IMI plc Annual Report & Accounts 2020
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, sustainably,
cleanly, efficiently and cost effectively.
We operate through three divisions –
IMI Precision Engineering, IMI Critical
Engineering and IMI Hydronic Engineering
– and employ around 10,000 people in
over 50 countries around the world.
Find out more:
www.imiplc.com
Our business has many
strengths. First and
foremost, we employ
great people. We are
renowned for delivering
world-class engineering
expertise to solve
customers’ problems
and deliver value for
all our stakeholders. In
addition, our operations
and processes are
amongst the very best.
Roy Twite
Chief Executive
IMI plc Annual Report & Accounts 2020
Breakthrough
Engineering
for a better
world.
COVER
IMI Precision Engineering
Palézieux, Switzerland
CHIPSOL is a specialist solenoid
valve that enables the provision
of rapid patient treatment and
local diagnostics.
Our purpose
Our purpose is our reason for being.
It’s what motivates us all and
makes us proud to work for IMI.
Our vision
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.
Our values
Customer intimacy
A mindset where the customer
is at the heart of everything
we do.
One big team
Accesses the diversity of IMI in
every sense, whether this is the
diversity of talent, knowledge
and experience that we have
with our people, or the different
technologies, processes and end
markets across our businesses.
Playing to win
A growth mindset that is open
to innovation and learning.
Integrity
Being true to who we are
and doing the right thing
at all times.
We deliver our sustainable, customer-focused solutions ever mindful of our responsibilities
to our employees, our suppliers, our wider communities, and the environment. We also
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
Coronavirus response
Chief Executive’s review
Business model
Strategic review
Environmental, Social &
Governance
Our stakeholders
Operational review – IMI Precision
Operational review – IMI Critical
Operational review – IMI Hydronic
Financial review
Key Performance Indicators
How we manage risk
Viability and going
concern statements
Independent Auditor’s Report
Primary statements
Notes to the consolidated
financial statements
116
124
128
Board of Directors
Chairman’s governance letter
Corporate Governance Report
Audit Committee Report
Nominations Committee Report
Statement from the Chair of the
Remuneration Committee
Directors’ Remuneration
Policy Report
Annual Directors’
Remuneration Report
Directors’ Report
Statement of directors’
responsibilities
66
68
70
76
80
82
85
93
108
114
06
08
12
14
28
44
46
48
50
52
56
58
64
01
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Group overview
Adjusted
revenue by
geography
4
Revenue by
division
3
2
3
1
2
2020 highlights
1
Adjusted revenue
Statutory revenue
£1,825m
3%
£1,825m
3%
1 Europe 44%
2 Americas 30%
1 IMI Precision Engineering 48%
2 IMI Critical Engineering 35%
3 Asia Pacific 21%
3 IMI Hydronic Engineering 17%
4 Middle East & Africa 5%
Gender mix across the Group*
Adjusted profit before tax
Statutory profit before tax
9%
£274m
13%
£214m
Female Female % Male Male %
Adjusted operating margin
Adjusted operating cash flow
Board
Executive
Senior
managers**
3
2
95
37%
29%
5
5
63%
71%
18%
439
82%
Managers
200
19%
844
81%
All
employees
3,011
28% 7,765
72%
* Including agency and contractors.
** Includes direct reports to the Executive.
140bps
15.6%
12%
£335m
Adjusted basic earnings per share
Statutory basic EPS
9%
79.7p
9%
62.7p
» Resilient organic revenue 4% lower than 2019.
» Improved margins in all three divisions.
» Strong adjusted operating cash flow, up 12%.
» Structural rationalisation programmes delivering expected
efficiency gains.
» Final dividend of 15.0p reflects previously announced reset of
earnings cover baseline.
» Net debt / EBITDA improved to 0.8x (2019: 1.2x).
» Cultural shift progressing well with increased resource
dedicated to growth.
» Strong customer and employee engagement throughout the
Coronavirus pandemic.
02 IMI plc Annual Report & Accounts 2020
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 and solutions for HVAC
systems. They deliver optimal and energy
efficient heating and cooling solutions to the
residential and commercial building sector.
Operational review:
Turn to page 46
Operational review:
Turn to page 48
Operational review:
Turn to page 50
Key brands
Norgren, Bimba, Buschjost, FAS, Herion, Kloehn,
Maxseal
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
3%
£877m
1%
£643m
3%
£305m
Adjusted operating profit
Adjusted operating profit
Adjusted operating profit
2%
£151m
18%
£107m
2%
Number of employees
Number of employees
Number of employees
53%
Revenue by
geography
5,300
29%
2,900
18%
4
3
Revenue by
geography
4
1
Revenue by
geography
1 Europe 44%
2 Americas 37%
3 Asia Pacific 18%
4 Middle East & Africa 1%
2
1
1 Europe 22%
2 Americas 30%
3 Asia Pacific 34%
4 Middle East & Africa 14%
3
2
1 Europe 88%
2 Americas 7%
3 Asia Pacific 4%
4 Middle East & Africa 1%
£56m
1,800
3 4
2
1
Revenue by market
Revenue by market
Revenue by market
Motion Control
2020 revenue: £398m
Fluid Technologies
2020 revenue: £339m
Commercial Vehicle
2020 revenue: £140m
1 Motion Control 45%
3
2 Fluid Technologies 39%
3 Commercial Vehicle 16%
2
Find out more:
www.imiplc.com/what-we-do
Balancing & Control
2020 revenue: £146m
Thermostatic Control
2020 revenue: £95m
Pressurisation & Water Quality
2020 revenue: £51m
Refining & Petrochemical
2020 revenue: £202m
Fossil Power
2020 revenue: £177m
Oil & Gas
2020 revenue: £114m
Nuclear
2020 revenue: £49m
Marine
2020 revenue: £39m
Pharmaceutical
2020 revenue: £12m
1 Refining &
Petrochemical 31%
2 Fossil Power 27%
1
3 Oil & Gas 18%
4 Nuclear 8%
5 Other 8%
6 Marine 6%
7 Pharmaceutical 2%
7
6
5
4
3
2
1 Balancing & Control 48%
1
2 Thermostatic Control 31%
3 Pressurisation
& Water Quality 17%
4 Other 4%
4
3
2
1
03
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Chairman’s
statement
2020 revealed
the best in IMI.
2020 has been an extraordinary year in which
IMI has demonstrated resilience, ambition and
absolute commitment to supporting each other,
our customers and our wider communities.
There is little question that significant
drivers of our recent performance have
been that unifying and empowering
purpose, as well as a rejuvenated
culture. It is the way in which these
results were delivered that is
particularly encouraging, and bodes
well for continuing improvement.
Culture, values
and purpose
IMI has a long-standing, strong
reputation for good governance,
as well as for an inclusive, diverse
and collaborative culture. Each
characteristic is important for a
business based upon integrity, fairness
and opportunity – and for long-term
value creation. That Governance
reputation has been recognised by
a number of external reviews, including
the MSCI ESG survey, where we score
an AA rating. But there
is always more to do.
During the last year, we have revisited
our core values so that they more
clearly represent how we behave.
We now identify these as: Customer
intimacy, One big team, Playing to win,
and, Integrity. Each represents a crucial
characteristic in the pursuit of our
strategy and our purpose:
Breakthrough Engineering
for a better world.
04 IMI plc Annual Report & Accounts 2020
Coronavirus
There was abundant evidence of the
application of our values in IMI’s response
to the Coronavirus pandemic; a response
we describe in some detail in the
following pages. Since the very start
of the year, our operations around the
world have moved swiftly and effectively
to manage complex challenges. That
mobilisation of resource started – and
has continued – with the Chief Executive,
members of the IMI Executive, the
Divisional Managing Directors, and
key functional leaders. Their ambition:
to ensure personal wellbeing, close
customer support and business
continuity, throughout. So it was
particularly gratifying to learn that
several unannounced inspections of
our sites had judged their Coronavirus
protection measures to be ‘excellent’
or ‘best-in-class’.
Also encouraging was a recent internal
survey of IMI employees where 85% of
respondents believed IMI had supported
its employees through the global
pandemic. This was also the highest
engagement score we have ever
recorded in such a survey at IMI.
Strategy
As well as dealing with the obvious
external challenges, IMI has also
made good progress in the pursuit
of our strategy; a strategy that was
only launched in November 2019.
Margins have improved in all divisions.
Progress with our structural repositioning
– to significantly reduce complexity –
has continued substantially to plan.
And the evolution of our structure and
business model to deliver sustainable,
profitable, long-term growth –
particularly through a much clearer focus
on solving significant customer problems
– is already delivering early gains.
Evidence of this progress can be found
throughout this Report. We continue
to investigate potential acquisition
opportunities where those offer strategic
advantage and deliver against our strict
financial criteria.
Value creation for all
stakeholders
Considering the interests of all
our stakeholders is of fundamental
importance to us, whether they be
employees, customers, our wider
communities, or our investors.
Different stakeholder groups have
different ambitions for any business.
We consider carefully all of those
different perspectives in our planning.
A topic of growing importance to all
stakeholders is Environmental, Social &
Governance (‘ESG’). Later in this Report,
we clarify what ESG means to IMI and
how ESG credentials are reflected in
our values, our purpose, and our
behaviours – rather than being
mere adjuncts to them.
The Board
In 2020, there were no developments
in the structure of the Board or the
Committees. However, during the year
an independent Board culture review
was conducted and I’m pleased to report
that the conclusions were very positive.
I have greatly appreciated the
experience and counsel of my Board
colleagues, especially throughout 2020.
dividend in the early, uncertain months
of 2020, we then re-instated and paid
that dividend in full. At the same time,
we also re-based our planned dividend
distributions to represent a baseline
earnings per share cover of three times.
This revision will allow more of our free
cash flow to remain in the business to
fuel growth, whilst still rewarding
shareholders appropriately.
Reflecting the confidence we have in the
Group’s prospects, as well as our new
target distribution rate, the Board is
recommending a final dividend of 15.0p,
making a total dividend for the year of
22.5p (excluding 26.2p per share in
respect of 2019 paid at the interim).
People
As I have described, perhaps more than
in any other year, the safe delivery of
a successful performance in 2020 has
involved the significant commitment
and courage of all our people around
the world, whether they were keeping
factories running to support customers
and industries, or working tirelessly
from home to support operations.
On behalf of the Board, I thank them
all for their considerable efforts.
Dividend
I’m delighted that during the year, having
suspended payment of the 2019
Lord Smith of Kelvin
Chairman
Coronavirus
response
Protect our employees
Ensure our people are safe – inform, support, protect
COVID-19 response team
To anticipate, react and plan response
Stabilising our supply chain
Ensure our supply chain, stocks and materials flow is enabled
Work style changes
Social distancing, flexible working, changed work patterns
Communicating with our people
Communicate with and educate our people: weekly Chief
Executive letters, leadership calls, intranet and IMI Learn modules
Coronavirus:
Turn to page 06
Delivering to our customers
Greater customer interactions, understand pain points, deliver
05
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Coronavirus response
Our values
in action in
unprecedented
times.
Here we summarise ways in which
IMI has responded to Coronavirus
to keep our people, our businesses
and our stakeholders safe – living
our values.
06 IMI plc Annual Report & Accounts 2020
Protect our employees
First, we protect. No other considerations
rank more highly than that. We supply
the best PPE, we adopt and monitor
the best hygiene practices, and we
support people to protect both their
physical and mental wellbeing both inside
and outside work. In a recent survey, 85%
believed IMI had supported its employees
through the global pandemic. They should
expect no less.
COVID-19 response team
Once the pandemic threat emerged,
a Coronavirus response team was
established to review constantly both
risk and response. Comprising
the Chief Executive, Finance Director,
Divisional Managing Directors and
cross-divisional leaders in Human
Resources, Communications, HSE and
Supply Chain, this initiative is a priority
with the most senior participation.
Initially meeting three times per week,
the objectives were to assess and
anticipate risk, co-ordinate protection
through shared best-practice protocols,
and the sourcing and distribution of
PPE and any other equipment or support
measures deemed necessary. The threat
has not yet passed, so we maintain
our vigilance.
IMI’s operational management
responded well to the market challenges
from the pandemic, keeping our supply
chains up and running. This has allowed
us to continue serving our customers
and to respond quickly to opportunities.
Stabilising our supply chain
Ensuring stability in our supply chain has
received close attention from the outset.
Assessing potential supply bottlenecks,
securing supply of key components,
and arranging for alternate supply
arrangements when necessary, have all
been continuing priorities. The businesses
have also invested in contingency stocks
where needed to ensure we would always
be able to support our customers.
Customer intimacy
One big team Playing to win
Integrity
Work style changes
Delivering to our
customers
We’ve made some big changes to
how we operate. Only essential staff
are permitted to enter our operations.
We’ve put in place robust protocols
that facilitate social distancing, routine
sanitising and – where appropriate –
temperature scanning and virus testing.
And we’ve ensured all of our operations
meet or exceed local government
guidance on operating safely. Recent
site inspections by local government
agencies have all delivered ‘best-in-
class’ or ‘excellent’ judgements.
For our employees who have moved
to at home working, this creates its
own challenges and stresses. Juggling
domestic pressures and distractions
while providing essential services to
the rest of the organisation and to
customers can be very challenging.
In whatever setting, we support all of
our employees with equipment, advice
and regular guidance.
Communicating with
our people
Once the Coronavirus threat became
apparent, there was an increased focus
on improving the quality and reach of our
internal communications and delivering
effective, relevant education.
For the first five months of the
outbreak, the Chief Executive wrote
a weekly letter to every IMI employee.
In addition, a leadership call was
held every month with the top 200
managers across the world, led by
the Chief Executive and the Executive
Committee. Within divisions, the
Divisional Managing Directors and
their teams have been leading regular,
updated communications with their
people. There is also a section of the
intranet specifically for Coronavirus
information. The communications
narrative is evolving constantly.
The rush by both customers and
governments to prepare for rapidly
increasing global ICU admissions was
unprecedented. In response, IMI took
its most sophisticated products it
makes to 10x capacity, in a matter
of a few months, in order to satisfy
burgeoning global demand for critical
care ventilators. Our rapid, effective
and principled response to those urgent
requirements has contributed saving
many thousands of lives. The effort
involved collaboration across different
IMI divisions and sites, as well as
outside organisations.
Other, broader initiatives have been
equally important, as we’ve intensified
our efforts to stay in close contact with
customers to help them solve their
biggest problems.
The ‘Making Friends in Adversity’
campaign within IMI Precision
Engineering has given confidence
to our customers and strengthened
our relationships with them. Life
Sciences customers have asked us
to quote for business in wider medical
equipment markets – including
diagnostics and vaccine delivery.
In IMI Critical, we’ve made greater
use of technology to conduct remote
inspections and conduct remote site
services, where possible – enabling
customers to deliver important
infrastructure projects and maintain
the operation of essential plant.
And in IMI Hydronic, our businesses
have created on-line communities to
encourage and support collaboration
across our installer customers, as they
all seek to solve problems and support
each other in this unprecedented
environment.
Case study
IMI STI, part of IMI Critical, is
an example of how one of our
businesses adapted effectively
during the pandemic.
In February 2020, eleven
municipalities in northern Italy were
identified as the centres of two
main Italian clusters of COVID-19
and placed under quarantine. Our
IMI STI site at Bergamo near Milan
fell into the municipalities outlined.
IMI STI acted quickly, and within only
a matter of days after the first case
of Coronavirus had been registered
in Italy, the team worked to
anticipate and understand what
was required within the company
to cover all the mandated protocols
and the protocols from the
Government and the WHO.
IMI STI reviewed all its internal
processes. Whilst working to
guarantee maximum safety, the
company endeavoured to ensure
the continuity of work at the site
as much as possible. To do this, IMI
STI analysed the orders that were
due to be delivered and, depending
on the critical issues and needs of
the customers, prioritised any
orders that were considered
the most critical.
To keep colleagues safe on-site,
IMI STI put rigid health protocols
in place. Some tasks were taken
off-site and managed remotely.
Finally, IMI STI completely revised
work patterns and tripled efforts
to ensure the risk from the virus on
production flow, the passage of
documents and customer service,
was minimised.
07
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Chief Executive’s
review
All three divisions have
both advanced their
strategic initiatives and
improved their margins.
Whilst our culture change and
growth initiatives are gaining
traction, IMI has also advanced
its ESG agenda as we work to
build on the positive contribution
our solutions make to the wider
world. We expect further
progress during 2021.
08 IMI plc Annual Report & Accounts 2020
ESG assessments as a significant
influencing factor to ensure we continue
to build our positive influence. These
are challenges we embrace as an
organisation as they directly reflect
our purpose: Breakthrough Engineering
for a better world.
We continue to support the Task Force
on Climate-related Financial Disclosures
(TCFD) recommendations on the
disclosure of information about the
risks and opportunities presented by
climate change. More information about
ESG – including all of our ESG policies
and practices – can be found on our
website www.imiplc.com and in this
Annual Report.
Results overview
2020 was another important year
of progress for IMI. All three of the
divisions delivered robust results in the
year. Despite the challenges of a global
pandemic, the Group demonstrated
its ability to protect its people, its
businesses and its wider stakeholders.
Whilst managing the short-term
challenges, the Group has continued
to strengthen its capability for growth.
Coronavirus
The protection of our people, our
businesses and our stakeholders remains
our absolute priority. Right at the start
of the pandemic a Coronavirus response
team was established – with meetings
chaired by the Chief Executive – to
monitor and manage employee welfare,
our supply chain and how we
communicate effectively with all of
our stakeholders. Delivering appropriate
protection remains an important
function of this group – whether
providing PPE or adjusting working
practices to maximise safety and social
distancing. The organisation also kept
particularly close to our customers to
support them as they incurred
challenges brought on by the pandemic.
Environmental,
Social & Governance
(ESG)
Many aspects of ESG – particularly
those that relate to Social and
Governance – represent disciplines
in which IMI has long enjoyed a strong
reputation as a business with a robust,
ethical and sustainable model. In 2020,
we continued to demonstrate our
commitment, as evidenced by a
reduction in workplace accidents by 9%,
high levels of employee engagement
and improved diversity within the
business. But there is more to do, and
with that in mind, IMI has extended
its ESG efforts, and outlined a robust
process and structure of accountability
to reflect our ambitions, and to ensure
delivery against them.
We start with a commitment to halve
factory CO2 intensity by 2030 (based
upon 2019 Scope 1 and Scope 2
emissions). With the support of a
specialist external consultancy firm,
we will establish additional, auditable
targets as the year progresses. Many of
our products already play an important
role in reducing the environmental
impact of our customers’ processes
and products. All future product and
strategic planning activities will include
Investment case
» Clear customer-focused
strategy delivering Breakthrough
Engineering with the best people
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
Adjusted revenue
£1,825m
3%
Adjusted profit before tax
9%
£274m
09
IntroductionStrategic ReportCorporate GovernanceFinancial Statements
Chief Executive’s Review
People
Our top priority is the safety of our
people. I could not be prouder of the
commitment our employees made
to keep our facilities and communities
safe throughout 2020, whilst delivering
resilient results in a tough year. I would
like to thank all of our employees for
their commitment and efforts during
the year.
Outlook
Based on current market conditions,
and assuming no worsening impact
from Coronavirus, we expect the Group
to deliver 2021 adjusted earnings per
share of between 75p and 82p.
Roy Twite
Chief Executive
Strategy update
In November 2019, we set out our plans
to improve the strategic positioning of
our business. We are pleased to report
significant progress, despite the
considerable market disruption caused
by the Coronavirus pandemic.
Growth culture
Initiatives designed to effect a change
in culture across the business remain
fundamental to the Group achieving
its strategic ambitions. These initiatives
are aimed at driving innovation,
customer intimacy and greater
commercial accountability throughout
the organisation. That shift is producing
encouraging early signs of impact,
including Growth Accelerator
programmes that are delivering early
commercial wins. Importantly, the
levels of customer engagement and
motivation across our employees are
continuing to build momentum, and
will be essential to our success.
Accelerating market-led innovation
A key element of our growth strategy
is our IMI Growth Hub. The Growth Hub
delivers structure and guidance for
Growth Accelerator and NPD Ignite
projects – initiatives that evaluate
brand new ideas or critical product
developments. The number of active
teams and participants in these
initiatives continues to increase and
the enthusiasm across the organisation
is high. This has resulted in a number
of projects advancing successfully in
the year, from developing engineered
solutions to making severe service
control valves safer and more effective,
to developing parts that significantly
improve hydrogen-fuelling infrastructure.
At the end of 2020 we had over 20
active Growth Accelerator teams
and £7m of orders already secured.
Reducing complexity
The work to drive complexity out of the
organisation continues, which will ensure
the long-term competitiveness of the
business and support the delivery of
our divisional margin targets as first
set out in the strategy presentation
of November 2019.
Benefits in 2020 from the rationalisation
programme totalled £33m. Charges for
2020 were slightly below plan at £39m
– partly reflecting the deferral of some
activity into 2021 as a consequence of
Coronavirus restrictions.
Short-term cost savings
In addition to the structural cost savings
described above, we also benefitted in
the year from approximately £25m of
short-term cost savings as a result of
the pandemic. In 2021 we expect
c.£17m of those costs to return.
Ground breaking at the new IMI Truflo Marine factory construction site
10 IMI plc Annual Report & Accounts 2020
Executive
Committee
IMI Precision Engineering
Palézieux, Switzerland
Roy Twite
Chief Executive
Daniel Shook
Finance Director
Beth Ferreira
Divisional Managing Director
IMI Precision Engineering
Jackie Hu
Divisional Managing Director
IMI Critical Engineering
Phil Clifton
Divisional Managing Director
IMI Hydronic Engineering
John O’Shea
Group Legal Director
and Company Secretary
Liz Rose
Group Human Resources
Director
11
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Business model
Our purpose
Breakthrough Engineering for a better world
Our vision
IMI will create tremendous value by solving key industry
problems in attractive markets and working with the best
Value
today
Improving returns
through greater
customer intimacy,
reduced complexity
and continuous
improvement
Customer
satisfaction
Continuous
improvement
Aftermarket
optimisation
The Core
Engineering &
Applications
Expertise
Talent
Development
& Employee
Engagement
Environmental,
Social &
Governance
Digital
Our values
Foresight
Teams
Growth
Accelerator
New Product
Ignite
Value
tomorrow
Generating growth
through market-led
innovation
Innovation model:
Turn to page 16
Customer intimacy
One big team
Playing to win
Integrity
More information on our values:
Turn to page 40
12 IMI plc Annual Report & Accounts 2020
Why
Breakthrough Engineering for a better world
How
Strengthen value today and drive sustainable
value for tomorrow
What
Design, manufacture and service highly engineered
solutions that control the precise movement of fluids
13
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Technology and
applications engineering
Solving industry
problems.
IMI’s vision is crystal clear and solving customer problems
lies at its heart. To achieve that vision we rely on renowned
expertise and continual innovation. These case studies
illustrate some of the exceptional capabilities deployed in
support of our customers, as well as how we succeed in
delivering those solutions.
Increasingly, the challenges faced by our customers and by
wider society are shared. With that in mind, IMI increasingly
favours product development and innovation initiatives that
help to solve those wider, often environmental, challenges.
Breakthrough Engineering for a better world.
Market-led innovation model
Constantly innovating to solve industry problems requires
discipline, focus and care. This model represents both that
important process, and a crucial shift in culture that is
essential for growth to accelerate and be sustained.
Innovation model:
Turn to page 16
14 IMI plc Annual Report & Accounts 2020
Application 1
Our IMI Precision Life Sciences business
successfully increased production of vital
and highly-complex components for use
in critical care ventilators ten-fold, whilst
maintaining the highest standards of
product quality and customer support
throughout.
Turn to page 18
Application 2
When customers experience problems
with noisy or vibrating competitor valves,
IMI Critical is able to design, produce
via additive manufacturing, and replace
with a much better solution – fast.
Turn to page 20
Application 3
As the regulation governing energy
efficient buildings continues to grow,
IMI Hydronic engineers have developed
valve solutions with much greater
intelligence embedded – allowing
significantly improved data capture
and system control.
Turn to page 22
15
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Technology and applications engineering
Market-led innovation model
Scan the environment:
» Unmet and emerging customer needs
» New technologies and business models
IMI Growth
Advisory Board
(External)
Divisional Growth Hub Leadership
Governance, decision making transformational leadership
Phase 1
Problem
identification
Phase 2
Test
Create the pipeline and
teams to test in Phase 2
Gate 1
Growth Hub
leadership to filter
and prioritise the
recommendations
routinely
Sprint teams test the
potential of ideas using:
Gate 2
Assess potential:
determine next
steps
Foresight
Team
Growth
Accelerator
Programme
Foresight teams continuously
build and review pipeline
Link to the Growth Advisory
Board and its external
network engagement
NPD Ignite
Programme
Only scalable projects stay in
the Growth Hub
Increasing product-market fit tested at each gate
16 IMI plc Annual Report & Accounts 2020
This model represents a significant shift in culture
leveraging existing expertise, an accelerated innovation
process, and extensive customer contact to deliver
scalable solutions to industry problems.
» Updates on market trends, digital innovation and scaling processes
» Challenge to conventional thinking on problem solving,
organisational structures and business models
» Connections, networks and access to talent outside of IMI
Growth
Hub
Phase 3
Develop
and assess
Phase 4
Implement
and scale
Gate 3
Assess potential:
determine next
steps
Validate proof of concept
Gain significant customer
commitment
Implement scaling plan
Implement new business
models
Gate 4
Sign-off Growth
Hub exit
Increasing product-market fit tested at each gate
17
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Technology and applications engineering
Challenge:
How do ventilator
manufacturers meet
burgeoning demand
to help save
thousands of lives?
Solution:
The Coronavirus pandemic has placed pressure
on hospitals worldwide to provide ICU ventilation
equipment for thousands of patients. IMI Precision
Engineering played a huge part in supplying major
Intensive Care Ventilator OEMs with solenoid
proportional valves, on/off valves, pressure regulators
and sub-assemblies – all helping to provide much
needed therapy to patients and ultimately saving lives.
One component they needed was IMI Precision’s FAS
FLATPROP proportional valve, that regulates the
flow of air and oxygen going into the lungs. FAS in
Geneva is the world’s leading manufacturer of these
valves. FLATPROP is assembled to a micron tolerance,
while measuring, in real time, 23 critical performance
parameters, at different pressures, in order to deliver
the highest resolution and most reliable regulation
capabilities of any valve of its size. To meet the high
demand, IMI Precision’s production capacity increased
ten-fold.
As a result of dedicated employees and strong
customer partnerships, IMI Precision has created
close relationships with the world’s leading ventilator
OEMs, with some new relationships formed that had
not been possible before. The product is also now
designed into new systems that IMI Precision had
previously not supported.
18 IMI plc Annual Report & Accounts 2020
IMI Precision’s FAS FLATPROP
proportional valve is used in the
HAMILTON-T1
Image courtesy of Hamilton Medical
FAS FLATPROP –
High flow pressure
compensated
proportional valve
Key benefits
» Contribution to saving thousands of lives during the
Coronavirus pandemic
» Ensures repeatability and high level of resolution for
medical device manufacturers
» Deeper partnerships with customers and increased
market share
IMI Precision Engineering
Palézieux, Switzerland
19
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Technology and applications engineering
Challenge:
How do you keep your
power or process plants
running and performing at
their peak, especially when
valves are not performing
as they should?
Solution:
Valves experiencing erosion, flashing, cavitation,
noise, and vibration very often lead to leakage, which
ultimately impacts plant performance and results in
low reliability and unnecessary cost. These problems
can lead to constant, unplanned maintenance,
or a requirement to replace the whole valve.
IMI Critical Engineering’s decades of experience and
deep knowledge of both processes and valve products,
means our Valve Doctors® and Application Engineers are
able to use that know-how to deliver effective upgrade
solutions, often without waiting for a major outage.
Our Retrofit3D engineered trim installation takes just
hours instead of days. Our certified technicians can
support installation as necessary, although our trim
requires no onsite valve modification as a result of IMI’s
precise engineering and state-of-the-art manufacturing
processes. As a result, the plant gets back online quickly,
avoiding unwanted downtime costs.
Through IMI Critical’s long-established engineering
reputation, an innovative approach to finding and
solving customer problems, these solutions are
now being delivered successfully across the globe.
The use of local additive manufacturing replacement
solutions also benefits the wider world. They require
less raw material, less shipping and packaging, and
make ‘upgrade versus replacement’ feasible whilst
keeping the world’s plants running safely and efficiently.
20 IMI plc Annual Report & Accounts 2020
In combined cycle power plants,
ensuring responsive and precise
control is key to enable efficiency
Bypass valves are
some of the most
critical valves,
operating at very
high temperature and
pressure changes
Key benefits
» IMI Critical’s 3D printed trims can be ready just 4 weeks
from order, compared to the standard 26 weeks for a
complete new valve
» The trim replacement upgrades competitor valve
performance, with no long-term outage required to
install the solution
» Such an upgrade reduces manufacturing waste and
contributes to ‘repair not replace’, supporting the
transition to a circular economy, whilst improving
plant reliability
21
IMI Critical Engineering
IMI CCI RSM, USA
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Technology and applications engineering
Challenge:
How do building owners
address expanding
environmental legislation
targeting energy consumption?
Solution:
To comply with increasing low carbon environmental
legislation, building owners and tenants are presented
with a problem. They need to be able to measure
HVAC system performance in an accurate, easy and
continuous way. They also need access to reliable data
that will help reduce energy and maintenance costs
and extend the life of the system.
Typically, HVAC monitoring involves manual
measurement, and the data is captured locally, so
fails to give a picture of overall system performance.
IMI Hydronic’s TA-Smart valve, a highly accurate
balancing and control valve, has integrated
measurement capabilities enabling continuous
logging of key circuit parameters: flow, temperature
and power. Fully compatible with all control systems,
TA-Smart’s advanced built-in technology enables
the valve to be configured digitally via a smartphone,
making system set-up and adjustment easy and
convenient. This technology also allows access to the
data captured by the valve, making it very easy for
building owners to monitor their complete systems.
TA-Smart was developed by the IMI Hydronic
R&D teams collaborating across Slovenia,
Sweden and Belgium.
22 IMI plc Annual Report & Accounts 2020
TA-Smart’s mechatronic
design sets the benchmark
in terms of measurement
and control performances
out performing competitive
valves in the market
TA-Smart provides
versatile ways to
communicate with
building management
systems. This digital
device feeds data to
IMI Hydronic’s cloud
Key benefits
» IMI’s solution delivers the quality of data capture and
component control that enables both hydronic circuit
monitoring and optimises energy efficiency leading
to reduced carbon emissions
» The customer gains critical space and cost savings
from a simplified installation, new or retrofit
» IMI Hydronic Engineering’s solution provides
class-leading accuracy to a greater range of flow
applications, improving controllability and efficiency
whilst maximising comfort
23
IMI Hydronic Engineering
Ljung, Sweden
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Value
today.
Improving returns through greater
customer intimacy, reduced complexity
and continuous improvement.
24 IMI plc Annual Report & Accounts 2020
Value today in action around the Group
To compliment an already strong digital offering, including
a top-class website, Norgren Express App and online
configurators, the IMI Precision team wanted to make
sure customers felt they were fully supported during
the Coronavirus pandemic on digital platforms.
The team kicked off a week-long sprint project to focus
on a range of ideas to help customers access information,
product content and training. They focused on getting closer
to the customer by using targeted email marketing, holding
product webinars to over 200 customers, increasing training
support on the website, and increasing social media
advertising. The team also added a virtual and augmented
reality section to the website which received a high number
of views within the first month. In addition, customers also
benefitted from new distributor portals that offer services
to make it easier to do business with IMI Precision.
Our customers purchase some of the most highly engineered
products in the world which need to operate in extreme
conditions, safeguarding their critical assets. With COVID-19
travel restrictions, it was not possible to send field service
engineers to customer sites, and witness inspection testing
at our sites was also not possible. IMI Critical Engineering
responded with ‘Critical Connect’ – a system that allows
remote access with audio and video, connecting our experts
in one country to our field service engineers in another, or to
our customers’ engineers. This helped our customers through
servicing and commissioning and kept key infrastructure
operational throughout the lockdowns.
In IMI Critical we continued to improve the quality and
resilience of our supply chain, with increased best cost
country sourcing, while at the same time effectively eliminating
sole-sourcing. This added regional suppliers to ensure resilience
due to COVID-19 restrictions. Enhanced employee safety
programmes, and collaboration between plants in different
regions, ensured our facilities continued to meet our customers
needs, including when mandatory lockdowns in Asia and then
in Europe affected other businesses.
To enhance its customer service offering and reduce
operational and supply chain complexity, IMI Hydronic
Engineering has consolidated its logistical operations
into a single hub.
Warehousing and distribution operations located in
Germany, Poland and Sweden are now centralised in a
single 14,000 square metre facility, located in Ruda Slaska
in Southern Poland.
Simplification of the division’s warehousing and distribution
operations will significantly enhance the overall customer
experience. In particular, product availability will be improved,
delivery lead times shortened and service levels standardised.
Reduced operational costs, increased warehousing efficiency
and lower inventory levels, will also help drive margin growth.
The new hub has been fully operational since the end of
January 2021. This centralisation project was successfully
delivered as a result of effective collaboration across the
division’s Polish, Swedish and German operations.
A leading global provider in life science instruments had been
suffering with major quality and delivery issues with an existing
supplier of acrylic bonded manifolds. Building upon an existing
relationship with the customer, the IMI Precision team in
Farmington, USA quickly responded to the customer’s
challenge by creating a bespoke multi-layered manifold,
delivering prototypes for testing. The resulting sales
opportunity is significant.
The team worked to ensure that the customer’s quality issues
were resolved in the prototypes and that they could commit
to a delivery timeframe. The prototypes were successfully
accepted, and IMI Precision are now working with the customer
to meet demand.
IMI PBM rose to the challenge to support the rapid response
needed for the supply of valves for COVID-19 related therapies
and vaccines.
IMI PBM’s commercial and operational teams worked together
to explore all options to satisfy customer requirements, in some
cases, re-organising to ship within days of the order being
placed. Through collaboration and flexibility, IMI PBM continued
to maintain the high level of trust it enjoys in the
pharmaceutical industry, by offering the best products
for demanding applications, whilst also consistently delivering
uncompromising customer service.
25
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Value
tomorrow.
Generating growth through
market-led innovation.
26 IMI plc Annual Report & Accounts 2020
Value tomorrow in action around the Group
IMI Hydronic’s Eclipse Automatic Flow Control technology
regulates the maximum flow in both heating radiators and
radiant manifolds irrespective of the differential pressure.
Launched back in 2015, this innovative solution was well-
received albeit market penetration was limited. To grow
IMI Hydronic’s position in several attractive markets
worldwide, teams engaged with customers to build a better
understanding of their needs. Based on valuable feedback
gained, IMI Hydronic has enhanced its Eclipse technology,
including making it easier for customers to use. This customer
engagement has also strengthened commercial relationships
and reinforced the division’s extensive hydronic expertise and
solutions-focused approach.
IMI’s Hydrogreen team has been working on a solution to
solve problems faced by hydrogen-fuelling infrastructure
providers. In particular, they need less complex and more
reliable systems to reduce operating costs. Over the last
year the team has been developing a solution that allows
IMI Precision to differentiate from the competition by
introducing a modular solution with fully configurable
components suited for hydrogen applications. If successful,
the opportunity is likely to be significant and will demonstrate
IMI’s expertise and capabilities.
IMI Critical Engineering has continued to develop its Growth
Accelerator process, rolling out training for all employees on
‘The Growth Mindset’. There are now 19 Growth Accelerator
projects in progress across the Group, and even more in
Foresight development. These include three projects in the
scaling phase, with £6m of bookings achieved in 2020,
with significant further potential in forthcoming years.
As our world becomes more digitally connected, centres
that manage and store data securely and effectively are
now essential. As demand for their services grows, data
centre owners are faced with the ongoing challenge of sourcing
reliable, energy-efficient cooling that also keeps their centres
safe and has a lower environmental impact.
IMI Hydronic’s balancing control solution fully addresses these
challenges. The division’s pressure independent balancing
and control valve technology enables stable and precise
temperature control, delivering better system performance,
increased cooling capacities and higher energy efficiency.
Having this innovative solution, IMI Hydronic’s Singapore team
has won a number of data centre projects across Asia, which
is one of the fastest-growing data centre regions in the world.
The team’s deep understanding of the division’s technologies
and extensive hydronic expertise ensure that customers are
provided with the best advice and solutions, from project
design through to system calibration.
27
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social
& Governance
Breakthrough
Engineering
for a better
world.
Far from being a separate initiative, our ESG agenda
forms an integral part of the way we do business, and is
fully aligned with our purpose, Breakthrough Engineering
for a better world. ESG is a topic that concerns all of our
stakeholders and it affects how we engage with them
as well as how we plan for our future. Evidence of this
is presented throughout this Report.
This approach is endorsed and monitored by the Board
and Executive sponsors and supported by the recently
formed Better World team with representatives from each
division and key functions across the Group (see illustration
on page 42).
ESG ambition
In this section, we seek to illustrate both
our progress to date and our ambition
for the future.
ESG ambition:
Turn to page 42
Find out more:
www.imiplc.com/esg
28 IMI plc Annual Report & Accounts 2020
Environmental –
Our sustainable approach
Turn to page 30
Social –
Our wider responsibilities
Turn to page 33
Governance –
Our ethical standards
Turn to page 39
29
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
Environmental –
Our sustainable approach
IMI Hydronic Engineering
Erwitte, Germany
30 IMI plc Annual Report & Accounts 2020
Reducing our impact on the
environment of both our
operations and customer
solutions is a fundamental
objective of IMI’s strategy.
A better world
The Better World team co-ordinates the
Group approach to ESG with particular
focus on three areas: our products, our
carbon footprint, and our policies and
governance. For more information on
the Better World team, please refer
to page 42.
Our products provide the greatest
opportunity to contribute to a better
world, be it in, for example, valves for
critical care ventilators, anti-surge valves
driving efficiency in LNG production,
or systems for energy efficient heating.
Understanding this impact, and ensuring
our product development takes this into
account, we will deliver our purpose
through a competitive and sustainable
future product portfolio.
We are committed to reducing our
carbon footprint and have initiatives
across the world to make our sites more
energy efficient, to ensure we share
best practice, and to commit to
year-on-year reductions.
Our high standards of governance have
been strengthened this year through
the development of our Inclusion and
Diversity initiative, our revised values
and increased employee engagement.
We have refreshed our external
reporting to bring even greater
transparency and focus to these areas.
We hold our purpose, Breakthrough
Engineering for a better world at the
heart of our strategy, delivering
innovative solutions, a sustainable
business and a great place to work
and do business with.
