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Innovative customer solutions
to enhance productivity
Spectris plc
Annual Report and Accounts 2015
ABOUT US
Who we are
Spectris is a leading supplier of productivity-enhancing
instrumentation and controls. Our businesses are leaders
in the markets they serve, with recognised brands and
award-winning products.
What we do
We make highly-specialised measuring instruments and
controls for some of the most technically-demanding industrial
applications. Our products and services aim to enhance
customers’ productivity, yielding them clear benefits by
helping them to work better, faster and more efficiently.
Our strategy
In April 2015 we held a Capital Markets Day at which
we announced an evolution of the Group’s strategy.
Our strategic objective remains to deliver sustainable
profitable growth for our shareholders by enhancing the
productivity of our customers. However, going forward
our strategy to enhance customers’ productivity will be
increasingly focussed not just on the supply of equipment
but on the provision of innovative customer solutions,
involving services, software and related activities.
Within this report you will learn of the initial progress
we have made and our future plans to focus our business
on the provision of innovative customer solutions.
Strategic Report
2015 Highlights
01
Business at a Glance
02
Chairman’s Statement
04
Chief Executive’s Review
06
Market Overview
08
Innovative Customer Solutions
10
Business Model
18
Resources and Relationships
20
Strategy
22
Risk Management
24
Principal Risks and Uncertainties
26
Key Performance Indicators
32
Operating Review
34
Sustainability Report
42
Ethics Report
48
Financial Review
50
Governance
56
58
59
Board of Directors
Executive Committee
Chairman’s Introduction to
Corporate Governance
Leadership
Effectiveness
Nomination Committee Report
Accountability
Audit and Risk Committee Report
Relations with Shareholders
Directors’ Remuneration Report
Other Statutory Information
Financial Statements
98
102
103
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Changes in Equity
Consolidated Statement of
Financial Position
Consolidated Statement of Cash Flows
Notes to the Accounts
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Accounts
Shareholder Information
60
63
64
68
68
76
77
94
104
105
106
107
153
154
155
168
Read the case studies on our innovative customer solutions
Pages 10-17
Read the Chief Executive’s Review to learn more about
the evolution of our strategy
Pages 6-7
Read more about our strategy and progress during the year
Pages 22-23
Read more online at www.spectris.com
2015 HIGHLIGHTS
_ 3% sales growth at
Sales1
constant exchange rates,
comprising a three percentage
point contribution from
acquisitions and unchanged
like-for-like sales.
_ 9% decline in like-for-like
operating profit, after
inclusion of £7 million
of restructuring costs to
improve future profitability.
_ Good strategic progress,
including completion of five
acquisitions for a total
consideration of £45 million.
_ Strong operating cash
conversion of 91%.
_ Dividend per share increase
of 6%.
£1,190.0M
15
14
13
12
11
Adjusted operating profit1
£181.1M
1,190.0
15
1,173.7
1,197.8
1,177.2
1,106.2
14
13
12
11
181.1
198.1
214.7
216.9
201.5
Adjusted earnings per share1
Dividend per share
114.3P
49.5P
15
14
13
12
11
114.3
124.4
132.9
130.3
124.1
15
14
13
12
11
49.50
46.50
42.75
39.00
33.60
Cash conversion
Net debt to EBITDA
91%
15
14
13
12
11
0.5X
0.5
0.6
0.4
91
15
89
86
94
89
14
13
12
11
1.0
1.6
1 The adjusted performance measures represent the statutory results excluding certain non-operational items. The 2013 and
2012 results exclude the trading results and impact of the disposal of the Fusion UV business which was sold on 31 January
2013. 2011 has not been restated to reflect the disposal.
01
www.spectris.com
Strategic Report 01-55Governance 56-97Financial Statements 98-168 BUSINESS AT A GLANCE
OUR FOUR BUSINESS SEGMENTS
Spectris comprises four business segments, which reflect
the applications and end-user industries we serve. Our
businesses are united by the same purpose, the same
values and the same corporate strategy. They all work
according to a strong common framework of controls,
management key performance indicators (‘KPIs’),
financial discipline and rigorous operating principles,
but each business is focussed on its own markets,
customers and technologies.
In addition to providing strategic direction, governance,
financial and operational input and oversight, we provide
central support in certain areas such as legal, tax,
human resources, accounting, treasury and corporate
development. We also manage a central purchasing
function and other supply chain initiatives which can be
beneficial to our operating companies, and facilitate the
sharing of best practice across our businesses.
We believe that the combination of this organisational
structure and our business model (see page 18) is the
most effective way for us to deliver our strategy
(see page 22).
Sales by segment (%)
Sales by destination (%)
31
6
35
18
21
Materials Analysis
Test and Measurement
In-line Instrumentation
Industrial Controls
02
30
29
30
North America
Europe
Asia
Rest of the World
Spectris plc Annual Report and Accounts 2015
LABORATORY / OFF-LINE BUSINESSES
MATERIALS ANALYSIS
Materials Analysis provides products and
services that enable customers to determine
structure, composition, quantity and quality
of particles and materials during their research
and product development processes, when
assessing materials before production,
or during the manufacturing process.
Sales
£364.4M
Adjusted operating profit
£53.7M
Aftersales
32%
Employees
2,360
Operating companies
_ Malvern Instruments
_ PANalytical
_ Particle Measuring Systems
Industries
_ Metals, minerals & mining
_ Pharmaceuticals & fine chemicals
_ Academic research
_ Semiconductors
Read more
Page 35
LABORATORY / OFF-LINE BUSINESSES
PROCESS / MANUFACTURING BUSINESSES
TEST AND MEASUREMENT
IN-LINE INSTRUMENTATION
INDUSTRIAL CONTROLS
Test and Measurement supplies test,
measurement and analysis equipment,
software and services for product design
optimisation, manufacturing control,
microseismic monitoring and environmental
noise monitoring.
In-line Instrumentation provides process
analytical measurement, asset monitoring
and on-line controls as well as associated
consumables and services for both primary
processing and the converting industries.
Industrial Controls provides products
and solutions that measure, monitor,
control, inform, track and trace during
the production process.
Sales
£351.3M
Sales
£255.0M
Sales
£219.3M
Adjusted operating profit
Adjusted operating profit
Adjusted operating profit
£55.3M
£36.8M
£35.3M
Aftersales
20%
Employees
3,080
Operating companies
_ Brüel & Kjær Sound & Vibration
_ ESG Solutions (’ESG’)
_ HBM
Industries
_ Automotive
_ Aerospace
_ Electronics
_ Energy
_ Academic research
Read more
Page 36
Aftersales
41%
Employees
1,435
Operating companies
_ Brüel & Kjær Vibro
_ BTG
_ NDC Technologies
_ Servomex
Industries
_ Process industries
_ Pulp, paper & tissue
_ Energy & utilities
_ Web & converting
Read more
Page 39
Aftersales
1%
Employees
1,385
Operating companies
_ Microscan
_ Omega Engineering (‘Omega’)
_ Red Lion Controls
Industries
_ Manufacturing
_ Process industries
_ Energy
_ Electronics
_ Healthcare
Read more
Page 40
03
www.spectris.com
Strategic Report 01-55Governance 56-97Financial Statements 98-168 CHAIRMAN’S STATEMENT
WELL POSITIONED FOR 2016 AND BEYOND
Dr John Hughes CBE
Chairman
Results overview
Reported sales increased 1% in 2015 to
£1,190.0 million, with a three percentage point
(‘pp’) contribution from acquisitions offset by an
adverse impact from foreign currency exchange
movements. On a constant currency organic
(like-for-like, ‘LFL’) basis1 sales were unchanged.
Regionally, there was good growth in Europe,
where sales increased 3%, and sales to Asia
increased slightly. Sales to North America
declined 2% and sales to the Rest of the World
declined 9%, principally driven by weakness
in Russia.
Sales grew 3% in the Materials Analysis
segment, whilst sales across the Test and
Measurement and In-line Instrumentation
segments were unchanged. Sales declined 7%
in the Industrial Controls segment, impacted by
the broad-based deterioration in trading in the
North American manufacturing sector. More
detail on the performance of the business
segments can be found in the Operating Review.
performance being insufficient to offset the
combined effect of increased investment in
research and development (‘R&D’) programmes
and overhead cost inflation. Given the trading
conditions, we initiated a number of cost
reduction measures during 2015, including
selective restructuring in certain businesses. The
combined effect of a reduction in restructuring
charges and incremental benefits arising from
that restructuring activity is anticipated to result
in a net increase in adjusted operating profit of
approximately £10 million in 2016 as compared
with 2015.
Financial position and dividend
Operating cash flow was strong, with 91% of
our operating profit being converted into cash.
Combined with normal dividend and tax
outflows and the consideration paid for the five
acquisitions made during the year, this resulted
in net debt decreasing £27.0 million compared
with the end of 2014. At year end, net debt stood
at £98.6 million, around 0.5 times the full-year
EBITDA of £205.5 million.
On a reported basis, adjusted operating profit2
declined 9% to £181.1 million, with the sales
The Board is proposing to pay a final dividend of
32.2 pence per share which, combined with the
interim dividend of 17.3 pence per share, gives
a total of 49.5 pence per share for the year, an
increase of 6%. The dividend is covered 2.3 times.
This is consistent with our policy of making
progressive dividend payments based upon
affordability and sustainability. The dividend will
be paid on 24 June 2016 to shareholders on the
register at the close of business on 27 May 2016.
Strategy, governance and values
During 2015, the Group announced its refined
strategy to give an increased focus on selected
growth opportunities. The main refinement to the
strategy is a shift in emphasis from the supply of
products towards the provision of complete
solutions to our customers.
The Board has continued to emphasise the
strong relationship that exists between
governance and ethics. Our ethics and values
are central to Spectris, guiding our decision-
making and ensuring that we always comply
with the highest standards, wherever we are in
the world. We want to be a company which our
people are proud to work for, where they feel
valued, motivated and capable of reaching their
full potential. To emphasise our strong ethical
04
Spectris plc Annual Report and Accounts 2015
culture we have launched the Spectris Integrity
Award to recognise and reward outstanding
ethical behaviour by our employees. More
details about this award can be found in the
Ethics Report on page 49. Further information
on the Board’s governance activities during
2015 and its priorities for 2016 can be found
in the Chairman’s Introduction to Corporate
Governance on page 59.
Board composition
Lisa Davis will retire as a Non-executive Director
of Spectris plc immediately following the Annual
General Meeting on 20 May 2016. Following her
promotion to the Siemens AG managing board
last year Lisa no longer feels able to give sufficient
commitment to Spectris. We would like to thank
Lisa for the significant contribution she has made
to the Spectris Board during the last two years.
Summary and outlook
2015 was characterised by mixed trading
conditions, with growth in Europe and Asia
offset by a challenging environment in North
America and the Rest of the World. We are
on track with the restructuring measures
announced last July. The benefits of these,
together with our focus on operational
excellence initiatives, will enable us to better
align cost growth with sales growth in 2016
whilst continuing to invest in our core R&D
programmes. New product launches and
acquisitions are expected to continue to play an
important role in the Group’s development and
these investments, together with our broad
end-market exposures and strong financial
position, provide the Board of Spectris with
confidence that the Company is well positioned
for 2016 and beyond.
Dr John Hughes CBE
Chairman
1 Unless otherwise stated, references to sales increases /
decreases going forward relate to the LFL sales increase /
decrease rather than the reported sales increase / decrease.
2 Unless otherwise stated, figures quoted for operating profit,
net interest, profit before tax, tax, earnings per share and
operating cash flow are adjusted measures – for an
explanation of adjusted figures and reconciliation to
the statutory reported figures see Note 2 to the
Financial Statements.
INVESTMENT ATTRIBUTES
Spectris offers investors a
sound and attractive investment
proposition, based on the
following attributes that
combine to deliver significant
shareholder value.
1. High barriers to entry supported
by continuous innovation and
long-term customer relationships
_ Strong intellectual property and continuous
innovation, underpinned by sustained
investment of around 7% of sales each year
in R&D and by frequent bolt-on acquisitions.
_ Long-term customer relationships, based on
our direct selling model and aftermarket
business, result in high levels of repeat
business (over 80% of sales in any one year
are generated from customers who have
purchased from us within the last two years).
3. Broad geographical and end-
market exposures, 40% of sales
generated from customer
operating expenditure budgets
_ Broad spread of customers, end markets
and geographies limits the risk to the Group
from adverse changes in any single
geography or end market.
_ 40% of sales generated from customer
operating expenditure budgets or
aftermarket sales.
4. Strong cash conversion
resulting from asset-light
manufacturing model
_ Majority of manufacturing is outsourced,
resulting in low capital requirements for
our businesses.
_ High gross margins and low capital
requirements result in strong
operating cash conversion.
5. Balance sheet strength enabling
_ Application expertise: our people have
progressive dividend policy
in-depth know-how and expertise in their
chosen fields.
_ High gross margins, supported by a stable
pricing environment.
2. Focus on customer solutions
in niche markets with
strong growth potential
_ Enhancing productivity for customers is
an ever-present growth driver for all of
our businesses.
_ We are increasingly focussed not just on
the supply of equipment but on the
provision of innovative customer solutions,
involving services, software and related
activities.
_ We are also focussed on exploiting
disruptive growth themes to enhance our
own growth prospects.
_ Strong cash conversion enables the Company
to sustain a progressive dividend policy
(10% CAGR since 1988 flotation) whilst
maintaining a strong balance sheet.
_ Investments evaluated on cash flow return
on invested capital basis, measuring return
on investment against weighted average
cost of capital.
_ Strong cash conversion and balance sheet
ensure considerable financial firepower
and flexibility to fund acquisitions.
6. Proven acquisition model to
supplement organic growth
_ Acquisitions have been a key component
of our growth strategy for many years,
historically contributing 3-4 pp of
sales growth per annum; typically bolt-on
in nature, occasionally stand-alone
operating companies.
_ Our existing niche markets continue to offer
significant opportunities, whilst we will also
consider acquisitions as a way of exploiting
disruptive growth themes.
05
www.spectris.com
Strategic Report 01-55Governance 56-97Financial Statements 98-168 CHIEF EXECUTIVE’S REVIEW
A RENEWED EMPHASIS ON GROWTH
John O’Higgins
Chief Executive
In 2015, we encountered
challenging market conditions
which resulted in a disappointing
sales performance and a decline
in profitability, although cash
conversion was strong and
the Group’s financial position
remains robust.
We took important steps forward
in the development of the
Group’s strategy, with a renewed
emphasis on achieving growth
through the provision of
innovative customer solutions.
More information on our
strategy can be found on
pages 22 and 23.
06
Spectris plc Annual Report and Accounts 2015
Q: What aspects of Spectris’ performance in 2015
would you highlight?
A: From a regional perspective, there was sales
growth in both Europe and Asia, where we achieved
growth in Japan and South East Asia and a slight
sales decline in China. After a strong 2014
performance, North America experienced a
broad-based deterioration in industrial production,
which particularly impacted sales growth in the
Industrial Controls segment. This weakness
accelerated as the year progressed and was
especially pronounced in the oil and gas and related
sectors. Sales to the Rest of the World also declined,
primarily due to low demand in Russia, reflecting
a weak economy and the imposition of certain
technology sanctions in mid 2014. As a result of the
above, Group LFL sales were unchanged on 2014.
From an end-market perspective, there was good
growth in our sales to the pharmaceuticals and fine
chemicals and semiconductor sectors. Sales to the
metals, minerals and mining industries also grew,
primarily reflecting good aftermarket sales to the
mining sector and investments by the metals and
minerals industries. The growth from these end
markets was offset by lower sales to the aerospace
and academic research sectors, as well as the energy
and utilities and web and converting industries.
In response to weaker than expected sales
growth, we initiated a programme of targetted
restructuring measures during the year, the costs
of which amounted to £7 million and contributed
to a reduction in the Group’s operating profit.
Operating cash conversion was strong and
underpinned our ability to execute five bolt-on
acquisitions in 2015 and grow the dividend whilst
retaining a robust financial position.
Q: What are the key features of the refined Group
strategy you announced this year?
A: The main refinement to the strategy is a
shift in emphasis from the supply of products
towards the provision of complete solutions (a
combination of hardware, software and services)
to our customers, based on our deep application
and technical expertise. This transition in our
offering is driven by changing customer
requirements. As they focus on their core
activities and seek to reduce cost and complexity
they have a greater need to outsource services to
a trusted, reliable partner who is able to offer a
combination of hardware, software and services.
Due to our strong long-term customer
relationships and application know-how, Spectris
is well positioned to be this supplier of innovative
customer solutions.
There are several examples of our businesses
deploying this strategy in recent years. For
example, in the pulp and paper industry we have,
for many years, gone to market as a provider
of process solutions for the industry to enable
customers to generate sustainable gains in
business performance, whilst our Test and
Measurement segment has been adding both
software and services capabilities in niche
markets. Going forward, there will be a more
concerted effort by our operating companies
to evolve their business models towards the
provision of solutions, together with a greater
focus on key capabilities and technologies to
support this customer-centric strategy.
An additional change in strategic emphasis
concerns the area of operational excellence.
We will seek to accelerate the application of
operational excellence principles, extending
‘lean manufacturing’ techniques beyond the
operational environment into other functions,
such as R&D and sales and marketing, as well as
applying operational excellence to activities such
as talent management, digital marketing and
procurement and supply chain management.
In other aspects our strategy remains
unchanged, such as the desire to expand
our existing businesses geographically and
to deploy capital generated by the Group
for both platform and bolt-on acquisitions.
Q: Can you describe some of the ways in which
this strategy was implemented during 2015?
A: All of our segments made good progress
in the implementation of our refined strategy
in 2015, and the Operating Review on pages 34
to 41 contains examples of these. We continued
to deploy capital for acquisitions, with five
completed during the year, supporting the
implementation of our strategy. For example,
in Materials Analysis the acquisition of our
distributor in Taiwan enabled us to expand our
direct sales channel in Asia and deepen our
relationship with a key semiconductor customer
in the country, whilst in Test and Measurement
the acquisition of ReliaSoft strengthened and
extended our engineering software offering.
In In-line Instrumentation we reduced the
amount of scrap steel produced when
manufacturing creping blades for use in
the pulp and paper sector by 20% through
the implementation of ‘lean manufacturing’
techniques. In Industrial Controls we established
an Industrial Internet of Things (‘IIoT’) Innovation
Centre in the USA, with a focussed engineering,
product and sales team dedicated to building on
our existing IIoT expertise and offering in order
to develop new solutions for machine-to-machine
and human-to-machine communication.
Q: What are your priorities for 2016 and beyond?
A: The two key priorities in the coming years
are strategy implementation whilst further
improving the financial performance. In order
for the Group to execute the strategy, and
in particular the shift in emphasis towards
providing customers with a solutions-oriented
offering, encompassing hardware, software and
services, it is necessary to ensure that we have
the right people in place who can deliver the
strategy. As such, our talent management
programme remains a key priority. This will
help to ensure that we have the organisational
capability to create and deliver innovative
customer solutions in as efficient a manner
as possible, whilst retaining our strong ethical
culture and values. In addition, we will use our
robust financial position to make acquisitions
which will accelerate our strategic development,
both in terms of our offering to customers and
our geographical coverage.
We have a broad range of industry and
geographical exposures that enables us to
exploit positive trends and opportunities where
they exist, such as those in the life science
sector. We expect the benefits of our targetted
restructuring actions, together with a focus
on operational excellence initiatives and cost
control, will enable us to better align our cost
growth with sales growth whilst continuing to
invest in our core R&D programmes.
John O’Higgins
Chief Executive
OUR STRATEGY
Innovative
customer
solutions
Increase
presence in
key strategic
markets
Deploy
capital
for M&A
Expand
business
globally
Accelerate
operational
excellence
Each key element of our strategy
is represented by an icon throughout
this report:
Focus on innovative
customer solutions
Increase presence in
key strategic markets
Expand business
globally
Accelerate operational
excellence
Deploy capital for
both platform and
bolt-on mergers and
acquisitions (‘M&A’)
Read more
Pages 22 and 23
07
www.spectris.com
Strategic Report 01-55Governance 56-97Financial Statements 98-168 MARKET OVERVIEW
ATTRACTIVE LONG-TERM GLOBAL TRENDS ACROSS A BROAD RANGE OF MARKETS
We serve a broad spectrum of blue-chip customers
across all key manufacturing industries. Whilst the
specific growth drivers within these industries vary, all
of our customers share a common goal – to enhance
productivity, whether by streamlining processes, saving
time, increasing yield or improving quality.
Streamlining processes
Saving time
Increasing yield
Improving quality
Key end-user markets
PHARMACEUTICALS &
FINE CHEMICALS
AUTOMOTIVE &
AEROSPACE
ENERGY &
UTILITIES
METALS, MINERALS &
MINING
ELECTRONICS
SEMICON, TELECOMS &
ACADEMIC RESEARCH
PULP, PAPER &
OTHER2
Group sales
12%
Group sales
MA, IC
Key segment
exposure1
2015 sales
trend
Demand drivers
Key segment
exposure1
2015 sales
trend
11%
T&M
_ Proliferation of composite
materials.
_ New product development.
_ Innovation in technology
_ Innovation in technology
and materials.
and materials.
_ Demand for biopharmaceuticals.
_ Regulation / compliance.
_ Outsourcing of expertise
by customers.
_ Regulation / compliance /
environmental concerns.
Group sales
10%
Group sales
Key segment
exposure1
2015 sales
trend
T&M, ILI, IC
Key segment
exposure1
2015 sales
trend
10%
MA
_ Unconventional oil and gas.
_ Renewable energy.
_ Regulation / compliance /
environmental concerns.
_ Outsourcing of expertise
by customers.
_ Innovation in technology
and materials.
_ Commodity exploration
and production.
_ Outsourcing of expertise
by customers.
Group sales
10%
Group sales
9%
Group sales
Group sales
30%
Key segment
MA, T&M, IC
Key segment
MA, T&M
Key segment
T&M, ILI, IC
exposure1
2015 sales
trend
exposure1
2015 sales
trend
TISSUE
Key segment
exposure1
2015 sales
trend
8%
ILI
exposure1
2015 sales
trend
_ New product development.
_ Innovation in technology
_ Outsourcing of expertise
_ Innovation in technology
_ Innovation in technology
and materials.
by customers.
and materials.
_ Regulation / compliance.
and materials.
_ Semiconductor equipment
spend.
_ Drive to improve quality and
_ Increased demand for
_ Hybrid and electric vehicle
_ Energy market decline,
developments.
engineering software and
noise, vibration and
harshness simulation.
especially in North America.
_ Wind energy growth.
_ Growth in use of industrial
connectivity solutions.
2015 developments
_ Increased demand for
biopharmaceuticals.
standards in India.
_ FDA approvals of biosimilars.
_ New US legislation on product
identification marking.
Future growth themes
_ Biopharmaceuticals growth.
_ Drive to improve quality and
standards in emerging markets.
_ Increased automotive testing
_ Globalisation of unconventional
post VW testing issue.
_ Hybrid and electric vehicle
oil and gas industries.
_ Renewable energy growth.
_ Weak market backdrop drives
need to improve productivity.
_ Growth in use of industrial
connectivity solutions.
_ Use of advanced composite
developments.
materials in daily life.
_ Need to improve product
traceability.
_ Engineering services to
correlate simulation data
with real-world data.
08
Spectris plc Annual Report and Accounts 2015
_ Metals and minerals growth.
_ Weak mining equipment
market.
_ Growth in mining
aftermarket sales.
_ Weak market backdrop drives
need to improve productivity.
_ Limited new mining capital
investment: growth dependent
on aftermarket sales and
equipment replacement cycle.
_ Semiconductor industry
_ Pressure on publicly-
_ Good growth in tissue and
_ Broad-based industrial
growth.
funded research budgets
pulp markets.
weakness in USA.
_ Lack of major new product
in most markets.
_ Graphic paper market remains
_ Growth in factory automation
development in telecoms
compared with 2014.
_ Growth in use of industrial
connectivity solutions.
weak, with continued
overcapacity in China.
in China.
_ Growth in use of industrial
connectivity solutions.
_ Proliferation of affordable
_ Innovation in technology
_ Growth in tissue consumption
_ Growth in use of industrial
high-performance computing.
and materials.
_ Innovation in advanced
_ Government efforts to
as usage norms evolve in
emerging markets.
connectivity / connected
factory solutions and smart
semiconductors.
stimulate economy via R&D
_ Online shopping drives greater
grid deployments.
_ Growth in use of industrial
and innovation.
use of packaging.
connectivity solutions.
_ Graphic paper market weakness
drives need for efficiency gains.
In addition to the common goal of enhancing customers’ productivity,
there are specific demand drivers in the key industries we serve today.
These drivers, together with a summary of the main developments in
these industries in 2015 and future growth themes, are contained in the
table below. As we continue to innovate and explore new applications for
our technology and expertise, our ability to enhance productivity may lead
us into new markets and industries.
Further commentary on our end markets can be found within the segment
Operating Reviews on pages 34 to 41.
Sales by end-user industry (%)
12
Pharmaceuticals & fine chemicals
Automotive & aerospace
Energy & utilities
Metals, minerals & mining
Semicon, telecoms & electronics
Academic research
Pulp, paper & tissue
Machine building
Other, including distribution
22
8
8
11
10
10
9
10
PHARMACEUTICALS &
AUTOMOTIVE &
FINE CHEMICALS
AEROSPACE
ENERGY &
UTILITIES
METALS, MINERALS &
MINING
SEMICON, TELECOMS &
ELECTRONICS
ACADEMIC RESEARCH
PULP, PAPER &
TISSUE
OTHER2
Group sales
12%
Group sales
Group sales
10%
Group sales
10%
Group sales
10%
Group sales
9%
Group sales
Key segment
exposure1
2015 sales
trend
MA, T&M, IC
MA, T&M
Key segment
exposure1
2015 sales
trend
Key segment
exposure1
2015 sales
trend
8%
ILI
Group sales
30%
T&M, ILI, IC
Key segment
exposure1
2015 sales
trend
_ New product development.
_ Innovation in technology
and materials.
_ Semiconductor equipment
spend.
_ Innovation in technology
_ Outsourcing of expertise
_ Innovation in technology
and materials.
by customers.
and materials.
_ Regulation / compliance.
Key segment
MA, IC
Key segment
T&M, ILI, IC
Key segment
MA
11%
T&M
Key segment
exposure1
2015 sales
trend
exposure1
2015 sales
trend
exposure1
2015 sales
trend
exposure1
2015 sales
trend
Demand drivers
_ Proliferation of composite
_ New product development.
_ Unconventional oil and gas.
_ Innovation in technology
materials.
_ Innovation in technology
_ Renewable energy.
and materials.
_ Innovation in technology
and materials.
_ Regulation / compliance /
_ Commodity exploration
and materials.
_ Outsourcing of expertise
environmental concerns.
and production.
_ Demand for biopharmaceuticals.
by customers.
_ Outsourcing of expertise
_ Outsourcing of expertise
_ Regulation / compliance.
_ Regulation / compliance /
by customers.
by customers.
environmental concerns.
2015 developments
_ Increased demand for
biopharmaceuticals.
identification marking.
Future growth themes
_ Hybrid and electric vehicle
_ Energy market decline,
_ Metals and minerals growth.
_ Semiconductor industry
_ Pressure on publicly-
_ Good growth in tissue and
_ Broad-based industrial
developments.
especially in North America.
_ Weak mining equipment
_ Drive to improve quality and
_ Increased demand for
_ Wind energy growth.
market.
standards in India.
engineering software and
_ Growth in use of industrial
_ FDA approvals of biosimilars.
noise, vibration and
connectivity solutions.
_ Growth in mining
aftermarket sales.
_ New US legislation on product
harshness simulation.
growth.
_ Lack of major new product
development in telecoms
compared with 2014.
_ Growth in use of industrial
connectivity solutions.
funded research budgets
in most markets.
pulp markets.
weakness in USA.
_ Graphic paper market remains
_ Growth in factory automation
weak, with continued
overcapacity in China.
in China.
_ Growth in use of industrial
connectivity solutions.
_ Biopharmaceuticals growth.
_ Increased automotive testing
_ Globalisation of unconventional
_ Weak market backdrop drives
_ Proliferation of affordable
_ Innovation in technology
_ Drive to improve quality and
post VW testing issue.
oil and gas industries.
need to improve productivity.
standards in emerging markets.
_ Hybrid and electric vehicle
_ Renewable energy growth.
_ Limited new mining capital
_ Use of advanced composite
developments.
_ Weak market backdrop drives
investment: growth dependent
materials in daily life.
_ Engineering services to
need to improve productivity.
on aftermarket sales and
_ Need to improve product
correlate simulation data
_ Growth in use of industrial
equipment replacement cycle.
traceability.
with real-world data.
connectivity solutions.
high-performance computing.
and materials.
_ Innovation in advanced
_ Government efforts to
semiconductors.
_ Growth in use of industrial
connectivity solutions.
stimulate economy via R&D
and innovation.
_ Growth in tissue consumption
as usage norms evolve in
emerging markets.
_ Online shopping drives greater
use of packaging.
_ Graphic paper market weakness
drives need for efficiency gains.
_ Growth in use of industrial
connectivity / connected
factory solutions and smart
grid deployments.
1 MA = Materials Analysis, T&M = Test and Measurement, ILI = In-line Instrumentation, IC = Industrial Controls.
2 Other primarily comprises machine building, web & converting, environmental noise monitoring and distribution.
09
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 INNOVATIVE CUSTOMER SOLUTIONS
MATERIALS ANALYSIS
Accelerating drug development in the biopharmaceutical industry
Background
The life science sector is undergoing rapid
development and is one of Spectris’ key
strategic growth markets. In 2012, we
established the Bioscience Development
Initiative (‘BDI’) within our Materials Analysis
segment to focus on how we could best bring
our characterisation expertise to specific
biopharmaceutical measurement problems.
Through partnerships with key customers in
industry and academia, our experts within
BDI aimed to develop solutions for some
of the challenges within biopharmaceutical
development and manufacture.
most promising candidates with acceptable
viscosity and particle size profiles progressed
to clinical trials for wide-ranging applications
such as cancer therapies and the treatment
and prevention of viral diseases.
The solution
Malvern Instruments’ Viscosizer TD was used
to accurately measure the particle size in, and
the viscosity of, very small samples. As a result,
15% of the antibody candidates measured failed
the new test criteria. The instrument was also
able to return the samples intact for further
testing, providing additional cost savings to
the customer.
The challenge
A major pharmaceutical development company
needed to screen candidate therapeutic
antibody molecules as early as possible in the
development process, using only very small
sample volumes. This ensured that only the
The benefit
Effective pre-screening resulted in substantial
cost savings for the customer through not
having to continue with development of
non-viable antibody candidates.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 INNOVATIVE CUSTOMER SOLUTIONS CONTINUED
TEST AND MEASUREMENT
Reducing costs for the aviation industry
Background
Aircraft manufacturers are required to meet strict
regulations on noise and emissions whilst at the
same time seeking to reduce fuel consumption.
French company Snecma, part of international
group Safran, which supplies engines to
companies such as Boeing and Airbus, has
developed a new engine called LEAP. This
features some of the industry’s most advanced
technology to make it quieter and more fuel
efficient, helping the aviation industry meet
its environmental protection objectives.
The solution
In order to speed up testing and certification
of the LEAP engine, which will power the next
generation of single-aisle commercial jets,
Snecma selected a Brüel & Kjær Sound &
Vibration gas turbine testing system. This is
based on LAN-XI data acquisition hardware
and PULSE Reflex data processing software,
which together provide dynamic data
recording, real-time monitoring and
post-test analysis, with the flexibility
and portability that Snecma required.
The challenge
Snecma has optimised the aerodynamic design
of the engine turbine blades, using woven
carbon fibre composite fan blades to achieve
greater performance. However, the gas turbine
is a highly complex machine that needs
comprehensive testing and analysis during
development in order to optimise its dynamic
behaviour. Each test is a major operation
which requires detailed planning: test systems
must be scalable and capable of handling large
amounts of data from parameters such as
strain, vibration, pressure and speed.
The benefit
Brüel & Kjær’s system helps gas turbine testers
to increase test efficiency and flexibility and
improve data integrity. The system can be set
up quickly, which significantly shortens test
times. Real-time instant feedback is provided
through multiple networked monitoring
stations to ensure the validity of the test
data and eliminate the need for a re-test.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 INNOVATIVE CUSTOMER SOLUTIONS CONTINUED
IN-LINE INSTRUMENTATION
Optimising machine uptime in the energy sector
The solution
Brüel & Kjær Vibro’s monitoring systems
will be installed in each of the six hydropower
stations and a Compass 6000 condition
monitoring platform will be centrally located
at the Los Quilos station for remotely
monitoring all the machines. The comprehensive
service and training Brüel & Kjær Vibro offers
was also a key factor in gaining the contract.
The benefit
Remote monitoring of the hydropower station
machines will enable Colbún to understand
machine conditions by detecting faults before
they can cause failure, thus optimising
machine uptime and reliability and reducing
maintenance costs.
Background
Hydroelectric power generation is playing
an increasingly vital role in global energy
production. Many newer hydroelectric power
stations are purpose-built for peak load
operation and are subject to multiple stops
and starts, and the generating units have
to be fully operational when needed. Our
systems detect vibration which provides
an early indication of machine faults in
time to avoid catastrophic failures and
consequential downtime.
The project
Brüel & Kjær Vibro’s monitoring systems are
installed in more than 750 hydro turbines
around the world. The company was recently
awarded a contract by Colbún, the second-
largest electric utility company in Chile, for
protection and condition monitoring at all six
of its cascade hydropower stations on the
Aconcagua river basin. Environmental impact
has been minimised as no dams needed to be
built and the use of hydropower means there
is less dependence on coal and natural gas.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 INNOVATIVE CUSTOMER SOLUTIONS CONTINUED
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Spectris plc Annual Report and Accounts 2015
INDUSTRIAL CONTROLS
Improving efficiency in the power industry
Background
Germany continues to lead the energy
revolution by integrating alternative energy
sources into its mainstream electrical grid
supply. German company Deutsche Energie
Funk is a provider of electricity demand and
monitoring solutions for the power generation
market, connecting decentralised plants and
distribution grids to a central control point.
The challenge
The company needed to develop a solution to
address the demands of collecting real-time
data from different power generation sources
and providing it to downstream systems such
as electrical transportation, storage and
substations. These rely on real-time accurate
data for efficient power source and electrical
grid management. However, wind farms and
solar plants are typically remotely located,
making monitoring and control more difficult.
The solution
Using Red Lion Controls’ Sixnet VersaTRAK
remote terminal units, Deutsche Energie Funk
is able to reliably collect and store input and
output data points from substation equipment
located in or near wind farms, solar plants and
co-generation facilities. The data is then
pushed to radios which securely communicate
with the energy supplier rooms so that the
appropriate mix of generation methods can
be matched with current energy demand.
The benefit
Red Lion Controls’ solution helps to ensure
reliable network security and management,
providing a fail-safe communication network
which enables the smart grid provider to
better serve its customers.
17
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 BUSINESS MODEL
CREATING LONG-TERM SHAREHOLDER VALUE
We create value by applying our
expertise to enhance productivity
for our customers.
The four key inputs to our business model which
are essential to our success are innovation,
customers, employees and suppliers. The way
we manage these resources and relationships
delivers the outputs to generate sustainable
profitable growth.
Underpinning this approach are our values and
a strong operational and governance framework.
This model is difficult to replicate and brings
significant competitive advantage.
R A T
E
P
G O
N
ST R O
I O N A L AND GOVERNANCE FRAME
W
O
R
K
SUPPLIERS
INNOVATION
Market leadership
High returns
Balanced portfolio
Strong cash generation
SUSTAINABLE
PROFITABLE
GROWTH
EMPLOYEES
CUSTOMERS
VALUES
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Spectris plc Annual Report and Accounts 2015
HOW WE CREATE VALUE
Enhancing productivity for our customers is the key driver of our growth. We build long-term
relationships with our customers and work closely with them to develop an in-depth knowledge
of their business. Our highly-skilled staff then provide solutions to their productivity challenges.
Strong operational and governance framework
Governance
We are committed to maintaining
high standards of corporate
governance. This is fundamental
to the effective and responsible
management of the business and
for the delivery of shareholder
value over the long term.
Financial controls
We have a robust internal control
framework which is routinely
monitored through a combination
of certification, self-assessment
and internal audit reviews,
complemented by a sound risk
management process.
Values
Our values define how we operate
and are essential to our business
success. They underpin the way we
work, guide our decision-making,
are central to our Code of Business
Ethics and shape our culture across
the Group.
Capital allocation
Our business is not capital
intensive and our strong cash
generation allows us to maintain
a sound balance sheet, enabling
us to invest in the business, either
via R&D or selective acquisitions,
whilst also growing the dividend.
You can read more about our governance on pages 59 to 97
Resources and relationships
Innovation
We invest around 7% of sales
each year in R&D in order to
maintain our market-leading
positions. Bolt-on acquisitions
provide an alternative route to
new technology and we also
enter into licence agreements
with third parties.
Customers
We build long-term relationships
with our customers and seek to
develop a deep understanding of
their business and processes. We
also offer a full range of services
such as consultancy, training and
aftermarket support.
Employees
We are a very specialised
business and rely on the skills
and applications expertise of our
8,300 people around the world,
many of whom are highly-qualified
engineers and technicians.
Suppliers
We outsource the majority of
component and sub-assembly
production to suppliers who
can deliver high quality at a
competitive cost, and focus our
own resources on design, assembly
and testing. We aim to increase
value in the supply chain whilst
helping our suppliers to meet our
environmental and social standards.
Sustainable profitable growth
Market leadership
We focus on niche markets with
high barriers to entry where our
products typically involve low
capital expenditure but provide
significant and rapid payback for
our customers.
