tax expense reported in the consolidated income statement
Effective rate of tax - continuing operations:
Income tax attributable to discontinued operations
Effective rate of tax - discontinued operations:
Total tax in income statement
Effective rate of tax - total Group:
28
250.7
-
250.7
47.6
0.7
-
(0.5)
0.2
(1.8)
6.1
0.3
52.6
52.6
21.0%
52.6
21.0%
2019
Adjusting
items
£m
(61.4)
2.8
(58.6)
(11.1)
0.2
(0.5)
-
-
-
(5.2)
-
(16.6)
(16.6)
Statutory
£m
Adjusted
£m
2018
Adjusting
items
£m
Statutory
£m
189.3
2.8
192.1
36.5
0.9
(0.5)
(0.5)
0.2
(1.8)
0.9
0.3
36.0
36.0
19.0%
251.2
-
251.2
47.7
0.7
-
(0.4)
3.0
-
5.2
(3.4)
52.8
52.8
21.0%
52.8
21.0%
(38.3)
-
(38.3)
(7.3)
0.7
0.3
-
-
-
(3.0)
-
(9.3)
(9.3)
212.9
-
212.9
40.4
1.4
0.3
(0.4)
3.0
-
2.2
(3.4)
43.5
43.5
20.4%
(9.3)
43.5
(16.6)
36.0
Recognised outside of the income statement
In addition to amounts charged to the income statement, some current tax and deferred tax is (credited)/charged directly to equity or through other comprehensive
income, which can be analysed as follows:
Deferred tax:
On equity-settled transactions
On re-measurement gains and on defined benefit plans
On change in value of effective net investment hedge derivatives
Current tax:
On change in value of effective net investment hedge derivatives
On equity-settled transactions
Of which the following amounts are charged/(credited):
to the statement of comprehensive income
to the statement of changes in equity
134 IMI plc Annual Report & Accounts 2019
2019
£m
2018
£m
-
(0.1)
(2.0)
(2.1)
(4.0)
0.2
(5.9)
(6.1)
0.2
(5.9)
0.1
3.5
-
3.6
0.3
1.1
5.0
3.8
1.2
5.0
Recognised deferred tax assets and liabilities
Deferred taxes record the tax consequences of temporary differences between the accounting and taxation recognition of certain items, as explained below:
Non-current assets
Inventories
On revaluation of derivatives
Employee benefits and provisions
Other tax assets
Offsetting within tax jurisdictions
Total deferred tax assets and liabilities
Assets
Liabilities
Net
2019
£m
5.2
3.6
0.4
36.0
1.7
46.9
(24.7)
22.2
2018
£m
0.9
3.9
0.2
30.3
1.2
36.5
(19.5)
17.0
2019
£m
(36.6)
(2.2)
(1.0)
(12.4)
-
(52.2)
24.7
(27.5)
2018
£m
(34.8)
(2.8)
(3.1)
(8.6)
-
(49.3)
19.5
(29.8)
2019
£m
(31.4)
1.4
(0.6)
23.6
1.7
(5.3)
-
(5.3)
2018
£m
(33.9)
1.1
(2.9)
21.7
1.2
(12.8)
-
(12.8)
The movement in the net deferred tax balances has been recognised in the financial statements as analysed below:
Non-current assets
Inventories
On revaluation of derivatives
Employee benefits and provisions
Other tax assets
Net deferred tax liability
Non-current assets
Inventories
On revaluation of derivatives
Employee benefits and provisions
Other tax assets
Net deferred tax liability
Recognised
in the
income
statement
£m
Recognised
outside the
income
statement
£m
Balance at
1 Jan 19
£m
(33.9)
1.1
(2.9)
21.7
1.2
(12.8)
1.5
0.3
0.3
2.5
1.2
5.8
2.0
0.1
2.1
Exchange
£m
Balance at
31 Dec 19
£m
1.0
-
-
(0.7)
(0.7)
(0.4)
(31.4)
1.4
(0.6)
23.6
1.7
(5.3)
Recognised
in the
income
statement
£m
Recognised
outside the
income
statement
£m
0.2
0.6
0.2
(1.8)
(0.9)
(1.7)
-
-
-
(3.6)
-
(3.6)
Balance at
1 Jan 18
£m
(33.0)
0.7
(3.1)
26.6
2.0
(6.8)
Exchange
£m
Balance at
31 Dec 18
£m
(1.1)
(0.2)
-
0.5
0.1
(0.7)
(33.9)
1.1
(2.9)
21.7
1.2
(12.8)
All exchange movements are taken through the translation reserve.
Unrecognised deferred tax assets and liabilities
Deferred tax assets of £48.4m (2018: £50.2m) have not been recognised in respect of tax losses of £62.2m (2018: £69.4m), interest of £37.3m (2018: £32.3m) and capital
losses of £117.3m (2018: £118.0m). The majority of the tax losses have no expiry date. No deferred tax asset has been recognised for these temporary differences due to
the uncertainty over their offset against future taxable profits and therefore their recoverability. In some instances, these balances are also yet to be accepted by the tax
authorities and could be challenged in the event of an audit.
It is likely that the majority of unremitted earnings of overseas subsidiaries would qualify for the UK dividend exemption. However, £35.3m (2018: £36.2m) of those earnings
may still result in a tax liability principally as a result of withholding taxes levied by the overseas jurisdictions in which those subsidiaries operate. These tax liabilities are not
expected to exceed £3.8m (2018: £2.9m) of which £3.3m (2018: £2.7m) has been provided on the basis that the Group expects to remit these amounts.
135
10. Dividends
Accounting policy
Final dividends payable are recognised as a liability at the date at which they are approved by the Company’s shareholders or by the subsidiary’s shareholders in
respect of dividends to non-controlling interests. Interim dividends payable are recognised on the date they are declared.
Dividends
After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided for and there are no income
tax consequences.
Current year final dividend - 26.2p per qualifying ordinary share (2018: 26.0p)
The following dividends were declared and paid by the Group during the year:
Prior year final dividend paid - 26.0p per qualifying ordinary share (2017 final year dividend: 25.2p)
Current year interim dividend paid - 14.9p per qualifying ordinary share (2018: 14.6p)
2019
£m
71.0
2018
£m
70.4
2019
£m
70.4
40.4
110.8
2018
£m
68.3
39.6
107.9
Dividend policy and share buybacks
As part of the capital management process, the Group ensures that adequate reserves are available in IMI plc in order to meet proposed shareholder dividends,
the purchase of shares for employee share scheme incentives and any on-market share buyback programme.
Whilst the Group does not have a formal dividend policy or payout ratio, the Group’s aim is to continue with progressive dividends, which typically increase at a steady
rate for both the interim and final dividend payments, with an aim that the dividend should, through the cycle, be covered by at least two times adjusted earnings.
In the event that the Board cannot identify sufficient investment opportunities through capital expenditure, organic growth initiatives and acquisitions, the return
of funds to shareholders through share buybacks or special dividends will be considered. It should be noted that a number of shares are regularly bought in the
market by an employee benefit trust in order to hedge the exposure under certain management incentive plans. Details of these purchases are shown in Note 22
to the financial statements.
136 IMI plc Annual Report & Accounts 2019
11. Intangible assets
Accounting policy
Intangible assets are disclosed as acquired intangible assets and non-acquired intangible assets. Amortisation of acquired intangible assets is treated as an
adjusting item as described in Note 3 of these accounting policies, because of its inherent volatility.
i. Goodwill
Goodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration transferred over the net
identifiable amounts of the assets acquired and the liabilities assumed for the business combination. After initial recognition, goodwill is measured at cost
less any accumulated impairment losses. The value of the goodwill can arise from a number of sources, but in relation to our more recent acquisitions,
it has been represented by post-acquisition synergies and the skills and knowledge of the workforce.
ii. Research and Development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the
income statement as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and
processes, is capitalised provided benefits are probable, cost can be reliably measured and if, and only if, the product or process is technically and commercially
feasible and the Group has sufficient resources and intention to complete development. The expenditure capitalised includes the cost of materials, direct labour
and directly attributable overheads. Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised development
expenditure is stated at cost less accumulated amortisation (see below) and impairment losses (see accounting policy ‘Impairment’) and is included in the other
acquired or other non-acquired category of intangible assets depending on its origin.
iii. Software development costs
Software applications and systems that are not an integral part of their host computer equipment are capitalised on initial recognition as intangible assets at
cost. Cost comprises the purchase price plus directly attributable costs incurred on development of the asset to bring it into use. Following initial recognition,
software development costs are carried at cost less any accumulated amortisation (see below) and accumulated impairment losses (see accounting policy
‘Impairment’) and are included in the other acquired or other non-acquired category of intangible assets depending on their origin.
iv. Customer relationships and other acquired intangible assets
Customer relationships and other intangible assets that are acquired by the Group as part of a business combination are stated at their fair value calculated
by reference to the net present value of future benefits accruing to the Group from utilisation of the asset, discounted at an appropriate discount rate.
Expenditure on other internally generated intangible assets is recognised in the income statement as an expense as incurred.
v. Amortisation of intangible assets other than goodwill
Amortisation is charged to the income statement on a straight-line basis (other than for customer relationships and order book, which are charged on a sum
of digits basis) over the estimated useful lives of the intangible assets. Amortisation commences from the date the intangible asset becomes available for use.
The estimated useful lives for:
• Capitalised development costs are the life of the intangible asset (usually a maximum of 15 years)
• Software development costs are the life of the intangible asset (up to 10 years)
• Customer relationships are the life of the intangible asset (up to 10 years)
• Other intangible assets (including order books, brands and software) are the life of the intangible asset (up to 10 years)
The Group splits its intangible assets between those arising on acquisitions and those which do not, because the amortisation of acquired intangibles is
recognised as an adjusting item in the income statement.
137
11. Intangible assets (continued)
Analysis of intangible assets
Cost
As at 1 January 2018
Exchange adjustments
Acquisitions
Additions
Transfers from assets in the course of construction
Disposals
As at 31 December 2018
Exchange adjustments
Acquisitions (see Note 23)
Additions
Transfers from assets in the course of construction
Disposals
As at 31 December 2019
Amortisation
As at 1 January 2018
Exchange adjustments
Disposals
Impairment
Amortisation for year
As at 31 December 2018
Exchange adjustments
Disposals
Amortisation for year
As at 31 December 2019
Net book value at 31 December 2018
Net book value at 31 December 2019
Goodwill impairment testing
Accounting policy
Acquired
customer
relationships
£m
Other
acquired
intangibles
£m
Total
acquired
intangibles
£m
Goodwill
£m
Other non-
acquired
intangibles
£m
Non-acquired
intangibles
under
construction
£m
420.4
16.0
39.1
-
-
-
475.5
(20.9)
25.8
-
-
-
480.4
36.1
0.2
-
2.0
-
38.3
(2.0)
-
-
36.3
437.2
444.1
195.4
7.0
34.2
-
-
-
236.6
(12.0)
15.7
-
-
-
240.3
161.0
3.3
-
-
16.2
180.5
(9.3)
-
15.2
186.4
56.1
53.9
99.9
4.6
20.0
-
-
(2.2)
122.3
(5.8)
13.3
-
-
-
129.8
89.9
2.8
(2.2)
-
8.9
99.4
(4.5)
-
4.3
99.2
22.9
30.6
715.7
27.6
93.3
-
-
(2.2)
834.4
(38.7)
54.8
-
-
-
850.5
287.0
6.3
(2.2)
2.0
25.1
318.2
(15.8)
-
19.5
321.9
516.2
528.6
111.4
2.6
3.4
6.7
21.4
(1.9)
143.6
(8.1)
-
7.6
12.6
(0.8)
154.9
56.2
3.0
(1.8)
1.2
11.8
70.4
(4.6)
(0.5)
15.0
80.3
73.2
74.6
25.1
(0.1)
-
13.7
(21.4)
-
17.3
(0.3)
-
11.2
(12.6)
-
15.6
-
-
-
-
-
-
-
-
-
-
17.3
15.6
Total
£m
852.2
30.1
96.7
20.4
-
(4.1)
995.3
(47.1)
54.8
18.8
-
(0.8)
1,021.0
343.2
9.3
(4.0)
3.2
36.9
388.6
(20.4)
(0.5)
34.5
402.2
606.7
618.8
For the purpose of impairment testing goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating
units (or groups of ’CGUs’). The composition of CGUs reflects both the way in which cash inflows are generated and the internal reporting structure. Where our
businesses operate closely with each other we will continue to review whether they should be treated as a single CGU. Each unit or group of units to which goodwill
is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and shall not be larger than an
operating segment before aggregation.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included
in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured
based on the relative values of the operation disposed of and the portion of the CGU retained.
Impairment – The carrying values of the Group’s non-financial assets other than inventories and deferred tax assets, are reviewed at each balance sheet date
to determine whether impairment indicators exist.
If indicators exists, the recoverable amount of the asset or all assets within its CGU is estimated. An impairment loss is recognised whenever the carrying
amount of an asset or its CGU unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.
138 IMI plc Annual Report & Accounts 2019
For goodwill and assets that are not yet available for use, the recoverable amount is evaluated at each balance sheet date.
The recoverable amount of non-financial assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, an individual assessment
is made of the estimated future cash flows generated for each CGU derived from the Group’s long-term forecasts for the next five years. These are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Management believe that this approach, including the use of the indefinite cash flow projection, is appropriate based upon both historical experience and because
it is one of the bases management utilise to evaluate the fair value of investment opportunities. For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the smallest cash generating unit to which the asset belongs.
Reversals of impairment
Impairments of goodwill or available for sale financial assets are non-reversible. In respect of other assets, an impairment loss is reversed if at the balance
sheet date there are indications that the loss has decreased or no longer exists following a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been recognised.
Key estimate
The value in use is based on a discounted cash flow model. The principal key estimate reflects the assumptions in these calculations are the long-term
growth rates and the discount rate applied to forecast cash flows in addition to the achievement of the forecasts themselves. The assessments performed
were materially insensitive to changes in the underlying growth and discount rate assumptions which were not significantly revised in the current year.
Further information on the assumptions adopted for material cash generating units and the assets affected is included below.
The Group has 19 (2018: 20) cash generating units to which goodwill is allocated.
The recoverable amount of a CGU is the higher of its fair value less costs to sell
and its value in use. Value in use is determined using cash flow projections from
financial budgets, forecasts and plans approved by the Board covering a five-year
period and include a terminal value multiple. The projected cash flows reflect the
latest expectation of demand for products and services.
The key assumptions in these calculations are the long-term growth rates and
the discount rates applied to forecast cash flows in addition to the achievement
of the forecasts themselves. Long-term growth rates are based on long-term
economic forecasts for growth in the manufacturing sector in the geographical
regions in which the cash generating unit operates. Pre-tax discount rates specific
to each cash generating unit are calculated by adjusting the Group post-tax
weighted average cost of capital (‘WACC’) of 7.0% (2018: 7%) for the tax rate
relevant to the jurisdiction before adding risk premia for the size of the unit,
the characteristics of the segment in which it resides, and the geographical
regions from which the cash flows are derived.
This exercise resulted in the use of the following ranges of values for the
key assumptions:
For the purpose of assessing the significance of CGUs, the Group uses a threshold
of 20% of the total goodwill balance. Goodwill of £90.2m (2018: £93.2m)
associated with the Control Valves CGU in IMI Critical is considered to be
significant. The recoverable amount of the CGU is determined from a value in use
calculation. The key assumptions for the value in use valuation are the discount
rate, growth rate and operating cashflows. These estimates are determined
using the methodology discussed above. The discount rate applied for Control
Valves is 9.4% (2018: 9.5%) and a growth rate of 2.0% (2018: 2.1%) is applied
into perpetuity.