Keeping our
impact low
IMI is a global operation with
manufacturing facilities in 18 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 monthly
Executive meetings with a view to
delivering continuous improvement,
with an explicit goal of halving our
factory CO2 intensity by 2030 (based
upon 2019 Scope 1 and Scope 2
emissions). As part of our ESG ambition
and planning, we are also considering
how best to address Scope 3 emissions.
Energy efficiency
To underpin our commitment to reduce
our environmental impact, 25 of our 50
manufacturing facilities are certified to
ISO 14001 Environmental Management
and four are certified to ISO 50001
Energy Management standards.
These international accreditations help
IMI to provide a framework of
requirements for organisations to:
» Develop a policy;
» Fix targets and objectives to meet
the policy;
» Use data to better understand and
make decisions;
» Measure the results;
» Review how well the policy works, and
» Continually improve the processes.
CO2 emissions
We support the CDP (Carbon Disclosure
Project) climate change initiative and
submit annual CDP reports which
cover our risk management approach
to climate change and our emissions
performance. Since 2016 we have
reduced our CO2 emissions in line with
our continuous improvement culture
and investment in our operations.
‘000
tonnes
CO2e
80
60
40
20
0
2016
2017
2018
2019
2020*
* Disruption associated with Coronavirus, including
much lower occupancy of office space (including
within factories), has driven some direct
reductions in energy usage, which is reflected in
the overall results.
31
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
Methodology
The adjacent greenhouse gas emissions
estimates have been calculated to cover
all material sources of emissions from
the operations for which IMI plc is
responsible. The methodology used
was that of the Greenhouse Gas
Protocol: A Corporate Accounting
and Reporting Standard (revised edition,
2015). Responsibility for emissions
sources was determined using the
operational control approach.
All emissions sources required under
The Companies (Directors’ Report)
and Limited Liability Partnerships
(Energy and Carbon Report) Regulations
2018 are included.
The scope of emissions covers the
following sources: natural gas, fuel oil,
liquified petroleum gas (LPG), diesel,
petrol, combined heat and power (CHP),
electricity and business travel in
employee-owned or hire vehicles.
The UL 360 Sustainability Software
GHG (Greenhouse Gas) emission tool
was used to calculate the Scope 1 and
Scope 2 emissions adopting a location
based approach, using the UK
Government’s GHG Conversion Factors
for Company Reporting 2020 and the
International Energy Agency’s (IEA)
conversion factors from 2020.
Our currently reported Scope 3*
emissions were calculated by converting
mileage into emissions using UK
Government’s GHG Conversion
Factors for Company Reporting 2020.
Our carbon reporting statistics
demonstrate that our recent
performance of tCO2e has continued
to improve. However, it is important
to note that disruption associated with
Coronavirus, including much lower
occupancy of office space (including
within factories), has driven some direct
reductions in energy usage, which is
reflected in the overall results.
Nonetheless, on a like for like basis,
we believe we achieved our target to
keep emissions at or below 2019
levels for 2020.
Of the 2020 total:
» our direct Scope 1 emissions of
tCO2e (essentially gas, diesel and
fuel oil consumed) amounted to
12,465 tonnes; and
» our indirect Scope 2 emissions of tCO2e
(essentially the emissions generated on
our behalf to provide our electricity)
amounted to 33,033 tonnes. The total
represents a 20% reduction compared
to 2019.
In addition to gross tonnes of CO2e, we
report CO2e intensity relative to £million
sales; our result for 2020 is 24.9 which
is an improvement relative to the 30.7
we achieved in 2019 when restated on
a constant currency basis (2019 reported
figure of 31.2). Going forward, and in line
with our 2020 SECR report, we will use
the intensity metric of gross tCO2e per
1,000 hours worked as unit of
comparison to better reflect our
operational performance compared
to carbon output.
Environmental reporting
The below table and supporting
narrative summarise the Streamlined
Energy and Carbon Reporting (SECR)
disclosure in line with the requirements
for a quoted company, as per
The Companies (Directors’ Report)
and Limited Liability Partnerships
(Energy and Carbon Report) Regulations
2018. 2020 is the first year IMI has
followed SECR.
Current reporting year
1 January 2020 -
31 December 2020
UK
840
Global
12,465
1,918
33,033
82
460
2,840
45,958
4,423,632
61,951,252
8,227,092 103,870,106
Location
Emissions from activities
for which the company
own or control including
combustion of fuel and
operation of facilities
(Scope 1) (tCO2)
Emissions from
purchase of electricity,
heat, steam and cooling
purchased for own use
(Scope 2) (tCO2)
Emissions from business
travel in rental cars
or employee-owned
vehicles where
IMI plc is responsible
for purchasing the fuel
(Scope 3*) (tCO2)
Total gross Scope 1,
Scope 2 and Scope 3*
emissions (tCO2)
Energy consumption
used to calculate Scope
1 emissions (kWh)
Energy consumption
used to calculate Scope
2 emissions (kWh)
Energy consumption
used to calculate Scope
3* emissions (kWh)
Total gross energy
consumption based on
the above (kWh)
Intensity ratio: tCO2
(gross Scope 1, 2 + 3*)
per 1,000 hours worked
32 IMI plc Annual Report & Accounts 2020
331,441
1,857,022
We are working to deliver a strategy
for Scope 3* emissions.
12,982,165 167,678,378
1.5
2.4
* Scope 3 emissions currently only reflect business
travel in rental cars or employee-owned vehicles.
Social –
Our wider responsibilities
IMI Critical Engineering
Brno, Czech Republic
33
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
Environmental, Social & Governance
Creating not only a safe
but a stimulating and
rewarding environment.
Safety first
At IMI, we are all personally committed
to protecting our people, the
environment, the communities we
operate in and our company. Keeping
our employees safe at work is of the
utmost importance and we do our
absolute best to ensure everyone
leaves work safe and well. This ethos
is embedded in our IMI Way and Code
of Conduct, which applies to all our
employees and business partners.
Prioritising health and safety and
keeping our employees, and any
individual entering our sites, safe is
our number one priority. To achieve this
ambition, we take a proactive approach
and strive to continuously improve our
performance. Our Group Head of
Health, Safety & Environment reports
directly to the Chief Executive who has
ultimate responsibility for health and
safety. The Executive Committee
reviews health and safety matters every
month and regular reports are made
to the Board.
Looking after the health of our
employees is of paramount importance.
To demonstrate our commitment in this
area we initiated several ergonomic
awareness campaigns throughout 2020.
Topics included prevention of
34 IMI plc Annual Report & Accounts 2020
musculoskeletal disorders, safe use of
Display Screen Equipment, and
Ergonomics Awareness in the workplace.
The Coronavirus pandemic added a
further dimension to our health and
safety initiatives in 2020. At IMI our
operations maintained a consistently
high level of availability, whilst still
applying our rigorous safety
programmes. We deployed innovative
methods of virtual Gemba safety
inspections, using a mix of technology
and administrative tools that included
a specially created ‘validation’ self-audit
tool, based on the COVID-19 protection
measures we deployed. Our measures
were assessed in the year by three
Stop call wait
Starting in 2018, IMI implemented
a new process of employee-driven
hazard concern reporting. This
initiative empowered any employee,
or any person visiting our locations,
to report potential hazards, whilst
expecting them to stop a process or
an action, if they thought it was not
correct or could lead to a hazardous
situation. This proactive approach
has led to a reduction in LTAs from
16 in 2019 to 14 in 2020.
external regulators in different countries,
following unannounced visits. All of those
assessments resulted in very positive
conclusions.
We have installed 73 thermal imaging
cameras at sites globally, along with
supplying over 200 handheld
temperature measuring devices,
1,900 litres of sanitiser, and in excess
of 192,000 face masks for our
employees. We also created and supplied
2,200 safety packs for use by our field
service and sales functions, as well as
for our suppliers and customers.
Seven of our 50 manufacturing sites
are accredited to OHSAS 18001,
the international standard for Health
and Safety Management with 12 sites
successfully transitioning to the
new revised standard ISO 45001.
2020 saw several more of our
manufacturing sites join the ‘million-hour
club’. These sites have recorded over a
million working hours without a Lost Time
Accident (LTA). One of our locations has
recorded nearly 2.5 million hours LTA free.
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 formal Group-wide health
We report and record every safety
incident and fully investigate those cases
requiring more than first aid. In addition,
a full root cause analysis is presented
and reviewed with the relevant Divisional
Managing Director and Group Head
of Health, Safety & Environment.
Following this formal review, a
remediation plan is agreed, and
countermeasures implemented. 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 14 compared to 16
in 2019*, with no fatalities in either year.
We include all employees, contractors
and visitors in our accident reporting
analysis.
* The 2019 Lost Time Accident number has been
restated to 16, from 15 reported in 2019, due to
the reclassification of an injury and follow up
treatment.
Further information on our improved LTA scores:
Turn to page 56
sexual orientation, marital and family
status, age, disability, socio-economic
status and educational background
all play an important part, as do a
great many other attributes. Recognising
that each employee contributes value
through their complexity and uniqueness,
means that Employee Engagement is
a key driver for our Inclusion and
Diversity agenda.
IMI supports the recommendations
of the Hampton-Alexander Review,
that 33% of the Board, Executive
Committee, and direct reports to the
Executive Committee should be female
and during 2020 significant progress
was made with the percentage of
female Executive members increasing
from 0% to 29%. IMI’s gender mix is
shown in the table adjacent.
and safety audits at every major
operation to monitor progress against
our formal improvement actions.
We also conduct Health, Safety and
Environment (‘HSE’) due diligence when
establishing new operations or when
acquiring businesses.
As part of our drive for safety and
environmental excellence in 2021, an
enhanced HSE management system
will be introduced across the Group.
This framework will drive leadership
engagement and ownership whilst
upskilling our employees, leaders
and HSE teams.
We continuously use our data to drive
focused activities to improve our safety
and environmental performance.
On this theme, we recently held a data
analytics workshop with collaboration
from Group and divisional HSE leads
to use our data to objectively set goals
and targets for the forthcoming year.
In 2021, we will also be introducing digital
tools to help streamline the collection
and reporting of leading safety indicators
such as hazard reporting.
An inclusive and
diverse culture
Inclusion and diversity are integral to
the IMI values, driving the development
of the business. The refreshed Inclusion
and Diversity Strategy was presented
to the Executive Committee and the
Nominations Committee in March 2020,
with a focus on driving growth through
innovation and customer focus, as well
as improving business performance.
Diversity is seen in its broadest sense.
Operating in over fifty countries, with
different end-markets, industry sectors,
technologies and manufacturing
processes, IMI is a diverse business.
We aim to leverage this diversity
through collaboration, bringing elements
together in new and different ways
to solve customer problems.
As the world’s problems become
increasingly complex, we require high
levels of cognitive diversity to find
solutions. This is a key criterion for teams
in IMI. Beginning with the Growth
Accelerator and NPD Ignite programmes,
we now extend this approach across our
business. Including people with a wealth
of different life experiences, backgrounds
and perspectives drives this diversity of
thought. Gender, ethnicity, nationality,
Gender mix across
the Group*
Female Female% Male Male%
3
2
95
37%
29%
5
5
63%
71%
18%
439
82%
Board
Executive
Senior
managers**
Managers
200
19%
844
81%
All
employees
3,011
28% 7,765
72%
* Including agency and contractors.
** Includes direct reports to the Executive.
UK gender pay gap summary
as at 5 April 2020***
Mean gap
Median gap
2020
25.1
22.5
2019
34.5
22.4
*** We are a global business employing around 10,000
people around the world, just under 1,000 of
whom are employed in the UK. 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 can be viewed on
our website.
Gender pay at IMI:
www.imiplc.com/esg
35
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
IMI employs just under 1,000 people in
the UK, 72% of whom are male and
28% female. The pay gap results from
the proportion of women in senior roles,
rather than reflecting an inherent
inequality in pay systems. We have seen
progress since reporting started in 2017.
The narrowing of the mean gap in 2020
is primarily due to the appointment of
more female hires into senior leadership
roles below the Executive Committee
level. The appointment of Beth Ferreira
and Liz Rose to the Executive
Committee will have a further positive
impact in the 2021 results.
We aim to improve gender diversity in
senior roles, supporting the Hampton-
Alexander recommendation, that 33%
are female. In order to achieve this
sustainably, we are focused on building
a strong pipeline of female talent.
We have introduced a career
acceleration programme, ‘Catalyst’, with
a first cohort of 20 women. Female
engineers are recruited through the
Graduate Programme, in order to build
the pipeline at all levels. This year, 56%
of the graduates recruited were women.
All recruitment is required to have a
gender diverse shortlist.
IMI’s talent pipelines are reviewed by the
Executive team twice a year.
Members of the Executive Committee
have gender diversity objectives and
these are then cascaded throughout
the business. Communications are
co-ordinated in order to celebrate
success and share good practices.
For example, the WISE Campaign
(a UK initiative to increase the
participation of women in science,
technology, engineering and
mathematics) has Ten Steps, which
are useful guidelines applicable across
the world.
IMI takes the opportunity to celebrate
diversity in its broadest sense,
communicating across the Group
through channels such as the Inclusion
and Diversity Hub on the IMI intranet.
It is part of the Better World team’s
remit, who lead the ESG agenda on
behalf of the Executive Committee
as an integral part of our purpose,
vision and values, critical to achieving
our aspirations.
36 IMI plc Annual Report & Accounts 2020
Supporting our
communities
Employee engagement
Employee engagement is a key strand
of IMI’s strategy, across the Group.
To deliver our purpose and plans,
a customer-focused and collaborative
culture at all levels of the business is
fundamental. From day to day customer
service provision within our operations,
to technical problem-solving between
engineers; from account management
with our salespeople through to strategic
partnering at a senior level, customer
relationships are developed throughout.
Employee engagement is fully
integrated within our established
business management processes,
included in all business plans and
strategies, and tracked and managed
as part of our business reviews.
This keeps the process simple,
sustainable and avoids introducing
complexity. It allows managers to
factor in feedback from the workforce,
tailor plans to the key drivers of their
business, and use employee engagement
as a true strategic enabler.
The IMI Way Day
An engagement survey is undertaken
with all employees every year during
the IMI Way Day. This year, the day was
very much driven by the experience of
the Coronavirus pandemic. It was an
opportunity to engage with all our
employees, to recognise the challenges
they’ve faced at home as well as at
work, and to recognise the impact
this has had. Most importantly, it was
important to thank each one of our
employees for everything they have
done in support of each other and of IMI.
With the uncertainty everyone has faced
it was important to pause, align on
future priorities, and then enable the
whole organisation to move forward
with purpose, clarity and confidence.
The employee survey results overall
were positive, reflecting management
focus this year. We continue to maintain
a high percentage of employees that
would recommend IMI as a good
employer to family and friends. The
highest scoring response was given to
the support IMI provided employees
through the Coronavirus pandemic,
where 85% of respondents said they
believed IMI had supported its
employees through the global pandemic.
Scores for health and safety and
diversity were also in the top three most
highly scored topics.
The biggest opportunity for
improvement identified by the survey
responses is to engage people more
fully in site and divisional priorities.
Employee representation
Many of our sites have union
representation with whom we regularly
engage and maintain good relations.
We also hold an annual European
Communications Forum (ECF). This took
place virtually this year and was attended
by employee representatives from all of
our key European geographies. It provided
an opportunity for management
(including the Chief Executive, Finance
Director and Group HR Director) to
update on progress on key business and
human resource issues. It also provided
an opportunity to respond to a wide
range of questions from the
representatives on key matters of
employee concern. Discussions and
feedback from these engagement
channels are then fed back to Group
and divisional management with a view
to continuously improving communication
and engagement with employees on
a global basis. In the year, we have
managed major restructurings in many
businesess and geographies with
excellent co-operation from the
workforce. Thomas Thune Andersen is the
Board director designated with oversight
of workforce engagement. In this role,
Thomas attended the ECF this year.
He has also joined various programmes
such as the Graduate Induction and the
Growth Accelerator pitches and met with
the Inclusion and Diversity team, giving
insights into these initiatives.
Effective engagement
is an essential element
of success.
37
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
Leadership
Leadership has had a profound impact
on employee engagement this year.
In circumstances which were unfamiliar,
constantly changing, and with an
uncertain future, IMI set up a structure
to provide the clear and consistent
leadership, direction and support.
Communication
Beyond our established external
communications with our wider
stakeholders, our internal
communication efforts have been
strengthened considerably over the
last year – even before the additional
challenges presented by Coronavirus
became apparent (see page 06 for more
on COVID-19 communications). The IMI
intranet has been developed to be
more relevant and engaging. As well
as a section specifically addressing
Coronavirus issues, a new Inclusion
and Diversity Hub, a section for Growth
Accelerator projects, and regular video
communication from senior leadership,
are all now accessible to employees.
Intranet hit rates have significantly
increased since the beginning of the year.
There are still many opportunities to
improve, and the Group continues to
focus on this as a key business enabler.
Leadership development
IMI continues to invest in and support
leaders with their development
throughout the Coronavirus pandemic,
delivering our core programmes virtually,
as well as offering additional support
with specific learning modules to
support managers in leading through
a crisis. We continue to build capability
and bench strength at all levels. The core
management suite for senior and middle
managers has been modified and
refreshed to reflect the revised strategy,
purpose, vision and values. In addition,
a new programme has been developed
for General Managers, supporting the
objective of having business
management and decision making
close to the customer.
The eLearning system (IMI Learn) was
refreshed in February, enabling the
delivery of new content, which has been
especially useful during the Coronavirus
pandemic this year. A series of learning
modules has been made available, with
topics to support our purpose, vision
and values. The subject areas cover
issues such as innovation, Inclusion
and Diversity, customer relationships
and employee engagement.
Talent and succession
The success of internal promotions has
been a theme this year with 74% of our
43 senior vacancies having been filled
internally, compared to 66% in 2019.
We continue to build deeper talent
reserves, improving our succession
coverage for key positions.
We continue to focus on talent planning,
with Executive reviews twice a year
focusing on building strong, diverse
talent pools throughout the
organisation.
Community engagement
Our communities are key stakeholders
in IMI and how we engage with them
illustrates our values. This is becoming
increasingly important for our
employees, with feedback from the
IMI Way Day requesting more focus
from IMI in this area.
Many of IMI’s businesses have a
long history of supporting their local
communities. This year many sites
supported organisations through the
challenges of the Coronavirus pandemic.
In Italy, support for local hospitals was
provided through donations during
particularly stressful periods. In the
UK, IMI donated to the Birmingham
Nightingale Hospital.
Going forward, IMI will build on this
platform, communicating its support
for community engagement, including
time, money and expertise, with more
visibility for all employees of the
activities across the Group.
38 IMI plc Annual Report & Accounts 2020
Governance –
Our ethical standards
IMI Critical Engineering
Brno, Czech Republic
39
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
Code of Conduct
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 (the ‘IMI Code’)
sets out the standards we expect our
employees to adhere to. It covers a
range of issues including anti-bribery
and anti-corruption and is available
in thirteen languages.
Every employee receives a copy of the
IMI Code upon joining the Group and
specific training about the IMI Code
is provided as part of our employee
induction programme. On an annual
basis we provide refresher training and
updates on specific compliance issues
to relevant employees.
The IMI Corporate
Governance
Framework
Our governance framework and the
practical workings of our Board and
its committees are described in the
Corporate Governance Report on
pages 70 to 75.
Founded on
integrity
The IMI values
Our purpose, vision and values are all
strongly interlinked with the strategy
and mutually reinforcing. Our purpose
describes who we are.
Breakthrough Engineering
for a better world.
Our vision explains how we will achieve
our purpose.
IMI will create tremendous value by
solving key industry problems in
attractive markets and working
with the best.
Our values describe the mindset and
culture needed to deliver on our
ambitions. They were revised this year,
to simplify and align more fully with the
purpose and vision. Although formally
introduced to the organisation during
the October 2020 IMI Way Day, the
concepts played a central role in
communications throughout the year.
Customer intimacy – a mindset where
the customer is at the heart of
everything we do.
One big team – accesses the diversity
of IMI in every sense, whether this is
the diversity of talent, knowledge and
experience that we have with our people,
or the different technologies, processes
and end markets across our businesses.
Playing to win – a growth mindset that
is open to innovation and learning.
Integrity – being true to who we are
and doing the right thing at all times.
The IMI values are key drivers of business
success. That culture can be a source of
competitive advantage has been evident
this year through the Coronavirus
pandemic. Responding quickly to
safeguard employees; focusing on
solving customer problems; and working
together across the whole Group,
have all supported us through the crisis.
40 IMI plc Annual Report & Accounts 2020
Policies and
procedures
We have a number of detailed policies
underpinning the IMI Code and
appropriate compliance processes.
Around the Group there are 29 legal
and compliance specialists supporting
the businesses with training and
implementation of compliance policies.
Monitoring and review procedures
include Internal Control Declarations,
spot checks and regular on-site legal and
compliance reviews, which are designed
to help instil the highest standards of
regulatory compliance. These policies
and procedures are embedded in our risk
assessment processes, further details of
which are provided on page 58.
We encourage all employees to report
any incident that is not in keeping with
our values and behaviours through 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. Reports
are investigated thoroughly and, where
required, action is taken to resolve issues.
The Board also monitors the operation
of the hotline and checks that
commensurate investigation and
follow-up is carried out. During 2020,
33 cases were reported via the hotline
which compared to 21 in 2019.
Ethical conduct
Integrity is one of our four core values
and forms the basis of IMI’s decision-
making, including dealings with our
stakeholders.
Whilst we commit to acting responsibly,
sustainably and with integrity, we expect
our extended supply chain to do the
same. We actively choose suppliers
that respect the environment, their
employees and adhere to our strict IMI
Supply Chain Code of Conduct. But
our supply chains are often long and
complex, so we also encourage our
partners to adopt similar working
practices regarding their own suppliers.
We strive to positively influence ethical
and sustainable trading throughout
the world.
IMI is also committed to sourcing our
raw materials responsibly. This means
that we have a process to identify
the origins of conflict minerals in our
supplies, and are committed to ensuring
they originate from legal, audited mines.
We ask all of our suppliers of products
containing conflict minerals (specifically
tin, tantalum, tungsten and gold –
otherwise known as 3TG) to take
immediate action to identify the origins
of 3TG in the products they supply to us.
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 on our website. The other
policies referred to in this section,
including our Anti-Bribery, Compliance
and Hotline policies, are also available
to all employees.
Modern Slavery Act and Supply Chain Code
of Conduct at IMI: www.imiplc.com/esg
41
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Environmental, Social & Governance
ESG ambitions
IMI has many stakeholders, each with different perspectives on what they’d like to
see from us. Whether those are employees, partners, the communities we operate
in, or people whose pensions are invested in IMI shares. One characteristic they
all share is the growing importance they attach to ESG. That is why ESG
considerations are embedded throughout our strategy and in our purpose.
On pages 28 to 41 we have described what Environmental, Social & Governance (‘ESG’) means to IMI and how we address the
various issues that ESG describes. It is a complex subject area, but in many ways it’s also quite simple. It’s about doing business
the right, responsible way. It’s about minimising or eliminating any negative impact our businesses may have on our communities,
our wider stakeholders, and on the environment. It’s also about how we help our customers solve problems to improve energy
inefficiency, reduce harmful emissions – and drive sustainability. Breakthrough Engineering for a better world.
In this section, we set out our intent. Our ambition. We all need to set demanding targets which we will work hard to achieve.
We will also report openly where we succeed – or not – in those ambitions.
Steps taken
1
2019: ESG evolved
2
2020: Scope and structure established
Many aspects of ESG have been
successfully addressed by IMI in the
past – including governance, emissions
reporting and social responsibility. But
the scope of issues has increased and the
urgency to deliver improvement is growing.
Our starting point is positive. For example:
We enjoy a long-standing reputation
for good governance (MSCI ‘AA’ rating in
ESG), because doing business the right
way has always been important to us.
That’s a reputation we will fiercely protect.
A significant proportion of the products
and solutions we supply are developed
to help customers solve problems
associated with emissions reduction,
efficiency improvement, and other
environmental improvement objectives.
Our Inclusion and Diversity agenda is
driven by our desire to have a dynamic,
effective and inclusive team; something
we believe to be essential to success.
All of these and other objectives are
embedded in our strategy and purpose
and, where appropriate, included in the
strategic and personal objectives of the
annual incentive bonus (see pages 99 and
100). But whilst our ambitions haven’t
changed, we want to expand our specific
targets – as well as the actions and
initiatives that will deliver them. It matters
to us. It matters to our stakeholders.
In 2019, IMI changed how we report ESG,
recognising that we are at the start of
a significant and ambitious programme
of development.
42 IMI plc Annual Report & Accounts 2020
During 2020, we reviewed and confirmed what matters to IMI, and where we believe
we can have a positive impact. We also formalised our approach to ESG, so that we
may achieve our purpose, effectively.
» Led by the Chairman and the Chief Executive, there is Board level commitment
to develop a strategy covering how we best deliver Breakthrough Engineering for
a better world and how we report on our progress – for all our stakeholders.
» Thomas Thune Anderson was appointed as the non-executive director responsible
for ESG matters at IMI. As Chairman of Orsted, a company voted in Corporate
Knights as the world’s most sustainable, his experience is significant and relevant.
» The Board set ESG priorities and the IMI Executive is fully engaged with
ESG matters.
» The Better World team was established with senior representation from around
the business, each with a different perspective and expertise in ESG issues.
Area
Board
Roles
Chief Executive
ESG non-executive sponsor
Executive
Executive ESG sponsor
Divisional Managing Directors
Better
World
team
IMI Precision divisional champion
IMI Critical divisional champion
IMI Hydronic divisional champion
Head of Health, Safety &
Environment
Head of Investor Relations
Head of Risk
Head of Engagement &
Communications
Head of Inclusion & Diversity
Responsibility
To ensure ESG issues are considered as
part of the Group purpose, strategy and
objectives
To set direction and ESG focus areas
relevant to IMI
To oversee ESG initiatives and provide
regular updates to the Board
A cross divisional and functional team,
co-ordinating Environmental, Social &
Governance initiatives across the Group
Responsible for recommending ESG
strategy, developing plans for its
implementation, and establishing
structures, measures and validation plans
that deliver to Group targets. Routinely
reports to Board and Executive
Developing external and internal
communication plans in parallel to
the above
Managing IMI’s relationships with external
consultants and agencies
Expert guidance engaged
Ricardo PLC was appointed by IMI to
assist with ESG strategy planning and
target setting. Ricardo’s perspective is
important as a specialist and accredited
engineering and environmental
consultancy. Ricardo shares our high
expectations, as well as our ambition to
deliver a best in class performance in
ESG. They are helping IMI to:
» Establish appropriate and demanding targets
for our own business, as well as a strategy for
achieving them.
» Establish relevant ESG performance
characteristics and measures of the products
and solutions we deliver for customers.
» Establish a strategy for effectively
communicating our credentials, whether
directly to our stakeholders, through our Annual
Report, website, or via ratings agencies and
specialist indices.
Steps to follow
3
Deliver ambition
ESG is a wide-ranging topic, driving
many workstreams that include
maintaining our Governance reputation
and advancing Social impact initiatives.
Below, a few environmental priorities.
» We are evaluating our products and
solutions against both specific
environmental impact, and their
relevance to UN Sustainable
Development Goals (‘SDGs’).
Develop more products that have
positive environmental and social
impacts, for a better world – by, for
example, using less energy, creating
less noise, delivering longer life-spans.
Reduce the environmental impact of
our businesses – by incentivising them
to make ESG a priority in their planning.
By encouraging them to ‘act’, not wait.
» We have a clear understanding of our
Scope 1 and Scope 2 carbon footprint
and have self-improvement targets
for all sites – audited externally.
» We are working to deliver a strategy
for Scope 3 emissions.
» We will also be working towards using
the WBCSD Portfolio Sustainability
Assessment methodology.
» All new product development
programmes now prioritise ESG
considerations.
Keep our stakeholders informed on
progress – with relevant, meaningful
and challenging targets.
» The work being undertaken on
environmental assessment will support
our goal to fully align with the
recommendations from the Task Force
on Climate-related Financial
Disclosures (‘TCFD’).
» We provide data to outside agencies
facilitating external assessments of
ESG credentials.
4
Set stretching targets
In the 2021 Annual Report we will publish
more detail on our ESG plan, including
targets, methods and timescales
by which we aim to reach them.
These will be categorised into short,
medium and long-term targets. We are
adopting an approach in-line with
science-based targets.
As a starting point, we have introduced
an explicit goal of halving our factory
CO2 intensity by 2030 (based upon 2019
Scope 1 and Scope 2 emissions).
We will also produce greater clarity on
our own products’ beneficial impact
on the environment.
We plan to deliver. And we plan to share
the results of our analysis on an open
and regular basis.
We will also regularly review our
approach, in what is a rapidly evolving
and important area – for us all.
43
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Our stakeholders
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
stakeholders when making decisions.
As we build on our progressive Environmental, Social & Governance
platform and IMI becomes increasingly purpose driven, we are
developing deeper relationships with all of our stakeholders. Fully
understanding their needs feeds into and drives our business plans.
IMI Precision Engineering
Alpen, Austria
44 IMI plc Annual Report & Accounts 2020
The table below shows our key stakeholder groups and summarises their principal issues and how we engage with them.
For information about how stakeholder interests are addressed by our business model, see page 12 and the Environmental, Social
and Governance section on pages 28 to 43.
Our statement pursuant to Section 172 of the Companies Act 2006, which references stakeholder considerations and other
factors in Board decision-making appears on pages 75 and 76.
Our
stakeholders
Customers
Their priorities
How we engage
Further information
Value enhancing products
and solutions
The Growth Accelerator programme involving hundreds
of customer interactions
World-class customer
service
Ongoing relationship management at strategic, sales
and technical engineering levels
Market leading innovation
Long-term partnerships
Technical and product support, with access to our industry
renowned experts, such as through the Hydronic College
and Valve Doctor programmes
Increasing use of digital platforms to drive knowledge sharing,
customer networking, and relationship building
Performance monitoring and improvement through customer
driven metrics such as on time delivery and net promoter score
Our Growth Accelerator
programme – see pages
14 to 27
Examples of the use of digital
platforms to drive knowledge
sharing, customer networking,
and relationship building can
be found on pages 22 to 25
and 27
Employees
Health, wellbeing and
safety at work
Comprehensive health, safety and wellbeing programmes
that touch all employees
Health and safety – see pages
34 to 35
A positive culture that
values the unique
contribution of individuals
and addresses their
different requirements
of work
An environment that
engages all employees
Opportunities to grow
and develop
Reward
Employee engagement actions, integrated within business
plans, at every level
Annual Group-wide IMI Way Day and employee survey
Workforce engagement at Board and management levels.
This includes staff representative and Union participation.
The European Communications Forum meets annually,
with representatives from our key European geographies
Appropriate engagement takes place at local level in relation
to restructuring changes affecting the workforce
A suite of face to face and online training and development
programmes, targeted at business and employee needs.
Leadership conferences, town hall meetings
Targeted individual, team and group communications
through the Poppulo and Intranet platforms
Independent confidential hotline
Intranet for each division and the Group
Corporate website
IMI Way Day – see page 37
Employee engagement –
see pages 37 and 38
Training and development –
see page 38
Executive remuneration
reflective of remuneration
for the wider workforce –
see page 96
Shareholders
Financial returns
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
Fair and timely payment/
commercial terms
Collaborative approach
Supplier audits
Supplier summits
Society/
community
Positive social impact
Local community support and charitable activities
Employment
opportunities
Environmental impact on
the neighbourhood where
we operate and on the
global community
University partnerships and Graduate Programme
Active management of emissions and reduction plans
across IMI sites
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
Investor Relations programme
– see pages 73 to 74
Remuneration related
consultation – see page 73
Supply chain management –
see page 06
Modern slavery statement,
Supply Chain Code of Conduct
and Responsible Minerals
Sourcing policy – see our
website
Community activities –
see page 38
Environmental, Social &
Governance section –
see pages 28 to 43
Environmental performance –
see pages 30 to 32
Tax strategy on our website
www.imiplc.com/esg
45
IntroductionStrategic ReportCorporate GovernanceFinancial Statements 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
£877m
Adjusted operating profit
Down
3%
£151m Up
2%
New solutions to satisfy
China emissions legislation
IMI Precision Engineering has an established
reputation for the development of products
that help reduce emissions from heavy truck
engines, including Diesel Air Inlet Throttles
and the Smart Waste Gate valve. In June
2018 China released new emission standards,
‘China 6’ for heavy vehicles, to come into
force in July 2021 and IMI’s products will
therefore contribute to a substantial reduction
in transport emissions and associated
improvement in air quality in China. To support
new customers in Asia, IMI has already
developed solutions dedicated to those local
emissions and efficiency requirements.
IMI Precision Engineering
Noida, India
46 IMI plc Annual Report & Accounts 2020
Outlook
Based on current market conditions,
and assuming no worsening impact
from Coronavirus, we expect the reversal
of the temporary surge of ventilator
demand to be largely offset by
improving markets in Motion Control
and Commercial Vehicle. This will result
in IMI Precision Engineering 2021 organic
revenues being slightly lower than 2020.
Profits and margins are expected to be
flat to slightly down as rationalisation
benefits will be offset by the reversal
of 2020 temporary savings and the mix
effect from lower Life Sciences sales.
Key achievements
» The rapid increase in production
and delivery of critical ventilator
valves by more than 10x.
» Effective operational and
supply chain management
during a period of significant
market volatility.
» Increasing resource dedicated
to Growth Hub initiatives.
» Continued complexity reduction
including delivery of planned
restructuring benefits.
2020 performance
In 2020 IMI Precision Engineering
has delivered significant progress in
its structural reorganisation as well
as a strong operational performance.
The response to an unprecedented
surge in ventilator valve demand was
exemplary, as the business quickly
and reliably scaled-up production
by a factor of 10x.
Revenue, on both an organic and
adjusted basis, was 3% lower than in
2019 at £877m. That result reflected
performances in Motion Control (down
11% vs 2019) and Commercial Vehicle
(down 25% vs 2019) that followed the
trends evident across their wider
segments. However, in the final quarter
of the year, both segments delivered
sequential improvements in revenue.
The Fluid Technologies business delivered
revenues 24% ahead of 2019, largely
driven by the surge in demand for
ventilator valves to satisfy the urgent
global need in light of the pandemic.
Ventilator valve sales totalled £117m
in the year, reflecting a temporary surge
of £94m above the more normal level
of demand experienced in 2019 (£23m).
Current expectations are for overall
sales to return to c.£35m in 2021.
Operating profit of £151m for the year
was 2% higher than in 2019 (£148m)
on both an adjusted and organic basis,
which resulted in margins of 17.3%
(2019: 16.3%). The benefits of
rationalisation, effective operational
management, and sales mix all
contributed to that robust performance.
Beth Ferreira
Divisional Managing Director
47
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
£643m
Adjusted operating profit
Down
1%
£107m Up
18%
Innovative products to
curtail noise disturbance
As more of the world has switched away from
coal production, greater demands are being
made of gas, and the infrastructure that delivers
it. One major environmental issue with intensive
use of pipelines is the noise that affects local
communities. IMI Critical’s new product, dBX
Shield, combining our Drag technology with our
ball valve expertise, solves this problem, stopping
unacceptable noise and vibration which impacts
both people and animals.
IMI Critical Engineering
Rancho Santa Margarita, USA
48 IMI plc Annual Report & Accounts 2020
Jackie Hu
Divisional Managing Director
Nuclear orders increased 38% in the
year to £78m, with over 90% of activity
within the Aftermarket. IMI Critical
benefits from the ongoing investment to
install the latest technologies into older
nuclear power facilities to significantly
extend the lives of those assets.
The 2020 closing order book was £522m
– up 1% when compared to 2019.
Organic revenue at £643m was 4%
lower than in the previous year, and
1% lower when including the results
of PBM and currency movements.
New Construction sales were £309m
(+7% vs. 2019), whilst Aftermarket
sales were 12% lower than the
previous year at £334m.
Operating profit of £107m was 14%
ahead of 2019 on an organic basis,
despite the decline in volumes, delivering
a significant improvement in margins
to 16.6% (2019: 13.8%).
Outlook
Based on the opening orderbook and
current market conditions, and assuming
no worsening impact from Coronavirus,
we expect IMI Critical Engineering 2021
organic revenues and profits to be
broadly flat when compared to 2020.
Key achievements
» Early order success from
Growth Accelerator teams.
» Strong upgrade Aftermarket
order delivery.
» Accelerated progress with
restructuring programme.
2020 performance
IMI Critical Engineering has delivered
a very strong financial performance
for the year, while continuing to
reposition its business toward
more attractive markets.
When compared with 2019, order input
for the year decreased by 8% on an
organic basis with New Construction
down 17% and Aftermarket flat to 2019.
Both New Construction and
Aftermarket Field Service activities were
adversely impacted by the effects of the
pandemic. The division was able to again
deliver good growth in Aftermarket
Upgrade valves by focusing on solving
identified operational problems being
experienced by both existing and new
customers.
Oil & Gas orders of £134m were up 9%
and were supported by £58m of New
Construction LNG orders, as well as
11% growth in Parts. Refining and
Petrochemical orders of £177m were
down 20%, reflecting reduced new build
activity and maintenance budgets in
the year.
Power orders of £190m were up 5%,
with good growth in New Construction
coming from projects in gas-fired and
concentrated solar power stations.
Within Power, New Construction Coal
orders totalled only £16m in the year,
now less than 3% of division order
activity. Coal Aftermarket Parts orders
were largely flat in the year, reflecting
the resilience of the division’s installed
base. Over 60% of these orders relate
to valves installed within modern and/or
favourably located facilities, providing
confidence that this important annuity
will continue into the future.
Marine orders of £33m were 51% lower
than last year, which was expected due
to a large multi-year order received in
2019. This remains a highly attractive
part of IMI Critical’s portfolio which
will provide long-term growth given
its expanding product offering and
geographic reach.
49
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
£305m
Adjusted operating profit
Down
3%
£56m Down
2%
Thermostatic radiator
controls providing
significant energy savings
IMI Hydronic Engineering has long-established
expertise in delivering effective and reliable
thermostatic radiator valves for both domestic
and commercial applications. IMI Heimeier’s
Halo B thermostatic head delivers material
energy savings, particularly when compared
with manual controls, and in a variety of
different settings. The solution not only saves
energy for its user but, by extension, also results
in lower CO2 emissions for the environment.
IMI Hydronic Engineering
Erwitte, Germany
50 IMI plc Annual Report & Accounts 2020
2020 performance
IMI Hydronic was notably affected
in the first half of 2020 by construction
site and installer access restrictions,
as governments responded to the
Coronavirus pandemic. The division
experienced better conditions in
most markets as the year progressed,
including modest growth in Q4. While
managing effectively the significant
volatility and uncertainty of the
pandemic year, IMI Hydronic continued
to drive forward its strategic plan
of simplification and growth.