High returns
High barriers to entry, generated via
long-term customer relationships,
strong intellectual property and
continuous innovation, lead to
limited pricing pressure and high
gross margins.
You can read more about our resources and relationships on pages 20 and 21
Balanced portfolio
A broad spread of customers, end
markets and geographies limits the
risk to the business from sudden
economic or political changes in
any given territory.
Strong cash generation
Our high operating margins
and asset-light manufacturing
model result in steady and
strong cash generation.
You can read more about our financial performance on pages 50 to 55
and our KPIs on pages 32 and 33
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 RESOURCES AND RELATIONSHIPS
HOW WE DRIVE FINANCIAL PERFORMANCE
Our business model is built upon
four close relationships, which
together drive our success:
_ Continuous innovation.
_ Long-term customer
relationships.
_ In-depth expertise of our people.
_ Reliable suppliers who meet
our exacting standards.
INNOVATION
We invest around 7% of sales in R&D every
year. New products and solutions serve to
protect our market position and enhance
organic growth by providing innovative
solutions to customers’ problems.
Our continuous focus on innovation means
that we own a large number of patents,
trademarks and intellectual property licences,
and processes are in place to protect and
maximise the value of this proprietary
technology. This brings high barriers
to entry for our competitors.
Bolt-on acquisitions provide an alternative
route to new technology and many of our
smaller acquisitions bring new products
and the associated inventors.
You can read more about our innovative customer solutions on pages 10 to 17
CUSTOMERS
We pride ourselves on building long-term
business relationships and over 80% of our
sales come from customers who have purchased
from us in the preceding two years. We work
closely with our customers to understand the
challenges they face and often involve them in
the development and testing of new products.
Our customers are buying our knowledge and
the technology that will help them to improve
their business. We improve productivity for
them through streamlining processes, saving
time, increasing yield and improving quality, and
we work alongside them – often within their
plants – in order to help install our products and
ensure that the maximum benefits are achieved.
We then offer a full range of aftermarket
services and support including training,
technical support, calibration and maintenance.
Streamlining
processes
Saving
time
Increasing
yield
Improving
quality
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Spectris plc Annual Report and Accounts 2015
You can read more about our markets and growth drivers on pages 8 and 9
EMPLOYEES
We employ around 8,300 highly-skilled
people, many of whom work directly with
customers, which gives them a deep
understanding of their business and the
productivity challenges they face.
We understand that intelligent innovation
requires a way of working that supports
the development of new ideas and taking
of reasonable and measured risks. Our
entrepreneurial culture offers a creative
working environment with scope for individual
responsibility and personal achievement.
We seek to attract and retain the best
talent and are committed to providing
equal employment opportunities,
competitive remuneration and training
and development programmes.
You can read more about our people on pages 45 and 46
SUPPLIERS
We believe that suppliers, and other business
partners, should have the opportunity to benefit
from their relationship with us. What this means
in practice is working together to minimise and
manage business risk and improve business
practices, through education, training and the
sharing of good practice.
Whilst each supply partner has the
responsibility to manage its business practices
in accordance with its own standards, values
and local legislative framework, we will work
with them to embrace our principles with the
aim of creating a more sustainable business.
See our Supply Chain Management Policy
at www.spectris.com for more information.
You can read more about our suppliers on page 47
We invest around
7%
of sales in R&D every year.
We employ around
8,300
highly-skilled people, many of whom
work directly with customers.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 STRATEGY
FOCUS ON PROVIDING INNOVATIVE CUSTOMER SOLUTIONS
Strategic priority
Description
Achievements in 2015
Key performance indicators
Priorities for 2016
Risk
FOCUS ON
INNOVATIVE
CUSTOMER
SOLUTIONS
INCREASE PRESENCE
IN KEY STRATEGIC
MARKETS
EXPAND BUSINESS
GLOBALLY
Our understanding of our customers’ businesses
and the productivity challenges that they face
enables us to enhance our offering to them,
whether that involves the supply of improved
equipment or a packaged solution involving
the provision of services, software and
related activities.
We invested £89 million in R&D, representing 7.5%
of Group sales, and launched a number of new
products and solutions. Examples included:
_ MiniLaser gas analyser.
_ Zetium x-ray spectrometer.
_ MicroHAWK barcode reader.
_ Viscosizer biophysical characterisation tool.
We build leadership positions in attractive niche
markets where we believe there are opportunities
for technology-led productivity enhancement.
These markets currently include segments within
the life science and pharmaceuticals, energy,
transport, basic materials and technology sectors,
but we also review and actively pursue
opportunities in new markets.
We increased our presence in several strategic
growth markets. Examples included:
_ Secured new contracts in life science sector.
_ Established an Industrial Internet of Things
Innovation Centre.
_ Acquired ReliaSoft to expand engineering
software capability and offering.
In response to a customer base that is
extending its international operations and
becoming increasingly sophisticated we
seek to expand our business globally, with
particular emphasis on emerging markets
such as China, India and Latin America.
_ Acquired Sunway Scientific Corporation,
a Taiwanese distributor for Particle
Measuring Systems.
_ Good growth in Omega’s international
businesses, where sales grew by 9%.
_ ESG established offices in the Middle East
and Mexico.
ACCELERATE
OPERATIONAL
EXCELLENCE
We strive for continuous improvement in all
aspects of our business operations, both to
enhance customer experience and to generate
efficiency and productivity gains. In addition,
we seek to improve performance and profitability
by driving synergistic opportunities within and
between our operating companies and across
the Group as a whole.
_ Average working capital as a percentage
of sales improved by 0.5 pp in Test
and Measurement.
_ Improved process management in BTG that
reduced waste of scrap steel during creping
blade production by 20%.
DEPLOY CAPITAL
FOR BOTH PLATFORM
AND BOLT-ON M&A
We acquire businesses which materially
strengthen our operating companies through
broadening their customer offering, reaching
new customer segments or expanding their
geographical presence.
_ Invested £45 million in five bolt-on
acquisitions: three in Test and
Measurement, one in Materials Analysis
and one in Industrial Controls.
_ Acquisitions contributed 3 pp of sales growth.
In addition, we invest in new platform businesses
in order to establish a presence in strategic
markets or complementary capabilities.
For more information see pages 6 and 7
For more information see pages 34 to 41
22
Spectris plc Annual Report and Accounts 2015
-8%
Growth in
adjusted EPS
-8%
Growth in
adjusted EPS
-8%
Growth in
adjusted EPS
15.2%
Return on sales
91%
Cash conversion
0%
Organic sales growth
at constant currencies
15.2%
Return on sales
Continue to invest around 7% of sales in the development of new
_ New product development.
products, technologies and solutions.
_ Intellectual property.
_ Competitive activity.
_ Information security.
Focus on innovative differentiated customer solutions which offer
superior margins.
Continue to build relationships with customers to offer more value-added
services such as consultancy, software, testing, maintenance and training.
0%
Organic sales growth
at constant currencies
15.2%
Return on sales
Focus on key strategic growth markets, particularly:
_ Cloud-based data analysis and services.
_ Industrial connectivity.
_ Life sciences.
_ Engineering software.
_ Test services.
0%
Organic sales growth
at constant currencies
15.2%
Return on sales
and acquisitions.
Continue to expand our international footprint to be closer
to customers through direct and indirect market presence
_ Intellectual property.
_ Laws and regulations.
Continue to grow Omega in Asia and Latin America.
Ensure that we have the right talent to grow our business
globally, especially in China.
89,030MWh
Energy consumption
4.5
Reportable accidents
per 1,000 employees
Drive greater efficiency through operational excellence, extending
_ Supply chain disruption.
‘Lean’, ‘Kaizen’ and ‘Six Sigma’ initiatives throughout the Group.
_ Information security.
Increase employee training in these techniques and tools to build
a continuous improvement culture.
Encourage individual ideas and collaborative team sessions
to generate efficiency projects and share best practice across
the Group.
0%
Organic sales growth
at constant currencies
15.2%
Return on sales
-8%
Growth in
adjusted EPS
Focus on acquisition strategy to expand portfolio and reach.
_ Acquisitions.
Fully integrate recent acquisitions to support continued
new product development.
Continue to look for new opportunities in key strategic growth
markets through acquisition or licensing of technologies.
_ New product development.
_ Intellectual property.
_ Political and economic risks.
_ Acquisitions.
_ Competitive activity.
_ Fluctuations in
exchange rates.
_ Political and economic risks.
_ Acquisitions.
_ Information security.
_ Fluctuations in
exchange rates.
Strategic priority
Description
Achievements in 2015
Key performance indicators
Priorities for 2016
Risk
Our understanding of our customers’ businesses
We invested £89 million in R&D, representing 7.5%
and the productivity challenges that they face
of Group sales, and launched a number of new
enables us to enhance our offering to them,
products and solutions. Examples included:
0%
Organic sales growth
at constant currencies
15.2%
Return on sales
whether that involves the supply of improved
equipment or a packaged solution involving
_ MiniLaser gas analyser.
the provision of services, software and
related activities.
_ Zetium x-ray spectrometer.
_ MicroHAWK barcode reader.
_ Viscosizer biophysical characterisation tool.
-8%
Growth in
adjusted EPS
Continue to invest around 7% of sales in the development of new
products, technologies and solutions.
Focus on innovative differentiated customer solutions which offer
superior margins.
_ New product development.
_ Intellectual property.
_ Competitive activity.
_ Information security.
Continue to build relationships with customers to offer more value-added
services such as consultancy, software, testing, maintenance and training.
Our strategic objective is to deliver sustainable profitable growth for shareholders by enhancing
the productivity of our customers. Our progress is set out below.
We build leadership positions in attractive niche
We increased our presence in several strategic
markets where we believe there are opportunities
growth markets. Examples included:
for technology-led productivity enhancement.
These markets currently include segments within
_ Secured new contracts in life science sector.
the life science and pharmaceuticals, energy,
_ Established an Industrial Internet of Things
transport, basic materials and technology sectors,
Innovation Centre.
but we also review and actively pursue
_ Acquired ReliaSoft to expand engineering
opportunities in new markets.
software capability and offering.
In response to a customer base that is
_ Acquired Sunway Scientific Corporation,
extending its international operations and
a Taiwanese distributor for Particle
becoming increasingly sophisticated we
Measuring Systems.
seek to expand our business globally, with
_ Good growth in Omega’s international
particular emphasis on emerging markets
businesses, where sales grew by 9%.
such as China, India and Latin America.
_ ESG established offices in the Middle East
and Mexico.
We strive for continuous improvement in all
_ Average working capital as a percentage
aspects of our business operations, both to
of sales improved by 0.5 pp in Test
enhance customer experience and to generate
and Measurement.
efficiency and productivity gains. In addition,
_ Improved process management in BTG that
we seek to improve performance and profitability
reduced waste of scrap steel during creping
by driving synergistic opportunities within and
blade production by 20%.
between our operating companies and across
the Group as a whole.
We acquire businesses which materially
_ Invested £45 million in five bolt-on
strengthen our operating companies through
acquisitions: three in Test and
broadening their customer offering, reaching
Measurement, one in Materials Analysis
new customer segments or expanding their
and one in Industrial Controls.
geographical presence.
_ Acquisitions contributed 3 pp of sales growth.
In addition, we invest in new platform businesses
in order to establish a presence in strategic
markets or complementary capabilities.
0%
Organic sales growth
at constant currencies
15.2%
Return on sales
-8%
Growth in
adjusted EPS
Focus on key strategic growth markets, particularly:
_ Cloud-based data analysis and services.
_ Industrial connectivity.
_ Life sciences.
_ Engineering software.
_ Test services.
0%
Organic sales growth
at constant currencies
15.2%
Return on sales
Continue to expand our international footprint to be closer
to customers through direct and indirect market presence
and acquisitions.
Continue to grow Omega in Asia and Latin America.
Ensure that we have the right talent to grow our business
globally, especially in China.
_ New product development.
_ Intellectual property.
_ Political and economic risks.
_ Acquisitions.
_ Competitive activity.
_ Fluctuations in
exchange rates.
_ Intellectual property.
_ Laws and regulations.
_ Political and economic risks.
_ Acquisitions.
_ Information security.
_ Fluctuations in
exchange rates.
89,030MWh
Energy consumption
4.5
Reportable accidents
per 1,000 employees
Drive greater efficiency through operational excellence, extending
‘Lean’, ‘Kaizen’ and ‘Six Sigma’ initiatives throughout the Group.
Increase employee training in these techniques and tools to build
a continuous improvement culture.
_ Supply chain disruption.
_ Information security.
Encourage individual ideas and collaborative team sessions
to generate efficiency projects and share best practice across
the Group.
-8%
Growth in
adjusted EPS
15.2%
Return on sales
91%
Cash conversion
0%
Organic sales growth
at constant currencies
15.2%
Return on sales
-8%
Growth in
adjusted EPS
Focus on acquisition strategy to expand portfolio and reach.
_ Acquisitions.
Fully integrate recent acquisitions to support continued
new product development.
Continue to look for new opportunities in key strategic growth
markets through acquisition or licensing of technologies.
For more information see pages 32 and 33
For more information see pages 6 and 7
For more information see pages
26 to 30
23
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 RISK MANAGEMENT
COMMITTED TO MANAGING RISK EFFECTIVELY
John O’Higgins
Chief Executive
We recognise that effective management of
risk is essential for delivering our strategic
objectives. As such, risk management is built
into our day-to-day activities and forms an
integral part of how we operate.
The Group has a well-established process which
delivers visibility and accountability for risk
management across our businesses. This process
forms part of the Group’s overall internal control
framework, as described on pages 74 and 75.
During the year we have made further
enhancements to this process, including
implementing a ‘lines of defence’ approach
to the evaluation of the Group’s key risks.
Risk management process
Our approach to risk management incorporates
both bottom-up and top-down elements to the
identification, evaluation and management of
risks and all risks are evaluated with reference
to the Group’s achievement of its strategic
objectives, as outlined on page 22.
Our business units are required to undertake
formal risk management reviews at least twice
a year. This involves the use of a consistent
framework for the assessment of significant risks
with respect to impact, likelihood and the time
frame in which the risk could materialise. Risks
are assessed both before and after the effect
of controls and mitigating actions has been
taken into account.
Overall ownership for each risk, together with
responsibility for all associated mitigating
actions, is clearly assigned and communicated.
The resulting risk registers are then subject
to review on an ongoing basis as part of
regular operational reviews. This regular
review of the status of risks and corresponding
mitigating actions ensures that risk management
is embedded in day-to-day management
processes and decision-making as well
as in the annual strategic planning cycle.
In addition, the Executive and key functional
personnel in the Group consider those risks
to the Group’s strategic objectives which are
not addressed within the business units and
develop appropriate approaches to managing
24
Spectris plc Annual Report and Accounts 2015
HOW THE GROUP MANAGES RISK
Day-to-day ownership of risk management.
_ Shaping policy and control framework.
_ Monitoring and oversight of risk
management by business units.
_ Evaluation of risks impacting the
Group as a whole.
_ Assurance over the effectiveness
of the internal control and risk
management framework.
Overall responsibility for:
_ Determining the Group’s risk appetite.
_ Oversight of the Group’s internal control
and risk management framework.
Business units
First line
Key Group functions / programmes
Executive
Second line
Independent assurance
Third line
Audit and Risk Committee
Board
and mitigating these. During 2015 an exercise
was carried out to analyse these key Group risks
through a ‘lines of defence’ framework. This
involved mapping the principal Group risks to:
The overall effectiveness of the Group’s risk
management and mitigation processes is
reviewed regularly by the Executive Directors
and twice yearly by the Audit and Risk Committee.
_ a first line of defence comprising the key
controls and sources of risk mitigation
implemented by our business units;
_ a second line of defence consisting of various
Group functions which, together with the
Executive Directors, shapes the policy
framework within which the first line of
defence operates and provides oversight
and monitoring of the same; and
_ a third line of defence providing
assurance over the effectiveness
of risk management activity.
The key potential risks and uncertainties
facing the Group’s ability to deliver its strategy,
together with mitigating actions, are described
on the following pages. Whilst these risks are
broadly consistent with those reported in 2014,
we provide an update on how these risks, and
our ability to respond and manage them, have
changed during 2015.
HBM uses a cloud-based risk management
solution to monitor its global supply chain for
all types of risk, including natural disasters,
strikes, compliance breaches, financial
indicators and political risks.
The software provides HBM with daily,
up-to-date data on risks for all suppliers,
supply paths, production sites and countries.
An early warning system, combined with
impact evaluations and action plans,
ensures that events which may cause
supply chain disruption do not affect
the production process.
25
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 PRINCIPAL RISKS AND UNCERTAINTIES
RISK DESCRIPTION
POTENTIAL IMPACT
MITIGATION
2015 UPDATE
NEW PRODUCT DEVELOPMENT
The development of new
technologies and products
necessarily involves risk,
including:
_ the product being more
expensive or taking longer
to develop than originally
planned;
_ the product failing to reach the
commercialisation phase; and
_ the market for the product
being smaller than originally
envisaged.
Link to strategic priority
INTELLECTUAL PROPERTY
Our business is focussed on
the design and manufacture
of technologically-advanced
products and applications.
As a consequence, we own
and protect patents, trademarks,
trade secrets, confidential
information and copyright as
well as exploiting intellectual
property through licensing.
The risk therefore exists that
our intellectual property may
be infringed by third parties
or that we may inadvertently
infringe third-party rights.
Link to strategic priority
_ Reduced profitability
and cash flow.
_ Loss of market share.
_ Failure to recoup
investment in innovation.
_ Regular strategic evaluations of product
portfolios and the markets in which we
compete, ensuring that our investment
in new products is targetted so as to
maximise the opportunity of success.
_ Project management disciplines are in
place across our product development
programmes and audits provide
assurance that these disciplines are
applied consistently.
_ Work closely with customers to ensure
that we develop solutions tailored to their
specific needs.
_ Maintain customer involvement throughout
the life-cycle of product development to
product launch through, for example,
beta evaluations.
_ New product developments are based
on standard platforms, customised
through high added-value applications
engineering.
_ Reduced profitability
_ Policies and procedures in place requiring
and cash flow.
_ Loss of market share.
_ Failure to recoup
investment in innovation.
all of our businesses to:
– maintain a watching brief on new
third-party patent applications and
competitor activity;
– ensure adequate protection for key
intellectual property including
registration where appropriate;
– undertake specific freedom-to-operate
technical reviews prior to commencing
new product development, acquisitions
or licences; and
– register intellectual property where
appropriate.
_ Maintain a portfolio of intellectual property
assets such that no single patent, trade
secret or trademark is sufficiently important
to present a material risk to the ongoing
success of the Company.
We conducted our annual
strategy reviews with each
operating business.
These reviews often result in
targetted investment in new
product platforms, upgrades
to existing products and
services and bolt-on
acquisitions. 2015 saw
several important new product
launches, new technologies
and products acquired across
all four segments, and many
more acquisition ideas.
Change in risk level
(stable)
During the year we took steps
to streamline management of
registered intellectual property
and improve visibility of the
Group’s patent portfolios
through engaging a
centralised renewals provider
and allowing instant access
to portfolio data.
Change in risk level
(stable)
26
Spectris plc Annual Report and Accounts 2015
Key
Focus on innovative
customer solutions
Increase presence in
key strategic markets
Expand business
globally
Accelerate operational
excellence
Deploy capital for both
platform and bolt-on M&A
RISK DESCRIPTION
POTENTIAL IMPACT
MITIGATION
2015 UPDATE
_ Reduced sales, profitability
_ Strong culture, internal control
and cash flow.
framework and policies.
_ Reputational damage.
_ Diversion of management
resources to address any
resulting investigation.
_ Inability to attract and
retain talent.
_ Ethics training provided to all employees.
_ Formal export controls compliance
procedures in place, including strict
product classification and transaction
screening protocols.
LAWS AND REGULATIONS
We operate in a large number of
jurisdictions and, consequently,
are subject to numerous domestic
and international regulations
and restrictions.
Any failure by the Group or its
representatives to comply with
relevant laws and regulations
could result in civil or criminal
liabilities, leading to significant
fines and penalties or the
disqualification of the Group
from participation in government-
related contracts for a period
of time. In the event of a failure
to comply with export control
regulations, the Group could also
be exposed to restrictions being
placed upon its ability to trade.
Link to strategic priority
POLITICAL AND ECONOMIC RISKS
_ Reduced profitability and
cash flow.
_ Maintain a broad spread of markets,
products and customers to limit risks
associated with any given territory.
_ Monitor market intelligence so that
we can respond quickly to changing
trading conditions.
_ Ensure we remain structured in a way
that enables us to take prompt action
in the event of a material change in the
trading environment.
_ Ensure we maintain a strong balance
sheet and financial position.
We operate in a range of
end-user markets around the
world and may be affected by
political, economic or regulatory
developments in any of these
countries. Material adverse
changes in the political and
economic environments in the
countries in which we operate
have the potential to put at risk
our ability to execute our strategy.
Link to strategic priority
The Group continued to take
a number of actions aimed
at further mitigating this risk.
These included continued
ethics training targetting
key risk topics, together
with training our businesses’
management and sales teams
in carrying out third-party
due diligence reviews. We
continue to ensure that we
are responsive to issues raised
through the Group’s ethics
hotline. For more details of
our ethics programme see
pages 48 and 49.
Change in risk level
(stable)
The Group’s balanced
geographical mix, with similar
exposure to North America,
Europe and Asia / Rest of the
World, enabled it to mitigate
the effects of a weak North
American manufacturing
economy via robust growth in
Europe; however, these mixed
trading conditions resulted
in weaker than expected
sales growth.
Similarly, our broad end-
market exposure has meant
that weak growth in certain
end markets was mitigated
by good demand in others.
Change in risk level
(slight increase)
27
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
RISK DESCRIPTION
POTENTIAL IMPACT
MITIGATION
2015 UPDATE
ACQUISITIONS
Integration of the operations and
personnel of acquired businesses
can be a complex process.
Potential risks therefore exist that
the planned benefits from the
acquisition may not be achieved as
a result of problems encountered
during integration of the acquired
business, incorrect assumptions
made in the business case,
changing market conditions, or
issues which were not identified
during the due diligence process.
Further, the Company could be
exposed to past acts or omissions
of the acquired business.
Link to strategic priority
_ Failure to achieve the
benefits outlined in
the business case.
_ Reduced profitability
and cash flow.
_ Unforeseen liabilities.
_ Rigorous financial, commercial and legal
assessment of target businesses involving
external consultants as appropriate.
_ Strict authority levels which, subject to
size, involve review by the Board for
such transactions.
_ Comprehensive representations and
warranties in purchase agreements.
_ Extensive integration planning
and execution.
_ Regular review against the business
case for the acquired businesses.
_ Post-acquisition control reviews.
COMPETITIVE ACTIVITY
The nature of the markets in
which we operate means that all
of our businesses are exposed to
risk from competitor activity.
_ Loss of market share.
_ Reduced profitability
and cash flow.
_ Ongoing monitoring of competitor
activity and trends in the markets in
which we compete.
_ Maintain market-leading positions
through strong customer relationships
and significant investment in R&D.
_ Diversified portfolio of products and
markets limits the overall risk from any
single competitor.
_ Develop operational excellence initiatives
that enable our businesses to react
quickly to changes in customer and
market demand.
Link to strategic priority
28
Spectris plc Annual Report and Accounts 2015
There continued to be a
healthy level of acquisition
activity in our marketplace.
We participated in this
activity, making five bolt-on
acquisitions, and we continue
to look for additional
opportunities. We have been
careful to maintain our
rigorous financial, commercial
and legal due diligence and
disciplines, which has meant
that we have also excluded
ourselves from a number of
potential deals.
Change in risk level
(stable)
We maintained high levels of
investment in R&D, investing
7.5% of Group sales, with all
of our operating businesses
bringing new products and
solutions to market to sustain
and strengthen our strong
customer relationships and
competitive advantages.
Change in risk level
(stable)
Key
Focus on innovative
customer solutions
Increase presence in
key strategic markets
Expand business
globally
Accelerate operational
excellence
Deploy capital for both
platform and bolt-on M&A
RISK DESCRIPTION
POTENTIAL IMPACT
MITIGATION
2015 UPDATE
FLUCTUATIONS IN EXCHANGE RATES
_ Unexpected variations in
the Company’s results.
_ Reduced profitability
and cash flow.
We have operations which sell
and purchase goods in foreign
currencies and whose results we
record in a variety of different
currencies. We are therefore
exposed to any significant
changes in exchange rates
between a variety of currencies.
Link to strategic priority
SUPPLY CHAIN DEPENDENCIES AND DISRUPTION
_ Forward contracts cover up to 75% of
forecast exposures up to 18 months ahead.
_ Natural hedging strategy, matching
invoicing and purchasing currencies
where practical.
_ Foreign currency investments hedged
with borrowings in the same currency
wherever possible.
_ Regular monitoring, including sensitivity
analyses to understand the impact of
exchange rate movements on the
Group’s reporting.
The weakening of Sterling
relative to the US Dollar offset
a significant proportion of
the negative impact caused
by the strengthening of
Sterling relative to most other
currencies from a translational
perspective. Overall, this still
resulted in a negative impact
in 2015 but this was less
pronounced than in 2014.
Our hedging policy continued
to mitigate transactional risk
during the year.
Change in risk level
(stable)
We are exposed to the risk that
some of the components we
source, particularly for custom-
built items or ageing products,
are provided by a single supplier
and are therefore vulnerable
to interruption of supply.
Our businesses also manufacture
components using proprietary
technologies at a number
of locations.
Our ability to supply products to
customers could be adversely
impacted by a disaster or other
disruptive event at any of
these sites.
Link to strategic priority
_ Inability to fulfil customer
orders resulting in lost sales
and reputational damage.
_ Increased costs
reduce profitability.
_ Loss of market share.
_ Strategic sourcing teams source cost-
effective suppliers across a range of
markets whilst validating suppliers’
business processes, quality and standards.
_ Alternative sources of supply actively
sought to reduce dependency upon
single-source suppliers.
_ Safety stock levels established for
critical components.
_ Business continuity plans and disaster
prevention measures in place for all
material manufacturing locations.
_ Business interruption insurance.
_ Strong contract review process.
We continued to identify
and qualify secondary sources
of supply where key
dependencies have been
identified. We also worked
with our principal electronic
manufacturing suppliers
to strengthen our disaster
support and recovery
processes, including two
disaster recovery simulation
exercises carried out at
major suppliers.
Change in risk level
(slight decrease)
29
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
RISK DESCRIPTION
POTENTIAL IMPACT
MITIGATION
2015 UPDATE
INFORMATION SECURITY
As with most organisations of a
similar size and complexity, our
businesses face both internal and
external information security
risks, the nature and complexity
of which are constantly changing.
_ Loss of sensitive
_ Our businesses employ a number of
information / data which
could put the businesses
at a serious competitive
disadvantage relative to
their competitors.
_ Being subject to a malicious
attack causing system failure,
data corruption or loss, or
theft of commercial or
sensitive information / data.
physical, logical and control measures
designed to reduce the risk of a breach
in information security arising.
_ Our systems are monitored against
unauthorised access.
_ A programme of continuous improvement
focussing on information security risks
evaluates whether the Group’s existing
controls in this area would benefit from
additional strengthening.
_ Employees receive online and face-to-face
awareness training of information security
risks and controls.
_ Failure to realise the
Group’s growth plans.
_ Reduced profitability
and cash flow.
_ Talent management programme.
_ Dashboard reporting against key
growth initiatives.
_ A measured approach over time is being
targetted, rather than a radical change.
_ Enhanced risk management and reporting.
Link to strategic priority
STRATEGY EXECUTION
In April 2015, the Group announced
an evolution of its strategy, as
described on pages 6 and 7. A key
component of the updated strategy
relates to the Group’s desire to
transition the business to achieving
a larger proportion of sales through
the provision of services, software
and solutions to customers, rather
than products alone. The Group
considers that, as with any
transition of this kind, there is
necessarily inherent risk associated
with the successful execution and
delivery of the updated strategy.
Link to strategic priority
30
Spectris plc Annual Report and Accounts 2015
Further progress was made
with our information security
programme.
External consultants undertook
an independent assessment of
the information security project
by validating the critical
information assets in operating
companies, benchmarking the
risks and performing a detailed
controls maturity assessment.
The UK government’s “Ten
Steps to Cyber Security” was
used as a consistent control
framework for mitigating key
areas of risk for internal and
external benchmarking,
resulting in detailed
information security roadmaps
being developed for all
operating companies.
Change in risk level
(stable)
n/a (new risk identified)
Change in risk level
n/a (new risk identified)
Key
Focus on innovative
customer solutions
Increase presence in
key strategic markets
Expand business
globally
Accelerate operational
excellence
Deploy capital for both
platform and bolt-on M&A
VIABILITY STATEMENT
In accordance with provision C.2.2 of the 2014
UK Corporate Governance Code, the Directors
have assessed the viability of the Company
over a three-year period, taking into account
the Group’s current position and the
assessment of the principal risks and
uncertainties as set out on pages 26 to 30.
The Directors have determined that a
three-year period to 31 December 2018
constitutes an appropriate period over which to
provide its viability statement. The selection of
this period for the assessment is supported by
the Group’s strategic planning cycle together
with other relevant considerations such as the
maturity of the Group’s credit facilities. In
addition, the Group is exposed to a number
of different industry cycles of varying and
ill-defined length and duration which may or
may not overlap, and this has also been taken
into account in considering the relevant period.
Whilst the Directors have no reason to believe
that the Group will not be viable over a longer
period, it is recognised that such future
assessments carry a level of inherent uncertainty
which increases with the length of the period.
As such, we believe a three-year period presents
users of the Annual Report with a reasonable
degree of confidence while still providing a
longer-term perspective.
The Group operates a detailed financial
forecasting process over a rolling 18-month
period, supplemented by monthly analysis of
risks and opportunities against the forecast
presented. Until 2015, the Group’s strategic
planning was structured around a three-year
time frame. During 2015, the Group introduced
growth targets for each business through to
2020. A dashboard reporting process provides
visibility of progress against relevant strategic
initiatives which underpin the targetted
growth. As the run-off to 2020 diminishes over
the next few years and the average strategic
planning cycle moves closer to three years,
the Directors believe that this supports the
selection of a three-year period over which
the viability statement is made.
The Directors carried out a robust assessment
of the principal risks facing the Group,
including those that could threaten its
business model, future performance, solvency
or liquidity. This assessment was made with
reference to the Group’s current position and
prospects, the Group’s strategy and the
Group’s principal risks, including how these are
managed, as detailed on pages 24 to 30.
In considering the Group’s prospects, the
Directors also noted the broad spread of
markets, products and customers maintained
by the Group. This natural diversification
provides mitigation against the risk of a serious
economic downturn in a particular market or
the risks associated with dependence on a
specific sector or customer. Our largest
customer constitutes less than 2% of Group
sales and our top 20 customers account for
less than 9% of Group sales. At the same time,
the Directors noted the Group’s strong financial
position coupled with our ability to react
promptly in adjusting our cost base in the event
of a material change in the trading environment.
Similarly, in making the assessment, the
Directors also considered the ability of the
Group to raise finance and deploy capital in
the context of the principal sources of facility
for credit, the maturity of those facilities, the
Group’s ability to re-finance debt as it falls due
and the overall level of headroom available.
While the review encompassed all of the
principal risks identified by the Group, the
following were focussed on for enhanced
analysis including stress testing: intellectual
property; laws and regulations; fluctuations
in exchange rates; supply chain dependencies
and disruption; and information security.
Based on this assessment, the Directors confirm
that they have a reasonable expectation that the
Group will continue in operation and meet its
liabilities as they fall due over the period to
December 2018.
31
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 KEY PERFORMANCE INDICATORS
MONITORING OUR PERFORMANCE
We monitor progress against the
delivery of our strategic goals using
five financial and two non-financial key
performance indicators (‘KPIs’). Each
KPI measures certain elements of the
strategy, as indicated by the relevant
strategy icons. An element of the
Directors’ remuneration is linked to the
earnings per share KPI and economic
profit KPI – for more information refer
to pages 80 and 81 in the Directors’
Remuneration Report.
SALES
Definition Sales growth is a measure of how
our R&D and other investments help to grow
our business organically, i.e. excluding the
effects of currency translation and acquisitions
or divestments.
Performance Sales were £1,190 million
in 2015, unchanged on an organic basis
as compared with the prior year.
RETURN ON SALES
Definition Return on sales is a measure of
improving profitability in our business. Return
on sales is defined as adjusted operating profit
as a percentage of sales.
Performance Return on sales was 15.2%
in 2015, representing a decrease of 1.7 pp
over the prior year.
EARNINGS PER SHARE
Definition Earnings per share (‘EPS’)
is a commonly-used measure of financial
performance. Adjusted EPS excludes certain
non-operational items as defined by
management in Note 2 to the Financial
Statements. Adjusted EPS is defined as the
ratio of adjusted earnings for the year to the
weighted average number of ordinary shares
outstanding during the year.
32
Spectris plc Annual Report and Accounts 2015
Our strategy focusses on profitable growth that
is sustainable over the medium to long term and
therefore its achievement cannot just be measured
by considering performance in 2015 compared
with the prior year; trends over a number of years
must also be considered. In the following table
the relevant KPI measures for the last five
years are shown. KPIs relate to continuing
operations only.
In recent years the challenging trading
environment has resulted in organic sales
growth at constant currencies remaining low
(between 0% and 3%). However, during this
period the Group has maintained a return on
sales in the mid-teens and delivered high cash
conversion of operating profits. The Group has
also generated significant economic profit
throughout the period.
Objective Our aim is to achieve year-on-year
growth in sales from continuing businesses at
constant currency.
Objective Our aim is to achieve a mid-teens
return on sales margin on average throughout
the cycle.
Link to remuneration Growth in
profit is part of the annual bonus plan.
Performance Adjusted EPS was 114.3p
in 2015, representing a decrease of 8 pp
over the prior year.
Objective Our aim is to achieve year-on-year
growth in adjusted EPS.
Link to remuneration EPS performance is
one of the criteria for the Performance Share
Plan award.
Link to strategy:
Organic sales growth, continuing
businesses, at constant currencies (%)
15
0
14
2
13
0
12
11
3
Link to strategy:
Return on sales,
continuing businesses (%)
15
14
13
12
11
Link to strategy:
Growth in adjusted EPS (%)
-8
-6
2
9
15
14
13
12
11
15
15.2
16.9
17.9
18.4
18.2
43
Key
Focus on innovative
customer solutions
Increase presence in
key strategic markets
Expand business
globally
Accelerate operational
excellence
Deploy capital for both
platform and bolt-on M&A
CASH CONVERSION
Definition We focus on cash generation and
use cash conversion as a performance measure
as we believe cash represents an effective
measure of the quality of our earnings. Cash
conversion is defined as adjusted operating
cash flow as a percentage of adjusted
operating profit.
Performance Cash conversion was 91%
in 2015, representing an increase of 2 pp
over the prior year.
Objective Our aim is to deliver high
cash conversion of operating profit in
each financial year.
Link to strategy:
Cash conversion (%)
15
14
13
12
11
91
89
86
94
89
ECONOMIC PROFIT
Definition Economic profit is the annual
result derived from deducting a capital charge
(applied to average capital employed) from
adjusted operating profit, aggregated over
a three-year period.
Performance Three-year aggregated
economic profit was £209.3 million, representing
a decrease of £82.3 million over the prior year.
ENERGY EFFICIENCY
Definition Energy efficiency makes a
significant contribution to environmental
sustainability and helps us to reduce our
operating costs. We monitor our use of key
sources of energy (electricity, gas, oil and
steam) with the aim of reducing our carbon
emissions and thus our environmental
impact on society.
Objective Our aim is to maintain a positive
result over the three-year period.
Three-year aggregate economic
profit (£m)
Link to strategy:
Link to remuneration Economic profit is
one of the criteria for the Performance Share
Plan award.
15
14
13
12
11
209.3
179.8
291.6
332.5
300.2
Performance Energy (measured in MWh) per
£m revenue was 75.6 in 2015, a slight decrease
compared with the prior year.
Objective Our aim is to achieve a year-on-year
improvement in energy efficiency.
ACCIDENT INCIDENT RATE
Definition We are committed to being a
responsible business and ensuring the health,
safety and well-being of our people. We
monitor how we are performing by measuring
work-related accidents or ill health resulting in
lost time in excess of three days.
Performance Reportable accidents per
1,000 employees were 4.5 in 2015, representing
an increase of 7% over the prior year.
Objective Our aim is to reduce accidents
and injuries at our sites to as low a level
as reasonably practical.
KPIs 1 to 4 exclude the Fusion UV business (which was sold in January 2013) in 2013 and 2012. 2011 has not been restated to reflect the disposal.
Non-financial KPIs are described in more detail in the Sustainability Report on pages 42 to 47.
Link to strategy:
MWh per £m revenue
15
14
13
12
11
Link to strategy:
Reportable accidents per
1,000 employees
15
14
13
12
11
75.6
75.7
77.6
79.6
79.5
4.5
4.2
4.4
4.7
2.7
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
OPERATING REVIEW
LABORATORY / OFF-LINE BUSINESSES
OVERVIEW FROM THE BUSINESS GROUP DIRECTOR
Eoghan O’Lionaird
Business Group Director
MATERIALS ANALYSIS
TEST AND MEASUREMENT
_ The threat to patent-protected drugs
from generics causes the major global
pharmaceutical companies to look for ways
of becoming more efficient. Whilst a
customer drive to enhance productivity is
generally beneficial to our businesses, there
can be some short-term disruptions in the
marketplace resulting from increased
acquisition activity, which can lead to delays
to decisions over capital investments.
_ Growing demand for biopharmaceutical drugs,
underpinned by the trend towards targetted
therapy. In due course we believe this will
also lead to growth in biosimilars (the
biopharmaceutical equivalent of generic drugs).