The Directors do not consider that any reasonably possible changes to the key
assumptions would cause the carrying amount to exceed the recoverable amount
of the CGU.
No other CGUs have goodwill that is considered significant in the context of the
Group's total goodwill balance, nor do any CGUs use the same key assumptions
for the purposes of impairment testing in either this year or the last.
In 2018 the Group recorded an adjusting impairment charge of the carrying value
of £2m against the goodwill associated with the Hydronic service companies CGU.
The carrying value of the goodwill was reassessed after a sales process for the
CGU was cancelled.
Pre-tax discount rate
Long-term growth rate
2019
%
2018
%
8.3 – 11.0
0.7 – 2.0
8.9 – 14.8
0.8 – 3.1
The aggregate amount of goodwill arising from acquisitions prior to 1 January
2004 which had been deducted from the profit and loss reserves and incorporated
into the IFRS transitional balance sheet as at 1 January 2004, amounted to
£364m. The cumulative impairment recognised in relation to goodwill is
£41m (2018: £41m).
139
12. Property, plant and equipment
This note details the physical assets used by the Group to generate revenues and profits, in addition to those disclosed in Note 13. These assets include manufacturing,
distribution and office sites, and equipment used in the manufacture of the Group’s products. The cost of these assets represents the amount initially paid for them.
Accounting policy
Freehold land and assets in the course of construction are not depreciated.
Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see Note 11).
Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property,
plant and equipment. Costs in respect of tooling owned by the Group for clearly identifiable new products are capitalised net of any contribution received from
customers and are included in plant and equipment.
Depreciation is charged to the income statement, from the date the asset is brought in to use, on a straight-line basis (unless such a basis is not aligned with
the anticipated benefit) so as to write down the cost of assets to residual values over the period of their estimated useful lives within the following ranges:
- Freehold buildings - 25 to 50 years
- Plant and equipment - 3 to 20 years
Assets in the course of construction comprise assets which are not currently ready to be brought in to use. Assets under construction are not depreciated.
If there has been a technological change or decline in business performance the directors review the value of the assets to ensure they have not fallen below their
depreciated value. If an asset’s value falls below its depreciated value, a one-off impairment charge is made against profit.
Cost
As at 1 January 2018
Exchange adjustments
Acquisitions
Additions
Transfers from assets in the course of construction
Disposals
As at 31 December 2018
Exchange adjustments
Acquisitions (see Note 23)
Additions
Transfers from assets in the course of construction
Disposals
As at 31 December 2019
Depreciation
As at 1 January 2018
Exchange adjustments
Disposals
Depreciation
As at 31 December 2018
Exchange adjustments
Disposals
Impairment charge
Depreciation
As at 31 December 2019
NBV at 31 December 2018
NBV at 31 December 2019
Land &
buildings
£m
Plant &
equipment
£m
Assets in the
course of
construction
£m
184.9
14.4
7.4
0.7
1.6
(15.0)
194.0
(9.8)
2.0
6.6
5.9
(18.8)
179.9
96.2
12.9
(6.2)
2.9
105.8
(5.3)
(13.9)
-
3.8
90.4
88.2
89.5
632.5
34.7
11.0
16.3
20.0
(27.0)
687.5
(31.5)
2.1
18.2
15.5
(23.0)
668.8
471.9
24.8
(26.1)
39.9
510.5
(24.6)
(21.4)
1.5
40.6
506.6
177.0
162.2
21.1
(1.7)
0.4
21.1
(21.6)
(0.1)
19.2
(1.2)
1.1
22.2
(21.4)
(0.3)
19.6
-
-
-
-
-
-
-
-
-
-
19.2
19.6
Total
£m
838.5
47.4
18.8
38.1
-
(42.1)
900.7
(42.5)
5.2
47.0
-
(42.1)
868.3
568.1
37.7
(32.3)
42.8
616.3
(29.9)
(35.3)
1.5
44.4
597.0
284.4
271.3
An impairment charge of £1.5m relating to continuing operations occurred during the year (2018: £nil). The recoverable amount of these assets has been determined
using their fair value less costs to sell, estimated by both internal and external valuation specialists.
Group contracts in respect of future capital expenditure which had been placed at the balance sheet date relating to the continuing business amounted to £12.3m
(2018: £4.3m).
140 IMI plc Annual Report & Accounts 2019
13. Leases
Accounting policy
The Group leases various properties, plant, equipment and cars. Rental contracts are negotiated individually and have a range of initial terms and may have
extension options. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease
payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of:
i. fixed payments less any lease incentives receivable;
ii. variable lease payment that are based on an index or a rate;
iii. amounts expected to be payable by the Group under residual value guarantees;
iv. the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
v. payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the entity’s incremental borrowing rate
is used, being the rate that the entity would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment
with similar terms and conditions.
Right-of-use assets are measured at cost comprising:
i. the amount of the initial measurement of lease liability;
ii. any lease payments made at or before the commencement date less any lease incentives received; and
iii. restoration costs.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.
Extension and termination options - Extension and termination options are included in a number of property and equipment leases across the Group.
These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are
exercisable only by the Group and not by the respective lessor.
Key judgement
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not
exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to
be extended (or not terminated). Potential future cash outflows of £nil have not been included in the lease liability because it is not reasonably certain that
the leases will be extended (or not terminated).
The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control
of the Group. During the current financial year, the financial effect of revising lease terms to reflect the effect of exercising extension and termination options
was an increase in recognised lease liabilities and right-of-use assets of £7.8m.
On adoption of IFRS 16, with effect from 1 January 2019, the Group has adopted the accounting standard using the modified retrospective approach to transition
and has accordingly not restated prior periods. The Group recognised lease liabilities in relation to leases which had previously been classified as operating leases
under the principles of IAS 17 ‘Leases’. These liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s
incremental borrowing rate as of 1 January 2019 which ranged from 0.72% to 6.06% which reflects the range of territories that leases are held in.
141
13. Leases (continued)
For leases previously classified as finance leases the entity recognised the carrying amount of the lease asset and lease liability immediately before transition as the
carrying amount of the right of use asset and the lease liability at the date of initial application. The measurement principles of IFRS 16 are only applied after that date.
This resulted in no measurement adjustments to the finance leases held at 1 January 2019. The reconciliation set out below demonstrates the movement from the
operating lease commitments disclosed in the 2018 Annual Report and Accounts to the opening lease liability recognised on 1 January 2019.
Operating lease commitments disclosed as at 31 December 2018
Discounted using the Group's incremental borrowing rate at the date of initial application
Add: finance lease liabilities recognised as at 31 December 2018
(Less): changes arising from review of critical lease terms
Add: adjustments as a result of a different treatment of extension and termination options
Lease liability recognised as at 1 January 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
2019
£m
126.0
(9.6)
0.3
(18.1)
1.8
100.4
27.9
72.5
100.4
All right-of-use assets were measured at the amount equal to the lease liability. There were no onerous lease contracts that would have required an adjustment to the
right-of-use assets at the date of initial application.
Operating lease commitments disclosed as at 31 December 2018 were £126.0m. Operating lease commitments for Land and Buildings were £88.1m (of which £21.6m
was due within one year, £54.2m was due within years two to five and £12.3m was due after five years) and for Others were £37.9m (of which £13.6m was due within
one year, £24.3m was due within years two to five and nil was due after five years).
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
Right-of-use assets
Total non-current assets
Lease liabilities
Total current liabilities
Lease liabilities
Total non-current liabilities
Net assets
The net impact on retained earnings on 1 January 2019 was nil.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:
As at 1 January 2019
Additions
Extensions
Payment changes
Terminations
Depreciation expense
Exchange
As at 31 December 2019
142 IMI plc Annual Report & Accounts 2019
31 Dec
2018
(pre
IFRS 16)
£m
-
939.1
-
(631.3)
-
(505.3)
666.2
1 January
2019
(including
IFRS 16)
£m
100.4
1,039.5
(27.9)
(659.2)
(72.5)
(577.8)
666.2
Impact of
IFRS 16
£m
100.4
100.4
(27.9)
(27.9)
(72.5)
(72.5)
-
Land &
buildings
£m
Plant &
equipment
£m
83.2
8.0
13.2
(1.8)
(5.3)
(22.5)
0.5
75.3
17.2
7.2
0.6
(0.4)
(0.7)
(9.3)
0.2
14.8
Total
£m
100.4
15.2
13.8
(2.2)
(6.0)
(31.8)
0.7
90.1
Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements during the period:
As at 1 January 2019
Additions
Extensions
Payment changes
Terminations
Accretion of interest
Payments
Exchange
As at 31 December 2019
Current
Non-current
The following are the amounts recognised in the income statement:
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases
Expense relating to leases of low-value assets
Total amount recognised in profit or loss
Land &
buildings
£m
Plant &
equipment
£m
83.2
8.0
13.2
(1.8)
(5.5)
2.0
(23.9)
0.5
75.7
18.7
57.0
17.2
7.2
0.6
(0.4)
(0.7)
0.3
(9.7)
0.2
14.7
6.9
7.8
Total
£m
100.4
15.2
13.8
(2.2)
(6.2)
2.3
(33.6)
0.7
90.4
25.6
64.8
2019
£m
(31.8)
(2.3)
-
-
(34.1)
Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the following practical
expedients permitted by the standard:
i. reliance on previous assessments on the identification of a lease (per IAS 17)
for all existing contracts on the date of initial application;
ii. the use of a single discount rate to a portfolio of leases with reasonably similar
characteristics;
iii. reliance on previous assessments on whether leases are onerous;
iv. the exclusion of initial direct costs for the measurement of the right-of-use
asset at the date of initial application; and
v. the use of hindsight in determining the lease term where the contract contains
options to extend or terminate the lease.
No practical expedient has been applied in relation to short-term leases and low
value assets and is not expected to be used in subsequent periods.
Changes to accounting policies
Until 31 December 2018, leases of property, plant and equipment were classified
as either finance or operating leases. Payments made under operating leases
(net of any incentives received from the lessor) were charged to profit or loss
on a straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is available for use by
the Group. Each lease payment is allocated between the liability and finance cost.
The finance cost is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of the liability for
each period. The right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present
value basis. Lease liabilities include the net present value of the following
lease payments:
• fixed payments less any lease incentives receivable;
• variable lease payment that are based on an index or a rate;
• amounts expected to be payable by the Group under residual value guarantees;
and
• the exercise price of a purchase option if the Group is reasonably certain to
exercise that option.
The lease payments are discounted using the Group’s incremental borrowing rate,
being the rate that the Group would have to pay to borrow the funds necessary
to obtain an asset of similar value in a similar economic environment with similar
terms and conditions.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability; and
• any lease payments made at or before the commencement date less any lease
incentives received.
Extension and termination options
Extension and termination options are included in a number of property
and equipment leases across the Group. These terms are used to maximise
operational flexibility in terms of managing contracts. The majority of extension
and termination options held are exercisable only by the Group and not by the
respective lessor.
Future cash outflows that the Group is potentially exposed to in relation to
the measurement of lease liabilities which have not been reflected is £nil.
143
14. Retirement benefits
Accounting policy
i. Defined contribution (‘DC’) pension plans
Arrangements where the employer pays fixed contributions into an external fund on behalf of the employee (who is responsible for making the investment
decision and therefore assumes the risks and rewards of fund performance).
Contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.
ii. Defined benefit (‘DB’) pension plans
A defined benefit pension plan is a pension arrangement in which the employer promises a specified annual benefit on retirement that is pre-determined by a
formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. In some cases, this
benefit is paid as a lump sum on leaving the Company or while in the service of the Company rather than as a pension. The Group underwrites one or more risks
in meeting these obligations and therefore any net liability or surplus in these arrangements is shown on the Group balance sheet.
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that
employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of
any plan assets are deducted. Past service costs are recognised in profit or loss on the earlier of the date of the plan amendment or curtailment, and the date
that the Group recognises restructuring-related costs. The discount rate is the yield at the balance sheet date on high quality corporate bonds of the appropriate
currency that have durations approximating those of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit
method. When the calculation results in a net asset to the Group, the recognised asset is limited to the present value of any future refunds from the plan or
reductions in future contributions to the plan and restricted by any relevant asset ceiling. Any deduction made by the tax authorities in the event of a refund
of a surplus would be regarded by the Group as an income tax.
When the benefits of a plan are improved, the expense is recognised immediately in the income statement. Re-measurement gains and losses are recognised
immediately in equity and disclosed in the statement of comprehensive income.
iii. Long-term service and other post-employment benefits
The Group’s net obligation in respect of long-term service and other post-employment benefits, other than pension plans, is the amount of future benefit that
employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is
discounted to its present value and the fair value of any related assets is deducted. The discount rate is the yield at the balance sheet date on high quality
bonds of the appropriate currency that have durations approximating those of the Group’s obligations.
Key estimate
The present value of the Group’s defined benefit pension plans and other post-employment benefits are determined using actuarial valuations. An actuarial
valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate,
inflation, future salary increases, mortality rates and future pension increases. The assumptions used and analysis of their sensitivity is set out on subsequent
pages. Due to the complexity of the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions.
144 IMI plc Annual Report & Accounts 2019
Summary information
Net pension deficit: £31.3m (2018: deficit of £52.3m)
The assets and liabilities of the defined benefit schemes are aggregated, recognised in the consolidated balance sheet and shown within non-current liabilities
or in non-current assets if a scheme is in surplus and it is deemed recoverable.
Number of DB arrangements: 71 (2018: 67)
The number of defined benefit arrangements increased in the year due to the identification of four new plans.
The following table shows a summary of the geographical profile of the Group’s defined benefit schemes:
Quantity
2019
Quantity
2018
Assets
£m
Liability
£m
Net Surplus/
(deficit)
Australia
Austria
France
Germany
India
Italy
Mexico
Spain
Switzerland
UAE
US*
UK
3
6
3
30
6
6
6
2
5
1
2
1
71
2
6
3
28
6
5
6
2
5
1
2
1
67
0.2
6.7
69.3
547.4
623.6
0.4
3.6
1.1
61.4
0.8
3.0
0.5
-
78.8
0.9
4.9
499.5
654.9
£m
(0.4)
(3.6)
(0.9)
(54.7)
(0.8)
(3.0)
(0.5)
-
(9.5)
(0.9)
(4.9)
47.9
(31.3)
* The US deficit above excludes £2.6m of assets relating to unqualified plans classified as investments (see Note 17).
The Group provides pension benefits through a mixture of funded and unfunded DB and DC arrangements, although its strategy is to move away from defined
benefit arrangements towards defined contribution arrangements wherever possible to minimise the liability of the Group. Assessments of the obligations
of the defined benefit plans are carried out by actuaries, based on the projected unit credit method. An historical split of the types of defined benefit schemes
in operation is as follows:
Type of scheme
2019
Final salary *
Cash balance **
Jubilee ***
Other
Total
Asset ceiling
Revised assets
2018
Final salary *
Cash balance **
Jubilee ***
Other
Total
Asset ceiling
Revised assets
Qty
No.