Organic revenue was £305m, 4% lower
than in 2019, with declines experienced
across all sectors. Operating profit of
£56m was 5% lower on an organic basis
versus the prior year, and resulted in an
improvement to the operating margin
to 18.3%. The division’s simplification
project is now largely complete, and
on track to deliver the targeted £3m
of savings by the end of 2021.
Outlook
Based on current market conditions, and
no worsening impact from Coronavirus,
IMI Hydronic Engineering’s 2021 organic
revenues and margins are expected to
be slightly higher than in 2020.
Key achievements
» Strong operational
performance in
volatile markets.
» Delivery of supply chain
simplification and Slovenia
factory closure.
» Continued progress with
cultural shift and Growth
Accelerator projects.
Phil Clifton
Divisional Managing Director
51
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Financial review
IMI achieved a good financial
result in 2020, with improved
margins in all divisions and
strong cash generation
despite the difficult
trading environment.
Key highlights
Continuing
operations:
Revenue
Operating profit
Operating margin
Profit before tax
Basic EPS2
Operating cash flow3
Dividend per share4
Net debt
Adjusted1
Statutory
2020
2019
Change
Organic5
2020
2019
Change
£1,825m
£1,873m
£285m
15.6%
£274m
79.7p
£335m
22.5p
£316m
£266m
14.2%
£251m
73.2p
£299m
41.1p
£438m
-3%
+7%
+140bps
+9%
+9%
+12%
-45%
-4%
+5%
£1,825m
£227m
£1,873m
£204m
£214m
62.7p
£189m
57.6p
-3%
+11%
+13%
+9%
1 Excluding the effect of adjusting items as reported in the income statement.
2 Statutory amounts for Basic EPS include both continuing and
4 The 2019 Dividend per share includes the postponed dividend that was paid in
September 2020.
discontinued operations.
5 Change shown after adjusting for exchange rates and excluding the impact of
3 Operating cash flow, as described in Note 19 to the financial statements.
acquisitions (see Note 4).
Results summary
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, in order to ensure that decisions
taken align with its long-term interests. Movements in adjusted
revenue and 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 3% to £1,825m (2019: £1,873m). The exchange
rate adjustment was nil and after adjusting for £19m of sales
for the first 9 months of 2020 in IMI PBM, that were not in the
comparative period in 2019 as this was prior to the acquisition,
organic revenue was 4% lower and reflects the challenging
economic markets as a result of the global pandemic.
Adjusted operating profit of £285m (2019: £266m) was
7% higher, and after removing the £2m favourable impact
of exchange rates and the inorganic element of the PBM
acquisition was higher by 5%. The adjusted operating margin
was 15.6% (2019: 14.2%) as the Group was able to manage
effectively through the difficulties brought on by the pandemic.
All three divisions grew margins in the year, supported by the
benefits of ongoing restructuring programmes and value-
pricing initiatives. Statutory operating profit was £227m
(2019: £204m). We consider that the presentation of adjusted
results allows for improved insight to the trading performance
of the Group.
Adjusted net financing costs on net borrowings of £11.0m
(2019: £14.9m) was lower due to the repayment of a US$100m
loan in the second half of 2019 and a one-off benefit to interest
from tax refunds, and includes the impact of £2.5m (2019:
£2.3m) interest cost on leases. Adjusted net financing costs
were covered 35 times (2019: 24 times) by continuing adjusted
earnings before interest, tax, depreciation, amortisation,
impairment and adjusting items of £380m (2019: £357m)
and included £30m (2019: £32m) of depreciation on our
leased assets. The net pension financing income under
IAS 19 was £0.2m (2019: £0.5m expense).
52 IMI plc Annual Report & Accounts 2020
» In 2020, the Group recorded an adjusting impairment charge
of £2m (2019: £2m) associated with the restructuring
programme ongoing in IMI Precision Engineering and IMI
Critical Engineering.
» 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 £19m (2019:
£20m), which largely relates to the amortisation of the
intangible assets recognised on the acquisition of Bimba
in 2018. In 2019 there was 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.
» A net loss arose on the revaluation of financial instruments
and derivatives under IFRS 9 of £2m (2019: £0.4m gain).
» There was a pre and post-tax gain of £3m in 2019 from
discontinued operations relating to the finalisation
of a number of matters relating to historical
discontinued operations.
Taxation
The adjusted effective tax rate for the Group remained at
21% (2019: 21%). The total adjusted tax charge for the year
on continuing operations was £58m (2019: £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 79.7p (2019: 73.2p) and
increased by 9%. Statutory basic EPS increased by 9% at
62.7p (2019: 57.6p) and statutory diluted EPS increased by
9% at 62.6p (2019: 57.6p).
Adjusted profit before taxation was £274m (2019: £251m),
which is higher by 9% compared to 2019. Statutory profit
before taxation increased 13% to £214m (2019: £189m) as the
Group continued 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 (gains)/losses
Restructuring costs
Gains on special pension events
Impairment losses
Acquired intangible amortisation and other
acquisition items
Net financing (costs)/income
Tax in connection with the above adjusting items
2020
£m
(2)
(36)
-
(2)
(19)
(2)
13
2019
£m
4
(52)
9
(2)
(21)
-
17
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 loss at £2m (2019: gain
of £4m). 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 £36m (2019: £52m) are a result of
a number of significant restructuring projects across the Group.
These include the continuation of a cost and footprint
rationalisation programme within IMI Precision, £5m in
Europe and £2m in the Americas, which include the closure
of a manufacturing site in each region. In IMI Critical, adjusted
restructuring costs related to a restructuring programme in
the EMEA region of £23m, which included the closure of
manufacturing at two Italian sites and restructuring at
two German sites, and £2m in the Americas to right size
the workforce. In IMI Hydronic, there were costs of £5m
related to the closure of a manufacturing site in Slovenia and
consolidation of the Swedish and German distribution hubs
into one hub in Poland. There was a provision release of £1m
related to the Corporate HQ following the closure of matters
relating to previous projects. Details of 2019 projects are
included in Note 3.
» In 2019, gains on special pension events were £9m. 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.
53
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****
Interest
Derivatives
Tax paid
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 increase/(decrease) in cash and cash equivalents
excluding foreign exchange
Repayment 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
2020
£m
379.5
14.6
2019
£m
357.3
12.9
(50.7)
(65.8)
8.5
6.5
(28.7)
(31.3)
11.3
334.5
(36.7)
(11.0)
(22.5)
(41.0)
(7.0)
216.3
19.2
298.8
(26.2)
(14.9)
16.1
(40.2)
(7.0)
226.6
(91.6)
(110.8)
-
(69.0)
(8.5)
116.2
(3.4)
43.4
98.4
(19.5)
17.8
62.9
116.2
43.4
-
3.3
2.1
121.6
1.0
12.7
(90.4)
(33.3)
(437.8)
(404.5)
(316.2)
(437.8)
* Adjusted profit after tax (£216.4m) before interest (£10.8m), tax (£57.5m),
depreciation (£76.1m), amortisation (£16.3m) and impairment (£2.4m).
** Movement in provisions and employee benefits as per the statement of cash
flows (£7.9m) adjusted for the movement in restructuring provisions (£0.6m).
*** 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 £335m (2019: £299m). This
represents a conversion rate of total Group adjusted operating
profit to adjusted operating cash flow of 117% (2019: 112%).
Net working capital balances decreased £15m due to
a reduction in receivables of £18m as a result of good cash
collection across the Group and an increase in payables
of £6m due to overall payment timing, partly offset by
an increase in inventory of £9m. The decrease in 2019 of
£13m was due to a decrease in receivables of £45m partly
offset by an increase in inventory of £15m and a decrease
in payables of £17m.
54 IMI plc Annual Report & Accounts 2020
Cash spent on property, plant and equipment and other
non-acquired intangibles in the year was £51m (2019: £66m)
which was equivalent to 0.8 times (2019: 1.1 times) depreciation
and amortisation thereon. Capital spending in 2020 was
deliberately curtailed during the pandemic given the economic
uncertainty; expectations are for a return to historical levels
of £60-70m in the future. Research and development spend,
including capitalised intangible development costs of £7m
(2019: £9m), totalled £46m (2019: £52m).
In 2020 the Group paid tax of £41m (2019: £40m) which
was 71% (2019: 76%) of the adjusted tax charge for the year.
Dividends paid to shareholders totalled £92m (2019: £111m),
reflecting the Group’s decision to reduce its distribution to
provide a dividend earnings cover baseline of three times
Adjusted Earnings per Share, which will enable IMI to deliver
more effectively on its long-term growth ambitions. In addition,
there was a cash outflow of £9m (2019: £3m outflow) for
net share purchases to satisfy employee share options.
Balance sheet
Net debt at the year end was £316m compared to £438m at
the end of the previous year. The decrease reflects strong cash
generation in the year including good working capital
management. The net debt is composed of a cash balance of
£208m (2019: £88m), a bank overdraft of £74m (2019: £60m),
interest-bearing loans and borrowings of £362m (2019: £376m)
and lease liabilities of £88m (2019: £90m).
The year end net debt to adjusted EBITDA ratio was 0.8 times
(2019: 1.2 times) based on continuing adjusted EBITDA. At the
end of 2020, loan notes totalled £362m (2019: £358m), with
a weighted average maturity of 5.3 years (2019: 6.3 years)
and other loans including bank overdrafts totalled £74m (2019:
£78m). Total committed bank loan facilities available to the
Group at the year end were £300m (2019: £300m), of which
nil (2019: £17m) was drawn.
At 31 December 2020, the value of the Group’s intangible assets
was £600m (2019: £619m). The decrease of £19m over the prior
year was predominately due to amortisation and impairment of
£39m offset by additions of £13m and an increase arising from
exchange movements of £7m.
The net book value of the Group’s PPE at 31 December 2020 was
£266m (2019: £271m). Capital expenditure on PPE amounted to
£38m (2019: £47m), with the main capital expenditure focused
on developing production facilities to support operational
efficiency as well as to increase capacity to accommodate the
increase in ventilator component demand. Including capitalised
intangible assets, total capital expenditure was £51m (2019:
£66m) and was 0.8 times (2019: 1.1 times) the depreciation and
amortisation charge (excluding acquired intangible amortisation
and lease asset depreciation) for the year of £63m (2019: £59m).
The net deficit for defined benefit obligations at 31 December
2020 was £22m (2019: £31m deficit). The UK surplus was £69m
(2019: £48m surplus) and constituted 77% (2019: 76%) of the
total defined benefit liabilities and 89% (2019: 88%) of the total
defined benefit assets. The deficit in the overseas funds as at 31
December 2020 was £91m (2019: £79m 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 pension position (net of
deferred tax) and to reverse historical impairments of goodwill
and amortisation of acquired intangibles. ROCE was 12.3%
in 2020 (2019: 11.4%) which increased by 0.9%.
Adjusted Operating Profit
Notional Tax charge
Net Adjusted Operating Profit after tax
Net Assets
Adjusted for:
Net debt
Restructuring provision
Net derivative assets / liabilities
Net defined pension benefit
Deferred tax on employee benefits
Previously written-off / impaired goodwill
Acquired intangibles amortisation
Closing capital employed
Opening capital employed
Average capital employed
ROCE
Note
19
20
17
14
11
2020
£m
284.7
(59.8)
224.9
799.5
2019
£m
266.1
(55.9)
210.2
709.9
316.2
437.8
30.1
(6.1)
22.0
(7.0)
351.9
311.5
29.4
(4.3)
31.3
(9.3)
351.9
285.6
1,818.1
1,832.3
1,832.3
1,848.0
1,825.2
1,840.2
12.3%
11.4%
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:
Foreign Exchange
Euro
US Dollar
Average
Rates
Balance Sheet
Rates
2020
1.13
1.28
2019
1.14
1.28
2020
1.12
1.37
2019
1.18
1.32
The movement in average exchange rates between 2019 and
2020 provided no impact to our adjusted 2020 revenue and
a 1% increase in adjusted operating profit, with the average
US dollar rate flat and the Euro rate being 1% stronger.
If the exchange rates as at 12 February 2021 of US$1.39 and
€1.14 were projected for the full year and applied to our 2020
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. 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
December 2020. We have fine-tuned our Brexit mitigation
plan and established 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 62.
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 2020, IMI plc (the company) had distributable
reserves of £292m (2019: £303m).
Daniel Shook
Finance Director
55
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
0.08
0.076
0.075
2018
2019*
2020
Organic
Sales
Growth
%
10
5
0
-5
5
-3
-4
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 business
success, including 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 2020 our LTA rate reduced
to 0.075 with no fatalities,
reflecting the Group’s
continued focus on
identifying and reducing
workplace hazards.
* The 2019 Lost Time Accident
rate has been restated to
0.076, from 0.072 reported
in 2019, due to the
reclassification of an injury
and follow up treatment.
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 2020 that
means we are excluding the
9 months of sales for PBM
in 2020 where PBM was
not owned in the
comparative period.
Performance
Sales declined in 2020,
reflective of the difficult
market conditions partly
brought on by the
Coronavirus pandemic.
Employee
Engagement
%
100
75
50
25
71
74
73
2018
2019
2020
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
We continue to maintain
a high percentage of
employees that would
recommend IMI as a good
employer to family and friend.
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
Adjusted operating profit
improved in 2020, despite
the revenue fall, reflective
of the commercial and
operational focus during
the year. Operating margins
improved 140bps to 15.6%.
2018
2019
2020
265.5
266.1
284.7
2018
2019
2020
56 IMI plc Annual Report & Accounts 2020
Adjusted Operating Profit is a target for the 2020 & 2021 Annual Bonus.
Return on Capital Employed and Adjusted Earnings per Share are performance
targets for the 2020 & 2021 IIP. See page 107 for further details.
Cash
Conversion
%
125
100
75
50
25
83
112
117
2018
2019
2020
Adjusted
Earnings
Per Share
Pence
100
75
50
25
73.2
73.2
79.7
2018
2019
2020
Return on
Capital
Employed
Reflects
proforma
adjustment
for IFRS 16
%
20
15
10
5
12.2
11.4
12.3
2018
2019
2020
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 Group’s Return on Capital
Employed improved in 2020
to 12.3%, reflecting the profit
improvement in the year and
continued working capital
management.
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.
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
Cash Conversion was again
strong in 2020 at 117%
supported by a working
capital inflow of £15m and
lower capital spend, with
expectations for capital
spend to return to historical
levels in the future.
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
Adjusted EPS increased in
the year to 79.7p, despite the
difficult market environment.
Business model:
Turn to page 12
Annual Directors’ Remuneration Report:
Turn to page 85
57
IntroductionStrategic ReportCorporate GovernanceFinancial Statements How we manage risk
Our risk management processes are embedded in all 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 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 team. 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 page 73.
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.
» Operates and monitors an active and
effective risk management process.
Operating
companies
» Operates reporting systems that
increase management ownership
and accountability.
supporting divisional data and the actions undertaken.
» Reviews annually the effectiveness of the Group’s internal controls.
» Risks, mitigating controls and outstanding actions presented and
challenged at operation performance reviews.
» Develops bi-annually a detailed Group and divisional risk profile.
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.
» Create risk profiles for each manufacturing operation either once or twice
a year depending on the operation’s risk profile.
» 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.
58 IMI plc Annual Report & Accounts 2020
Emerging risks
The Board 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 performance reviews and Executive
Committees. Consideration of emerging risks also forms part
of our strategy review process.
Our principal risks
The Board also assesses the Group’s principal risks which are
detailed on pages 60 to 63. 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 2020 and explains what we are doing to
monitor and mitigate each risk area.
Our risk appetite
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.
Emerging risks that could be relevant to our business include
geopolitical instability and greater isolationism (reducing
the previous trend of globalisation) and new technological
advances including artificial intelligence, robotisation and the
‘Internet of Things’, 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.
Whilst not categorised as a specific principal risk, the
Board recognises the importance of climate change as
an emerging risk and this is covered in the section below.
In addition, elements of climate change feature in several
of our principal risks.
Climate change
Climate change creates potential existential and disruption
risks for our business. Extreme weather and natural hazards,
which are becoming more common, could impact our day-to-
day operations. For example, in October an IMI Critical
Engineering site in California was temporarily affected by
the disruption caused by the Silverado fire which was a major
state emergency. 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 a good level
of property damage and business insurance interruption cover.
Climate change not only continues to drive demand for our
products and services but also influences the expectations
of our key stakeholders. The Environment, Social & Governance
section (‘ESG’ – pages 28 to 43) describes how seriously
ESG issues, including climate change related risk, are taken
throughout the organisation. Our wider ESG ambitions are
directly aligned to our purpose (Breakthrough Engineering
for a better world) and central to our strategy. We continue
to 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. Supported by external, specialist
consultants we have begun the process to determine specific
responses and targets addressing a number of global ESG
initiatives whose ambitions we share, including TCFD.
59
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Our principal risks
Risk, link to strategy and risk appetite
Change
Risk mitigation including specific 2020 actions
No change
This continues to be one of the Group’s
highest risks, as evidenced by the significant
fall in demand for discretionary products
in Q2 due to the Coronavirus pandemic.
Whilst IMI Precision saw a substantial
increase in the demand for its life science
products in 2020, in Q2, demand for
Commercial Vehicles was down 51%
and Motion Control was down 19%
before improving.
IMI Critical continues to face highly
competitive markets and faces a structural
decline in the New Construction Fossil
Power sector. The pandemic has also placed
restrictions on the levels of field service work.
IMI Hydronic saw a decline in demand, for
a period this year, as construction activity
reduced due to the pandemic.
We compile annual strategic plans and
maintain a balanced portfolio operating across
a range of markets, sectors and geographies
with no significant single dependency.
Our divisions ensure their forecasting processes
include scenario stress testing, reviews of
sector metrics and early indications of reduced
customer demand to allow proactive and rapid
management of plant output.
We have continued to improve our performance
during the year through rationalisation and
restructuring programmes. All three divisions
are continuing with restructuring programmes
to optimise their operational footprint.
The Group has not closed down operations
and declared redundancies as a direct result
of the Coronavirus pandemic.
Brexit mitigation measures are in place to
address supply chain issues and continue
to serve customer needs.
Increased
Although this risk has partly been
reflected within the global economic
or political uncertainty risk above, it has
specifically been added in response to
the COVID-19 pandemic.
From the onset of the COVID-19 pandemic
the Executive Committee, supported by
a cross-function, cross divisional team has
led the mitigation against this risk, initially
meeting three times a week. Rapid changes
were made to sites to ensure the wellbeing
of our employees and to reduce the risk of
disruption. Where possible home working has
been supported for indirect employees. Site
risk assessments were carried out and site
response plans activated to ensure appropriate
measures were in place (these included infection
control measures, restriction of visitors, vastly
reduced international travel, changes to the
layout of some sites, increased communications,
shutdown procedures, transfer of production
to alternative sites, substitute suppliers etc).
We have been supporting our employees not
only with the issuance of personal protective
equipment, but also with information on
working safely, mask usage guides and how
employees can protect themselves and their
families outside of the factories allowing
them to undertake their own personal risk
assessments. Whilst travel has been drastically
curtailed, we have utilised video conferencing
and devices like Google lens to assist in field
service calls, remote site inspection &
assurance walks and to facilitate customer
acceptance testing.
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
Strengthening customer intimacy
Reducing complexity
Driving market-led innovation
Risk appetite
Balanced
2. Business disruption /
Natural disasters
The risk to life or disruption to
production caused by large scale events
such as, pandemics, fires, floods,
international conflicts etc.
Link to strategy
Strengthening customer intimacy
Reducing complexity
Digital
Risk appetite
Very prudent
60 IMI plc Annual Report & Accounts 2020
Risk, link to strategy and risk appetite
Change
Risk mitigation including specific 2020 actions
3. Competitive markets
Competition in our core markets, from both existing
and new competitors could create strong pricing
pressures, potentially resulting in lost sales and
reduced profits.
Link to strategy
Strengthening customer intimacy
Reducing complexity
Driving market-led innovation
Digital
Risk appetite
Receptive
No change
Even prior to the Coronavirus
pandemic several of our
markets were seeing levels
of reduced demand. Lower
economic activity has led to
excess supply in several sectors
(fossil power and Oil & Gas)
and reduced demand for
certain products
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.
No change
Whilst the overall risk has
not changed, this area
continues to be a key focus
for our businesses, to insure
any cost of quality issues,
including warranty claims,
are kept to a minimum.
Link to strategy
Strengthening customer intimacy
Reducing complexity
Driving market-led innovation
Digital
Risk appetite
Very prudent
We monitor competition risk via selected
indicators during the monthly operational
reviews undertaken by each of our businesses.
We also defend our trademarks and brands,
have a strategy for patent recognition and
continue to develop our market leading
applications engineering expertise.
Our NPD Ignite and Growth Accelerator
programmes aim to create significant
customer-pull and uncover new opportunities
by solving our customers key problems through
advanced applications engineering, helping
us deliver more competitive products.
We also have an M&A strategy which looks
to apply our expertise and ability to create
synergistic benefits in established, new
and adjacent market sectors.
We have 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.
5. Failure to deliver major transformational projects
on time and on budget
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.
Decreased
Whilst several projects have
been delayed due to the
Coronavirus pandemic,
many projects have been
successfully progressed or
completed in the year.
Link to strategy
Strengthening customer intimacy
Reducing complexity
Digital
Risk appetite
Prudent
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.
Project management and governance
processes underpin all IT projects to support
efficient ERP system roll out.
61
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Our principal risks
Risk, link to strategy and risk appetite
Change
Risk mitigation including specific 2020 actions
6. Failure to integrate acquisitions successfully
and deliver the required synergies
Underperforming acquisitions deliver below
expectation synergies and reduced profit.
If material, this can significantly impact
shareholder value.
Link to strategy
Reducing complexity
Digital
Risk appetite
Receptive
7. Unauthorised access to our IT systems
Given the digital and security threat
environment is constantly evolving, we can
never fully guarantee that our actions will
stop all external threats.
Unapproved access to our IT systems could
result in loss of intellectual property, fraudulent
activity, theft and business interruption.
Link to strategy
Reducing complexity
Digital
Risk appetite
Very prudent
8. Failure to manage the supply chain
Failure to manage the supply chain could have
a material impact on our financial performance
and reputation.
Link to strategy
Strengthening customer intimacy
Reducing complexity
Driving market-led innovation
Digital
Risk appetite
Prudent
We have in-house M&A expertise and,
as highlighted previously, operate a proven
structured integration process.
The 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. Due to the increased
homeworking during the Coronavirus pandemic
the IT Security team met daily to safeguard
the security perimeter of the network. 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.
The divisional procurement teams, throughout
the Coronavirus pandemic, performed thorough
reviews of our supplier base, including reviewing
our suppliers financial standing. Where
appropriate the business created dual sourcing
arrangements, moved the supply chain closer
to our facilities, and created safety stocks.
Brexit is not expected to have a material
impact on the Group’s businesses. IMI Precision
Engineering, the division most exposed to Brexit
has less than 10% of its cross-border trade
potentially affected by Brexit. Buffer stocks
and other mitigating actions are in place to
reduce the potential disruption from Brexit.
Procurement teams also assess specific
Supplier Code of Conduct risks across the
divisional supply chains and audit high risk
suppliers for all aspects of supply chain risk
including Modern Slavery. The teams also have
regular review meetings with key suppliers,
and as required, deploy escalation meetings.
No change
The acquisition of PBM (which gives
us access to the Pharmaceutical
and Food Processing markets)
was completed in 2019. Bimba
was acquired in 2018 and has
been integrated into IMI Precision.
We continue to manage these
operations to ensure they deliver
value and the planned synergies, and
provide ongoing support and training
for the local management teams.
No change
During 2020, we continued to detect,
block and remediate threats on
an ongoing basis. The volume and
complexity of threats continue to rise,
these include malware, ransomware,
attempted data theft, credential
theft, phishing and external hacking
attempts.
To counter the increase in threat
activity we continue our significant
investment in detective and
preventative IT measures.
With the increased amount of
homeworking we have enhanced
firewall protection.
Increased
The reduced production capacity
and increased cost of disruption
caused to our business by COVID-19
(government import/export
restrictions, reduced availability
of product transportation and the
downturn in the global economy)
has increased the risks associated
with receiving materials in the right
place, at the right quality and at the
right time.
The signing on 30 December 2020
of the EU-UK Trade and Cooperation
Agreement does reduce materially
the potential Brexit disruption,
however there may be consequences
of the UK leaving the EU which
may still risk disrupting the supply
chain (additional documentation,
changes in taxation, changes in
the way goods are delivered into
Northern Ireland etc).
62 IMI plc Annual Report & Accounts 2020
Risk, link to strategy and risk appetite
Change
Risk mitigation including specific 2020 actions
9. Failure to comply with legislation or
a breach of our own high standards
of ethical behaviour
No change
We continue to operate in similar markets
as last year, with no significant changes
in legislation.
No change
One of our core values is customer intimacy,
ensuring unmet and emerging customer
needs are at the core of our operations.
The Growth Accelerator programmes rather
than starting with existing products aims
to start with the customer, working with
them to understand their problems to work
together to find the solution.
We have established a framework
which demands the highest standards
of ethics and regulatory compliance
across all 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
Strengthening customer intimacy
Reducing complexity
Digital
Risk appetite
Very prudent
10. New product development
Failure to deliver market leading
products, on time and on budget,
could impact our ability to grow.
Link to strategy
Strengthening customer intimacy
Reducing complexity
Driving market-led innovation
Digital
Risk appetite
Receptive
Strategy
Turn to page 14
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.
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.
In 2020 around half of the entire workforce
– some 5,972 employees – completed online
training modules on conflicts of interest,
dealing with third parties and anti-competitive
practices 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 41).
The use of the IMI Growth Advisory Board
and the expansion of the Growth Hub aims to
ensure appropriate processes and governance
are in place to avoid new product concentration
risk, projects are scalable and relevant teams
have the bandwidth to deliver successful new
products/services effectively.
The use of the NPD Ignite process allows a
much shorter validation window to determine
if the proposed solution to a customer problem
has a viable business and value proposition.
This shorter timetable allows efficient use
of resources to ensure only the most
appropriate solutions are developed.
We have established centres of design and
technological excellence across our businesses.
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.
Further details of the processes and governance
of our new product development can be seen
in the Technology and applications engineering
sections on pages 14 to 23.
63
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Viability and going
concern statements
Finally, the Board considered a reverse stress test which
demonstrated that a breach of covenants would not occur
unless there was an extreme unforeseen event causing
a revenue reduction of greater than 36%. Mitigating actions
considered for this reverse stress test include, but are not
limited to, reducing working capital, restricting capital
expenditure, reducing overhead spend and employee costs
and cutting or suspending dividend payments to shareholders.
The mitigating actions do not assume any special
governmental support other than normally available
schemes such as short term working in certain countries.
The Board considered the Group’s liquidity, available banking
facilities and banking covenants, details of which are included
in the going concern statement below. 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. 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 58 to 63.
The directors’ assessment also recognised a number of
key features of the Group’s operations. The Group’s wide
geographical and sector diversification, and the spread of
activities across many production sites, help minimise the
risk of serious business interruption. Furthermore, our business
model is structured so that the Group 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 under 14% of Group revenue. In addition, our ability to flex
our cost base, as seen during 2020, reduces our exposure to
sudden adverse economic conditions.
Viability statement
The directors have assessed the viability of the Group 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 58 to 63
and the five-year business plan reviewed by the Board in
September 2020. 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 2025.
The directors determined that the period to 31 December
2025 constituted 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 2025 was chosen
as it was aligned 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.
The business plan was used to assess the headroom on the
Company’s facilities and to model stress tests for 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 scenarios considered
were as follows:
Scenario 1: A modest global macroeconomic recession in
2021 representing a 5% reduction in revenues.
Link to principal risks: global economic or political uncertainty
Scenario 2: A product recall with a one-off cost of £200m.
Link to principal risks: Quality issues leading to product
recall, warranty issues, injury, damage or disruption to
customers’ business.
Scenario 3: A severe global macroeconomic recession in 2021
representing a 15% reduction in revenues. This scenario was
considered to be reflective of the impact of a more serious
further wave of COVID-19.
Link to principal risks: global economic or political
uncertainty; business disruption / Natural disaster
Scenario 4: This scenario considers the combined impact
of scenario 2 and 3, both a £200m product recall and a
15% reduction in revenues due to macroeconomic recession.
Link to principal risks: Quality issues leading to product recall,
warranty issues, injury, damage or disruption to customers’
business; global economic or political uncertainty, business
disruption / Natural disasters
64 IMI plc Annual Report & Accounts 2020
At 31 December 2020, the Group had cash and cash
equivalents of £134m and undrawn committed facilities
of £300m in the form of Revolving Credit Facilities (RCF),
of which £150m is due for renewal in 2022, £75m in 2023
and £75m in 2024. Forecasts indicate that the Group can
operate within the level of facilities in place without the
need to obtain any new facilities in the twelve-month period
following the approval of the Annual Report & Accounts.
The directors have assessed the viability of the Group and
reviewed detailed cash flow forecasts for a period of at least
twelve months following the date of approval of the Annual
Report & Accounts. These revised forecasts factored in a
decline in revenue based on slowdowns in various end markets,
experiencing tough trading conditions. After applying a reverse
stress test and making comparisons to the detailed forecasts,
the directors have a reasonable expectation that the financial
headroom will not be exhausted during this period. Covenant
compliance reviews are undertaken to ensure that the Group
remains fully within the covenant limits. Funding covenants
currently require EBITDA to be no less than 4.0 times interest
and net debt to be no more than 3.0 times EBITDA. Those
covenant ratios, at 31 December 2020, were 34.5 times and
0.8 times, respectively. For there to be a breach of covenants
during the twelve-month period following the approval of the
Annual Report & Accounts forecast revenue would need to
fall by 36%, and forecast EBITDA by 69%, after taking into
account the mitigating actions that would be undertaken in
these circumstances.
Going concern statement
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 business development,
performance and position are set out in the Strategic Report.
Principal risks are detailed on pages 58 to 63. 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.
After making enquiries, the directors have a reasonable
expectation that the Company and the Group have adequate
resources to continue in operational existence for the
foreseeable future and for a period of at least twelve months
(28 February 2022) following the approval of the Annual
Report & Accounts.
Accordingly, they continue to adopt the going concern basis
in preparing the financial statements. The directors have
considered the impact of Coronavirus and of the restrictions
put in place by governments to contain the spread of the virus
on the Group’s financial results and financial position.
Immediate measures were taken to protect first and foremost
the Group’s workforce, communities and customers. Actions
were deployed to ensure strict adherence to social distancing
measures and deep-cleaning protocols and these measures will
be continued as needed to keep the workforce safe. Business
disruption, so far, has been reasonably modest as the Group
is well diversified and maintains a balanced portfolio operating
across a range of markets, sectors and geographies with no
single dependency. Performance in IMI Precision’s Commercial
Vehicle segment has been affected and temporary
construction site restrictions have impacted the results of
IMI Hydronic, both of which have been mitigated to some
extent by a temporary surge in orders within Life Sciences.
Across the Group, all sites have returned to normal levels of
production. Supply chain disruptions have been minimal and
alternative suppliers or contingency stocks have addressed the
few instances of part shortages.
During this period of uncertainty, we continue to maintain a
robust financial position. The balance sheet position has been
protected by the actions taken to reduce costs and preserve
cash, including the following:
» salary reductions for the Board;
» continuing, successful initiatives in rationalisation,
value-pricing and material cost reduction; and
» reduction in temporary workers, increase in short time
working, and tight controls on discretionary spending.
65
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Board of Directors
Nationality
Committee
membership
Date of
appointment
Expertise
Key external
appointments
British
Nominations
Committee – Chair
2015
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
Non-executive Chairman
of Scottish Enterprise
Non-executive Chairman
of the British Business
Bank plc
British
Executive
Committee
2019 as Chief
Executive
and 2007
as director
Proven organisational and
engineering expertise
Management capability having
run all of IMI’s divisions
Extensive knowledge of end-
markets and customer base
Non-executive director
of Halma plc*
American British
Executive
Committee
2015
Non-executive director
and Chair of Audit
Committee of Ultra
Electronics Holdings plc*
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
German
Audit Committee
2012
Nominations
Committee
Remuneration
Committee – Chair
Experienced international
business leader
In-depth knowledge of the
automotive sector
Expert in operational excellence
and Lean manufacturing
Significant experience in
technology management
Non-executive director
of Babcock International
Group PLC*
Chairman of Chemring
Group plc*
Chairman of the
Shareholder Committee
of HELLA GmbH & Co.
KGaA
Lord Smith of Kelvin
Chairman (76)
Roy Twite
Chief Executive (53)
Daniel Shook
Finance Director (53)
Carl-Peter Forster
Senior independent non-
executive director (66)
* Listed company directorship.
66 IMI plc Annual Report & Accounts 2020
Nationality
Committee
membership
Date of
appointment
Expertise
Irish
Nominations
Committee
Remuneration
Committee
1 January 2020
Successful career in the technology
sector based in the US, rising to
Business Group President of Flex,
an industry-leading Fortune Global
500 company with operations in
30 countries
Senior executive leadership roles
across international operations
including supporting complex
supply chains. Retired from
Flex in 2018
Previously a non-executive director
of the Irish Development Agency
Key external
appointments
Non-executive director
of DCC plc*
Non-executive director
of Tyndall National
Institute
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
Danish
2018
Nominations
Committee
Audit Committee
from 1 March 2020
Non-executive
director responsible
for employee
engagement and
ESG matters from 1
March 2020
Experienced international
business leader in sectors
including oil, energy, marine and
critical infrastructure
Broad experience as a non-
executive director of various
public companies
Special interest in ESG
matters in particular corporate
governance and climate
change issues
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
Chairman of VRK Holdings A/S
British
2018
Nominations
Committee
Remuneration
Committee
Senior executive experience
in major oil companies and
investment banking
Specialist knowledge of the
Oil & Gas sector
Excellent corporate finance
experience including mergers
and acquisitions
Executive Vice President of
Commercial and New
Business Development at
Royal Dutch Shell
Caroline Dowling
Independent non-executive
director (53)
Isobel Sharp
Independent non-executive
director (64)
Thomas Thune
Andersen
Independent non-executive
director (65)
Katie Jackson
Independent non-executive
director (47)
International
business
responsibility
Public
company board
Engineering /
manufacturing
Finance
Mergers &
acquisitions
ESG
Board
experience
87%
62%
87%
62%
100% 87%
67
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Chairman’s
Chairman’s governance letter
Governance letter.
Dear Shareholder
Navigating the Group through a global
pandemic has without a doubt been
our greatest challenge in 2020. With
appropriate challenge and support,
the Board has maintained close oversight
and given every encouragement for the
executive team’s effective leadership and
care of our people during this difficult year.
At the same time, we have not lost sight of
the governance fundamentals which have
been a strength for IMI. In the Corporate
Governance section of this Annual Report
on pages 66 to 113, we describe our
governance arrangements and the practical
workings of the Board and its committees.
Leadership
I am now in my sixth year as Chairman and still learning new
things. In 2020, all but one of our nine Board meetings and
all our site visits and corporate events have been conducted
by electronic means as virtual meetings. By giving careful
attention to the agendas, time management and a clear focus
on the big issues, we have had very successful meetings. While
this rapid conversion to virtual meetings and digital working
was forced by the Coronavirus pandemic, there are positive
elements we will be taking forward beyond the pandemic.
The Board is fully engaged, enjoys open and constructive
interaction with the executive team, and has the skills
and experience to oversee strategy, governance and risk.
The quality of debate at meetings is excellent and we get
valuable input from our diverse group of non-executive
directors. The effectiveness of the Board was confirmed in the
independent evaluation exercise which is described on page 72.
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.
The Board has adopted four key values which it feels fit well
with the purpose and strategy we adopted in 2019. The annual
IMI Way Day was used to brief employees across the Group
on the new values and to collect feedback on our culture.
The Board’s review of culture looked at a range of evidence
and indicators of culture including Group-wide employee survey
data, customer satisfaction ratings and other stakeholder
engagement feedback. IMI is seen as a good company to work
for as an employee and has high customer experience ratings.
The Board was particularly pleased to confirm in its review that
the customer-led, growth culture is becoming a reality and very
much reflects our purpose and strategy.
Our culture is also reflected in our 2020 ESG initiatives,
which were developed under the guidance of Thomas Thune
Andersen, non-executive director for ESG matters, and given
strong support by the Board. More on ESG matters appears
on pages 28 to 43.
Stakeholder engagement
During the year the Board reviewed the Group’s key
stakeholders and the processes we operate to engage
with them.
Board level engagement is conducted with shareholders
(see pages 73 and 74) and employees (see page 72). We have
a designated non-executive director for employee engagement.
Management regularly updates the Board about the state of
relations and engagement with key stakeholders and there
are active feedback processes in place which form part of
the Board’s strategic review activity.
The Group’s key stakeholders and engagement channels
are summarised on page 45.
68 IMI plc Annual Report & Accounts 2020
Governance highlights
» Continued to operate as an effective Board through
virtual meetings.
» Additional Board meetings held to facilitate close monitoring
of developments during the Coronavirus pandemic.
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
pages 110 to 111 of this Annual Report.
» Reviewed capital allocation and rebased the dividend to
retain cash for investment in the Group.
A statutory Section 172 Statement pursuant to the Companies
Act 2006 appears on pages 74 and 75.
» Worked with the Chief Executive and the executive team
to further refine the Group’s strategy.
» Approved key changes to the executive team while ensuring
the succession enriched the diversity of talent: the Executive
Committee is 29% female and includes four nationalities.
» Accelerated the Autumn Interim Management Statement
to ensure the timely disclosure of a better than expected
financial performance.
» Increased focus and activity around ESG matters.
» Externally facilitated Board evaluation completed.
Compliance with the 2018 UK Corporate
Governance Code (the ‘Code’)
I am pleased to confirm that we complied with the Code during
the year as reported on page 70. In addition to the above
highlights, I offer the following comments on key elements
of the Code 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. More information about the Board members is
provided on pages 66 and 67.
Accountability and election
There is a clear separation of duties between the roles of
Chairman and Chief Executive. All the directors stand for
re-election at each Annual General Meeting after their
first election.
Attendance
All directors have a good attendance record at Board and
committee meetings, details of which appear on page 71
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 for recent and relevant
financial experience.
The Remuneration Committee chair has been in post since
March 2020 and a member of the Committee since 2012.
I am the Nominations Committee chair and have been in post
since 2015.