In 2015 the US Food and Drug Administration
approved biosimilars for the first time.
_ The widespread drive to improve quality and
standards, particularly in emerging markets,
in areas such as food and drink, drugs and
the environment. This has been a positive
influence on our business in China in recent
years, and we are now seeing the same
benefits in India.
_ Limited new capital investment by the
mining sector, with customer demand
primarily focussed on the equipment
replacement cycle, aftermarket sales
and a need to improve productivity.
_ The level and speed of development and
innovation in advanced semiconductors
and the proliferation of affordable high-
performance computing all result in
investment by the semiconductor industry.
_ Greater use of advanced composite
materials. This trend is already driving
investment decisions in industries such as
aerospace, and is set to become even more
prevalent going forward. New materials
require new tests to verify attributes such
as quality, reliability and durability, and our
businesses are well placed to provide the
instruments, software and related services
required for this activity.
_ Further development of hybrid and electric
vehicles. This trend has only just begun
in recent years, and it is expected that the
automotive industry will spend increased
effort on developing energy-efficient
vehicles in the coming years.
_ Greater use of engineering, simulation and
data analytics software in the automotive and
aerospace industries as a means of speeding
up the development and quality control
process, thus saving cost and bringing
new products to market more quickly.
_ Globalisation of the unconventional oil
and gas industries. Having been primarily
a North American development to date,
other parts of the world (e.g. China, Europe,
Latin America) are also expected to adopt
unconventional oil and gas extraction and
production methods to meet their future
energy requirements. In particular, we
believe data analytics will become
increasingly important to the
unconventional oil and gas industry.
The six operating companies in the Materials
Analysis and Test and Measurement segments
sell their products and services into the
laboratory and off-line activities of certain
industries. Whilst these operating companies
differ as regards their technologies, solutions
and applications, they also share much in
common, with the primary demand driver for all
of them being the rate and pace of innovation
in technology and materials and new product
development undertaken by their customers.
In these segments, our businesses are
predominantly exposed to capital investments
devoted to improving productivity in the R&D,
testing and quality control processes in a range
of industries (see industry breakdown charts in
the segment reviews which follow). Many of
these industries are highly regulated, and the
need to comply with national and international
legislation and regulation also results in
increased demand for our products and services.
Around a quarter of the revenues across these
segments is derived from aftermarket sales,
being a combination of services (e.g. equipment
calibration) and consumables (e.g. x-ray tubes).
Increasingly, we are seeing opportunities for our
operating companies to enhance their value
proposition beyond best-in-class equipment to
include services, based on their deep application
expertise. The combination of the growth in
globalisation, which is introducing ever more
complexity in the development and testing of
products and materials, and the need to drive
greater cost efficiency, which is resulting in
reduced in-house capacity within customer
businesses, is creating a demand for increased
simplicity and ease of use, in a coherent offering
combining instruments, software and services.
In addition to these cross-industry themes, there
are trends specific to certain industries that we
see impacting our Materials Analysis and Test and
Measurement segments today and in the future,
as highlighted in the following box.
34
Spectris plc Annual Report and Accounts 2015
MATERIALS ANALYSIS
Sales
£364.4M
2014: £348.8M
Operating profit
£53.7M
2014: £53.3M
Aftermarket sales as % of sales
32%
2014: 31%
Segment performance
Reported sales increased 4%, including a four
percentage point contribution from acquisitions
and a three percentage point adverse impact from
foreign exchange currency movements. As a result,
LFL sales grew 3%. Sales growth was driven
primarily by North America and Europe, with Asia
generating slight growth and sales to the Rest of
the World declining. Operating profit and operating
margins declined on a LFL basis, primarily reflecting
the annualised effect of prior-year headcount
increases, the net cost of targetted restructuring
measures, and the absence of a one-off
£3.0 million R&D-related government grant which
benefitted the prior-year period. Excluding the
impact of the R&D grant and the net restructuring
cost, operating profit grew 7% on a LFL basis.
Sales to the pharmaceuticals and fine chemicals
sector increased, driven by strong demand
from biopharmaceutical and generic drug
manufacturers. Sales also benefitted from good
progress by our particle measuring business
together with our investments in solutions focussed
on the life science industry, such as a biophysical
characterisation tool, the Viscosizer, and a
next-generation calorimeter, the MicroCal
PEAQ-ITC. Regulatory compliance, having
previously been a strong growth driver for our
Geographical breakdown (%)
Industry breakdown (%)
26
9
30
16
11
28
25
37
18
North America
Europe
4
1
Asia
Rest of the World
Pharmaceuticals &
fine chemicals
Metals, minerals & mining
Academic research
Semicon, telecoms &
electronics
Other
2
operations in China, is now a positive driver in
India, where the generic drug manufacturers are
focussed on achieving the standards necessary to
export their drugs to the USA. Elsewhere there was
good sales growth in the major developed markets
of North America and Europe.
3
Following weak demand from the metals, minerals
and mining industries in 2014 there was a
resumption of sales growth to these industries in
2015. By geography, the growth was variable in
these industries: amongst the key end markets
there was good sales growth from North America,
China, India and Brazil, but sales declined in
Australia, Germany and Japan. Generally, sales
growth in the mining sector came from aftermarket
sales, with customers preferring to repair and
support existing equipment rather than invest in
new products. In the metals and minerals sectors,
however, sales of new instruments were strong.
Whilst managing the cost base to align it to the
lower demand levels, we have continued to
develop new solutions for customers in these
sectors, and in 2015 we launched a major new
product family, the Zetium x-ray spectrometer,
sales of which have been encouraging to date.
The semiconductor equipment industry in Asia
is a key market for our particle measuring
business, and the development of new
technologies and materials such as 3D
semiconductors will ensure it remains
attractive for us. In March 2015 we acquired
Sunway Scientific Corporation, a distributor
based in Taiwan. Together with Sudo Premium
Engineering in South Korea, which we
acquired in 2014, we are now able to provide
our products and services directly to the key
semiconductor customers in Asia.
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LABORATORY / OFF-LINE BUSINESSES CONTINUED
Sales to academic research institutes declined,
with pressure on public finances and low levels of
private funding from industries such as mining
continuing to adversely impact trading conditions
for our businesses. Amongst our major markets
only Germany and Japan delivered sales growth
in this sector, whilst there was a significant
decline in China following what had been a
strong year in 2014 when the Chinese state
universities invested in projects related to water
quality and energy storage.
Sales to the semiconductor industry grew strongly,
benefitting from our own innovation, as we
launched the first particle liquid counter which can
measure contaminants as small as 20 nanometres,
and from the strong relationships we have with the
leading semiconductor manufacturers in North
America and Asia. These relationships have been
enhanced during the last 18 months with the
acquisition of our distributors in Taiwan and South
Korea, which means we are now directly servicing
the key global semiconductor manufacturers.
Segment outlook
We expect this segment to show further progress
in 2016. Continued investment in new products
should deliver progress in the pharmaceuticals,
life science and semiconductors sectors.
Investment by the mining sector is expected to
remain low, with growth primarily attributable
to aftermarket sales; however, the metals and
minerals sectors are expected to remain robust.
We expect that these factors will more than
offset what is likely to remain a subdued
academic research market given public sector
budget constraints. The cost reduction measures
taken during the second half of 2015, together
with our increased focus on operational
excellence initiatives, are expected to improve
future profitability.
TEST AND MEASUREMENT
Sales
£351.3M
2014: £342.9M
Operating profit
£55.3M
2014: £52.2M
Aftermarket sales as % of sales
20%
2014: 20%
Geographical breakdown (%)
Industry breakdown (%)
4
26
22
11
27
43
9
6
9
10
33
North America
Europe
Asia
Rest of the World
Machine building
Automotive & aerospace
Environmental noise
monitoring
Academic research
Semicon, telecoms &
electronics
Energy & utilities
Other
Segment performance
Reported sales increased 2%, including a six
percentage point contribution from acquisitions
and a five percentage point adverse impact from
foreign currency exchange movements. As a
result, LFL sales grew 1%. By geography, there
was LFL sales growth in Europe and China, whilst
LFL sales were broadly flat in North America and
down modestly in Asia (outside of China). LFL
operating profit improved 9% and LFL operating
margins increased 1.2 pp to 16.4%, primarily
reflecting positive sales mix effects and the
benefits of the targetted restructuring measures
undertaken during the year, partially offset by
overhead cost inflation.
Underlying demand from the automotive sector
remains healthy. Whilst direct sales to this sector
were broadly unchanged in 2015, due to the lack
of large projects in North America which had
benefitted the prior year, there was strong sales
growth to machine manufacturers in 2015, a
significant portion of which represented sales
into the automotive supply chain. As we are
seeing across the Group, automotive customers
are increasingly demanding the provision of
an integrated solution, combining hardware,
software and services. For example, we
won a significant contract with a major
UK-based automotive manufacturer to provide
36
Spectris plc Annual Report and Accounts 2015
Sales of our environmental noise monitoring
services grew, benefitting from good demand in
Europe. We won a major contract with the Italian
government for noise monitoring in its vehicle
inspection centres and extended our relationship
with Aena, the Spanish airports operator, to
centralise our systems across the six airports
we already serve and extend our coverage to
new sites.
As was the case in Materials Analysis, and
reflecting pressure on public finances, Test and
Measurement’s sales to academic research
institutes declined. Amongst our major markets
only Germany delivered sales growth in this
sector, whilst there was a significant decline
in sales to China.
Sales to our telecoms customers declined in 2015
following strong growth in 2014. We see good
opportunities in this market to provide additional
services, for example in test-rig design and
calibration, thereby improving the resilience of
our revenues in a sector where sales patterns
are lumpy, reflecting the scheduling of projects
by customers.
Whilst the weakness in the unconventional oil
and gas and mining markets in 2015 led to
reduced demand for our microseismic monitoring
solutions, we made good progress developing
and extending our offering to these industries,
both organically and inorganically. As well as
continuing to win key contracts against larger
competitors, we have begun to expand our
international presence outside North America,
establishing offices in the Middle East and
Mexico. In October we acquired Spectraseis, a
USA-based leader in surface-based microseismic
monitoring technology which is complementary
to our existing offering and strengthens our
position in the growing induced seismicity
monitoring market.
not only hardware but also a broad range
of services including calibration, on-site
maintenance, spare part supply, training and
dedicated hotline support and European
on-site support.
Customers increasingly use engineering software
solutions to improve the quality, reliability and
durability of their equipment and processes and
to shorten the time to market for key products. In
January 2015 we acquired ReliaSoft, a USA-based
reliability engineering software and services
business which has strengthened and extended
our software applications offering. During 2015
we made good progress with our NVH Simulator,
winning important contracts with major
automotive manufacturers in the USA, UK and
Europe, and we extended our noise, vibration and
harshness (‘NVH’) offering to include engineering
services with the acquisition in November of
Sound Answers, a USA-based provider of NVH
consulting expertise. Sound Answers has been a
strategic partner for nine years and we will now
be able to offer our customers new capabilities,
such as troubleshooting and product development
services, which are unmatched within the sound
and vibration industry. This positions us well to
serve the increasing demand from the automotive
industry to understand the NVH characteristics of
vehicles and engines in order to gain competitive
advantage and meet legislative requirements.
Underlying demand from the aerospace sector
remains robust, although sales in this sector
decreased in 2015, primarily reflecting the
adverse impact that economic sanctions on
Russia had on our sales of satellite vibration
test systems to this country, together with fewer
large orders in the USA than in 2014. Aerospace
companies continue to invest in the use of
advanced composite materials to develop more
fuel-efficient aircraft, and we are one of the few
suppliers capable of meeting their requirements
to test and verify the key characteristics of these
new materials. During the year we secured
important orders from a major US-based
aerospace company for data acquisition systems
to stress test the Orion spacecraft and PULSE
software analysers to test sound and vibration
in its satellite systems.
Manufacturers increasingly want their
suppliers to provide a more comprehensive
range of solutions. In January 2015, we
acquired ReliaSoft, an industry leader in
reliability software solutions, which has been
integrated into HBM’s nCode business,
extending the range of durability software
and services. HBM can now provide testing
solutions for the complete product life-cycle,
giving manufacturers a better understanding
of how a product will perform by predicting
component life and reliability performance.
This reduces development and test time,
avoids unexpected in-service failures and
reduces maintenance and warranty costs.
Segment outlook
In 2016 we expect market conditions in the
automotive and aerospace sectors to benefit
from further growth in engineering software
applications, together with improving demand
from the telecoms market and a good
contribution from acquisitions. The academic
research market is expected to remain subdued
and market conditions in the oil and gas and
mining industries are expected to remain
challenging; however, there are good prospects
for the increased adoption of microseismic
monitoring solutions in the coming years as
customers seek to make better use of data
analytics to improve productivity and profitability.
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PROCESS / MANUFACTURING BUSINESSES
OVERVIEW FROM THE BUSINESS GROUP DIRECTOR
The seven operating companies in In-line
Instrumentation and Industrial Controls sell their
products, services and solutions into the discrete
and process manufacturing sectors covering
a number of key industries (see industry
breakdown charts in the segment reviews which
follow). The operating companies within these
segments are predominantly exposed to the
level of investment devoted to enhancing
productivity within these industries. Many of
these industries are highly regulated, and the
need to comply with national and international
legislation and regulations also results in
increased demand for our products and services.
Around two-thirds of the revenue across these
segments is derived from customers’ operating
expense budgets: the vast majority of products
sold within Industrial Controls are typically small
enough in value to be viewed as consumables by
customers, whilst within In-line Instrumentation
there is a significant portion of revenue derived
from both consumables (e.g. coating blades
for the pulp and paper industry) and
services (e.g. condition monitoring and
diagnostic services).
Increasingly, the need by customers to drive
greater cost efficiency whilst dealing with
increased complexity in production and
application processes is creating a demand for
simpler products and services that are easier
and quicker to install and more intuitive to use.
During 2015 we launched solutions such as
a new laser gas analyser (MiniLaser) and
web browser-based machine vision inspection
interface (CloudLink) that are specifically
designed with the dual customer imperatives
of cost saving and convenience in mind, and
we expect to launch more solutions with
these types of benefits going forward.
The continued economic development
of emerging markets also drives demand
for our products, services and solutions.
Rising prosperity in these markets is creating
increased demand from within these countries
38
Spectris plc Annual Report and Accounts 2015
Jo Hallas
Business Group Director
IN-LINE INSTRUMENTATION
INDUSTRIAL CONTROLS
_ Within In-line Instrumentation we are seeing
greater use of software, simulation and data
analytics in the process, power and energy
industries as a means of saving cost by
improving the utilisation and uptime of
existing assets, making better, more
informed decisions and streamlining
processes. As the cost pressures within
these industries increase, so we expect
this trend to accelerate.
_ In-line Instrumentation is also well placed to
benefit from the growth in renewable energy
markets around the world. For example,
during 2015 there was strong growth for our
businesses exposed to supporting the wind
energy market, as more countries strove
to increase the proportion of energy
requirements being met by wind and other
renewable sources. Going forward, this
trend should continue, helping to offset
what is expected to be more challenging
market conditions within the conventional
energy industries of oil, gas and coal.
_ Within Industrial Controls the growth in
industrial connectivity solutions and the
Industrial Internet of Things (‘IIoT’) is an
increasingly important demand driver for our
businesses. Many of our customers have a
vision (that we aim to support) whereby every
machine in a manufacturing process is able to
communicate with all other machines and
devices, including older equipment, both
across the factory floor and remotely located.
By being able to connect both new and
legacy devices in order to monitor and control
data, customers can use that information
to improve operational productivity and
efficiency, thereby gaining a competitive
advantage. Having made two acquisitions in
this area around five years ago, we have since
then focussed on expanding our product
offering. During 2015 we established an IIoT
Innovation Centre in the USA with a focussed
engineering, product and sales team
dedicated to building on our existing IIoT
expertise and products and also developing
new solutions for machine-to-machine and
human-to-machine communication.
for products and services that have hitherto only
been required in large quantities in developed
markets. This, for example, is fuelling strong
growth in the global tissue and packaging
markets. In addition, in order for the process
and discrete manufacturing industries within
these regions to compete globally, there is a
need to raise both the quality and consistency
of production processes to meet developed
markets’ needs where the standards required,
in terms of quality, design, health and safety
and environmental impact, are often higher.
In addition, there are trends specific to certain
industries that we see impacting our In-line
Instrumentation and Industrial Controls
segments today and in the future, as noted
in the box above.
IN-LINE INSTRUMENTATION
Sales
£255.0M
2014: £261.4M
Operating profit
£36.8M
2014: £48.0M
Aftermarket sales as % of sales
41%
2014: 41%
Geographical breakdown (%)
Industry breakdown (%)
6
30
35
30
34
24
13
North America
Europe
Asia
Rest of the World
Pulp, paper & tissue
Energy & utilities
28
Converting, extrusion
& packaging
Other
Segment performance
Reported sales decreased 2%, reflecting an
adverse impact of 1% from foreign currency
exchange movements and a LFL sales decline of
1%. Geographically, LFL sales to North America
were broadly unchanged, while LFL sales to
Europe and Asia were marginally lower than
in 2014. LFL operating profit fell 19% and LFL
operating margins were down 3.3 pp to 15.1%,
reflecting the impact of reduced sales, some
price pressure in specific markets and adverse
sales mix.
In the pulp and paper market, growth improved
progressively through the year with a good
second half performance more than
compensating for the LFL sales decline in the first
half. Growth in our sales to the tissue and pulp
segments reflected continuing positive trends in
those markets as well as our success in offering
customers new solutions incorporating our
high-performance creping blades and other
instrumentation, such as our new control sensors
for pulp mill automation. This growth in tissue
and pulp sales was partially offset by lower sales
into the graphic paper segment. While excess
capacity in China, in particular, continued to limit
our growth opportunities in this segment, we
have seen a positive market reaction to our new
advanced material coating blades, which drove
higher sales into the segment in the second half.
In the energy and utilities market, we achieved
modest growth in sales, with strong growth in our
sales to the wind energy market being partially
offset by a modest fall in sales to the downstream
petrochemicals industry. In the wind energy market
we continue to see favourable global trends, which
contributed to good sales growth across all regions,
particularly Asia and Europe. In addition to an
increase in sales to existing customers we also
managed to broaden our customer base, with a
number of significant contract wins from wind farm
operators. We are in the process of strengthening
our sales and marketing organisation, including the
expansion of our regional office network, and we
have increased our focus on the provision of
innovative solutions to our customers. For example,
during the year we introduced a solution that
combines hardware and software to enable
customers to view all information from any machine
protection system in their plant on one diagnostic
system. Since its launch in the middle of the year this
solution has been positively received by customers.
A Swedish manufacturer of premium toilet
tissue reported a recurring problem with
surface damage to one of their yankee
dryers, the large cylinder used to dry the
tissue substrate. Using a combination of our
PROdry thermal imaging diagnostic services,
Vigilance blade vibration monitoring system
and expert applications advice, we helped
the customer identify the source of the
problem and resolve the issue, minimising
machine downtime and saving over
€200,000 in lost profit and repairs.
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OPERATING REVIEW CONTINUED
PROCESS / MANUFACTURING BUSINESSES CONTINUED
Our sales to the downstream petrochemicals
industry fell modestly over the year as a whole,
after showing good growth in the first half of the
year. This partially reflects the slowdown in the
oil and gas sector, which has resulted in falling
investment levels and fewer large projects being
progressed. We launched a major new product
platform for the industrial gases market, a laser
gas analyser called the MiniLaser, which is more
powerful, smaller and lighter than other products
in the market, resulting in significantly easier and
lower-cost installation for customers. During the
year we launched important applications of the
MiniLaser for the petrochemicals, combustion and
power markets, and customer reaction to date
has been extremely positive.
Sales to the web and converting industries
declined significantly during the year, mainly due
to a lack of large projects in North America and
Asia. Whilst these industries have recently been
experiencing cyclical softness we continue to see
attractive growth opportunities. We made good
progress developing new systems that extend our
offering for these industries, such as the SlimTrak
single beam scanner, a compact, cost-effective
scanner for narrow web converting processes that
is targetted at paper and plastic film converting
applications. Following the creation in 2014 of
NDC Technologies, we have now aligned the
combined sales forces of the previous businesses
around single industry verticals in order to give us
more effective coverage in our markets and better
support for our customers.
Segment outlook
We are encouraged by the improved performance of
our pulp and paper business in the second half of
2015, the positive customer response to our new
instruments and solutions and the robust tissue and
pulp markets, all of which are helping to offset the
ongoing structural challenges in the graphic paper
and coated paperboard markets. Growth from the
energy and utilities sector is expected to be modest
in 2016. Underlying market conditions in the
renewable energy sector remain healthy and our
new solutions for this market have been well
received. However, the slowdown in the oil and gas
sector that impacted our sales to the downstream
petrochemicals industry in the latter part of 2015 is
expected to continue into 2016. In the web and
converting industries we expect to see some modest
growth after a weak 2015, together with moderate
benefits from our new product launches and the
creation of single sales teams to service key industry
verticals. We will also continue to increase the focus
on operational excellence initiatives across the
segment in order to improve future profitability.
INDUSTRIAL CONTROLS
Sales
£219.3M
2014: £220.6M
Operating profit
£35.3M
2014: £44.6M
Aftermarket sales as % of sales
1%
2014: 1%
Geographical breakdown (%)
Industry breakdown (%)
1
72
19
14
13
6
32
43
North America
Europe
Asia
Rest of the World
Semicon, telecoms &
electronics
Pharmaceuticals &
fine chemicals
Distribution
Other
40
Spectris plc Annual Report and Accounts 2015
Segment performance
Reported sales decreased 1%, including a one
percentage point contribution from acquisitions
and a positive impact of five percentage points
from foreign currency exchange movements. As
a result, LFL sales decreased 7%. LFL operating
profit fell 27% and LFL operating margins were
down 4.3 pp to 15.9%, reflecting the impact of
reduced sales, adverse sales mix and the net
cost of targetted restructuring actions. We also
incurred additional resource costs at Omega
which were required to protect service levels
during the launch of a new ERP system.
With over 70% of this segment’s sales being
to customers in North America, the key driver
behind the LFL sales decrease was the
significant weakness in US industrial production,
particularly in the second half of the year, across
a wide range of industries. This weakness
adversely affected the performance of all three
operating companies in this segment. The oil
and gas sector suffered particularly during the
year and this was felt most acutely in our
industrial networking business, Red Lion
Controls, following strong sales to this market
in 2014.
In Asia, we saw continued good progress in the
development of our process measurement and
control business, Omega. In Europe, we saw
a mixed performance from our operating
companies, with a challenging year for our
industrial networking business being partially
offset by growth in sales of process measurement
and control products, and automatic identification
and machine vision solutions.
Despite the challenging market conditions,
we made good strategic progress in a number
of areas.
Omega has continued to invest in and enhance
its digital marketing capabilities, installed a
common ERP system across the majority of its
business and delivered good growth from its
operations established in recent years in Asia,
Latin America and Europe.
The Industrial Internet of Things (‘IIoT’) is one of
our key strategic markets and during 2015 we
established an IIoT Innovation Centre in the
USA, with a focussed engineering, product and
sales team dedicated to building on our existing
IIoT expertise and products, and developing new
solutions for machine-to-machine and human-
to-machine communication.
In August, we purchased Label Vision Systems,
a US-based company whose technology enables
companies to comply with new US legislation
on product identification marking to improve
traceability throughout the manufacturing
supply chain. The business is performing
well and its integration into Microscan is
proceeding to plan.
The year also saw a number of key product
launches and developments. In September,
our machine vision business launched the
MicroHAWK, a modular and scalable industrial
barcode imager and smart camera platform.
We also enhanced our series of industrial cellular
routers through the addition of functionality to
provide automatic alerts to operatives, and
launched a major new series of temperature
and process controllers targetted at customers
in the laboratory and in the factory automation
and chemical industries.
Our technical expertise was recognised
during the year in several awards won by
our businesses. For example, our industrial
networking business gained broad recognition
for the quality of its products from Control
Design, a US trade journal.
MicroHAWK is Microscan’s latest generation
of barcode readers, setting a new benchmark
in automatic identification and data capture
technology. At 25.4mm by 44.5mm, the
MicroHAWK ID-40 is the world’s smallest
industrial IP65/67-rated barcode reader
available. The system is easy to use – with
WebLink, the first-ever web-based barcode
reader interface, users just plug in and open
a browser on their phone or tablet.
Segment outlook
Given the significant exposure to the USA, sales
progress for this segment in 2016 will be largely
dependent on a recovery of US industrial
markets. We expect contributions from recent
product launches, the acquisition of Label Vision
Systems and the investments made in Omega,
together with the targetted restructuring
measures taken in 2015 and a heightened focus
on operational excellence initiatives, to improve
future profitability. Over the medium term the
need for customers to improve productivity and
efficiency is expected to result in increased
demand for factory automation and industrial
networking products, particularly in China and
other developing markets such as Mexico.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
SUSTAINABILITY REPORT
SUSTAINABILITY LIES AT THE HEART OF OUR BUSINESS DECISION-MAKING
2015 highlights
_ Used life-cycle impact analysis
to design a gas analyser which
reduces energy consumption by
60% during product lifetime.
_ Reduced the amount of
wastage produced in the
manufacture of steel creping
blades by 20%.
_ Completed audits in compliance
with the European Energy
Efficiency Directive.
_ Implemented a supply chain
management policy.
_ Implemented an anti-slavery
and human trafficking policy,
ahead of regulatory deadline.
Sustainability lies at the heart of our business
decision-making, ensuring that we consider both
“are we doing the right things?” and “are we
doing things right?”. It supports our overall
strategy to focus on innovative customer
solutions to enhance productivity and deliver
sustainable growth for our shareholders.
Our business model has enabled us to adapt
in a fast-changing environment. In addition
to building a well-governed and profitable
business which provides customers with the
products and services they need (economic aims),
sustainable growth also means understanding
the impact our business has on the environment
(environmental aims) and operating in a
socially responsible way (social aims).
Foundations for sustainable growth
Economic aims:
_ Build successful relationships with customers,
helping them to enhance their productivity
and reduce their carbon footprint.
_ Maintain good corporate governance.
_ Maintain a strong balance sheet.
_ Focus on operational efficiencies, enhancing
profits through sustainable value creation.
Environmental aims:
– Seek to develop new products which can
be manufactured and operate in the most
environmentally-efficient way possible.
– Aspire to reduce energy usage and
minimise waste.
– Report externally on our environmental
initiatives and progress.
Social aims:
_ Create a culture that attracts and
retains talent and values diversity.
_ Adopt values consistent with an ethical
approach to responsible business.
_ Ensure that our workplaces are safe.
_ Work with our suppliers to help them meet
our environmental and social standards.
_ Invest time, resources and money to help local
communities, particularly to promote science
and technology in educational establishments.
The Company Secretary has overall responsibility
for sustainability matters. Developments,
including risks and opportunities, are reviewed
annually by the Board within the context of the
overall Group strategy.
Opportunities and risks
We have identified the key opportunities and risks to our sustainability aims and these are set
out below.
OPPORTUNITIES
RISKS
_ Rising energy prices and energy taxes drive
customers to seek cost reduction initiatives.
_ Increasing focus on alternative, non-fossil
fuel energy sources such as wind, solar and
water power brings new applications for our
technology, including in the development of
electric and hybrid vehicles.
_ High cost and increasing scarcity of some
raw materials drive customers to improve
efficiency and reduce wastage.
_ Changes in regulation concerning the use
and correct disposal of certain materials in
our products could lead to increased costs
for developing replacement products and /
or potential fines for non-compliance.
_ A very small proportion of our products
and processes have potential environmental
risks if not handled correctly.
_ The introduction of new or stricter carbon taxes
in any location may increase operating costs.
_ Regulatory pressures such as carbon taxes,
_ Loss of key employees in new product
landfill taxes, disposal of harmful substances
and limits on vehicle / industrial emissions
mean customers need products and systems
to demonstrate compliance.
development projects may delay
product launches.
_ Having operations in many developing areas
of the world presents ethical risks resulting
from a different perception of the way
business may be conducted.
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Spectris plc Annual Report and Accounts 2015
ECONOMIC AIMS
At Spectris, sustainability is not just about
how we do business, it is the business we
are in. Our products help our clients become
more sustainable, both economically and
environmentally, because they are designed to
improve productivity, reduce waste and save
time, money and resources, including reducing
power consumption. This is a virtuous circle: our
products make a significant contribution to the
achievement of a lower carbon world, and these
products, in turn, drive our own economic
success and future growth.
New products are designed to help reduce
environmental impact for customers…
…whilst helping to drive a sustainable
business for Spectris.
Minimising energy use
In energy-intensive industries such as cement
and steel production, our materials analysis
instruments help drive efficiencies by optimising
the shape and size of the raw material particles.
This can generate substantial reductions in
energy use and hence carbon emissions.
Another important sector for us is pulp and
paper. We make durable high-precision ceramic
blades which ensure that speciality papers and
packaging receive exactly the right quantity and
consistency of coating, which reduces waste and
energy use.
Helping to minimise energy use also involves
lowering the cost to our customers of operating
our instruments by optimising the amount of
power they require in use and on stand-by. This
is a key objective of our product development
process and the case study opposite shows an
example of how this was achieved for a product
we launched during 2015.
Cutting emissions
Governments around the world are implementing
ever stricter legislation in relation to air quality.
Our gas analysis products can measure pollutants,
enabling combustion processes to be optimised,
thereby reducing greenhouse gas emissions
generated by industrial processes. This helps ensure
compliance with environmental legislation and often
forms part of certification testing. For example,
power stations can save anything between 1%
and 5% of their fuel costs by improving combustion
efficiency which means less energy wasted, less
use of natural resources and lower emissions.
Supporting renewables
We have world-leading expertise in providing
solutions for customers involved in renewable
energy generation in the following areas:
Wind power
Wind turbines have to be able to withstand
extreme conditions such as gale-force winds and
lightning strikes. Our measurement technology
is used in the research and development of new
materials, helping to identify mechanical stress
on wind turbine components at an early stage
in order to extend their life-cycle and improve
safety. We also provide systems to monitor
turbine performance remotely, ensuring that
they are set up correctly for optimum performance
and that preventive maintenance can be
scheduled where required. This minimises
wear and tear, prevents damage and optimises
efficiency, saving both time and money.
Hydropower
As with offshore wind, maintaining the machinery
involved in hydropower facilities can be expensive
and time-consuming, and small improvements in
efficiency and uptime can translate into major
savings. Our instrumentation can monitor
turbines and generators in real time, to predict
and prevent problems before they require a costly
shutdown in order to be repaired.
Solar power
We also have a presence in the solar energy
sector, where our equipment helps ensure that
the layers of photovoltaic film in solar panels are
the correct thickness for maximum efficiency.
Lighter weight and more flexible panels provide
for an increased range of applications.
90% smaller
80% lighter
Servomex has achieved certification to the
Planet Mark programme for its commitment
to reduce its carbon footprint (in terms of
emissions) by 5% year on year.
One element of this is to consider the
life-cycle impacts of its products and reduce
life-time running costs for customers.
Servomex set four key objectives when
designing the new MiniLaser. Firstly, to
reduce the company’s carbon footprint in
terms of CO2 emissions. Secondly, to reduce
the company’s ecological footprint. The third
aim was to improve efficiency of the raw
materials used in manufacturing the product.
Finally – and most importantly for customers
– to improve energy efficiency through
reduced energy consumption during the
product’s working life using the software’s
life-cycle assessment.
The result was the launch in January 2015
of the company’s most sustainable product
platform to date. At 90% smaller and 80%
lighter than many other comparable laser
analysers on the market, the MiniLaser
platform is the first of the next generation
of Servomex products. These are designed
to be lighter, more compact and requiring
less energy during manufacture (around
40% less for the MiniLaser) and in operation
(MiniLaser around 60% less), reducing both
the company’s carbon footprint and the
customer’s energy usage.
43
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 SUSTAINABILITY REPORT CONTINUED
Performance summary
Energy consumption (absolute) (MWh)
Energy efficiency (MWh per £m revenue)
Water consumption (m3)
Greenhouse gas emissions (tonnes CO2e)
Total carbon emissions per £m revenue
Excluding acquisitions and disposals made in the year.
2015
89,030
75.6
162,325
73,324
62.25
2014
87,502
75.7
160,251
71,655
61.98
Change
+1.7%
-0.1%
+1.3%
+2.3%
+0.4%
In July 2015, we sold our 10,000th wind
turbine condition monitoring system. 10,000
turbines will provide clean energy to over
11 million homes, saving approximately
16 million tonnes of CO2 per year1.
In 2013, we established processes to record, and
report on, Scope 1 emissions from company
vehicle miles and refrigerant gas loss, and Scope
3 emissions from air miles. We now have full
reporting data from 2014 and 2015 for all
Spectris businesses.
Although Scope 3 reporting is not yet mandatory,
we believe that it is an important area and
control of air travel may be where we can make
the most significant impact on the environment,
after electricity.
1 Estimate based on 2.1 MW turbines with 53% efficiency
and 1 MW of energy to supply 1,000 homes.
Greenhouse gas emissions (tonnes CO2e)
Scope 1
Scope 2
Scope 3
Total gross emissions
Total carbon emissions per
£m revenue
2015
11,021
35,470
26,833
73,324
2014
10,380
35,210
26,065
71,655
2013
3,030
37,024
7,152
47,206
2012
2,934
40,533
7,564
51,031
62.25
61.98
39.27
41.46
Notes
1 Emissions-releasing activities are categorised into three groups, known as scopes. These are: Scope 1 (direct emissions):
Activities owned or controlled by the company that release emissions straight into the atmosphere, for example from
combustion in owned or controlled boilers, furnaces, vehicles; emissions from chemical production in owned or controlled
process equipment. Scope 2 (energy indirect): Emissions released into the atmosphere associated with the company’s
consumption of purchased electricity, heat, steam and cooling. Scope 3 (other indirect): Emissions that are a consequence
of the company’s actions, which occur at sources which the company does not own or control and which are not classed
as Scope 2 emissions, for example business travel, waste disposal, or purchased materials or fuels.
2 Raw Scope 1, Scope 2 and Scope 3 data is measured and reported by all Spectris’ operations worldwide. This data is converted
into carbon emissions tonnes CO2e using the greenhouse gas conversion factors from the 2015 DEFRA / DECC Guidelines for
Company Reporting.
3 Our reporting processes, and the above data derived from them, are verified by Lloyd’s Register Quality Assurance.
4 Excluding acquisitions and disposals made in the year.
In 2014, we asked third-party consultants
Ricardo-AEA to advise on the implementation
of Article 8 of the European Energy Efficiency
Directive (‘EED’). This legislation affects Spectris’
larger facilities in Europe and required the
identification and reporting of energy-saving
opportunities by December 2015. However, there
are a number of European countries where the
legislation has not yet been fully implemented.
During 2015, we carried out audits at our
operations in those countries where the
legislation has been implemented (this is known
as the Energy Savings Opportunity Scheme in the
UK) and each Spectris facility audited received
a report detailing energy-saving opportunities
within the time scale. In those European countries
where the legislation has not yet been fully
implemented we are working with Ricardo-AEA
and the local authorities to ensure that we can
respond as soon as the local legislation is agreed.
Reducing wastage
Our instruments improve process efficiency and
optimise product quality, reducing wastage of
raw materials and scrap rates for our customers.
We also focus on reducing wastage internally
and seek to improve the efficiency of the raw
materials used in manufacturing our products.
For example, at BTG we reduced the amount
of scrap steel produced when manufacturing our
creping blades by 20% through implementing
changes to the storage, handling and
manufacturing processes as a result of Lean
techniques and in-depth root cause analysis.
The waste metal is also recycled.
ENVIRONMENTAL AIMS
As well as helping our customers to reduce their
impact on the environment, it is also a focus
for our own efforts and we monitor the use of
key sources of energy (electricity, gas, oil and
steam) in our efforts to reduce consumption
and save costs. Although we are not significant
users of water, we monitor usage throughout
the Group. The following table summarises
our performance.
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Spectris plc Annual Report and Accounts 2015
Although we have not set specific Group-wide
targets, our aspiration is to reduce energy
consumption across the Group. Management
incentives are in place which encourage
individual operating companies to reduce their
electricity and water consumption, for example,
in order to improve profitability, and the
opportunities identified by the EED audits will
also help to reduce energy use. Our Servomex
business has committed to reducing its carbon
footprint (in terms of emissions) at the Technical
Centre in Crowborough, UK, by 5% year on
year and has achieved certification by the
Planet Mark for its commitment to improve
sustainability performance (read more about
this in the case study on page 43).
We continue to be a constituent of the
FTSE4Good Index Series and we also participate
annually in the Carbon Disclosure Project, a
not-for-profit organisation which collects climate
change data from companies around the world
and compares their disclosure and emissions
reduction performance. Our score of 98 out
of 100 in the 2015 survey (2014: 89) places
us in the top 15% of companies in our
sector and underlines our commitment
to environmental accountability.
SOCIAL AIMS
How we do business
We have always placed a high priority on the
standards by which we do business, because
we believe that how we work is as important
as what we do. We have a comprehensive
strategy in this area and in recent years we
have improved our governance processes and
oversight, and enhanced our Code of Business
Ethics, in order to achieve our commitment to
manage our business according to the highest
ethical standards. There is more on this in the
Ethics Report on page 48.
Our values
_ Absolute integrity.
_ Empowerment.
_ Customer focus.
_ Restless innovation.
_ High performance.
Our people
Spectris is a specialised and technical business,
and we rely on the skills and expertise of our
8,300 people, many of whom are highly-
qualified engineers and technicians.
We have built our success on a combination
of operational excellence and intelligent
innovation, and we know that such innovation
requires a way of working which is open,
positive and respectful, and supports the
development of new ideas, and the taking
of reasonable and measured risks.