Assets
£m
26
11
15
19
71
25
10
14
18
67
547.9
69.3
-
6.4
623.6
-
623.6
473.5
64.3
-
6.9
544.7
(0.2)
544.5
%
of total
assets
%
88%
11%
0%
1%
100%
87%
12%
0%
1%
100%
Liability
£m
550.9
81.8
3.3
18.9
654.9
494.9
80.4
3.2
18.3
596.8
%
of total
liabilities
%
* Final salary scheme: The pension available to a member in a final salary
arrangement will be a proportion of the member’s salary at or around their
retirement date. This proportion will be determined by the member’s length
of pensionable service, their accrual rate and any particular circumstances
under which the member retires (for example early ill-health retirement).
** Cash balance: A cash balance scheme is a form of defined benefit
pension under which the member has the right to a defined lump sum on
retirement rather than a defined amount of pension receivable. For example
a cash balance plan may have minimum or guaranteed rates of return on
pension contributions. The amount of pension to which that lump sum
may be converted is determined by the annuity rates prevailing at the
time of conversion.
*** Jubilee: Jubilee plans provide for cash award payments which are based on
completed lengths of service. These payments are often made on cessation
of service with the Company, subject to a minimum period of service.
84%
12%
1%
3%
100%
83%
14%
0%
3%
100%
145
14. Retirement benefits (continued)
Asset profile of schemes
The UK and overseas pension funds
The UK Funds
The United Kingdom constitutes 76% (2018: 75%) of total defined benefit
liabilities and 88% (2018: 87%) of total defined benefit assets. Historically the
IMI Pension Fund offered final salary benefits to UK employees until it closed to
new entrants in 2005 and to future accrual on 31 December 2010. In December
2014 winding-up procedures commenced and those members who were not
eligible or did not take up the offer of a single cash lump sum transferred to one of
two new Funds (IMI 2014 Pensioner Fund or the IMI 2014 Deferred Fund – ‘the UK
Funds’). Ongoing pension benefits in the UK are provided via the Trustee’s defined
contribution plan - The IMI Retirement Savings Plan. All UK pension assets are
run on behalf of the Trustee by the Board of the IMI Common Investment Fund.
The Trustee has determined an investment objective to achieve, over time,
a position of self-sufficiency, defined using a discount rate of gilts + 0.25%.
Asset allocation
The Trustee has, over recent valuations, continued to reduce asset volatility and
sensitivity to UK interest rates, inflation and foreign currencies. In December 2018
£409m of liabilities covered by insurance policies were permanently transferred
to the insurance companies through a formal buy-out transaction. This resulted in
the pension asset and corresponding DBO being removed from the balance sheet.
These activities yielded gains of £2.8m which were classified as adjusting items
in 2018. Following completion of the buy-out transfers, no beneficiaries remain
in the 2014 Pensioner Fund and the fund has been wound-up in 2019.
Liability management
The Trustee has continued to undertake, where practicable, liability management
programmes. During 2018, de-risking activities continued including the conversion
of certain pension benefits to be non-inflation linked, in the UK, which resulted
in net gains of £1.4m which were classified as adjusting items. An expense of
£0.4m, arising from the equalisation of the UK defined benefit schemes,
was also recognised in 2018 following the ruling on the test case on
Guaranteed Minimum Pensions.
Contributions
The March 2018 Valuation was completed in December 2018 and the Funds’
Actuary certified that no deficit funding contributions would be required over and
above the projected investment returns and the scheduled payments, of £7.0m
per annum, due from the Scottish Limited Partnerships until the earlier of full
funding of the UK Deferred Fund or 2030.
Overseas pension funds
During 2019, a gain in respect of an accounting adjustment for Swiss disability
benefits was recognised for £4.7m. A gain was recognised in respect of a
restructure of the pension benefits in Switzerland resulting in a gain of £2.8m.
A curtailment gain of £0.8m was recognised in relation to a restructuring event in
Switzerland. A settlement gain of £0.5m was recognised in respect of the buy-out
of retirees in Switzerland. These events led to the special pension events which
are classified as adjusting items (See Note 3).
The following table sets out the profile of the overall assets of the schemes
(to give an indication of their risk profile), the comparative amounts of the funded
and unfunded defined benefit liabilities ('DBOs') and a split of the balance sheet
impact between schemes with a net pension surplus and a net pension deficit.
Quoted equities
Quoted bonds
Total quoted assets
Private equities
Insurance policies*
Hedge funds
Property
Other**
Total unquoted assets
Fair value of assets
Restriction due to asset ceiling
DBOs for funded schemes
DBOs for unfunded schemes
Net surplus/(deficit) for DBOs
Schemes in net pension deficit
Schemes in net pension surplus
2019
£m
25.1
385.9
411.0
113.2
20.8
1.2
17.8
59.6
212.6
623.6
(589.9)
(65.0)
(31.3)
(79.2)
47.9
2018
£m
21.0
299.2
320.2
113.9
17.9
0.8
17.8
74.1
224.5
544.7
(0.2)
(532.8)
(64.0)
(52.3)
(80.1)
27.8
* The values assigned to the insurance policies are established by a third party
actuary having regard to the liabilities insured and in particular the IAS 19
discount rate, the expected pension increases and the assumed life expectancy
of the members covered.
** 'Other' assets primarily consists of cash, currency swaps and UK commercial
real estate debt.
The overseas assets of £76.3m (2018: £71.2m) comprise equities of £25.1m (2018:
£23.3m), bonds of £24.0m (2018: £25.2m), insurance of £6.9m (2018: £1.4m),
property of £15.8m (2018: £14.6m) and other assets of £4.5m (2018: £6.7m).
Funded: The majority of the Group defined benefit and other post-employment
benefit arrangements are funded, which means they are linked to specific plan
assets that have been segregated in a trust or foundation.
Unfunded: Plans that are not funded are those that are not backed by segregated
assets. These include some pension plans but also a number of other long-term
arrangements for the benefit of our employees, with benefits payable while they
are employed by the Group but more than 12 months after the related service
is rendered. Actuarial gains and losses on other long-term arrangements are
recognised in the income statement in the period in which they arise.
Average duration by geography
The following table shows the weighted average number of years (or duration)
over which pension benefits are expected to be paid:
Location
UK
Switzerland
US
Eurozone
2019
22.0
17.4
6.5
15.5
2018
21.5
17.4
6.5
15.5
146 IMI plc Annual Report & Accounts 2019
Specific effect on financial statements
The table below reconciles the movement in the UK and overseas net defined
benefit surplus/(obligation) between 1 January 2019 and 31 December 2019.
The corresponding entries for increases and decreases in the net pension deficit
reported in the balance sheet are reflected as follows. Other movements includes
foreign exchange:
i. Cash flow statement: When the Group makes cash contributions to fund the
deficit they are reflected in the cash flow statement and reduce the net deficit/
increase the net surplus.
ii. Income statement: Movements in the overall net pension deficit are recognised
in the income statement when they relate to changes in the overall pension
promise, due to either an additional period of service (known as ‘current
service cost’), changes to pension terms in the scheme rules (known as ‘past
service cost’), or closure of all or part of a scheme (known as settlements and
curtailments). The interest charge/income on the net deficit/surplus position
is also recognised in the income statement.
iii. Other comprehensive income (OCI): Movements in the overall net pension
deficit are recognised through OCI when they relate to changes in actuarial
assumptions or the difference (‘experience gain or loss’) between previous
assumptions and actual results.
Cash flow impacts
Net defined benefit surplus/(obligation)
at 1 January 2019
Movement recognised in:
Income statement
OCI
Cash flow statement
Other movements
Net defined benefit surplus/(obligation)
at 31 December 2019
UK
£m
Overseas
£m
Total
£m
27.8
(80.1)
(52.3)
0.9
12.2
7.0
2.5
(12.3)
6.8
3.9
3.4
(0.1)
13.8
3.9
47.9
(79.2)
(31.3)
Amounts from employees
Amounts from employers
Benefits and settlements paid directly by the Group
Total
2019
Overseas
£m
2.1
2.4
4.4
8.9
UK
£m
-
7.0
-
7.0
Total
£m
2.1
9.4
4.4
15.9
2018
Overseas
£m
2.1
2.3
4.1
8.5
UK
£m
-
10.1
-
10.1
Total
£m
2.1
12.4
4.1
18.6
The expected contributions to the DB arrangements in 2020 are £2.4m of normal employer contributions and £1.9m of normal employee contributions,
both in relation to overseas pension funds. Additional contributions of £7.0m will be made in the UK in 2020.
Other comprehensive income
Movements in pension assets and liabilities that arise during the year from changes in actuarial assumptions, or because actual experience is different from
the actuarial assumptions, are recognised in equity via other comprehensive income. These movements are analysed below:
Change in discount rate
Change in inflation
Change in other assumptions
Actuarial experience
Asset experience
Actuarial gains/(losses) in the year
Change in the asset ceiling
Exchange gains/(losses)
Gains/(losses) recognised through equity
2019
2018
Overseas
post
employment
£m
Overseas
non-post
employment
£m
(12.4)
(3.5)
0.7
(4.3)
7.0
(12.5)
0.2
3.5
(8.8)
-
0.4
0.4
UK
£m
(72.8)
19.3
2.4
(1.1)
64.4
12.2
12.2
Total
£m
(85.2)
15.8
3.1
(5.4)
71.4
(0.3)
0.2
3.9
3.8
UK
£m
43.3
(3.1)
(6.8)
1.9
(23.1)
12.2
-
-
12.2
Overseas
post
employment
£m
Overseas
non-post
employment
£m
2.3
(0.5)
1.4
0.2
(4.0)
(0.6)
-
(1.9)
(2.5)
-
-
-
-
-
-
-
(0.2)
(0.2)
Total
£m
45.6
(3.6)
(5.4)
2.1
(27.1)
11.6
-
(2.1)
9.5
147
14. Retirement benefits (continued)
IMI takes advice from actuaries regarding the appropriateness of the assumptions used to determine the present value of the defined benefit obligations.
These assumptions include the discount rate applied to the assets and liabilities, the life expectancy of the members, their expected salary and pension increases
and inflation. The assumptions used for this purpose in these financial statements are summarised below:
Inflation - RPI
Inflation - CPI
Discount rate
Expected salary increases
Rate of pension increases
Life expectancy at age 65 (UK Funds only)
Current male pensioners
Current female pensioners
Future male pensioners
Future female pensioners
Weighted Averages
31 Dec 2019
31 Dec 2018
31 Dec 2017
UK
% pa
Overseas
% pa
UK
% pa
Overseas
% pa
UK
% pa
Overseas
% pa
3.1
2.1
2.0
n/a
3.1
n/a
1.4
0.7
n/a
0.6
2019
Years
21.8
24.8
23.4
26.6
3.3
2.3
2.7
n/a
3.3
n/a
1.4
1.5
1.8
0.6
2018
Years
21.3
24.3
23.0
26.2
3.3
2.3
2.4
n/a
3.3
n/a
1.3
1.3
1.4
0.5
2017
Years
20.9
23.6
22.6
25.5
The mortality assumptions used for the UK Funds above reflect its scheme specific experience, together with an allowance for improvements over time. The experience
was reviewed as part of the formal triennial actuarial valuation carried out as at 31 March 2018, and the assumptions used as at 31 December 2019 reflect the results
of this review.
The table below illustrates how the UK Funds’ net pension surplus would decrease
(excluding the impact of inflation rate and interest rate hedging), as at 31 December
2019, in the event of the following reasonable changes in the key assumptions above.
The table below shows how the net pension deficit for IMI’s non-UK plans
would increase, in the event of the following reasonable changes in the key
assumptions above.
UK
Non-UK
Discount rate 0.1% pa lower
Inflation-linked pension increases 0.1% pa higher*
Increase of one year in life expectancy from age 65
10% fall in non-bond-like assets **
£11.0m
£9.0m
£21.0m
£44.4m
Discount rate 0.1% pa lower
Salary increases 0.1% higher
Increase of one year in life expectancy at age 65
In each case all other assumptions are unchanged.
£2.7m
£0.4m
£4.0m
* This is an in-payment pension increase sensitivity.
** Fund assets excluding cash, bonds, insurance policies and the Funds’
interest in the IMI Scottish Limited Partnerships.
148 IMI plc Annual Report & Accounts 2019
Income statement
In accordance with IAS 19, pension costs recorded through the income statement primarily represent the increase in the DBO based on employee service during the
year and the interest on the net liability or surplus for DBOs in respect of employee service in previous years. The table below shows the total cost reported in the income
statement in respect of pension obligations and therefore also includes the cost of the defined contribution schemes.
Current service cost
Past service cost/(credit)
Settlement/curtailment gain
Recognition of (losses)/gains
Pension (income)/expense - operating costs
Interest on DBO
Interest on assets
Interest (income)/expense - financing costs
2019
2018
Overseas
post
employment
£m
Overseas
non-post
employment
£m
UK
£m
-
-
-
-
-
11.8
(12.7)
(0.9)
4.1
(7.5)
(1.4)
-
(4.8)
1.7
(0.5)
1.2
1.4
-
-
(0.5)
0.9
0.2
0.2
Total
£m
5.5
(7.5)
(1.4)
(0.5)
(3.9)
13.7
(13.2)
0.5
UK
£m
-
0.4
(4.2)
-
(3.8)
20.4
(20.5)
(0.1)
Overseas
post
employment
£m
Overseas
non-post
employment
£m
4.3
(1.0)
(2.0)
-
1.3
1.9
(0.6)
1.3
0.8
-
-
0.8
1.6
0.2
-
0.2
Total
£m
5.1
(0.6)
(6.2)
0.8
(0.9)
22.5
(21.1)
1.4
149
14. Retirement benefits (continued)
Overall reconciliation of changes in the net surplus/(liability) for DBOs
2019
2018
DBO
£m
(596.8)
Assets
£m
544.7
Asset
ceiling
£m
Net DB
asset/
(liability)
£m
DBO
£m
Assets
£m
Asset
ceiling
£m
Net DB
asset/
(liability)
£m
(0.2)
(52.3)
(1,079.8)
1,002.1
(0.2)
(77.9)
(5.5)
7.5
0.8
2.1
(13.7)
0.5
(8.3)
(5.3)
(69.5)
3.1
-
-
(71.7)
-
(2.1)
4.4
14.4
16.7
5.2
5.2
(654.9)
(1.5)
13.2
11.7
-
-
-
71.4
-
71.4
9.4
2.1
-
(14.4)
(2.9)
(1.3)
(1.3)
623.6
(5.5)
7.5
0.8
0.6
(0.5)
0.5
3.4
(5.1)
0.6
-
436.9
(22.5)
(0.8)
409.1
-
-
-
(430.7)
21.1
-
(409.6)
(5.3)
2.2
(69.5)
44.1
-
-
3.1
71.4
0.2
(7.5)
-
-
-
(27.1)
-
(0.1)
38.8
(27.1)
9.4
-
4.4
-
13.8
-
(2.1)
4.1
38.4
40.4
12.4
2.1
-
(38.4)
(23.9)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5.1)
0.6
-
6.2
(1.4)
(0.8)
(0.5)
2.2
44.1
(7.5)
(27.1)
-
11.7
12.4
-
4.1
-
16.5
3.9
3.9
(31.3)
(5.3)
(5.3)
(596.8)
3.2
3.2
544.7
-
-
(0.2)
(2.1)
(2.1)
(52.3)
-
-
-
-
-
0.2
0.2
-
-
-
-
-
-
-
Brought forward at start of year
Income statement (charges)/credits
Current service cost
Past service cost - plan amendments
Past service cost - curtailment
Settlement
Net interest (cost)/income on net DB (liability)/asset
Immediate recognition of gains/(losses) -
Other long-term benefits
Total charged to income statement
Remeasurements recognised in other
comprehensive income
Actuarial gain due to actuarial experience
Actuarial (loss)/gain due to financial
assumption changes
Actuarial gain/(loss) due to demographic
assumption changes
Return on plan* assets less than discount rate
Change in effect of asset ceiling
Total remeasurements recognised in other
comprehensive income
Cash flows in the year
Employer contributions
Employee contributions
Benefits and settlements paid directly by the company
Benefits paid from plan assets
Net cash inflow/outflow
Other movements
Changes in exchange rates
Total other movements
Carried forward at end of year
* Net of management costs.