External auditor
As approved at our 2020 Annual General Meeting, EY was
appointed as the Group’s external auditor in respect of the year
ended 31 December 2020. EY is considered to be independent
and receives little income from non-audit work for the Group as
detailed on page 79. The Audit Committee led an audit tender
process in 2020 which resulted in the decision to recommend
the appointment of Deloitte as the external auditor for the year
ended 31 December 2021. Further details are given in the Audit
Committee Report on pages 76 and 79.
Executive remuneration
Our current executive director remuneration policy was
approved by shareholders in 2018 and its operation in practice
complies with the Code as detailed in the Annual Directors’
Remuneration Report on pages 93 to 107.
The next three-yearly vote on remuneration policy is due to be
put to the 2021 Annual General Meeting. Details of the policy
to be put forward for shareholder approval are included in
the Directors’ Remuneration Policy Report on pages 85 to 92.
Inclusion and Diversity
Information about the diversity of the people on the Board
and the Executive Committee appears on pages 70 and 81.
In planning for succession the Board is taking account of the
guidance from the Parker Review Committee. I am delighted
that Dr Ajai Puri will be joining the Board as a non-executive
director with effect from 1 March 2021. The Group’s Inclusion
and Diversity Policy and what the Group is doing to promote
inclusion and diversity in areas like management succession
and development are reported on pages 35 to 36.
I am particularly pleased to see that our 2020 graduate
scheme intake reflects our diversity agenda with over half
of the graduates joining us being female.
Strategy and risk
The Board conducts regular reviews in relation to strategy
and risk, further details of which appear on pages 58 to 63
in relation to risk and 71 in relation to Strategy.
Yours faithfully
Lord Smith of Kelvin
Chairman
25 February 2021
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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 2020
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 68 and 69. 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 on pages 64 to 65. A summary of our risk
management systems and information about the risks and
uncertainties that relate to our business is detailed on pages
58 to 63. Information on corporate responsibility can be found
in the Environmental, Social and Governance section on pages
28 to 43.
Board composition
Eight directors served on the Board throughout 2020:
the Chairman; the Chief Executive; five independent non-
executive directors and the Finance Director. Birgit Nørgaard
was a director until 29 February 2020. 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 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 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
born and there are five different nationalities on the Board.
Three of the eight directors are female. Our approach to
diversity is set out in more detail on pages 35 and 36 and in
the Nominations Committee Report on pages 80 and 81.
The charts below represent the Board membership as at
the date of this Annual Report.
70 IMI plc Annual Report & Accounts 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 born
1 40-49
3 50-59
4 60+
Dates of appointment
Length of tenure at 31 December 2020
Thomas Thune Andersen
Caroline Dowling
Carl-Peter Forster
Katie Jackson
Isobel Sharp
Lord Robert Smith
0
1
2
3
4
5
6
7
8
Years
Date of first
appointment
Date of current letter
of appointment
Thomas Thune Andersen
1 July 2018
25 February 2021
Caroline Dowling
1 January 2020
25 February 2021
Carl-Peter Forster
1 October 2012
25 February 2021
Katie Jackson
Isobel Sharp
1 July 2018
25 February 2021
1 September 2015
25 February 2021
Lord Robert Smith
7 May 2015
25 February 2021
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 2020, the Chairman and
serving non-executive directors all held IMI shares as set out
in the table on page 104.
Meetings and use of Board time
The Board met on nine 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 special meetings arranged to
review developments during the Coronavirus pandemic.
2020 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 2020
Strategy review process
IMI Precision Engineering brand strategy
March
Update on the Coronavirus pandemic and management response
Financial sensitivity review
Approval of a market update announcement
April
Update on the Coronavirus pandemic and management response
Trading and financial update
Annual General Meeting logistics and preparations
May
Review of trading and update on the Coronavirus pandemic
Review of the Q2 Forecast
Approval of the interim management statement
Final preparations for the Annual General Meeting
Strategy review process
Brokers’ market update and review of developments in relation to public
company M&A and activist shareholders
Review of Environmental, Social and Governance agenda
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
Five-year business plan review
October (first meeting)
Virtual site visit to operations in Life Sciences and the Hydronic College
Review of the Company’s purpose, values and culture
Review of stakeholder engagement
Strategy review process
Progress update on Environmental, Social and Governance agenda
October (second meeting)
Review of the Q4 Forecast
October trading update and management’s latest view
Interim Management Statement
December
Budget for 2021
Annual risk review
Strategy review process
Board evaluation with Egon Zehnder
Review of Environment, Health and Safety agenda
Approval of the proposed appointment of Deloitte as external auditor
Board attendance
Director
Board meetings
% attended
where eligible
Thomas Thune Andersen*
Caroline Dowling
Carl-Peter Forster*
Katie Jackson
Birgit Nørgaard
Isobel Sharp
Lord Smith
Daniel Shook
Roy Twite
8/9
9/9
8/9
9/9
1/1
9/9
9/9
9/9
9/9
100
100
100
100
100
100
100
100
100
* Two directors were unavailable for a special Board meeting held at short notice
due to urgent business.
To date in 2021 the Board has met twice 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 110 to 111.
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 had induction meetings with all members of the
Executive Committee and the auditor. There is also a
committee induction process designed to brief new committee
members on the relevant committee and the issues it faces.
In addition, all new non-executive directors attend a corporate
induction day for senior managers.
In normal circumstances, 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 allow business familiarisation and are also
a good opportunity to engage with a wider range of
employees. Virtual Board visits were arranged but due to
the Coronavirus pandemic individual travel has been
impractical for most of 2020.
Reflecting the strategic importance of our Growth Accelerator
events, where innovation working groups present new product
and business ideas, the non-executive directors have enjoyed
active participation and engaged with the diverse teams
involved from the businesses.
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, tailored best practice updates were provided
to the Audit and Remuneration Committees during 2020.
Non-executive directors are encouraged to undertake
appropriate external training and several did attend external
training during the year.
71
IntroductionStrategic ReportCorporate GovernanceFinancial Statements was that the Board is run in an effective manner and the
Board was pleased with the highly positive outcome. Following
discussion of the report by Egon Zehnder, the Board noted
a small number of modest areas for development over the
coming year. None of these areas for development, individually
or collectively, were regarded by Egon Zehnder as significant
and worthy of disclosure.
The directors are satisfied that the Board is fulfilling its
responsibilities appropriately and that the Board and its
committees were effective and that each continuing director
demonstrated a valuable contribution and a commitment
to their role.
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 to review the performance of the Chief Executive.
Carl-Peter also received a report on the Chairman by Egon
Zehnder which he discussed with him along with other
feedback. The Chairman passed on to the Chief Executive
appropriate feedback from the review of his performance.
The evaluation actions from the prior year, as reported in the
2019 Annual Report, have resulted in more Board meeting time
being set aside to discuss culture and associated matters and
further updates for directors on developments in governance,
audit and remuneration practice.
Corporate Governance Report
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.
Switzerland is home to business units across all three divisions
and the Board visited two sites there in 2020. In October 2020,
the Board made a virtual visit to IMI Precision Engineering’s
manufacturing facility in FAS, the division’s principal
manufacturing unit in Life Sciences. The Board also visited
IMI Hydronic Engineering’s state-of-the-art Hydronic College
in Switzerland. During both site visits members of the Board
had the opportunity to review the operations and interact
with local staff.
Board level employee engagement
Birgit Nørgaard was the non-executive director for employee
engagement until 29 February 2020, when she retired and
was succeeded by Thomas Thune Andersen. In this role,
Thomas has joined various programmes such as the
Graduate Induction and Growth Accelerator pitches,
met with the Inclusion and Diversity team and attended
the European Communications Forum (ECF). Given the
current COVID-19 pandemic, the ECF was held virtually and
will be attended by employee representatives from all our
key European geographies and provides an opportunity for
management (including the Chief Executive and Group HR
Director) to update on progress on key business and human
resource issues, as well as field a wide range of questions
from the representatives on key matters of employee concern.
A cross-divisional team working on Inclusion and Diversity
invited Thomas to meet with them and Thomas will continue
to take an active role with this forum and give insights into
employee engagement and inclusion and diversity initiatives.
Board evaluation
The Chairman arranged an externally facilitated evaluation
process in 2020, which was carried out in conjunction with
Egon Zehnder, who also facilitated the evaluation exercise
carried out in 2017 and is an independent consultancy.
A comprehensive brief was given to the assessment team
by the Chairman. The evaluation also observed Board and
committee meetings in July 2020 and subsequently detailed
interviews were conducted with every director. In addition,
representatives of Egon Zehnder interviewed members of
the senior management team and selected advisers.
All internal participants completed questionnaires and
all participants were interviewed on an individual basis.
Draft conclusions were discussed with the Chairman and
subsequently reviewed with the whole Board at its meeting
in December 2020 with Egon Zehnder. The Chairman received
a report with feedback on individual directors which was
discussed with them in person. The chairs of the three non-
executive committees each received a report from the external
evaluation exercise and reviewed that with their committee.
Based on their review Egon Zehnder’s overriding conclusion
72 IMI plc Annual Report & Accounts 2020
Audit Committee
Nominations Committee
Remuneration Committee
Isobel Sharp
Chair
Lord Smith of Kelvin
Chair
Carl-Peter Forster
Chair
Membership
Thomas Thune Andersen
Carl-Peter Forster
Membership
Thomas Thune Andersen
Caroline Dowling
Carl-Peter Forster
Katie Jackson
Isobel Sharp
Membership
Caroline Dowling
Katie Jackson
Main responsibilities
» Oversight role in relation to financial statements
» Reviewing significant areas of judgement and
accounting policies
Main responsibilities
» Board and committee composition
» Oversight of succession plans for the Board
and the Executive Committee
» Reviewing the proposed statements on going
» Search for and recommendation of candidates
concern and viability to appear in the Annual Report
» Advising the Board on whether the draft Annual
for appointment as non-executive directors, Chief
Executive and other executive director positions
Report is fair, balanced and understandable
» Diversity policy, promotion of diversity and
Main responsibilities
» 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
monitoring of progress
» 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
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.
Virtual investor meetings were arranged in 2020 to ensure
appropriate engagement with major investors. During 2020
there were over 100 such interactions 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. Carl-Peter
Forster, in his role as chair of the Remuneration Committee,
was actively engaged in consultation with larger shareholders
in relation to the remuneration policy review.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Corporate Governance Report
Consultation with our larger investors is very much concerned
with the performance and strategy of the Group and their
feedback following engagement with shareholders is shared
with the Board so that it can be taken into account in Board
discussions. Institutional investors have shown increasing
interest in ESG matters and these are now a common theme
in investor relations meetings and information requests.
We are also increasingly engaged in completing ESG rating
questionnaires and surveys of particular interest to our
investors. More information on ESG matters appears on
pages 28 to 43.
Due to the impact of COVID-19 on the conduct of the Annual
General Meeting, a minimalist meeting with three shareholders
present was held at the registered office with the Chief
Executive being the only Board member present. The 2020
Annual General Meeting was presided over by the Chief
Executive in the chair and 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 90% in favour in every 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 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 response to the Coronavirus pandemic, communications
with employees, customers and suppliers were intensified to
ensure safety and continuity of operations. Further information
on these special engagement efforts is provided on pages 06
and 07.
Major decisions made during the year by the Board included the
response to the Coronavirus pandemic, the adoption of a new
dividend policy and approval of further significant restructuring
projects. In considering these proposals the Board had regard
to the relevant statutory factors, which were helpfully
referenced in specific Board papers and in discussions.
Board decision and
stakeholders considered
Board decision
Key considerations
COVID-19 response
Employees, operating
companies, customers,
suppliers, society.
In February 2020, the Company formed a COVID-19 Response team
to assist our operating companies in safety, operational, resourcing
and legal matters arising from the COVID-19 situation.
Special meetings of the Board were convened to review the implications
of the health and economic crisis, with the safety and wellbeing of
our employees being paramount in that review. Regular updates were
provided to the Board on the welfare of our employees, financial and
operational disruption and the performance of our businesses.
Dividend rebased
Shareholders, potential
investors and lenders,
employees, customers
and suppliers.
The financial resources required to execute our strategy, including
organic investment needs and acquisition opportunities; maintaining
a prudent level of dividend cover and moderate indebtedness; equitable
treatment of our stakeholders. The decision to rebase dividends at
around 3x dividend cover was made by the Board. The Board decided
that the policy on dividends ought to be commensurate with the
Company’s financial performance and without detriment to the
strength of the balance sheet and future sustainability.
Safety of employees was first and foremost. Maintaining the
supply chain to keep operations running and serve customers
came next. A third priority was protecting the Group from
possible cash flow issues. Salary reductions for the directors
and senior employees were volunteered in the first half. These
measures were subsequently reversed with regards to employees,
as the Group navigated its way through the Coronavirus
pandemic. In addition, the final dividend envisaged to be paid
in May 2020 in respect of 2019 was paid in September 2020,
when the Board felt confident that it was appropriate to pay the
amount in full.
Over time dividend cover had reduced to below 2.0x and the
dividend was high compared with comparable companies.
Investment opportunities in the Group and growth by acquisition
called for a reassessment of dividends as a key element of capital
allocation. The long-term burden of such high dividend payments
was regarded as an issue and the Board wanted the greater
flexibility which increased free cash flow would provide.
Restructuring projects
Shareholders, potential
investors and lenders,
employees, customers,
operating companies.
The Group’s budget and strategy, approved by the Board, sets the
allocation of capital to deliver our growth strategy through investment
in innovation, operational improvement and acquisitions. The weighting
of each is determined by our strategic priorities and the rationalisation
of the Group’s manufacturing footprint is a major part of the
operational improvement plans.
Optimising the manufacturing footprint and business
simplification are key considerations in deciding to invest in
rationalisation. Given the strategy, the Board seeks to balance
investment in operational improvement with investments
in medium and long-term growth initiatives. Appropriate
engagement takes place at local level in relation to
restructuring changes affecting the workforce.
74 IMI plc Annual Report & Accounts 2020
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 an established business planning
process and sets strategy with a view to long-term success.
The strategic emphasis is on creating great value through
innovation processes such as the Growth Accelerator,
through which we are building a pipeline of new products
for the future success of the Group. Further information
about this key strategic programme is included on pages 14
to 27. During strategy discussions, long-term considerations
had a particular influence when assessing which are the
most attractive businesses and markets for IMI to target
for investment.
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 34 to 38. Investment decisions including
rationalisation and relocation of activities are considered
with due regard to the interests of 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
the importance of safety, we measure and track our
performance. See pages 34 to 35 and 56 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 156 to 162.
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 attended presentations and
received regular updates on our Growth Accelerator
programme. 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 collaboratively with partners including
suppliers, distributors and agents who are closely managed
from a commercial and compliance perspective. Further
information can be found on page 41.
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 38.
The Board approves and monitors the Group policy on
minimising our impact on the environment, which is outlined
on pages 30 to 32. Our continued progress depends upon
the Board driving ESG initiatives and channelling investment
to projects with due regard for the environment. During
the year, more detailed consideration of ESG matters was
added to the Board agenda and with the guidance of
Thomas Thune Andersen, non-executive director for ESG
matters, new initiatives were agreed around the positive
contribution of our products to a better world and improving
the environmental impact of our operations. Further
information on ESG matters appears on pages 28 to 43.
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, can be found on pages 12
and 28 to 43. Similarly, our ESG initiatives are consistent
with building our standing as a good corporate citizen
looking to have a positive impact on the world.
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 pages 73 and 74.
By order of the Board
John O’Shea
Group Legal Director and Company Secretary
25 February 2021
75
IntroductionStrategic ReportCorporate GovernanceFinancial Statements
Audit Committee Report
Dear Shareholder
I am pleased to give my fourth report as Chair
of the Audit Committee. The Committee acts in
an oversight role in respect of Annual Reports,
financial statements and announcements with
financial content, all of which are prepared
by management. The Committee’s principal
responsibilities are 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 an external auditor.
The full terms of reference of the Committee can be
found in the IMI Corporate Governance Framework
on the Company’s website.
In addition to our regular cycle of challenge and
oversight activity, we have focused in particular
in 2020, on the potential impacts of COVID-19 on
our Group Assurance programme for the year and
on the operation of the Company’s second line of
defence. We have reviewed the accounting
treatment for the 2019 acquisition of PBM, for which
the assessment of the fair value of assets and
liabilities acquired has been finalised. We have also
reviewed the significant restructuring spend and
the provisions for rationalisation at the year end
and satisfied ourselves that the treatment of
those disclosed as adjusting items is appropriate.
We conducted an audit tender process in 2020 to
ensure external auditor effectiveness remains at the
highest level and as a result our recommendation is
to appoint Deloitte as auditor for the 2021 year end
audit. The Board has adopted our recommendation
and a resolution for the appointment of Deloitte for
the 2021 audit will accordingly be proposed at the
forthcoming Annual General Meeting.
76 IMI plc Annual Report & Accounts 2020
Members of the Audit Committee
Carl-Peter Forster and I were members of the Audit Committee
throughout the year. Thomas Thune Andersen joined the
Committee on 1 March 2020, following the retirement of Birgit
Nørgaard on 29 February 2020. 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, are satisfied that I have
significant recent and relevant financial experience. I also
currently chair the audit committees at The Bankers Investment
Trust PLC and at Winton Group Limited. In my role as Chair,
I have significant interactions with key senior executives, review
in advance papers and agendas for meetings of the Committee
and meet, currently virtually, 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, commercial and auditing skills,
experience and objectivity to be an effective Audit Committee.
Furthermore, Committee members attend as appropriate
external training sessions to update our knowledge and in 2020
KPMG delivered a training and skills update session tailored for
the Committee.
The Committee invites the following to join appropriate parts
of its meetings: the Chief Executive, the Finance Director,
the Group Financial Controller, the Group Assurance Director
and the external auditor. In addition, the Chairman and other
non-executive directors are welcome to attend and usually join
the meetings.
The Committee meets alone with the external auditor and
with the Group Assurance Director. The Committee has the
power to call on any employee to attend. In 2020, two of the
three Divisional Finance Directors attended meetings to discuss
financial and internal control matters. The Secretary to the
Committee is the Company Secretary, who is also the Group
Legal Director.
Main areas of activity
The Audit Committee met four times in 2020, once in person
and three times by video conference. 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 included a review of current accounting matters
within the Group, with a focus on judgmental areas such as
restructuring provisions, impairment reviews and contingencies.
In 2020, review meetings were held with management and
the external auditor to discuss the challenges faced in delivering
audited financial results in line with our normal timetable during
the pandemic. The careful planning has ensured a satisfactory
completion of the work required to finalise this Annual Report.
The Committee continues to seek out with management
constructive opportunities for improvement in the effectiveness
of internal financial controls. A number of relevant initiatives
were implemented in 2020, including the simplification of
internal reporting and forecasting and the IT investment
and infrastructure programme, which facilitates improvements
in external audit efficiency as well as in internal controls.
An update on tax affairs and compliance from the Head of
Group Tax was received by the Committee and the Corporate
Tax Strategy included in this Annual Report on page 144 was
approved by the Committee.
This year’s discussion with the Group Treasurer focused on
the special challenges for the treasury function arising from
the increased focus on liquidity management and the
operational risk with staff working out of the office. Arising
from the discussion with the Committee, the committed
minimum headroom parameter over a forward looking 12
month period was subsequently increased.
In 2020, the Committee made some deep dives into the
divisional control structures, with two of the three divisional
finance heads presenting to the Committee on financial
controls. Group Assurance carried out a review of the second
line of defence in IMI and presented the findings to the
December Audit Committee meeting. These sessions helped
the Committee build additional comfort around the quality
of the finance teams in the divisions. Management has
made changes to strengthen the finance function and
refresh the talent pipeline for succession planning. The
Committee monitors changes in senior finance roles and
challenges management to ensure continuity of financial
reporting standards following team changes. In 2020,
management achieved successful internal transitions for
several key leadership roles in finance, 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 on pages 64 to 65. During 2020, this involved regular
assessment of the potential impact of the pandemic and the
considerable associated uncertainties. The Committee was
satisfied with the going concern and viability statements taking
comfort in particular from the strength of the Company’s
balance sheet, the borrowing facilities in place and the resilience
of its businesses.
The Committee advises the Board on the fair, balanced and
understandable requirements for the Annual Report and half
year results statement. In the Annual Report, the fair, balanced
and understandable criteria are also a review area for the
external auditor who has not reported any exceptions. The
Statement of directors’ responsibilities on page 114 includes
confirmation by the Board that it considers this Annual Report,
taken as a whole, to be fair, balanced and understandable.
As mentioned above, we carried out a tender process for the
selection of an external audit for the year ended 31 December
2021. This was partly to ensure auditor effectiveness is
maximised following the significant restructuring programmes
undertaken in the last two years and the ERP rollouts nearing
completion in IMI Critical and IMI Hydronic. It was also
undertaken to determine whether a refreshed approach to
the audit should be adopted. To ensure time was allowed to
complete a robust tender process ahead of the December Audit
Committee, we launched a tender process in October 2020.
The Committee has recommended the appointment of Deloitte
for the 2021 audit.
Significant judgements and estimations
in 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
from 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 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. As set out in Note 23 to the financial
statements on page 178, provisional values in respect of PBM
reflected in the 2019 financial statements have been adopted
as final without revision. The Committee reviewed the
judgements 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 basis
used to value the acquired customer relationships and the
PBM brand, were considered to be appropriate.
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 £449.5m and
intangible assets arising on acquisitions of £64.8m. During
2020, the Committee agreed that the grouping of cash-
generating units (CGUs) as defined for the purpose of
goodwill testing ought to be revised to reflect changes in
the operational structures of IMI Critical Engineering and IMI
Precision Engineering. A review of the revised grouping of
CGUs was carried out by the Committee and the new
grouping of CGUs were considered appropriate. In challenging
management on the proposed changes, the Committee
considered the developments in management and reporting
structures and noted that no impairment issues were indicated
whether the impairment review was based on the previous or
the revised grouping of CGUs. Impairment was also a key audit
matter for the external auditor who reported its findings to the
Committee and also concurred with the assessment and the
revised grouping of CGUs. Note 11 to the financial statements
on page 149 provides details regarding the Group’s intangible
assets and goodwill.
77
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Audit Committee Report
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 the external auditor reported to
the Committee. The Divisional Finance Director for IMI Critical
Engineering presented to the Committee on the approach to
revenue recognition in respect of IFRS15 (contracts).
Having reviewed management’s process and the external
auditor’s report, the Committee concluded that revenues
were appropriately reflected in the financial statements.
Note 2 to the financial statements on page 129 provides
further information.
Inventory valuation
The year end balance sheet includes inventories of £293.3m
after £42.8m 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 updated Group
methodology on inventory provisioning introduced in 2019
has been adopted for a first full year bringing greater 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 the external auditor,
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 163 provides details of
inventory valuation.
Other judgement areas – restructuring, tax
and pensions
The Committee reviewed the amounts and appropriateness of
restructuring costs of £36.1m and provisions of £30.1m disclosed
as adjusting items. The Committee reviewed the restructuring
costs incurred by project to seek confirmation that they were
non-recurring. The Committee reviewed the adequacy of
taxation provisions for uncertain matters. Further details
on these areas can be found in Notes 3 and 9 respectively,
on pages 132 and 144.
The Committee also 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 concluded that the accounting for pensions
proposed by management was not materially misstated.
The Committee supported management’s ongoing efforts
to de-risk the Group’s pension obligations. Further details can
be found in Note 14 on page 156.
Financial Reporting Council review of 2019
Annual Report
As part of its routine work, the Corporate Reporting Review
Team of the Financial Reporting Council (‘FRC’) reviewed IMI’s
2019 Annual Report. This review does not provide assurance
that the report and accounts are correct in all material respects
as the FRC’s role is not to verify the information but to consider
compliance with reporting requirements. The FRC commented
on two matters and has welcomed the changes proposed by the
Group in response. The Group has extended its disclosures on the
measurement of variable consideration for IMI Hydronic, which
has been included in Note 2C to the consolidated financial
statements on page 129. The Group has expanded the items
78 IMI plc Annual Report & Accounts 2020
included in the Statement of comprehensive income to separate
out certain items in the net investment hedging of foreign
operations which were previously shown on a net basis
(see the Statement of comprehensive income on page 125).
Internal audit
The Committee received reports from and monitored the
work of the Group’s internal audit function, known as Group
Assurance. Group Assurance has a direct reporting line to the
Committee and also reports through the Finance Director to
the Chief Executive. 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 assured in 2020 were major IT system
implementations in the divisions; a project margin review in
IMI Critical Engineering; a review of the system and processes
to report Carbon Emissions data; and financial control
improvements at Bimba. Group Assurance works closely with
the divisions to implement monitoring and review processes
to complement the internal and external audit coverage.
During the year, 34 internal audit reviews were completed
with 23 of these supported by divisional finance managers.
In response to the pandemic, a flexible approach and greater
use of remote audit procedures were used to deliver the internal
audit plan in 2020, with the Audit Committee being consulted
on the amendments at all of its meetings. The change two
years ago to involve divisional financial managers in the internal
audit process has proven to be great value in 2020 to cope with
travel restrictions.
Group Assurance is continuing to develop its use of technology
and automation to facilitate remote reviews, making use of
the Group’s improved ERP and data warehouse systems.
This included the setting up of an internal control dashboard
for IMI Critical Engineering and further developing the ability
to access information directly from systems for remote review.
Data analytics were used to audit employee expenses and
entertaining and to analyse data to carry out 18 remote
balance sheet reviews.
The Group Assurance team is led centrally by experienced,
senior internal audit professionals and across the Group there
are over 100 staff trained to conduct internal financial control
audits. 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. 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.
Locations to be reviewed each year are selected on a risk
assessed basis, discussed and agreed with the Committee and
take account of the external audit plan. In 2020, as in any other
year, a small number of locations are changed during the year
for business reasons and five 2020 planned visits were
rescheduled for 2021. The completion of actions arising from
internal audits and reviews is monitored by the Committee and
the track record is excellent.
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 2020 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.
The Committee has welcomed the way in which staff involved
in Group Assurance activities have coped with the challenging
circumstances of 2020 so that the level of assurance gained
from its activities during the year is at least equal to, and
indeed may in some areas surpass, the previous year.
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 the external auditor 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 116
to 123 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 (FRC) best practice guidance for audit
committees. In addition, the external auditor confirmed that its
ethics and independence policies complied with the requirements
of the FRC’s Ethical Standard. 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.
The policy on the engagement of the external auditor for non-audit
work takes account of developments in regulatory requirements
and was slightly revised to take account of changes in the FRC’s
ethical standards effective from 15 March 2020: specifically, to
confirm that contingent fees would not be acceptable. 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 (2019: £0.1m), which represents 3% of the
audit fee and demonstrates the tight control which is maintained
in this area. The only significant non-audit engagement during
the year was in respect of the interim results review, which is
technically not statutory audit work but is typically placed with the
audit firm, 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.
The Committee is satisfied that EY is fully independent from
management and free of conflicts of interest.
Pursuant to the power granted at the 2020 Annual General
Meeting, the Committee reviewed and approved the proposed
audit fee payable to EY.
The Committee formally reviewed the effectiveness of the external
audit process. As in other years, a questionnaire, sent to over
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 agreed and plans were put in place
by EY to address these during the 2020 audit. Following the 2019
review, EY made improvements in key action areas by providing
more insight into lessons learned and best practices and giving
more feedback on the quality of the finance teams around the
Group. The Committee also reviewed the FRC’s Audit Quality
Review report regarding EY as a firm.
Audit tendering
As noted above, a formal audit tender process led by
the Committee was completed in 2020 leading to a
recommendation to the Board for the appointment of Deloitte.
The tender process complied with the Competition and Market
Authority’s Order. Current legislation will require an audit
tender by not later than 2031 and the Company retains the
freedom to tender earlier. The Committee considers it would
be appropriate to conduct an external audit tender process
commencing in the year before any change of auditor is made
and therefore not later than 2030 in any event.
Committee attendance and evaluation
Director
Audit Committee
meetings
% attended where
eligible
Thomas Thune Andersen*
Carl-Peter Forster
Birgit Nørgaard*
Isobel Sharp
3/3
4/4
1/1
4/4
100
100
100
100
* Birgit Nørgaard retired on 29 February 2020 and Thomas Thune Andersen joined on
1 March 2020.
The Committee reviewed its own performance and terms
of reference and received positive feedback, with no
recommended changes, from the externally facilitated
evaluation exercise carried out for the Board and each of
its standing committees. The Committee is aware of the
current external debates on the roles and responsibilities
of auditors and audit committees. It will remain vigilant in
reviewing its work to meeting changing business needs as
well as external developments.
The Committee approved this report on its work.
Yours faithfully
Isobel Sharp
Chair of the Audit Committee
25 February 2021
79
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.
80 IMI plc Annual Report & Accounts 2020
Composition
Thomas Thune Andersen, Carl-Peter Forster, Katie Jackson,
Isobel Sharp and I were members of the Committee
throughout the year. Caroline Dowling joined the Committee
on 1 January 2020 and Birgit Nørgaard retired on 29 February
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
Caroline Dowling
Carl-Peter Forster
Katie Jackson
Birgit Nørgaard*
Isobel Sharp
Lord Smith
Nominations
Committee
meetings
% attended
where eligible
3/4
4/4
4/4
4/4
1/1
4/4
4/4
75
100
100
100
100
100
100
* Birgit retired on 29 February 2020.
Main areas of activity
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.
Following Birgit’s retirement, Carl-Peter Forster became Chair
of the Remuneration Committee and Thomas Thune Andersen
assumed responsibility as the non-executive director for
employee engagement and for ESG matters. Caroline Dowling
joined the Remuneration Committee and, from 1 March 2020,
Thomas joined the Audit Committee and stepped 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.
The Committee and management are supportive of the need
to improve gender diverse representation at senior executive
levels and two of the seven member Executive Committee
are female, which represents 29%. The Executive Committee
includes four nationalities. Further information about the
initiatives we are implementing to increase inclusion and
diversity across the Group are detailed in the Environmental,
Social & Governance section on pages 28 to 43.
Committee evaluation
The Committee reviewed its own performance and terms
of reference and received positive feedback, with no
recommended changes, 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
25 February 2021
Succession planning
The Committee reviews Board composition and has
formulated a structured, medium-term plan for Board
succession. In September 2021, Carl-Peter Forster will
complete nine years as a director and it is envisaged that
he will step down at that point unless special reasons for
an extension arise. A search for a new non-executive director is
underway in conjunction with Audeliss, consultants engaged by
the Committee to help enrich diversity at Board level.
During the year, the Committee reviewed talent development
and succession planning for the top 169 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 increasing proportion of internal appointments now
running at 75%. Details of our leadership development and
succession planning processes are set out in the Environmental,
Social & Governance section on pages 28 to 43.
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.
Inclusion and diversity
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.
At Board level, half the directors are non-British born and there
are five nationalities. Three of the 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 66
to 67 and 70. The Committee recognises the importance of
broader diversity and is factoring the guidance from the Parker
Review Committee into the search and selection process for
new non-executive directors. I am delighted that Dr Ajai Puri
will be joining the Board as a non-executive director with
effect from 1 March 2021.
81
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Statement from the Chair of the
Remuneration Committee
seeking your approval of this new remuneration policy at the
forthcoming Annual General Meeting.
The Committee was pleased to see that 93.6% of
shareholder votes at the 2020 Annual General Meeting
supported the Committee’s implementation of the
current Remuneration Policy.
COVID-19
The seriousness of the pandemic became gradually more
apparent towards the end of quarter one. In response to the
increasing uncertainty, the Board took the decision to postpone
the 2019 final dividend but also to take a 20% reduction in
base salary and fees for a minimum of three months from
1 May 2020. Over 150 of our senior employees also volunteered
to have a reduction in base pay for the same period.
As the Group navigated through the year, the business
performance stabilised and the Board decided to pay the
originally envisaged 2019 final dividend to shareholders as
an addition to the interim dividend paid in September 2020.
The Board also decided to make whole our senior employees
who had volunteered for the 20% cut in pay. However, in the
circumstances, the Directors declined to have any of the three
month cut in remuneration repaid to them.
IMI has ultimately not benefitted in 2020 from the UK
government furlough scheme.
Our stretching 2020 annual incentive targets were set without
foreseeing the impact of COVID-19 and were not adjusted in
the year by reason of the economic downturn caused by the
pandemic. Similarly, our long-term incentive targets were
not modified for the extraordinary event represented by the
pandemic. Details of our incentive outcomes are described
later in this section of the report.
On behalf of the Board, I am pleased
to present the Annual Directors’
Remuneration Report for the year
ended 31 December 2020. This is my
first report as Chair of the Remuneration
Committee following my appointment
on 1 March 2020.
Remuneration in 2020
Context
Although 2020 has been a year of unique challenges,
IMI plc has achieved the following:
» Significant progress towards strategic goals despite the
impact of COVID-19
» Group adjusted profit before tax increased by 9% to £273.9m
while adjusted revenue decreased by 3% to £1,825m
» Adjusted earnings per share of 79.7p increased by 9% in 2020
» Strong cash conversion of 117%
2020 was Roy Twite’s first full year as Chief Executive and
included some unprecedented challenges presented by the
pandemic. The rapid introduction of new ways of working
to enable our employees to carry out their roles in safety was
a priority. The resilience of the business and the success of the
extraordinary measures taken to ensure the maintenance of
near normal operations are reflected in the results. In addition,
while economic conditions were difficult and activity in many
of our key markets was lower as a result of the pandemic,
profit, margins and cash generation all improved year-on-year.
Throughout this period of uncertainty, the Remuneration
Committee is confident that its decisions have been well
judged and meaningful in ways that ensure that the success of
the company fairly cascades down throughout the organisation
and aligns the wider workforce with the Group’s executive.
During the year, I led the Committee in its review of IMI’s
executive remuneration policy, with the objective of ensuring
that it continues to support the delivery of our strategic
growth plan and that there remains a strong pay for
performance relationship. Following this review and
consultation with institutional shareholders, we are proposing
no major policy changes, but some adaptations to the existing
executive director remuneration arrangements to further align
executive and shareholder long-term interests. We will be
82 IMI plc Annual Report & Accounts 2020
Full details on the targets set and performance against them
can be found on pages 98 to 100 in respect of the annual
incentive and page 101 for the 2018 IIP award.
New reporting requirements
The transposition of the new Shareholder Rights Directive
articles into UK law has brought new reporting requirements.
IMI already meets a number of these requirements having
reported in line with market best practice in prior years.
The key requirements are:
Remuneration policy:
» Detail on when shares awarded to directors may be granted
or exercised, applicable vesting periods, holding and/or
deferral periods; page 87
» Directors’ service contracts duration; page 89
» The decision-making process through which the policy has
been determined, and highlighted key changes compared
to the previous policy; page 84
Remuneration report:
» The annual change of each director’s pay to the annual
change in average employee pay, over a rolling five year
period; page 105
» The split of fixed and variable pay for each director; page 95
» Any changes made to share options granted or offered, and
the main conditions for the exercise of these rights including
the exercise price and date, compared to the previous year;
pages 101 and 102
» IMI’s remuneration reports do not include any sensitive
personal data, revealing racial or ethnic origin, political
opinions or religious beliefs.
Pay for performance
Our focus this year has been twofold: to ensure consistent
application of our Policy and to ensure our remuneration
arrangements remain appropriate in the context of the
challenging economic and market conditions we are
continuing to face.
At the heart of our Policy is pay for performance and a high
proportion of our executive directors’ remuneration is closely
tied to business performance.
The Committee select performance measures that align to
the strategy and when setting stretching performance targets
take into account a number of 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 strong underlying
performance, which can sometimes be obscured by external
macro-economic conditions, is recognised. When assessing
the level of performance achieved, the Committee takes into
account wider circumstances to ensure incentive outcomes
are a fair reflection of actual performance. Further information
about the process we follow when setting targets and
assessing performance is set out on page 97.
Results were ahead of expectations given the mixed economic
and market headwinds.
» Group adjusted profit before tax increased from £250.7m to
£273.9m while adjusted revenue decreased by 3% to £1,825m
» Operating margins increased from 14.2% to 15.6%
» Cash conversion increased to 117% in 2020 and shareholders
will receive a total dividend of 22.5p – subject to approval at
the forthcoming Annual General Meeting.
Incentive outcomes
Annual incentives paid to executive directors in respect
of performance in 2020 were based on achievement of
stretching targets relating to Group adjusted profit before
tax and strategic and personal objectives incorporating
ESG metrics. The Committee determined annual incentive
outcomes ranging between 72.9% and 73.0% of maximum
for the executive directors, which fairly reflects business,
individual performance and is aligned with the wider
stakeholder experience.
The 2018 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
58.8% in March 2021.
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.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Statement from the Chair of the Remuneration Committee
2021 Executive remuneration policy
Remuneration in 2021
Policy implementation
Consistent with prior years, salary increases effective 1 January
2021 considered a range of factors including the increases for
the wider workforce, the financial performance of the Group
and prevailing economic conditions. For 2021 the Chief Executive
and Finance Director received a 1.5% base salary increase which
is below the increase awarded to the wider employee workforce
for 2021 of 2.3% but aligned to the general increase applied to
UK employees. The base salary for the Chief Executive will be
increased to £730,800 in 2021 and for the Finance Director
will be £464,500 effective from 1 January 2021. The Chairman
and non-executive director fees were also reviewed and
increased by 1.5%, with effect from 1 January 2021.
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. The Committee
is aware of the recent prevalence of ESG-type metrics and is
keen to support IMI’s sustainability agenda. Given the existing
linkage of incentives to IMI’s sustainability agenda (see page 42),
the Committee has determined that annual bonus for 2021 will
continue to 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 free cash flow underpin
will remain in place and will be reviewed alongside the annual
bonus achievement each year. The environmental, social and
governance (ESG) underpin will also remain in place taking into
account any relevant health and safety, environmental, social or
regulatory matters when determining remuneration outcomes.
The long-term incentive targets will remain the same as they
were in 2020, with TSR targets for IIP awards set to ⅓, Return
on Capital Employed (ROCE) to ⅓ and adjusted Earnings Per
Share (EPS) equal to ⅓ weighting.
Yours faithfully
Carl-Peter Forster
Chair of the Remuneration Committee
on behalf of the Board
25 February 2021
Policy review activities
Together with our internal team and our remuneration
advisors, I led the Committee in its review of the current
policy during 2020 in light of our latest strategy announced
in November 2019, the evolving corporate governance
environment in the UK, and also the difficulties caused by
the COVID-19 pandemic. As part of the policy review process,
I have had the opportunity to consult with a number of our
shareholders and shareholder representative bodies who have
helped shape our policy decisions. The policy was set in the
context of the wider pay policies at IMI including those
applicable to the wider workforce.
Any changes made to the policy will continue to support the
delivery of our strategy whist maintaining a strong pay for
performance relationship.