You can read more about the key role our people
play in our business model and strategy on
pages 19 and 21.
Diversity and equality
Ours is a diverse business, with operations at
more than 190 locations throughout the world,
and employees in over 30 different countries and
cultures. We recruit, develop and promote our
people based on their talent, commitment and
achievement; everyone is treated equally and
fairly whatever their race, colour, religion,
national origin, gender, sexual orientation,
age or background.
Our people are key to the success of our
business. As such, we need a workforce based
on a diverse group of talent able to provide
solutions to a wide range of customers around
the world. We are aware that our current
employee base is not fully representative of the
geographies we operate in and that the gender
balance does not reflect the population as a
whole, as the table opposite demonstrates.
Since 2007, Malvern Instruments has
succeeded in reducing electricity usage
per employee by more than 50% (from
21.13 kWh to 10.40 kWh per employee). This
has been achieved primarily by a combination
of operational efficiencies and better facility
management (including switching off
electrical equipment outside working hours).
Initiatives include focussing on improving
product design which has resulted in
increasingly more reliable products with less
downtime and energy consumption during
product assembly and test, reducing
assembly and test process times, and
installation of automatic light / movement
sensors at the facility in Malvern, UK.
Employees by gender and role
As at 31 December 2015
Directors
Senior
management1
Other
employees
Total
% of total
Male
Female
7
127
5,653
5,787
70
2
25
2,450
2,477
30
Total
9
152
8,103
8,264
100
Excludes contractors.
1 Presidents or Managing Directors and their immediate
reports who are Directors or Vice-Presidents.
Our values are pivotal to how we operate and
essential to our business success and growth.
They underpin the way we work, guide our
decision-making and shape our culture.
This is a common challenge facing the
engineering sector, and our businesses undertake
a range of initiatives to raise the profile of women
in engineering and encourage others to enter the
field of science and technology. We are also
putting in place a process to help women within
the Spectris Group achieve their potential. This is
described in more detail on the following page.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 SUSTAINABILITY REPORT CONTINUED
Another challenge facing engineering companies is
how to encourage more young people to pursue
careers in manufacturing and engineering. Our
businesses participate in various initiatives including
student internships, apprenticeships, industrial
placements, participation at school careers days
and other events designed to raise awareness
amongst school children of the opportunities to
work in manufacturing and engineering.
Training, development and compensation
We work hard to build a creative working
environment for our people with scope for individual
responsibility and personal achievement. Our
training programmes help our employees to develop
both personally and professionally and reach their
full potential. We carry out annual performance
reviews to determine each individual’s training
needs and assess their performance against the
previous year’s targets. Our two principal UK
businesses, Malvern Instruments and Servomex,
have received the Investors in People award for
their training, appraisal, employee development
and skills programmes.
We encourage our employees to maintain a
healthy balance between their working and
personal lives, and offer flexible part-time and
job-share opportunities to employees with family
commitments, wherever possible.
As Spectris grows, there is a need for a more
structured approach to identify and promote talent
across the Group, for example by ensuring that any
obstacles that exist for women to progress are
overcome and that talented women are assisted
to fulfil their potential. To address this, a talent
management programme was initiated during
2015 which will support the Group’s growth
strategy and enable more focussed deployment
of our talent to our most critical activities. You
can read more about our talent management
programme on pages 65 and 66.
We conduct employee satisfaction surveys as
part of an evaluation and measurement process,
which also includes monitoring the rate of
voluntary staff turnover in our key regions.
This is compared against local data for our
industry sector in order that our management
teams can identify any unusual patterns and
take the appropriate steps to improve employee
retention. Voluntary turnover rates are higher
in Asia than in other regions as finding and
retaining staff is a challenge for all companies
due to the increasing opportunities in this region.
We monitor the situation closely and make every
effort to retain our employees in this highly-
competitive environment.
Staff turnover
% of staff leaving the Company voluntarily
We do not tolerate discrimination or harassment in
any form. Disabled people are recruited, trained
and promoted on the basis of aptitude and ability.
If employees become disabled, every effort is
made to retain them and, when necessary, re-train
them for appropriate posts. Our full employment
policy is published on our website.
Total
Europe
Americas
Asia
2015
2014
2013
2012
2011
7.1
5.0
7.7
5.9
3.1
5.8
6.0
3.2
6.1
5.8
2.7
5.2
6.9
3.3
5.8
10.8 12.2 12.2 13.9 16.2
We seek to attract and retain the best talent and
our compensation and benefits schemes are in
line with other leading companies in our sector,
with rewards dependent on the achievement of
individual and corporate objectives. Our Savings
Related Share Option Scheme is available to all
UK employees, and grants to senior management
worldwide under our Performance Share Plan are
designed to reward loyalty and performance.
Health and safety
As a responsible employer, we take the health
and safety of our employees seriously. We are
proud to have an excellent record of safety in our
workplaces, but we remain vigilant and track our
accident incident rate as a key performance
indicator. Continuous improvement programmes
focussed on health and safety aim to reduce
accidents and injuries at our sites to as low a level
as reasonably practical. Local health and safety
managers and officers carry out regular audits and
employee training and suggest improvements in
working practices where appropriate in order to
create a safer workplace.
Accident incident rate
Reportable accidents1 per 1,000 employees
15
14
13
12
11
4.5
4.2
4.4
4.7
2.7
Excluding acquisitions and disposals made in the year.
1 Work-related accidents or ill health resulting in lost time
in excess of three days.
Each of our operating companies is responsible
for implementing the Group-wide health and
safety policy, and for complying with any
additional local regulations. Our Group policy
covers our own employees, sub-contractors and –
where appropriate – our suppliers. You can read
the full policy on our website. All our major
locations are regularly inspected by independent
assessors for their compliance with health
and safety policy and procedures. Any
recommendations for improvements are put
into practice. A number of our UK offices
have achieved certification to ISO 18001
(see section on management systems and
certification opposite).
Human rights
Our human rights policy is consistent with
the Core Conventions of the International
Labor Organization, and we comply with
internationally-recognised human rights
standards at all our sites. The policy includes our
position on non-discrimination, harassment, pay
and forced labour. Human rights considerations
are also included in the due diligence process we
undertake before any potential acquisition. This
ensures that before we acquire a business, we
are fully informed of their approach in areas
such as non-discrimination, equal opportunities
and freedom of association. Our full human
rights policy is available on our website.
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Spectris plc Annual Report and Accounts 2015
Our customers
We serve a broad spectrum of blue-chip
customers across all key manufacturing
industries. We work closely with them to
understand their business, which gives us a
unique ability to anticipate and respond to their
changing demands and fosters strong long-term
relationships. You can read more about our
customers on pages 19 and 20.
Our suppliers
Our business is changing rapidly as we seek
greater competitive advantage through efficiency
gains and innovation, in our products and how
we work, whilst addressing new regulatory
requirements and expectations from commercial
and social stakeholders and shareholders.
Focussing on supply chain management is an
important tool in achieving this. You can read
more about our suppliers on pages 19 and 21.
Our Supply Chain Management Policy can be
found on our website.
We carry out regular inspections at our supplier
sites and use the SA 8000:2008 Social
Accountability Standard to assess our key
suppliers against criteria such as workers’
rights, workplace conditions and health,
safety and the environment.
Spectris is subject to the UK Modern Slavery Act
2015 (‘the Act’), which became law in March
2015. This legislation applies to three entities in
the UK: the head office, Malvern Instruments
and Servomex. We have updated our Supply
Chain Management Policy to include our
Anti-slavery and Human Trafficking Policy and
are working with suppliers located in higher-risk
countries to ensure both they and their supply
chains conform to the standards enshrined in the
Act. The policy is published on our website, well
ahead of the deadline of March 2017.
Our communities
Our social responsibilities also extend to the
communities in which we operate. We seek to
play a positive role in our local communities
and participate in a range of activities and
educational initiatives.
Community involvement and decisions on
charitable donations and sponsorship are
undertaken by local management teams and
vary from one company to another, depending
on business and regional priorities. As already
described, many of the activities we undertake
are aimed at supporting schools and universities
to promote science, technology and engineering.
We also run a number of awards and
programmes aimed at encouraging and
providing support for young scientists who
are at the beginning of their careers.
We do not give either cash or support-in-kind
to political parties or campaigns.
Management systems and certification
Our business comprises around 190 offices
located in more than 30 countries around the
world. Although the countries have different
legal frameworks and requirements, our global
policies are applicable across all our sites and
are supplemented by local policies.
Approximately 60% of our own manufacturing
operations by turnover are certified to ISO
14001:2004 for Environmental Management
Systems, as is our head office. The head office and
our principal UK offices have additionally obtained
certification to OHSAS 18001 Occupational Health
& Safety Management Systems.
Lloyd’s Register Quality Assurance (‘LRQA’) has
independently verified the data associated with
energy consumption, water usage, greenhouse
gas (‘GHG’) emissions, voluntary labour turnover
and accident incident rate. The LRQA Assurance
Statement confirming terms of engagement,
approach, opinion and observations is available
on our website.
Looking ahead
We will continue to focus on growing our
business in a sustainable way, both by
developing products and services which help
our customers to reduce their impact on the
environment and by looking at our own
processes and those of our suppliers in order to
lower our direct and indirect impacts. In addition
to measuring key sources of energy and GHG
emissions (Scope 1 and 2), we are now
Aimed at encouraging and supporting young
scientists who are just beginning their
careers, the annual PANalytical Award
recognises groundbreaking research using
x-ray equipment. Researchers who have
never held a professorship and who use
laboratory-scale x-ray equipment as their
primary analytical technique are eligible to
apply for the award. The winning article is
chosen by a committee composed primarily
of independent researchers, unaffiliated
to PANalytical.
The most recent winner was Matteo
Bianchini, whose article on the properties of
a promising new Li-ion system, published in
the Journal of Materials Chemistry, impressed
the judges with its inventive approach.
Mr Bianchini received the PANalytical Award
trophy and €5,000 in prize money.
monitoring the carbon implications of air travel
in preparation for the likely future mandatory
Scope 3 reporting requirements. As well as
carrying out audits of our facilities in relation
to the European Energy Efficiency Directive, once
the legislation has been implemented in the
remaining countries, we will also be exploring
the opportunities for energy savings identified
by the site audits.
Our supply chain will remain a key area of focus
for 2016, with further work planned to audit our
key suppliers against our environmental and
social standards, particularly in Asia. We will also
be reviewing our supply chain management
policies and processes to ensure that we are
compliant with upcoming legislation on, for
example, conflict minerals, and that appropriate
monitoring systems are in place.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 ETHICS REPORT
RUNNING OUR BUSINESS IN AN ETHICAL WAY MAKES BUSINESS SENSE
Absolute integrity underpins our
approach to responsible business
practice, helping us to deliver
sustainable growth.
Training, engagement and support
Our engagement strategy focusses on raising
awareness among employees that running our
business in an ethical way makes good business
sense and providing relevant, practical training
to help them with ethical decision-making.
The value
of integrity
Code of Business Ethics
Our ethics training and
engagement strategy:
_ Values and risk-based training.
_ Interactive and engaging.
_ Delivery by senior and line managers.
_ Face-to-face wherever feasible.
_ Online modules to reinforce awareness.
_ New employees, including those who join
the Group following an acquisition, receive
training on the Code of Business Ethics
(‘the Code’) and other relevant topics
within six months of joining.
Refresher anti-bribery workshops were held
in a number of locations across the Group to
reinforce key messages. A number of training
initiatives on ethical decision-making and
working together were also deployed at
a number of our operating companies.
In addition, following the results of our 2014
Ethics Survey, we held follow-up meetings with
employees in a number of territories to better
understand the feedback received and to
48
Spectris plc Annual Report and Accounts 2015
In 2015, Servomex wanted to engage with all
its employees on the Code of Business Ethics.
A new approach was needed to grab people’s
attention and ‘Taking time to think’ was
conceived – a 30-minute-long interactive
session tackling three different ethical
dilemmas. Employees discussed potential red
flags, using the Spectris Decisions Guide
(shown above) to raise key questions and
establish next steps. The sessions were very
popular for encouraging open discussion
between colleagues and because the dilemmas
were specifically related to the activities of
each team. So successful, in fact, that many
came out of the session with the same
question – when’s the next one?
identify improvements to the programme.
A number of actions have been identified,
such as reinforcing local leadership for ethics
and integrity, and consideration will be given
to introducing new training formats and content
for 2016.
Following the launch of our fair competition
training programme in 2014, face-to-face
training has been delivered to around 2,000
employees in senior management, business
development, sales, marketing, procurement,
customer support, legal and contract
management roles across the Group to date.
This training was supported by a fair competition
e-learning training course which was launched
to around 3,000 employees. In 2016, a further
module focussed on vertical agreements will be
deployed across the Group.
A bespoke Code of Business Ethics e-learning
training course will be launched in 2016 to
provide additional interactive training for new
and existing employees throughout the Group.
We remain focussed on values and risk-based
engagement and are dedicated to facilitating
discussion between all employees in order to
build an environment in which employees feel
empowered to act according to our shared values.
Acquisition integration
When a new business joins the Group, we work
with the management team to ensure that our
ethics programme is rolled out as a priority.
A leadership engagement session was held at
ESG’s head office in Kingston, Canada, in March
2015 where the management team received
training on our Code. An anti-bribery and
corruption module was also deployed to relevant
employees, and Group standards on gifts,
hospitality and entertainment and third-party
due diligence have been implemented.
A similar process of integration is now underway
at Spectraseis, a business acquired in October
2015 which is being integrated into ESG.
A culture of openness and support
We actively encourage a culture of openness,
engagement and communication, so employees
feel they can discuss any issues that arise in the
course of their work, and raise any concerns
with their managers. Our independent Hotline
(www.spectrishotline.com) gives our people,
business partners and other third parties the
ability to report concerns anonymously if they
wish. All reports are followed up and investigated
and the results are communicated to the Audit
and Risk Committee every six months. We
make a commitment to protect the careers
and reputations of employees who report
wrongdoing, as long as they do so in good
faith and in the best interests of the Group.
During 2015, 18 reports were received via the
Hotline and other sources, and the chart below
shows the number of reports received from each
region. In each case, reports were investigated
and resolved and additional guidance, training
and monitoring made available or disciplinary
action taken, as appropriate.
As a result, actions will be taken in 2016 to
strengthen our control framework. A number
of issues have been brought to our attention by
our employees in the region which have been
investigated, and we are encouraged by their
willingness to raise their concerns.
Senior management and
employee certification
Managers are expected to demonstrate ethical
leadership and are required to certify annually
that they have created and fostered an open
ethical culture, including having either dealt
with or reported any suspected violations of
the Code. For certification purposes, senior
management includes the Executive team,
operating company Presidents as well as the
Regional Presidents for Asia and South America,
the Finance and Administrative Head in Russia,
Vice Presidents, Country Managers, Senior Sales
Managers and Ethics Officers. 100% of senior
managers had confirmed compliance for the
period ended 31 December 2015 as at the date
of this report.
Number of reports received via the
Hotline and other sources from each
region during 2015
All new employees certify understanding and
compliance with the Code upon completion of
their initial ethics training.
In addition, during the year guidance was
issued to operating companies on how to
assess anti-bribery and corruption risks in
their businesses.
Spectris Integrity Award
We recognise the importance of celebrating
and rewarding good ethical behaviour
throughout the Group. The launch in 2016 of
a new initiative, the Spectris Integrity Award,
will go even further to recognise and reward
outstanding behaviour which reflects our
absolute integrity value.
The Spectris Integrity Award is a Group-wide
initiative whereby employees are nominated
from each operating company for demonstrating
true commitment to our absolute integrity value.
The award is designed to emphasise the
importance of absolute integrity in our business
practice and communicate success stories,
providing inspiration for other employees in
the Group.
Nominations will be invited from operating
companies and the winners will be announced
later in the year.
1
11
4
2
Asia
Europe
North America
Latin America
The ethical environment in certain Asian
countries continues to be challenging in relation
to conflicts of interests and fair competition.
Anti-bribery and corruption
A number of actions were taken during the year
to strengthen our anti-bribery and corruption
compliance framework.
In relation to our third-party management
programme, initially addressing our sales
channel, comprehensive training was delivered
to help reinforce the knowledge and skills of
our sales teams and senior management who
conduct due diligence and engage with our
strategic partners. This strengthens our
commitment to an appropriate and effective
assessment and mitigation of third-party risk.
85% of our third-party relationships in the sales
channel have been risk assessed to date and
all new and renewing relationships are risk
assessed before they are engaged. We will be
extending our risk reviews to other third-party
relationships during 2016.
49
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 FINANCIAL REVIEW
Introduction
Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these measures
enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items which management
have defined in Note 2 to the Financial Statements. Unless otherwise stated, figures quoted for operating profit, net interest, profit before tax, tax,
earnings per share and operating cash flow are adjusted measures.
Operating performance
Adjusted
Sales (£m)
Operating profit (£m)
Operating margin (%)
Statutory
Sales (£m)
Operating profit (£m)
Operating margin (%)
1 At constant exchange rates and excluding acquisitions.
Like-for-like
change1
-0.3%
-8.8%
-1.5pp
2015
2014
Change
1,190.0
181.1
15.2
1,190.0
143.6
12.1
1,173.7
198.1
16.9
1,173.7
168.3
14.3
+1.4%
-8.6%
-1.7pp
+1.4%
-14.7%
-2.2pp
Reported sales increased 1.4% to £1,190.0 million (2014: £1,173.7 million). The year-on-year contribution to sales from acquisitions of £36.1 million
(+3.1%) was reduced by adverse foreign exchange movements of £16.7 million (-1.4%) arising primarily from the strength of Sterling against the Euro,
partly offsetting the impact of the stronger US Dollar, with the result that, on an organic constant currency like-for-like (‘LFL’) basis, sales decreased
£3.1 million (-0.3%) compared with 2014, as can be seen in the chart below.
36.1
(16.7)
(3.1)
1,190.0
1,173.7
2014
Acquisitions
Foreign exchange
LFL
2015
Sales bridge
1,220
1,200
1,180
m
£
1,160
1,140
1,120
1,100
50
Spectris plc Annual Report and Accounts 2015
Reported gross margins of 57.4% of sales were 0.2 percentage points (‘pp’) lower than the prior year (57.6%). Excluding adverse foreign exchange
movements (-0.4 pp) and acquisitions (+0.1 pp), LFL gross margins increased 0.1 pp. LFL gross margins improved in the Materials Analysis and Test and
Measurement segments, but were lower in the In-line Instrumentation and Industrial Controls segments, reflecting the impact of lower sales, pricing
pressure in specific markets and an adverse sales mix.
The combination of unchanged LFL sales, continued investment in our growth initiatives and R&D programmes, with LFL R&D spend increasing 3%,
and inflationary cost increases resulted in adjusted operating profit decreasing from £198.1 million in 2014 to £181.1 million in 2015. Acquisitions
contributed £5.2 million (+2.6%) to operating profit and foreign currency exchange movements had an adverse impact of £4.8 million (-2.4%), resulting
in LFL operating profit declining £17.4 million (-8.8%) for the year, as shown in the chart below. The operating margin decreased 1.7 pp from 16.9%
in 2014 to 15.2% in 2015, and 1.5 pp on a LFL basis.
To mitigate the effects of the low growth environment and challenging trading conditions seen particularly in North America and China, cost reduction
and containment measures were put in place during the year to protect profitability, with a number of businesses initiating targetted restructuring
programmes. These measures resulted in £6.8 million (2014: £0.8 million) of restructuring costs being charged against operating profit in the year with
incremental benefits amounting to £3.7 million in 2015 such that the net full-year cost for 2015 is £3.1 million. The annualised benefit in 2016 arising
from these measures is anticipated to be approximately £7 million.
Compared with 2014, net overheads increased £16.1 million, which included the above restructuring costs and the absence of a one-off £3.0 million
R&D-related government grant which benefitted the prior year. Excluding these items, net overheads increased approximately 1.5% on a LFL basis,
reflecting the focussed cost containment measures undertaken in the year.
Operating profit bridge
5.2
(4.8)
198.1
(1.3)
(10.1)
(6.0)
181.1
m
£
205
200
195
190
185
180
175
2014
Acquisitions
Foreign exchange
Gross margin
Overheads
Restructuring costs
2015
Net finance costs for the year decreased £0.8 million to £4.8 million (2014: £5.6 million) as a result of the Group’s continued strong operating cash
generation during the year (operating cash flow conversion of 91% compared with 89% in 2014). Although average net debt for the year was
£23.5 million higher than the prior year, primarily as a result of the five acquisitions made, net finance costs benefitted from a reduction in the weighted
average interest rate on debt. This followed the re-financing of the US$550 million revolving credit facility in October 2014 and the re-financing of the
$75.6 million fixed rate loan in September 2015 with a new seven-year €116.2 million fixed rate loan, both of which were on more favourable terms.
51
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 FINANCIAL REVIEW CONTINUED
Profit before tax decreased 8.4% from £192.5 million to £176.3 million.
Statutory operating profit, after including acquisition-related intangible asset amortisation and impairment of £34.6 million (2014: £25.9 million) and
net acquisition-related costs and fair value adjustments of £2.9 million (2014: £3.9 million), decreased 14.7% from £168.3 million to £143.6 million.
Statutory profit before tax decreased 17.2% from £171.1 million in 2014 to £141.6 million in 2015. The reconciliation of statutory and adjusted measures
is shown in the following table.
Sales
Gross margin
Operating profit before acquisition-related items
Amortisation and impairment of
acquisition-related intangibles
Net acquisition-related costs and
fair value adjustments
Operating profit
Profit on disposal of businesses
Net gain / (loss) on retranslation of short-term
inter-company loan balances
Net bank interest payable
Unwinding of discount factor on deferred
and contingent consideration
Net IAS 19 (Revised) finance costs
Other finance costs
Profit before tax
IFRS
(Statutory)
£m
1,190.0
683.1
181.1
(34.6)
(2.9)
143.6
–
3.0
(4.6)
(0.2)
(0.1)
(0.1)
141.6
Adjustments
£m
–
–
–
34.6
2.9
37.5
–
(3.0)
–
0.2
–
–
34.7
2015
Spectris
adjusted
£m
1,190.0
683.1
181.1
–
–
181.1
–
–
(4.6)
–
(0.1)
(0.1)
IFRS
(Statutory)
£m
1,173.7
676.4
198.1
(25.9)
(3.9)
168.3
2.4
6.0
(5.4)
–
(0.1)
(0.1)
Adjustments
£m
–
–
–
25.9
3.9
29.8
(2.4)
(6.0)
–
–
–
–
2014
Spectris
adjusted
£m
1,173.7
676.4
198.1
–
–
198.1
–
–
(5.4)
–
(0.1)
(0.1)
176.3
171.1
21.4
192.5
Acquisitions
The Group completed five acquisitions during the year. The total cost of acquisitions in the year was £45.0 million (2014: £96.7 million), including
£2.7 million (2014: £0.9 million) for cash acquired. Included in the total cost of acquisitions is an amount of £2.7 million (2014: £4.5 million) attributable
to the fair value of net deferred and contingent consideration which is expected to be paid in future years. A net £0.5 million (2014: £0.3 million) was
paid in respect of prior year acquisitions, making the net cash outflow in the year £40.1 million (2014: £91.6 million). Furthermore, an amount of
£3.9 million (2014: £2.5 million) was spent on acquisition-related legal and professional fees, which makes the total acquisition-related cash outflow
for the year £44.0 million (2014: £94.1 million). Acquisitions contributed £36.1 million (2014: £17.6 million) of incremental sales and £5.2 million
(2014: £4.4 million) of incremental operating profit during the year.
Taxation
The effective tax rate on adjusted profit before tax was 22.8% (2014: 23.2%), a decrease of 0.4 pp due to a reduction in the weighted average statutory
tax rate arising from a change in the geographical mix of pre-tax profits. On a statutory basis, the effective tax rate of 19.6% (2014: 21.0%) continues
to be below the weighted average statutory tax rate of 25.4% (2014: 28.1%), primarily as a consequence of R&D-related tax incentives and a tax-
efficient financing structure, partly offset by a reduction in non-taxable income.
Earnings per share
Earnings per share decreased 8.1% from 124.4p to 114.3p, reflecting the net impact of the 8.4% decrease in profit before tax, the reduction in our
effective tax rate and the increase in the weighted average number of shares from 118.8 million in 2014 to 119.0 million in 2015.
52
Spectris plc Annual Report and Accounts 2015
Statutory basic earnings per share decreased 15.9% from 113.7p to 95.6p. The difference between the two measures is shown in the table below.
Statutory basic earnings per share
Amortisation and impairment of acquisition-related intangible assets
Net acquisition-related costs and fair value adjustments
Profit on disposal of businesses
Net gain on retranslation of short-term inter-company loan balances
Unwinding of discount factor on deferred and contingent consideration
Tax effect of the above and other non-recurring items
Adjusted earnings per share
Cash flow
Operating cash flow
Operating profit
Depreciation and software amortisation
Working capital and other movements
Capital expenditure
Operating cash flow
Operating cash flow conversion
Non-operating cash flow
Tax paid
Net interest paid
Dividends paid
Acquisition of businesses, net of cash
Acquisition-related costs paid
Exercise of share options
Foreign exchange
Total non-operating cash flow
Operating cash flow
Reduction in net debt
2015
Pence
95.6
29.1
2.4
–
(2.5)
0.2
(10.5)
114.3
2015
£m
181.1
24.4
(13.8)
(26.0)
165.7
91%
(33.5)
(4.5)
(56.9)
(40.1)
(3.9)
0.3
(0.1)
(138.7)
165.7
(27.0)
2014
Pence
113.7
21.8
3.3
(2.0)
(5.1)
–
(7.3)
124.4
2014
£m
198.1
21.7
(16.7)
(27.4)
175.7
89%
(43.0)
(6.3)
(52.3)
(91.6)
(2.5)
0.3
(1.8)
(197.2)
175.7
(21.5)
The year-end trade working capital to sales ratio increased to 16.6% from 15.3% in 2014, a 1.3 pp increase. Average trade working capital, expressed
as a percentage of sales, increased to 15.4% (2014: 13.3%), a 2.1 pp increase, of which 0.3 pp related to foreign exchange. Excluding acquisitions, the
increase in working capital arose primarily within the In-line Instrumentation segment due to higher inventory levels to support new product launches
and a higher level of receivables due to the timing of sales, and within the Industrial Controls segment due to higher inventory levels from lower sales.
Capital expenditure during the year equated to 2.2% of sales (2014: 2.3%) and, at £26.0 million (2014: £27.4 million), was 107% of depreciation
and software amortisation (2014: 126%), primarily due to ongoing investments in property and infrastructure in Europe and North America.
Overall, net debt decreased £27.0 million (2014: decrease of £21.5 million) from £125.6 million to £98.6 million. Interest costs, excluding the financing
charge arising from IAS 19 (Revised) and other finance costs, were covered by operating profit 39.4 times (2014: 36.7 times).
53
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 FINANCIAL REVIEW CONTINUED
Financing and treasury
The Group finances its operations from both retained earnings and third-party borrowings, with almost all of the year-end gross debt balance being
at fixed rates of interest.
As at 31 December 2015, the Group had £526.2 million of committed facilities denominated in different currencies, consisting of a five-year
US$550 million (£371.1 million) revolving credit facility maturing in October 2019, a seven-year €94.8 million (£69.7 million) term loan maturing
in October 2020, and a seven-year €116.2 million (£85.4 million) term loan maturing in September 2022. The revolving credit facility was undrawn
at the year end. In addition, the Group had a year-end cash balance of £58.2 million, together with other uncommitted facilities of £1.7 million.
At the year end, the Group’s borrowings amounted to £156.8 million, 99% of which was at fixed interest rates (2014: 76%). The ageing profile at the
year end showed that 1% of year-end borrowings are due to mature within one year (2014: 32%), 44% between two and five years (2014: 22%) and
55% in more than five years (2014: 46%).
Currency
The Group has both translational and transactional currency exposures. Translational exposures arise on the consolidation of overseas company results
into Sterling. Transactional exposures arise where the currency of sale or purchase invoices differs from the functional currency in which each company
prepares its local accounts. The transactional exposures include situations where foreign currency-denominated trade receivable, trade payable and cash
balances are held.
After matching the currency of revenue with the currency of costs wherever practical, forward exchange contracts are used to hedge a proportion (up to
75%) of the remaining forecast net transaction flows where there is reasonable certainty of an exposure. At 31 December 2015, approximately 60% of
the estimated net Euro, US Dollar and Japanese Yen exposures for 2016 were hedged using forward exchange contracts, mainly against the Swiss Franc,
Sterling, the Euro and the Danish Krone.
The largest translational exposures are to the US Dollar, Euro, Danish Krone, Japanese Yen and Swiss Franc. Translational exposures are not hedged.
The table below shows the key average exchange rates compared to Sterling during 2015 and 2014.
USD
EUR
JPY
CHF
2015
(average)
2014
(average)
1.53
1.38
185
1.47
1.65
1.24
174
1.51
To demonstrate the transactional and translational currency exposures faced by the Group, the table below shows the differences between the Group’s
consolidated revenues and costs for each of the major currencies in 2015 before reflecting the effect of transactional hedges taken out in the year.
Revenue and cost by major currency:
Total sales (£m)
% of sales
Total costs (£m)2
Profit before tax by currency (£m)
% of profit before tax
1 Dollar / Euro categories include tracking currencies.
2 Costs include interest of £2.4 million in USD and £2.3 million in EUR.
USD1
519
44
(402)
117
66
EUR1
380
32
(305)
75
43
GBP
78
7
(85)
(7)
(4)
JPY
55
5
(32)
23
13
Other
158
12
(190)
(32)
(18)
Total
1,190
100
(1,014)
176
100
The above table is for overall guidance only as the phasing of income and the movement in the monthly average exchange rates during the year can
have a significant effect on the impact of foreign exchange on the Group’s results.
54
Spectris plc Annual Report and Accounts 2015
Like-for-like methodology
The Group uses the non-statutory LFL performance metric, which excludes the impact of acquisitions and foreign currency movements, to measure the
underlying performance of businesses. The standard methodology for calculating LFL performance is based on using each entity’s functional currency
result (i.e. sales or operating profit) and translating it into its presentation currency using the prior year’s exchange rate, irrespective of the underlying
transaction currencies. However, the underlying transactional exposure can have a major impact on the LFL calculation when there are a significant
number of transactions in currencies other than the functional currency and during periods of currency volatility.
Within the In-line Instrumentation segment, the BTG business has large functional currency mismatches against its underlying transaction currencies
which distort LFL comparisons at times of significant currency movements. This applies primarily to BTG’s largest operation in Switzerland, but also to
a lesser extent to its operations in Sweden and China. Within the Swiss business, approximately 7% of sales and almost 70% of costs are denominated
in Swiss Francs (‘CHF’) with the consequence that LFL results are distorted by applying our standard methodology for translating the functional currency
to Sterling, the Group’s presentation currency. The effect of this mismatch was emphasised following the unpegging of the CHF against the Euro by the
Swiss National Bank in January 2015, which led to a sharp appreciation of the CHF against the Euro. Accordingly, we have modified the basis upon
which BTG’s LFL results are translated into Sterling by using the actual underlying transaction currency mix for determining translational gains / losses
to provide more accurate and reliable information on BTG’s underlying performance. This modified approach has not been applied to any other
operating company as BTG is the only business within the Group with a significant functional currency mismatch for LFL reporting purposes.
If the standard LFL methodology had been used for BTG, Group LFL sales growth for 2015 would have been 33 basis points (‘bps’) (2014: 9 bps) lower,
and LFL sales growth for the In-line Instrumentation segment would have been 147 bps (2014: 38 bps) lower. For the avoidance of doubt, the reported
results of the Group and the In-line Instrumentation segment, under IFRS, remain unchanged as a result of the application of the modified LFL
methodology for BTG.
Defined benefit pension schemes
The Company operates a number of pension schemes throughout the Group. The net pension liability in the balance sheet (before taking account
of the related deferred tax asset of £5.6 million) has increased to £22.1 million (2014: £14.0 million). The movement can be summarised as follows:
Net deficit in defined benefit schemes as at 31 December 2014
Actuarial losses
Contributions in excess of current service cost
Past service credit
Scheme administration costs
Expected return on pension scheme assets net of interest costs on pension scheme liabilities
Net deficit as at 31 December 2015
The movement in individual plan deficits is shown in the table below:
£m
(14.0)
(7.9)
(0.1)
0.3
(0.3)
(0.1)
(22.1)
£m
Surplus / (deficit) as at 31 December 2014
Change in year
Deficit as at 31 December 2015
UK
3.6
(5.6)
(2.0)
Germany
Netherlands
Switzerland
Total overseas
Net total
(7.7)
0.2
(7.5)
(1.7)
(0.2)
(1.9)
(8.2)
(2.5)
(10.7)
(17.6)
(2.5)
(20.1)
(14.0)
(8.1)
(22.1)
The UK plan surplus of £3.6 million at 31 December 2014 decreased £5.6 million to a deficit position of £2.0 million at 31 December 2015 due to
investment returns being lower than expected. The net deficit for the overseas plans increased £2.5 million to £20.1 million primarily due to changes
in market conditions during the year, in particular a fall in the discount rates used to value the plans’ liabilities.
The Strategic Report was approved by the Board of Directors on 16 February 2016.
By order of the Board
Roger Stephens
Company Secretary
55
www.spectris.com
Strategic Report 01-55Governance 56-97Financial Statements 98-168 BOARD OF DIRECTORS
Dr John Hughes CBE
Chairman
Appointed June 2007. Appointed Chairman
in May 2008
Committees Nomination (Chairman)
Skills and experience Dr John Hughes CBE has
more than 30 years’ experience leading global, high-
technology businesses. He has significant experience
of managing growth companies, especially those
supplying complex solutions and services to business
customers and the development of leadership teams.
He previously held senior executive positions at Thales
Group, Lucent Technologies and Hewlett Packard, and
was non-executive chairman of Intec Telecom Systems
plc, a non-executive director of Chloride Group plc
and the Vitec Group plc. Until 2015 he was executive
chairman of Sepura plc. In 2016 he stepped down
as executive chairman of Telecity Group plc.
Other current appointments Non-executive chairman
of Just Eat plc. Non-executive director of CSG
International Inc. and Equinix Inc. (both NASDAQ-listed
companies). Ambassador for the Alzheimer’s Society.
John O’Higgins
Chief Executive
Appointed January 2006
Committees Nomination, Executive,
Disclosure, Finance
Skills and experience John O’Higgins has a wealth of
experience in the global instrumentation and controls
industry, having previously worked for Honeywell in a
number of management roles, including as president
of automation and control solutions, Asia Pacific. His
career began as a design engineer at Daimler-Benz in
Stuttgart. He has engineering degrees from University
College Dublin and Purdue University and an MBA
from INSEAD.
Other current appointments None.
Peter Chambré
Non-executive Director
Appointed August 2006
Committees Audit and Risk, Nomination,
Remuneration
Skills and experience Peter Chambré has extensive
experience in the pharmaceutical industry and
significant board experience, having held a number
of senior executive and non-executive positions in
healthcare companies, including as chief executive
officer of Cambridge Antibody Technology Group plc
(until its acquisition by AstraZeneca PLC in 2006),
chairman of ApaTech Limited and non-executive
director of BTG plc. Prior to that he was chief
operating officer of Celera Genomics Group and
chief executive of Bespak plc.
Other current appointments Chairman of 7TM
Pharma A/S, Immatics Biotechnologies GmbH and
Cancer Research Technology Ltd. Director of OneMed
Sverige AB and Imperial Innovations Group plc.
Lisa Davis
Non-executive Director
Appointed April 2014
Committees Nomination, Remuneration
Skills and experience Lisa Davis has significant experience
within the oil and gas industry and process plant
operations. She is currently a member of the Siemens AG
managing board and is chair of Siemens Corporation in
the USA, where her responsibilities include the Americas,
power and gas, wind power and renewables and power
generation services. She was formerly executive vice
president of strategy, portfolio and alternative energy,
Shell International Petroleum Company.
Other current appointments None.
Russell King
Senior Independent Director
Appointed October 2010
Committees Nomination, Remuneration (Chairman)
Skills and experience Russell King brings considerable
international experience, acquired across a number of
sectors including mining and chemicals, together with
strong experience in strategy. He was previously chief
strategy officer of Anglo American PLC and a
non-executive director of Anglo Platinum Ltd. Prior
to that he spent over 20 years in senior roles at ICI.
Other current appointments Chairman of
Hummingbird Resources Plc and Sepura plc.
Non-executive director of Aggreko plc and Interserve
Plc. Senior adviser to Heidrick & Struggles. Serves on
the Executive Remuneration Working Group,
established by the Investment Association.
Ulf Quellmann
Non-executive Director
Appointed January 2015
Committees Audit and Risk, Remuneration
Skills and experience Ulf Quellmann brings broad
general management experience and considerable
knowledge of the metals, minerals and mining
industry having worked in the sector for the past
12 years. He is currently global head of treasury at
Rio Tinto plc. Previously he held senior positions at
Alcan Inc including vice president, investor relations
and media relations, and chief pension investment
officer and assistant treasurer. Prior to that he held
senior management positions at General Motors,
including as senior manager, capital planning,
and managing director of Vauxhall Master Hire.
Other current appointments None.
56
Spectris plc Annual Report and Accounts 2015
Bill Seeger
Non-executive Director
Appointed January 2015
Committees Audit and Risk (Chairman)
Skills and experience Bill Seeger brings significant
corporate finance and accounting experience, having
formerly been the group finance director of GKN plc
and prior to that president and CEO of the propulsion
systems and special products division and CFO in the
aerospace division of GKN. He spent most of his
career at TRW, latterly in senior finance roles,
including as vice president, financial planning
and analysis, and vice president, finance, of
TRW Automotive.