150 IMI plc Annual Report & Accounts 2019
15. Inventories
Accounting policy
Inventories are valued at the lower of cost and net realisable value. Due to the varying nature of the Group’s operations, both first in, first out and weighted
average methodologies are employed. In respect of work in progress and finished goods, cost includes all direct costs of production and the appropriate
proportion of production overheads.
Key estimate
The Group sells a wide range of highly technical products and whilst they are designed and engineered to a high degree of precision and to customer specifications,
there is a risk of products requiring modification, which can lead to excess or obsolete inventory.
Management makes estimates based on:
- historical sales trends and management’s view of future sales forecasts; and
- forecast costs to complete
The degree of dependence on future events makes the estimate inherently subjective. The amount of the inventory provision
recognised is disclosed below.
Inventories
Raw materials and consumables
Work in progress
Finished goods
Inventories are stated after:
Allowance for impairment
2019
£m
95.6
111.2
74.0
280.8
2018
£m
101.6
104.6
66.3
272.5
35.4
33.3
In 2019, the cost of inventories recognised as an expense (being segmental cost of sales) amounted to £1,058.8m (2018: £1,089.4m). The Group's inventory increased
by £7m following the acquisition of PBM and there were trading movements of £15m partly offset by foreign exchange of £14m.
In 2019, the write-down of inventories to net realisable value amounted to £11.9m (2018: £6.9m). The reversal of write-downs amounted to £2.3m (2018: £3.5m).
Write-downs and reversals in both years relate to on-going assessments of inventory obsolescence, excess inventory holding and inventory resale values across all
of the Group’s businesses.
151
16. Trade and other receivables
Accounting policy
The recoverable amount of the Group’s receivables other than financial assets held at fair value is calculated as the present value of expected future cash flows,
discounted at the original effective interest rate inherent in the asset. Receivables with a short duration of less than one year are not discounted.
Key estimate
The Group sells a wide range of highly technical products and whilst they are designed and engineered to a high degree of precision and to customer specifications,
there is a risk of products requiring modification, which can lead to collection risk regarding receivables. Management makes estimates based on the identification
of customers and territories for which there is a current heightened collection risk or where historical issues have arisen.
The degree of dependence on future events makes the estimate inherently subjective.
Trade and other receivables
Exposure to credit risk in respect of trade receivables
Current
Trade receivables
Other receivables
Prepayments and accrued income
Receivables are stated after:
Allowance for impairment
2019
£m
2018
£m
325.5
44.6
19.6
389.7
370.2
58.1
22.0
450.3
13.7
13.2
UK
Germany
Rest of Europe
USA
Asia Pacific
Rest of World
Carrying amount
2019
£m
14.7
20.8
85.5
62.6
78.5
63.4
325.5
2018
£m
16.2
26.1
109.5
66.0
84.9
67.5
370.2
The Group's trade and other receivables decreased by £61m during the year
due to foreign exchange movements of £20m and trading movements of £45m
partially offset by £4m for the acquisition of PBM.
The maximum exposure to credit risk for trade receivables at the reporting
date by segment was as follows:
Carrying amount
2019
£m
118.9
165.1
41.5
325.5
2018
£m
135.8
188.5
45.9
370.2
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty
to a financial instrument fails to meet its contractual obligations, and arises
principally from the Group’s receivables from customers, cash and cash
equivalents held by the Group’s banks and other financial assets. At the
end of 2019 these totalled £421.5m (2018: £503.4m).
IMI Precision
IMI Critical
IMI Hydronic
Managing credit risk arising from customers
The Group’s exposure to credit risk is influenced mainly by the individual
characteristics of each customer. The demographics of the Group’s customer base,
including the default risk of the industry and country in which customers operate,
have less of an influence on credit risk. Our largest single customer accounted
for 2% of our 2019 revenues (2018: 2%).
Geographically there is no unusual concentration of credit risk. The Group’s
contract approval procedure ensures that large contracts are signed off at
executive director level at which time the risk profile of the contract, including
potential credit and foreign exchange risks, is reviewed. Credit risk is minimised
through due diligence on potential customers, appropriate credit limits,
cash flow management and the use of documentary credits where appropriate.
152 IMI plc Annual Report & Accounts 2019
Impairment provisions for trade receivables
Exposure to credit risk in respect of financial assets
The ageing of trade receivables at the reporting date was:
The maximum exposure to credit risk for financial assets is represented by their
carrying value and is analysed below:
2019
2018
Gross
£m
Impairment
£m
Gross
£m
Impairment
£m
265.0
30.4
16.9
26.9
339.2
(0.1)
(0.5)
(0.8)
(12.3)
(13.7)
299.9
36.0
22.7
24.8
383.4
(0.1)
(0.5)
(0.9)
(11.7)
(13.2)
Not past due
Past due 1-30 days
Past due 31-90 days
Past due over 90 days
Total
The net movement in the allowance for impairment in respect of trade receivables
during the year was as follows:
Cash and cash equivalents
Investments
Carrying amount
2019
£m
88.2
3.6
91.8
2018
£m
132.2
3.7
135.9
Net balance at 1 January
Acquisitions
Utilised during the year
Charged to the income statement
Released
Exchange
Net balance at 31 December
2019
£m
13.2
-
(1.8)
3.6
(0.8)
(0.5)
13.7
2018
£m
12.5
0.1
(1.7)
2.6
(0.3)
-
13.2
The net impairment charge recognised of £2.8m (2018: charge of £2.3m)
relates to the movement in the Group's assessment of the risk of non-recovery
from a range of customers across all of its businesses.
Managing credit risk arising from counterparties
A group of relationship banks provides the bulk of the banking services, with
pre-approved credit limits set for each institution. Financial derivatives are
entered into with these core banks and the credit exposure to these instruments
is included when considering the credit exposure to the counterparties. At the end
of 2019 credit exposure including cash deposited did not exceed £13.8m with any
single institution (2018: £18.9m).
153
17. Financial assets and liabilities
Financial instruments included in the financial statements are measured at either fair value or amortised cost. The measurement of this fair value can in some
cases be subjective, and can depend on the inputs used in the calculations. The Group generally calculates its own fair values using comparable observed market
prices and a valuation model using the respective and relevant market data for the instrument being valued.
The table below sets out the Group's accounting classification of each class of financial assets and liabilities, and their fair values at 31 December 2019 and
31 December 2018. Under IFRS 9, all derivative financial instruments not in a hedge relationship are classified as derivatives at fair value through the income
statement. The Group does not use derivatives for speculative purposes and transacts all derivatives with suitable investment grade counterparties.
All transactions in derivative financial instruments are undertaken to manage the risks arising from the Group’s business activities.
2019
Cash and cash equivalents
Bank overdrafts
Borrowings due within one year
Borrowings due after one year
Lease liabilities
Trade and other payables **
Trade receivables
Investments
Other current financial assets/(liabilities)
Derivative assets ***
Derivative liabilities ****
Total
2018
Cash and cash equivalents
Bank overdrafts
Borrowings due within one year
Borrowings due after one year
Trade and other payables **
Trade receivables
Investments
Other current financial assets/(liabilities)
Derivative assets ***
Derivative liabilities ****
Total
Fair value
Other
derivatives
at fair value
£m
Designated
at fair value
£m
Financial
assets at
fair value*
£m
At
amortised
cost
£m
Total
carrying
value
£m
Fair value
if different
£m
2.1
2.1
4.1
(1.9)
2.2
88.2
2.6
(60.1)
(17.6)
(357.9)
(90.4)
(368.6)
325.5
1.0
90.8
(568.1)
132.2
2.9
(82.6)
(78.8)
(375.3)
(396.4)
370.2
0.8
(0.5)
(0.5)
1.0
(3.6)
(2.6)
135.1
(562.1)
(377.3)
(79.8)
(379.9)
88.2
(60.1)
(17.6)
(357.9)
(90.4)
(368.6)
325.5
3.6
6.2
(1.9)
(473.0)
132.2
(82.6)
(78.8)
(375.3)
(396.4)
370.2
3.7
1.0
(4.1)
(430.1)
* This classification includes items for which the movement in fair value will be recognised in both profit and loss and other comprehensive income.
** Trade and other payables exclude corporation tax and other tax liabilities and include liabilities of £9.2m (2018: £5.5m) falling due after more than one year.
*** Includes £0.2m (2018: nil) falling due after more than one year.
**** Derivative liabilities include liabilities of £0.2m (2018: £0.4m) falling due after more than one year: £0.2m in 1-2 years and nil in 2-3 years (2018: £0.4m in 1-2
years and nil in 2-3 years). Derivative liabilities designated at fair value represent the fair value of net investment hedge derivatives. The increase in value of net
investment hedge derivatives in the year of £2.6m is shown in the consolidated statement of comprehensive income (net of tax).
There are no other financial liabilities included within payables disclosed above and leased liabilities are disclosed in Note 13.
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
154 IMI plc Annual Report & Accounts 2019
The following table shows the Group’s financial instruments held at fair value.
As at 31 December 2019
Financial assets measured at fair value
Equity instruments*
Cash and cash equivalents
Foreign currency forward contracts
Financial liabilities measured at fair value
Foreign currency forward contracts
As at 31 December 2018
Financial assets measured at fair value
Equity instruments*
Cash and cash equivalents
Foreign currency forward contracts
Financial liabilities measured at fair value
Foreign currency forward contracts
Quoted prices in
active markets
for identical
assets and
liabilities
Level 1
£m
Significant
other
observable Unobservable
inputs
Level 3
£m
inputs
Level 2
£m
3.6
88.2
91.8
-
2.9
132.2
135.1
-
6.2
6.2
(1.9)
(1.9)
1.0
1.0
(4.0)
(4.0)
-
-
-
-
-
-
Total
£m
3.6
88.2
6.2
98.0
(1.9)
(1.9)
2.9
132.2
1.0
136.1
(4.0)
(4.0)
* Equity instruments primarily relate to investments in funds in order to satisfy long-term benefit arrangements.
Valuation techniques for level 2 inputs
Derivative assets and liabilities of £6.2m and £1.9m respectively are valued by level 2 techniques. The valuations are derived from discounted contractual cash flows
using observable, and directly relevant, market interest rates and foreign exchange rates from market data providers.
Valuation techniques for level 3 inputs
At 31 December 2019, the Group held one external investment at fair value using significant unobservable (level 3) inputs. The valuation is derived using the cash
flows of the investment which indicate a fair value of nil.
Valuation methodology
Cash and cash equivalents, bank overdrafts, trade payables and trade receivables are carried at their book values as this approximates to their fair value due to the
short-term nature of the instruments.
Long-term and short-term borrowings, apart from any which are subject to hedging arrangements, are carried at amortised cost as it is the intention that they will not
be repaid prior to maturity, where this option exists. The fair values are evaluated by the Group based on parameters such as interest rates and relevant credit spreads.
Long-term borrowings which are subject to hedging arrangements are valued using appropriate discount rates to value the relevant hedged cash flows.
Derivative assets and liabilities, including foreign exchange forward contracts, interest rate swaps and metal hedges, are valued using comparable observed market
prices and a valuation model using foreign exchange spot and forward rates, interest rate curves and forward rate curves for the underlying commodities.
155
18. Financial risk management
Management of transactional risk
The Group’s wide geographical spread both in terms of cost base and customer
locations helps to reduce the impact on profitability of swings in exchange
rates as well as creating opportunities for central netting of exposures. It is the
Group’s policy to minimise risk to exchange rate movements affecting sales and
purchases by economically hedging or netting currency exposures at the time of
commitment, or when there is a high probability of future commitment, using
currency instruments (primarily forward exchange contracts). A proportion of
forecast exposures are hedged depending on the level of confidence and hedging
is periodically adjusted following regular reviews. On this basis over 50% of the
Group’s annual exposures to transactional risk are likely to be hedged at any
point in time and the Group’s net transactional exposure to different currencies
varies from time to time.
Management of profit translation risk
The Group is exposed to the translation of profits denominated in foreign
currencies into the sterling-based income statement. The interest cost related
to the currency liabilities hedging the asset base provides a partial hedge to this
exposure. Short-term currency option contracts may be used to provide limited
protection against sterling strength on an opportunistic basis. The translation
of US dollar and euro-based profits represent the most significant translation
exposures for the Group.
Management of asset translation risk
The Group hedges its net investments in its major overseas operations by way
of external currency loans and forward currency contracts. The intention is to
manage the Group's exposure to gains and losses in Group equity resulting
from retranslation of currency net assets at balance sheet dates.
To the extent that an instrument used to hedge a net investment in a foreign
operation is determined to be an effective hedge, the gain or loss arising is
recognised directly in the translation reserves. Any ineffective portion is
recognised immediately in the income statement.
Overview
The Group’s activities expose it to a variety of financial risks: interest rate, foreign
exchange and base metal price movements in addition to funding and liquidity
risks. The financial instruments used to manage these risks themselves introduce
exposure to market risk and liquidity risk.
The Board has overall responsibility for the establishment and oversight of the
Group’s risk management framework. As described in the Corporate Governance
Report on page 66 the Executive Committee monitors risk and internal controls
and the Audit Committee monitors financial risk, while the other Board
committees also play a part in contributing to the oversight of risk.
The Audit Committee oversees how management monitors compliance with
the Group’s financial risk management policies and procedures and reviews the
adequacy of the risk management framework in relation to the financial risks
faced by the Group. The Group Assurance department undertakes both regular
and ad-hoc reviews of risk management controls and procedures, the results of
which are reported to the Audit Committee.
The following sections discuss the management of specific financial risk factors in
detail, including market risk, foreign exchange risk, interest rate risk, commodity
risk and liquidity risk. The management of credit risk is disclosed in Note 16.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange
rates, interest rates and commodity prices will affect the Group’s income and
cash flows or the value of its financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable
parameters.
Under the management of the central Treasury function, the Group enters into
derivatives in the ordinary course of business and also manages financial liabilities
in order to mitigate market risks. All such transactions are carried out within
the guidelines set by the Board and are undertaken only if they relate to
underlying exposures.
Foreign exchange risk
The Group publishes consolidated accounts in sterling but conducts much of its
global business in other currencies. As a result it is subject to the risks associated
with foreign exchange movements affecting transaction costs (‘transactional
risk’), translation of foreign profits (‘profit translation risk’) and translation of
the underlying net assets of foreign operations (‘asset translation risk’).
156 IMI plc Annual Report & Accounts 2019
Currency profile of assets and liabilities
Sterling
US dollar
Euro
Other
Total
Lease
Liabilities
2019
£m
Exchange
contracts
2019
£m
Assets
subject
to interest
rate risk
2019
£m
Other
net assets
2019**
£m
Total
net assets
2019
£m
Total
net assets
2018
£m
(15)
(16)
(35)
(24)
(90)
340
-
(161)
(179)
-
321
(195)
(381)
(183)
(438)
56
397
477
218
1,148
377
202
96
35
710
515
59
86
6
666
Cash*
2019
£m
(4)
1
11
20
28
Debt
2019
£m
-
(180)
(196)
-
(376)
* Cash is stated net of overdrafts.