Following this review, we are proposing only minor changes
and adaptations to the existing executive remuneration
arrangements to further align executive and shareholder
long-term interests. We will be seeking shareholder approval
of this new remuneration policy at the forthcoming Annual
General Meeting.
Policy review outcomes
The material changes which are proposed to amend the policy
framework are as follows:
Executive director pensions
» With an established market precedent and clearly outlined
investor expectations in this area, the existing pension
allowance of 20% for Daniel Shook is to gradually reduce
to align it with the level provided to the workforce by the end
of 2022. He will not be compensated for this change. Roy
Twite’s pension provision is already at that level.
» All new executive directors will have pensions set at the
average workforce level on appointment; currently an 11%
contribution.
Shareholding guidelines
» To align with market practice we propose to increase the
Finance Director’s shareholding guideline to 200% of base
salary whilst maintaining current Chief Executive level (250%
of base salary).
Post-employment shareholding requirement
» We are recommending the adoption of a 2-year post-
employment shareholding guideline with holdings at the
shareholding guideline level to be retained.
Malus and clawback
» We are proposing expanded wording to include scenarios
of erroneous or misleading data, and misconduct to
more specifically align with the 2018 UK Corporate
Governance Code.
84 IMI plc Annual Report & Accounts 2020
Directors’ Remuneration
Policy Report
The Remuneration Committee (the
‘Committee’) presents the Directors’
Remuneration Policy Report, which will
be put to shareholders for a binding vote
at the Annual General Meeting (‘AGM’)
to be held on 6 May 2021. Subject to
shareholder approval, the effective
date of this policy will be 6 May 2021.
The intention of the Committee is that
the policy will normally remain in place
for three years.
The Policy was determined following a robust decision-making
process taking into account market, best practice and views of
IMI’s shareholders and other stakeholders. The Policy was set
in the context of the wider pay policies at IMI including those
applicable to the wider workforce. If approved by shareholders
at the AGM, the Committee will continue to review and
implement the Policy in the above context, including
measures to mitigate conflicts of interest.
Illustrations of the application of IMI’s
remuneration policy
To illustrate the opportunity available to our executive
directors, and the sensitivity of pay to performance, the graphs
on this page set out pay outcomes under four performance
scenarios:
» minimum, where pay is limited to fixed, non-performance
components (based on 2020 salaries, the corresponding
pension allowance and other benefits);
» ‘on-target’, where annual bonus and long-term incentives vest
at on-target levels;
» maximum, where all variable pay components vest in full; and
» maximum, where all variable pay components vest in full
including 50% share price growth
The charts are based on proposed IMI Incentive Plan awards
for 2021. The assumptions made under the scenario including
50% share price growth is that all LTI awards increase in value
by 50% and no annual bonus payments are deferred into
shares. No dividend assumptions are made and all-employee
share plans are excluded from the scenario tables.
Roy Twite
Long-term incentives
Annual bonus
Fixed remuneration
Daniel Shook
Long-term incentives
Annual bonus
Fixed remuneration
£000
6,000
5,000
4,000
3,000
2,000
1,000
5,403
51%
34%
4,124
45%
35%
20%
15%
£000
3,000
2,500
2,000
1,500
1,000
500
2,497
42%
35%
23%
1,974
35%
35%
30%
1,277
27%
27%
46%
579
100%
2,479
37%
29%
34%
835
100%
Minimum
On-target
Maximum
Maximum with share
price growth
Minimum
On-target
Maximum
Maximum with share
price growth
Salary
Pension
Benefits
Annual Bonus
IIP
731
11%
24
0%
0%
731
11%
24
100%
125%
731
11%
24
200%
250%
731
11%
24
200%
250%
Salary
Pension
Benefits
Annual bonus
IIP
465
17%
35
0%
0%
465
17%
35
75%
75%
465
17%
35
150%
150%
465
17%
35
150%
150%
Percentages in the above tables are percentages of salary.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Policy Report
Future policy table – executive directors
Fixed elements of executive remuneration
Component & purpose
Operation
Annual opportunity
Reviewed annually with changes normally effective from January.
The Committee takes into account the level of increase for the wider
workforce, market data, business performance, external economic
factors, the complexity of the business and the role, cost, and the
incumbent’s experience and performance.
Normally any salary increase for an executive director will be in
line with those of the wider workforce. Increases beyond this
may be awarded in certain circumstances, such as a change in
responsibility or development in role, after considering the
factors noted opposite.
Pension for any newly hired executive to be linked to average
workforce levels (currently 11%).
This represents a reduction in maximum contributions compared
to the current policy.
Legacy obligations for executive directors receiving pension above
workforce levels will be brought in line with workforce by
1 January 2023.
The value of benefits vary year-on-year depending on the age
and health of the individual, the cost of providing them and the
geography in which the executive is based. However, the range
of benefits is not expected to change from year to year.
Should it be appropriate to relocate an executive director or to
recruit an executive director from overseas, flexibility is reserved
to provide benefits that ensure that the individual and IMI can
both achieve the commercial purpose of this relocation.
Salary
Reflects individual
performance and
personal contribution to
delivering strategy. Set
in the context of total
pay levels.
Pension
Provides for retirement
and supports
succession planning.
A cash allowance in lieu of pension is paid monthly. To the extent required
by law, part of this allowance will be paid into a defined contribution
pension arrangement. With the Committee’s approval the executive
directors may redirect all or part of the balance of this allowance into
a defined contribution pension arrangement.
Benefits
Protects the wellbeing
of executives and
provides fair and
reasonable market
competitive benefits.
The policy provides a normal range of benefits to executive directors.
These include but are not limited to:
Non-cash: private healthcare for themselves and their family,
life insurance, and other ancillary benefits including the use of
a company driver.
Cash and taxable allowances: car and fuel allowance, personal tax advice.
Relocation costs: where it is in IMI’s interests to request that executives
work in a different country or region then we may pay relocation and
provide benefits and allowances in line with IMI’s Global Mobility Policy.
Expenses: expenses that are incurred by an executive director in
undertaking their role are reimbursed together with any tax arising on
such benefits where the Company considers it fair and reasonable to
do so. Typically these might include business travel, meals and client
entertainment, and are provided in the form of an allowance
or reimbursement.
86 IMI plc Annual Report & Accounts 2020
Variable elements of executive remuneration
Component & purpose
Operation
Annual opportunity
Performance
Annual Incentive
Bonus
Drives and rewards
performance against
annual financial, strategic
and operational goals,
which are consistent
with the medium to long-
term strategic goals of
IMI. Considers
individual behaviours and
contributions.
Based on annual performance relative to set targets.
If the executive has not achieved their share ownership
guideline, up to half of any bonus shall be invested
into IMI shares for at least three years. Once the share
ownership guideline is met, an executive can then elect
to receive their bonus in cash and/or shares.
Dividends (or equivalent value payments) accrue and
are payable in cash or shares when shares are released.
Recovery provisions are included in the plan rules allowing
for malus and clawback.
Up to a maximum of 200% of salary
Percentage of award payable (straight-
line between points):
Threshold
Target
Maximum
0-20%*
50%
100%
* Determined at the discretion of the
Remuneration Committee at the
outset of each award.
IMI Incentive Plan (‘IIP’)
Incentivises long- term
value creation, aligning the
interests of executives and
shareholders through share
awards.
Performance metrics support
the long-term strategy of
IMI and the vehicle and time
horizon provides a retention
tool for key executives.
The Committee can make annual share-based
awards. Dividends (or equivalent value payments)
accrue and are payable in cash or shares in respect
of vested awards.
Any vested performance share awards will be subject
to a sale restriction for a period of 2 years from
the date of vesting, subject to the executive being
permitted to sell such number of shares as may be
required to settle tax liabilities as they may arise.
In addition the share ownership guidelines apply.
Recovery provisions are included in the plan rules
allowing for malus and clawback.
Normal award: Up to 250% of salary
Maximum or Exceptional award:
400% of salary (to be used in
exceptional circumstances only
e.g. upon recruitment2)
If an award above the normal
maximum is made, full details will be
provided in the following year’s Annual
Directors’ Remuneration Report.
Percentage of award payable (straight-
line between points):
Threshold
25%
Maximum 100%
1 These are the same performance measures as 2020.
2 Refer to page 89 for further details.
Other executive director remuneration policies
In 2021, the performance measures
will be Group adjusted profit before
tax (80%), and strategic and
personal objectives (20%), with
a health and safety and
ESG underpin.1
The Committee has the discretion
to determine the appropriate
measures, targets, and ranges
annually and also to ensure
alignment with strategy. Normally
these will be a combination of
measures linked to the financial
performance of IMI and non-
financial personal objectives.
In 2021 the performance measures1
will be relative TSR (1/3), ROCE
(1/3) and EPS (1/3).
The Committee has discretion to
determine appropriate measures,
targets and ranges in respect of
each award when made.
Post-employment shareholding guidelines
Post-employment shareholding requirements will be formally
introduced requiring executive directors to hold 100% of their
shareholding requirement (or if less, all shares held) for two
years following departure. This will be implemented by signed
agreement. The Committee will have discretion to allow sale
where there are exceptional reasons.
Share ownership guidelines
It is a requirement of the remuneration policy that executive
directors are subject to guidelines which require them to build
a shareholding in IMI worth at least 250% of salary for the
Chief Executive, and 200% of salary for the Finance Director
(and other executive directors if applicable). Policy permits the
Committee to determine that up to 50% of any annual bonus
earned may be deferred into shares until the share ownership
guideline is achieved together with up to 50% of any vested
performance share awards. Each executive is then required
to maintain at least this share ownership guideline level
(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.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Policy Report
Additional notes to the future
policy table
Setting of performance measures and targets
The Committee reviews and selects performance measures,
targets and ranges annually, which take account of the
economic conditions and the priorities of IMI at the time.
Details of the performance measures are included in the
Annual Report each year. At the time of selecting performance
measures, the Committee determines the performance
targets that will apply in respect of each measure. Factors
that the Committee may consider include the strategic plan,
the annual budget, analysts’ forecasts, economic conditions,
environmental considerations, social considerations,
governance matters, individuals’ areas of responsibilities
and the Committee’s expectations over the relevant period.
Depending on the nature of the measure e.g. health and
safety, the Committee may exercise judgement in assessing
performance and determining the level of vesting.
Principles for the impact of corporate
transactions
The Committee has established principles that determine the
way in which corporate transactions will impact remuneration.
It is clear that any corporate transaction, which is in the best
interests of IMI and its shareholders, should not have an
adverse impact on remuneration. The principles include the
need for management to be treated in a manner consistent
with shareholders in respect to the rights to equity, that
performance should be measured on a like-for-like basis,
and that there should be no compensation for adverse or
favourable tax consequences.
Recovery provisions
The Committee has the power to operate malus and/or
clawback provisions in the event that:
» the Company misstated financial results;
» the Company suffers serious reputational damage;
» if there was an error or miscalculation in determining the size
of the award;
» gross misconduct by an executive; and/or
» the Remuneration Committee has made decisions using
erroneous or misleading data.
The provisions enable the Committee to reduce future annual
bonus payments, reduce the number of shares under any
form of share award, and/or require the individual to make
a payment to the Company on terms deemed to be fair and
reasonable by the Committee.
88 IMI plc Annual Report & Accounts 2020
All-employee share plans
IMI operates a HMRC approved Savings Related Share Option
Scheme which is open to all of the Group’s UK employees,
including the UK-based executive directors. The scheme seeks
to encourage share ownership amongst the broader employee
population in a tax efficient manner and operates subject to
statutory requirements including a limit on the level of savings
that can be used to acquire shares. The Group also has a global
share plan, the operation of which varies by geography, which
executive directors can participate in on the same terms as
other employees.
Differences in the remuneration policy for
executives relative to the broader
employee population
The remuneration framework in place for the executive
directors is informed by the remuneration structure that
applies to the broader employee population. While absolute
levels and the provision of certain components, benefits and
allowances vary by geography and level, the overarching
themes are consistent:
» we aim to offer competitive remuneration at all levels of the
organisation to attract and retain highly qualified employees;
» salaries are reviewed annually with any increases made on a
discretionary basis and informed by factors such as those set
out in the policy table;
» consistent with executive directors, the leadership group
participates in annual bonus plans with measures linked
to corporate, divisional and/or local performance depending
on seniority;
» a wider senior leadership population can be considered
for awards under the IIP. IMI’s share plans are intended
to encourage share ownership at all levels of the Group.
The all-employee plans described above are offered on
consistent terms to all employees in the geographies
where the plans operate; and
» eligibility for and provision of benefits and allowances varies
by level and local market practice. For senior managers,
it is standard to receive a company car allowance. The
Chief Executive is already aligned with the pension provision
provided to the wider workforce as will be the Finance
Director by the end of 2022.
The Committee may consider ‘buying–out’ incentive awards,
up to an equivalent value, that an individual forfeits in
accepting the appointment. To achieve this, the Committee
will use the shareholder approved plan wherever possible.
When making their decision, the Committee will be informed
by the vehicles, time horizons, value and performance targets
associated with any forfeited awards.
Service contracts will be entered into on the following terms:
» Notice period: 12 months’ notice by either party
» Payment in lieu of notice: as determined by the Committee,
but restricted to salary, benefits and pension.
Appointments to the Board
Base salary will be set taking into account factors including
market levels, experience, internal relativities and cost.
The Committee may determine that an initial positioning
below market is appropriate and in those circumstances,
realign base salary in the years following appointment, which
may result in an exceptional rate of increase in the short-term.
Any reliance on this principle will be noted at the time of
appointment. The theoretical maximum variable pay
opportunity that can be awarded in one year will be up to
200% in annual bonus and up to 400% in an IIP award.
As part of the appointments policy the Committee may also:
» continue with the provision of existing legacy remuneration
components relating to pension, benefits and allowances for
internal appointments;
» provide benefits, allowances and/or payments related to
relocation; and/or
» make a long-term incentive award on appointment, outside
of the annual cycle, under the existing shareholder approved
share plan to provide an immediate interest in company
performance. The Committee will determine the level of any
award, performance conditions and time horizon informed by
the business circumstances at the time. The maximum value
of such an award will be 400% of salary and will only be used
in exceptional circumstances e.g. upon recruitment.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Policy Report
Termination and loss of office
The primary principle underpinning the determination of any
payments on loss of office is that payments for failure will
not be made. Service contracts and plan rules have been
drafted in such a way that the Committee has the necessary
powers to ensure this. On departure, the Committee will take
into account factors including the reason for the executive
leaving, performance during the time served in the year and
contractual obligations when approving any payments. When
an executive is terminated for cause there is no entitlement
to salary, pension, benefits or an annual bonus and unvested
share awards lapse.
The following table provides a summary of the treatment of
each component of pay applicable for the current executive
directors. It should be noted that the Committee applies
judgement in determining whether an individual is classed
as a good leaver or otherwise under the share plans and is
authorised to reach compromise agreements with departing
executives. Agreed departure can include death, ill health,
redundancy or retirement.
Payment
Agreed departure
Differences in a change in control situation
Salary, pension and benefits
The Committee may make payment in lieu of notice.
None.
Annual bonus
Individuals can be considered for a bonus; factors such
as time served during the performance period and
performance can be taken into account.
Performance to the date of the event taking place will be considered in
determining whether any bonus should be payable, subject to the overall
maximum applicable to the relevant individual.
Deferred bonuses vest.
In certain situations (as defined in the plan rules) rollover awards of a broadly
equivalent nature can be offered for deferred bonus awards.
IIP
performance share awards
Performance measured at the end of the performance
period, or at the date of cessation of employment.
Similar to agreed departure with the following differences:
A reduction in the exercise period for vested but unexercised awards.
Pro-rating for time elapsed at cessation of
employment will be considered by the Committee.
Vested awards which are subject to a holding period
will not normally be forfeited on a termination and the
holding period will continue to apply to such awards
(although the Committee may release awards early
from the holding period in appropriate cases). If the
reason for termination is misconduct, vested awards
which are subject to a holding period may be forfeited
in whole or in part under the relevant provisions.
The Committee may approve other limited
payments which may include legal fees connected
to the departure, untaken holiday, out-placement
and repatriation.
Other
Performance and time elapsed will be taken into account, but the Committee
may enable awards to vest in full.
In certain situations (as defined in the plan rules) rollover awards of a broadly
equivalent nature can be offered.
Similar to agreed departure.
90 IMI plc Annual Report & Accounts 2020
Considerations taken into account when
setting our directors’ remuneration
Employment conditions at IMI
When setting the salaries for executive directors the
Committee takes into account a number of factors (as noted
in the future policy table on pages 86 and 87) and these include
the broader employment conditions within IMI. More
specifically:
» the Committee reviews budgeted salary increases across
the Group on a country-by-country basis when assessing
the appropriateness of any increases for the executive
directors; and
» in making decisions the Committee also takes account of
the internal relativities against the reference group and
within the wider leadership group and the wider workforce.
Details of these comparison metrics will be included every year
in the Annual Remuneration Report.
Shareholder views
The Committee has a standing annual agenda item whereby
the feedback from shareholders and investor advisory bodies
is presented and discussed following the Annual General
Meeting. The feedback that the Committee receives informs
discussions for the formulation of future policy and subsequent
remuneration decisions. A formal shareholder consultation
process was undertaken in the summer and autumn of 2020
to gather investor feedback on the proposed remuneration
policy as set out herein. Shareholders were generally supportive
of the proposals and their feedback has been taken into
account during the development of the new remuneration
policy set out here.
Chairman and non-executive directors
Letters of appointment
The letters of appointment set out key duties, including
appropriate time commitments, provisions for induction
and familiarisation with the businesses and wider senior
management team and require approval for other
directorships and potential conflicts of interest.
There are no provisions for the Company to give notice,
but the Chairman is required to give three months notice
to the Company and non-executives one month. Subject to
annual re-election at the Annual General Meeting, the initial
period to first renewal is three years. After six years, renewal
is considered on an annual basis.
The letters of appointment are available for inspection at the
Annual General Meeting and the Company’s registered office.
Details of the dates and unexpired terms are included in the
Corporate Governance report on page 70.
Appointments to the board
Any contractual terms will be consistent with those currently
adopted for existing non-executive directors updated as
necessary for legal reasons and to reflect best practice.
The Chairman and non-executive directors are not eligible
to receive any variable pay. On appointment, fees for non-
executive directors will be consistent with the policy in place
at the time of appointment. If necessary, to secure the
appointment of a new Chairman who is not based in the
UK, payments relating to relocation and/or housing may
be provided.
Chairman and non-executive directors
The table over the page summarises the policy with respect
to the remuneration of the Chairman and non-executive
directors. No component of remuneration is linked to
performance, there are no provisions for the recovery of
sums paid or the withholding of any payments and there
are no provisions for the Company to pay compensation
on early termination.
91
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Remuneration Policy Report
Future policy table – Chairman and non-executive directors
Component &
purpose
Base fees
Operation
Annual opportunity
Performance
To attract and retain
high-calibre individuals
by offering market-
competitive fees,
commensurate to the
time commitment and
experience that is required.
Fees are reviewed annually and can be paid in cash
and/or shares.
Benchmarked against companies of a similar size
and complexity.
When setting fees, factors considered include
the level of increase for employees more generally,
market data, business performance, external
economic factors, the skills required, time
requirements and cost.
In respect of the Chairman, IMI also considers
the individual’s profile and experience.
As of 31 December 2020, the Chairman’s fee was
£333,500 paid in cash. Fees can be paid in a combination
of cash and/or IMI shares.
At 31 December 2020 base fees for the non-executive
directors were £66,800 paid in cash.
The fees were reviewed at the end of 2020 and increased
by 1.5% with effect 1 January 2021.
Additional fees
To reflect the additional
time required when
an individual chairs a
committee, is appointed
as senior independent
director, or is otherwise
required to assume
additional duties.
Fees are reviewed annually and can be paid in cash
and/or shares.
The Chairman is not eligible to receive additional
fees for his chairmanship of the Nominations
Committee.
Fees are benchmarked where appropriate and set in
a manner consistent with base fees (see above).
Fee levels in place at 31 December 2020:
Audit and Remuneration Committee chairs: £16,700
Senior independent director: £11,100
Employee engagement non-executive director: £5,100
Non-executive director for ESG: £5,100
Benefits
To reimburse reasonable
business expenses.
Reimbursement in cash on production of receipts or
other proof of payment of business expense.
All reasonable travel and other expenses incurred by the
Chairman and non-executive directors in carrying out
their duties together with any tax arising on such benefits,
are reimbursed where the Company considers it fair and
reasonable to do so. Typically these might include business
travel, meals and entertainment, and are provided in the
form of an allowance or reimbursement.
92 IMI plc Annual Report & Accounts 2020
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 6 May 2021.
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 (Outgoing Chair), Carl-Peter Forster (Incoming
Chair), Katie Jackson and Caroline Dowling. In accordance with
the Code, all the non-executive directors are regarded by the
Board as independent. As previously noted, Birgit Nørgaard
stood down from the Board on 29 February 2020 and Carl-
Peter Forster became chair of the Committee from 1 March
2020. Caroline Dowling, who joined the Board on 1 January
2020, was, from that date, also a member of the Committee.
Thomas Thune Andersen stood down from 1 March 2020
when he joined the Audit Committee.
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 is included in
the IMI Corporate Governance Framework and is 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 2020.
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 £104,500 in 2020.
Willis Towers Watson are signatories to the Remuneration
Consultants’ Code of Conduct in the UK.
93
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Attendance
Director
Birgit Nørgaard1
Carl-Peter Forster
Thomas Thune Andersen2
Katie Jackson
Caroline Dowling
Remuneration
Committee meetings
% attended where
eligible
1
3
1
3
3
100
100
100
100
100
1 The February 2020 meeting was Birgit Nørgaard’s last meeting before she
stood down from the Board.
2 The February 2020 meeting was Thomas Thune Anderson’s last meeting before
he stood down from the Committee.
Annual General Meeting 2020
voting outcomes
The following table summarises the details of votes cast for
and against the 2019 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
Annual Directors’
Remuneration
Report
93.6%
6.4%
0.7%
Annual Directors’ Remuneration Report
A summary of the Committee’s
activities during 2020
The Committee had three formal meetings during the year;
attendance can be viewed in the table adjacent. The principal
agenda items were as follows:
» review of the external market and executive pay actions in
response to COVID-19;
» review of and implementation of a 20% salary reduction for
the Board effective 1 May on a temporary basis (3 months)
in response to COVID-19;
» review and approval of the 2021 directors’ remuneration
policy;
» consideration of shareholder feedback in relation to the 2021
directors’ remuneration policy and amendments to policy
design as appropriate;
» 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 2019 under
the incentive plans;
» consideration of the fees for the Chairman;
» setting the target levels for the 2020 incentive cycle;
» approval of the 2020 share awards to members of the
Executive Committee;
» prospective review of the performance metrics and targets
for the 2021 incentive cycle;
» consideration of prevalence of ESG within strategy and
current linkage to incentives;
» review of IMI’s gender pay gap data for 2020 against
the prior years’ data;
» review of IMI’s pay ratio of the Chief Executive to UK
employees and underlying calculation methodology;
» receipt of an update on 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; and
» review of executive director’s service agreements.
94 IMI plc Annual Report & Accounts 2020
Executive single figure table (audited)
Fixed pay
(£000)
Annual
variable pay
(£000)
Long-term
variable pay
(£000)
Other items in the nature
of remuneration
(£000)
Director
See page
Roy Twite
Daniel Shook
Base
salary1
Pension2
Taxable
benefits
Annual incentive
bonus
IMI Incentive
Plan (‘IIP’)
All-employee
share plans
Page 96
Page 96
Page96
Pages 97 to 100
Page 101
Page 103
Dividend
equivalent
payments
Total
(£000)
Total
fixed
pay
(£000)
Total
variable
pay
(£000)
2020
2019
2020
2019
684
636
435
449
75
112
87
90
23
30
35
41
1,051
516
500
248
618
409
428
277
4
4
4
4
-
-
-
-
2,455
1,707
1,489
1,109
782
778
557
580
1,673
929
932
529
Roy Twite served on the Board of Halma plc during the year and received fees of £55,575 in respect of this appointment which
he retained.
Daniel Shook served on the Board of Ultra Electronics Holdings plc during the year and received fees of £63,500 in respect of
his appointment which he retained.
1 On 30 March the Board announced that both the Chief Executive and Finance Director agreed to a 20% salary reduction, effective 1 May, for three months ending
on 31 July. Pension allowance as a percentage of salary remained the same, and hence reduced in absolute terms, in line with the salary reduction.
2 Daniel Shook continued to receive a pension allowance of 20% of salary during 2020. As previously stated, Daniel Shook’s pension allowance will reduce as per
the following schedule: from 1 January 2021: 17% of salary; from 1 January 2022: 14% of salary; and from 1 January 2023: 11% of salary.
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 below).
Share price assumptions: for shares vesting in 2021, that related to
performance in the three years to 31 December
2020, the average share price over the final three
months of 2020 (1,121.00 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.
Total fixed pay:
Sum of fixed pay columns
Total variable pay:
Sum of annual incentive bonus, IMI Incentive Plan
(‘IIP’), all-employee share plans, and dividend
equivalent payments (if applicable)
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Executive remuneration received in respect of 2020
Benefits
During the year the executive directors received several
benefits, which are summarised below.
Roy Twite
Daniel Shook
2020
2019
2020
2019
Non-cash benefits
(£000)
Company car and fuel
allowance (£000)
Allowances and
reimbursement (£000)
Total
3
20
-
23
11
19
-
30
21
14
-
35
27
14
-
41
In addition to the above benefits and allowances that are
included in the single figure table (refer to table on page 95),
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.
Base salary
Salary increases effective 1 January 2020 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 2020 was 2.8%.
Going into 2020, the Chief Executive received no base salary
increase and the Finance Director received a 2% base salary
increase. Base salary levels were set at £720,000 for the Chief
Executive and £457,650 for the Finance Director. On 30 March
the Board announced that both the Chief Executive and Finance
Director agreed to a 20% salary reduction, effective 1 May,
for three months. The 20% salary reduction ended on 31 July.
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. His allowance will reduce 3%
p.a. until 1 January 2023 where he will receive a cash allowance
equivalent to 11% of base salary which is consistent with the
average global employee pension opportunity for employees.
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 2020
Accrued pension in the Fund
as at 31 December 2019
Roy Twite
£000pa
78
£000pa
76
96 IMI plc Annual Report & Accounts 2020
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.
3. Assess performance
Results were ahead of expectations given the downward
economic and market headwinds:
» Group adjusted profit before tax increased to £273.9m
1. Set performance measures aligned with
in 2020;
strategy and budget
The Committee reviewed and selected performance
measures for 2020 that were fully aligned to the business
strategy and the annual budget as approved by the
Board in December 2020 and communicated to our top
ten shareholders. The 2020 annual incentive bonus focused
on just one financial metric and non-financial metric.
These included:
» Group adjusted profit before tax (80%)
» Strategic and personal objectives (20%)
Free cash flow was also monitored and, if it materially
underperformed against budget, the Committee were
required to automatically consider applying downward
discretion.
There was also an Environmental, Social & Governance
(ESG) underpin to provide discretion for the Committee
to take into account any relevant ESG matters when
determining bonus outcomes.
For 2021, see page 107 for information regarding the
financial metrics.
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.
At the time of setting the performance targets, the
Committee did not foresee the economic downturn caused
by COVID-19. Nevertheless the Committee resolved to
maintain the original stretching targets and consider the
application of discretion at the end of the performance
period if relevant.
The performance target range itself was established
based on the annual budget and required significant
outperformance for executive directors to achieve
the maximum.
» Cash conversion was 117% in 2020, compared with 112%
in 2019;
» Adjusted Basic EPS increased to 79.7p;
» The interim 2020 dividend per share of 7.5p, and the final
2019 dividend per share of 26.2p was reinstated as of 24
July 2020; and
» The total dividend for 2020 was 22.5p compared to 41.1p
for 2019 as a result of the resetting of the dividend as
communicated at the 2020 half year results.
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 2020 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,
there is erroneous or misleading data 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 Committee has considered the position and
determined that for 2020 it is not appropriate for any
reason to exercise the discretion to override formulaic
outcomes or recover amounts previously awarded.
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Annual Directors’ Remuneration Report
IMI Critical Engineering
Brno, Czech Republic
Summarised in the table below is the achievement against Group targets applicable for Roy Twite and Daniel Shook.
Director
Measure
All
executive
directors
Group adjusted
profit before tax1
Strategic and
personal objectives
Maximum
opportunity
(% of bonus
opportunity)
Performance targets
Threshold
Target Maximum
Actual
performance
(£m)
Actual
performance
(% out of 100)
Actual performance as
a percentage of metric
weighting
80%
£248.9m
£262.3m
£275.1m
£266.9m
68.0%
54.4%
20%
See table adjacent
100%
1 Adjusted Group profit before tax, as set out in the Income Statement on page 124, adjusted for the impact of IFRS 16, foreign exchange and acquisitions.
Strategic and personal objectives
As part of the strategic growth plan, the Committee sets each executive director several strategic and personal objectives each
year. 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.
98 IMI plc Annual Report & Accounts 2020
Director
Measure
Performance targets
Threshold
Target Maximum
Actual
Actual
performance
performance
Actual performance as
a percentage of metric
(£m)
(% out of 100)
weighting
All
executive
directors
Group adjusted
profit before tax1
Strategic and
personal objectives
20%
See table adjacent
80%
£248.9m
£262.3m
£275.1m
£266.9m
68.0%
54.4%
Maximum
opportunity
(% of bonus
opportunity)
100%
A summary of the strategic and personal objectives set for 2020 and the performance against them is provided in the table below.
Director
2020 Strategic and personal objectives
Commentary
Weighting
(% of
maximum)
Performance
achieved
(% of
maximum)
Roy
Twite
Strategic growth: Fully deploy the agreed strategy. Execute
major strategic projects such as rationalisation and footprint
plans on time, to budget. Continue to develop acquisition
options and relationships across all three divisions. Embed
the Growth Accelerator principles into IMI’s new product
generation processes. Focus the entire management team
on profitable growth, ensuring each organisation can
achieve this.
» New strategy deployed with a customer-centric culture
20.0%
18.6%
of innovation being developed.
» Operating margins improved by 140bps. ROCE improved
by 90bps and strong cash conversion of 117%.
» IMI Critical’s and IMI Precision’s rationalisation plans
delivered ahead of budget with £33m total savings.
» Growth Accelerator processes embedded in all
three divisions.
» Business Performance Reviews held with all key business
units to renew focus on delivering improved health and
safety, customer satisfaction, employee engagement
and profitable growth.
Strengthen organisation: Continue to build the IMI Executive
team and accelerate its performance. Develop training
programmes to improve commercial skills and innovation
delivery. Support increasing efforts to further improve
employee communication and engagement.
» IMI Executive team diversity improved across organisation
with two new female Executive Committee members.
» Recruitment of 32 graduates from 11 countries, 56%
female for the first time in IMI’s history.
Deliver projects: Continue to embed the customer focus
value throughout the business to drive profitable growth
and aid strategy delivery. Optimise performance and critical
execution capability in the divisions.
Environment: Demonstrate improvement in scores to
achieving FTSE4Good status. Continue to monitor and
review HSE, Quality and Risk improvement plans are robust
and delivered across the divisions.
Social: Drive a proactive inclusive and diverse culture
and ensure IMI meets the requirements of the Hampton-
Alexander Review. Ensure that the Group’s values are lived by.
Governance: Ensure financial controls and reporting integrity
are maintained at the highest levels. Continue to regularly
update our key shareholders.
» Several pitch events for our Growth Accelerator and NPD
Ignite innovation programmes and established Growth
Advisory Board to improve digital capability.
» 85% employee engagement score in respect of employees
feeling supported through the Coronavirus pandemic.
Via the IMI Way, business reviews, Growth Accelerator and
the building of digital customer communities, our customer
intimacy value is being embedded across the organisation.
In addition, our new value is also included in personal
objectives. Growth Accelerator aiding our execution capability
in the divisions with new orders being won despite the impact
of Coronavirus.
Thomas Thune Andersen appointed as ESG representative
to help the focus on key areas for progress. FTSE4Good not
yet scored our most recent report but we achieved AA rating
from the MSCI. Significant improvements achieved in Lost
Time Accidents (LTA) and hand injuries. IMI’s response to
Coronavirus demonstrated excellent emergency planning
and business resilience.
The Executive Committee now includes two female members
out of a total of seven, as well as three female members
on the Board. An Inclusion and Diversity programme was
launched in 2020 and over half of the graduate intake were
female, a first for IMI. Leading by example and performance
management employed to ensure the highest values are
maintained across IMI.
Financial controls improved in the year as per external auditors
assessment. Over 100 interactions with institutional and
other shareholders took place including meeting with 80%
of top 20 shareholders.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’ Remuneration Report
Weighting
(% of
maximum)
Performance
achieved
(% of
maximum)
20.0%
18.5%
Director
2020 Strategic and personal objectives
Commentary
Daniel
Shook
Strengthen finance organisation: Ensure new Finance/
IT Leadership Team is fully bedded down, with People
Development plans aligned to new strategy. Develop data
tools to support finance teams in analysing how to further
accelerate growth, and determine/deploy commercial skills
training into finance to enhance their leadership.
Key internal transitions successfully completed with minimal
disruption. Significant number of audits completed with
improved communication and incorporating feedback from
the Audit Committee. Additional work focused on value
pricing and revising finance skills for non-finance managers.
Deliver projects: Deliver the Simplification, Automation,
& Education Programmes within Finance. Reduce finance
complexity particularly in reporting and improve the business
risk assessment process. Identify the most critical business
risk areas for the organisation and develop/deploy process
framework to ensure effective mitigation.
Key simplification actions delivered including currency rates
and reporting, forecasting templates and monthly reporting.
Divisional focus on risk areas combined with new business
structures in two divisions have led to lower issues in
critical projects.
Environment: Deliver improved employee engagement
at the head office. Ensure activity & reporting in place for
internal ESG review.
Improved engagement scores successfully achieved. ESG
project team in place and internal reporting improved.
Social: Continue to champion diverse talent in the finance
and wider organisation.
New recent hires into the Finance team have been female
and new finance talent process promotes and ensures
the visibility of our diverse talent.
Governance: Continue to ensure accuracy of internal and
external reporting particularly with reference to FRC and
external audit.
Annual Report process continues to be led and managed well.
Communication from FRC continues to be positive
and external audit has been clean and thorough.
Performance under the financial metric (80% of the total annual incentive bonus achievement) and the strategic and personal
objectives (20% of the total annual incentive bonus achievement) and the total achievement (% of maximum) is set out below:
Director
Roy Twite
Daniel Shook
Actual performance of
financial metrics (%)
Performance achieved under the
strategic and personal objectives (%)
2020 maximum bonus achieved
(% of maximum)
54.4%
54.4%
18.6%
18.5%
73.0%
72.9%
Based on the performance described above, the annual incentive bonus outcomes for 2020 are set out below:
Director
2020 maximum
bonus opportunity
(% of salary)
2020 maximum
bonus achieved
(% of maximum)
Total bonus
awarded
(£000)
Total bonus
awarded
(% of salary)
Achievement of share
ownership guidelines
at 31 Dec 20201
Bonus delivered
in form of cash
(£000)
Bonus delivered
in form of share
awards (£000)1
Roy Twite
Daniel Shook
200%
150%
73.0%
72.9%
1,051
500
146.0%
109.4%
115%
126%
1,051
500
-
-
1 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 102.
100 IMI plc Annual Report & Accounts 2020
Awards vesting under the IIP
In March 2018, 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 2020. The 2018 IIP award will vest in March 2021 at 58.8% 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
83,971
58,205
950
658
49,374
34,224
5,722
3,965
55,096
38,189
618
428
1 The three-day average mid-market price on the date of award was 1,131.33 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 2020 (1,121.00 pence)
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
2020, IMI delivered Group profit before tax growth of 6.9%.
The resultant vesting outcome for this element of the award
is 45.6%.
Deferred bonus share awards
In March 2018, deferred bonus share awards were also made
under the IIP which vest in March 2021. 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.
Return on capital employed (ROCE)
25% of the award was subject to the achievement of ROCE.
This measure is defined as adjusted operating profit as
a percentage of the average capital employed during the
financial year ended 31 December 2020. Capital employed
being Intangible Assets (excluding Acquired Intangibles and
Goodwill), Property Plant and Equipment and Working Capital.
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
performance 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 43.7% resulting in this element vesting at 13.2%.
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 14th of
the peer group. The resultant vesting outcome for this element
of the award is nil.
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements Share interests granted to executive
directors during 2020 (audited)
Grants made under the IIP
Performance share award grants under the IIP were made on
16 March 2020 in the form of nil-cost options. Awards are due
to vest on 16 March 2023, subject to performance in three core
areas aligned to our longer-term strategic priorities: Adjusted
EPS growth (⅓), relative TSR (⅓), and ROCE (⅓). 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 2020 IIP awards are as follows:
Adjusted
EPS
Relative TSR
ROCE
Threshold
Maximum
Weighting
3%
Median
10%
Upper quartile
⅓
⅓
11.5%
14.5%
⅓
Level of
vesting
25%
100%
The following performance share award grants were approved
and made in 2020:
IIP shares
awarded
Value on date of
award1
(£000)
Award as a
percentage of
salary
Roy Twite
Daniel Shook
222,662
84,917
1,800
686
250%
150%
1 The three day average mid-market price on the date of award was 808.40 pence.
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 2020
are shown in the table on page 104 under the ‘without
performance conditions’ column. No performance conditions
apply to these awards.
Annual Directors’ Remuneration Report
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:
» the Company misstated financial results;
» the Company suffers serious reputational damage;
» if there was an error or miscalculation in determining the
size of the award;
» gross misconduct by an executive; and/or
» the Remuneration Committee has made decisions using
erroneous or misleading data; or
» in such other circumstances as the Committee sees fit.
The Committee has considered the position and determined
that for 2020 it is not appropriate for any reason to exercise
the discretion to override the formulaic outcome of the 2018
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.
The Committee has determined that as both Roy Twite and
Daniel Shook have met their guideline (as at 31 December
2020) as outlined on page 100, their entire 2020 bonus will
be delivered in cash. As per our revised remuneration policy
on page 87, Daniel Shook’s share ownership guideline will
increase to 200% subject to shareholder approval at the
2021 AGM held on 6 May 2021.
102 IMI plc Annual Report & Accounts 2020
For share awards granted in 2020 the TSR group included 18 companies to ensure complete alignment with our peers and
comparison to companies with similar products, customers and global spread. The 2020 peer group includes the following
companies which is broadly consistent with our 2019 peer group (changes in bold), and in line with the Committee’s guidelines:
TSR comparator group companies
Belimo
Circor
Curtiss-Wright
Eaton
Emerson Electric
Flowserve
Ingersoll-Rand
ITT
Morgan Advanced Materials
Parker-Hannifin
Rockwell Automation
Rotork
SMC
Smiths Group
Spectris
Spirax Sarco
SPX
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
2020
2019
2020
2019
436
359
436
359
4
4
4
4
-
-
-
-
-
-
-
-
-
-
-
-
4
4
4
4
1 In 2020 free shares were awarded at a share price of 824.97 pence (1,000.64 pence in 2019).
Chairman’s and non-executive directors’ single figure table (audited)
The following table summarises the total fixed fees and benefits paid to the Chairman and non-executive directors in respect of
the financial years ending 31 December 2020 and 31 December 2019.