Other current appointments Non-executive director
and chairman of the audit committee of Smiths
Group plc. Visiting Professor at UCLA Anderson
School of Management.
Clive Watson
Group Finance Director
Appointed October 2006
Committees Executive, Disclosure, Finance
Skills and experience Clive Watson has considerable
finance experience, having previously been chief
financial officer and executive vice president for
business support at Borealis. Prior to this, he was
group finance director at Thorn Lighting Group and
group finance director Europe at Black & Decker. Clive
is a member of the Institute of Chartered Accountants
in England and Wales and the Chartered Institute
of Taxation.
Other current appointments Non-executive director
and chairman of the audit committee of Spirax-Sarco
Engineering plc.
Past Directors
John Warren
Retired as a Non-executive Director
on 24 April 2015.
Membership of the Board
1
2
6
Chairman
Executive Directors
Non-executive Directors
Roger Stephens
Head of Commercial and
Company Secretary
Appointed January 1997
Committees Executive, Disclosure, Finance
Skills and experience Roger Stephens has broad
commercial experience and is responsible for legal
and governance matters and capital projects across
the Group. Prior to joining Spectris, he held
commercial roles in the power and construction
sectors, specialising in contract negotiation,
litigation and claims resolution, IP exploitation
and property development.
Martha Wyrsch
Non-executive Director
Appointed June 2012
Committees Audit and Risk, Nomination
Skills and experience Martha Wyrsch has held a
number of senior positions in the energy industry
and has significant experience of the US market. She
currently holds the position of executive vice president
and general counsel of Sempra Energy, a company
quoted on the New York Stock Exchange. Previously,
she was president of Vestas Americas, a subsidiary of
Vestas Wind Systems A/S, and prior to that she was
president and CEO of Spectra Energy Transmission.
Until recently she was a non-executive director of
SPX Corporation.
Other current appointments Director of the Cristo Rey
Network (a US educational foundation), San Diego
Gas & Electric Company (a wholly-owned subsidiary
of Sempra Energy) and Southern California Gas
Company (a publicly-traded company in the USA).
57
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 Read the biographies for John
O’Higgins, Chief Executive, Clive
Watson, Group Finance Director and
Roger Stephens, Head of Commercial
and Company Secretary, who are
members of the Executive Committee
Pages 56 and 57
EXECUTIVE COMMITTEE MEMBERS
Ken Smith
President, Asia Pacific
Appointed July 2012
Committees Executive
Skills and experience Ken Smith has over 30 years’
engineering and industrial business experience, 23
of which have been spent in Asia. Having started
his career in Switzerland, with various management
positions in R&D and product portfolio management,
he moved to Asia where he had a number of
operational roles, including president of Schindler
Japan and president Asia and global materials
division for Deloro Stellite.
Other current appointments None.
Jo Hallas
Business Group Director
for the In-line Instrumentation and Industrial Controls
segments
Appointed May 2014
Committees Executive
Skills and experience Jo Hallas has extensive management
expertise in a range of engineering and industrial
businesses, having previously been general manager
residential controls at Invensys plc. Prior to this, she was
at the Bosch Group where she held management
positions in both the UK and Germany. She started her
career at Procter & Gamble where she served in a number
of management roles in Germany, the USA and Asia.
Other current appointments Non-executive director
and chairman of the remuneration committee of
Norcros plc.
Read the overview from the
Business Group Director
Page 38
Robin Stopford
Group Head of Corporate Development
Appointed November 2013
Committees Executive
Skills and experience Robin Stopford has extensive
experience in leading corporate growth, from the
development of the strategy through to its
implementation, within diverse industrial groups such
as Doncasters and Low & Bonar PLC. Robin also spent
several years at Bain & Company, the leading strategy
consultants. Robin began his career at Rolls-Royce plc
where he served in a variety of engineering and
management roles.
Other current appointments None.
Eoghan O’Lionaird
Business Group Director
for the Materials Analysis and Test and
Measurement segments
Appointed February 2014
Committees Executive
Skills and experience Eoghan O’Lionaird has wide-
ranging engineering and commercial expertise, having
previously been president of the Leica Microsystems
division of Danaher Corporation in Germany. Prior to this,
he spent 11 years in Philips in a number of management
roles, latterly as CEO of the respironics sleep business
unit based in the USA. He started his career with Mitsui
Mining & Smelting where he held a number of
engineering and commercial positions.
Other current appointments None.
Read the overview from the
Business Group Director
Page 34
58
Spectris plc Annual Report and Accounts 2015
CHAIRMAN’S INTRODUCTION TO CORPORATE GOVERNANCE
Dr John Hughes CBE
Chairman
GOVERNANCE PRIORITIES
FOR 2016
Looking forward to 2016, our governance
priorities will be:
_ Talent management.
_ Ethics and compliance enhancements.
_ Remuneration policy review.
to continue to generate shareholder value.
To ensure that the Group has the talent and
capability to deliver these strategic objectives a
talent management programme was launched
during the year. Further details on the Company’s
strategy can be found in the Strategic Report
on pages 22 and 23. Details of the talent
management programme are on pages 65 and 66.
Yours faithfully
Dr John Hughes CBE
Chairman
16 February 2016
Corporate Governance Code
Statement of Compliance
As a company listed on the London
Stock Exchange, Spectris is subject to
the 2014 UK Corporate Governance Code
(‘the Code’). A copy of the Code is available
at www.frc.org.uk. The Board considers
that throughout the financial year ended
31 December 2015, and as at the date of this
report, the Company was in full compliance
with the provisions of the Code. This report
sets out how the Company applied the
principles of the Code during 2015.
I am pleased to present the Corporate
Governance Report which sets out how the
Board functions and how it sets the culture
and values of the Company. At Spectris we are
committed to maintaining high standards of
governance, both at Board level and throughout
the Group. We see this as fundamental to the
effective and responsible management of the
business and for the delivery of shareholder
value over the long term.
We particularly emphasise the strong
relationship that exists between ethics and
governance and the role of the Board in
demonstrating ethical leadership. The standards
we require are set out in our Code of Business
Ethics, which is communicated to all our
employees and business partners. Further details
can be found in the Ethics Report on page 48.
During 2015, the Board agreed an evolution of
the strategy with a renewed emphasis on growth,
including a shift in emphasis from the supply of
products towards the provision of complete
solutions. The implementation of the enhanced
strategy aims to deliver long-term growth and
build on the Company’s strong financial position
59
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 LEADERSHIP
Governance structure
The governance of the Group is structured
through a hierarchy of committees that approve
and monitor the strategies and policies under
which the Company operates. This structure
comprises a mixture of Board and management
committees, as illustrated in the diagram opposite.
The Board
Board Committees:
Audit and Risk
Committee
Nomination
Committee
Remuneration
Committee
Executive
Committee
Has responsibility for the
day-to-day management
of the Group’s operations
Management Committees:
Disclosure
Committee
Has responsibility for the
identification and disclosure
of inside information and
for ensuring that regulatory
announcements comply
with applicable legal or
regulatory requirements
Finance
Committee
Has responsibility for
certain banking and
treasury matters
Priority areas in 2015
In addition to the Board’s role in overseeing the Company’s financial performance and the Company’s businesses, during the year, the following
items and initiatives were delivered:
Acquisitions
Strategy
Operational excellence
Talent management
Information security
Viability statement
A continued programme of bolt-on acquisitions was delivered during the year, with five acquisitions
completed. Detailed scrutiny of each potential acquisition was undertaken by the Board with a focus
on the strategic rationale and financial business case to ensure that each case can meet the
expected cash flow return on investment.
During the year, the Board reviewed progress against the Group’s strategy and considered
opportunities within our key markets. An evolution of the Group’s strategy with a renewed
emphasis on growth was announced at our Capital Markets Day. Our strategic objective is to
deliver long-term and sustainable shareholder value by creating and providing productivity-
enhancing innovative solutions and services to our customers.
Best practice examples from the Group were shared at the Presidents’ meeting held in March and
a number of Lean Six Sigma initiatives were implemented within our businesses. This is a key
element of the enhanced strategy.
Talent management and succession planning for Executive and senior management roles across
the Group is an area of key priority to ensure that the Group has talent to deliver its strategic
objectives. Group-wide competencies have been adopted across the Group to create a common
understanding and language of what constitutes good leadership at Spectris.
The Board, through the work of the Audit and Risk Committee, increased its focus on
information security risks by overseeing the implementation of a number of risk management
initiatives in this area and agreeing the operating model for the future.
The Audit and Risk Committee provided assistance to the Board in relation to the viability statement.
This included a thorough review of business viability and the Group’s risk management processes
which resulted in a number of enhancements being implemented.
See page
22
6
22
66
74
72
60
Spectris plc Annual Report and Accounts 2015
How the Board operates
A clearly-defined framework of roles,
responsibilities and delegated authorities is in
place which supports the Board’s aim to deliver
long-term shareholder value. The powers of the
Directors are set out in the Company’s Articles of
Association (‘the Articles’), which are available
on the Company’s website. The Articles may be
amended by special resolution. In addition, the
Directors have responsibilities and duties under
legislation, in particular the Companies Act 2006
(‘the Act’).
The Board has a schedule of matters specifically
reserved for its approval. A summary is shown
below and the full schedule is available on
application to the Company Secretary. The
Board also delegates other matters to Board
Committees and management as appropriate.
The responsibilities of the Board include:
_ the Company’s long-term objectives
and strategy;
_ setting the tone for the Company’s culture;
_ annual financial planning;
_ the acquisition and disposal of businesses;
_ major capital expenditure;
_ the appointment and (if necessary)
removal of Directors; and
_ Board and senior management succession.
Board allocation of time (%)
35
7
25
8
25
Strategy
Finance
Acquisitions
Operations and risk
Governance
Board and Committee meeting attendance during the year
Total meetings during year
Dr John Hughes CBE
John O’Higgins
Peter Chambré
Lisa Davis
Russell King
Ulf Quellmann
Bill Seeger
Martha Wyrsch
Clive Watson
John Warren4
Board
Audit and Risk
Committee1
Nomination
Committee2
Remuneration
Committee3
7
7
7
7
6
7
7
7
7
7
3
4
n/a
n/a
4
2
2
4
4
3
n/a
2
2
2
2
2
2
2
1
1
2
n/a
1
4
n/a
n/a
3
2
4
4
2
2
n/a
2
1 Lisa Davis and Russell King stepped down from the Committee with effect from 27 February 2015.
2 Ulf Quellmann and Bill Seeger stepped down from the Committee with effect from 27 February 2015.
3 Bill Seeger and Martha Wyrsch stepped down from the Committee with effect from 27 February 2015.
4 John Warren retired from the Board with effect from 24 April 2015. He attended all meetings he was eligible to attend.
Meetings
The Board meets formally at regular intervals
throughout the year to continuously assess and
review key priorities and business issues for the
Group over the short, medium and long term.
Additional meetings are convened as required
to consider specific topics requiring immediate
decision. Comprehensive papers are presented
to the Board which facilitate meaningful debate
on the performance and the future direction of
the Company.
of the Board. In addition, members of the
Executive Committee, other senior managers
from around the Group and external advisers
are invited to provide input on particular
agenda items.
Matters reserved and delegation
Authority for operational decisions is delegated
by the Board to senior management at operating
company level, over which the Executive
Directors exercise supervision.
All Directors are expected to attend all Board and
relevant Committee meetings. Details of attendance
by Directors at Board and Committee meetings
during 2015 are set out in the table above. Where
a Director was not in attendance, this was due to
other prior work commitments. Directors who were
unable to attend specific Board or Committee
meetings reviewed the relevant papers and provided
their comments to the Chairman of the Board or
Committee, as appropriate. The Head of
Commercial and Company Secretary, Roger
Stephens, attends all meetings as Secretary
Committees
The Board delegates specific responsibilities
to its Committees, notably the Audit and Risk,
Nomination and Remuneration Committees.
A chart setting out the Company’s Board
Committees’ structure is set out on page 60.
Each Committee has formal terms of reference
which are available on the Company’s website.
The responsibilities of each Board Committee,
its membership and the key issues considered
by each during 2015 are set out in the
Committee reports.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 LEADERSHIP CONTINUED
During 2015, the membership of each
Committee was reviewed in light of the
appointment of additional Non-executive
Directors. It was agreed that the number of
Committees each Non-executive Director
serves on would be reduced to allow each
Director to focus on their particular Committee
responsibilities. To ensure the Board is kept
informed of the work of the Committees, the
Committee Chairmen provide regular updates
to the Board. In addition, papers and minutes
of Committee meetings are made available
to all Directors.
Composition and appointments
The Board comprises a balance of Executive
Directors and independent Non-executive
Directors which promotes thorough debate
and consideration of the important issues facing
Spectris and the Group’s performance. At the
date of this report, there are a total of nine
Directors, of whom two are Executive and six
are Non-executive, in addition to the Chairman.
Ulf Quellmann and Bill Seeger were appointed to
the Board as Non-executive Directors with effect
from 1 January 2015. A formal, rigorous and
transparent process is followed during the
selection and subsequent appointment of new
Directors to the Board. Details regarding their
appointment process can be found on page 66
and their induction process can be found on
page 63.
Roles
The roles of Chairman and Chief Executive are
separate, formalised in writing and have been
approved by the Board. A summary of these
roles is shown below and full role descriptions
are available to shareholders on application
to the Head of Commercial and
Company Secretary.
The Chairman is responsible for the leadership
and management of the Board. In doing so,
he is responsible for promoting a culture of
openness and debate by facilitating the effective
contribution of all Directors. In addition, he is
responsible for ensuring that the Directors
receive accurate, timely and clear information.
The Chief Executive is responsible for
the executive leadership and day-to-day
management of the Company and for
developing and delivering the strategy.
The Senior Independent Director provides a
sounding board for the Chairman and serves
as an intermediary for the other Directors and
shareholders when necessary.
During the year, the Non-executive Directors,
including the Chairman, met independently
of management.
Under the Act, a Director must avoid a situation
where he or she has, or may have, a direct or
indirect interest that conflicts, or may conflict,
with the Company’s interests. During the year,
in accordance with the powers and duties of
Directors laid down in the Company’s Articles,
Directors were asked to declare any such conflict
or potential conflict of interest to the Board,
and to request the Board’s authorisation of any
matter which otherwise might have given rise
to a conflict of interest. No conflicts have
been declared.
Professional advice and support
The Directors have full access to the advice
and services of the Head of Commercial and
Company Secretary, who is responsible for
advising the Board through the Chairman on
corporate governance matters. They are also
able to seek independent professional advice
at the Company’s expense in respect of
their duties.
Indemnity and insurance
In accordance with the Articles, the Company
has granted a deed of indemnity, to the extent
permitted by law, to Directors, members of the
Executive Committee and senior managers.
Qualifying third-party indemnity provisions (as
defined by Section 234 of the Act) were in force
during the year ended 31 December 2015 and
remain in force. The Company also maintains
directors’ and officers’ liability insurance.
Blue 4 is based on an evaluation of behaviours
and activities shown to underpin outstanding
performance of company boards. These
behaviours are considered in terms of five
elements – strategy, communication,
decision-making, governance and
performance review.
These five categories represent the major
accountabilities of the Board. Effectiveness
of each element helps to ensure the short- and
long-term success of the Company. Feedback
on these five elements was presented in
terms of four criteria:
_ quality of Board engagement behaviours;
_ Board effectiveness in each area;
_ how important the Board considers
each area to be; and
_ the amount of time the Board spends
on each area.
Feedback from the survey confirmed that the
Board is performing at a high level across all
areas. However, a number of opportunities for
enhancement were identified, including less
formality on occasions and a desire for greater
time for quality discussions at a strategic level.
These improvement areas will be further
considered and taken forward by the
Board during 2016.
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Spectris plc Annual Report and Accounts 2015
EFFECTIVENESS
Chairman and Non-executive Directors
On the appointment of John Hughes in 2007,
the Board considered that he met the
independence criteria set out in the Code. The
Chairman’s significant listed company interests
are as set out in his biography on page 56.
The Board has formally reviewed the Chairman’s
other commitments and confirms that it believes
that the Chairman’s obligations to the Company
are properly fulfilled notwithstanding these
directorships. In fact, these roles provide the
Chairman with additional skills and experience
which benefit the Board.
Non-executive Directors are appointed pursuant
to letters of appointment. The appointment of
all Non-executive Directors can be terminated by
the Company at any time on six months’ written
notice and are renewable at each Annual
General Meeting (‘AGM’) of the Company,
subject to review prior to proposal for re-
election. The time commitments of Non-
executive Directors are defined on appointment.
The role of our Non-executive Directors is to
bring independent judgement to bear on issues
of strategy, performance and standards of
conduct. They form the Audit and Risk,
Nomination and Remuneration Committees.
During the year, Peter Chambré completed nine
years in office. The Board continues to regard him
as an independent Non-executive Director as he
continues to make a valuable and independent
contribution to deliberations and also is free
from any business or other relationship with
the Company. The Board particularly values his
expertise in the life science segment which is
of strategic relevance to the Materials Analysis
businesses, which is considered important at
this time.
All of our Non-executive Directors are
considered to be independent and free from any
business interest which could materially interfere
with the exercise of their judgement. In addition,
all of our Non-executive Directors have assured
the Board that they remain committed to their
respective roles. The Board is satisfied that each
Non-executive Director is able to dedicate the
necessary amount of time to the Company’s
affairs and that the external positions held
bring valuable knowledge, experience and
perspectives to Board discussions and the
Group. Details of the Nomination Committee’s
consideration of Institutional Shareholder
Services (‘ISS’) 2016 Proxy Voting guidelines
can be found on page 65.
The Board has agreed that each Director shall
stand for re-appointment at the AGM, with the
exception of Lisa Davis who shall retire from the
Board at the 2016 AGM.
Details of the Directors of the Company are set
out with their biographies on pages 56 and 57.
Details of Directors’ service contracts or letters
of appointment, in the case of Non-executive
Directors, emoluments and share interests are set
out in the Remuneration Report on pages 77 to
93. Copies of Directors’ service contracts and
letters of appointment for the Non-executive
Directors are available for inspection by
shareholders at each AGM and during normal
business hours at the Company’s registered office.
Performance evaluation
Each year the Board, its Committees and
Directors are evaluated considering, among
other things, the balance of skills, experience,
independence and knowledge on the Board,
its diversity (in the widest sense), how it works
together as a unit and other relevant factors.
During 2015, the Board trialled the Board
Effectiveness Profile Model (‘Blue 4’) being
developed by Glowinkowski International.
See the case study on page 62 for further details
of Blue 4. The Board intends to conduct an
externally-led evaluation during 2016.
Induction
All new Directors appointed to the Board receive
an induction programme tailored to meet their
individual needs. Both Ulf Quellmann and Bill
Seeger (appointed to the Board on 1 January
2015) discussed with the Chairman what
briefings and meetings would be most beneficial
to them to ensure an effective induction
following their appointments. As a result, tailored
induction programmes were designed for each
Director, which included briefings from members
of the Executive team and other senior managers
from both head office and the operating
companies. Briefings included key areas of the
business such as the internal audit function,
an overview of the Group’s risk management
processes and key risks facing the business,
and a comprehensive site visit programme
which included BTG, Malvern Instruments,
NDC Technologies and Omega Engineering.
Training
The Chairman reviews each Director’s training
and development needs annually. To enhance
the Directors’ deep understanding of our
business, the June Board meeting was held at
BTG’s Eclépens site. This gave the Board the
opportunity to meet senior staff at the operating
company, attend a site visit of the BTG factory
and receive a presentation from the BTG
management team.
The Directors also received regular updates
and presentations. These included changes
and developments to the business and to the
legislative and regulatory environments in which
the Group operates. In particular, the following
briefings were provided during 2015:
_ public market trends update;
_ market overview update;
_ trading and share price performance
presentation from the Company’s brokers; and
_ changes to the Code, in particular the
introduction of the viability statement.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 EFFECTIVENESS CONTINUED
NOMINATION COMMITTEE REPORT
LETTER FROM THE CHAIRMAN OF THE NOMINATION COMMITTEE
Dr John Hughes CBE
Chairman of the Nomination Committee
Ensuring we attract and retain
the best talent through the
talent management programme
is vital for the delivery of the
Group’s strategy.
that there is an appropriate Group talent
pipeline. Further detail is provided on
pages 65 and 66.
Yours faithfully
Dr John Hughes CBE
Chairman of the Nomination Committee
16 February 2016
I am pleased to present our Nomination
Committee Report for 2015.
The recently published Financial Reporting
Council (‘FRC’) discussion paper on UK Board
Succession Planning was considered by the
Committee during the year. This resulted in
the Committee being delegated additional
responsibility for Group-wide succession
planning and for oversight of the talent
management programme throughout the
Group. This will ensure that we have an
effective framework in place to develop
talent throughout our business and ensure
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Spectris plc Annual Report and Accounts 2015
Role of the Committee
The Committee reviews the size, structure and
composition (including skills, structure and
diversity) of the Board and its Committees
and reviews the results of the annual Board
performance evaluation. It considers succession
planning for Directors, Executive Committee
members and senior leadership and ensures that
there is a formal and appropriate procedure for
such appointments. The Committee considers
the independence of the Non-executive
Directors and is responsible for leading the
Board appointment process and for making
recommendations to the Board.
Nomination Committee
allocation of time (%)
35
20
20
25
Composition of the Committee
The Nomination Committee is appointed
by the Board. Its members are:
Board and Executive
succession planning and
recruitment, including
the talent management
programme
Independence and
(re-)election of Directors
Composition of the
Board and Committees
Committee governance
_ Dr John Hughes CBE (Chairman)
_ John O’Higgins
_ Peter Chambré
_ Lisa Davis
_ Russell King
_ Martha Wyrsch
Activities in 2015
Key issues considered by the Committee
during the year included:
In the event of discussions relating to the
Chairman’s succession, the Senior Independent
Director would take the chair.
_ a review of Committee membership;
_ Board succession planning;
_ an overview of the talent management
Committee meetings
The Committee met twice during the year.
Committee attendance is disclosed on page 61.
At the invitation of the Committee, any Director
or other person may be invited to attend meetings
of the Committee if considered desirable in
assisting the Committee in fulfilling its role.
programme;
_ the Committee’s terms of reference;
_ a review of Non-executive Directors whose
length of service was more than six years; and
_ a review of the skills of each of the Directors
and the independence of each of the
independent Non-executive Directors prior
to the 2015 AGM and recommendation that
each of them be subject to re-election at the
2015 AGM.
Non-executive Director tenure
The chart below indicates the length of tenure for
each Non-executive Director. Any extension of the
appointment beyond nine years’ service would
require close review by the Committee of the
individual’s continued independence, effectiveness
and contribution to the Board’s deliberations.
ISS 2016 proxy voting guidelines
At its February 2016 meeting, the Committee
considered the ISS’ ‘overboarding’ policy which
was introduced in their revised guidelines. The
Committee carefully assessed each Director’s
appointment against the guidelines. It was
concluded that other directorships provide
valuable experience, knowledge and
perspectives for the Group. In addition,
attendance at Board and Committee meetings
for all Directors was more than 75% for the
previous two years.
Succession planning and talent management
Succession planning throughout the business
is vital for the delivery of the Group’s strategy.
The Group seeks to attract and retain the best
talent and we have in place compensation and
benefits that reward achievement and training
programmes to help employees develop and
reach their full potential. A talent management
programme was initiated during the year to
support the Group’s growth strategy. The
programme will enable an improved employee
value proposition to aid the hiring, development
and retention of talent and enable more
focussed deployment of our talent to our most
critical activities. A Group-wide set of leadership
competencies to provide a consistent way to
assess talent and an easily accessible language
for giving feedback and supporting development
was established and an organisational capability
assessment carried out.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 EFFECTIVENESS CONTINUED
NOMINATION COMMITTEE REPORT CONTINUED
At its December meeting, the Committee
reviewed the initial work carried out as part
of the talent management programme and
organisation capability assessment. During
2016, the competency model and organisation
capability review will be deployed throughout
the Group. In addition, the Committee
considered the FRC’s discussion paper on UK
Board Succession Planning. It was recognised
that good succession planning below Executive
level would ensure an appropriate talent
pipeline, contribute to the longer-term success of
the Group and would be an enabler to delivering
the Company’s strategy. To ensure that there
was appropriate Board-level responsibility, the
Board delegated to the Committee oversight of
talent management.
Recruitment process
Led by the Chairman, the recruitment processes
undertaken for the appointment of Ulf
Quellmann and Bill Seeger were formal, rigorous
and transparent. The Committee appointed
executive search consultancy, Egon Zehnder,
and the following process was undertaken
for the appointments:
_ a job description and required capabilities
brief were prepared against which potential
candidates were considered;
_ the Committee considered the candidates
against the objective criteria set out in the
job description and required capabilities
brief, having due regard for the benefits
of Board diversity;
_ a shortlist of preferred candidates was
selected from a list of potential candidates;
_ the shortlisted candidates were subjected
to a rigorous process of interviews and
comprehensive reference checks; a preferred
candidate recommendation was made by the
Committee to the Board for consideration; and
_ the Board considered and approved
the appointments.
Non-executive Director tenure as at 31 December 2015
Egon Zehnder adheres to the Voluntary Code of
Conduct for Executive Search Firms and did not
provide any other services to the Company
during the year.
Diversity
We have sought to ensure that we have a
balanced Board where individual merit and
relevance are the key entry requirements but
collectively we have an appropriate mix of
gender, nationalities and skills to ensure
constructive debate and thoughtful decision-
making. Spectris is committed to the merits
of diversity in all its forms at Board level and
throughout the Group. As at 31 December 2015,
22% of the Board were women. Further
information regarding Group diversity can
be found on page 45.
Ulf Quellmann
Bill Seeger
Lisa Davis
Martha Wyrsch
Russell King
Peter Chambré
Years
0
1
2
3
4
5
6
7
8
9
10
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Spectris plc Annual Report and Accounts 2015
Gender diversity of the Board
Skills, knowledge and expertise of the Board
Board members
2
B2B
Commercial and marketing
Financial qualifications
7
Internet economy
International
Legal, governance and risk control
Female Directors
Male Directors
Listed company
M&A
Manufacturing
Services
Nationality of the Board
Experience of end-user markets
Board members
4
1
3
1
British
Irish
American
German
Academic research
Aerospace
Automotive
Energy and utilities
Manufacturing and machine building
Metals, minerals and mining
Pharmaceuticals and fine chemicals
Pulp, paper and tissue
Semicon, telecoms and electronics
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
ACCOUNTABILITY
AUDIT AND RISK COMMITTEE REPORT
LETTER FROM THE CHAIRMAN OF THE AUDIT AND RISK COMMITTEE
Bill Seeger
Chairman of the Audit and Risk Committee
I am pleased to present my first
Audit and Risk Committee Report
following my appointment as its
Chairman in April 2015.
I would like to thank John Warren, who retired
from the Board, for his strong leadership of the
Committee over the past nine years. I have
inherited an effective and well-run Committee
that works collaboratively with management.
In recognition of the Committee’s growing
responsibilities, the Committee agreed to
introduce a fourth formal meeting to its annual
meeting schedule aligned to the Group’s
financial and governance reporting cycle. The
additional meeting will be of particular benefit
as the Committee takes on additional oversight
with respect to the review of the long-term
viability assessment. The Committee also
took the opportunity to clarify its responsibilities
regarding provisions of the Code and considered
and approved changes to its terms of reference.
In addition, a formal assessment of the external
auditor effectiveness was carried out during the
year; further details can be found on page 73.
A key role of the Committee is the oversight
of the Group’s risk management processes.
During 2015, a number of enhancements have
been made to the Group’s risk management
framework which are described in further detail
later in the report. In addition, to reflect best
practice, these changes will align our reporting
framework more closely with the requirements
of the Code.
Further progress was made with the
Group’s information security programme.
An independent assessment was undertaken
by an external adviser; details on this
programme can be found on page 74.
Yours faithfully
Bill Seeger
Chairman of the Audit and Risk Committee
16 February 2016
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Spectris plc Annual Report and Accounts 2015
Role of the Committee
The Committee’s key function is to support
the Board in fulfilling its responsibilities in
reviewing the effectiveness of the Company’s
financial reporting, internal controls and risk
management. As part of this role, the
Committee provides advice to the Board on
whether the Annual Report and Accounts,
when taken as a whole, is fair, balanced and
understandable and provides all the necessary
information for shareholders to assess the
Company’s performance, business model
and strategy. In addition, the Committee’s
role includes monitoring and reviewing the
effectiveness of the Group’s internal controls
and risk management systems.
The Committee operates under terms of reference;
these were reviewed during the year and were
updated to reflect the additional responsibilities
which the Board has delegated to the Committee
in relation to the viability statement.
Composition of the Committee
The Audit and Risk Committee is appointed
by the Board. Its members are:
_ Bill Seeger (Chairman)
_ Peter Chambré
_ Ulf Quellmann
_ Martha Wyrsch
The Head of Business Ethics and Governance acts
as Secretary to the Committee. At the invitation
of the Committee, any Director or other person
may be invited to attend meetings of the
Committee, if considered desirable in assisting
the Committee to fulfil its role; a table detailing
meeting participation is shown on the right.
Bill Seeger, having held several senior finance
positions, is considered by the Board to have
recent and relevant financial experience as
required by the Code. Each member of the
Committee is an independent Non-executive
Director. Further details regarding the Directors’
skills and experience can be found in their
biographies on pages 56 and 57.
The Board is satisfied that the Committee
has the resources and expertise to fulfil
its responsibilities.
Committee meetings
The Committee met four times during the year. Committee attendance is disclosed on page 61.
At its July meeting, the Committee approved a proposal to move to four formal meetings each
year to coincide with key dates in the financial reporting cycle. In addition, a revised schedule of
agenda items was approved, which reflects current accounting, regulatory, risk and governance
requirements and practice. The Head of Business Ethics and Governance and the Group Finance
Director worked with the Chairman to set each meeting’s agenda.
Committee meeting participation
Risk
management
and assurance
including ethics
Internal
audit
Financial
reporting
External
auditor
independence
Accounting,
technical and
corporate
governance
updates1
Chief Executive
Group Finance Director
Business Group Directors
Company Secretary
Head of Business Ethics
and Governance
Head of Internal Audit
Group Financial Controller
External auditor2
Presented reports
Participated in debate / answered Committee questions
1 Committee members also receive regular technical updates from KPMG’s Audit Committee Institute.
2 The external auditor met with the members of the Committee following the February 2015 and February 2016 meetings
in a private session without management present.
Activities in 2015
Key issues considered by the Committee
during the year included:
Audit and Risk Committee
allocation of time (%)
_ a review of the 2014 and 2015 Financial
Statements, including year-end key estimates
and judgements;
_ the fair, balanced and understandable
assessment;
_ a review of the 2014 internal audit activity
and the 2015 internal audit plan;
_ a review of the ethics and compliance
programme;
_ updates regarding the information
security programme;
_ the output of the external auditor
effectiveness review;
_ oversight of the process relating to
the viability statement; and
_ the Committee’s terms of reference.
40
10
10
20
20
Financial Statements
and reporting
Culture, risk management
and controls, including
information security
Internal audit
External audit
Committee governance
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Financial reporting
After discussion with both management and the
external auditor, the Committee determined that
the key risks of misstatement in the Group’s
Financial Statements for 2015 were:
_ provisions, given the judgemental nature
of the assessment and estimation;
_ acquisition fair value accounting; and
_ misstatements.
_ the assessment of goodwill and intangible
assets for impairment;
Impairment of goodwill and provisions are
recurring in nature from year to year whilst
acquisition fair value accounting relates
specifically to acquisitions made during the year.
These issues were discussed with management
and with the external auditor at the time the
Committee reviewed and agreed the external
auditor’s Group audit plan, when the auditor
reviewed the half-year interim Financial
Statements in July 2015, and also at the
conclusion of the 2015 audit of the full-year
Financial Statements.
Key financial reporting matters in 2015
How the issue was addressed by the Committee
Impairment of goodwill and
other intangible assets
Provisions
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Spectris plc Annual Report and Accounts 2015
During the year, management reviewed the weighted average cost of capital (‘WACC’) calculation and the
long-term growth rates to be applied in determining the discounted value of the projected cash flows of
the cash-generating units as more fully explained in Note 11 to the Financial Statements. This resulted in
a nominal post-tax WACC rate for the Group remaining unchanged at 7.9% (2014: 7.9%) with long-term
growth rates of 2.5% (2014: 4%). The Committee reviewed the calculations and was satisfied that the
assumptions were appropriate. Management assessed the carrying value of goodwill and other intangible
assets (including detailed calculations of value in use for those cash-generating units whose recoverable
amount is not significantly greater than its carrying amount) to ensure that the carrying values are
supported by forecast future discounted cash flows. As a result of the impairment assessment, no
impairment charges were required, but disclosure was made in Note 11 to the Financial Statements
regarding sensitivity analysis carried out on the goodwill relating to Omega.
The external auditor explained the results of its own review of the estimate of value in use, including
its challenge of management’s underlying cash flow projections as well as the long-term growth
assumptions, discount rate and Financial Statements disclosure. On the basis of its audit work, no
impairments were identified and the disclosure in the Financial Statements was considered appropriate.
Following discussion, the Committee was satisfied that the approach taken by management was
appropriate and that there was no requirement to record any impairment in the Financial Statements.
Working capital provisions
Provisions are made to write down slow-moving and obsolete inventory items to net realisable value,
based on an assessment of technological and market developments and on an analysis of historical and
projected usage with regard to quantities. The assessment used to calculate the provisions needed
requires the application of judgement by management.
The Group’s approach to trade receivables is for the initially-recognised fair value to be reduced by
appropriate allowances for estimated irrecoverable amounts. The application of this approach requires
judgement by management in respect of amounts which are deemed irrecoverable. Further information
about the Group’s exposure to credit risk and the quality of receivables is set out in Note 14 to the
Financial Statements.
Management confirmed to the Committee that there have been no significant changes to the approach
used to estimate working capital provisions from the prior year.
The external auditor explained to the Committee the work it had conducted during the year. On the
basis of its audit work, the external auditor reported no material inconsistencies or misstatements.
Following discussion, the Committee was satisfied that the judgements that had been exercised were
appropriate and that therefore the provisions were appropriately stated at the year end.
Tax provisions
Provisions held in respect of tax risks are included within current and deferred tax liabilities depending
on the underlying circumstances of the provision. Significant management judgement is exercised in
arriving at the amounts to be provided.
Management confirmed to the Committee that the provisions recorded at 31 December 2015 represent
their best estimate of the likely financial exposure faced by the Group.
Key financial reporting matters in 2015
How the issue was addressed by the Committee
Provisions (continued)
Acquisition fair value accounting
Misstatements
The external auditor explained to the Committee the work it had conducted during the year, including
how its audit procedures were focussed on those provisions with the highest level of judgement on
recognition criteria and / or measurement.
Following discussion with both management and the external auditor regarding the key judgements
which had been made, the Committee was satisfied that they were reasonable and that, accordingly,
the provision amounts recorded were appropriate.
Other provisions (including product warranty, restructuring and legal provisions)
As further explained in Note 1 to the Financial Statements, a provision is recognised in the Financial
Statements when the Group has a present legal or constructive obligation as a result of a past event
and it is probable that an outflow of resources, that can be reliably measured, will be required to settle
the obligation. Provisions are recognised at an amount equal to management’s best estimate of the
expenditure required to settle the Group’s liability, taking into account the time value of money,
where this is considered material.
On legal and contractual exposures, the Committee received reports in January and July 2015 and
January 2016 from the Head of Commercial and Company Secretary outlining the open legal and
contractual disputes and best estimate of the expected costs associated with such matters.
Management confirmed to the Committee that the provisions recorded at 31 December 2015
represented their best estimate of the likely financial exposure faced by the Group.
The external auditor explained to the Committee the work it had conducted during the year, which
supported the carrying value of the provisions.
Following discussion of the key assumptions and judgements, the Committee concluded that the
carrying values were reasonable in the circumstances.
Further information about the specific categories of provisions held by the Group is set out in Note 18
to the Financial Statements.
Judgement is required to determine the fair value of assets and liabilities acquired in business
combinations, particularly in respect of intangible assets which can be industry specific. Contingent
consideration payable on the achievement of future sales targets is dependent on the achievement
of these targets. As a result, judgement is required in measuring the fair value of the Group’s
contingent consideration obligation, both at the acquisition date and at the Consolidated Statement
of Financial Position date.
The Committee considered the approach taken by management and the work undertaken by the
external auditor and concluded that the judgements that had been made were fair and appropriate.
Management confirmed to the Committee that they were not aware of any material or immaterial
misstatements made intentionally to achieve a particular presentation.
The Committee confirms that as a result of the presentations made to the Committee by the external
auditor and the ensuing discussions and questioning of the external auditor by Committee members,
it is satisfied that the external auditor has fulfilled its responsibilities with diligence and
professional scepticism.
After reviewing the presentations and reports from management and consulting where necessary
with the external auditor, the Committee is satisfied that the Financial Statements appropriately
address critical judgements and key estimates (both in respect to the amounts reported and
the disclosures).
The Committee is also satisfied that the significant assumptions used for determining the value of
assets and liabilities have been appropriately scrutinised and challenged, and are sufficiently robust.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 ACCOUNTABILITY CONTINUED
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Fair, balanced and understandable
The Code requires the Board to confirm that
they consider the Annual Report and Accounts,
taken as a whole, to be fair, balanced and
understandable and that it provides the
information necessary for shareholders to
assess the Company’s performance, business
model and strategy. The Committee provided
assistance to the Board in this regard by
considering the robustness of the process
by which the Annual Report and Accounts
is prepared. The processes adopted in
relation to the 2015 Annual Report involved
the following:
_ Specific ownership and responsibility for
the individual sections was allocated and
documented, which was then provided to the
Committee as part of its review of the process.