** Other net assets includes leased assets; £14m sterling, £16m US dollar, £35m Euro and £25m other.
Exchange contracts and non-sterling debt are financial instruments used as currency hedges of overseas net assets.
Interest rate risk
The Group is exposed to a number of global interest rates through assets and liabilities denominated in jurisdictions to which these rates are applied, most notably US,
Eurozone and UK rates. The Group is exposed to these because market movements in these rates will increase or decrease the interest charge recognised in the Group
income statement.
Management of interest rate risk
The Group adopts a policy of maintaining a portion of its liabilities at fixed interest rates and reviewing the balance of the floating rate exposure to ensure that if
interest rates rise globally the effect on the Group’s income statement is manageable.
Interest rates are managed using fixed and floating rate debt and financial instruments including interest rate swaps. Floating rate liabilities comprise short-term debt
which bears interest at short-term bank rates and the liability side of exchange contracts where the interest element is based primarily on three month inter-bank rates.
All cash surpluses are invested for short periods and are treated as floating rate investments.
Non-interest bearing financial assets and liabilities including short-term trade receivables and payables have been excluded from the following analysis.
157
18. Financial risk management (continued)
Interest rate risk profile
The following table shows how much of our cash, interest-bearing liabilities and exchange contracts attract both fixed and floating rate interest charges,
and how this is analysed between currencies:
Sterling
US dollar
Euro
Other
Total
Debt and
exchange
contracts*
2019
£m
Cash and
exchange
contracts
2019
£m
(15)
(196)
(392)
(202)
(805)
335
1
11
20
367
* Net of IFRS 16; £15m sterling, £16m US dollar, £35m Euro and £24m other.
Sterling
US dollar
Euro
Other
Total
Debt and
exchange
contracts
2018
£m
Cash and
exchange
contracts
2018
£m
-
(259)
(423)
(258)
(940)
526
-
(11)
20
535
Assets
subject
to interest
rate risk*
2019
£m
320
(195)
(381)
(182)
(438)
Assets
subject
to interest
rate risk
2018
£m
526
(259)
(434)
(238)
(405)
Floating
rate
2019
£m
335
(16)
(150)
(158)
11
Floating
rate
2018
£m
526
(12)
(226)
(238)
50
Weighted
average
fixed
interest rate
%
Weighted
average
period
for which
rate is fixed
years
4.1
1.4
6.4
6.3
Weighted
average
fixed
interest rate
%
Weighted
average
period
for which
rate is fixed
years
5.2
1.4
5.2
7.3
Fixed
rate
2019
£m
(15)
(179)
(231)
(24)
(449)
Fixed
rate
2018
£m
-
(248)
(207)
-
(455)
Market risk sensitivity analysis on financial instruments
In estimating the sensitivity of the financial instruments all other variables are held constant to determine the impact on profit before tax and equity. The analysis is for
illustrative purposes only, as in practice market rates rarely change in isolation.
The values shown in the table below are estimates of the impact on financial instruments only. Actual results in the future may differ materially from these estimates.
As such this table should not be considered as a projection of likely future gains and losses in these financial instruments.
Financial derivatives sensitivity table
The outputs from the sensitivity analysis are estimates of the impact of market risk assuming that the specified changes occur only to the financial derivatives
and do not reflect the opposite movement from the impact of the specific change on the underlying business that they are designed to hedge.
1%
decrease
in interest
rates
£m
1%
increase
in interest
rates
£m
10%
10%
weakening strengthening
in sterling
in sterling
£m
£m
10%
decrease in
base metal
costs
£m
10%
increase in
base metal
costs
£m
-
-
-
-
-
-
-
-
(5.4)
(67.8)
(7.1)
(92.5)
5.4
67.8
7.1
92.5
(0.4)
-
(0.4)
-
0.4
-
0.4
-
At 31 December 2019
Impact on income statement: (loss)/gain
Impact on equity: (loss)/gain
At 31 December 2018
Impact on income statement: (loss)/gain
Impact on equity: (loss)/gain
158 IMI plc Annual Report & Accounts 2019
Commodity risk
Capital base
The Group’s operating companies purchase metal and metal components and
are therefore exposed to changes in commodity prices.
The Group manages this exposure through a centralised process hedging copper,
zinc and aluminium using a combination of financial contracts and local supply
agreements designed to minimise the volatility of short-term margins.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial
obligations as they fall due.
Management of liquidity risk
The Group’s approach to managing liquidity is to ensure, as far as possible, that
it will always have adequate resources to meet its liabilities when they fall due,
with sufficient headroom to cope with abnormal market conditions. This position
is reviewed on a quarterly basis.
Funding for the Group is co-ordinated centrally by the treasury function and
comprises committed bilateral facilities with a core group of banks, and a series
of US loan note issues. The level of facilities is maintained such that facilities and
term loans exceed the forecast peak gross debt of the Group over a rolling 12
month view by an appropriate amount taking into account market conditions
and corporate activity, including acquisitions, organic growth plans and share
buybacks. In addition, we undertake regular covenant compliance reviews to
ensure that we remain fully within those covenant limits. At the end of 2019
the Group had undrawn committed facilities totalling £283m (2018: £300m)
and was holding cash and cash equivalents of £88m (2018: £132m). There are
no significant seasonal funding requirements or capital intensive investment
areas for the Group.
Capital management
Overview
Capital management concerns the decision as to how the Group’s activities are
financed and specifically, how much of the Group capital is provided by borrowings
(or debt) and how much of it is financed with equity raised from the issue of
share capital.
The Board’s policy is to maintain a balance sheet with a broad capital base and the
strength to sustain the future development of the business including acquisitions.
The capital base of the Group includes total equity and reserves and net debt.
Employee benefit obligations net of deferred tax form part of the extended
capital base. Management of this element of the capital base is discussed further
in Note 14 of the financial statements. Undrawn committed funding facilities
are maintained as described in Note 19 to provide additional capital for growth
(including acquisitions and organic investments) and liquidity requirements as
discussed above.
Total equity
Gross debt including overdrafts
Gross cash
Capital base
Employee benefits and deferred tax assets
Extended capital base
Undrawn funding facilities
Available capital base
2019
£m
710
526
(88)
1,148
70
1,218
283
1,501
2018
£m
666
537
(132)
1,071
45
1,116
300
1,416
Part of the capital base is held in currencies to broadly match the currency base
of the assets being funded as described in the asset translation risk section.
Debt or equity
The balance between debt and equity in the capital base of the Group is
considered regularly by the Board in light of market conditions, business forecasts,
growth opportunities and the ratio of net debt to continuing adjusted EBITDA.
Funding covenants currently limit net debt to a maximum of 3.0 times EBITDA.
The net debt to EBITDA ratio at the end of 2019 was 1.2 times (2018: 1.3 times).
Through the life of our five year plan, the Board would consider appropriate
acquisitions that could take net debt up to 2.5 times EBITDA on acquisition,
provided that a clear plan exists to reduce this ratio back to under 2.0 times.
It is expected that at these levels our debt would continue to be perceived as
investment grade. The potential benefits to equity shareholders of greater
leverage are offset by higher risk and the cost and availability of funding.
The Board will consider raising additional equity in the event that it is
required to support the capital base of the Group.
Weighted average cost of capital
The Group currently uses a post-tax weighted average cost of capital (‘WACC’)
of 7% (2018: 7%) as a benchmark for investment returns. This is reviewed
regularly in the light of changes in market rates. The Board tracks the Group’s
return on invested capital and seeks to ensure that it consistently delivers returns
in excess of the WACC.
159
19. Net debt
Net debt is the Group’s key measure used to evaluate total outstanding debt, net of the current cash resources. Some of the Group’s borrowings (and cash) are held in
foreign currencies. Movements in foreign exchange rates affect the sterling value of the net debt. Cash and cash equivalents comprise cash balances and call deposits.
Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents
for the purpose of the statement of cash flows.
Movement in net debt
Adjusted EBITDA* from continuing operations
Working capital movements
Capital and development expenditure
Provisions and employee benefit movements**
Principal elements of lease payments
Other
Adjusted operating cash flow ***
Adjusting items****
Operating cash flow
Interest
Derivatives
Tax paid
Cash generation
Additional pension scheme funding
Free cash flow before corporate activity
Dividends paid to equity shareholders
Acquisition of subsidiaries
Net purchase of own shares
Net cash flow (excluding debt movements)
2019
£m
357.3
12.9
(65.8)
6.5
(31.3)
19.2
298.8
(26.2)
272.6
(14.9)
16.1
(40.2)
233.6
(7.0)
226.6
(110.8)
(69.0)
(3.4)
43.4
2018
£m
320.1
(50.3)
(58.4)
2.3
-
7.8
221.5
(8.9)
212.6
(12.9)
(18.4)
(41.1)
140.2
(10.1)
130.1
(107.9)
(122.6)
(5.3)
(105.7)
* Adjusted profit after tax (£198.1m) before interest (£15.4m), tax (£52.6m), depreciation (£76.2m) and amortisation (£15.0m).
** Movement in provisions and employee benefits as per the statement of cash flows (£29.2m) adjusted for the movement in the restructuring and discontinued
operation provisions (£22.7m).
*** Adjusted operating cash flow is the cash generated from the operations shown in the statement of cash flows less cash spent acquiring property, plant and
equipment, non-acquired intangible assets and investments; plus cash received from the sale of property, plant and equipment and the sale of investments,
excluding the cash impact of adjusting items. This measure best reflects the operating cash flows of the Group.
**** Cash impact of adjusting items.
Reconciliation of net cash to movement in net borrowings
Net decrease in cash and cash equivalents excluding foreign exchange
Net repayment/(drawdown) of borrowings excluding foreign exchange and net debt disposed/acquired
Decrease/(increase) in net debt before acquisitions, disposals and foreign exchange
Net cash/(debt) acquired
Currency translation differences
Movement in lease creditors
Movement in net borrowings in the year
Net borrowings at the start of the year
Net borrowings at the end of the year
2019
£m
(19.5)
62.9
43.4
1.0
12.7
(90.4)
(33.3)
(404.5)
(437.8)
2018
£m
(19.7)
(86.0)
(105.7)
(15.0)
(18.6)
-
(139.3)
(265.2)
(404.5)
160 IMI plc Annual Report & Accounts 2019
Reconciliation of cash and cash equivalents
Cash and cash equivalents in current assets
Bank overdraft in current liabilities
Cash and cash equivalents
Analysis of net debt
At 1 January 2019
Opening lease liabilities per IFRS 16
Lease additions, extensions, terminations and payment changes
Lease payments and interest
Cash flow excluding settlement of currency derivatives hedging balance sheet
and net cash disposed of/acquired
Cash acquired
Settlement of currency derivatives hedging balance sheet
Currency translation differences
At 31 December 2019
Cash and cash
equivalents
£m
49.6
-
-
-
(40.1)
1.0
19.6
(2.0)
28.1
Cash and cash
equivalents
£m
2019
£m
88.2
(60.1)
28.1
2018
£m
132.2
(82.6)
49.6
Borrowings and
finance leases due
within
after more
one year than one year
£m
£m
(78.8)
-
-
-
58.6
-
-
2.6
(17.6)
(375.3)
-
-
-
5.3
-
-
12.1
(357.9)
Borrowings and
finance leases due
within
after more
one year than one year
£m
£m
Lease
Creditors
£m
-
(100.4)
(20.6)
31.3
-
-
-
(0.7)
(90.4)
Total
net debt
£m
(404.5)
(100.4)
(20.6)
31.3
23.8
1.0
19.6
12.0
(437.8)
Total
net debt
£m
(265.2)
(88.6)
(15.0)
(17.1)
(18.6)
(404.5)
At 1 January 2018
Cash flow excluding settlement of currency derivatives hedging balance sheet
and net cash disposed of/acquired
Net debt acquired
Settlement of currency derivatives hedging balance sheet
Currency translation differences
At 31 December 2018
67.6
(113.8)
(219.0)
(3.4)
0.8
(17.1)
1.7
49.6
36.6
-
-
(1.6)
(78.8)
(121.8)
(15.8)
-
(18.7)
(375.3)
Undrawn committed facilities
The Group has various undrawn committed borrowing facilities. The facilities available at 31 December in respect of which all conditions precedent had been
met were as follows:
Expiring within one year
Expiring between one and two years
Expiring after more than two years
The weighted average life of these facilities is 1.6 years (2018: 1.8 years).
2019
£m
75.0
57.6
150.0
282.6
2018
£m
50.0
125.0
125.0
300.0
161
19. Net debt (continued)
Terms and debt repayment schedule
The terms and conditions of cash and cash equivalents and outstanding loans were as follows:
2019
Cash and cash equivalents
Revolving bank facilities
US loan notes 2022
US loan notes 2025
US loan notes 2026
US loan notes 2027
US loan notes 2028
Bank overdrafts
Lease liabilities floating
Total
2018
Cash and cash equivalents
US loan notes 2019
US loan notes 2022
US loan notes 2025
US loan notes 2026
US loan notes 2027
US loan notes 2028
Finance leases
Bank overdrafts
Total
Effective
interest rate
%
Carrying Contractual
cash flows
£m
value
£m
0 to
<1 year
£m
1 to
<2 years
£m
2 to
<3 years
£m
3 to
<4 years
£m
4 to
<5 years
£m
5 years
and over
£m
Floating
Floating
7.17%
1.39%
3.86%
3.92%
1.53%
Floating
Various
Floating
7.61%
7.17%
1.39%
3.86%
3.92%
1.53%
Various
Floating
88.2
(17.6)
(11.4)
(127.1)
(94.7)
(56.8)
(67.9)
(60.1)
(90.4)
(437.8)
132.2
(78.6)
(11.7)
(135.1)
(97.7)
(58.6)
(72.1)
(0.3)
(82.6)
(404.5)
88.2
(17.6)
(13.8)
(136.7)
(118.1)
(73.0)
(76.2)
(60.1)
(90.4)
(497.7)
132.2
(84.1)
(15.1)
(147.3)
(125.9)
(78.1)
(82.5)
(0.4)
(82.6)
(483.8)
88.2
(17.6)
(0.8)
(1.8)
(3.7)
(2.2)
(1.0)
(60.1)
(35.3)
(34.3)
132.2
(84.1)
(0.8)
(1.9)
(3.8)
(2.3)
(1.1)
(0.2)
(82.6)
(44.6)
(0.8)
(1.8)
(3.7)
(2.2)
(1.0)
(12.2)
(1.8)
(3.7)
(2.2)
(1.0)
(1.8)
(3.7)
(2.2)
(1.0)
(1.8)
(3.7)
(2.2)
(1.0)
(127.7)
(99.6)
(62.0)
(71.2)
(13.7)
(23.2)
(10.9)
(31.8)
(7.9)
(16.6)
(6.1)
(14.8)
(16.5)
(377.0)
(0.8)
(1.9)
(3.8)
(2.3)
(1.1)
(0.2)
(0.8)
(1.9)
(3.8)
(2.3)
(1.1)
(12.6)
(1.9)
(3.8)
(2.3)
(1.1)
(1.9)
(3.8)
(2.3)
(1.1)
(138.0)
(107.1)
(66.6)
(77.0)
(10.1)
(9.9)
(21.7)
(9.1)
(388.7)
Contractual cash flows include undiscounted committed interest cash flows and, where the amount payable is not fixed, the amount disclosed is determined by
reference to the conditions existing at the reporting date.