Director
2020 (£000)
Base fees1
Additional
fees
Taxable
benefits2
Lord Smith of Kelvin
Carl-Peter Forster3,4
Birgit Nørgaard5
Isobel Sharp6
Thomas Thune Andersen7
Katie Jackson
Caroline Dowling
317
63
11
63
63
63
63
-
24
4
16
4
-
-
1
2
-
1
1
1
2
Total
Base fees
318
327
89
15
80
68
64
65
66
66
66
66
66
-
2019 (£000)
Additional
fees
Taxable
benefits2
-
11
21
16
-
-
-
7
10
10
2
8
4
-
Total
334
87
97
84
74
70
-
1 On 30 March the Board agreed to a 20% salary reduction in fees, effective 1 May, for three months ending on 31 July.
2 Taxable benefits includes travel and hotel expenses plus tax costs associated with Board meetings held at IMI HQ.
3 Includes fee for Senior Independent Director.
4 Includes fee for being Chair of the Remuneration Committee (pro-rated).
5 Includes fee for being Chair of the Remuneration Committee (pro-rated) and the non-executive director with responsibility for employee engagement.
6 Includes fee for being Chair of the Audit Committee.
7 Includes (pro-rated) fee for being non-executive director with responsibility for employee engagement and for ESG matters.
103
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Annual Directors’ Remuneration Report
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 2020 or at the
date of leaving the Board.
During the period 31 December 2020 to 25 February 2021 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 12 January 2021 of 10 shares each on
behalf of Roy Twite and Daniel Shook at 1,256.00 pence per share, and 9 February 2021 of 9 shares each on behalf of Roy Twite
and Daniel Shook at 1,316.00 pence per share.
Director
Total
interests
Beneficial
interests
Scheme interests
Nil-cost options
Roy Twite
Daniel Shook
Lord Smith of Kelvin
Carl-Peter Forster
Birgit Nørgaard
Isobel Sharp
Thomas Thune Andersen
Katie Jackson
Caroline Dowling
643,045
328,492
14,300
2,625
2,625
3,000
2,625
2,618
1,714
160,208
46,756
14,300
2,625
2,625
3,000
2,625
2,618
1,714
1 Vesting dates of share awards are shown in Note 6, page 139.
With performance conditions
Without performance conditions
(deferred bonus share awards)
Unvested1
453,374
224,604
-
-
-
-
-
-
-
Vested but
unexercised
-
-
-
-
-
-
-
-
-
Unvested
20,674
54,740
-
-
-
-
-
-
-
Vested but
unexercised
-
-
-
-
-
-
-
-
-
All-employee
share plans
8,789
2,392
-
-
-
-
-
-
-
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 138)
2020
(£m)
91.6
583.2
2019
(£m)
110.8
588.0
Change
-17.3%
-0.8%
In 2020, the total dividend for the year of 22.5 pence
represented a decrease of 45% over last year’s 41.1 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
-5.0%
-23.3%
103.7%
3.75%
0.1%
92%
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 feel would not provide a true comparision given differing
local market factors.
104 IMI plc Annual Report & Accounts 2020
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 adjacent illustrates, IMI’s absolute and relative
TSR performance has been strong over the last ten years.
Value of a hypothetical £100 investment
£300
£250
£200
£150
£100
£50
£0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
IMI
FTSE100
FTSE250
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
20111
20121
20131
20142
20152
20162
20172
20182
20193
20203
Total remuneration (single figure, £000)
12,289
7,954
6,688
1,567
1,667
1,901
2,773
3,047
1,707
2,455
Annual variable pay (% of maximum)
85%
47%
62%
36%
40%
50%
95%
75%
43%
73%
Long-term variable pay (% of maximum)
- Share Matching Plan
95%
100%
100%
Long-term variable pay (% of maximum)
- Performance Share Plan
100%
100%
82.6%
Long-term variable pay (% of maximum)
- IMI Incentive Plan
-
-
-
-
-
-
-
-
-
-
3.5%
-
-
-
-
-
-
-
-
-
6.55%
29.2%
47.1%
58.8%
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.
The following table summarises the annual percentage change of each director’s remuneration compared to:
» The annual percentage change of the average remuneration of the company’s employees, calculated on a full-time equivalent basis
» The performance of the company over the same preceding financial year
Executive Directors
Roy Twite1
Daniel Shook
Chairman
Lord Smith of Kelvin
Non-executive directors3
Carl-Peter Forster
Birgit Nørgaard2
Isobel Sharp
Thomas Thune Andersen
Katie Jackson
Average Pay of UK HQ employees
Annual
Salary/
Fees
Benefits
Annual
bonus
7.5%
-3.1%
-23.3%
-14.6%
103.7%
101.6%
1 Roy Twite appointed as Chief Executive in May 2019. The relative percentage
change is based on the 2019 Directors single figure table which includes
income earned before Roy was appointed as Chief Executive.
2 Birgit Nørgaard resigned from the board on 29 February 2020 and received
pro rata fees with no benefits in the 2020 financial year. For the 2019 financial
year, she received full year fees and benefits.
3 Caroline Dowling was appointed to the board on 1 January 2020. She received
no fees and benefits in the 2019 financial year so has not been included in
the table.
-3.1%
-85.7%
13.0%
-82.8%
-3.7%
1.5%
-4.5%
3.75%
-80.0%
-
-50.0%
-87.5%
-75.0%
-
-
-
-
-
-
0.1%
92.0%
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IntroductionStrategic ReportCorporate GovernanceFinancial Statements
Annual Directors’ Remuneration Report
Pay ratio reporting
Pay ratio legislation 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
Methodology
P25 (Lower Quartile)
P50 (Median)
P75 (Upper Quartile)
2020
2019
Option C
Option C
85:1
83:1
67:1
62:1
45:1
45:1
Total remuneration
» The 2020 Chief Executive single figure is calculated considering the Chief Executive’s remuneration calculation includes base
salary, fees, pension, taxable benefits, annual bonus and shares paid during FY 2020.
» As is permitted by Option C of the regulations the Gender Pay Gap data for 2020 based on a snapshot in April 2020 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 2020.
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 2020 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 employees receive competitive pay and benefits and have the opportunity for annual pay increases and
career progression and development opportunities.
» Changes to the ratio in 2020 compared to 2019 are largely attributable to the improved performance of the business and the
subsequent impact on improved variable pay.
The total pay and benefits and base salary component of the total pay and benefits figures are as follows:
Base salary (£)
Total pay and benefits (£)
Chief Executive remuneration
25th Percentile employee
50th Percentile employee
75th Percentile employee
684,000
26,036
33,000
50,803
2,454,578
28,893
36,852
54,247
106 IMI plc Annual Report & Accounts 2020
Application of the Policy for 2021
Executive director fixed pay
Consistent with prior years, salary increases effective 1 January
2021 considered a range of factors including the increases for
the wider workforce, the financial performance of the Group
and prevailing economic conditions.
For 2021 the Chief Executive received 1.5% and the Finance
Director received 1.5%. The increase awarded to employees
for 2021 was 2.3%.
The base salary for the Chief Executive will be £730,800 in 2021
and for the Finance Director it will be £464,500 effective from
1 January 2021.
The Finance Director will have his pension entitlement reduced
by 3%. As such he will receive a cash allowance of 17% of base
salary.
Other elements of fixed pay (benefits and allowances) will
remain unchanged, although pension allowances are a fixed
percentage of salary.
Incentive pay
Annual bonus
During 2020 the Committee reviewed the appropriateness of
continuing with the metrics that applied to the 2020 annual
bonus to ensure alignment with IMI’s strategy.
The Committee determined that the 2021 annual bonus will
be contingent on a Profit Before Tax growth target alongside
strategic and personal objectives for each executive director.
There will be a weighting of 80% to financial metrics and 20%
to strategic and personal objectives.
Free cash flow, if it should materially underperform against
budget, will continue to be considered as an explicit reason
for the Committee to apply downward discretion. The ESG
underpin will continue to be considered to allow the Committee
to take into account any relevant ESG matter when determining
remuneration outcomes.
The Committee will continue to monitor the underlying
performance of the business when determining bonus
outcomes. Due to the commercially sensitive nature of
the financial targets 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 be set at 200% of salary
for Roy Twite. The annual bonus opportunity for the Finance
Director will be set at 150% of base salary. 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 set the weighting on TSR, ROCE and EPS to ⅓.
The Committee continues to believe that this will ensure
that executives are only rewarded if underlying earnings are
increased over the performance period and shareholder returns
outperform peers.
2021 awards will be set 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.
In light of wider global economic uncertainty owing to the
impact of COVID-19 the Committee considered whether the
performance metrics for LTIP awards remain appropriate
before concluding that the metrics of TSR, EPS and ROCE,
equally weighted, remain aligned with strategy and with the
creation of shareholder value. TSR targets remain unchanged
but having taken into account internal budgets and analyst
consensus estimates the Committee decided the maximum
target for EPS and ROCE should be slightly lower than the
target set in 2020. However, threshold remains the same
as 2020. The Committee believe that despite this reduction
the maximum targets for ROCE and EPS remain extremely
stretching in the context of the current operating environment.
Further, the Committee retains discretion to determine, should
the 2021 LTIP vest, whether the formulaic outcome is a fair
reflection of underlying business performance and consistent
with the shareholder experience over the performance period
and if not, to adjust the formulaic outcome accordingly.
The performance targets that will apply to the 2021 IIP awards
are as follows:
Relative TSR
Threshold
Median
Maximum
Upper quartile
Weighting
⅓
Adjusted
EPS
3%
7.5%
⅓
ROCE
11.5%
13.5%
⅓
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 70.
Fees for the Chairman and non-executive directors
The Chairman and non-executive directors’ remuneration
increased by 1.5%, with effect from 1 January 2021 and
compares with a 2.3% increase across the wider workforce.
Committee evaluation
The Committee reviewed its own performance and terms of
reference and received positive feedback, with no
recommended changes, from the evaluation exercise carried
out in respect of the Board and each of its committees.
Carl-Peter Forster
Chair of the Remuneration Committee
for and on behalf of the Board
25 February 2021
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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 2020.
Strategic Report
The Strategic Report is incorporated by reference and includes
the content on pages 06 to 65.
Results and dividend
The Group consolidated income statement is shown on page
124. Adjusted operating profit amounted to £284.7m (2019:
£266.1m), statutory profit before taxation and discontinued
operations amounted to £214.3m (2019: £189.3m).
The directors recommend a final dividend of 15.0p per share
on the ordinary share capital payable, subject to shareholder
approval at the Annual General Meeting to be held on 6 May
2021, on 14 May 2021 to shareholders on the register at the
close of business on 6 April 2021. Together with the dividend
paid at the interim in respect of 2020 of 7.5p per share paid
on 11 September 2020, this final dividend will bring the total
distribution for the year to 22.5p per share. At the same
time as paying the interim dividend in respect of 2020,
the Company paid the 26.2p per share that was envisaged
as a final dividend in respect of 2019 but which was suspended
due to cash preservation measures put in place in March 2020.
Research and development
See Note 5 to the financial statements on page 138.
Shareholders’ funds
Shareholders’ funds increased from £709.9m at the end
of 2019 to £799.5m at 31 December 2020.
Share capital
As at 31 December 2020, 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 177. 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 192 for further details.
As at 31 December 2020, 1,148,793 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 2020, 19,602 new ordinary shares were issued under
employee share schemes: 19,602 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.
108 IMI plc Annual Report & Accounts 2020
Pursuant to the Company’s articles of association a tracing
exercise was conducted in an attempt to match beneficiaries
with shares held by shareholders who had not claimed or
cashed a single dividend payment from the Company over
a period of at least the last twelve consecutive years. All shares
held in the names of such shareholders and which are not
matched with beneficiaries, will be forfeited and sold in March
2021 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 in 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.
Treasury shares
The Company was granted authority at the Annual General
Meeting held on 7 May 2020 to purchase up to 27,200,000
of its ordinary shares. This authority will expire at the
conclusion of the next Annual General Meeting to be held on
6 May 2021, 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 2020, 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 number of shares held in treasury during the year
ended 31 December 2020 was constant.
Substantial shareholdings
Information provided to the Company pursuant to the
Disclosure Guidance and Transparency Rules is published on
a regulatory information service and on the Company’s
website. As at 31 December 2020, 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:
Massachusetts Financial Services Company
Ameriprise Financial Inc
Standard Life Investments (Holdings) Limited
Legal & General Group plc
% Notified
9.89
5.01
4.97
3.03
Between 31 December 2020 and 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 for notifications received
from Blackrock Inc., on 15 February 2021 that its interests
totalled 5.03% and on 17 February 2021 that its interests
totalled 5.06%.
Corporate governance
The Corporate Governance Report on pages 66 to 113 is
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 37 to 38.
Details of employee share schemes are set out in Note 6 of
the financial statements on pages 139 to 141.
Health, safety and the environment
It is Group policy to improve continuously safe and healthy
working conditions. It is Group policy to operate always in
an environmentally responsible manner. More details on these
policies and our relevant activities appear on pages 34 to 35
and are incorporated into this Director’s Report by reference.
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 66 and 67 and are incorporated
into this report by reference. In addition, Birgit Nørgaard was
a director until 29 February 2020.
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.
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 2020 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.
109
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Directors’ Report
IMI Critical Engineering
IMI CCI, USA
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;
» to set and monitor the Company’s values, purpose and
strategy and ensure that these and its culture are aligned;
» to select and appoint the Executive Committee and ensure
that the necessary resources are available to them;
» 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.
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, 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
110 IMI plc Annual Report & Accounts 2020
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:
» setting the Board agenda and shaping the culture in
the boardroom;
» chairing meetings and encouraging the active engagement
of all Board members;
» 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.
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
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 Rule
9.8.4R
Listing Rule statement
Detail
Note reference of financial
statements/page number
9.8.4R (1-2)(6-14)
Not applicable
9.8.4R (4)
9.8.4R (5)
Long-term
incentive schemes
Directors’ waiver
of emoluments
-
6 / page 139
pages 95 and 103
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 by
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 7 May 2020
by the passing of new resolutions. The current authorities will
expire at the conclusion of the next Annual General Meeting to
be held on 6 May 2021, 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 104.
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 2020.
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
111
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Financial reporting processes
The use of the Group’s accounting manual and prescribed
reporting requirements for 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 2020 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. Further information in relation
to the hotline appears on page 41.
Statements on viability and going concern
The statements on viability and going concern on pages 64
and 65 are incorporated by reference in this Directors’ Report.
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 113, and the
information it refers to, is intended to help stakeholders
understand our position on key non-financial matters.
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 58 to 63.
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 2020 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.
112 IMI plc Annual Report & Accounts 2020
Policies and standards which govern our approach
Additional information
pages 30 to 32
page 40
page 41
pages 34 to 35
pages 35 to 36 and 81
page 41
pages 37 and 38
page 12
page 38
page 41
pages 58 to 63
pages 12 and 13
pages 45 and 74 to 75
page 32
page 37
pages 35 and 70
pages 34 to 35 and 56
Reporting requirement
Environmental matters
Employees
Human rights
Social matters
Environmental policy
Code of Conduct
Hotline for reporting concerns
Health and Safety policy
Inclusion and Diversity
Modern Slavery Act
IMI Way Day
Our purpose
Contributing to communities
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 measurement
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 on 6 May 2021.
Notice of the Annual General Meeting will be published
on the Company’s website.
By order of the Board
John O’Shea
Company Secretary
25 February 2021
IMI is registered in England No. 714275
113
IntroductionStrategic ReportCorporate GovernanceFinancial Statements Statement of directors’
responsibilities
Statement of directors’ responsibilities in respect of the Annual Report and
the financial statements.
The directors are responsible for preparing the Annual Report,
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
25 February 2021
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 pursuant to Regulation (EC)
No. 1606/2002 as it applies in the European Union and the
parent company financial statements in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 as applied in
accordance with section 408 of the Companies Act 2006.
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 adopted pursuant to Regulation (EC) No.
1606/2002 as it applies in 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 International Accounting Standards in conformity
with the requirements of the Companies Act 2006 as applied
in accordance with section 408 of the Companies Act 2006.
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 International Financial Reporting Standards
adopted pursuant to Regulation (EC) No. 1606/2002 as it
applies to the European Union, 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.
114 IMI plc Annual Report & Accounts 2020
Introduction
Strategic Report
Corporate Governance
Financial Statements
Financial Statements
contents
116
Independent Auditor’s Report to
the Members of IMI plc
124 Consolidated income statement
125
125
Consolidated statement of
comprehensive income
Consolidated statement of
changes in equity
163 15. Inventories
164
16. Trade and other receivables
166
17. Financial assets and liabilities
168 18. Financial risk management
172 19. Net debt
175 20. Provisions
126 Consolidated balance sheet
176
21. Trade and other payables
127
Consolidated statement of
cash flows
128 1. Basis of preparation
129
2. Significant accounting policies
132
3. Alternative Performance Measures
(‘APMs’) & adjusting items
134 4. Segmental information
138 5. Operating costs
139 6. Share-based payments
142
7. Earnings per ordinary share
143 8. Net financing costs
144 9. Taxation
148 10. Dividends
149 11. Intangible assets
152
12. Property, plant and equipment
153 13. Leases
156 14. Retirement benefits
177 22. Share capital
178 23. Acquisitions
178 24. Disposals
178 25. Contingent liabilities
178
26. Related party transactions
179 27. Subsequent events
179
28. Discontinued operations
180 Company balance sheet
181
182
Company statement of changes
in equity
Company notes to the
financial statements
185 Subsidiary undertakings
189
Geographic distribution
of employees
190 Five year summary
192
Shareholder and general
information
115
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 2020 and of the Group’s
profit for the year then ended;
• the parent company financial statements have been properly prepared in
accordance with International Accounting Standards in conformity with the
requirements of the Companies Act 2006 as applied in accordance with section
408 of the Companies Act 2006; and
• the Group financial statements have been properly prepared in accordance with
International Accounting Standards in conformity with the requirements of the
Companies Act 2006 and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union;
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements of IMI plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year ended 31 December 2020 which comprise:
Group
Parent company
Consolidated balance sheet as at 31 December 2020
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the year then ended
Balance sheet as at 31 December 2020
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 changes in equity for the year then ended
Consolidated statement of cash flows for the year then ended
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 Accounting Standards
in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002
as it applies in 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. We are independent of the Group 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 going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is
appropriate. Our evaluation of the directors’ assessment of the Group and parent company’s ability to continue to adopt the going concern basis of accounting included
the following procedures:
• Understanding and walking through management’s process for and controls
related to assessing going concern including discussion with management to
ensure all key factors were taken into account;
• Obtaining management’s going concern model, which is for a period of twelve
months from the date of this report, and which includes details of facilities
available, covenant calculations, and the results of management’s scenario
planning, and testing its efficacy including clerical accuracy;
• Confirming to the debt agreements both the maturity profile of the debt and
the covenants that are required to be met within the going concern period;
• Assessing the forecasts underpinning the going concern model which are
based on the Board-approved budget for FY 2021 and the Board-approved
strategic plan;
• Understanding how these forecasts have been revised to reflect the impact
of COVID-19, although the impact to trading for the majority of the business
has been limited;
• Comparing these forecasts to external economic forecasts for the key
geographies in which IMI operates, as well as analysing the historical accuracy
of budgets to actual results to determine whether forecast cash flows are
reliable based on past experience, focusing on EBITDA (as the measure that
directly impacts the key covenant calculation);
• Comparing management’s forecasts to actual results through the subsequent
events period and performing inquiries to the date of this report;
• Considering other external factors including reliance on suppliers, recoverability
of debtors, employees’ ability to continue to work safely, and the threat
of potential litigations and claims;
• Considering the downside scenarios identified by management in their viability
analysis on page 64, assessing whether there are any other scenarios which
should be considered, and assessing whether the quantum of the impact of
the downside scenario in the going concern period is supportable;
• Performing reverse stress testing on the going concern model by understanding
what reduction in EBITDA would be required before covenants are breached
and comparing this to the downside scenarios contemplated by management
including considering the likelihood of the events required to breach the
covenants, given covenants would be breached prior to liquidity being exhausted;
• Evaluating the Group’s ability to undertake mitigating actions should it
experience a severe downside scenario, considering likely achievability of
both timing and quantum; and
• Assessing the going concern disclosures in the financial statements to ensure
they are in accordance with International Financial Reporting Standards.
116 IMI plc Annual Report & Accounts 2020
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast
significant doubt on the Group and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements
are authorised for issue.
In relation to the Group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not
all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern.
Overview of our audit approach
Audit scope
- We performed an audit of the complete financial information of 14 components (including the parent company) and audit
procedures on specific balances for a further 21 components (including three corporate entities).
- The components where we performed full or specific audit procedures accounted for 86% of Adjusted profit before tax, 78% of
Revenue (including procedures on marketing companies) and 81% of Total assets.
Key audit matters
Materiality
- Revenue recognition – cut off in Critical Engineering and risk of management override of controls at all components
- Inventory valuation
- Carrying value of goodwill and acquired intangible assets
- Overall Group materiality of £13.1 million which represents approximately 5% of Adjusted profit before tax.
An overview of the scope of the parent company and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation
of performance materiality determine our audit scope for each company 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 such
as instances of whistleblowing reports, impact on the Group in terms of financial
size, and external sales forecasting accuracy 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 151 reporting components of the Group,
we selected 35 components covering entities within Austria, China, Czech
Republic, Germany, India, Italy, Japan, Poland, Singapore, South Korea, Sweden,
Switzerland, UK and USA, which represent the principal business units within
the Group.
Of the 35 components selected, we performed an audit of the complete financial
information of 14 components (“full scope components”) which were selected
based on their size or risk characteristics. For the remaining 21 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 86% (2019: 83%) of the Group’s Adjusted profit before tax measure used to
calculate materiality, 61% (2019: 63%) of the Group’s Revenue and 81% (2019:
84%) of the Group’s Total assets.
For the current year, the full scope components contributed 36% (2019: 45%)
of the Group’s Adjusted profit before tax, 40% (2019: 45%) of the Group’s
Revenue and 60% (2019: 66%) of the Group’s Total assets. The specific scope
component contributed 50% (2019: 38%) of the Group’s Adjusted profit before
tax, 21% (2019: 18%) of the Group’s Revenue and 21% (2019: 18%) 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 Adjusted profit before tax tested for the Group, the measure used
to assess audit materiality.
Of the remaining 116 components that together represent 14% 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, revenue
cut-off, intercompany eliminations, foreign currency translation recalculations,
and enquiring of management to respond to any potential risks of material
misstatement to the Group financial statements.
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The charts below illustrate the coverage obtained from the work performed by our
audit teams. Prior year figures are shown in brackets.
Group Adjusted profit before tax
14% (17%)
Other procedures
17% (17%)
Procedures on
marketing companies
36% (45%)
Full scope
components
50% (38%)
Specific scope
components
Group Revenue
40% (45%)
Full scope
components
21% (18%)
Specific scope
components
22% (20%)
Other procedures
Group Total assets
60% (66%)
Full scope
components
21% (18%)
Specific scope
components
19% (16%)
Other procedures
Changes from the prior year
The number of full scope entities has decreased to 14 (2019: 15). This change
reflects a change in the size and risk profile of certain entities.
118 IMI plc Annual Report & Accounts 2020
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
primary audit engagement team, or by component auditors from other EY global
network firms operating under our instruction. Of the 14 full scope components,
audit procedures were performed on one of these directly by the Group audit team.
For the 21 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 their delegate visit
the majority of full and specific scope locations at least once every three years.
In FY 2020, these visits were conducted virtually due to the COVID-19 pandemic.
During the current year’s audit cycle, virtual visits were undertaken by the primary
audit team to the component teams in Austria, Czech Republic, Italy, Japan,
Poland, Switzerland, and the United States. These 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 component management, and obtaining updates on country specific
regulatory matters including tax, pensions and legal, where applicable.
Specifically in addressing the impact of COVID-19 government restrictions and
safe working protocols on our audit, the Group team interacted regularly with
the component teams during various stages of the audit. We ensured they had
adequate time and resources to complete the audit procedures, reviewed working
papers in significant risk areas for all full and specific components and were
responsible for the scope and direction of the audit process. All components except
for one performed inventory observations in person. For the component which
performed inventory observations virtually, we designed our observation procedures
in conjunction with the component team to address the additional risks presented
in a virtual count. This, together with the additional procedures performed at
Group level, gave us appropriate evidence for our opinion on the Group financial
statements.
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 (£1,825m, PY
comparative £1,873m)
Refer to the Audit Committee Report (page 76);
Accounting policies (page 129); and Note 4 of the
Consolidated Financial Statements (page 134).
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 and during
consolidation of inappropriate revenue being
recognised if there is management override of
controls through manual topside journal entries.
Our response to the risk
Cut-off
We performed the following audit procedures at 8 full and 7 specific scope Critical Engineering locations where
revenue is in scope. Revenue at these locations represents 79% of the total Critical Engineering revenue balance
of £643m.
We performed walkthroughs of revenue at the 8 full and 7 specific scope locations and assessed the design
effectiveness of key 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 collections or collection history
if unpaid.
Cut off at components not in full or specific scope
For the 12 Critical Engineering components considered as not significant to the Group we analysed December
revenues in comparison to the other months of the year and the prior year. For a sample of entities, we
performed specified procedures for a sample of transactions within these entities to test cut-off, by tracing
a sample of transactions around the period end to third party delivery note documentation and customer
acceptance.
We reviewed all significant bill and hold contracts held by components of the Group and evaluated whether the
revenue was recognised in the appropriate period by inspecting contract terms and customer correspondence.
For these contracts we tested whether the control transferred, to include obtaining the customer request for
the Group to hold the products on their behalf.
Management override of controls
At 14 full and 21 specific scope locations and at the consolidated Group level we obtained support for all
material unusual manual journals to revenue. Revenue at the full and specific locations represents 61%
of the total revenue balance.
For the components we considered as not significant to the Group we analysed the monthly revenues and gross
margin recorded and obtained explanations for movements that we considered unusual, considering both any
corroborative and/or contradictory evidence.
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 of controls through manual topside journal entries in any of the three divisions or at the consolidated Group level.
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Risk
Our response to the risk
Inventory valuation (£293m, PY
comparative £281m)
We performed the following audit procedures at 13 full and 14 specific scope locations where inventory is in
scope. Inventory at these locations represents 75% of the total inventory balance.
Refer to the Audit Committee Report (page 76);
Accounting policies (page 129); and Note 15 of the
Consolidated Financial Statements (page 163).
The valuation of inventory across the Group is
dependent on establishing appropriate valuation
processes. This includes the appropriate design
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.
We performed walkthroughs of inventory at 13 full and 14 specific scope locations and assessed the design
effectiveness of key 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 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 reperformed management’s calculations to check they were accurate.
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 testing that management’s
calculation process is applied consistently across components.
We tested the provision calculation by comparing forecast product usage to customer orders, testing the
integrity of the historical usage data, considering 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 consider the appropriateness of any management adjustments
to the formulaic calculation including corroborating the amounts to specific usage plans from engineering.
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.
120 IMI plc Annual Report & Accounts 2020
Risk
Our response to the risk
Carrying value of goodwill and acquired
intangible assets (£514m, PY comparative
£529m)
Refer to the Audit Committee Report (page 76);
Accounting policies (page 129); and Note 11 of the
Consolidated Financial Statements (page 149).
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.
There is a further risk that the groupings of CGUs
to which goodwill is allocated for impairment
testing purposes are not appropriate. These have
been reconsidered by the Group during the year
following the restructurings undertaken.
We examined management’s methodology as detailed in Note 11 of the consolidated financial statements,
the models for assessing the valuation of significant goodwill and intangible asset 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.
We evaluated management’s re-assessment of the CGUs and grouping of CGUs to which goodwill is allocated
for impairment testing purposes to assess:
• whether the changes were consistent with changes arising from restructuring undertaken by the Group
as reflected in management’s internal monitoring of the performance of the business;
• whether the CGUs are compliant with the requirements of IAS 36; and
• whether these changes were appropriately disclosed in the financial statements.
In respect of all CGUs 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.
We identified the CGUs most likely to be impacted by the accelerating climate change agenda, given the
commitments made by organisations and governments to be net or near-zero in carbon emissions in coming
years. For the impacted CGUs we performed specific sensitivity analysis to consider a scenario where revenues
derived from declining end markets such as power, oil and gas are not replaced.
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.
We audited the disclosures in respect of goodwill and intangibles with reference to the requirements of IAS
36 and assessed 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.
We obtained evidence that the changes to the allocation of goodwill to the CGUs or groups of CGUs for impairment testing purposes was consistent with how
management monitors goodwill.
We consider the disclosures to be appropriate and in accordance with IAS 36.
Our application of materiality
Performance 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 £13.1 million (2019: £12.7
million), which is approximately 5% (2019: 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 £11.2 million (2019:
£11.5 million), which is 2% (2019: 2%) of equity shareholders’ funds. We consider
this the most relevant measure to the users of the financial statements due
to the nature of the parent company as an investment holding company.
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% (2019: 75%) of our planning materiality, namely £9.8m
(2019: £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 and there being no significant changes
in circumstances of the 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 £1.56m to £1.96m (2019: £1.72m to £2.15m).
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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 (2019: £0.5m), which is set
at approximately 5% of materiality, 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 115, including the Strategic report, the Corporate
governance report, the Audit committee report, the Nominations committee
report, the Annual directors' remuneration report, the Directors' report, and the
Statement of directors' responsibilities, other than the financial statements
and our auditor’s report thereon. The directors are responsible for the other
information contained within the annual report.
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.
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 course of 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 themselves. 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.
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
122 IMI plc Annual Report & Accounts 2020
• 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.
Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Group and company’s compliance with the provisions
of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that
each of the following elements of the Corporate Governance Statement is
materially consistent with the financial statements or our knowledge
obtained during the audit:
• Directors’ statement with regards to the appropriateness of adopting the going
concern basis of accounting and any material uncertainties identified set out
on page 65;
• Directors’ explanation as to its assessment of the company’s prospects, the
period this assessment covers and why the period is appropriate set out on
page 64;
• Directors’ statement on fair, balanced and understandable set out on page 114;
• Board’s confirmation that it has carried out a robust assessment of the
emerging and principal risks set out on page 58;
• The section of the annual report that describes the review of effectiveness of
risk management and internal control systems set out on page 112; and;
• The section describing the work of the audit committee set out on page 76.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page
114, 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.
Other matters we are required to address
• Following the recommendation from the Audit Committee, we were appointed
by the company at the AGM on 7 May 2020 to audit the financial statements
for the year ending 31 December 2020. We were appointed as auditors by the
shareholders and signed an engagement letter on 23 June 2020 and further
addendum on 3 February 2021.
The period of total uninterrupted engagement including previous renewals and
reappointments is 12 years, covering the years ending 31 December 2009 to 31
December 2020.
• 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
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
25 February 2021
Simon O’Neill
Senior statutory auditor
Explanation as to what extent the audit was
considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined below,
to detect irregularities, including fraud. The risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of
fraud rests with both those charged with governance of the company
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 the Group 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.
• 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 that might be 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 programmes and controls. Where the risk was considered to
be higher, we performed audit procedures to address each identified fraud risk.
These procedures included testing material manual journals that had unusual
characteristics and were designed to provide reasonable assurance that the
financial statements were free from material misstatements arising from fraud.
• Based on this understanding we designed our audit procedures to identify
non-compliance with such laws and regulations. Our procedures involved
understanding management’s internal controls over compliance with laws
and regulations; enquiring of legal counsel, Group management, internal audit,
divisional management and full and specific scope management; reviewing
internal audit reports and whistleblowing logs; and performing focused testing,
as referred to in the key audit matters section above. At full and specific
components in countries where the risk of increased bribery or corruption is
assessed as higher, we supplemented our underlying audit procedures with
additional inquiries of local management.
• The Group team communicated with component teams about any instances
of non-compliance with laws and regulations through regular interactions with
local EY teams. We instructed our component teams to perform procedures
in accordance with those we described in the previous bullet as a part of our
Group audit instructions. Component teams did not identify any instances of
non-compliance with laws and regulations. There were no identified significant
instances of non-compliance with laws and regulations at the Group level.
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.
123
Consolidated income statement
For the year ended 31 December 2020
Revenue
Cost of sales
Gross profit
Operating costs
Operating profit
Financial income
Financial expense
Net financial income/(expense) relating to defined benefit pension schemes
Net financial (expense)/income
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
Adjusted
Notes
£m
2020
Adjusting
items
(Note 3)
£m
1,825
(1,008.8)
816.2
(531.5)
284.7
3.8
(14.8)
0.2
(10.8)
273.9
(57.5)
216.4
216.4
4
5
8
8
14
9
28
7
-
(57.9)
(57.9)
14.1
(15.8)
(1.7)
(59.6)
13.4
(46.2)
-
(46.2)
Statutory
Adjusted
£m
£m
1,825
(1,008.8)
1,873
(1,058.6)
816.2
(589.4)
814.4
(548.3)
266.1
4.5
(19.4)
(0.5)
(15.4)
250.7
(52.6)
198.1
198.1
226.8
17.9
(30.6)
0.2
(12.5)
214.3
(44.1)
170.2
-
170.2
62.7p
62.6p
62.7p
62.6p
2019
Adjusting
items
(Note 3)
£m
(1.1)
(1.1)
(60.7)
(61.8)
13.4
(13.0)
0.4
(61.4)
16.6
(44.8)
2.8
(42.0)
Statutory
£m
1,873
(1,059.7)
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
124 IMI plc Annual Report & Accounts 2020
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Profit for the year
Items that may be reclassified to profit and loss
Change in fair value of unsettled effective net investment hedge derivatives
Settled effective net investment hedge derivatives
Exchange differences on translation of foreign operations net of funding revaluations
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 gain/(loss) on defined benefit plans
Related taxation effect
Effect of taxation rate change on previously recognised items
Other comprehensive income/(expense) for the year, net of taxation
Total comprehensive income for the year, net of taxation
2020
2019
(Note 1)
Notes
£m
£m
£m
£m
170.2
156.1
17
9
14
9
9
3.3
(22.7)
21.4
(0.7)
4.3
(2.1)
5.7
2.6
19.6
(35.0)
6.0
1.3
(6.8)
(0.1)
0.1
7.9
9.2
179.4
-
(6.8)
149.3
Consolidated statement of changes in equity
For the year ended 31 December 2020
As at 1 January 2019
Profit for the year
Other comprehensive income/(expense) excluding related
taxation effect (Note 1)
Related taxation effect (Note 1)
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
Changes in equity in 2020
Profit for the year
Other comprehensive income/(expense)
excluding related taxation effect (Note 1)
Related taxation effect (Note 1)
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 2020
Total
equity
£m
666.2
156.1
(12.9)
6.1
149.3
0.8
(110.8)
8.6
Notes
Share
capital
£m
81.8
Share
premium
account
£m
Capital
redemption
reserve
£m
Hedging
reserve
£m
Translation
reserve
£m
13.3
174.4
2.8
25.3
Retained
earnings
£m
368.6
156.1
22
10
6
22
10
6
-
0.8
2.6
2.6
(15.4)
6.0
(0.1)
0.1
(9.4)
156.1
(110.8)
8.6
81.8
14.1
174.4
5.4
15.9
(4.2)
418.3
(4.2)
709.9
170.2
170.2
3.3
(0.7)
2.6
(1.3)
4.3
3.6
(1.3)
178.1
-
0.2
81.8
14.3
174.4
8.0
14.6
(91.6)
10.3
(8.7)
506.4
6.3
2.9
179.4
0.2
(91.6)
10.3
(8.7)
799.5
125
Consolidated balance sheet
At 31 December 2020
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 25 February 2021 and signed on its behalf by:
Lord Smith of Kelvin
Chairman
126 IMI plc Annual Report & Accounts 2020
Notes
2020
£m
2019
£m
11
12
13
14
9
15
16
17
9
17
19
21
19
19
13
20
9
17
19
13
14
20
9
21
22
599.8
266.0
85.6
69.1
36.3
3.4
1,060.2
293.3
378.9
10.8
3.3
3.1
207.9
897.3
1,957.5
(371.9)
(73.5)
-
(26.3)
(43.9)
(66.3)
(4.7)
(586.6)
(362.3)
(62.0)
(91.1)
(15.1)
(33.9)
(7.0)
(571.4)
(1,158.0)
799.5
81.8
14.3
197.0
506.4
799.5
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
Consolidated statement of cash flows
For the year ended 31 December 2020
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
Other acquisition items
Gain on special pension events
Loss/(profit) on sale of property, plant and equipment
Equity-settled share-based payment expense
Increase in inventories
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Increase 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
Settlement of transactional derivatives
Settlement of effective net investment hedge derivatives
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
Repayment of borrowings
Principal elements of lease payments
Dividends paid to equity shareholders
Net cash from financing activities
Net increase/(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 £73.5m (2019: £60.1m).
Notes to the cash flow appear in Note 19.
Notes
2020
£m
2019
£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
226.8
-
111.1
4.0
-
-
2.3
10.3
(8.8)
17.2
6.2
7.9
377.0
(41.0)
336.0
(7.0)
329.0
3.8
0.2
0.2
(22.7)
-
(50.7)
(69.2)
(14.8)
(8.7)
0.2
(17.8)
(28.7)
(91.6)
(161.4)
98.4
28.1
7.9
134.4
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
127
Notes to the consolidated financial statements
1. Basis of preparation
Introduction
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 those International Financial Reporting Standards as
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European
Union. The Company financial statements have been prepared in accordance with
International Accounting Standards in conformity with the requirements of the
Companies Act 2006 as applied in accordance with section 408 of the Companies
Act 2006 and these are presented on pages 180 to 184. The financial statements
were approved by the Board of Directors on 25 February 2021.
Basis of accounting
The financial statements are presented in Pounds Sterling (which is the Company’s
functional currency), rounded to the nearest hundred thousand, except revenues,
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.