_ During the compilation period regular
meetings were held with members of Group
Finance, Group Secretariat and Corporate
Affairs, all primary authors of the Annual
Report. These meetings ensured that there
was appropriate linkage between the various
sections of the report and that our reporting
was balanced.
_ An extensive verification exercise was
undertaken to ensure factual accuracy.
_ The content of the Annual Report was subject
to comprehensive reviews by Executive and
senior management. In particular, a review
of the entire Annual Report and Accounts
was undertaken to ensure that it promotes
consistency and balance between the
narrative front half and accounts sections.
_ At our December 2015 meeting, the
Committee reviewed the latest draft of
the 2015 Annual Report and Accounts.
_ At our February 2016 meeting, the
Committee challenged the fair, balanced
and understandable assessment and
examined whether appropriate balance and
equal prominence had been given to positive
and negative news.
_ Following review and comment by both the
Committee and the Board, the Annual Report
and Accounts was subject to final approval by
the Board.
_ detailed analysis of the Group’s key risks
including mapping of risks to controls to
sources of assurance; and
_ a summary of specific stress testing carried
out in respect of five of the Group’s key risks.
The Committee was satisfied with the process
undertaken in preparing the Annual Report
and Accounts. Following discussions at our
February 2016 meeting, we have advised the
Board that the Annual Report and Accounts,
taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
performance, strategy and business model
of the Company.
Viability statement
The Committee provided assistance to the Board
in relation to the viability statement required
under the Code. During the year, the Committee
considered an assessment of our risk
management framework. This resulted in a
number of enhancements to further develop
how the Group evaluates risk and to ensure a
sharper focus on the mapping of risks against
controls and assurance through implementing
the ‘lines of defence’ approach to the Group’s
key risks. Further detail can be found in the
Strategic Report on page 31.
At the Committee’s December meeting, a draft
of the viability statement was considered, in
addition to an extensive review of the risks
and stress testing carried out under robust but
credible scenarios. The Committee debated
the selection of the period over which the
Board should make its viability statement
and recommended a three-year period to the
Board for consideration.
In addition, at our February 2016 meeting the
Committee examined:
_ a baseline assessment of the Group’s financial
position, including sensitivity analysis on sales
and EBITDA from both a liquidity and bank
covenant perspective;
Following due challenge and debate, the
Committee recommended the viability statement
for approval by the Board. The viability
statement and the process undertaken can
be found on page 31.
Internal audit
The Committee is responsible for reviewing the
Group’s internal controls through engagement
with the Head of Internal Audit, who is
employed to perform control reviews across
the Group according to a work programme
agreed by the Committee.
The 2015 internal audit plan was established
based on a number of factors. These included
ensuring that an appropriate level of audit
coverage of the internal controls as applied to
the Group’s core financial processes is achieved
through rotational site visits, whilst also
providing the Committee with reasonable
assurance that controls in respect of certain key
areas of risk management, such as compliance
with laws and regulations or new product
development, operate effectively.
The Head of Internal Audit is assisted in this
work by six further internal auditors who are
located in key strategic locations of the USA,
Asia and the UK. In addition, the Internal Audit
function is supported by additional resources
as required, drawn both internally from within
the organisation and externally through
a co-sourcing agreement with Deloitte.
The Committee debated and agreed the
adequacy of internal assurance resources at its
meetings in January and July 2015 and January
2016, during which progress on the internal
audit plan was also assessed.
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Spectris plc Annual Report and Accounts 2015
Each operating company regularly assesses,
evaluates and reports risks of Group significance
against established criteria with respect to
the impact, likelihood and time frame of
each identified risk. In addition, each operating
company is required to document how it is
managing and mitigating these risks. A summary
of the status of risks is reviewed by the
Committee at least twice a year.
Additional information on the Group’s risk
management framework is on pages 24 to 25 in
the Strategic Report. Further information on the
processes which the Board and the Committee
have applied in reviewing the effectiveness of the
Group’s internal control framework is on page 24.
Whistleblowing policy and process
Details of the Group’s whistleblowing policy are
provided within the Ethics Report on page 49.
External audit
The Committee manages the relationship with
the Group’s external auditor on behalf of the
Board. The Committee is responsible for the
selection process relating to the appointment of
the external auditor, making recommendations
to the Board for the external auditor’s
re-appointment and approving the external
auditor’s remuneration, its terms of engagement
and scope of work as well as whether a formal
tender process is required.
The Committee has considered the risk of the
withdrawal of its external auditor from the market
in its risk evaluation and planning and has
concluded that the risk is insignificant. In the
event that the Company’s external auditor did exit
the market, a replacement appointment would be
made from audit firms of equivalent standing.
Non-audit fees
The Committee considers it essential to
rigorously impose a cumulative annual cap
for non-audit services provided by our external
auditor KPMG LLP (‘KPMG’) (save for acquisition
due diligence and taxation services), above
which all engagements are subject to the
Committee’s prior approval. Non-audit fees
for services provided by KPMG for the year
amounted to £0.2 million (12% of the audit fee).
Further details are included in Note 5 to the
Financial Statements and information regarding
the Company’s non-audit services policy is
provided below.
Effectiveness and independence
The Board considers it of prime importance that
the external auditor remains independent and
objective. To assess the effectiveness of the
external auditor, the Committee carried out an
assessment of KPMG. This included a review of
the agreed audit plan, reports of major issues
arising from the audit process and commentary
from the Group Finance Director, Group Finance,
Internal Audit and operating company
management teams. A review of the procedures
followed by the external auditor to achieve audit
quality was also carried out. In addition, an
internal questionnaire completed by Committee
members and relevant members of management
on their views of KPMG’s performance was also
undertaken. The questionnaire covered a review
of the audit partner and team, the audit
approach, audit plan execution, auditor
independence and objectivity, and robustness of
challenge of management. The feedback received
was reviewed by management and reported to
the Committee. At the December meeting, the
Committee discussed the improvements to be
implemented for the 2015 audit.
The Committee has a non-audit services policy
governing and restricting the appointment of the
external auditor for non-audit services. Services
which have the potential to, or appear to, impair
their independence, for example involvement
in activities that require making judgements
or decisions which are the responsibility of
management, are expressly excluded. The
policy is available on the Company’s website.
The Committee is aware of the changes being
introduced under the EU Audit Reforms to
restrict non-audit services and fees and will be
reviewing the Company’s non-audit services
policy during 2016.
The external auditor’s full-year report to
the Committee contained a statement on
its independence and compliance with the
Auditing Practices Board’s Ethical Standards,
arrangements to manage conflicts of interest,
and the nature and associated fees for
non-audit services provided, which was
assessed by the Committee.
The cumulative cap, periodic refreshment of
the external audit team and review of its work,
together with the ten-year re-tendering of the
external audit service contract, are considered
by the Committee to be appropriate controls
to mitigate threats to the independence and
objectivity of the external auditor.
Appointment
The Committee is responsible for overseeing the
selection process relating to the appointment of
the external auditor, making recommendations
to the Board for the external auditor’s
re-appointment and approving the external
auditor’s remuneration, its terms of engagement
and scope of work.
Re-appointment of the external auditor is
considered by the Committee each year
following a review of the external auditor’s
effectiveness. As noted previously, the output
of the effectiveness review was considered by
the Committee. Following the review as to
the effectiveness of KPMG, the Committee
was content to re-appoint KPMG as the
Group’s external auditor at the AGM held
on 24 April 2015.
Audit tender
KPMG was appointed as the Company’s
external auditor in 1998. In line with rotation
requirements, the lead audit partner has
changed three times. The current audit partner
is Richard Broadbelt, who was appointed in
April 2012. His five-year tenure as lead audit
partner will end in 2017.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 ACCOUNTABILITY CONTINUED
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Under the Competition and Markets Authority’s
Statutory Audit Services for Large Companies
Market Investigation Order 2014 (‘the CMA
Order’), the Company is required to put the
external audit out for competitive tender by
2023 and, thereafter, every ten years. It is the
Committee’s policy to meet this requirement.
As stated in our 2014 Annual Report, it is the
Company’s intention that the next competitive
tender will take place in 2016. The Committee
believes this to be the most appropriate time
to complete the competitive tender process,
considering the length of time that KPMG has
been the Company’s auditor, and it is in line
with the audit partner rotation requirements.
On behalf of the Board, the Committee will
oversee the tender process, negotiate the fee
for the provision of statutory audit services and
make a recommendation to the Board on the
appointment of the external auditor. The
objective of the tender process will be to
benchmark value, service and fees, and identify
areas where the external auditor can add value
to our risk and control environment. There are
no contractual or similar obligations restricting
the Group’s choice of external auditor. The
Committee confirms that it complies with the
provisions of the CMA Order.
Risk management
The Board, when setting the strategy, also
determines the nature and extent of the
significant risks and its risk appetite in
implementing this strategy. Each year, the
Board carries out a robust assessment of the
effectiveness of the Group’s risk management
systems; details of the assessment are provided
on pages 24 and 25.
Information security
During 2015, further progress was made with
our information security programme. External
consultants undertook an independent
assessment of the information security project
by validating the critical information assets in
operating companies, benchmarking the risks
and performing a detailed controls maturity
assessment. The UK Government’s ‘Ten Steps to
Cyber Security’ was used as a consistent control
framework for mitigating key areas of risk for
internal and external benchmarking, resulting in
detailed information security roadmaps being
developed for all operating companies. During
2016, operating companies will continue
implementing the recommendations contained
within the information security roadmaps.
Internal control
The Board is ultimately responsible for the
Group’s system of internal controls and for
carrying out a robust assessment of the
principal risks facing the Group.
Consistent with the guidance provided for
directors on internal control by the FRC
(‘Guidance on Risk Management, Internal
Control and Related Financial and Business
Reporting’), which reflects the Code, the Board
confirms that:
_ there is a robust, ongoing process for
identifying, evaluating and managing
the principal risks faced by the Group;
_ this has been in place for the year ended
31 December 2015 and up to the date
of approval of the Annual Report and
Accounts; and
_ this process has been reviewed by
the Board during the year.
The Board recognises that internal control is
a dynamic process. Therefore, the Group’s
internal control framework, including the risk
management process, is subject to ongoing
review and improvements are made to ensure
that, where appropriate, the framework is
adapted to the Group’s changing risk profile
or in order to address any weaknesses
identified in the control framework itself.
The key elements of the Group’s internal controls
are described below:
_ Day-to-day operational activities are
conducted within an established internal
control framework comprising clear rules,
policies, lines of responsibility and
delegated authorities.
_ A Group Policies and Procedures Manual
(‘the Manual’) provides a common control
framework and sets out the minimum
standards, procedures and internal controls
to be applied in relation to managing technical,
commercial, legal and financial risks.
_ The consistent application of Group
accounting policies and reporting protocols
is supplemented by oversight from the
Group finance team.
_ Monthly reporting from the Group’s
operating companies captures each business’s
performance against plan and highlights
key developments in relation to commercial
outlook, operational matters, legal issues
and internal controls.
_ Annual strategic and financial plans are
established for each segment and operating
company and are subject to review and
approval. Performance against the plans is
subject to ongoing review by the Executive
Directors and the Group has a comprehensive
system for reporting performance to
the Board.
_ Significant capital investments or contractual
commitments and major acquisitions or
divestments are all subject to a clear process for
appraisal, review and approval by the Board.
_ An ethics hotline exists for employees and
other third parties to use to report any
instances of suspected wrongdoing.
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Spectris plc Annual Report and Accounts 2015
Risks and Uncertainties section. The
effectiveness of risk management and
mitigation is reviewed regularly by the
Executive Directors and twice yearly by
the Audit and Risk Committee.
The Board notes that, as with all such systems,
the Group’s internal control framework is
designed to manage rather than eliminate risk
of failure to achieve business objectives, and
can provide only reasonable and not absolute
assurance against material misstatement or loss.
Going concern
The going concern statement can be found
on page 96.
Business model
A description of the Group’s business model
can be found in the Strategic Report on pages
18 to 21.
The processes which the Board and the Audit
and Risk Committee have applied in reviewing
the effectiveness of the Group’s internal control
framework include the following:
_ The Executive Directors report to the Board
on changes in the business and external
environment which present significant risks.
_ The Executive Directors provide the Board with
monthly trading and financial information which
includes key performance indicators and
information on the Group’s operating segments.
_ Regular reports on significant legal, ethics,
compliance and insurance matters are received
from the Head of Commercial and Company
Secretary, including summaries of any reports
received through the Group’s ethics hotline.
_ A certification process in relation to compliance
with the Manual, accounting judgements and
representations has been established, providing
for a documented trail of accountability from
operating company senior management to the
Audit and Risk Committee.
_ The Group has an Internal Audit function
which reviews the design, implementation and
operating effectiveness of internal controls
across the Group’s operations, including
financial, operational and compliance controls.
The Audit and Risk Committee receives regular
reports on the output of internal audit activity,
including the operation of, and issues arising
from, the Group’s internal controls and
procedures.
_ A control self-assessment process against
the Group’s internal control standards is
completed by each operating company and
each material location, with any gaps in
controls assessed and remediation plans
established as appropriate.
_ The Group’s approach to risk management is
described on pages 24 and 25 of the Principal
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 RELATIONS WITH SHAREHOLDERS
Spectris has a comprehensive investor relations
programme designed to assist existing and
potential investors in understanding the Group.
Investor meetings are attended by the Chief
Executive, or the Group Finance Director or the
Head of Corporate Affairs or a combination
thereof. Spectris conducts regular dialogue with
institutional shareholders and discloses such
information as is permitted by the Listing Rules.
Shareholders representing in excess of 2.5% of
the Company’s issued share capital receive a
standing invitation to meet with the Chairman,
the Senior Independent Director or Non-executive
Directors. Such meetings supplement, but do not
replace, the regular meetings with the three
executives. The Board is kept informed of the
views, needs and expectations of shareholders
through presentations and periodic reports
including, but not limited to, market feedback
on investor relations, shareholding analysis and
consensus. Russell King, the Senior Independent
Director, is available to shareholders if they have
concerns that contact through the normal
channels has failed to resolve.
The Company’s website contains up-to-date
information for shareholders and other interested
parties including annual reports, share price
information, news releases, the financial calendar,
presentations to the investment community and
information on shareholder services.
Meetings held with investors
during 2015
During the year, 128 face-to-face meetings
and telephone conference calls were held with
institutional investors who comprise 70% of the
shareholder base. In addition, there were over
200 face-to-face meetings and telephone
conference calls with potential investors.
We have a geographically-diverse shareholder base and the table below details the contact we have
had with existing shareholders and potential investors situated in the UK, North America, Europe
and Asia during the year:
Number of meetings and calls with institutional investors in 2015
Shareholders
Potential investors
UK
North America
Europe (excluding UK)
Asia
Total
68
33
27
0
128
84
52
63
4
203
Total
152
85
90
4
331
Annual General Meeting
Shareholders are invited to the Company’s AGM and have the opportunity to meet and question the
Chairman and Board members. The Company intends to send the Notice of AGM and any related
papers to shareholders at least 20 working days before the meeting. All Directors attend the AGM
unless unforeseen circumstances arise. Committee Chairmen are normally present to take questions
at the AGM. The results of votes at the AGM, together with details of the level of proxy votes
lodged, are available at the AGM and are published on the Company’s website.
Results of the 2015 AGM
1
2
3
Resolution
Receive Annual Report and Accounts
Directors’ Remuneration Report
Declare a final dividend
For
Against
Percentage of
votes cast
Percentage of
votes cast
99.99
99.78
100.00
0.01
0.22
0.00
4–12
Appointment of Directors
94.5 – 100.00
5.5 – 0.00
13
14
15
16
17
18
19
Appoint KPMG as auditor
Auditor’s remuneration
Authority to allot shares
Pre-emption rights
Purchase own shares
Adopt new Articles
Allow general meetings on 14 days’ notice
No significant votes were cast against any of the resolutions put to the 2015 AGM.
98.65
99.24
98.01
99.42
99.99
99.99
93.36
1.35
0.76
1.99
0.58
0.01
0.01
6.64
In April we held a Capital Markets Day in
London, attended by 45 analysts, shareholders
and representatives from our lending banks.
At the event the Chief Executive announced an
evolution of the Group’s strategy (see page 6
for further information) and there were
supporting presentations given by our two
Business Group Directors as well as four of our
operating company Presidents. The Group’s
Finance Director and Head of Corporate
Development were also in attendance and
there was substantial opportunity for guests
to ask questions of all senior management
representatives. The webcast of the event and
associated presentations are available for all
shareholders to view and download at
www.spectris.com/investors/reports-results-
and-presentations/2015.
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DIRECTORS’ REMUNERATION REPORT
LETTER FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE
Russell King
Chairman of the
Remuneration Committee
Our remuneration policy supports
our strategy and is designed
to promote long-term success,
taking account of appropriate
risk considerations.
I am pleased to present the 2015 Directors’
Remuneration Report.
The Directors’ Remuneration Policy introduced
and approved at the 2014 AGM remains
appropriate for the Company’s needs and,
consequently, for the second year running no
amendments will be proposed for consideration
at the 2016 AGM. However, during 2016 your
Committee will undertake a holistic review of
the Policy in advance of the 2017 AGM where
it falls due for triennial renewal. Any changes
made will be to ensure continued alignment
with the Company’s strategy or to reflect
developing market practice.
During 2015, in addition to the implementation
of the agreed Policy, your Committee has
reviewed the malus and clawback provisions
put in place for the Executive Committee in 2011
and implemented revised forms reflecting
current practice and investor expectations.
Remuneration strategy
Linking total reward closely to business
strategy and performance continues to underpin
your Committee’s consideration of executive
remuneration. We aim to ensure that the
Company’s remuneration policy is designed to
promote long-term success, taking account of
appropriate risk considerations. Accordingly,
the Executive Directors’ overall package provides
an appropriate balance between fixed and
performance-related remuneration, with the
latter elements being subject to demanding
performance conditions aligned with the
Group’s strategic objectives.
The key elements of the Executive Directors’
remuneration arrangements are:
_ base salary and total package set modestly
below the median of UK quoted companies
of comparable size, subject to adjustment
up or down to reflect the experience and
performance of individual incumbents;
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 Future reviews
The Committee’s remuneration advisers,
FIT Remuneration Consultants LLP (‘FIT’),
completed the biennial benchmarking review
of the Chairman’s fee during 2014. Based on
the results of that review, your Committee
determined that an increase from £180,000
to £200,000 should be implemented with
effect from 1 January 2015, with a subsequent
increase to £210,000 at 1 January 2016.
The Executive Directors’ salaries were increased
at a level consistent with average UK wage
inflation as below:
J E O’Higgins
C G Watson
2016 salary
£578,000
£367,250
Percentage
increase
1.5%
1.5%
I hope that you will agree that our remuneration
strategy and its implementation remains
appropriate and that you will support the
advisory vote on the 2015 Directors’
Remuneration Report at the Annual
General Meeting.
Yours faithfully
Russell King
Chairman of the Remuneration Committee
16 February 2016
DIRECTORS’ REMUNERATION REPORT CONTINUED
_ on-target and maximum annual bonus of,
respectively, 60% and 125% of salary, only
payable on achievement of stretching profit
and individual objectives;
_ annual awards under the Company’s
Performance Share Plan (‘PSP’) of up to 200%
of salary, with vesting after three years based
one-third upon total shareholder return (‘TSR’)
relative to the FTSE 250 index, one-third upon
adjusted earnings per share growth (‘EPS’),
and one-third on economic profit delivery;
_ benefits provided on a market-competitive
basis; and
_ any bonus payment in excess of 60% to be
applied to the purchase of Spectris shares and
any shares arising (post tax) from PSP vesting
to be retained until a three times base salary
shareholding is achieved.
The anticipated reward mix for the Chief
Executive and Group Finance Director is shown
in the chart below. This assumes PSP awards
with a value on grant equal to 200% of the
Director’s base salary leading to an expected
vesting of 110% of base salary and an annual
bonus on-plan expectation of 60% of salary.
Executive Directors’ anticipated
reward mix (%)
40
26
10
24
Base pay
Pension
Annual bonus
Performance Share Plan
The UK Corporate Governance Code asks
remuneration committees to consider requiring
an extended holding period for shares arising
after the vesting of three-year PSP grants. This
possibility was considered prior to submission of
the Directors’ Remuneration Policy to the 2014
AGM and has been reviewed subsequently on
an annual basis. Whilst appreciating the
desirability of longer-term alignment with
shareholders’ interests, your Committee believes
that this is equally achieved by the three times
base salary shareholding guideline, which was
introduced within the current Policy and lies
significantly above normal practice elsewhere.
2015 remuneration
2015 presented difficult trading conditions.
The target profitability established by your
Committee at the outset of the year was not
achieved and hence no payment will be made
under this element of the annual bonus plan.
Progress was achieved against the personal
objectives set in respect of 2015, and an average
bonus was achieved for the Executive Directors
of 16% out of a potential 25% of base salary for
these objectives. At the recommendation of the
Executive Directors and in the context of the
financial results for the year, entitlement to this
element of bonus was waived.
In the period from the end of the base year in
2012 to 2015, the Company’s share price has
fallen by 12% whilst the annual dividend has
increased by 27%. The PSP awards maturing
on 27 February 2016 will not vest on the EPS
measure and are not expected to vest on
the TSR measure.
Whilst only a snapshot in time, as at the end of
2015, the PSP grants maturing in spring 2017 are
also unlikely to vest on the EPS, TSR or Economic
Profit measures. The grants made in March 2015
are too early in their three-year performance
period to make reliable predictions as to outcome.
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Spectris plc Annual Report and Accounts 2015
REMUNERATION COMMITTEE
The Directors present their Remuneration Report
for the year ended 31 December 2015.
Role of the Committee
The Committee is responsible for recommending
to the Board the policy for the remuneration of
the Chairman, the Chief Executive, the Group
Finance Director, the Company Secretary and
other members of the Group Executive
Committee. The remuneration of Non-executive
Directors is reserved to the Board. Within its
terms of reference agreed by the Board, the
Committee determines:
_ total individual remuneration packages,
including bonuses and share-based incentives
for the Executive Directors and other members
of the Executive Committee;
_ targets for any performance-related
incentives;
_ the scope of any pension arrangements;
_ contractual terms of engagement and any
payments to be made on termination; and
_ the policy for authorising claims for expenses
from the Chairman and Chief Executive.
The terms of reference of the Remuneration
Committee can be found on the Company’s
website and are available on request.
The Remuneration Committee regularly
reviews the balance between fixed and
variable pay and the performance conditions
attaching to short- and long-term incentives.
The Committee also monitors the level and
structure of remuneration for operating
company Presidents and Managing Directors.
FIT was appointed in August 2011 to advise the
Committee on various aspects of the Chairman’s
and Executive Directors’ remuneration. FIT’s
Mr J Lee provides such advice to the Committee.
Neither FIT nor Mr Lee provides any other
services to the Company.
New Bridge Street (‘NBS’) separately provide
services to the Company in compiling IFRS 2
‘Share Based Payment’ reporting on the
Company’s share plans and TSR performance
calculations in relation to the Company’s PSP.
NBS does not provide any other services to the
Company. FIT was paid £4,528 in respect of
services undertaken in 2015 (2014: £35,083).
NBS was paid £38,950 in respect of services
undertaken in 2015 (2014: £24,854). These
fees were charged on the basis of each firm’s
standard terms of business. Both FIT and NBS
are members of the Remuneration Consultants
Group and adhere to its Code of Conduct.
The firms were appointed by the Committee
following appropriate consideration of their
experience and their knowledge of the
Company’s business. The Committee is therefore
satisfied that the advice which it receives is
objective and independent.
Remuneration Committee
allocation of time (%)
20
5
20
25
15
15
Policy considerations
Salary reviews
PSP grants
Bonus and PSP
performance ranges
Personal objectives
Consideration of
shareholder feedback
on the 2014 Directors’
Remuneration Report
Composition of the Committee
The Remuneration Committee comprises:
Activities in 2015
Key issues considered by the Committee during
the year included:
_ Russell King (Chairman)
_ Peter Chambré
_ Lisa Davis
_ Ulf Quellmann
_ the approval of the 2014 Directors’
Remuneration Report;
_ consideration of shareholder feedback on
the 2014 Directors’ Remuneration Report;
All members of the Committee are independent
Non-executive Directors.
_ the review and approval of PSP vesting;
_ a review and determination of the
Committee meetings
The Committee met four times during the year.
Committee attendance is disclosed on page 61.
The Chairman and Chief Executive may be in
attendance by invitation and the Committee
takes into consideration their recommendations
regarding the remuneration of their executive
colleagues. Neither is involved in discussions
concerning their own remuneration.
performance measures for the 2015
PSP grants;
_ the approval of Executive, head office
and operating company PSP grants;
_ the approval of Executive 2014 bonus
out-turn;
_ the approval of operating company
management 2015 bonus plans; and
_ a review of the malus and clawback provisions
in place for the Executive Committee and
approval of the revised documentation.
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Remuneration Policy implementation statement
The Board, in considering the recommendations of the Remuneration Committee, complied throughout the year with the provisions of the UK Corporate
Governance Code (including the principles for performance-related remuneration set out in Section D). The Directors’ Remuneration Policy, approved by
shareholders at the 2014 AGM, was adhered to throughout the year and seeks to ensure that the high-calibre individuals required at Board level are
a) fairly and competitively remunerated and b) incentivised in a manner which aligns with and drives the Group’s strategic objectives with consideration
for its risk policies and internal control systems.
Element of remuneration package
Relevance to the Company’s short- and long-term strategic objectives
Operation
Maximum potential value
Performance metrics
Base salary
Competitive fixed remuneration that enables Spectris to
attract and retain key executives.
Reviewed annually.
Benchmarked triennially against relevant comparators.
The current intent is to limit any increases for Executive Directors to the average
Reflects both the role and the Director’s skills, performance
increase for general UK wage inflation although the Committee reserves the right
and experience, referenced to a level at or modestly below
to award increases in excess of this should it consider that to be appropriate.
the comparator group’s median.
Annual bonus
Drives short-term profit performance.
Bonus potential is set at a market-competitive level.
Increased to 125% of salary from 2014 (previously 100%).
Incentivises executives to achieve specific pre-determined
stretching objectives relevant to Spectris and the
individual’s personal responsibilities.
The Spectris Performance
Share Plan (‘PSP’)
Drives the delivery of sustained compound annual growth
in EPS, relative out-performance in TSR and increased
economic profit.
Bonus payments in excess of 60% of salary must be
used to acquire shares in Spectris until the minimum
holding of three times base salary is achieved.
Payable in cash.
Clawback provisions enable variable remuneration to be
reclaimed under exceptional circumstances, were there
to be any miscalculation of entitlement, misstatement
of accounts or incidence of fraud.
Awards made annually, with a three-year vesting
duration. The Committee may modify the terms for
future awards provided they are not, overall, more
favourable to participants.
Subject to similar clawback provisions as described
above for annual bonus.
Awards may be made in the standard form of awards
to receive shares for nil or nominal cost (with the
shares either being delivered automatically at vesting
or being delivered at a time following vesting at the
individual’s choice), forfeitable awards of shares or
in the form of cash-based conditional awards.
The Company also has scope to satisfy the above
awards using an HMRC-approved Executive Share
Option Scheme (which permits market value share
options to be awarded subject to HMRC’s limit
of, currently, £30,000).
The Company will honour the vesting of all awards
granted under previous policies in accordance with
the terms of such awards.
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Spectris plc Annual Report and Accounts 2015
The general policy is to limit salaries to the median for the roles. However, as a
formal cap is required, no increase will be made if it would take an Executive
Director’s salary above (or, if already above, further above) 110% of the median
level of the salaries of chief executives within a comparator group of companies
which, when or shortly prior to when the increase is proposed, are ranked by
market capitalisation within plus or minus 20 companies of Spectris.
Increased to 200% of salary from 2014 (previously 125%).
Notional re-investment of dividends will apply from date of
grant to date of vesting.
The performance measures to be applied will be assessed
annually and may be financial or non-financial and corporate,
divisional or individual and in such proportions as the Committee
considers appropriate.
Once set, performance measures will generally remain unchanged
for the year, except to reflect events such as corporate
acquisitions or other major transactions.
A minimum (threshold) level of performance will result in a bonus
of 1% of salary. At target this is 60% of salary, and at maximum
this will be 125% of salary.
The Committee may set such performance conditions on
PSP awards as it considers appropriate (whether financial or
non-financial and whether corporate, divisional or individual).
The Directors’ Remuneration Policy was set out within the 2013 Directors’ Remuneration Report, contained in the 2013 Annual Report and Accounts.
This can be viewed under the Investors section of the Company’s website.
The table below describes each component of the remuneration package applicable to the Executive Directors under the Directors’ Remuneration Policy.
Element of remuneration package
Relevance to the Company’s short- and long-term strategic objectives
Operation
Maximum potential value
Performance metrics
Base salary
Competitive fixed remuneration that enables Spectris to
Reviewed annually.
attract and retain key executives.
Benchmarked triennially against relevant comparators.
The current intent is to limit any increases for Executive Directors to the average
increase for general UK wage inflation although the Committee reserves the right
to award increases in excess of this should it consider that to be appropriate.
The general policy is to limit salaries to the median for the roles. However, as a
formal cap is required, no increase will be made if it would take an Executive
Director’s salary above (or, if already above, further above) 110% of the median
level of the salaries of chief executives within a comparator group of companies
which, when or shortly prior to when the increase is proposed, are ranked by
market capitalisation within plus or minus 20 companies of Spectris.
Reflects both the role and the Director’s skills, performance
and experience, referenced to a level at or modestly below
the comparator group’s median.
Annual bonus
Drives short-term profit performance.
Bonus potential is set at a market-competitive level.
Increased to 125% of salary from 2014 (previously 100%).
Incentivises executives to achieve specific pre-determined
stretching objectives relevant to Spectris and the
individual’s personal responsibilities.
The Spectris Performance
Drives the delivery of sustained compound annual growth
Awards made annually, with a three-year vesting
Share Plan (‘PSP’)
in EPS, relative out-performance in TSR and increased
duration. The Committee may modify the terms for
economic profit.
Increased to 200% of salary from 2014 (previously 125%).
Notional re-investment of dividends will apply from date of
grant to date of vesting.
Bonus payments in excess of 60% of salary must be
used to acquire shares in Spectris until the minimum
holding of three times base salary is achieved.
Payable in cash.
Clawback provisions enable variable remuneration to be
reclaimed under exceptional circumstances, were there
to be any miscalculation of entitlement, misstatement
of accounts or incidence of fraud.
future awards provided they are not, overall, more
favourable to participants.
Subject to similar clawback provisions as described
above for annual bonus.
Awards may be made in the standard form of awards
to receive shares for nil or nominal cost (with the
shares either being delivered automatically at vesting
or being delivered at a time following vesting at the
individual’s choice), forfeitable awards of shares or
in the form of cash-based conditional awards.
The Company also has scope to satisfy the above
awards using an HMRC-approved Executive Share
Option Scheme (which permits market value share
options to be awarded subject to HMRC’s limit
of, currently, £30,000).
The Company will honour the vesting of all awards
granted under previous policies in accordance with
the terms of such awards.
The performance measures to be applied will be assessed
annually and may be financial or non-financial and corporate,
divisional or individual and in such proportions as the Committee
considers appropriate.
Once set, performance measures will generally remain unchanged
for the year, except to reflect events such as corporate
acquisitions or other major transactions.
A minimum (threshold) level of performance will result in a bonus
of 1% of salary. At target this is 60% of salary, and at maximum
this will be 125% of salary.
The Committee may set such performance conditions on
PSP awards as it considers appropriate (whether financial or
non-financial and whether corporate, divisional or individual).
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 DIRECTORS’ REMUNERATION REPORT CONTINUED
Element of remuneration package
Relevance to the Company’s short- and long-term strategic objectives
Operation
Maximum potential value
Performance metrics
Pension and benefits in kind
Market-competitive defined contribution pension and
benefits in kind, enabling Spectris to attract and retain key
executives.
Benefits in kind include company cars or allowances,
private fuel and medical expenses, and life and
disability insurance.
Pension and benefits in kind are benchmarked
periodically.
All-employee share plans
The Spectris Savings Related Share Option Scheme is
operated to encourage share ownership by employees,
thereby allowing them to share in the long-term success
of the Group and align their interests with those of
shareholders.
Share ownership guidelines
To encourage share ownership by the Executive Directors
and ensure that their interests are aligned with
shareholders.
Individuals may save up to a maximum of £500 per
month for a fixed period of three years. At the end of the
savings period, individuals may use their savings to buy
ordinary shares in the Company. There is flexibility to set
an exercise price at a discount (currently capped at 20%)
to the market price set at the launch of each scheme
although Spectris does not currently offer such
a discount.
Executive Directors are required to apply the post-tax
benefit of any vested PSP awards or any bonus
payments exceeding 60% of base salary to the
acquisition of shares until the required level of
shareholding is achieved.
The table below describes the remuneration package applicable to the Chairman and the Non-executive Directors under the Directors’ Remuneration Policy:
Element of remuneration package
Relevance to the Company’s short- and long-term strategic objectives
Operation
Maximum potential value
Performance metrics
Fees
Drives short-term profit performance.
Competitive fees that enable Spectris to attract able and
experienced directors.
Reviewed biennially and determined by reference
to market practice.
Base fee is supplemented by allowances for
chairmanship of the Audit and Risk and Remuneration
Committees, travel allowance and chairmanship of
the pension scheme trustee board. The Board reserves
the right to vary the basis for setting fees (such as
introducing Committee membership fees) should it
consider that to be appropriate.
There is no participation in bonus, share plan
or pension arrangements.
The Company reserves the ability to provide the
Company Chairman with certain benefits in kind
and / or a contribution towards the provision of office
facilities where appropriate, although the current
Chairman does not presently receive such benefits.
A departing gift may be provided up to a
value of £2,500 per Director.
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Spectris plc Annual Report and Accounts 2015
25% of salary company pension contribution and / or taxable allowance in lieu.
Not applicable to this element.
It is not possible to prescribe the likely change in the cost of insured benefits or the
cost of some of the other reported benefits and so a monetary limit of £30,000 p.a.
post tax per Executive Director has been set for the duration of this policy
although, clearly, the Committee will monitor the costs in practice and ensure
that the overall costs do not increase by more than the Committee considers to
be appropriate in all the circumstances.
Where the requirements of the business involve a Director relocating, the Company
may make a payment towards related expenses of up to £60,000. While not
practice to date, the Committee may award additional expatriate allowances
of up to a further £30,000 p.a. if such a relocation is to outside the UK.
A departing gift may be provided up to a value of £2,500 per Director.
Executive Directors are able to participate in all-employee share plans on the same
Consistent with normal practice, such awards are not subject
terms as other Group employees.
to performance conditions.
Each Executive Director is, subject to personal circumstances, required to build a
Not applicable to this element.
retained shareholding in Spectris plc of at least three times base salary in value
within a five-year period from appointment to the Board.
The aggregate fees of the Chairman and Non-executive Directors will not exceed
Not applicable to this element.
the limit from time to time prescribed within the Company’s Articles of Association.
Element of remuneration package
Relevance to the Company’s short- and long-term strategic objectives
Operation
Maximum potential value
Pension and benefits in kind
Market-competitive defined contribution pension and
Benefits in kind include company cars or allowances,
benefits in kind, enabling Spectris to attract and retain key
private fuel and medical expenses, and life and
executives.
disability insurance.
Pension and benefits in kind are benchmarked
periodically.
25% of salary company pension contribution and / or taxable allowance in lieu.
It is not possible to prescribe the likely change in the cost of insured benefits or the
cost of some of the other reported benefits and so a monetary limit of £30,000 p.a.
post tax per Executive Director has been set for the duration of this policy
although, clearly, the Committee will monitor the costs in practice and ensure
that the overall costs do not increase by more than the Committee considers to
be appropriate in all the circumstances.
Where the requirements of the business involve a Director relocating, the Company
may make a payment towards related expenses of up to £60,000. While not
practice to date, the Committee may award additional expatriate allowances
of up to a further £30,000 p.a. if such a relocation is to outside the UK.
A departing gift may be provided up to a value of £2,500 per Director.
Performance metrics
Not applicable to this element.
All-employee share plans
The Spectris Savings Related Share Option Scheme is
Individuals may save up to a maximum of £500 per
operated to encourage share ownership by employees,
month for a fixed period of three years. At the end of the
thereby allowing them to share in the long-term success
savings period, individuals may use their savings to buy
of the Group and align their interests with those of
ordinary shares in the Company. There is flexibility to set
shareholders.
Executive Directors are able to participate in all-employee share plans on the same
terms as other Group employees.
Consistent with normal practice, such awards are not subject
to performance conditions.
Share ownership guidelines
To encourage share ownership by the Executive Directors
Executive Directors are required to apply the post-tax
and ensure that their interests are aligned with
shareholders.
Each Executive Director is, subject to personal circumstances, required to build a
retained shareholding in Spectris plc of at least three times base salary in value
within a five-year period from appointment to the Board.
Not applicable to this element.
The table below describes the remuneration package applicable to the Chairman and the Non-executive Directors under the Directors’ Remuneration Policy:
Element of remuneration package
Relevance to the Company’s short- and long-term strategic objectives
Operation
Maximum potential value
Fees
Drives short-term profit performance.
Reviewed biennially and determined by reference
The aggregate fees of the Chairman and Non-executive Directors will not exceed
the limit from time to time prescribed within the Company’s Articles of Association.
Performance metrics
Not applicable to this element.
Competitive fees that enable Spectris to attract able and
experienced directors.
an exercise price at a discount (currently capped at 20%)
to the market price set at the launch of each scheme
although Spectris does not currently offer such
a discount.
benefit of any vested PSP awards or any bonus
payments exceeding 60% of base salary to the
acquisition of shares until the required level of
shareholding is achieved.
to market practice.