Interest-bearing loans and borrowings
The Group borrows money from financial institutions in the form of bonds and other financial instruments. These generally have fixed interest rates and are for a fixed
term or are drawn from committed borrowing facilities that generally have floating interest rates. For more information about the Group’s exposure to interest rate and
foreign currency risk, see Note 18.
Current liabilities
Unsecured loan notes and other loans
Lease liabilities
Non-current liabilities
Unsecured loan notes and other loans
Lease liabilities
162 IMI plc Annual Report & Accounts 2019
2019
£m
17.6
25.6
43.2
357.9
64.8
422.7
2018
£m
78.6
0.2
78.8
375.2
0.1
375.3
20. Provisions
Accounting policy
A provision is recorded instead of a payable when uncertainty exists over the timing and amount of the cash outflow. Provisions are recognised when: the Group
has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and
the amount can be reliably estimated. Provisions are valued at management’s best estimate of the amount required to settle the present obligation at the
balance sheet date.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced
or has been announced publicly.
The recognition of a provision requires estimation. The principal estimates made in respect of the Group’s provisions concern the timing and amount of payments
required to:
- cover the costs of known restructuring projects;
- reimburse customers for potential product warranty claims;
- ensure that current and former manufacturing sites meet relevant environmental standards;
- reflect the estimated outcome of ongoing legal disputes; and
- provide against indemnities following the disposal of subsidiaries.
Analysis of the Group’s provisions:
Current
Non-current
At 1 January 2019
Arising/(released) during the year
Utilised during the year
Exchange adjustment
At 31 December 2019
Current
Non-current
Restructuring
£m
Trade
warranties
£m
Environmental,
legal &
indemnity
£m
4.3
0.4
4.7
51.3
(25.6)
(1.0)
29.4
29.2
0.2
29.4
5.0
7.1
12.1
6.1
(1.5)
(0.3)
16.4
10.2
6.2
16.4
3.2
7.1
10.3
(3.3)
-
-
7.0
0.4
6.6
7.0
Total
£m
12.5
14.6
27.1
54.1
(27.1)
(1.3)
52.8
39.8
13.0
52.8
The Group sells a wide range of highly technical products and whilst they are designed and engineered to a high degree of precision and to customer specifications,
there is a risk of products requiring modification, which can lead to warranty claims. Trade warranties are given in the normal course of business and cover a range
of periods, typically one to two years, with the expected amounts falling due in less than and greater than one year separately analysed above.
Key estimate
Management makes estimates based on past experience of warranty claims and the associated costs of similar claims. Amounts set aside represent the directors'
best estimate regarding the amount of the settlements and the timing of resolution with customers. The degree of dependence on future events makes these
estimates inherently subjective.
The restructuring provision reflects residual amounts committed but not spent in relation to a number of specific projects.
Environmental and legal provisions recognise the Group's obligation to remediate contaminated land at a number of current and former sites, together with current
legal cases for which a settlement is considered probable. Because of the long-term nature of the liabilities, the timescales are uncertain and the provisions represent
the directors' best estimates of these costs.
Provisions for indemnities included in the agreed terms of disposals of subsidiaries are provided for based on the expected probability of indemnified losses that may
be suffered by the purchaser.
163
21. Trade and other payables
Current
Trade payables
Social security and other taxation
Other payables
Accruals and deferred income
Non-current
Other payables
2019
£m
2018
£m
182.3
28.9
6.2
142.0
359.4
9.2
368.6
198.4
28.4
8.2
155.9
390.9
5.5
396.4
The Group's trade and other payables decreased by £28m due to an increase of £3m following the acquisition of PBM more than offset by foreign exchange
movements of £14m and trading movements of £17m.
Included within accruals and deferred income are progress billings and advanced payments from customers of £62.6m (2018: £47.3m).
164 IMI plc Annual Report & Accounts 2019
22. Share capital
The movement in the number of ordinary shares of 28 4/7p each issued by IMI plc is as follows:
Number and value of shares
In issue at the start of the year
Issued to satisfy employee share schemes
In issue at the end of the year
All issued share capital at 31 December 2019 is fully paid and conveys the same rights.
Share movements in the year
Movements in shares due to share issues and purchases during the year were as follows:
In issue at 31 December 2018
New issues to satisfy employee share scheme awards
Market purchases
Shares allocated under employee share schemes
At 31 December 2019
2019
2018
Ordinary
Shares
28 4/7p per
share
Number (m)
286.3
0.1
286.4
Ordinary
Shares
28 4/7p per
share
Value (£m) Number (m) Value (£m)
81.8
-
81.8
286.2
0.1
286.3
81.8
-
81.8
Number of ordinary shares of 28 4/7p each (million)
Employee
Benefit Trust
Treasury
Other
1.4
-
0.5
(0.8)
1.1
14.3
-
-
-
14.3
270.6
0.1
(0.5)
0.8
271.0
Total
286.3
0.1
-
-
286.4
During the year 0.1m (2018: 0.1m) shares were issued under employee share schemes realising £0.8m (2018: £0.6m).
Employee Benefit Trust
The Employee Benefit Trust made market purchases of a total of 0.5m (2018: 0.6m) shares with an aggregate market value of £5.0m (2018: £7.0m) and a nominal
value of £0.1m (2018: £0.2m). Associated transaction costs amounted to £nil (2018: £nil).
Share options exercised in 2019 were settled using the shares in the Group's Employee Benefit Trust. In 2019, 0.8m (2018: 0.2m) shares were issued for cash
of £0.8m (2018: £1.0m).
Of the 15.4m (2018: 15.7m) shares held within retained earnings, 1.1m (2018: 1.4m) shares with an aggregate market value of £12.7m (2018: £10.4m) are held
in trust to satisfy employee share scheme vesting.
165
23. Acquisitions
Key estimate
In accounting for business combinations, the identifiable assets, liabilities
and contingent liabilities acquired have to be measured at their fair values.
In particular, an estimate has been made of the forecast future sales under
pre-existing commercial relationships which have been discounted at an
appropriate discount rate to value the commercial relationships and
brand intangibles.
On 20 September 2019 the Group acquired 100% of the share capital, and
associated voting rights, of PBM Inc. (PBM) for cash consideration of £69.0m.
PBM is a market leading manufacturer of ball valves and flow control solutions
based in North America.
This acquisition has been accounted for as a business combination. The provisional
fair value amounts recognised in respect of the identified assets acquired and
liabilities assumed are set out in the table below:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Total identified net assets at fair value
Goodwill arising on acquisition
Purchase consideration transferred
Fair value at
20 September 2019
£m
29.0
5.2
7.1
3.8
1.0
(2.9)
43.2
25.8
69.0
The goodwill recognised above includes certain intangible assets that cannot
be separately identified and measured due to their nature. This includes control
over the acquired business, the skills and experience of the assembled workforce,
the increase in scale, synergies and the future growth opportunities that the
businesses provide to the Group’s operations. The goodwill and all intangible
assets recognised are amortisable for tax purposes. Acquisition costs of £0.5m
were recognised in the income statement in 2019.
The adjusted revenue and adjusted operating profit included in the income
statement for 2019 contributed by PBM were £7.5m and £1.1m respectively.
If the acquisition had taken place on 1 January 2019 PBM would have
contributed revenue and operating profit of £26.1m and £4.1m respectively.
Acquisitions in 2018
In January 2018, the Group acquired 100% of the share capital, and associated
voting rights of Bimba Manufacturing Company (Bimba) and its subsidiaries
for cash consideration of £138.4m. Bimba is a market leading manufacturer
of pneumatic, hydraulic and electric motion solutions based in North America.
This acquisition has been accounted for as a business combination. The finalised
fair value amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are as set out in the table below.
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions
Total identifiable net assets
Goodwill arising on acquisition
Total purchase consideration
Fair value at
31 January 2018
£m
57.6
18.8
24.3
9.3
0.8
(10.1)
(1.4)
99.3
39.1
138.4
The goodwill recognised above includes certain intangible assets that cannot
be separately identified and measured due to their nature. This includes control
over the acquired business, the skills and experience of the assembled workforce,
the increase in scale, synergies and the future growth opportunities that the
businesses provide to the Group's operations. The goodwill and all intangible
assets recognised are amortisable for tax purposes.
166 IMI plc Annual Report & Accounts 2019
24. Disposals
27. Subsequent events
There were no disposals of subsidiaries during 2019 or 2018.
25. Contingent liabilities
A contingent liability is a liability that is not sufficiently certain to qualify for
recognition as a provision because significant subjectivity exists regarding
its outcome.
Group contingent liabilities relating to guarantees in the normal course of
business and other items amounted to £125m (2018: £132m).
Events that occur in the period between 31 December and the date of
approval of the Annual Report can be categorised as adjusting or non-adjusting
depending on whether the condition existed at 31 December. If the event is an
adjusting event, then an adjustment to the results is made. If a non-adjusting
event after the year end is material, non-disclosure could influence decisions
that readers of the financial statements make. Accordingly, for each material
non-adjusting event after the reporting period we disclose the nature of the
event and an estimate of its financial effect, or a statement that such an
estimate cannot be made.
There were no adjusting subsequent events after the balance sheet date of 31
December 2019.
26. Related party
transactions
28. Discontinued
operations
Related parties are solely the key management personnel. The Board is considered
to be the key management personnel of the Group.
Accounting policy
Short-term employee benefits *
Share-based payments **
Total
2019
£m
3.3
0.5
3.8
2018
£m
5.1
2.4
7.5
* Short-term employee benefits comprise salary, including employers' social
contributions, benefits earned during the year and bonuses awarded for
the year.
** For details of the share-based payment charge for key management personnel,
see Note 6.
There are no other related party transactions.
When the Group has assets and liabilities that have been sold in the year
or are likely to be sold rather than being held for continuing use, these
assets and liabilities are included in current assets and liabilities and
denoted ‘held for sale’ rather than in their usual categories.
If they represent a significant enough proportion of the Group, they are
also treated as discontinued operations. This means that their trading
performance, i.e. their revenues, costs and other items of income and expense,
are no longer reported within the headline figures in the income statement
and are instead reported in a separate line, net of tax, called ‘discontinued
operations’. These amounts no longer form part of continuing earnings per
share. Comparative figures are restated to be shown on the same basis.
This enables the income statement for the current and prior year to be
presented on a consistent basis and to convey a more forward-looking
version of the results for the year.
A gain of £2.8m, pre and post tax, was recognised in the current year relating
to the release of an indemnity provision for a historical discontinued operation.
There was no cash impact of this.
There was no profit or loss from discontinued operations in 2018.
167
Company balance sheet
at 31 December 2019
Fixed assets
Investments
Current assets
Debtors
Deferred tax assets
Cash at bank and in hand
Creditors: amounts falling due within one year
Other creditors
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account
Equity shareholders' funds
Approved by the Board of Directors on 27 February 2020 and signed on its behalf by:
Lord Smith of Kelvin
Chairman
Note
2019
£m
2018
£m
C5
173.2
173.2
C6
C7
C8
C9
398.8
2.7
2.9
404.4
(4.0)
400.4
573.6
573.6
81.8
14.1
174.4
303.3
573.6
418.1
2.2
0.3
420.6
(4.3)
416.3
589.5
589.5
81.8
13.3
174.4
320.0
589.5
168 IMI plc Annual Report & Accounts 2019
Company statement of changes in equity
for the year ended 31 December 2019
At 1 January 2018
Retained profit for the year
Dividends paid on ordinary shares
Shares issued in the year
Share-based payments
Shares acquired for:
employee share scheme trust
At 31 December 2018
Retained profit for the year
Dividends paid on ordinary shares*
Shares issued in the year
Share-based payments
Shares acquired for*:
employee share scheme trust
At 31 December 2019
Share
capital
£m
81.8
Share
premium
£m
Redemption
reserve
£m
Retained
earnings
£m
12.7
174.4
-
0.6
81.8
13.3
174.4
0.8
Parent
equity
£m
458.3
237.5
(107.9)
0.6
7.0
(6.0)
589.5
89.5
(110.8)
0.8
8.8
189.4
237.5
(107.9)
7.0
(6.0)
320.0
89.5
(110.8)
8.8
81.8
14.1
174.4
(4.2)
303.3
(4.2)
573.6
* Details of treasury and employee trust share scheme movements are contained in Note 22 of the Group financial statements and details of dividends paid and
proposed in the year are shown in Note C4.
All of the retained earnings held at both 31 December 2019 and 31 December 2018 are considered to be distributable reserves.
169
Company notes to the financial statements
C1. Significant accounting policies
The following accounting policies have been applied consistently in dealing with
items considered material in relation to the financial statements, except where
otherwise noted below:
Basis of accounting
The financial statements were prepared in accordance with Financial Reporting
Standard 101 ‘Reduced Disclosure Framework’ (‘FRS 101’).
The Company has not presented a separate profit and loss account as permitted
by Section 408 of the Companies Act 2006.
The Company has taken advantage of the following disclosure exemptions under
FRS 101:
a) the requirements of paragraphs 45 (b) and 46-52 of IFRS 2 ‘Share-based
Payment’;
b) the requirements of IFRS 7 ‘Financial Instruments’;
c) the requirements of paragraphs 91-99 of IFRS 13 ‘Fair Value Measurement’;
d) the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial
Statements’ to present comparative information in respect of paragraph 79(a)
(iv) of IAS 1;
e) the requirements of paragraphs 10(d), 10(f) and 134-136 of IAS 1;
f) the requirements of IAS 7 ‘Statement of Cash Flows’;
g) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies,
Changes in Accounting Estimates and Errors’;
h) the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’; and
i) the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related
party transactions entered into between two or more members of the Group,
provided that any subsidiary which is party to the transaction is wholly
owned by such a member. Related party transactions with the Company’s key
management personnel are disclosed in the Remuneration Report on pages 78
to 93 and in Note 26 on page 167 of the Group financial statements.
Judgements and key sources of estimation uncertainty
The preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the amounts reported for
assets and liabilities as at the balance sheet date and the amounts reported for
income and expenses during the year. However, the nature of estimation means
that actual outcomes could differ from those estimates.
Foreign currencies
The Company’s functional currency and presentation currency is sterling.
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies have been
translated into sterling at the rates of exchange ruling at the balance sheet date
and the gains or losses on translation are included in the profit and loss account.
Investments
Investments in subsidiaries are accounted for at cost less any provision for
impairment. The Company’s cost of investments in subsidiary undertakings is
stated at the aggregate of (a) the cash consideration and either (b) the nominal
value of the shares issued as consideration when Section 612 of the Companies
Act 2006 applies or (c) in all other cases the market value of the Company’s shares
on the date they were issued as consideration.
Taxation
The charge for taxation is based on the profit for the year and takes into account
taxation deferred because of temporary differences between the treatment of
certain items for taxation and accounting purposes.
Deferred tax is recognised in respect of all temporary differences between the
treatment of certain items for taxation and accounting purposes which have
arisen but not reversed by the balance sheet date, except as otherwise required by
IAS 12 ‘Income Taxes’. Deferred tax is measured at the tax rates that are expected
to apply when the temporary differences reverse, based on the tax laws that have
been enacted or substantively enacted by the balance sheet date. A deferred tax
asset is recognised to the extent that it is probable that future taxable profit will
be available against which the temporary difference can be utilised.