(i) New or amended EU Endorsed Accounting Standards
adopted by the Group during 2020
Noted below are the amended and new International Financial Reporting
Standards which became effective for the Group as of 1 January 2020, none
of which has a material impact on the financial statements:
• IFRS 3 ‘Business Combinations’ – amendments to definition of a Business;
• IFRS 7, IFRS 9 and IAS 39: ‘Financial Instruments’ – amendments to Interest
Rate Benchmark Reform; and
• IAS 1 ‘Presentation of Financial Statements’ and IAS 8 ‘Accounting Policies,
Changes in Accounting Estimates and Errors’ – amendments to definition
of Material
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 business development, performance and position are set out in
the Strategic Report. Principal risks are detailed on pages 60 to 63. The financial
position of the Group, its cash flows, liquidity position and borrowing facilities
are described in these financial statements. In addition, Note 18 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.
After making enquiries, the directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future and for a period of at least twelve months (28
February 2022) following the approval of the Annual Report & Accounts. Accordingly,
they continue to adopt the going concern basis in preparing the financial statements.
The directors have considered the impact of Coronavirus and of the restrictions put
in place by governments to contain the spread of the virus on the Group’s financial
results and financial position. Immediate measures were taken to protect first and
foremost the Group’s workforce, communities and customers. Actions were deployed
to ensure strict adherence to social distancing measures and deep-cleaning protocols
and these measures will be continued as needed to keep the workforce safe.
Business disruption, so far, has been reasonably modest as the Group is well
diversified and maintains a balanced portfolio operating across a range of markets,
sectors and geographies with no single dependency. Performance in IMI Precision’s
Commercial Vehicle segment has been affected and temporary construction site
restrictions have impacted the results of IMI Hydronic, both of which have been
mitigated to some extent by a temporary surge in orders within Life Sciences.
Across the Group, all sites have returned to normal levels of production. Supply chain
disruptions have been minimal and alternative suppliers or contingency stocks have
addressed the few instances of part shortages.
During this period of uncertainty, the Group continues to maintain a robust financial
position. The balance sheet position has been protected by the actions taken to
reduce costs and preserve cash, including the following:
• salary reductions for the Board;
• continuing, successful initiatives in rationalisation, value-pricing and material cost
reduction; and
• reduction in temporary workers, increase in short time working, and tight controls
on discretionary spending.
At 31 December 2020, the Group had cash and cash equivalents of £134m and
undrawn committed facilities of £300m in the form of Revolving Credit Facilities
(RCF), of which £150m is due for renewal in 2022, £75m in 2023 and £75m in 2024.
Forecasts indicate that the Group can operate within the level of facilities in place
without the need to obtain any new facilities in the twelve-month period following
the approval of the Annual Report & Accounts.
The directors have assessed the viability of the Group and reviewed detailed cash
flow forecasts for a period of at least twelve months following the date of approval
of the Annual Report & Accounts. These revised forecasts factored in a decline in
revenue based on slowdowns in various end markets, experiencing tough trading
conditions. After applying a reverse stress test and making comparisons to the
detailed forecasts, the directors have a reasonable expectation that the financial
headroom will not be exhausted during this period.
Covenant compliance reviews are undertaken to ensure that the Group remains fully
within the covenant limits. Funding covenants currently require EBITDA to be no less
than 4.0 times interest and net debt to be no more than 3.0 times EBITDA. Those
covenant ratios, at 31 December 2020, were 34.5 times and 0.8 times, respectively.
For there to be a breach of covenants during the twelve-month period following the
approval of the Annual Report & Accounts, forecast revenue would need to fall by
36%, and forecast EBITDA by 69%, after taking into account the mitigating actions
that would be undertaken in these circumstances. The mitigating actions include,
but are not limited to, reducing working capital, restricting capital expenditure,
reducing overhead spend and employee costs and cutting or suspending dividend
payments to shareholders.
Re-presentations
Further information has been provided in the following financial statements in the
current year and as a result, 2019 comparatives have been re-presented accordingly:
Consolidated statement of comprehensive income
'Exchange differences on translation of foreign operations net of hedge settlements
and funding revaluations' disclosed in the prior year are now separately disclosed
within the Consolidated statement of comprehensive income as 'Settled effective
net investment hedge derivatives' and 'Exchange differences on translation of
foreign operations net of funding revaluations'.
Consolidated statement of changes in equity
‘Other comprehensive income/(expense)’ disclosed in the prior year is now
separately disclosed within the Consolidated statement of changes in equity
as ‘Other comprehensive income/(expense) excluding related taxation effect’
and ‘Related taxation effect’.
128 IMI plc Annual Report & Accounts 2020
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 2020.
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 and 15.
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,
no changes are required in the consideration of what constitutes a key judgement;
however, we no longer consider there to be a key estimate associated with trade
and other receivables, warranty provisions or acquisitions.
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; and
• 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 IMI 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 level of estimation uncertainty associated with variable
consideration is minimal, as discounts and rebates are accounted for at the
point of sale and adjusted as required at each financial year end.
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 2020, 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 2020 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.
129
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
rates 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 statement's 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.
130 IMI plc Annual Report & Accounts 2020
F. Other hedging
H. Discontinued operations
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 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 re-presented 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 2020, there was a profit after tax of £nil (2019: profit after tax of £2.8m) from
discontinued operations. See Note 28 for further details.
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.
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 operations
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.
131
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 124.
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 124 and
segmental reporting note in Note 4.
Organic growth
This measure removes the impact of adjusting items, acquisitions, disposals and
movements in exchange rates.
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.
Net debt
Net debt is defined as the cash and cash equivalents, overdrafts, interest-bearing
loans and borrowings and lease liabilities.
See Note 19.
Free cash flow before
corporate activity
Return on capital employed
(ROCE)
This measure is a sub-total in the reconciliation of adjusted EBITDA to Net Debt
and is presented to assist the reader to understand the nature of the current
year’s cash flows.
See Note 19.
ROCE is defined as 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.
See Financial review on page 52.
132 IMI plc Annual Report & Accounts 2020
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 (gains)/losses
Restructuring costs
Gains on special pension events
Impairment losses
Acquired intangible amortisation and other acquisition items
Recognised in net financial expense
Financial income
Financial expense
Key
2020
£m
2019
£m
a)
b)
c)
d)
e)
a)
a)
(1.5)
(36.1)
-
(1.6)
(18.7)
4.0
(51.8)
8.6
(1.5)
(21.1)
14.1
(15.8)
13.4
(13.0)
(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.
(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.
(b) Restructuring costs – The restructuring costs of £36.1m (2019: £51.8m) are
a result of a number of significant restructuring projects across the Group.
These include the continuation of a cost and footprint rationalisation
programme within IMI Precision Engineering, £4.8m in Europe and £2.5m
in the Americas, which include the closure of a manufacturing site in each
region. In IMI Critical Engineering, adjusted restructuring costs related to a
restructuring programme in the EMEA region of £22.4m, which included the
closure of manufacturing at two Italian sites and restructuring at two German
sites, and £2.1m in the Americas to right size the workforce. In IMI Hydronic
Engineering, there were costs of £5.1m related to closure of a manufacturing
site in Slovenia and consolidation of the Swedish and German distribution
hubs into one hub in Poland. There was a provision release of £0.8m
related to the Corporate HQ following the closure of matters relating
to previous projects.
In 2019, £51.8m of restructuring costs included the restructure of our
European business totalling £24.4m in IMI Precision Engineering, £4.6m
in the Americas and £1.2m in the divisional central team. In IMI Critical
Engineering, adjusted restructuring costs related to a divisional reorganisation
of £9.2m and restructure of the EMEA region of £9.5m. In IMI Hydronic
Engineering, 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.
(d) Impairment losses – In 2020, the Group recorded an adjusting impairment
charge of £1.6m (2019: £1.5m) associated with the restructuring
programmes ongoing in IMI Precision Engineering and IMI Critical Engineering.
(e) Acquired intangible amortisation and other acquisition items – 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 £18.7m (2019: £19.5m), which largely relates to the amortisation
of the intangible assets recognised on the acquisition of Bimba in 2018.
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.
Adjusting items associated with discontinued operations are disclosed in Note 28.
133
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 03, 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.
Continuing operations
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Corporate costs
Total adjusted revenue/operating profit
Reversal of net economic hedge contract (gains)/losses
Restructuring costs
Gains on special pension events
Acquired intangible amortisation and other acquisition items
Impairment losses
Revenue
Operating profit
Operating margin
2020
£m
877
643
305
2019
£m
907
651
315
1,825
1,873
2020
£m
2019
£m
2020
%
2019
%
17.3%
16.6%
18.3%
16.3%
13.8%
18.0%
15.6%
14.2%
151.4
106.5
55.7
(28.9)
284.7
(1.5)
(36.1)
-
(18.7)
(1.6)
148.0
90.1
56.7
(28.7)
266.1
4.0
(51.8)
8.6
(21.1)
(1.5)
Statutory revenue/operating profit
1,825
1,873
226.8
204.3
Net financial expense
Statutory profit before tax from continuing operations
(12.5)
214.3
(15.0)
189.3
134 IMI plc Annual Report & Accounts 2020
The following table illustrates how revenue and adjusted operating profit have been impacted by movements in foreign exchange, acquisitions and disposals.
Year ended 31 December 2019
Year ended 31 December 2020
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
Adjusted operating profit margin (%)
As
adjusted
907
651
315
1,873
148.0
90.1
56.7
(28.7)
266.1
14.2%
Exchange
Organic
adjusted Acquisitions
Organic
As
Adjusted
Organic
growth (%) growth (%)
(1)
(1)
2
-
0.3
-
2.0
-
2.3
906
650
317
1,873
148.3
90.1
58.7
(28.7)
268.4
877
643
305
1,825
151.4
106.5
55.7
(28.9)
284.7
14.3%
15.6%
(19)
(19)
(3.7)
(3.7)
877
624
305
1,806
151.4
102.8
55.7
(28.9)
281.0
15.6%
-3%
-1%
-3%
-3%
2%
18%
-2%
-3%
-4%
-4%
-4%
2%
14%
-5%
7%
5%
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
Assets
Liabilities
2020
£m
645.0
749.8
224.7
1,619.5
18.3
69.1
3.1
207.9
39.6
1,957.5
2019
£m
667.0
771.4
206.8
1,645.2
14.0
47.9
3.6
88.2
24.7
1,823.6
2020
£m
154.3
256.4
84.8
495.5
35.4
91.1
-
435.8
100.2
1,158.0
2019
£m
165.8
241.1
69.9
476.8
36.9
79.2
-
435.6
85.2
1,113.7
135
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
2020
£m
7.3
24.5
5.1
36.9
(0.8)
36.1
2019
£m
30.2
18.7
0.3
49.2
2.6
51.8
Capital expenditure
Amortisation*
Depreciation **
2020
£m
28.9
10.5
11.3
50.7
-
50.7
2019
£m
27.5
27.3
10.9
65.7
0.1
65.8
2020
£m
11.8
17.7
5.5
35.0
-
35.0
2019
£m
11.0
17.4
5.8
34.2
0.3
34.5
2020
£m
38.0
22.3
15.0
75.3
0.8
76.1
2019
£m
35.5
24.7
14.8
75.0
1.2
76.2
* The amortisation figures above include the amortisation of acquired intangibles. £7.7m (2019: £7.5m) is included in respect of IMI Precision, £11.0m (2019:
£12.0m) is included in respect of IMI Critical and £nil (2019: £nil) is included in respect of IMI Hydronic.
** The depreciation figures above include the impact of IFRS 16: £0.6m in respect of Corporate (2019: £0.7m), £12.8m in respect of IMI Precision (2019: £13.2m),
£9.3m in respect of IMI Critical (2019: £11.6m) and £7.0m in respect of IMI Hydronic (2019: £6.3m).
The following table shows a geographical analysis of how the Group’s revenue is derived by destination.
2020
Revenue
£m
2019
Revenue
£m
88
222
486
796
443
102
545
156
234
390
90
234
494
818
440
98
538
158
246
404
94
1,825
113
1,873
Middle East & Africa
6%
Total Europe
44%
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
Adjusted revenue by destination (2020)
Adjusted revenue by destination (2019)
Total
Asia Pacific
21%
Total Americas
30%
Middle East & Africa
5%
Total
Asia Pacific
21%
Total Europe
44%
Total Americas
29%
136 IMI plc Annual Report & Accounts 2020
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
2020
£m
74.2
232.2
279.5
279.8
47.6
38.1
951.4
2019
£m
84.1
234.2
265.1
309.3
51.7
35.8
980.2
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
IMI Precision Engineering**
Factory Automation
Rail
Motion Control
Life Sciences
Process Control
Energy
Fluid Technologies
Commercial Vehicles
Total IMI Precision Engineering
IMI Critical Engineering***
New Construction
Aftermarket
Oil & Gas
New Construction
Aftermarket
Refining & Petrochemical
New Construction
Aftermarket
Power
Marine
Nuclear
Other
Total IMI Critical Engineering
IMI Hydronic Engineering
TA
Heimeier
Pneumatex
Other
Total IMI Hydronic Engineering
Total revenue
2020
Revenue
£m
2019*
Revenue
£m
361
37
398
171
86
82
339
140
877
67
47
114
120
82
202
47
130
177
39
49
62
643
406
42
448
88
98
87
273
186
907
60
51
111
102
105
207
57
147
204
30
53
46
651
146
95
51
13
305
1,825
152
97
50
16
315
1,873
*
The Group has been reorganised into commercially focused business units, resulting in the reclassification to new sectors. Prior year numbers in the tables above
have been re-presented.
** 2019 Industrial Automation sales of £509m disaggregate as Factory Automation (£398m), Process Control (£98m), Life Sciences (£7m) and Energy (£6m).
2019 Commercial Vehicle sales of £194m disaggregate as Commercial Vehicle (£186m) and Factory Automation (£8m).
*** 2019 New Construction sales of £277m disaggregate as Oil & Gas (£60m), Refining & Petrochemical of (£102m), Power (£57m), Marine (£13m), Nuclear (£11m)
and Other (£34m) and Aftermarket sales of £374m disaggregate as Oil & Gas (£51m), Refining & Petrochemical (£105m), Power (£147m), Marine (£17m),
Nuclear (£42m) and Other (£12m).
137
5. Operating costs
Operating costs by function
Research and development expenditure
The following table shows how much of the operating costs disclosed in
the income statement relate to selling and distribution costs and
administrative expenses.
Selling and distribution costs
Administrative expenses
Employee information
2020
£m
(222.5)
(309.0)
(531.5)
2019
£m
(253.5)
(294.8)
(548.3)
The continuing cost of research and development expenditure charged directly to the
income statement was £38.7m (2019: £42.9m), included within this is amortisation
of capitalised intangible development costs which amounted to £7.0m (2019: £6.5m
restated) and across the Group a further £6.9m (2019: £8.6m restated)
was capitalised in the year.
Government Assistance
During the year, the Group has benefited from government assistance of £2.7m as
a result of the COVID-19 pandemic. In accordance with IAS 20 'Government Grants',
the income received has been deducted in reporting the related expense.
Over 84% of this balance was received by our businesses located in Asia Pacific
through the Job Support Scheme or in the form of social insurance rebates.
The average number of people employed by the Group during the year was:
Exchange on operating activities net of hedging arrangements
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Corporate
Total Group
2020
5,427
3,116
1,810
93
10,446
2019
5,979
3,217
1,770
108
11,074
The decrease in 2020 is due to the results of ongoing restructuring.
The aggregate employment cost charged to operating profit for the year was:
The transactional foreign exchange losses in the Group were £0.6m (2019: gains
of £1.8m).
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 79. Fees earned by EY and its associates during the year are set out below:
Wages and salaries
Share-based payments
Social security costs
Pension costs*
Total
2020
£m
489.9
10.3
77.4
5.6
583.2
2019
£m
499.5
8.8
82.8
(3.1)
588.0
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
2020
£m
0.2
2.9
0.1
3.2
2019
£m
0.2
2.8
0.1
3.1
* There are no special pension events included in 2020 pension costs (2019: £8.6m
gain which is disclosed as adjusting items, see Note 3).
The aggregate gains made by directors on the exercise of share options was
£0.6m (2019: £3.7m). 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 95 of the Remuneration Report. For details
of the non-executive directors’ remuneration please refer to page 103 of the
Remuneration Report.
138 IMI plc Annual Report & Accounts 2020
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 2020, 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
Purchase Plans
IMI Incentive Plan
IMI Share Option Plan
Total
05.06.15
29.04.16
21.04.17
04.04.18
04.04.19
02.04.20
16.08.19
10.08.20
07.05.15
09.03.16
09.03.17
12.03.18
18.03.19
16.03.20
22.03.10
23.03.11
04.05.12
27.11.12
12.03.13
22.10.13
11.03.14
11,119
34,870
24,914
55,815
147,757
66,765
341,240
26,231
42,753
68,984
1,868
16,678
36,433
587,307
640,397
1,296,959
2,579,642
1075.32p
845.10p
1106.00p
1012.68p
884.16p
904.66p
902.72p
956.07p
-
-
-
-
-
-
645.00p
971.83p
980.67p
1007.33p
1322.70p
1518.33p
1467.00p
68,500
152,300
10,000
156,650
9,000
156,650
553,100
3,542,966
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
01.08.23 or 01.08.25
12.08.21
10.08.22
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
16.03.23
22.03.13
23.03.14
04.05.15
27.11.15
12.03.16
22.10.16
11.03.17
139
6. Share-based payments (continued)
Schemes under which options
are outstanding
The options in the above table 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
68
54
33
43
835
845
1,466
1013p 2021-2024
884p 2022-2025
905p 2023-2026
1409p
903p
956p
2020
2021
2022
- 2020-2021
- 2021-2022
- 2022-2023
SAYE
2018
2019
2020
GESPP
2018
2019
2020
IIP
2018
2019
2020
140 IMI plc Annual Report & Accounts 2020
Movement in outstanding options in the year
Outstanding at 1 January 2019
Exercisable at 1 January 2019
Granted
Exercised
Lapsed
Outstanding at 31 December 2019
Exercisable at 31 December 2019
Granted
Exercised
Lapsed
Outstanding at 31 December 2020
Exercisable at 31 December 2020
Options not granted at nil cost 1
Number of
options
(thousand)
Weighted
average
option prices option price
Range of
1,555
1,156
233
189
109
1,490
1,067
110
88
546
966
586
645-1518p
645-1518p
884-903p
645-1067p
845-1384p
645-1518p
645-1518p
905-956p
645-1467p
845-1518p
845-1518p
971-1518p
1162p
1229p
887p
815p
1022p
1173p
1264p
925p
1046p
1254p
1098p
1216p
Options
granted at
nil cost 2
Number of
options
(thousand)
Total
Number of
options
(thousand)
3,257
128
1,194
655
1,105
2,692
202
1,567
540
671
3,048
167
4,812
1,284
1,427
844
1,214
4,182
1,269
1,677
628
1,217
4,014
753
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
£10.3m (2019: £8.8m) which comprises a charge of £13.5m (2019: £13.8m) for
the year offset by a credit of £3.2m (2019: £5.0m) in respect of lapses.
£2.3m (2019: £3.5m) of the total charge and £1.0m (2019: £3.4m) 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 2020 is 6.70 years (2019: 6.18 years) and the weighted
average fair value of share options granted in the year at their grant date was
£7.58 (2019: £8.66).
The weighted average share price at the date of exercise of share options exercised
during the year was £9.29 (2019: £9.98).
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 2020 included a dividend yield of 2.4% (2019: 3.7%), expected share
price volatility of 28% (2019: 24%), a weighted average expected life of 3.4 years
(2019: 3.3 years) and a weighted average interest rate of 0.1% (2019: 0.6%).
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.
141
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
2020
million
271.4
0.5
271.9
2019
million
270.8
0.4
271.2
Key
£m
£m
C
D
170.2
-
170.2
59.6
(13.4)
156.1
(2.8)
153.3
61.4
(16.6)
E
216.4
198.1
Key
2020
2019
C/A
C/B
D/A
D/B
E/A
E/B
62.7p
62.6p
62.7p
62.6p
79.7p
79.6p
57.6p
57.6p
56.6p
56.5p
73.2p
73.0p
Discontinued earnings per share
Statutory basic discontinued earnings per share were £nil (2019: 1.0p). Statutory diluted discontinued earnings per share were £nil (2019: 1.0p).
142 IMI plc Annual Report & Accounts 2020
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/(expense) relating to defined benefit pension schemes
Net financial (expense)/income
2020
Financial
instruments
£m
Interest
£m
3.8
2019
Financial
instruments
£m
Total
£m
3.8
Interest
£m
4.5
7.9
6.2
14.1
(10.4)
(5.4)
(15.8)
(1.7)
7.9
6.2
17.9
(12.3)
(2.5)
(10.4)
(5.4)
(30.6)
0.2
(12.5)
3.8
(12.3)
(2.5)
(14.8)
0.2
(10.8)
7.5
5.9
13.4
(9.3)
(3.7)
(13.0)
0.4
4.5
(17.1)
(2.3)
(19.4)
(0.5)
(15.4)
Total
£m
4.5
7.5
5.9
17.9
(17.1)
(2.3)
(9.3)
(3.7)
(32.4)
(0.5)
(15.0)
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
Settled effective net investment hedge derivatives
Foreign currency translation differences
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
2020
£m
3.3
(22.7)
21.4
(0.7)
1.3
2.6
(1.3)
1.3
2019
£m
2.6
19.6
(35.0)
6.0
(6.8)
2.6
(9.4)
(6.8)
143
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 its 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 to enhance long-term shareholder
value whilst also contributing to the public expenditure and the overall welfare of
the communities in which it operates. 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 primary 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 pays and collects significant amounts of taxes around the world
as a result of its business activities. It 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. 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.
144 IMI plc Annual Report & Accounts 2020
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.
The Group Tax Policy is fully aligned with the Group’s Code of Conduct, which
requires the Group and its employees and agents to act in compliance with
applicable laws and with fairness and integrity in all of its business dealings.
IMI has a zero-tolerance approach to tax evasion and the facilitation of
tax evasion. UK legislation regarding third party tax evasion has also been
incorporated into the Group’s prevention procedures, including employee training.
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 and commercial positions. In doing so,
the Group may make use of legitimate tax incentives, exemptions and statutory
alternatives offered by governments and will look to ensure that it is not taxed
more than once on the same profit. 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 on page
58.
UK corporation tax
The rate of corporation tax in the UK for the 2020 calendar year was 19.0% (2019:
19.0%). In the Spring Budget of 2020, the UK Government announced that from
1 April 2020 the UK corporation tax rate would remain at 19%, rather than
reducing to a rate of 17%, as had been previously substantively enacted. This new
law was substantively enacted on 17 March 2020. UK deferred tax assets and
liabilities have therefore been calculated using a rate of 19% (2019: 17%).
Tax payments
Recognised in the income statement
During the year, the Group made payments of corporate income tax of £41.0m
(2019: £40.2m), 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.
Current tax charge
Current year charge
Adjustments in respect of prior years
Deferred taxation
Origination and reversal of temporary differences
Total income tax charge
2020
£m
43.9
2.7
46.6
(2.5)
44.1
2019
£m
41.4
0.4
41.8
(5.8)
36.0
The above income tax charge is apportioned between continuing and discontinued
operations in the income statement as follows:
Current tax charge
Continuing operations
Deferred tax credit
Continuing operations
Total income tax charge
Continuing operations
2020
£m
2019
£m
46.6
41.8
(2.5)
(5.8)
44.1
36.0
Jurisdiction of companies making corporate income tax payments:
Other £4.4m
China £0.3m
Australia £0.6m
Sweden £0.9m
South Korea £1.0m
Austria £1.1m
Czech £1.2m
Japan £1.2m
Singapore £1.9m
Switzerland £3.4m
Italy £(0.1)m
Germany £1.4m
Other £4.6m
China £1.1m
Australia £1.0m
Sweden £0.9m
South Korea £1.7m
Austria £0.8m
Czech £1.4m
Japan £2.2m
Singapore £1.2m
Switzerland £1.8m
2020 £41.0m
2019 £40.2m
UK £19.5m
US £4.2m
UK £13.9m
US £(0.6)m
Germany £3.3m
Italy £6.9m
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 2020 increased slightly compared to 2019.
UK payments increased significantly due to a change in rules regarding the timing
of payments. Italy payments decreased partly due to obtaining tax credits on
patents and R&D. Germany continued to recover tax debtors. Other territorial
movements in payments largely reflect shifts in trading performance.
In addition, the Group makes substantial other tax payments relating to
employment, consumption, procurement and investment to local authorities
around the world.
145
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:
Profit before tax from continuing operations
Profit before tax from discontinued operations
Profit before tax
Note
28
Income tax using the Company's domestic rate of tax of 19.0% (2019: 19.0%)
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
Change in future tax rate on deferred tax
Differing tax rates
Under 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
Recognised outside of the income statement
2020
Adjusting
items
£m
Adjusted
£m
Statutory
£m
Adjusted
£m
273.9
(59.6)
214.3
250.7
273.9
(59.6)
214.3
250.7
52.0
(11.3)
40.7
47.6
0.8
0.2
1.0
0.7
(0.3)
0.2
(8.1)
6.5
4.2
2.2
57.5
57.5
21.0%
57.5
21.0%
0.1
(2.4)
(13.4)
(13.4)
(0.3)
0.3
(8.1)
6.5
1.8
2.2
44.1
44.1
20.6%
(13.4)
44.1
(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
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%
(16.6)
36.0
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
Effect of rate change on previously recognised items
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
146 IMI plc Annual Report & Accounts 2020
2020
£m
2019
£m
(0.4)
2.1
(5.7)
-
(4.0)
0.7
0.4
(2.9)
(2.8)
-
(2.8)
-
(0.1)
-
(2.0)
(2.1)
(4.0)
0.2
(5.9)
(6.1)
0.2
(5.9)
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
Revaluation of derivatives
Employee benefits and provisions
Other tax assets
Offsetting within tax jurisdictions
Total deferred tax assets and liabilities
Assets
Liabilities
Net
2020
£m
7.5
4.3
-
39.0
11.8
62.6
(26.3)
36.3
2019
£m
5.2
3.6
0.4
36.0
1.7
46.9
(24.7)
22.2
2020
£m
(38.8)
(2.2)
(1.1)
(18.1)
-
(60.2)
26.3
(33.9)
2019
£m
(36.6)
(2.2)
(1.0)
(12.4)
-
(52.2)
24.7
(27.5)
2020
£m
(31.3)
2.1
(1.1)
20.9
11.8
2.4
-
2.4
2019
£m
(31.4)
1.4
(0.6)
23.6
1.7
(5.3)
-
(5.3)
The movement in the net deferred tax balances has been recognised in the financial statements as analysed below:
Non-current assets
Inventories
Revaluation of derivatives
Employee benefits and provisions
Other tax assets
Net deferred tax (liability)/asset
Non-current assets
Inventories
Revaluation of derivatives
Employee benefits and provisions
Other tax assets
Net deferred tax (liability)/asset
Recognised
in the
income
statement
£m
Recognised
outside the
income
statement
£m
Balance at
1 Jan 20
£m
(31.4)
1.4
(0.6)
23.6
1.7
(5.3)
(0.6)
0.7
(0.5)
(7.2)
10.1
2.5
4.0
4.0
Recognised
in the
income
statement
£m
Recognised
outside the
income
statement
£m
1.5
0.3
0.3
2.5
1.2
5.8
2.0
0.1
2.1
Balance at
1 Jan 19
£m
(33.9)
1.1
(2.9)
21.7
1.2
(12.8)
Exchange
£m
Balance at
31 Dec 20
£m
0.7
0.5
1.2
(31.3)
2.1
(1.1)
20.9
11.8
2.4
Exchange
£m
1.0
(0.7)
(0.7)
(0.4)
Balance at
31 Dec 19
£m
(31.4)
1.4
(0.6)
23.6
1.7
(5.3)
All exchange movements are taken through the translation reserve.
Unrecognised deferred tax assets and liabilities
Deferred tax assets of £40.6m (2019: £48.4m) have not been recognised in respect of tax losses of £65.2m (2019: £62.2m), interest of £nil (2019: £37.3m) and capital
losses of £118.9m (2019: £117.3m). A deferred tax asset of £10.3m (2019: £nil) has been recognised in respect of surplus interest following a review. This is reflected in the
Other tax assets movement in the table above. 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, £94.4m (2019: £35.3m) 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 £7.2m (2019: £3.8m) of which £3.3m (2019: £3.3m) has been provided on the basis that the Group expects to remit these amounts.
147
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 are recognised in the period that they are paid.
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 – 15.0p per qualifying ordinary share (2019: 26.2p)
The following dividends were declared and paid by the Group during the year:
Prior year final dividend paid – 26.2p per qualifying ordinary share (2019 final year dividend: 26.0p)
Current year interim dividend paid – 7.5p per qualifying ordinary share (2019: 14.9p)
2020
£m
40.7
2020
£m
71.2
20.4
91.6
2019
£m
71.0
2019
£m
70.4
40.4
110.8
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.
The Group does not have a formal dividend policy or pay-out ratio. In 2020, the Group reset the dividend with the intention that it will be covered by at least three times
adjusted earnings, from an aim of two times adjusted earnings in previous years. In future years 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. 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.
148 IMI plc Annual Report & Accounts 2020
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 are:
• 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.
149
11. Intangible assets (continued)
Analysis of intangible assets
Cost
As at 1 January 2019
Exchange adjustments
Acquisitions
Additions
Transfers from assets in the course of construction
Disposals
As at 31 December 2019
Exchange adjustments
Additions
Transfers from assets in the course of construction
Disposals
As at 31 December 2020
Amortisation
As at 1 January 2019
Exchange adjustments
Disposals
Amortisation for year
As at 31 December 2019
Exchange adjustments
Disposals
Impairment
Amortisation for year
As at 31 December 2020
Net book value at 31 December 2019
Net book value at 31 December 2020
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
475.5
(20.9)
25.8
-
-
-
480.4
7.0
-
-
-
487.4
38.3
(2.0)
-
-
36.3
1.6
-
-
-
37.9
444.1
449.5
236.6
(12.0)
15.7
-
-
-
240.3
3.7
-
-
-
244.0
180.5
(9.3)
-
15.2
186.4
4.1
-
-
14.3
204.8
53.9
39.2
122.3
(5.8)
13.3
-
-
-
129.8
2.5
-
-
-
132.3
99.4
(4.5)
-
4.3
99.2
3.1
-
-
4.4
106.7
30.6
25.6
834.4
(38.7)
54.8
-
-
-
850.5
13.2
-
-
-
863.7
318.2
(15.8)
-
19.5
321.9
8.8
-
-
18.7
349.4
528.6
514.3
143.6
(8.1)
-
7.6
12.6
(0.8)
154.9
5.8
5.6
13.5
(9.6)
170.2
70.4
(4.6)
(0.5)
15.0
80.3
3.0
(9.4)
4.3
16.3
94.5
74.6
75.7
17.3
(0.3)
-
11.2
(12.6)
-
15.6
0.5
7.2
(13.5)
-
9.8
-
-
-
-
-
-
-
-
-
15.6
9.8
Total
£m
995.3
(47.1)
54.8
18.8
-
(0.8)
1,021.0
19.5
12.8
-
(9.6)
1,043.7
388.6
(20.4)
(0.5)
34.5
402.2
11.8
(9.4)
4.3
35.0
443.9
618.8
599.8
* Other non-acquired intangibles includes capitalised development costs with a carrying value of £40.1m (2019: £36.4m) and capitalised software costs with a carrying
value of £35.6m (2019: £38.2m).
Goodwill impairment testing
Accounting policy
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 exist, 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.
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.
150 IMI plc Annual Report & Accounts 2020
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 combination of assumptions used in these calculations, including
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 12 (2019: 19) cash generating units to which goodwill is allocated.
Following management’s assessment during the year, the grouping of the CGUs,
as defined for the purpose of goodwill testing, has been changed to reflect the
re-organisation of the divisional structures as shown in Note 4, principally in
IMI Precision Engineering with the new Motion Control, Fluid Technologies &
Commercial Vehicles sectors and in IMI Critical Engineering with a new regional
structure.
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% (2019: 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:
Pre-tax, pre-risk adjusted discount rate
Long-term growth rate
2020
%
2019
%
9.2 – 10.7
1.3 – 2.1
8.3 – 11.0
0.7 – 2.0
For the purpose of assessing the significance of CGUs, the Group uses a threshold
of 10% of the total goodwill balance. The recoverable amount of the CGUs is
determined from a value in use calculation and the key assumptions used in this
calculation are the discount rate, growth rate and operating cashflows.
These estimates are determined using the methodology discussed above and
for those CGUs considered to be significant, outlined in the table adjacent:
2020
IMI Critical – Petrochemical & Isolation
IMI Critical – Control Valves
IMI Precision Americas – Fluid Technologies
2019
IMI Critical – Petrochemical & Isolation
IMI Critical – Control Valves
IMI Precision Americas – Fluid Technologies
Sensitivity to changes in assumptions
Goodwill
£m
Discount
rate
%
Growth
rate
%
117.1
94.0
58.1
113.3
90.2
60.4
10.9
10.9
12.2
9.4
9.4
10.5
2.1
2.1
1.8
2.0
2.0
1.6
The principal key estimate reflects the combination of assumptions used, including
the long-term growth rates and the discount rate applied to forecast cash flows in
addition to the achievement of the forecasts themselves.
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.
Forecast cash flows – decreased demand can lead to a decline in the forecast cash
flows used to assess goodwill impairment. A decrease of 33% in the forecast cash
flows of Petrochemical & Isolation would result in impairment. A decrease of 79%
in the forecast cash flows of Control Valves would result in impairment. A decrease
of 48% in the forecast cash flows of Precision Americas – Fluid Technologies would
result in impairment.
Discount rates – a rise in the pre-tax discount rate to 15.3% (i.e. +4.4%) in
Petrochemical & Isolation would result in impairment. A rise in the pre-tax discount
rate to 46.0% (i.e. +35.1%) in Control Valves would result in impairment. A rise
in the pre-tax discount rate to 21.8% (i.e. +9.6%) in Precision Americas – Fluid
Technologies would result in impairment.
Growth rates – a decline in the growth rate to -4.7% (i.e. -6.8%) in Petrochemical
& Isolation would result in impairment. A decline in the growth rate to -19.1% (i.e.
-20.9%) in Precision Americas – Fluid Technologies would result in impairment.
A significant decline in the growth rate would be required before Control Valves
goodwill would require an impairment.
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.
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 (2019: £41m).
151
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 2019
Exchange adjustments
Acquisitions
Additions
Transfers from assets in the course of construction
Disposals
As at 31 December 2019
Exchange adjustments
Additions
Transfers from assets in the course of construction
Disposals
As at 31 December 2020
Depreciation
As at 1 January 2019
Exchange adjustments
Disposals
Impairment charge
Depreciation
As at 31 December 2019
Exchange adjustments
Disposals
(Reversal of impairment)/Impairment charge
Depreciation
As at 31 December 2020
NBV at 31 December 2019
NBV at 31 December 2020
Land &
buildings
£m
Plant &
equipment
£m
Assets in the
course of
construction
£m
194.0
(9.8)
2.0
6.6
5.9
(18.8)
179.9
6.0
1.6
3.1
(1.0)
189.6
105.8
(5.3)
(13.9)
-
3.8
90.4
3.1
(0.5)
(0.4)
4.4
97.0
89.5
92.6
687.5
(31.5)
2.1
18.2
15.5
(23.0)
668.8
16.6
17.7
18.7
(23.6)
698.2
510.5
(24.6)
(21.4)
1.5
40.6
506.6
15.3
(22.3)
0.1
42.0
541.7
162.2
156.5
19.2
(1.2)
1.1
22.2
(21.4)
(0.3)
19.6
1.0
18.6
(21.8)
(0.5)
16.9
-
-
-
-
-
-
-
-
-
-
-
19.6
16.9
Total
£m
900.7
(42.5)
5.2
47.0
-
(42.1)
868.3
23.6
37.9
-
(25.1)
904.7
616.3
(29.9)
(35.3)
1.5
44.4
597.0
18.4
(22.8)
(0.3)
46.4
638.7
271.3
266.0
A net reversal of impairment of £0.3m relating to continuing operations occurred during the year (2019: £1.5m charge). 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 £5.6m
(2019: £12.3m).
152 IMI plc Annual Report & Accounts 2020
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 payments 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 £5.3m (2019: £7.8m).
153
13. Leases (continued)
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
Additions
Extensions
Payment changes
Terminations
Depreciation expense
Exchange
As at 31 December 2020
Land &
buildings
£m
Plant &
equipment
£m
83.2
8.0
13.2
(1.8)
(5.3)
(22.5)
0.5
75.3
12.3
6.3
1.2
(1.1)
(21.5)
0.1
72.6
17.2
7.2
0.6
(0.4)
(0.7)
(9.3)
0.2
14.8
6.0
0.8
0.1
(0.7)
(8.2)
0.2
13.0
Set out below are the carrying amounts of lease liabilities (included under interest-bearing loans and borrowings) and the movements during the period:
Land &
buildings
£m
Plant &
equipment
£m
83.2
8.0
13.2
(1.8)
(5.5)
2.0
(23.9)
0.5
75.7
12.8
6.3
1.8
(1.1)
2.2
(22.6)
0.4
75.5
20.0
55.5
17.2
7.2
0.6
(0.4)
(0.7)
0.3
(9.7)
0.2
14.7
6.0
0.8
0.1
(0.6)
0.3
(8.6)
0.1
12.8
6.3
6.5
As at 1 January 2019
Additions
Extensions
Payment changes
Terminations
Accretion of interest
Payments
Exchange
As at 31 December 2019
Additions
Extensions
Payment changes
Terminations
Accretion of interest
Payments
Exchange
As at 31 December 2020
Current
Non-current
154 IMI plc Annual Report & Accounts 2020
Total
£m
100.4
15.2
13.8
(2.2)
(6.0)
(31.8)
0.7
90.1
18.3
7.1
1.3
(1.8)
(29.7)
0.3
85.6
Total
£m
100.4
15.2
13.8
(2.2)
(6.2)
2.3
(33.6)
0.7
90.4
18.8
7.1
1.9
(1.7)
2.5
(31.2)
0.5
88.3
26.3
62.0
The following are the amounts recognised in the income statement:
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Total amount recognised in profit or loss
2020
£m
(29.7)
(2.5)
(32.2)
2019
£m
(31.8)
(2.3)
(34.1)
Practical expedients applied
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.
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 (2019: £nil).
155
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.
At each year end the Company and the local actuaries consider whether the plans are affected by the asset ceiling requirements. 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 below. Due to
the complexity of the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions.
156 IMI plc Annual Report & Accounts 2020
Summary information
Net pension deficit: £22.0m (2019: deficit of £31.3m)
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 (2019: 71)
A new defined benefit arrangement in Mexico replaced the reduction of one scheme in Germany resulting in no overall year on year movement in the number
of schemes.