Base fee is supplemented by allowances for
chairmanship of the Audit and Risk and Remuneration
Committees, travel allowance and chairmanship of
the pension scheme trustee board. The Board reserves
the right to vary the basis for setting fees (such as
introducing Committee membership fees) should it
consider that to be appropriate.
There is no participation in bonus, share plan
or pension arrangements.
The Company reserves the ability to provide the
Company Chairman with certain benefits in kind
and / or a contribution towards the provision of office
facilities where appropriate, although the current
Chairman does not presently receive such benefits.
A departing gift may be provided up to a
value of £2,500 per Director.
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Implementation of the Remuneration Policy for 2016
Element of Remuneration Policy
Implementation detail
Base salary
Annual bonus
Performance Share Plan
Pension and benefits in kind
Increase in the Chief Executive’s salary to £578,000 and the Group Finance Director’s salary to
£367,250 with effect from 1 January 2016. In line with the Directors’ Remuneration Policy, these
increases are at a level consistent with average UK wage inflation.
Bonus maximum for the Executive Directors is unchanged at 125% of base salary.
Performance measures for annual bonus in 2016 are weighted as follows:
_ 100% adjusted profit before tax.
_ 25% personal objectives.
These weightings are unchanged from 2015. The performance targets for the adjusted profit
before tax measure will be disclosed within the 2016 Directors’ Remuneration Report.
Award levels for the Executive Directors for 2016 are unchanged at 200% of base salary.
No changes to these elements from 2015:
_ 25% of base salary pension contribution for the Executive Directors.
_ No change to benefits in kind provided.
All-employee share plans
Continued opportunity to participate in an HMRC-approved Savings Related Share Option
Scheme on the same basis as all other UK employees.
Share ownership guidelines
300% of base salary (as from the 2014 AGM).
Chairman
Increase in the Chairman’s fee to £210,000.
The following table sets out a summary of the Directors’ service contracts or terms of appointment. Executive Directors’ service contracts provide,
subject to statutory rights, for automatic termination on the Director reaching the age of 65.
Executive Directors
J E O’Higgins
C G Watson
Non-executive Directors
P A Chambré
L A Davis
Dr J L M Hughes CBE
R J King
U Quellmann
W C Seeger
M B Wyrsch
Date of contract
Expiry date
Notice period
1.1.06
1.10.06
1.8.06
25.4.14
1.6.07
12.10.10
1.1.15
1.1.15
1.6.12
3.2.29
4.2.23
renewable at each AGM
renewable at each AGM
renewable at each AGM
renewable at each AGM
renewable at each AGM
renewable at each AGM
renewable at each AGM
12 months
12 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
Length of service at
16 February 2016
10 years 1 month
9 years 4 months
9 years 6 months
1 year 9 months
8 years 8 months
5 years 4 months
1 year 1 month
1 year 1 month
3 years 8 months
Non-executive Directors
All Non-executive Directors’ conditions of appointment provide for a six-month period of notice and are renewable at each AGM, subject to review prior
to proposal for re-election. Ordinarily appointments do not continue beyond nine years after first election, at which time Non-executive Directors cease
to be presumed independent under the UK Corporate Governance Code.
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Spectris plc Annual Report and Accounts 2015
Consideration of shareholders’ views
The 2014 Directors’ Remuneration Report was supported by 99.1% of those registering votes by proxy in advance of the 2015 AGM, as can be seen from
the table below:
To approve the Directors’ Remuneration Report
for the year ended 31 December 2014
For
Against
Abstain
Number
Percentage
Number
Percentage
Number
Percentage
92,375,398
99.1%
208,179
0.2%
657,174
0.7%
Directors’ remuneration and interests
KPMG, the Company’s external auditor, is required to report if certain information disclosed below has been prepared in accordance with the Companies
Act 2006. The information subject to audit is clearly identified.
Single total figure of remuneration (subject to audit)
The single figure for the remuneration of each Director who served during the year is as follows:
£’000
A. Base salary / fees
B. Taxable benefits
C. Bonus
D. PSP and Save As You Earn
E. Pension-related benefits
Total
J E
O’Higgins
C G
Watson
Dr J L M
Hughes CBE
P A
Chambré
L A
Davis
R J
King
U
Quellmann
W C
Seeger
J A
Warren1
M B
Wyrsch
2015
2014
2015
2014
2015
2014
2015
20142
2015
2014
2015
20142
570
560
17
17
–
101
–
304
142
140
729
1,122
362
355
15
17
–
57
–
188
90
89
467
706
200
180
–
–
–
–
–
–
–
–
200
180
53
50
–
–
–
–
–
–
–
–
53
50
61
34
–
–
–
–
–
–
–
–
61
34
68
58
–
–
–
–
–
–
–
–
68
58
53
–
–
–
–
–
–
–
–
–
53
–
69
–
–
–
–
–
–
–
–
–
69
–
29
76
–
–
–
–
–
–
–
–
29
76
61
58
–
–
–
–
–
–
–
–
61
58
1 A fee of £9,500 was payable to J A Warren in respect of his position as Chair of the Spectris Pension Trustees Limited board.
2 The 2014 numbers for PSP and Save As You Earn have been adjusted as described in Share Plans, below.
The total aggregate base salaries, fees, benefits, cash bonuses and share schemes for all Directors in 2015 was £1,790,000 (20142: £2,678,000).
Taxable benefits are company cars, private fuel, allowances paid in lieu of company cars and private fuel, medical expenses insurance and travel allowance.
2016 salary reviews
The Executive Directors’ salaries were reviewed effective 1 January 2016, an increase of 1.5% to both the Chief Executive and the Group Finance
Director being awarded. An increase effective 1 January 2016 of 5% to £210,000 for the Chairman will be implemented, as previously determined.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
DIRECTORS’ REMUNERATION REPORT CONTINUED
2015 annual bonus
Annual bonus was achievable up to 125% of base salary, based on adjusted profit before tax (100% of base salary potential) and personal (25% of
base salary potential) targets. Bonus entitlement achieved in respect of 2015 performance, based on the targets set at the start of the financial year,
was as follows (as a percentage of salary at 31 December 2015):
J E O’Higgins
C G Watson
17%
15.5%
Within the above entitlement for Mr J E O’Higgins and Mr C G Watson, 0% related to the profitability target and the balance to achievement
of personal objectives.
The profitability bonus range established by the Committee for 2015 was as follows:
Bonus level
Adjusted profit before tax
0%
£190 million
50%
£207.5 million
100%
£220 million
The 2015 personal objectives for the Chief Executive and Group Finance Director covered a range of areas. These objectives, and the weightings
accorded to each, are detailed below:
Chief Executive
Objective
Strategy implementation: the creation of four strategic platforms for growth in the areas of materials and life sciences, energy,
software and services and industrial automation, with the emphasis on transformational platform acquisitions.
People and talent: design and implement a common talent review and management programme for each operating company and at
Group level.
Organisation values & operational excellence: continue to build a consistent operating culture and model across the Group
centred on shared values. Improve the Group’s customer focus through implementation of common customer satisfaction metrics. Continue
the implementation of Lean Six Sigma principles across all operating companies as a consistent basis for improving operational excellence.
Maintain leadership focus on Spectris’ Code of Business Ethics and improving diversity.
Group Finance Director
Objective
Strategy: provide support for tracking progress against the delivery of strategic objectives.
Treasury: maintain monthly average working capital to sales percentage ratios. Put in place a revised hedging strategy for BTG
(operating company) and implement mitigating actions to reduce the effects of Swiss Franc revaluation.
Controlling: information security and forecasting accuracy: obtain clarity on valuable information assets held by operating companies.
Implement a fit-for-purpose plan for protecting these assets. Work with operating companies to improve forecasting accuracy.
Tax: respond to new Transfer Pricing documentation requirements and create a Group masterfile compliant with new OECD regulations.
Ensure appropriate Transfer Pricing policies are in place for all operating companies.
Internal audit: develop an internal audit charter setting out the expected scope of internal audit activity and complete a gap analysis.
Implement required improvements.
Weighting
16%
4%
5%
Weighting
5%
10%
3%
4%
3%
The Committee takes into account achievement against each of the objectives as well as overall performance. The Board’s Chairman assesses the
Chief Executive’s performance and the Chief Executive provides an assessment in respect of the Group Finance Director. The Chief Executive and
Group Finance Director waived their entitlement to bonus as outlined above and no payout was made.
Similar financial and personal targets have been set for 2016 and the Committee will report these in next year’s report (considering them to be
commercially sensitive during the course of the relevant financial year).
86
Spectris plc Annual Report and Accounts 2015
Share plans
PSP values for 2015 are shown as nil since the actual value at vesting (24 February 2015) of those shares subject to a TSR performance condition within
the 2012 PSP grant was zero and the number of shares vesting during 2016 in respect of the portion of the 2013 PSP award subject to an EPS growth
condition was also zero.
PSP values for 2014 represent the actual value at vesting (11 April 2014) of those shares subject to a TSR performance condition within the 2011 PSP grant.
Performance Share Plan
Awards to the Executive Directors are currently structured so that one-third of the award is subject to an EPS target, one-third is subject to a TSR target
and one-third is subject to an economic profit target. Each condition operates over a fixed three-year period with no opportunity for re-testing. These
performance criteria are summarised in the tables below.
Company EPS performance
Percentage of award that vests (expressed as a percentage of one-third of the total number of shares subject to an award)
Consumer Prices Index (‘CPI’) + 13%
compound per annum (‘c.p.a.’)
100%
Between CPI + 5% and 13% c.p.a.
Pro-rata straight-line between 20% and 100%
CPI + 5% c.p.a.
Less than CPI + 5% c.p.a.
20%
0%
Company TSR performance relative to
the FTSE 250 (excluding investment trusts)
Percentage of award that vests (expressed as a percentage of one-third of the total number of shares subject to an award)
Upper quintile or above
100%
Between upper quintile and median
Pro-rata straight-line between 20% and 100%
Median
Below median
20%
0%
Aggregate economic profit over the
performance period 2014 award
Aggregate economic profit over the
performance period 2015 award
Aggregate economic profit over the
performance period 2016 award
Percentage of award that vests (expressed
as a percentage of one-third of the total
number of shares subject to an award)
Less than £260 million
Less than £250 million
Less than £145 million
£260 million
£250 million
£145 million
Nil
20%
Between £260 million and
£340 million
Between £250 million and
£370 million
Between £145 million and
£275 million
Between 20% and 100%
on a straight-line basis
£340 million or more
£370 million or more
£275 million or more
100%
The 2012 award maturing in February 2015 did not vest either against the EPS target (50% of total award) or the TSR target (50% of total award).
The TSR performance condition is measured independently by NBS. The EPS figure is obtained from the audited Financial Statements and the calculation
of achievement against the growth condition is presented to and approved by the Committee.
The TSR condition is also subject to an underpin that the Committee must satisfy itself that the Company’s relative TSR performance is reflective
of its underlying financial performance.
Additional details:
_ The PSP weightings above are unchanged from 2015.
_ The aggregate economic profit range is determined by the Committee for each new three-year performance period.
_ The performance periods for the EPS and economic profit measures for the 2016 award will be the three financial years 2016, 2017 and 2018.
_ The TSR performance period is the period of three years from the award date.
_ EPS is defined as adjusted EPS of the Company as disclosed in the full-year Financial Statements.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 DIRECTORS’ REMUNERATION REPORT CONTINUED
_ Economic profit is defined as adjusted operating profit (being pre-tax and interest) less (capital employed x the Company’s weighted average cost of
capital (‘WACC’)). WACC was set at 12.5% for the 2014 award and 11% for the 2015 and 2016 awards, except that lower transitional rates will be
applied for subsequent acquisitions. Any impairment of goodwill over a performance period will be added back to capital employed. The Committee
will monitor outcomes for the economic profit measure to ensure that they achieve the original objectives and may adjust the vesting accordingly.
Any exercise of discretion will be justified in the next Directors’ Remuneration Report.
_ For all performance measures, pro-rata straight-line vesting will apply for achievement of performance between the thresholds shown.
Pension entitlements (subject to audit)
The Executive Directors are entitled to a defined contribution pension contribution of 25% of base salary. In light of the pension lifetime allowance of
£1.25 million (£1 million from the 2016 / 2017 tax year) and the maximum annual pension contribution allowance of £40,000, the Executive Directors
are entitled, at their option, to a taxable salary supplement in lieu of some or all of such pension contributions. No Executive Director participated in
a defined benefit pension plan in the year.
Directors’ shareholdings (subject to audit)
Each Executive Director is, subject to personal circumstances, required to build a retained shareholding in Spectris plc of at least three-times base salary
in value and is required to apply the post-tax benefit of any vested PSP awards or any bonus payments exceeding 60% of base salary to the acquisition
of shares until this required level of shareholding is achieved.
There is no requirement for Non-executive Directors to own shares in the Company.
The UK Corporate Governance Code requires the Committee to consider an extended holding period, including after leaving the Company, for shares
arising following vesting of the three-year awards under the PSP. This matter was considered by the Committee prior to submission of the Directors’
Remuneration Policy to the 2014 AGM and was reviewed again in 2015. In the context of the Directors’ Remuneration Policy targetting below median
levels of reward, the three-times base salary shareholding requirement being significantly above the norm of one or two times salary and each Executive
Director having in practice a much higher shareholding than the requirement, the Committee determined not to impose a shareholding retention period,
but to keep the position under review.
Executive Directors’ retained shareholdings
4,362
1,994
e
n
i
l
e
d
i
u
g
p
i
h
s
r
e
n
w
o
e
r
a
h
S
J E O’Higgins
C G Watson
Value interest in shares (£’000)
y
r
a
l
a
s
e
s
a
b
f
o
e
l
p
i
t
l
u
M
10
9
8
7
6
5
4
3
2
1
0
88
Spectris plc Annual Report and Accounts 2015
The following Directors or their families had beneficial interests in the ordinary shares of the Company:
Dr J L M Hughes CBE
J E O’Higgins
P A Chambré
L A Davis
R J King
W C Seeger
U Quellmann
C G Watson
M B Wyrsch
Shareholdings
2015
31 December
(or date of resignation)
2015
1 January
(or date of appointment)
10,000
286,574
5,955
–
3,000
3,000
1,000
131,000
3,000
8,000
256,574
5,812
–
3,000
–
–
119,500
3,000
There were no changes to the above interests between the year end and the date of this report.
External appointments
Executive Directors may retain any payments received in respect of external non-executive appointments. Such appointments are limited to one per
Director at any time and are subject to the approval of the Board. Mr O’Higgins was a non-executive director of NASDAQ-listed Exide Technologies
and was paid a fee of US$49,334 for 2015, up to his date of resignation in April that year. Mr Watson is a non-executive director of Spirax-Sarco
Engineering plc and was paid a fee of £55,700 during 2015. No other external directorships are held by the Executive Directors.
Performance graph and table
The table below shows the total remuneration of the Chief Executive over a seven-year period, as well as the bonus award and PSP vesting rates against
maximum opportunity for that period:
J E O’Higgins
Single figure of total remuneration (£’000) Bonus award rates against maximum opportunity (%) PSP vesting rates against maximum opportunity (%)
2015
2014
2013
2012
2011
2010
2009
729
1,122
2,172
2,995
1,481
1,104
849
0
18
20
70
100
95
0
0
28
100
100
100
89
33
89
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 DIRECTORS’ REMUNERATION REPORT CONTINUED
The graph below shows TSR on a holding of shares with £100 value over the previous seven years compared with that of the FTSE 250 as a whole
(excluding investment trusts) over the same period. The FTSE 250, of which the Company has been a member throughout the period, is considered
the most appropriate group against which to measure the Group’s relative performance.
Total shareholder return
)
£
(
e
u
l
a
V
600
550
500
450
400
350
300
250
200
150
100
50
0
31 Dec 2008
31 Dec 2009
31 Dec 2010
31 Dec 2011
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
Spectris
FTSE 250 (excluding investment trusts)
Percentage change in the remuneration of the Chief Executive
The base salary and taxable benefits of the Chief Executive increased 1.5% and 5%, respectively, in 2015. The 2015 bonus of the Chief Executive (paid in
March 2016) decreased 100% compared with 2014. This compares to a 3% base salary increase awarded on average to the Company’s UK employees,
a decrease in their taxable benefits of 22% and a decrease in their bonuses of 55% in 2015. Your Committee considers the Company’s UK employees
to be the most appropriate comparator group to the Chief Executive.
90
Spectris plc Annual Report and Accounts 2015
Relative importance of spend on pay
The following graph shows the percentage change in profit, dividends and overall expenditure on Group pay in the reporting period, compared with the
prior financial year.
As the Company’s principal measure of profitability, adjusted profit before tax was chosen by the Directors as the base comparator to the spend on pay.
Adjusted profit before tax is calculated by taking the statutory profit before tax and adjusting it for the non-operational items defined in Note 2 to the
Consolidated Financial Statements.
Relative importance of spend on pay
5
1
0
2
r
e
b
m
e
c
e
D
1
3
t
a
d
i
a
p
t
i
n
u
0
0
1
a
f
o
e
u
l
a
V
110
100
90
80
70
60
2014
2015
Profit before tax
Dividends
Staff costs
Year
91
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
DIRECTORS’ REMUNERATION REPORT CONTINUED
Directors’ interests in options to purchase ordinary shares under the Spectris Savings Related Share Option Scheme (‘SAYE’)
(subject to audit)
Date
granted
Options
held
1 Jan 15
Granted
during the
year
Exercise
price
(p)
Exercised
during the
year
Face value
of option
at date
of grant
(£)
Share price
at date
of exercise
(p)
Lapsed
during
the year
Options
held
31 Dec 15
Date
exercisable
Expiry
date
J E O’Higgins
SAYE
C G Watson
SAYE
Total
Sep 2012
530
Sep 2014
446
–
–
1,695
2,015
–
–
8,984
8,987
Sep 2015
–
1,036
1,737
–
17,995
976
1,036
–
35,966
–
–
–
–
–
–
–
–
530
446
1,036
2,012
Dec
2015
Dec
2017
Dec
2018
Jun
2016
Jun
2018
June
2019
Directors’ share awards under the Spectris PSP (subject to audit)
Number
of shares
subject to
award at
1 Jan 15
Exercise
price
(p)
Granted
during
the year
Addition of
re-invested
dividends1
Date
granted
Face value
of award
at date
of grant
Exercised
during
the year
Market
price at
exercise
(p)
Lapsed
during
the year
Number
of shares
subject to
award at
31 Dec 15
(or date of
cessation of
employment
if earlier)
Market
value
of each
share
at date
of award
(p)
Performance
period end
date / date
exercisable
Expiry
date
J E O’Higgins 38,092 Apr 2011
36,780 Feb 2012
27,370 Feb 2013
50,460 May 2014
Mar 2015
Total
152,702
C G Watson 18,686 Apr 2011
22,800 Feb 2012
17,390 Feb 2013
32,050 May 2014
Mar 2015
Total
Total
90,926
243,628
5
5
5
5
5
5
5
5
5
5
–
883 533,669 (38,975) 1,710.8
–
– 1,401.0 Apr 2014 Apr 2021
624,966
659,617
1,118,900
1,138,809
(36,780)
– 1,699.2
Feb 2015 Feb 2022
27,370
2,410.0
Feb 2016 Feb 2023
50,460
2,217.4 May 2017 May 2024
51,830
2,197.2 Mar 2018 Mar 2025
(36,780)
129,660
261,791
(19,119) 1,709.7
–
–
1,401.0 Apr 2014 Apr 2021
387,418
419,099
710,677
723,538
(22,800)
– 1,699.2
Feb 2015 Feb 2022
17,390
2,410.0
Feb 2016 Feb 2023
32,050
2,217.4 May 2017 May 2024
32,930
2,197.2 Mar 2018 Mar 2025
(22,800)
82,370
51,830
51,830
–
883
433
32,930
32,930
433
84,760
1,316 6,578,484 (58,094)
(59,580)
212,030
1 Under the terms of the PSP, notional dividends of the Company are applied over award shares during the performance period and exercise period to date of exercise (reduced to date of
vesting for the 2014 grant and subsequent grants), thereby increasing the number of award shares granted. These additional award shares are subject to application of the performance
criteria attaching to the award.
25% of award shares are receivable on achievement of minimum performance and 100% for maximum.
92
Spectris plc Annual Report and Accounts 2015
The awards were made as conditional rights to acquire shares (structured as nominal cost options) and the number of shares awarded was based on
the average of the mid-market closing price of the Company’s shares over the five business days prior to the date of grant, which was 2,197.2 pence
for the 2015 awards. For each of Mr O’Higgins and Mr Watson, the value of the 2015 PSP award was equivalent to 200% of their base salaries.
Details of the performance measures applicable to 2015 PSP awards are set out in the earlier section describing the PSP. The face value is the
maximum number of shares that would vest multiplied by the share price at the date of grant. If the base targets are not achieved, no shares vest.
The Spectris PSP operates within the dilution limits laid down by the Investment Management Association. 1.3% of the 5% limit has been utilised.
The awards granted to Mr O’Higgins and Mr Watson in 2012 of 36,780 and 22,800 shares, respectively, became exercisable during the year.
The awards had two performance conditions attaching to them. The TSR target was not met (50% of the award) and the EPS target was not
met (50% of the award). The awards therefore lapsed.
The aggregate gains on exercise for all Directors under the Company’s share plans were therefore £nil (2014: £91,868).
Loss of office payments
No compensation payments on termination of employment were made to Directors during the year.
Interest in contracts
No Director had during the year or at the end of the year any material interest in any contract of significance to the Group’s business.
Share price
At 31 December 2015, the mid-market closing share price on the London Stock Exchange was 1,802 pence. The highest mid-market closing share price
in the year was 2,394 pence and the lowest was 1,629 pence.
Loans to Directors
During the year there were no outstanding loans to any Director.
By order of the Board
Russell King
Chairman of the Remuneration Committee
16 February 2016
Company No. 2025003
93
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 OTHER STATUTORY INFORMATION
The Directors’ Report is formed of the Corporate
Governance Report, the Directors’ Remuneration
Report and Other Statutory Information (which
can be found on pages 56 to 97). Disclosures
elsewhere in the Annual Report and Accounts
are cross-referenced where appropriate. Taken
together, they fulfil the combined requirements
of company law, the Disclosure and
Transparency Rules and the Listing Rules (‘LR’).
Strategic Report
The Board has taken advantage of Section 413C
of the Companies Act 2006 to include in the
Strategic Report disclosures on the following
items which it considers to be of strategic
importance to the Company:
_ the Group’s business model on pages
18 to 21;
_ likely future developments of the business
on page 23;
_ the Group’s principal risks and risk
management policies on pages 24 to 30;
_ the Directors’ viability statement on page 31;
_ greenhouse gas emissions, methodologies
used for reporting and intensity ratios on
pages 44 and 45;
_ the Group’s employment policies, including
approach to diversity, the employment of
disabled people and employee involvement
on pages 45 and 46; and
_ the Group’s R&D activities on pages 19
and 20.
Results and dividends
The results for the year are set out on pages 102 to 167. Adjusted operating profit for the year
amounts to £181.1 million (2014: £198.1 million).
Dividends paid and proposed are as follows:
Dividends
Interim (paid)
Final (proposed)
Total dividend
2015
Pence per share
2014
Pence per share
17.3
32.2
49.5
16.0
30.5
46.5
The final dividend will be paid on 24 June 2016 to shareholders on the register on 27 May 2016.
Power of Directors
The Company’s Articles contain specific provisions and restrictions regarding the Company’s power
to borrow money. Powers relating to the issuing and buying back of shares are also included in the
Articles, and such authorities are renewed by shareholders each year at the AGM.
Articles
The Company’s Articles give power to the Board to appoint Directors, but require Directors to submit
themselves for election at the first AGM following their appointment, and for annual re-election
at subsequent AGMs. The Articles can be amended by means of a special resolution of the
shareholders. Spectris’ Articles are available on the Company’s website (www.spectris.com).
Branches
The Company, through its subsidiaries, has a number of branches in the countries in which
it operates.
AGM
The AGM will be held at Great Fosters, Stroude Road, Egham, Surrey, TW20 9UR on Friday,
20 May 2016 at 12.30 p.m. The Notice of AGM is contained in a separate letter from the Chairman
accompanying this report.
The results of the 2015 AGM can be found on page 76. There was no significant vote against
any of the resolutions. The results of the 2016 AGM will be published on the Company’s website
shortly after the meeting (www.spectris.com).
Directors’ remuneration and interests
Details of Directors’ remuneration and their interest in the Company’s shares can be found
in the Directors’ Remuneration Report on pages 77 to 93.
94
Spectris plc Annual Report and Accounts 2015
Share capital
The share capital of the Company comprises
ordinary shares of 5 pence each; each share
carries the right to one vote at general meetings
of the Company. The authorised and issued share
capital of the Company, together with movements
in the Company’s issued share capital during the
year, is shown in Note 42 to the Financial
Statements on page 162. The Articles, available
on the Company’s website, contain provisions
governing the ownership and transfer of shares.
Authority to purchase own shares
At the 2015 AGM, shareholders authorised the
Directors to make market purchases of the
Company’s ordinary shares up to a maximum
number of 11,899,000 shares, representing
approximately 10% of the issued share capital of
the Company (excluding treasury shares) and to
either cancel the shares or hold them as treasury
shares which may then be cancelled, sold for
cash or transferred for the purposes of the
Company’s share plans, depending on the best
interests of the Company’s shareholders at the
time. This authority remains valid until the date
of the next AGM. No such purchases were
made during the year. At the close of business
on 15 February 2016, the Company had
125,005,123 ordinary shares in issue, of which
5,896,134 were held in treasury. During the year
155,927 shares were transferred out of treasury
to meet the Company’s obligations under its
share plans, with no shares being cancelled out
of treasury. An authority to make further market
purchases of the Company’s ordinary shares,
if believed appropriate, will be sought at the
forthcoming AGM, although the Board has
no present intention of so doing.
Authority to allot shares
Included in the special business of the 2016 AGM are proposals to renew the Directors’ authority to
allot shares up to prescribed limits.
Major shareholders
The Company has been notified, in accordance with Chapter 5 of the Disclosure and Transparency
Rules, of the following shareholdings. All significant holdings are held by institutional investors:
Standard Life Investments Limited
Royal London Asset Management
Massachusetts Financial Services
Company
Shareholding in
Spectris shares
5,920,593
3,603,345
Percentage of issued
share capital as at
31 December 2015
Percentage of issued
share capital as at the
date of this report
4.97%
3.03%
4.97%
3.03%
12,039,317
10.11%
10.11%
No changes have been disclosed in accordance with these rules in the period 31 December 2015
to the date of this report.
Change of control
There are a number of agreements that take effect, alter or terminate upon a change of control of
the Group following a takeover, such as bank loan agreements and Company share plans. None of
these are deemed to be significant in terms of their potential impact on the business of the Group
as a whole. It is also possible that funding arrangements for the Group’s defined benefit pension
arrangements would need to be enhanced following a change of control if that resulted in a
weakening of the employer covenant.
The Company does not have any agreements with any Director or employee that would provide
for compensation for loss of office or employment following a takeover bid.
Events after the balance sheet date
Events after the balance sheet date are disclosed in Note 32 to the Financial Statements.
Political donations
The Group’s policy is not to make any political donations and none were made during the financial
year (2014: nil).
95
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 OTHER STATUTORY INFORMATION CONTINUED
Disclosures required under UK Listing Rule 9.8.4R
For the purposes of LR 9.8.4R, the information required to be disclosed can be found in the following locations:
Section
Required information
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Interest capitalised
Publication of unaudited financial information
Details of long-term incentive schemes
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non pre-emptive issues of equity for cash
Item 7, in relation to major subsidiary undertakings
Parent participation in a placing by a listed subsidiary
Contracts of significance
Provision of services by a controlling shareholder
Shareholder waiver of dividends
Shareholder waiver of future dividends
Agreements with controlling shareholders
Location in Annual Report
Not applicable
Not applicable
Directors’ Remuneration Report
Directors’ Remuneration Report
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Page
–
–
87
86
–
–
–
–
–
–
–
–
–
Use of financial instruments
Information on the Group’s financial risk
management objectives and policies, its
exposure to foreign currency risk, interest
rate risk, liquidity risk, credit risk and capital
management is contained in Note 26 to
the Financial Statements on pages 148 to 151.
Statement of Directors’ responsibilities
in respect of the Annual Report and the
Financial Statements
The Directors are responsible for preparing the
Annual Report and the Group and Parent
Company Financial Statements in accordance
with applicable law and regulations.
Auditor
Separate resolutions to re-appoint KPMG as
auditor and to authorise the Directors to agree
its remuneration will be proposed at the AGM.
Going concern
Having reviewed the Group’s plans and available
financial facilities, the Board has a reasonable
expectation that the Group has adequate
resources to continue in operational existence
for at least 12 months following the signing of
the accounts. For this reason it continues to
adopt the going concern basis in preparing the
Group’s accounts.
Company law requires the Directors to prepare
Group and Parent Company Financial
Statements for each financial year. Under that
law they are required to prepare the Group
Financial Statements in accordance with
International Financial Reporting Standards
(‘IFRS’) as adopted by the EU and applicable law
and have elected to prepare the Parent Company
Financial Statements in accordance with UK
Accounting Standards, including FRS 101
‘Reduced Disclosure Framework’.
Under company law the Directors must not
approve the Financial Statements unless they are
satisfied that they give a true and fair view of
the state of affairs of the Group and Parent
Company and of their profit or loss for that
period. In preparing each of the Group and
Parent Company Financial Statements, the
Directors are required to:
_ select suitable accounting policies and
then apply them consistently;
_ make judgements and estimates that
are reasonable and prudent;
_ for the Group Financial Statements,
state whether they have been prepared in
accordance with IFRS as adopted by the EU;
_ for the Parent Company Financial Statements,
state whether applicable UK Accounting
Standards have been followed, subject to any
material departures disclosed and explained in
the Parent Company Financial Statements; and
_ prepare the Financial Statements on the going
concern basis unless it is inappropriate to
presume that the Group and Parent Company
will continue in business.
96
Spectris plc Annual Report and Accounts 2015
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Parent Company’s
transactions and disclose with reasonable
accuracy at any time the financial position of
the Parent Company and enable them to ensure
that its Financial Statements comply with the
Companies Act 2006. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the Group and to prevent and
detect fraud and other irregularities.
Responsibility statement of
the Directors in respect of the
Annual Report and Accounts
We confirm that to the best of our knowledge:
_ the Financial Statements, prepared in
accordance with the applicable set of
accounting standards, give a true and fair view
of the assets, liabilities, financial position and
profit or loss of the Company and the
undertakings included in the consolidation
taken as a whole; and
_ the Strategic Report includes a fair review
Under applicable law and regulations, the
Directors are also responsible for preparing a
Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance
Statement that comply with that law and
those regulations.
of the development and performance of the
business and the position of the issuer and the
undertakings included in the consolidation,
taken as a whole, together with a description
of the principal risks and uncertainties that
they face.
We consider that the Annual Report and
Accounts, taken as a whole, is fair, balanced and
understandable, and provides the information
necessary for shareholders to assess the
Group’s position and performance, business
model and strategy.
By order of the Board
Roger Stephens
Secretary
16 February 2016
The Directors are responsible for the
maintenance and integrity of the corporate and
financial information included on the Company’s
website. Legislation in the UK governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Directors’ statement on disclosure
to the auditor
The Directors who held office at the date of
approval of the Directors’ Report confirm that,
so far as they are each aware, there is no
relevant audit information, which would be
needed by the Company’s auditor in connection
with preparing its audit report, of which the
Company’s auditor is unaware; and each
Director has taken all steps that they ought to
have taken as a Director in order to make
themselves aware of any relevant audit
information and to establish that the Company’s
auditor is aware of that information.
97
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF SPECTRIS PLC ONLY
Opinions and conclusions arising
from our audit
The risk:
_ The Group’s cash-generating units (‘CGUs’)
operate across a broad range of markets,
products and geographies. The assessment of
the recoverability of goodwill is based on the
future business prospects and forecast trading
performance of the Group across these areas.
_ Due to challenging trading environments in
recent years and the inherent uncertainty
involved in forecasting and discounting future
cash flows, which are the basis of the
assessment of recoverability, this is one of
the key judgemental areas that our audit
concentrated on. There is the risk that the
key assumptions, estimates and judgements
on which the calculations are based are
inappropriate and that goodwill is overstated
as a result.
Our response:
_ Our audit procedures included evaluating the
Group’s key assumptions and methodologies,
in particular those in respect of CGUs with
lower headroom: Omega Engineering, which
experienced challenging market conditions
in North America; and ESG Solutions, a more
recent acquisition, adversely impacted by
lower oil and gas prices on its customers.
The carrying values of goodwill for
Omega Engineering and ESG Solutions
at 31 December 2015 were £178.9 million
and £16.2 million respectively.
_ We critically challenged the assumed long
term growth rates by comparing to recent
historical trading performance within the
Group, forecast economic growth rates and
also the long-term growth rates used by an
external peer group.
_ We applied sensitivities to the assumptions
used by the Group in its impairment
calculations to evaluate the impact on the
headroom for each CGU. This included a
consideration of the historical accuracy of the
Group’s forecasting for Omega Engineering
for each full year since ownership to inform
our own assessments noted above.
_ To assess the reasonableness of the forecast
discounted cash flows, we compared the
sum of those cash flows to the Group’s
market capitalisation.
_ We also assessed whether the Group’s
disclosures (see Note 11) about the sensitivity
of the outcome of the impairment assessment
to changes in key assumptions reflected the
key risks inherent in the valuation of goodwill.
Working capital provisions
Refer to page 70 (Audit and Risk Committee
Report), pages 109 to 110 (accounting policy)
and pages 128 to 129 (financial disclosures).
The risk:
_ The Group has significant inventory and trade
receivable balances and the Directors have
to apply judgement to assess the level of
provisions required to write down obsolete,
excess and slow-moving inventory items to
their net realisable value and to write down
the value of trade receivables to their
recoverable amounts.
_ In respect of inventory provisions each
operating company in the Group is required to
apply a methodology to calculate an inventory
provision that is appropriate to the specific
business facts and circumstances which
requires the application of judgement
and estimates.
_ We used our own valuation specialists to
_ In respect of trade receivables the Group’s
critically challenge the discount rates used by
the Group and benchmarked these discount
rates to those used by an external peer group.
_ We critically assessed the other assumptions
used by the Group using our own assessments
and a comparison to recent performance in
relation to key inputs such as forecast revenue
over the next three years, operating margins
and profit to cash conversion.
credit risk policy requires analysis of individual
receivable account balances, taking into
account receivables that are past due for more
than 120 days and any securities held.
_ The level of judgement involved in determining
whether a provision should be recognised
and how it should be measured, coupled with
the fact that provision movements impact
earnings, results in working capital provisions
being one of the key judgemental areas that
our audit concentrated on.
1. Our opinion on the Financial
Statements is unmodified
We have audited the Financial Statements of
Spectris plc for the year ended 31 December
2015 which comprise the Consolidated Income
Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated
Statement of Changes in Equity, the
Consolidated Statement of Financial Position,
the Consolidated Statement of Cash Flows,
the Parent Company Balance Sheet, the
Parent Company Statement of Changes in
Equity and the related notes. In our opinion:
_ 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
2015 and of the Group’s profit for the year
then ended;
_ the Group Financial Statements have been
properly prepared in accordance with
International Financial Reporting Standards
as adopted by the European Union (IFRS as
adopted by the EU);
_ the Parent Company Financial Statements
have been properly prepared in accordance
with UK Accounting Standards, including
FRS 101 ‘Reduced Disclosure Framework’; and
_ the Financial Statements have been prepared
in accordance with the requirements of the
Companies Act 2006 and, as regards the
Group Financial Statements, Article 4 of the
IAS Regulation.
2. Our assessment of risks of material
misstatement
In arriving at our audit opinion above on the
Financial Statements the risks of material
misstatement that had the greatest effect
on our audit were as follows:
Recoverability of goodwill
Refer to page 70 (Audit and Risk Committee
Report), page 108 (accounting policy) and
pages 125 and 126 (financial disclosures).
98
Spectris plc Annual Report and Accounts 2015
Our response:
_ In respect of inventory provisions our audit
procedures included considering the
appropriateness of the Group’s methodologies
in the context of our understanding of the
individual businesses in the Group with
reference to the ageing and nature of
inventory, past usage, forecast future usage,
economic conditions and new product
launches and technology. We compared the
methodologies and assumptions used in
calculating the inventory provision to those
used in prior years; as part of this we
considered whether we would expect a
change to the methodologies and assumptions
used. We recalculated on a sample basis
provisions recorded by the Group and
compared the accuracy of the usage data to
underlying documentation to assess the
accuracy of the data used in the calculation.
We also considered the historical accuracy of
provisions made by the Group by examining
the reversal of previously recorded provisions.
_ In respect of trade receivable provisions our
audit procedures included considering the
appropriateness of the provisions recorded
against trade receivable balances considered
doubtful and the appropriateness of the
Group’s provisioning policy, with reference to
the ageing of customer balances, economic
conditions, the concentration of counterparty
risk, past history of recovery and any
securities held.
Tax provisions
Refer to pages 70 and 71 (Audit and Risk
Committee Report), page 110 (accounting
policy) and pages 122 and 123, and 136 to 138
(financial disclosures).
The risk:
_ Governmental challenge of transfer pricing
and financing arrangements may result in tax
exposures and potential interest and penalties.
Recognition and measurement of provisions
for tax exposures relating to open tax years
are subject to management judgement
and estimation.
_ This is one of the key judgemental areas that
our audit concentrated on due to the Group
operating in a number of different tax
jurisdictions, the complexities of transfer
pricing and other international tax legislation
and the time taken for tax matters to be
agreed with the tax authorities. Movements
in tax provisions impact earnings.