Equity and equity-related compensation benefits
The Company operates a number of equity and equity-related compensation
benefits as set out in Note 6 to the Group financial statements. The fair value
of the employee services received in exchange for the grant of the options is
recharged in full to the principal employing company and accordingly, there is
no net charge recorded in the Company’s financial statements. The recharged
amount is recognised as a debtor falling due for payment within one year.
The total amount recharged over the vesting period is determined by reference
to the fair value of the options granted, excluding the impact of any non-market
vesting conditions (for example, profitability and sales growth targets). Non-
market vesting conditions are included in assumptions about the number of
options that are expected to become exercisable. The fair value of the options
at the date of grant is determined based on the Monte Carlo and Black-Scholes
option-pricing model.
At each balance sheet date, the Company revises its estimate of the number
of options that are expected to vest. It recognises the impact of the revision of
original estimates, if any, in the amount recharged to subsidiary undertakings.
For newly issued shares, the proceeds received, net of any directly attributable
transaction costs are credited to share capital (nominal value) and share premium
when the options are exercised.
Treasury shares
The consideration paid by the Company on the acquisition of treasury shares
is charged directly to retained earnings in the year of purchase. Consideration
received for the sale of such shares is also recognised in equity, with any difference
between the proceeds from sale and the original cost taken to share premium.
If treasury shares are subsequently cancelled the nominal value of the cancelled
shares is transferred from share capital to the capital redemption reserve. No gain
or loss is recognised on the purchase, sale or cancellation of treasury shares.
Dividends
Dividends unpaid at the balance sheet date are only recognised as a liability
at that date to the extent that they are authorised and are no longer at the
discretion of the Company. Unpaid dividends that do not meet these criteria are
disclosed in the notes to the financial statements.
C2. Remuneration of directors
The detailed information concerning directors’ emoluments, shareholdings and
options are shown in the audited section of the Remuneration Report on pages 78
to 93, Note 5 and Note 22 of the Group financial statements.
C3. Staff numbers and costs
The number of people employed by the Company, including directors, during the
year was 19 (2018: 26) all of whom were employed in administrative roles. The
costs associated with them were borne by a subsidiary undertaking.
The Company participates in the IMI UK Funds, which are defined benefit schemes
in which the assets are held independently. The total net defined benefit costs of
these Funds are borne by a subsidiary undertaking and therefore in accordance
with IAS 19, no net defined benefit costs are recognised in the Company’s
financial statements. Note 14 to the Group financial statements provides
further details regarding the defined benefit schemes.
170 IMI plc Annual Report & Accounts 2019
C4. Dividends
The aggregate amount of dividends comprises:
Prior year final dividend paid - 26.0p per qualifying ordinary share (2018: 25.2p)
Current year interim dividend paid - 14.9p per qualifying ordinary share (2018: 14.6p)
Aggregate amount of dividends paid in the financial year
Dividends paid in the year of £110.8m represent 40.9p per share (2018: 39.8p).
2019
£m
70.4
40.4
110.8
2018
£m
68.3
39.6
107.9
After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided for and there are no income tax consequences.
Current year final dividend - 26.2p per qualifying ordinary share (2018: 26.0p)
2019
£m
71.0
2018
£m
70.4
Dividends proposed after the balance sheet date may differ from the final dividend paid. This is a result of the final number of qualifying shares entitled to dividends
differing from those in issue at the balance sheet date.
C5. Fixed assets - investments
At 1 January 2019 and 31 December 2019 cost and net book value
Details of subsidiary undertakings as at 31 December 2019 are shown on pages 173 to 176.
C6. Debtors
Falling due for payment after more than one year:
Amounts owed by subsidiary undertakings
Falling due for payment within one year:
Amounts owed by subsidiary undertakings
C7. Deferred tax
The deferred tax included in the balance sheet is as follows:
Employee benefits and share-based payments
Deferred tax asset included in the balance sheet
Reconciliation of movement in deferred tax asset:
At 1 January 2019
Deferred tax credit/(charge) in the profit and loss account
Deferred tax charge in equity
At 31 December 2019
Changes to the rate of UK corporation tax were substantively enacted in 2016 to reduce the rate to 19% from 1 April 2017 and to 17% from 1 April 2020.
The deferred tax balance has been calculated based on the rates applicable when the balances are expected to reverse, which is mainly 17% (2018: 17%).
Subsidiary undertakings
2019
£m
2018
£m
173.2
173.2
2019
£m
2018
£m
389.9
313.9
8.9
398.8
104.2
418.1
2019
£m
2018
£m
2.7
2.7
2.2
0.5
-
2.7
2.2
2.2
2.7
(0.4)
(0.1)
2.2
171
Company notes to the financial statements
C8. Other creditors falling due within one year
Amounts owed to subsidiary undertakings
Other payables
C9. Share capital
Issued and fully paid
286.4m (2018: 286.3m) ordinary shares of 28 4/7p each
C10. Contingencies
2019
£m
3.0
1.0
4.0
2018
£m
2.8
1.5
4.3
2019
£m
2018
£m
81.8
81.8
Contingent liabilities relating to guarantees in the normal course of business and other items amounted to £30.7m (2018: £42.7m).
There is a right of set-off with three of the Company's bankers relating to the balances of the Company and a number of its wholly-owned UK subsidiaries.
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to
be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it
becomes probable that the Company will be required to make a payment under the guarantee.
172 IMI plc Annual Report & Accounts 2019
Subsidiary undertakings
A full list of the Group’s subsidiary undertakings and registered/principal offices as at 31 December 2019 is included below. Except where indicated, the share
capital consists of ordinary shares only. The principal country in which each subsidiary operates and has its registered/principal office is the country of incorporation.
IMI plc’s effective interest in the undertakings listed is 100%, except where indicated, and is held in each case by a subsidiary undertaking, except for IMI Group Limited,
IMI Deutschland Verwaltungs GmbH and IMI Lakeside Australia Pty Ltd which are held directly by IMI plc.
The Group has an interest in a partnership, the IMI Scottish Limited Partnership, which is fully consolidated into these Group accounts. The Group has taken advantage
of the exemption conferred by regulation 7 of the Partnerships (Accounts) Regulations 2008 and has, therefore, not appended the accounts of this qualifying partnership
to these accounts. Separate accounts for the partnership are not required to be and have not been filed at Companies House.
Charles Baynes Netherlands BV Netherlands,
FCX Pension Trustees Limited,
Holford Estates Limited,
IMI CIF Trustee Limited,
IMI Deutschland Limited,
IMI Euro Finance Limited,
IMI Fluid Controls (Finance) Limited,
IMI Germany Limited,
IMI Group Limited,
IMI Kynoch Limited,
IMI Marston Limited,
IMI Overseas Investments Limited,
IMI Pensions Trust Limited,
IMI plc,
IMI Precision Engineering Limited,
IMI Property Investments Limited,
IMI Refiners Limited,
IMI Retirement Savings Trust Limited,
IMI Sweden Finance Limited,
IMI Vision Limited,
Liquick 211 Limited,
Truflo Group Limited,
Truflo International Limited,
Truflo Investments Limited
IMI Critical Engineering Holding GmbH,
IMI Deutschland II GmbH & Co KG,
IMI Deutschland Verwaltungs GmbH,
IMI Germany Holding B.V. & Co. KG,
Norgren GmbH
IMI Americas, Inc.
IMI Fluid Controls Holdings, Inc.
Norgren, Inc.
IMI Holding Italy S.R.L.,
Orton S.R.L.,
Truflo Rona S.R.L.
Bimba Manufacturing Company,
Bimba Properties, Inc.
Heimeier GmbH,
IMI Hydronic Engineering Deutschland GmbH
IMI Aero-Dynamiek BVBA,
IMI Hydronic Engineering NV
IMI Australia Pty Ltd,
IMI Lakeside Australia Pty Ltd
IMI Components Limited,
Truflo Marine Limited
IMI Finance SA,
IMI Hydronic Engineering International SA
IMI Hydronic Engineering A/S,
Norgren A/S
IMI Hydronic Engineering BV,
IMI Netherlands Holdings BV
IMI Scotland Limited,
The IMI Scottish Limited Partnership
Lakeside, Solihull Parkway, Birmingham Business Park, Birmingham,
West Midlands B37 7XZ, United Kingdom
Bruckstrasse 93, 46519 Alpen, Germany
5400 South Delaware Street, Littleton, CO 80120, United States
Via Stendhal, 65, 20144 Milano, Italy
25150 S. Governors Hwy, University Park, IL 60484, United States
Voellinghauser Weg 2, 59597 Erwitte, Germany
Boomsesteenweg 28, B 2627 Schelle, Belgium
33 South Corporate Avenue, Rowville VIC 3178, Australia
Westwood Road, Birmingham, B6 7JF, United Kingdom
Route de Crassier 19, Lake Geneva Business Park, 1262 Eysins, Switzerland
Vesterlundvej 18, 2730 Herlev, Denmark
Röntgenweg 20, Alphen aan den Rijn, NL-2408 AB, Netherlands
15 Atholl Crescent, Edinburgh EH3 8HA, United Kingdom
173
Subsidiary undertakings
Lakeside Finance Unlimited Company,
Lakeside Treasury Unlimited Company
Norgren Co Limited,
Norgren Manufacturing Co Ltd
Valves Holding GmbH,
Z & J Technologies GmbH
Acro Associates, Inc.
AFA Controls LLC
1 Stokes Place, St Stephens Green, Dublin 2, Ireland
Building 3, No. 1885, Duhui Road, Minhang District, Shanghai, China
Bertramsweg 6, 52355 Düren, Germany
1990 Olivera Rd., Sta. A Concord, CA 94520, United States
CSC, Corporate Services Company, 251 Little Falls Drive, Wilmington, DE 19808, United States
Bopp & Reuther Valves GmbH
Carl-Reuther Str. 1, 68305 Mannheim, Germany
Brookvale International Insurance Limited
Clarendon House, Church Street, Hamilton, HM11, Bermuda
Buschjost GmbH
CCI AG
Detmolder Strasse 256, 32545 Bad Oeynhausen, Germany
Fabrikstrasse 10, 8370 Sirnach, Switzerland
CCI America do Sul Comercio de Equipamentos Industriais Ltda
Rua Itapeva, 286 cjs 95/96/97, Sao Paulo, 01332-000, Brazil
CCI Czech Republic s.r.o.
K Letišti 1804/3, Šlapanice, 62700, Czech Republic
CCI Flow Control (Shanghai) Co Ltd
Room 108, Unit 15, 159 Tian Zhou Road, Cao He Jing Development Zone, Shanghai, 200233, China
CCI International Limited
CCI Italy S.R.L.
CCI Valve Technology AB
CCI Valve Technology GmbH
Control Component India Pvt Limited
Control Components Inc
FAS Medic SA
Unit A3 Brookside Business Park, Greengate, Middleton, Manchester, M24 1GS, United Kingdom
Via Stendhal, 65, 20144 Milano, Italy
Industrigatan 1-3, Box 603, 661 29 Säffle, Sweden
Lemböckgasse 63/1, 1230 Wien, Austria
Ground, 1st & 2nd Floor, Tower 4, SJR i park, Plot # 13 14&15, EPIP Zone Phase 1, Whitefield Road,
Bangalore 560066, India
22591 Avenida Empresa, Rancho Santa Margarita CA 92688, United States
Route de Bossonnens 2, 1607, Palézieux, Switzerland
Fluid Automation Systems GmbH
Stuttgarter Straße 120, 70736 Fellbach, Germany
Herion Systemtechnik GmbH
IMI Aero-Dynamiek BV
Untere Talstrasse 65, 71263 Weil der Stadt, Germany
Havenstraat 9, 3861 VS, Nijkerk, Netherlands
IMI Critical Engineering (APAC) Pte. Ltd
29 International Business Park, ACER Building, Tower A, #04-01, Singapore, 609923, Singapore
IMI Critical Engineering (Shanghai) Company Limited
B3-2, No. 303, Xinke Road, Qingpu District, Shanghai, 201707 China
IMI Critical Engineering Korea
14 Dangdong 2-ro, Munsan-eup, Paju-si, Gyeonggi-do, 10816, Republic of Korea
IMI Critical FZE
IMI Deutschland B.V.
IMI Energi & VVS Utveckling AB
IMI Engineering Sdn. Bhd.
IMI France SARL
Office No. FZJOA1308, FZJ0A1310, FZJ0A1307A, Jebel Ali Free Zone, Dubai, United Arab Emirates
Versterkerstraat 6, 1322 AP Almere, the Netherlands
Annedalsvägen 9, 22764, Lund, Sweden
K-7-5 & K-7-6, Solaris Kirara, Soho, Jalan Solaris Mont Kiara, 50480 Kuala Lumpur, Malaysia
52 Boulevard de Sébastopol, 75003 Paris, France
IMI Hidronik Muhendislik Iklimlendirme Sistemleri Ltd Sti
Atasehir Bulvari Ata Carsi no. 50-59, Atasehir, Istanbul, Turkey
IMI Holdings LLC
IMI Hydronic Engineering AB
IMI Hydronic Engineering AS
IMI Hydronic Engineering China
101 Broadway Street West, Suite 204, Osseo, MN 55369, United States
Annelund, SE-524 80, Ljung, Sweden
Glynitveien 7, Ski, N-1400, Norway
Room 360, Xin Mao Building, No 2 Tai Zhong Nan Road, Pilot Free Trade Zone,
Shanghai, 200131 China
IMI Hydronic Engineering France S.A.
13, rue de la Perdrix - Les Flamants 8, 93290 Tremblay-en-France, France
IMI Hydronic Engineering FZE
Office 1307-10 Jafza One, JAFZA (PO Box 262611), Dubai, United Arab Emirates
IMI Hydronic Engineering GesmbH
Industriestrasse 9, Objekt 5, 2353, Guntramsdorf, Austria
IMI Hydronic Engineering Inc
IMI Hydronic Engineering Limited
IMI Hydronic Engineering Ltda
IMI Hydronic Engineering OY
8908 Governors Row, Dallas, TX 75247, United States
Unit 3 Nimbus Park, Porz Avenue, Dunstable, Bedfordshire, LU5 5WZ, United Kingdom
Av Fagundes Filho, 134 cj 43, S. Judas, Sao Paulo, 04304-010, Brazil
Robert Huberin tie 7, Vantaa FI-01510, Finland
174 IMI plc Annual Report & Accounts 2019
IMI Hydronic Engineering Pte Ltd
IMI Hydronic Engineering S.A.
223 Mountbatten Road #03-01, Singapore 398008, Singapore
9, rue des 3 Cantons, Windhof, L-8399, Luxembourg
IMI Hydronic Engineering (Spain) SAU
Complejo Europa Empresarial, C/Rozabella, 6, Las Rozas, 28290, Madrid, Spain
IMI Hydronic Engineering S.R.L.
Via dei Martinitt 3 cap, 20146, Milan, Italy
IMI Hydronic Engineering Switzerland AG
Mühlerainstrasse 26, 4414 Füllinsdorf, Switzerland
IMI Hydronic Engineering UAB
A.Juozapaviciaus 27-5, Kaunas, LT – 45258, Lithuania
IMI International Co Srl
IMI International d.o.o.
IMI International d.o.o.
Str. Aristide Pascal nr.36, Sector 3, Bucuresti, 031445, Romania
Alpska cesta 37b, Lesce, 4248, Slovenia
Slavonska avenija 17, Zagreb, 10040, Croatia
IMI International d.o.o. Beograd
Milutina Milankovica 1b, Novi Beograd, 11070, Serbia
IMI International Kft.
IMI International LLC
IMI International s.r.o.
IMI International Sp. z.o.o.