The following table shows a summary of the geographical profile of the Group’s defined benefit schemes:
Quantity
2020
Quantity
2019
Assets
£m
Liability
£m
Net surplus/
(deficit)
Australia
Austria
France
Germany
India
Italy
Mexico
Spain
Switzerland
UAE
US*
UK
3
6
3
29
6
6
7
2
5
1
2
1
71
3
6
3
30
6
6
6
2
5
1
2
1
71
0.2
7.2
73.2
638.2
718.8
0.4
3.6
1.2
65.8
0.9
3.0
0.6
-
90.6
1.0
4.6
569.1
740.8
£m
(0.4)
(3.6)
(1.0)
(58.6)
(0.9)
(3.0)
(0.6)
-
(17.4)
(1.0)
(4.6)
69.1
(22.0)
* The US deficit above excludes £2.1m of assets relating to unqualified plans classified as investments (see Note 17).
As at 31 December 2020, the Group has recognised a net defined benefit asset of £69.1m (2019: £47.9m) for the UK Deferred Fund. No asset ceiling has been applied
to the net surplus recognised since the Group has an unconditional right to a refund of surplus assets following the settlement of the liabilities.
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. A historical split of the types of defined benefit schemes in operation is as follows:
Type of scheme
2020
Final salary *
Cash balance **
Jubilee ***
Other
Total
Asset ceiling
Revised assets
2019
Final salary *
Cash balance **
Jubilee ***
Other
Total
Asset ceiling
Revised assets
Qty
No.
Assets
£m
26
12
14
19
71
26
11
15
19
71
638.8
73.2
-
6.8
718.8
-
718.8
547.9
69.3
-
6.4
623.6
-
623.6
%
of total
assets
89%
10%
0%
1%
100%
Liability
£m
624.4
93.8
3.2
19.4
740.8
88%
11%
0%
1%
100%
550.9
81.8
3.3
18.9
654.9
%
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%
13%
0%
3%
100%
84%
12%
1%
3%
100%
157
14. Retirement benefits (continued)
Asset profile of schemes
The UK and overseas pension funds
The UK Funds
The United Kingdom constitutes 77% (2019: 76%) of total defined benefit
liabilities and 89% (2019: 88%) 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%.
Liability management
The Group completed a bulk insurance buy-in exercise in relation to certain
members of the UK Deferred Fund during the year. The difference between
the value of the liabilities insured and the cost of the premium to insure them
of £7.5m has been recognised as a loss in other comprehensive income.
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.
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
DBOs for funded schemes
DBOs for unfunded schemes
Deficit for DBOs
Schemes in net pension deficit
Schemes in net pension surplus
2020
£m
25.7
423.2
448.9
121.5
68.3
-
18.6
61.5
269.9
718.8
(672.1)
(68.7)
(22.0)
(91.1)
69.1
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
* The value of the insurance policies match the value of the IAS 19 liabilities
insured.
** 'Other' assets primarily consists of cash, currency swaps and UK commercial
real estate debt.
The overseas assets of £80.6m (2019: £76.3m) comprise equities of £25.7m (2019:
£25.1m), bonds of £17.8m (2019: £24.0m), insurance of £7.4m (2019: £6.9m),
property of £17.6m (2019: £15.8m) and other assets of £12.1m (2019: £4.5m).
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
2020
21.9
18.3
5.7
15.2
2019
22.0
17.4
6.5
15.5
158 IMI plc Annual Report & Accounts 2020
Specific effect on financial statements
The table below reconciles the movement in the UK and overseas net defined
benefit surplus/(obligation) between 1 January 2020 and 31 December 2020.
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.
Net defined benefit surplus/(obligation)
at 1 January 2020
Movement recognised in:
Income statement
OCI
Cash flow statement
Other movements
Net defined benefit surplus/(obligation)
at 31 December 2020
UK
£m
Overseas
£m
Total
£m
47.9
(79.2)
(31.3)
0.8
13.4
7.0
-
(6.3)
(9.1)
-
3.5
(5.5)
4.3
7.0
3.5
69.1
(91.1)
(22.0)
Risks faced by the schemes
The main risks that the Group face in respect of the UK Deferred Fund, which makes up 77% of the Group’s liabilities, are:
Risk
Description/mitigation
Interest rate risk
Under IAS 19, the discount rate should be set with reference to the yield on high quality corporate bonds (typically taken to mean those
rated AA) of term appropriate to the duration of the liabilities.
A decrease in corporate bond yields and therefore the resulting discount rate, leads to a higher value being placed on the pension liabilities.
The Trustees’ investment strategy for the UK Deferred Fund includes investing in liability-driven investments and bonds whose values
increase with decreases in interest rates. The Trustees have a target to hedge 100% of interest rate risk. The Trustees' investment
managers measure and monitor the hedging arrangements in place and the latest performance report shows this target is being met.
Note that the Scheme hedges interest rate risk on a scheme funding basis (relative to gilts) whereas AA corporate bonds are implicit in the
IAS 19 discount rate and so there is some mismatching risk to the Group should yields on gilts and corporate bonds diverge. The Scheme’s
exposure to corporate bonds mitigates this risk to some extent.
Inflation risk
In the UK Deferred Fund, a large proportion of the benefits are linked to inflation. Therefore, an increase in inflation would lead to higher
benefits being paid than expected.
To mitigate this risk, the UK Deferred Fund aims to hedge 100% of the Fund’s liabilities against inflation risk. The Trustees' investment
managers measure and monitor the hedging arrangements in place and the latest performance report shows this target is being met.
Investment risk
The UK Deferred Fund holds investments in asset classes, such as private equity and property, which have volatile market values. These
assets are expected to provide better returns than Government bonds over the long-term. However, the short-term volatility can cause
additional funding to be required, if a deficit emerges. As these investments make up around 20% of the total assets, the risk to the Group
is relatively small.
Mortality risk
The majority of the plans’ obligations are to provide benefits for the life of each retired member and his/her spouse, so increases in life
expectancy result in an increase in the plans’ liabilities.
An increase of one year in life expectancy for the UK Deferred Fund would act to increase liabilities by c.£20.9m.
The Group has an objective to insure benefits as members retire in order to reduce mortality risk.
159
14. Retirement benefits (continued)
Cash flow impacts
Amounts from employees
Amounts from employers
Benefits and settlements paid directly by the Group
Total
2020
Overseas
£m
2.2
2.7
4.1
9.0
UK
£m
-
7.0
-
7.0
Total
£m
2.2
9.7
4.1
16.0
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
The expected contributions to the DB arrangements in 2021 are £2.6m of normal employer contributions and £2.1m of normal employee contributions, both in relation
to overseas pension funds. Additional contributions of £7.0m will be made in the UK in 2021.
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
2020
2019
Overseas
post
employment
£m
Overseas
non-post
employment
£m
(7.2)
0.4
(0.7)
(1.6)
(9.1)
(3.2)
(12.3)
(0.1)
(0.1)
UK
£m
(78.5)
4.7
(1.0)
5.7
82.5
13.4
13.4
Total
£m
(85.7)
5.1
(1.0)
5.0
80.9
4.3
(3.3)
1.0
UK
£m
(72.8)
19.3
2.4
(1.1)
64.4
12.2
12.2
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
Total
£m
(85.2)
15.8
3.1
(5.4)
71.4
(0.3)
0.2
3.9
3.8
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:
Weighted Averages
31 Dec 2020
31 Dec 2019
31 Dec 2018
UK
% pa
Overseas
% pa
UK
% pa
Overseas
% pa
UK
% pa
Overseas
% pa
3.1
2.1
3.1
1.4
n/a
3.1
n/a
1.3
1.3
0.4
1.6
0.7
3.1
2.1
2.1
2.0
n/a
3.1
n/a
1.4
1.4
0.7
n/a
0.6
3.3
2.3
2.3
2.7
n/a
3.3
n/a
1.4
1.4
1.5
1.8
0.6
Inflation – RPI
Inflation – CPI (pre-2030)
Inflation – CPI (post-2030)
Discount rate
Expected salary increases
Rate of pension increases
160 IMI plc Annual Report & Accounts 2020
Life expectancy at age 65 (UK Funds only)
Current male pensioners
Current female pensioners
Future male pensioners
Future female pensioners
2020
Years
21.8
24.6
23.5
26.4
2019
Years
21.8
24.8
23.4
26.6
2018
Years
21.3
24.3
23.0
26.2
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. The assumptions used as at 31 December 2020 have been based on
the results of this review, with the allowance for improvements over time updated to reflect the latest data available.
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
2020, 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
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 **
2020
£m
13.0
10.0
21.0
57.0
2019
£m
11.0
9.0
21.0
44.4
Non-UK
Discount rate 0.1% pa lower
Salary increases 0.1% higher
Increase of one year in life expectancy at age 65
2020
£m
2.9
0.4
4.6
2019
£m
2.7
0.4
4.0
* 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.
In each case all other assumptions are unchanged.
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 gains
Pension (income)/expense – operating costs
Interest on DBO
Interest on assets
Interest (income)/expense – financing costs
2020
2019
Overseas
post
employment
£m
Overseas
non-post
employment
£m
4.6
1.1
(0.2)
0.9
0.1
0.1
4.6
1.0
(0.3)
0.7
UK
£m
0.2
0.2
9.9
(10.9)
(1.0)
Total
£m
5.7
0.2
(0.2)
5.7
11.0
(11.2)
(0.2)
Overseas
post
employment
£m
Overseas
non-post
employment
£m
UK
£m
4.1
(7.5)
(1.4)
(4.8)
1.7
(0.5)
1.2
1.4
(0.5)
0.9
0.2
0.2
11.8
(12.7)
(0.9)
Total
£m
5.5
(7.5)
(1.4)
(0.5)
(3.9)
13.7
(13.2)
0.5
161
14. Retirement benefits (continued)
Overall reconciliation of changes in the net surplus/(liability) for DBOs
2020
2019
Asset
ceiling
£m
Net DB
asset/
(liability)
£m
DBO
£m
Assets
£m
Asset
ceiling
£m
Net DB
asset/
(liability)
£m
(31.3)
(596.8)
544.7
(0.2)
(52.3)
Assets
£m
623.6
DBO
£m
(654.9)
(5.7)
(0.2)
4.9
(80.5)
(1.0)
(11.0)
11.2
0.2
(16.7)
11.2
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/(loss) due to actuarial experience
Actuarial (loss)/gain due to financial
assumption changes
Actuarial (loss)/gain 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
(5.7)
(0.2)
0.2
0.2
(5.5)
(5.5)
7.5
0.8
2.1
(13.7)
0.5
(8.3)
4.9
(5.3)
(80.5)
(69.5)
(1.5)
13.2
11.7
80.9
(1.0)
80.9
3.1
71.4
(76.6)
80.9
4.3
(71.7)
71.4
0.2
0.2
Employer contributions
Employee contributions
Benefits and settlements paid directly by the Company
Benefits paid from plan assets
Net cash inflow/(outflow)
(2.2)
4.1
13.0
14.9
9.7
2.2
(13.0)
(1.1)
9.7
4.1
13.8
(2.1)
4.4
14.4
16.7
9.4
2.1
(14.4)
(2.9)
Other movements
Changes in exchange rates
Total other movements
Carried forward at end of year
* Net of management costs.
(7.5)
(7.5)
(740.8)
4.2
4.2
718.8
(3.3)
(3.3)
(22.0)
5.2
5.2
(654.9)
(1.3)
(1.3)
623.6
162 IMI plc Annual Report & Accounts 2020
(5.5)
7.5
0.8
0.6
(0.5)
0.5
3.4
(5.3)
(69.5)
3.1
71.4
0.2
(0.1)
9.4
4.4
13.8
3.9
3.9
(31.3)
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
2020
£m
100.3
112.5
80.5
293.3
2019
£m
95.6
111.2
74.0
280.8
42.8
35.4
In 2020, the cost of inventories recognised as an expense (being segmental cost of sales) amounted to £1,008.8m (2019: £1,058.8m). The Group's inventory increased
by £13m as a result of trading movements of £9m and foreign exchange movements of £4m.
In 2020, the write-down of inventories to net realisable value amounted to £20.0m (2019: £11.9m). The reversal of write-downs amounted to £6.2m (2019: £2.3m).
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.
163
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.
The expected credit loss is calculated based on the ageing of individual customer's receivables, giving consideration to the geographical location in which they
operate, historical collectability and the customer’s financial position, where this information is known.
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
2020
£m
2019
£m
305.5
49.9
23.5
378.9
325.5
44.6
19.6
389.7
19.5
13.7
UK
Germany
Rest of Europe
USA
Asia Pacific
Rest of World
Carrying amount
2020
£m
8.9
23.6
78.4
59.0
81.2
54.4
305.5
2019
£m
14.7
20.8
85.5
62.6
78.5
63.4
325.5
The Group's trade and other receivables decreased by £11m during the year due
to trading movements of £17m offset by foreign exchange movements of £6m.
The maximum exposure to credit risk for trade receivables at the reporting date by
segment was as follows:
IMI Precision Engineering
IMI Critical Engineering
IMI Hydronic Engineering
Carrying amount
2020
£m
152.4
111.5
41.6
305.5
2019
£m
118.9
165.1
41.5
325.5
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 2020 these totalled
£516.4m (2019: £421.5m).
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 2020 revenues (2019: 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.
164 IMI plc Annual Report & Accounts 2020
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:
Cash and cash equivalents
Investments
Carrying amount
2020
£m
207.9
3.1
211.0
2019
£m
88.2
3.6
91.8
2020
2019
Gross
£m
Impairment
£m
Gross
£m
Impairment
£m
266.9
24.4
11.3
22.4
325.0
(0.2)
(1.5)
(1.9)
(15.9)
(19.5)
265.0
30.4
16.9
26.9
339.2
(0.1)
(0.5)
(0.8)
(12.3)
(13.7)
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:
Net balance at 1 January
Utilised during the year
Charged to the income statement
Released
Exchange
Net balance at 31 December
2020
£m
13.7
(3.1)
9.9
(1.2)
0.2
19.5
2019
£m
13.2
(1.8)
3.6
(0.8)
(0.5)
13.7
The net impairment charge recognised of £8.7m (2019: charge of £2.8m) 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 2020 credit exposure including cash deposited did not exceed £30.0m with any
single institution (2019: £13.8m).
165
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 2020 and 31
December 2019. 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.
2020
Cash and cash equivalents
Bank overdrafts
Borrowings due after one year
Lease liabilities
Trade and other payables **
Trade receivables
Investments
Other current financial assets/(liabilities)
Derivative assets ***
Derivative liabilities ****
Total
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
Designated
at fair value
£m
Other
derivatives
at fair value
£m
Financial
assets at
fair value*
£m
At
amortised
cost
£m
Total
carrying
value
£m
Fair value
if different
£m
5.4
5.4
5.4
(4.7)
0.7
207.9
2.1
(73.5)
(362.3)
(88.3)
(378.9)
305.5
1.0
210.0
(596.5)
88.2
2.6
(60.1)
(17.6)
(357.9)
(90.4)
(368.6)
325.5
1.0
2.1
2.1
4.1
(1.9)
2.2
90.8
(568.1)
(394.3)
(377.3)
207.9
(73.5)
(362.3)
(88.3)
(378.9)
305.5
3.1
10.8
(4.7)
(380.4)
88.2
(60.1)
(17.6)
(357.9)
(90.4)
(368.6)
325.5
3.6
6.2
(1.9)
(473.0)
* 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 £7.0m (2019: £9.2m) falling due after more than one year.
*** Includes £0.2m (2019: £0.2m) falling due after more than one year.
**** Derivative liabilities include liabilities of £0.1m (2019: £0.2m) falling due after more than one year: £0.1m in 1-2 years (2019: £0.2m in 1-2 years). Derivative
liabilities designated at fair value represent the fair value of unsettled net investment hedge derivatives. The increase in value of net investment hedge derivatives
in the year of £3.3m is shown in the consolidated statement of comprehensive income.
The decrease in other derivative assets and liabilities at fair value of £1.5m is recognised in the income statement and consists of £3.2m decrease of unsettled net
foreign currency and metal forward contracts, which are not designated as hedges for accounting purposes offset by an increase of £1.7m of forward contracts to
be utilised against specific trade receivables and trade payables.
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.
166 IMI plc Annual Report & Accounts 2020
The following table shows the Group’s financial instruments held at fair value.
As at 31 December 2020
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 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
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
3.1
207.9
211.0
3.6
88.2
91.8
-
10.8
10.8
(4.7)
(4.7)
6.2
6.2
(1.9)
(1.9)
-
-
-
-
Total
£m
3.1
207.9
10.8
221.8
(4.7)
(4.7)
3.6
88.2
6.2
98.0
(1.9)
(1.9)
* 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 £10.8m and £4.7m 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 2020, 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.
167
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 70 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’).
168 IMI plc Annual Report & Accounts 2020
Currency profile of assets and liabilities
Sterling
US dollar
Euro
Other
Total
* Cash is stated net of overdrafts.
Lease
liabilities
2020
£m
Exchange
contracts
2020
£m
Assets
subject
to interest
rate risk
2020
£m
Other
net assets**
2020
£m
Total
net assets
2020
£m
Total
net assets
2019
£m
(14)
(10)
(20)
(44)
(88)
368
-
(176)
(192)
-
439
(167)
(357)
(231)
(316)
71
363
357
325
1,116
510
196
-
94
800
377
202
96
35
710
Cash*
2020
£m
85
-
44
5
134
Debt
2020
£m
-
(157)
(205)
-
(362)
** Other net assets includes leased assets: £13m sterling (2019: £14m), £10m US dollar (2019: £16m), £20m euro (2019: £35m) and £43m other (2019: £25m).
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.
169
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*
2020
£m
Cash and
exchange
contracts
2020
£m
(14)
(167)
(401)
(236)
(818)
453
-
44
5
502
* Net of lease liabilities: £14m sterling, £10m US dollar, £20m euro and £44m other.
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
Assets
subject
to interest
rate risk*
2020
£m
439
(167)
(357)
(231)
(316)
Assets
subject
to interest
rate risk*
2019
£m
320
(195)
(381)
(182)
(438)
Floating
rate
2020
£m
453
-
(132)
(187)
134
Floating
rate
2019
£m
335
(16)
(150)
(158)
11
Weighted
average
fixed
interest rate
%
Weighted
average
period
for which
rate is fixed
years
4.1
1.4
5.4
5.3
Weighted
average
fixed
interest rate
%
Weighted
average
period
for which
rate is fixed
years
4.1
1.4
6.4
6.3
Fixed
rate
2020
£m
(14)
(167)
(225)
(44)
(450)
Fixed
rate
2019
£m
(15)
(179)
(231)
(24)
(449)
* Net of lease liabilities: £15m sterling, £16m US dollar, £35m Euro and £24m other.
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
-
-
-
-
-
-
-
-
(12.4)
(67.2)
(5.4)
(67.8)
12.4
67.2
5.4
67.8
(0.3)
-
(0.4)
-
0.3
-
0.4
-
At 31 December 2020
Impact on income statement: (loss)/gain
Impact on equity: (loss)/gain
At 31 December 2019
Impact on income statement: (loss)/gain
Impact on equity: (loss)/gain
170 IMI plc Annual Report & Accounts 2020
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 2020
the Group had undrawn committed facilities totalling £300m (2019: £283m)
and was holding cash and cash equivalents of £208m (2019: £88m). 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
2020
£m
800
436
(208)
1,028
105
1,133
300
1,433
2019
£m
710
526
(88)
1,148
70
1,218
283
1,501
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 2020 was 0.8 times (2019: 1.2 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% (2019: 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.
171
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****
Interest
Derivatives
Tax paid
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)
2020
£m
379.5
14.6
(50.7)
8.5
(28.7)
11.3
334.5
(36.7)
(11.0)
(22.5)
(41.0)
(7.0)
216.3
(91.6)
-
(8.5)
116.2
2019
£m
357.3
12.9
(65.8)
6.5
(31.3)
19.2
298.8
(26.2)
(14.9)
16.1
(40.2)
(7.0)
226.6
(110.8)
(69.0)
(3.4)
43.4
* Adjusted profit after tax (£216.4m) before interest (£10.8m), tax (£57.5m), depreciation (£76.1m), amortisation (£16.3m) and impairment on property,
plant and equipment and non-acquired intangible assets (£2.4m).
** Movement in provisions and employee benefits as per the statement of cash flows (£7.9m) adjusted for the movement in the restructuring provisions (£0.6m).
*** 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 increase/(decrease) in cash and cash equivalents excluding foreign exchange
Repayment 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
2020
£m
98.4
17.8
116.2
-
3.3
2.1
2019
£m
(19.5)
62.9
43.4
1.0
12.7
(90.4)
121.6
(437.8)
(316.2)
(33.3)
(404.5)
(437.8)
172 IMI plc Annual Report & Accounts 2020
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
Borrowings and
finance leases due
Cash and cash
equivalents
£m
within
after more
one year than one year
£m
£m
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
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 2020
Undrawn committed facilities
49.6
-
-
-
(40.1)
1.0
19.6
(2.0)
28.1
-
-
121.1
-
(22.7)
7.9
134.4
(78.8)
-
-
-
58.6
-
-
2.6
(17.6)
-
-
17.8
-
-
(0.2)
-
(375.3)
-
-
-
5.3
-
-
12.1
(357.9)
-
-
-
-
-
(4.4)
(362.3)
2020
£m
207.9
(73.5)
134.4
2019
£m
88.2
(60.1)
28.1
Lease
creditors
£m
-
(100.4)
(20.6)
31.3
-
-
-
(0.7)
(90.4)
(26.1)
28.7
-
-
-
(0.5)
(88.3)
Total
net debt
£m
(404.5)
(100.4)
(20.6)
31.3
23.8
1.0
19.6
12.0
(437.8)
(26.1)
28.7
138.9
-
(22.7)
2.8
(316.2)
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 2.0 years (2019: 1.6 years).
2020
£m
-
150.0
150.0
300.0
2019
£m
75.0
57.6
150.0
282.6
173
19. Net debt (continued)
Terms and debt repayment schedule
The terms and conditions of cash and cash equivalents and outstanding loans were as follows:
2020
Cash and cash equivalents
US loan notes 2022
US loan notes 2025
US loan notes 2026
US loan notes 2027
US loan notes 2028
Bank overdrafts
Lease liabilities
Total
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
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
7.17%
1.39%
3.86%
3.92%
1.53%
Floating
Various
Floating
Floating
7.17%
1.39%
3.86%
3.92%
1.53%
Floating
Various
207.9
(10.9)
(133.9)
(91.3)
(54.7)
(71.5)
(73.5)
(88.3)
(316.2)
88.2
(17.6)
(11.4)
(127.1)
(94.7)
(56.8)
(67.9)
(60.1)
(90.4)
(437.8)
207.9
(12.5)
(142.1)
(109.6)
(68.0)
(79.3)
(73.5)
(88.3)
(365.4)
88.2
(17.6)
(13.8)
(136.7)
(118.1)
(73.0)
(76.2)
(60.1)
(90.4)
(497.7)
207.9
(0.8)
(1.9)
(3.5)
(2.1)
(1.1)
(73.5)
(26.3)
98.7
88.2
(17.6)
(0.8)
(1.8)
(3.7)
(2.2)
(1.0)
(60.1)
(35.3)
(34.3)
(11.7)
(1.9)
(3.5)
(2.1)
(1.1)
(19.7)
(40.0)
(0.8)
(1.8)
(3.7)
(2.2)
(1.0)
(13.7)
(23.2)
(1.9)
(3.5)
(2.1)
(1.1)
(1.9)
(3.5)
(2.1)
(1.1)
(134.5)
(3.5)
(2.1)
(1.1)
(92.1)
(57.5)
(73.8)
(13.9)
(22.5)
(9.6)
(18.2)
(5.6)
(146.8)
(13.2)
(236.6)
(12.2)
(1.8)
(3.7)
(2.2)
(1.0)
(10.9)
(31.8)
(1.8)
(3.7)
(2.2)
(1.0)
(1.8)
(3.7)
(2.2)
(1.0)
(127.7)
(99.6)
(62.0)
(71.2)
(7.9)
(16.6)
(6.1)
(14.8)
(16.5)
(377.0)
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
174 IMI plc Annual Report & Accounts 2020
2020
£m
-
26.3
26.3
362.3
62.0
424.3
2019
£m
17.6
25.6
43.2
357.9
64.8
422.7
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 2020
Arising during the year
Utilised during the year
Exchange adjustment
At 31 December 2020
Current
Non-current
Restructuring
£m
Trade
warranties
£m
Environmental,
legal &
indemnity
£m
29.2
0.2
29.4
36.1
(36.7)
1.3
30.1
30.1
-
30.1
10.2
6.2
16.4
7.6
(2.2)
0.1
21.9
13.4
8.5
21.9
0.4
6.6
7.0
-
-
-
7.0
0.4
6.6
7.0
Total
£m
39.8
13.0
52.8
43.7
(38.9)
1.4
59.0
43.9
15.1
59.0
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.
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.
175
21. Trade and other payables
Current
Trade payables
Social security and other taxation
Other payables
Accruals and deferred income
Progress billings and advance payments from customers
Non-current
Other payables
2020
£m
2019*
£m
189.8
22.4
6.9
71.2
81.6
371.9
7.0
378.9
182.3
28.9
6.2
79.4
62.6
359.4
9.2
368.6
The Group's trade and other payables increased by £10m due to foreign exchange movements of £4m and trading movements of £6m.
*' Accruals and deferred income' has been re-presented to separately disclose 'Accruals and deferred income' and 'Progress billings and advance payments
from customers'.
176 IMI plc Annual Report & Accounts 2020
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 2020 and 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 2019
New issues to satisfy employee share scheme awards
Market purchases
Shares allocated under employee share schemes
At 31 December 2020
2020
2019
Ordinary
Shares
28 4/7p per
share
Number (m)
286.4
0.1
286.5
Ordinary
Shares
28 4/7p per
share
Value (£m) Number (m) Value (£m)
81.8
-
81.8
286.3
0.1
286.4
81.8
-
81.8
Number of ordinary shares of 28 4/7p each (million)
Employee
Benefit Trust
Treasury
Other
1.1
14.3
0.8
(0.8)
1.1
14.3
271.0
0.1
(0.8)
0.8
271.1
Total
286.4
0.1
-
-
286.5
During the year 0.1m (2019: 0.1m) shares were issued under employee share schemes realising £0.2m (2019: £0.8m).
Employee Benefit Trust
The Employee Benefit Trust made market purchases of a total of 0.8m (2019: 0.5m) shares with an aggregate market value of £9.0m (2019: £5.0m) and a nominal
value of £0.2m (2019: £0.1m). Associated transaction costs amounted to £nil (2019: £nil).
Share options exercised in 2020 were settled using the shares in the Group's Employee Benefit Trust. In 2020, 0.8m (2019: 0.8m) shares were issued for cash of
£0.2m (2019: £0.8m).
Of the 15.4m (2019: 15.4m) shares held within retained earnings, 1.1m (2019: 1.1m) shares with an aggregate market value of £13.4m (2019: £12.7m) are held
in trust to satisfy employee share scheme vesting.
177
23. Acquisitions
24. Disposals
There were no acquisitions during 2020.
Acquisitions in 2019
There were no disposals of subsidiaries during 2020 or 2019.
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.
25. Contingent liabilities
The 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:
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.
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
Group contingent liabilities relating to guarantees in the normal course of business
and other items amounted to £142m (2019: £125m).
26. Related party
transactions
Related parties are solely the key management personnel. The Board, including the
non-executive directors are considered to be the key management personnel of
the Group.
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.
Short-term employee benefits **
Share-based payments ***
Total
2020
2019
(Restated*)
£m
3.6
1.3
4.9
£m
4.1
0.2
4.3
*
**
Prior year comparatives have been restated to include £0.7m of benefits
paid to non-executive directors and exclude gains on exercise of options by
directors.
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 shared based payment charge for key management
personnel, see Note 6.
There are no other related party transactions.
178 IMI plc Annual Report & Accounts 2020
27. Subsequent events
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 or non-adjusting subsequent events after the balance
sheet date of 31 December 2020.
28. Discontinued
operations
Accounting policy
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 re-presented 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.
There was no profit or loss from discontinued operations in 2020.
A gain of £2.8m, pre and post-tax, was recognised in 2019 relating to the release
of an indemnity provision for a historical discontinued operation. There was no
cash impact of this.
179
Company balance sheet
at 31 December 2020
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 25 February 2021 and signed on its behalf by:
Lord Smith of Kelvin
Chairman
Note
2020
£m
2019
£m
C5
173.2
173.2
C6
C7
C8
C9
379.1
3.2
10.4
392.7
(3.5)
389.2
562.4
562.4
81.8
14.3
174.4
291.9
562.4
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
180 IMI plc Annual Report & Accounts 2020
Company statement of changes in equity
At 1 January 2019
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
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 2020
Share
premium
£m
Redemption
reserve
£m
Retained
earnings
£m
Share
capital
£m
81.8
13.3
174.4
0.8
81.8
14.1
174.4
-
0.2
81.8
14.3
174.4
320.0
89.5
(110.8)
8.8
(4.2)
303.3
78.2
(91.6)
10.7
(8.7)
291.9
* 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 2020 and 31 December 2019 are considered to be distributable reserves.
Parent
equity
£m
589.5
89.5
(110.8)
0.8
8.8
(4.2)
573.6
78.2
(91.6)
0.2
10.7
(8.7)
562.4
181
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 93
to 107 and in Note 26 on page 178 of the Group financial statements.
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. 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
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.
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.
There were no judgements, estimates or assumptions applied in 2020 or in 2019.
Dividends
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.
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 93
to 107, Note 5 and Note 26 of the Group financial statements.
C3. Staff numbers and costs
The number of people employed by the Company, including directors, during the
year was 17 (2019: 19) 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.
182 IMI plc Annual Report & Accounts 2020
C4. Dividends
The aggregate amount of dividends comprises:
Prior year final dividend paid – 26.2p per qualifying ordinary share (2019: 26.0p)
Current year interim dividend paid – 7.5p per qualifying ordinary share (2019: 14.9p)
Aggregate amount of dividends paid in the financial year
Dividends paid in the year of £91.6m represent 33.7p per share (2019: 40.9p).
2020
£m
71.2
20.4
91.6
2019
£m
70.4
40.4
110.8
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 – 15.0p per qualifying ordinary share (2019: 26.2p)
2020
£m
40.7
2019
£m
71.0
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 2020 and 31 December 2020 cost and net book value
Details of subsidiary undertakings as at 31 December 2020 are shown on pages 185 to 188.
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 2020
Deferred tax credit/(charge) in the profit and loss account
Deferred tax charge in equity
At 31 December 2020
The average weighted rate of corporation tax in the UK for the 2020 calendar year was 19.0% (2019: 19.0%). In the Spring Budget of 2020, the UK Government
announced that from 1 April 2020 the UK corporation tax rate would remain at 19%, rather than reducing to a rate of 17%, as had been previously substantively
enacted. This new law was substantively enacted on 17 March 2020. UK deferred tax assets and liabilities have therefore been calculated using a rate of 19%
(2019: 17%).
Subsidiary undertakings
2020
£m
2019
£m
173.2
173.2
2020
£m
2019
£m
367.2
389.9
11.9
379.1
8.9
398.8
2020
£m
2019
£m
3.2
3.2
2.7
0.2
0.3
3.2
2.7
2.7
2.2
0.5
-
2.7
183
Company notes to the financial statements
C8. Other creditors falling due within one year
Corporation tax
Other payables
C9. Share capital
Issued and fully paid
286.5m (2019: 286.4m) ordinary shares of 28 4/7p each
C10. Contingencies
2020
£m
2.5
1.0
3.5
2019
£m
3.0
1.0
4.0
2020
£m
2019
£m
81.8
81.8
Contingent liabilities relating to guarantees in the normal course of business and other items amounted to £13.7m (2019: £30.7m).
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.
184 IMI plc Annual Report & Accounts 2020
Subsidiary undertakings
A full list of the Group’s subsidiary undertakings and registered/principal offices as at 31 December 2020 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
Finch Land Management LLC,
IMI Americas LLC,
IMI Fluid Controls Holdings Inc,
IMI Norgren LLC,
Norgren LLC
IMI Critical Engineering Holding GmbH,
IMI Deutschland II GmbH & Co KG,
IMI Deutschland Verwaltungs GmbH,
IMI Germany Holding B.V. & Co. KG,
Norgren GmbH
Heimeier GmbH,
IMI Hydronic Engineering Deutschland GmbH,
THJ Holding GmbH
IMI Holding Italy S.R.L.,
Orton S.R.L.,
Truflo Rona S.R.L.
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
5400 South Delaware Street, Littleton, CO 80120, United States
Bruckstrasse 93, 46519 Alpen, Germany
Voellinghauser Weg 2, 59597 Erwitte, Germany
Via Stendhal, 65, 20144 Milano, Italy
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
185
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 LLC
Bimba 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
25150 S. Governors Hwy, University Park, IL 60484, 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, Brno, 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, PO Box 17827, Dubai, UAE
Versterkerstraat 6, 1322 AP Almere, 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
Hat House Third Floor, 32 Guildford Street, Luton, Bedfordshire, LU1 2NR, United Kingdom
Av Fagundes Filho, 134 cj 43, S. Judas, Sao Paulo, 04304-010, Brazil
Robert Huberin tie 7, Vantaa FI-01510, Finland
186 IMI plc Annual Report & Accounts 2020
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
3826 unit No. 7, Street 122, Second Industrial City, Post 34325-7535, Dammam, 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
Interativa Indústria Comércio e Representações Ltda
Avenida Garabed Gananian, 386 Bairro Aparecidinha, Sorocaba, São Paulo, 18.087-340, Brazil
Kynoch Sweden Holding AB
Mead Fluid Dynamics, Inc.
Newman Hattersley Limited
Norgren AG
Norgren AS
c/o IMI Hydronic Engineering AB, 52 480 Ljung, Sweden
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
Norgren GT Development LLC
Norgren Kloehn LLC
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
Norgren SAS
Norgren Srl
Versterkerstraat 6, 1322 AP Almere, Netherlands
120/34 M.12, Rachadhewa, Bangplee, Samutprakarn, 10540, Thailand
Robert Huberin Tie 7, Fl-015 10 Vantaa, Finland
Industriezentrum NÖ Süd, Straße 2a, Objekt M39/1, A-2355, Wiener Neudorf, Austria
425 “C” Street NW, Suite 100, Auburn, WA 98001, United States
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
1, rue de Lamirault 77090 Collégien, France
Via trieste 16, Vimercate, 20871, Milan, Italy
187
Subsidiary undertakings
Norgren Sweden AB
Norgren Taiwan Co Limited
PBM, Inc.
Pneumadyne, Inc.
Remosa S.R.L.
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.
TH Jansen Armaturen GmbH
Thompson Valves Limited
Truflo Rona S.A.
Vaccon Company, Inc.
Via dei Caravaggi 15, 24040, Levate (BG), Italy
Orliska Ulica13, Brezice, SI-8250, Slovenia
Otto-Kaiser Str. 6, 66386 Sankt Ingbert, 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 2020 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
IMI Components Limited
IMI Precision Engineering Limited
IMI Hydronic Engineering Limited
IMI Kynoch Limited
Company number
Company name
Company number
01181406
07843551
07929408
08528502
07843576
00155987
00148305
01640862
01687068
08656812
00713735
IMI Scotland Limited
IMI Sweden Finance Limited
IMI Vision Limited
Truflo Group Limited
Truflo International Limited
Truflo Investments Limited
CCI International Limited
IMI Webber Limited
Norgren Limited
Thompson Valves Limited
IMI Overseas Investments Limited
SC378424
07272731
04421176
04430846
00164822
04430927
00259162
01416237
00564656
02791464
00209251
188 IMI plc Annual Report & Accounts 2020
Geographic distribution of employees*
The following table shows the geographic distribution of employees as at 31 December 2020 and is not required to be audited.
United Kingdom
Continental Europe
Americas
Asia Pacific
Rest of World
Total
* includes agency and contractors
1,127
5,904
2,550
1,130
65
10,776
189
Five year summary
Adjusted revenue £m
Adjusted profit before tax* £m
Adjusted Group revenue by geography 2020
1
5
7
1
,
9
4
6
1
,
7
0
9
1
,
3
7
8
1
,
5
2
8
1
,
.
2
1
5
2
.
7
0
5
2
.
9
3
7
2
.
1
4
2
2
.
0
8
0
2
Total
APAC
21%
Middle East &
Africa
5%
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
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
190 IMI plc Annual Report & Accounts 2020
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
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
Total
Europe
44%
Total Americas
30%
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
2020
£m
1,825
1,825
284.7
273.9
-
(36.1)
(20.3)
-
-
(3.2)
214.3
380
2020
£m
88
222
486
796
545
390
94
1,825
-
1,825
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
2016
2017
2018
2019
59.8p
48.3p
38.7p
65.3p
53.6p
39.4p
73.2p
62.5p
40.6p
73.2p
56.6p
41.1p
2016
£m
1,041
(175)
(283)
583
2017
£m
1,027
(155)
(265)
607
2018
£m
1,220
(149)
(405)
666
2019
£m
1,168
(111)
(347)
710
2020
79.7p
62.7p
22.5p
2020
£m
1,124
(96)
(228)
800
2016
2017
2018
2019
2020
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
15.6%
25.3%
21.0%
294.9
39.5%
0.8
35
191
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
2021 will be announced on 30 July 2021. The trading
results for the full year ending 31 December 2021
will be announced in February 2022.
Interim management statements will be issued in
May and November 2021.
Expected dividend payments
Final: 14 May 2021
Interim: September 2021
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.
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.
Share prices and capital gains tax
Annual General Meeting 2021
The closing price of the Company’s ordinary shares
on the London Stock Exchange on 31 December 2020
was 1,165.0p (2019: 1,179.0p). 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:
• help us to reduce print, paper and postage costs
and the associated environmental impact of these;
• 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
dividend mandate details.
To find out more information about the services
offered by Shareview and to register, please visit:
www.shareview.co.uk.
This year’s AGM will be held on 6 May 2021.
For further information, please refer to the Notice
of Meeting which is on the corporate website.
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).
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).
Share fraud
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.
American Depository Receipts
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.
Lakeside
Solihull Parkway
Birmingham Business Park
Birmingham
B37 7XZ
Telephone: +44 121 717 3700
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).
Stockbrokers
JPMorgan Cazenove
Bank of America
Auditor
Ernst & Young LLP
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.
192 IMI plc Annual Report & Accounts 2020
Designed and produced by Design Motive Ltd
Printed and bound in the UK by CPI Colour Ltd
IMI plc
Lakeside
Solihull Parkway
Birmingham Business Park
Birmingham B37 7XZ
United Kingdom
www.imiplc.com