IMI Japan KK
Kunigunda Útja 60, Budapest, HU-1037, Hungary
Leninskaya Sloboda Street 19 b2, 115280, Moscow, Russian Federation
Central Trade Park D1, c.p.1573, Humpolec, 396 01, Czech Republic
Olewin 50 A, PL-32300, Olkusz, Poland
7-3-6 Minatojima Minamimachi, Chuo-ku, Kobe, Hyogo 650-0047, Japan
IMI Norgren Herion PVT Limited
B-30A Sector 85, Noida, Uttar Pradesh 201305, India
IMI Norgren Limited
137a Slaney Close, Dublin Industrial Estate, Finglass Road, Dublin 11, Ireland
IMI Norgren SA (Sociedad Unipersonal)
Calle Colom, 391, 2 Edif. Tecno, 08223, Terrassa, Spain
IMI Saudi Industry LLC
IMI Webber Limited
Al-Nakhlah Tower, Kind Fahad Road, As Sahafah, PO Box 52681, Riyadh 11573, Saudi Arabia
City Business Park, Easton Road, Easton, Bristol, BS5 0SP, United Kingdom
Industrie Mecanique Pour Les Fluides SA
15 Avenue des Cures, 95580, Andilly, France
Intek Products, Inc.
230 Executive Drive, Suite 127, Cranberry Township, PA 16066, United States
Interativa Indústria Comércio e Representações Ltda
Avenida Garabed Gananian, 386 Bairro Aparecidinha, Sorocaba, São Paulo, 18.087-340, Brazil
Kynoch Sweden Holding AB
Liquick 213 Limited
Mead Fluid Dynamics, Inc.
Newman Hattersley Limited
Norgren AG
Norgren AS
c/o IMI Hydronic Engineering AB, 52 480 Ljung, Sweden
2 Cornwall Street, Birmingham, West Midlands, B3 2DL, United Kingdom
4114 North Knox Avenue, Chicago, IL 60641, United States
151 Superior Blvd, Mississauga ON L5T 2L1, Canada
Fabrikstrasse 10, 8370 Sirnach, Switzerland
Karihaugveien 89, Oslo, 1086, Norway
Norgren Automation Solutions LLC
2871 Bond Street, Rochester Hills, MI 48309, United States
Norgren BV
Norgren Co Limited
Norgren Finland OY
Norgren Ges.m.b.H
Versterkerstraat 6, 1322 AP Almere, Netherlands
120/34 M.12, Rachadhewa, Bangplee, Samutprakarn, 10540, Thailand
Robert Huberin Tie 7, 015 10 Vantaa, Finland
Industriezentrum NÖ Süd, Straße 2a, Objekt M39/1, A-2355, Wiener Neudorf, Austria
Norgren GT Development Corporation
425 “C” Street NW, Suite 100, Auburn, WA 98001, United States
Norgren Kloehn, Inc.
Norgren Limited
Norgren Limited
Norgren Limited
Norgren Ltda
Norgren Manufacturing de Mexico S.A. de C.V.
Norgren S.A. de C.V.
Norgren NV
Norgren Pte. Limited
10000 Banburry Cross Drive, Las Vegas, NV 89144, United States
6/F Benson Tower, 74 Hung To Road, Kwun Tong, Kowloon, Hong Kong
15A Vestey Drive, Auckland, 1060, New Zealand
Blenheim Way, Fradley Park, Lichfield, Staffordshire, WS13 8SY, United Kingdom
Av. Eng. Alberto de Zagottis, 696-B, Sao Paulo SP, 04675-085, Brazil
Avenida de la Montaña # 120, Parque Industrial Querétaro, Santiago De Querétaro,
Querétaro, CP 76220, México
Avenida de la Montaña # 120, Santa Rosa Jauregui, Santiago De Querétaro,
Querétaro, CP 76220, México
F Walravensstraat 84, B.1651 Lot, Belgium
16 Tuas Street, Singapore 638453, Singapore
175
Subsidiary undertakings
Norgren SAS
Norgren Srl
Norgren Sweden AB
Norgren Taiwan Co Limited
PBM, Inc.
Pneumadyne, Inc.
Remosa S.R.L.
1, rue de Lamirault 77090 Collégien, France
Via trieste 16, Vimercate, 20871, Milan, Italy
Box 14001, Ventilgatan 6, S-200 24 Malmo, Sweden
3F, No. 540 Sec. 1, Minsheng N. Rd., Guishan Dist., Taoyuan City , 333, Taiwan
1070 Sandy Hill Road, Irwin, Westmoreland County, PA 15642, United States
14425 23rd Ave North, Plymouth, MN 55447, United States
Viale Pula 37, 09123 sede e stabilimento stradario, 03608, Cagliari, Sardinia, Italy
SAIC CCI Valve Co Ltd (44%)*
Block B, 123 Chongming Xiushan Road, Chongming County, Shanghai, 202150 China
Shanghai CCI Power Control Equipment Co Ltd
229C, 2F, No 11, Lane 465, Tengyue Road, Yangpu District, Shanghai 200090, China
STI S.R.L.
TA Regulator d.o.o.
Via dei Caravaggi 15, 24040, Levate (BG), Italy
Orliska Ulica13, Brezice, SI-8250, Slovenia
TH Jansen Armaturen GmbH
Otto-Kaiser Str. 6, 66386 Sankt Ingbert, Germany
THJ Holding GmbH
Thompson Valves Limited
Truflo Rona S.A.
Vaccon Company, Inc.
Planiger Str 34, 55543 Bad Kreuznach, Germany
17 Balena Close, Creekmoor, Poole, Dorset, BH17 7EF, United Kingdom
3e avenue, 16, Parc Industrial des Hauts Sarts, 4040 Herstal, Belgium
9 Industrial Park Road, Medway, MA 02053, United States
Z & J High Temperature Equipment (Shanghai) Co Ltd
819 Yinchun Road, Minhang District, Shanghai, 201109, China
Zimmermann & Jansen, Inc.
4525 Kennedy Commerce Drive, Houston, TX 77036, United States
* Treated as external investments
Subsidiary audit exemptions
IMI plc has issued guarantees over the liabilities over the following companies at 31 December 2019 under Section 479C of Companies Act 2006 and these entities
are exempt from the requirements of the Act relating to the audit of individual accounts by virtue of Section 479A of the Act:
Company name
Holford Estates Limited
IMI Deutschland Limited
IMI Euro Finance Limited
IMI Fluid Controls (Finance) Limited
IMI Germany Limited
IMI Marston Limited
IMI Refiners Limited
Company number
Company name
Company number
01181406
07843551
07929408
08528502
07843576
00155987
00148305
IMI Scotland Limited
IMI Sweden Finance Limited
IMI Vision Limited
Truflo Group Limited
Truflo International Limited
Truflo Investments Limited
SC378424
07272731
04421176
04430846
00164822
04430927
176 IMI plc Annual Report & Accounts 2019
Geographic distribution of employees
The following table shows the geographic distribution of employees as at 31 December 2019 and is not required to be audited.
United Kingdom
Continental Europe
Americas
Asia Pacific
Rest of World
Total
1,205
5,484
2,630
1,321
67
10,707
177
Five year summary
Adjusted revenue £m
Adjusted profit before tax* £m
Adjusted Group revenue by geography 2019
7
0
9
1
,
3
7
8
1
,
1
5
7
1
,
9
4
6
1
,
7
5
5
1
,
9
1
2
8
0
2
4
2
2
1
5
2
1
5
2
Total
APAC
21%
Middle East &
Africa
6%
Total
Europe
44%
Total Americas
29%
2018
£m
1,907
1,907
265.5
251.2
6.8
(12.4)
(27.1)
(3.7)
0.6
(2.5)
212.9
320
2018
£m
90
288
519
897
515
357
138
1,907
-
1,907
2019
£m
1,873
1,873
266.1
250.7
8.6
(51.8)
(21.0)
(1.6)
-
4.4
189.3
357
2019
£m
90
234
494
818
538
404
113
1,873
-
1,873
2015
£m
1,567
1,557
236.9
218.7
9.1
(27.1)
(32.2)
-
(8.4)
2.6
162.7
263
2015
£m
90
219
472
781
390
326
60
1,557
10
1,567
2016
£m
1,657
1,649
224.2
208.0
2.8
(18.8)
(25.5)
-
-
(1.2)
165.3
273
2016
£m
75
240
494
809
403
334
103
1,649
8
1,657
2017
£m
1,751
1,751
239.2
224.1
10.8
(34.6)
(17.5)
(2.0)
(2.3)
2.4
180.9
288
2017
£m
79
260
519
858
405
355
133
1,751
-
1,751
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
* On an adjusted basis.
Income statement
Statutory revenue
Adjusted revenue
Adjusted operating profit
Adjusted profit before tax
Special pension events
Restructuring costs
Acquired intangible amortisation and impairment
Other acquisition items
Gain/(loss) on disposal of subsidiaries
Financial instruments excluding economic hedge contract gains/losses
Profit before tax from continuing operations
Adjusted EBITDA
Group sales by destination
UK
Germany
Rest of Europe
Total Europe
Total Americas
Total Asia Pacific
Middle East and Africa
Adjusted Revenue
Reversal of net economic hedge contract losses/(gains)
Statutory Revenue
178 IMI plc Annual Report & Accounts 2019
Earnings and dividends
Adjusted basic earnings per share
Statutory basic earnings per share (continuing)
Ordinary dividend per share
Balance sheet
Segmental net assets (including lease liabilities)
Other net non-operating liabilities excluding borrowings (gross)
Net debt (excluding lease liabilities)
Net assets
Statistics
Adjusted operating profit as a percentage of revenue
Adjusted operating profit as a percentage of segmental net assets
Effective tax rate on adjusted profit before tax
Net assets per share (excluding treasury and EBT shares)
Net debt as a percentage of shareholders' funds
Net debt: Adjusted EBITDA
Adjusted EBITDA: Interest
2015
2016
2017
2018
62.2p
44.7p
38.4p
59.8p
48.3p
38.7p
65.3p
53.6p
39.4p
73.2p
62.5p
40.6p
2015
£m
926
(100)
(237)
589
2016
£m
1,041
(175)
(283)
583
2017
£m
1,027
(155)
(265)
607
2018
£m
1,220
(149)
(405)
666
2019
73.2p
56.6p
41.1p
2019
£m
1,168
(111)
(347)
710
2015
2016
2017
2018
2019
15.4%
25.9%
22.0%
217.3p
40.2%
0.9
15
13.8%
21.9%
21.0%
215.1p
48.5%
1.0
16
13.8%
23.4%
21.0%
224.0p
43.7%
0.9
20
14.0%
21.8%
21.0%
245.8p
60.7%
1.3
25
14.2%
22.8%
21.0%
262.2p
48.9%
1.2
24
179
Shareholder and general information
Announcement of trading results
Corporate website
Headquarters and registered office
The trading results for the Group for the first half of
2020 will be announced on 24 July 2020. The trading
results for the full year ending 31 December 2020 will
be announced in February 2021.
Interim management statements will be
issued in May and November 2020.
The IMI plc website provides a wealth of useful
information for shareholders and should be your
first port of call for general queries relating to the
Company and your shares. As well as providing share
price data and financial history, the site also provides
background information about the Company.
Lakeside
Solihull Parkway
Birmingham Business Park
Birmingham
B37 7XZ
Telephone: +44 121 717 3700
Dividend payments
Final: 15 May 2020
Interim: September 2020
Share prices and capital gains tax
The closing price of the Company’s ordinary shares
on the London Stock Exchange on 31 December 2019
was 1,179.0p (2018: 944.0p). The market value of
the Company’s ordinary shares on 31 March 1982,
as calculated for capital gains tax purposes,
was 53.5p per share.
The Company’s SEAQ number is 51443.
Enquiries about shareholdings
For enquiries concerning shareholders’ personal
holdings, please contact the Company’s Registrar:
Equiniti (contact details appear to the right).
Please remember to tell Equiniti if you move house,
change bank details or if there is any other change
to your account information.
Managing your shares on-line
Shareholders can manage their holdings on-line
by registering with Shareview, the internet based
platform provided by Equiniti. Registration is a
straightforward process and allows shareholders to:
Shareholders are also encouraged to sign up to
receive news alerts by email in the Investors section
of the website. These include all of the financial
news releases from throughout the year that are
not sent to shareholders by post. You can access
the corporate website at: www.imiplc.com.
Annual General Meeting 2020
This year’s AGM will be held at the Crowne
Plaza NEC, Pendigo Way, Birmingham B40 1NT
on Thursday 7 May 2020 at 10am. For further
information, please refer to the Notice of Meeting
which is on the corporate website.
IMI plc is registered in England No.714275
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Telephone: 0371 384 2916 or from overseas
+44 121 415 7047
Lines are open 8.30am to 5.30pm, Monday to Friday
(excluding public holidays in England and Wales).
Individual Savings Account (ISA)
IMI‘s ordinary shares can be held in an ISA. For
information about the ISA operated by our Registrar,
Equiniti, please call the Equiniti ISA helpline on 0345
300 0430. Lines are open from 8.30am to 5.30pm,
Monday to Friday (excluding public holidays in
England and Wales).
Stockbrokers
JPMorgan Cazenove
Bank of America
Auditor
Ernst & Young LLP
Share dealing service
Managed by Equiniti, the Company’s registrar, the
IMI plc Share dealing service provides shareholders
with a simple way of buying and selling IMI ordinary
shares. Telephone: 0345 603 7037. Full written
details can be obtained from Equiniti (contact details
appear to the right).
Cautionary statement
This Annual Report may contain forward-looking
statements that may or may not prove accurate.
For example, statements regarding expected revenue
growth and operating margins, market trends and
our product pipeline are forward-looking statements.
It is believed that the expectations reflected in
these statements are reasonable but they may be
affected by a number of risks and uncertainties
that are inherent in any forward-looking statement
which could cause actual results to differ materially
from those currently anticipated. Any forward-
looking statement is made in good faith and based
on information available to IMI plc as of the date of
the preparation of this Annual Report. All written
or oral forward-looking statements attributable to
IMI plc are qualified by this caution. IMI plc does not
undertake any obligation to update or revise any
forward-looking statement to reflect any change
in circumstances or in IMI plc’s expectations.
• help us to reduce print, paper and postage costs
and the associated environmental impact of these;
Share fraud
• cast your AGM vote electronically;
• receive an email alert when important shareholder
documents are available on-line such as Annual
Reports and Notices of General Meetings;
• access details of your individual shareholding
quickly and securely;
• set up a dividend mandate on-line; and
• change your registered postal address or your
Share fraud includes scams where investors are
called out of the blue and offered shares that often
turn out to be worthless or non-existent, or an
inflated price for shares they own. These calls come
from fraudsters operating in ‘boiler rooms’ that are
mostly based abroad. Further information on how
to spot share fraud or report a scam can be found
on our corporate website.
dividend mandate details.
American Depository Receipts
To find out more information about the services
offered by Shareview and to register, please visit:
www.shareview.co.uk.
IMI plc has an American Depository Receipt (‘ADR’)
programme that trades on the Over-The-Counter
market in the USA, using the symbol IMIAY. ADR
enquiries should be directed to Citibank Shareholder
Services, PO Box 43077, Providence, RI 02940-3077,
USA. Toll-free number in the USA is 1-877-CITI-ADR
(877-248-4237) and from outside the USA is
1-781-575-4555. You can also email
citibank@shareholders-online.com
180 IMI plc Annual Report & Accounts 2019