Our response:
_ Our audit procedures included the use of our
own international and local tax specialists to
assess the Group’s tax positions and to read
the latest correspondence with the relevant
tax authorities. We analysed and challenged
the assumptions used by the Directors to
determine tax provisions using our knowledge
and experiences of the application of the
international and local legislation by
the relevant authorities and courts.
_ We have also considered the adequacy of
the Group’s disclosures in respect of tax
and uncertain tax positions.
Acquisition accounting
Refer to page 70 (Audit and Risk Committee
Report), page 108 (accounting policy) and pages
143 to 145 (financial disclosures).
The risk:
_ During the year the Group completed five
acquisitions for a total consideration of
£45.0 million.
_ There is significant judgement involved in
determining the fair value of the identifiable
assets and liabilities acquired given the
specialised nature of the acquired businesses
and associated technological, customer and
marketing-related intangibles.
_ Contingent consideration in relation to
acquisitions made in the current year and
recent years has been recognised and is
payable on the achievement of future sales
targets. Given the uncertainty regarding
achievement of these targets, significant
judgement is required in measuring the fair
value of the Group’s contingent consideration
obligation both at the acquisition date and at
the balance sheet date.
_ Purchase price adjustments can be disputed
by the seller and, therefore, can require
judgement in determining the expected
settlement amount.
Our response:
_ Our audit procedures included critically
challenging the key valuation assumptions and
methodologies which were used as the basis
for the determination of the fair value of the
intangible assets. This included comparison
against industry norms, and consideration of
the reasonableness of assumptions underlying
the identification of separately identifiable
intangible assets and associated revenue
growth rates used in the forecasts, and
their useful economic lives together
with considering what is represented by
residual goodwill.
_ In respect of contingent consideration our
work focussed on the forecast results of the
acquired businesses which is the basis for the
estimate of the contingent consideration
liability. The key assumptions underlying those
forecasts were compared with the Group’s
planned development of the business and also
the historical trading performance of the
acquired business and results since the
acquisition date.
_ In respect to a disputed purchase price
adjustment, we critically challenged the
assumptions used in assessing the expected
recoverable amount from the seller with
reference to the purchase agreement,
discussion with the Group’s internal legal
counsel and review of correspondence with
the Group’s external legal counsel where
relevant.
_ We also considered the adequacy of the
Group’s disclosures (see Notes 24 and 26)
with respect to the acquisitions, purchase
price adjustments and contingent
consideration.
99
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF SPECTRIS PLC ONLY CONTINUED
3. Our application of materiality and
an overview of the scope of our audit
The materiality for the Group Financial
Statements as a whole was set at £7.0 million
(2014: £11.0 million), determined with reference
to a benchmark of Group profit before tax, of
which it represents 5%, reflecting consensus
levels (2014: 6%).
We report to the Audit and Risk Committee
any corrected or uncorrected identified
misstatements exceeding £0.4 million, in
addition to other identified misstatements
below that threshold that warranted reporting
on qualitative grounds.
Audits for Group reporting purposes were
performed at key reporting components in the
following countries: Canada, China, Denmark,
France, Germany, the Netherlands, Spain,
Switzerland, the United Kingdom and the USA.
Specific risk-focussed audit procedures were
performed at reporting components in
Singapore and the USA; these components were
not individually significant but were included in
the scope of our Group reporting work in order
to provide further coverage over the identified
risks and the Group’s results. In addition,
specified risk-focussed audit procedures were
performed by the Group audit team over other
reporting components as part of the audit for
Group reporting purposes; these other reporting
components, typically smaller in size, were
selected at short notice to give an element of
unpredictability in our overall scope of work.
In aggregate our audit procedures covered 68%
of total Group revenue; 82% of Group profit
before tax; and 69% of total Group assets.
The remaining 32% of total Group revenue,
18% of Group profit before tax and 31% of
total Group assets is represented by reporting
components none of which individually
represents more than 3% of these measures.
For the remaining components, we performed
analysis at the Group level to re-examine our
assessment that there were no significant risks
of material misstatement within them.
The Group audit team instructed component
auditors as to the significant areas to be
covered, including the relevant risks detailed
above and the information to be reported back.
The Group audit team set or approved the
component materiality levels, which ranged from
£0.1 million to £2.2 million, having regard to the
mix of size and risk profile of the Group across
the components as well as considering the risk
when aggregating misstatements that may
exceed Group materiality.
The Group audit team performed the work on
recoverability of goodwill, acquisition accounting
and centrally recorded tax provisions. The Group
audit team performed the audit work and were
physically present at four out of five reporting
components in scope in the USA, the Group’s
single largest geographical market, as well as
the business in Canada acquired in December
2014. In addition, the Group audit team
physically visited key reporting components in
the following countries the purpose of which
included an assessment of the audit risk and
strategy: Brazil, Denmark, Germany, Switzerland,
the United Kingdom and the USA. Video or
telephone conference meetings were also
held with the auditors at these locations and
all of the other locations that were not
physically visited.
4. Our opinion on other matters
prescribed by the Companies Act 2006
is unmodified
In our opinion:
_ the part of the Directors’ Remuneration Report
to be audited has been properly prepared in
accordance with the Companies Act 2006; and
_ the information given in the Strategic Report
and Directors’ Report for the financial year for
which the Financial Statements are prepared
is consistent with the Financial Statements.
5. We have nothing to report on
the disclosures of principal risks
Based on the knowledge we acquired during
our audit, we have nothing material to add or
draw attention to in relation to:
_ the Directors’ viability statement on page 31,
concerning the principal risks, their
management, and, based on that, the
Directors’ assessment and expectations of
the Group’s continuing in operation over the
three years to 31 December 2018; or
_ the disclosures in Note 1 of the Financial
Statements concerning the use of the going
concern basis of accounting.
6. We have nothing to report in respect
of the matters on which we are required
to report by exception
Under ISAs (UK and Ireland) we are required to
report to you if, based on the knowledge we
acquired during our audit, we have identified
other information in the Annual Report that
contains a material inconsistency with either
that knowledge or the Financial Statements,
a material misstatement of fact, or that is
otherwise misleading.
100
Spectris plc Annual Report and Accounts 2015
Scope of report and responsibilities
As explained more fully in the Directors’
Responsibilities Statement set out on pages 96
and 97, the Directors are responsible for the
preparation of the Financial Statements and
for being satisfied that they give a true and
fair view. A description of the scope of an
audit of Financial Statements is provided
on the Financial Reporting Council’s website
at www.frc.org.uk/auditscopeukprivate.
This report is made solely to the Company’s
members as a body and subject to important
explanations and disclaimers regarding our
responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2014a,
which are incorporated into this report as if
set out in full and should be read to provide
an understanding of the purpose of this report,
the work we have undertaken and the basis
of our opinions.
Richard Broadbelt
(Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
15 Canada Square
London, E14 5GL
16 February 2016
In particular, we are required to report to you if:
_ we have identified material inconsistencies
between the knowledge we acquired during
our audit and the Directors’ statement that
they consider that the Annual Report and
Financial Statements taken as a whole is fair,
balanced and understandable and provides
the information necessary for shareholders
to assess the Group’s performance, business
model and strategy; or
_ the Audit and Risk Committee Report does not
appropriately address matters communicated
by us to the Audit and Risk Committee.
Under the Companies Act 2006 we are required
to report to you if, in our opinion:
_ adequate accounting records have not been
kept by the Parent Company, or returns
adequate for our audit have not been received
from branches not visited by us; or
_ the Parent Company Financial Statements and
the part of the Directors’ Remuneration Report
to be audited are not in agreement with the
accounting records and returns; or
_ certain disclosures of Directors’ remuneration
specified by law are not made; or
_ we have not received all the information and
explanations we require for our audit.
Under the Listing Rules we are required
to review:
_ the Directors’ statement, in relation to going
concern and longer-term viability, set out on
page 96 and page 31 respectively; and
_ the part of the Corporate Governance Report
on page 59 relating to the Company’s
compliance with the 11 provisions of the 2014
UK Corporate Governance Code specified for
our review.
We have nothing to report in respect of the
above responsibilities.
101
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 CONSOLIDATED INCOME STATEMENT
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
FOR THE YEAR ENDED 31 DECEMBER 2015
Continuing operations
Revenue
Cost of sales
Gross profit
Indirect production and engineering expenses
Sales and marketing expenses
Administrative expenses
Operating profit before acquisition-related items
Net acquisition-related costs and fair value adjustments
Amortisation and impairment of acquisition-related intangible assets
Operating profit
Profit on disposal of businesses
Financial income
Finance costs
Profit before tax
Taxation – UK
Taxation – Overseas
Profit after tax for the year from continuing operations attributable
to owners of the Parent Company
Basic earnings per share (pence)
Diluted earnings per share (pence)
Interim dividends paid and final dividends proposed for the year (per share)
Dividends paid during the year (per share)
Note
2015
£m
2014
£m
3,4
1,190.0
(506.9)
683.1
(98.6)
(274.4)
(166.5)
181.1
(2.9)
(34.6)
143.6
–
3.3
(5.3)
141.6
(1.3)
(26.5)
1,173.7
(497.3)
676.4
(93.2)
(271.3)
(143.6)
198.1
(3.9)
(25.9)
168.3
2.4
6.3
(5.9)
171.1
(2.0)
(34.0)
113.8
135.1
95.6p
95.4p
49.5p
47.8p
113.7p
113.4p
46.5p
44.0p
2
2
2,3,5
7
7
8
8
10
10
9
9
Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS. Reconciliations showing how the
adjusted performance measures are derived from those reported under adopted IFRS are set out in Note 2.
102
Spectris plc Annual Report and Accounts 2015
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
FOR THE YEAR ENDED 31 DECEMBER 2015
Profit for the year attributable to owners of the Parent Company
Other comprehensive income:
Items that will not be reclassified to the Consolidated Income Statement:
Re-measurement of net defined benefit liability, net of foreign exchange
Tax on items above
Items that are or may be reclassified subsequently to the Consolidated Income Statement:
Net gain / (loss) on effective portion of changes in fair value of forward exchange contracts
Foreign exchange movements on translation of overseas operations
Tax on items above
Total comprehensive income for the year attributable to owners of the Parent Company
Note
19
8
8
2015
£m
113.8
(7.9)
1.7
(6.2)
0.1
(1.9)
–
(1.8)
105.8
2014
£m
135.1
(5.6)
1.5
(4.1)
(3.3)
(5.5)
0.5
(8.3)
122.7
103
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
FOR THE YEAR ENDED 31 DECEMBER 2015
Balance at 1 January 2015
Profit for the year
Other comprehensive income:
Net gain on effective portion of changes in
fair value of forward exchange contracts,
net of tax
Foreign exchange movements on translation
of overseas operations
Re-measurement of net defined benefit
liability, net of foreign exchange and tax
Total comprehensive income for the year
Transactions with owners recorded directly
in equity:
Equity dividends paid by the Company
Share-based payments, net of tax
Share options exercised from own shares
(treasury) purchased
Share
capital
£m
6.2
–
–
–
–
–
–
–
–
Share
premium
£m
231.4
–
–
–
–
–
–
–
–
Retained
earnings
£m
Translation
reserve
£m
Hedging
reserve
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
643.1
113.8
34.9
–
(3.0)
–
3.1
–
0.3
–
–
–
(6.2)
107.6
(56.9)
0.8
0.3
–
0.1
(1.9)
–
(1.9)
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
916.0
113.8
0.1
(1.9)
(6.2)
105.8
(56.9)
0.8
0.3
Balance at 31 December 2015
6.2
231.4
694.9
33.0
(2.9)
3.1
0.3
966.0
For the year ended 31 December 2014
Balance at 1 January 2014
Profit for the year
Other comprehensive income:
Net loss on effective portion of changes in
fair value of forward exchange contracts,
net of tax
Foreign exchange movements on translation
of overseas operations
Re-measurement of net defined benefit
liability, net of foreign exchange and tax
Total comprehensive income for the year
Transactions with owners recorded directly
in equity:
Equity dividends paid by the Company
Share-based payments, net of tax
Share options exercised from own shares
(treasury) purchased
Share
capital
£m
6.2
–
–
–
–
–
–
–
–
Share
premium
£m
231.4
–
–
–
–
–
–
–
–
Balance at 31 December 2014
6.2
231.4
Retained
earnings
£m
562.9
135.1
Translation
reserve
£m
40.4
–
Hedging
reserve
£m
(0.2)
–
Merger
reserve
£m
3.1
–
Capital
redemption
reserve
£m
0.3
–
–
–
(4.1)
131.0
(52.3)
1.2
0.3
643.1
–
(2.8)
(5.5)
–
(5.5)
–
–
–
–
–
(2.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34.9
(3.0)
3.1
0.3
Total
equity
£m
844.1
135.1
(2.8)
(5.5)
(4.1)
122.7
(52.3)
1.2
0.3
916.0
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Spectris plc Annual Report and Accounts 2015
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2015
AS AT 31 DECEMBER 2015
Note
2015
£m
2014
£m
ASSETS
Non-current assets
Intangible assets:
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Retirement benefit assets
Current assets
Inventories
Taxation recoverable
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Short-term borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
Net current assets
Non-current liabilities
Medium- and long-term borrowings
Other payables
Retirement benefit obligations
Deferred tax liabilities
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Retained earnings
Translation reserve
Hedging reserve
Merger reserve
Capital redemption reserve
Total equity attributable to equity holders of the Parent Company
Total equity and liabilities
11
11
12
20
19
13
14
15
16
26
17
18
16
17
19
20
21
584.9
201.7
786.6
160.8
17.2
–
964.6
182.5
0.7
253.1
58.2
494.5
1,459.1
(1.7)
(0.4)
(206.6)
(27.5)
(22.2)
(258.4)
236.1
(155.1)
(16.6)
(22.1)
(40.9)
(234.7)
(493.1)
966.0
6.2
231.4
694.9
33.0
(2.9)
3.1
0.3
966.0
1,459.1
569.4
208.5
777.9
162.5
18.3
3.6
962.3
175.7
1.1
232.6
34.8
444.2
1,406.5
(50.9)
(0.3)
(201.0)
(28.8)
(17.7)
(298.7)
145.5
(109.5)
(21.6)
(17.6)
(43.1)
(191.8)
(490.5)
916.0
6.2
231.4
643.1
34.9
(3.0)
3.1
0.3
916.0
1,406.5
The Financial Statements on pages 102 to 152 were approved by the Board of Directors on 16 February 2016 and were signed on its behalf by:
Clive Watson
Group Finance Director
Company Registration No. 2025003
105
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2015
FOR THE YEAR ENDED 31 DECEMBER 2015
Cash flows from operating activities
Profit after tax
Adjustments for:
Taxation
Profit on disposal of businesses
Finance costs
Financial income
Depreciation
Amortisation and impairment of intangible assets
Acquisition-related fair value adjustments
Acquisition costs not yet paid
Loss / (profit) on sale of property, plant and equipment
Equity-settled share-based payment transactions
Operating cash flow before changes in working capital and provisions
Increase in trade and other receivables
Increase in inventories
Increase in trade and other payables
Increase / (decrease) in provisions and employee benefits
Net income taxes paid
Net cash flows generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment and software
Proceeds from sale of property, plant and equipment and software
Acquisition of businesses, net of cash acquired
Interest received
Net cash flows used in investing activities
Cash flows from financing activities
Interest paid
Dividends paid
Proceeds from exercise of share options (treasury shares)
Proceeds from borrowings
Repayment of borrowings
Net cash flows used in financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
Reconciliation of changes in cash and cash equivalents to movements in net debt
Net increase / (decrease) in cash and cash equivalents
Proceeds from borrowings
Repayment of borrowings
Effect of foreign exchange rate changes
Movement in net debt
Net debt at start of year
Net debt at end of year
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Spectris plc Annual Report and Accounts 2015
Note
2015
£m
2014
£m
113.8
135.1
8
7
7
12
11
5
6
24
9
15
Note
16
16
27.8
–
5.3
(3.3)
19.6
39.4
(0.1)
–
0.2
0.7
203.4
(17.1)
(7.6)
3.5
4.7
(33.5)
153.4
(26.0)
0.9
(40.1)
0.2
(65.0)
(4.7)
(56.9)
0.3
85.0
(85.5)
(61.8)
26.6
32.3
(2.4)
56.5
2015
£m
26.6
(85.0)
85.5
(0.1)
27.0
(125.6)
(98.6)
36.0
(2.4)
5.9
(6.3)
18.2
29.4
–
1.4
(0.3)
2.2
219.2
(16.3)
(8.1)
3.9
(0.5)
(43.0)
155.2
(27.4)
2.4
(91.6)
0.3
(116.3)
(6.6)
(52.3)
0.3
20.8
(8.2)
(46.0)
(7.1)
41.6
(2.2)
32.3
2014
£m
(7.1)
(20.8)
8.2
(1.8)
(21.5)
(104.1)
(125.6)
NOTES TO THE ACCOUNTS
NOTES TO THE ACCOUNTS
1. Basis of preparation and summary of significant accounting policies
a) Basis of preparation
Basis of accounting
The Consolidated Financial Statements have been prepared on a historical cost basis except for items that are required by IFRS to be measured
at fair value, principally certain financial instruments. The Consolidated Financial Statements have been prepared in accordance with IFRS
as issued by the International Accounting Standards Board (‘IASB’) and interpretations issued by the International Financial Reporting
Interpretations Committee of the IASB, as adopted by the European Union (‘adopted IFRS’), and in accordance with the provisions of the
Companies Act 2006.
The Financial Statements set out on pages 102 to 152 have been prepared using consistent accounting policies, except for the adoption of new
accounting standards and interpretations noted below. No revisions to adopted IFRS that became applicable in 2015 had a significant impact
on the Group Financial Statements.
These Financial Statements are presented in millions of Sterling rounded to the nearest one decimal place.
Basis of consolidation
The Consolidated Financial Statements set out the Group’s financial position as at 31 December 2015 and the Group’s financial performance for
the year ended 31 December 2015.
Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial
and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Associates are accounted
for using the equity method of accounting and are initially recognised at cost.
All inter-company balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full.
Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence
of impairment.
Going concern
The Group’s business activities, together with factors likely to affect its future development, performance and financial position, are set out in the
Strategic Report on pages 1 to 55. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in
the Financial Review on pages 50 to 55. In addition, Note 25 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 exposure to
credit risk and liquidity risk.
The Group’s net debt balance at 31 December 2015 was £98.6m (2014: £125.6m), with available undrawn committed borrowing facilities
of £371.1m (2014: £316.8m).
The Board has reviewed sensitivity analysis on the Group’s forecasts to 30 June 2017, the maturity profile of its financial facilities and liabilities
(Notes 16 and 26) and the ability of the Group to re-finance these obligations as they fall due. The principal liquidity risk is mitigated through
its financial risk management policies (Note 25). For the foreseeable future, the Board has a high level of confidence that the Group will have
the necessary liquid resources to meet its liabilities as they fall due and will be able to sustain its business model, strategy and operations and
remain solvent, including the impact of reasonable scenarios. For this reason, it continues to adopt the going concern basis in preparing the
Group Financial Statements. There are no key sensitivities identified in relation to this conclusion. Further information on the going concern
of the Group can be found on page 31 in the viability statement.
New standards and interpretations not yet adopted
There are a number of new standards, amendments to standards and interpretations that are not yet effective for the year ended 31 December
2015 and have, therefore, not been applied in preparing these Consolidated Financial Statements:
_ IFRS 9 ‘Financial Instruments’ is effective for the 31 December 2018 year end. The adoption of this standard is not expected to have
a significant impact on the results or Consolidated Statement of Financial Position reported in the Consolidated Financial Statements.
_ IFRS 15 ‘Revenue from Contracts with Customers’ is effective for the 31 December 2018 year end. The adoption of this standard is
not expected to have a significant impact on the results or Consolidated Statement of Financial Position reported in the Consolidated
Financial Statements.
_ IFRS 16 ‘Leases’ was revised on 13 January 2016 and is effective for the 31 December 2019 year end. The adoption of this standard removes
the distinction between operating and finance leases and will result in all operating leases, above a de minimis level, being capitalised with the
associated assets and liabilities being brought on to the Consolidated Statement of Financial Position. Given the timing of the issuance of the
standard, the Directors have not yet evaluated the full impact.
NOTES TO THE ACCOUNTS CONTINUED
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 1. Basis of preparation and summary of significant accounting policies continued
Significant accounting judgements and estimates
In preparing the Consolidated Financial Statements, management has made judgements, estimates and assumptions that affect the application
of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and assumptions are reviewed on an ongoing basis and are based on historical experience and various other factors that are believed
to be reasonable under the circumstances.
Information about significant areas where judgements, estimates and assumptions are required is included in the following notes:
_ Notes 8 and 20 – Taxation and deferred tax. The assessment and recognition of tax provisions requires management judgement. In particular
the Group is potentially subject to tax audits covering both direct and indirect taxes in many jurisdictions. By their nature these are often
complex and could take a significant period of time to be agreed with the tax authorities. Judgement is therefore applied based on the
interpretation of country specific tax legislation and the likelihood of settlement. Provisions held in respect of tax risks are included within
current and deferred tax liabilities. Furthermore judgement is also applied relating to the recognition of deferred tax assets which are
dependent on an assessment of future taxable income in the relevant countries concerned.
_ Note 11 – Impairment of goodwill. The carrying amount of goodwill has been tested for impairment by estimating the value in use of the
cash-generating units to which it has been allocated. Note 11 outlines the significant assumptions made in performing the impairment tests.
_ Note 13 – Provisions against inventory. Judgement is applied to assess the level of provisions required to write down slow-moving, excess
and obsolete inventory to its net realisable value.
_ Note 14 – Provisions for impairment of trade receivables. Judgement is applied to assess whether a trade receivable is recoverable or not,
and whether the level of provision required to write down the value of the receivable to its recoverable amount is appropriate.
_ Notes 18 and 27 – Provisions and contingent liabilities. Judgement is applied in relation to determining the risk-adjusted probability,
quantum and timing of management’s best estimate of future payments.
_ Note 19 – Defined benefit pension obligations. The defined benefit pension obligations are calculated using a number of assumptions,
including those related to future inflation, salary increases and mortality, and the obligation is then discounted to its present value using
an assumed discount rate.
_ Note 24 – Business combinations. Judgement is applied in relation to the estimation of the provisional fair values and useful lives of acquired
assets and liabilities at the date of acquisition.
b) Summary of significant accounting policies
The accounting policies set out below have been applied consistently by Group entities to all years presented in these Financial Statements.
Business combinations and goodwill
The Group applies IFRS 3 (Revised) ‘Business Combinations’ for transactions arising after 1 January 2010. This changed the Group’s definition
of the cost of business combinations and the treatment of contingent consideration. The subsequent accounting for contingent consideration
depends on whether this was initially recognised as equity or as a liability and whether the event is considered a measurement period
adjustment. Transaction costs on a business combination are expensed as incurred in the Consolidated Income Statement.
All business combinations are accounted for by applying the acquisition method. Goodwill represents the excess of the fair value of the purchase
consideration for the interests in subsidiary undertakings over the net fair value to the Group of the identifiable assets, liabilities and contingent
liabilities acquired.
Goodwill arising on the acquisition of a business is tested annually for impairment. Goodwill is not amortised, and any impairment losses are
not subsequently reversed. The net book value of goodwill at the date of transition to IFRS has been treated as deemed cost. On the subsequent
disposal or discontinuance of a previously-acquired business, the relevant goodwill is dealt with in the Consolidated Income Statement except for
the goodwill already charged to reserves. From 1 January 2004, goodwill is allocated on acquisition to cash-generating units that are anticipated
to benefit from the combination. Goodwill is tested for impairment by assessing the recoverable amount of the cash-generating unit to which the
goodwill relates and comparing it against the net book value. This estimate of recoverable amount is determined at each statement of financial
position date. The Group’s identified cash-generating units are smaller than the reportable operating segments in Note 3.
The estimate of recoverable amount requires significant assumptions to be made and is based on a number of factors such as the near-term
business outlook for the cash-generating unit, including both its operating profit and operating cash flow performance. Where the recoverable
amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-
generating unit 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. Goodwill disposed of in this circumstance is measured
on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.
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NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
1. Basis of preparation and summary of significant accounting policies continued
Intangible assets and amortisation
The cost of acquiring software (including associated implementation costs where applicable) that is not specific to an item of property,
plant and equipment is classified as an intangible asset.
Self-funded research and development costs are charged to the Consolidated Income Statement in the year in which they are incurred unless
development expenditure meets certain strict criteria for capitalisation. These criteria include demonstration of the technical feasibility and intent
of completing a new intangible asset that will be available for sale and that the asset will generate probable future economic benefits. From the
point where expenditure meets the criteria, development costs are capitalised and amortised over the useful economic lives of the assets to which
they relate. The Directors consider that, due to the nature of projects undertaken, the proportion of development costs incurred that meets the
criteria for capitalisation is immaterial.
Intangible assets arising from a business combination that are separable from goodwill are recognised initially at fair value at the date
of acquisition. Other acquired intangible assets (including software not specific to an item of property, plant and equipment) are initially
recognised at cost (plus any associated implementation costs where applicable).
Subsequent expenditure is capitalised only when it increases the future economic benefits, otherwise it is expensed as incurred.
Amortisation of intangible assets is charged to administration expenses in the Consolidated Income Statement on a straight-line basis over the
shorter of the estimated useful economic life (determined on an asset by asset basis) or underlying contractual life. The estimated useful lives
are as follows:
_ Software – 3 to 5 years.
_ Patents, contractual rights and technology – up to 10 years, dependent upon the nature of the underlying contractual right.
_ Customer-related and trade names – 3 to 20 years, dependent upon the underlying contractual arrangements and specific circumstances
such as customer retention experience.
Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. The cost comprises the purchase price paid
and any costs directly attributable to bringing it into working condition for its intended use.
Depreciation is recognised in the Consolidated Income Statement on a straight-line basis to write off the cost, less the estimated residual value
(which is reviewed annually), of property, plant and equipment over its estimated useful economic life. Depreciation commences on the date the
assets are ready for use within the business and the asset carrying values are reviewed for impairment when there is an indication that they may
be impaired. The depreciation charge is revised where useful lives are different from those previously estimated, or where technically obsolete
assets are required to be written down. Where parts of an item of plant and equipment have separate lives, they are accounted for and
depreciated as separate items. Land is not depreciated. Estimated useful lives are as follows:
_ Freehold and long leasehold property – 20 to 40 years.
_ Short leasehold property – over the period of the lease.
_ Plant and equipment – 3 to 20 years.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period of time
to get ready for their intended use are capitalised as part of the cost of the respective asset.
Inventories
Inventories and work in progress are carried at the lower of cost and net realisable value. Inventory acquired as part of business combinations
is valued at fair value less cost to sell. Cost represents direct costs incurred and, where appropriate, production or conversion costs and other
costs to bring the inventory to its existing location and condition. In the case of manufacturing inventory and work in progress, cost includes an
appropriate share of production overheads based on normal operating capacity. Inventory is accounted for on a first-in, first-out basis or, in some
cases, a weighted average basis, if deemed more appropriate for the business. Provisions are made to write down slow-moving, excess and
obsolete items to net realisable value, based on an assessment of technological and market developments and on an analysis of historical and
projected usage with regard to quantities on hand.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
1. Basis of preparation and summary of significant accounting policies continued
Trade and other receivables
Trade receivables are carried at original invoice amount (which is considered a reasonable proxy for fair value), less provision made for
impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms of the transactions. The amount of the provision is the difference
between the original carrying amount and the recoverable amount, being the present value of expected cash flows receivable. The movement
in the provision is recognised in the Consolidated Income Statement.
Cash and cash equivalents
Cash and cash equivalents comprises cash at bank and in hand and short-term deposits held on call or with maturities of less than three months
at inception. 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 equivalents for the purposes of the Consolidated Statement of Cash Flows.
Trade and other payables
Trade and other payables are carried at the amounts expected to be paid to counterparties.
Provisions
A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation as
a result of a past event and it is probable that an outflow of resources, that can be reliably measured, will be required to settle the obligation.
In respect of warranties, a provision is recognised when the underlying products or services are sold. Provisions are recognised at an amount
equal to the best estimate of the expenditure required to settle the Group’s liability. A contingent liability is disclosed where the existence of
the obligation will only be confirmed by future events or where the amount of the obligation cannot be measured with reasonable reliability.
Contingent assets are not recognised, but are disclosed where an inflow of economic benefit is probable. Obligations arising from restructuring
plans are recognised when detailed formal plans have been established and when there is a valid expectation that such a plan will be carried out.
Leasing
Rentals payable under operating leases are charged to the Consolidated Income Statement on a straight-line basis over the term of the
relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over
the lease term.
Taxation
Tax on the profit or loss for the year comprises both current and deferred tax. Tax is recognised in the Consolidated Income Statement except
to the extent that it relates to items recognised either in other comprehensive income or directly in equity, in which case tax is recognised in
the Consolidated Statement of Comprehensive Income or the Consolidated Statement of Changes in Equity, respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the statement
of financial position date, and any adjustments to tax payable in respect of prior years.
Deferred taxation is provided on taxable temporary differences between the carrying amounts of assets and liabilities in the Financial Statements
and their corresponding tax bases. No provision is made for deferred tax which would become payable on the distribution of retained profits
by overseas subsidiaries where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future. Deferred tax is measured using the tax rates expected to apply when the asset is realised
or the liability settled based on tax rates enacted or substantively enacted at the statement of financial position date.
Deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related
transaction is a business combination or affects tax or accounting profit.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities
and the deferred taxes relate to the same taxable entity and the same taxation authority.
Additional income taxes that arise from the distribution of intra-group dividends are recognised at the same time as the liability to pay
the related dividend.
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NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
1. Basis of preparation and summary of significant accounting policies continued
Foreign currency translation
The functional currency for each entity in the Group is determined with reference to the currency of the primary economic environment in which
it operates. Transactions in currencies other than the functional currency are initially recorded at the functional currency rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the statement
of financial position date. Exchange gains and losses on settlement of foreign currency transactions are determined using the rate prevailing at
the date of the transactions, or the translation of monetary assets and liabilities at period end exchange rates, and are charged / credited to the
Consolidated Income Statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are
translated to the functional currency at the foreign exchange rate ruling at the date of the transaction.
On consolidation, the Income Statement items of subsidiaries are translated into Sterling at average rates of exchange. Statement of financial
position items are translated into Sterling at year-end exchange rates. Exchange differences on the retranslation are taken to the translation
reserve within equity. Exchange differences on foreign currency borrowings designated as a hedge of the net investment in a foreign operation
are reported in the Consolidated Statement of Comprehensive Income. All other exchange differences are charged or credited to the Consolidated
Income Statement in the year in which they arise. On disposal of an overseas subsidiary, any cumulative exchange movements relating to that
subsidiary held in the translation reserve are transferred to the Consolidated Income Statement.
Derivative financial instruments may be purchased to hedge the Group’s exposure to changes in foreign exchange rates. The accounting policies
applied in these circumstances are described below.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at the fair value of consideration received less directly attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are measured at amortised cost with any difference between cost and
redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on an effective-interest basis.
Financial instruments
Recognition
The Group recognises financial assets and liabilities on its Consolidated Statement of Financial Position when it becomes a party to the
contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amount is reported in the Consolidated Statement of Financial Position when there is a
legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the
liability simultaneously.
Measurement
When financial assets and liabilities are initially recognised, they are measured at fair value, being the consideration given or received plus
directly attributable transaction costs.
In determining estimated fair value, investments are valued at quoted bid prices on the trade date. When quoted prices on an active market are
not available, fair value is determined by reference to price quotations for similar instruments traded.
Originated loans and receivables are initially recognised in accordance with the policy stated above and subsequently re-measured at amortised
cost using the effective interest method. Allowance for impairment is estimated on a case-by-case basis.
The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge risks associated with foreign exchange
fluctuations. These are designated as cash flow hedges. At the inception of the hedge relationship, the Group documents the relationship
between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that
is used in a hedging relationship is highly effective in offsetting changes in cash flows of the hedged item.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity.
The gain or loss relating to the ineffective portion is recognised immediately in the Consolidated Income Statement.
Amounts deferred in equity are reclassified to the Consolidated Income Statement in the periods when the hedged item is recognised in the
Consolidated Income Statement, in the same line of the Consolidated Income Statement as the recognised hedged item. However, when the
forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously
deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
1. Basis of preparation and summary of significant accounting policies continued
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and
is recognised when the forecast transaction is ultimately recognised in the Consolidated Income Statement. When a forecast transaction
is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in the Consolidated
Income Statement.
Derecognition
A financial asset is derecognised when the Group loses control over the contractual rights to the cash flows from the asset. This occurs when
the rights are realised, expire or are surrendered. A financial liability is derecognised when the obligation specified in the contract is discharged,
cancelled or expired. Originated loans and receivables are derecognised on the date they are transferred by the Group.
Impairment of financial assets
The Group assesses at each Consolidated Statement of Financial Position reporting date whether there is any objective evidence that a financial
asset, or group of financial assets, is impaired. A financial asset, or group of financial assets, is deemed to be impaired if, and only if, there
is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred
‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can
be reliably estimated.
Net investment hedge accounting
The Group uses US Dollar and Euro-denominated borrowings as a hedge against the translation exposure on the Group’s net investment in
overseas companies. To the extent that the hedge is effective at hedging the variability in the net assets of such companies, caused by changes
in foreign exchange rates, the changes in the value of the borrowings are recognised in the Consolidated Statement of Comprehensive Income.
The ineffective part of any change in value caused by changes in foreign exchange rates is recognised in the Consolidated Income Statement.
Employee benefits
The Group operates defined benefit post-retirement benefit schemes and defined contribution pension schemes.
Defined benefit schemes
The Group’s net obligation recognised in the Consolidated Statement of Financial Position in respect of defined benefit schemes is calculated
separately for each plan as the present value of the scheme’s liabilities less the fair value of the scheme’s assets. The operating and financing
costs of defined benefit schemes are recognised separately in the Consolidated Income Statement. Operating costs comprise the current service
cost, scheme administrative expense, any gains or losses on settlement or curtailments, and past service costs where benefits have vested.
Finance items comprise the unwinding of the discount on the net asset surplus / deficit. Actuarial gains or losses comprising changes in schemes’
liabilities due to experience and changes in actuarial assumptions are recognised in the Consolidated Statement of Comprehensive Income.
The amount of any pension fund asset recognised in the Consolidated Statement of Financial Position is limited to any future refunds from
the plan or the present value of reductions in future contributions to the plan.
Defined contribution scheme
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have
no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised in
the Consolidated Income Statement in the periods during which services are rendered by employees.
In certain countries, the Group participates in industry-wide defined benefit-type pension arrangements. In such circumstances, it is not possible
to determine the amount of any surplus or deficit attributable to the Group and the pension costs are accounted for as if the arrangements were
defined contribution schemes. These are not material to the Group and, accordingly, no additional disclosures are provided.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability
is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or
constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
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NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
1. Basis of preparation and summary of significant accounting policies continued
Share-based payments
Certain employees of the Group receive part of their remuneration in the form of share-based payment transactions, whereby employees render
services in exchange for shares or rights over shares (‘equity-settled transactions’). The cost of equity-settled transactions with employees is
measured at fair value at the date at which they are granted. The fair value of share awards with market-related vesting conditions is determined
by an external consultant and the fair value at the grant date is expensed on a straight-line basis over the vesting period based on the Group’s
estimate of shares that will eventually vest. The estimate of the number of awards likely to vest is reviewed at each Consolidated Statement of
Financial Position reporting date up to the vesting date, at which point the estimate is adjusted to reflect the actual outcome of awards which
have vested. No adjustment is made to the fair value after the vesting date even if the awards are forfeited or not exercised.
Where it is not possible to incentivise managers of the Group’s operating companies with equity-settled options, they are issued with cash-settled
options. The charge for these awards is adjusted to reflect the expected and actual levels of options that vest and the fair value is based on either
the share price at date of exercise or the share price at the Consolidated Statement of Financial Position date if sooner.
Own shares
Own equity instruments which are re-acquired (own shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the
Consolidated Income Statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the
carrying amount and the consideration paid to acquire such equity instruments is recognised within equity.
Dividends
Dividends are recognised as a liability in the period in which they are approved by shareholders.
Revenue
Revenue is measured at the fair value of the right to consideration and represents amounts receivable for goods and services provided in the
normal course of business to external customers net of returns and discounts, excluding value added tax and other sales-related taxes.
Revenue from the sale of goods is recognised in the Consolidated Income Statement when the significant risks and rewards of ownership of the
goods have been transferred to the customer, recovery of the consideration is probable, the costs and possible return of goods can be estimated
reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. This is typically
on delivery when legal title transfers to the customer. If it is probable that discounts will be granted and the amount can be measured reliably,
then the discount is recognised as a reduction of revenue as the sales are recognised.
For contracts that involve a significant element of installation or testing of equipment, revenue is recognised at the point of customer acceptance.
Revenue from services rendered is recognised in the Consolidated Income Statement in proportion to the measurement of the stage of completion
of services rendered as at the Consolidated Statement of Financial Position date. This is assessed by reference to the amount of time incurred in
proportion to the total expected time to be taken to deliver the service.
Occasionally, the initial contract covers both the supply of goods and ongoing support, servicing and maintenance. For such contracts revenue
is allocated across each of the individual components in line with their relative value and each element is accounted for as described above.
Interest payable and receivable
Interest payable comprises the interest payable on borrowings calculated using the effective interest method and the unwinding of the discount
factor on deferred or contingent consideration. Interest receivable comprises interest income on cash and funds invested and is recognised in the
Consolidated Income Statement as it accrues.
113
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
2. Adjusted performance measures
Spectris uses adjusted figures as key performance measures in addition to those reported under adopted IFRS, as management believe these
measures enable them to assess the underlying trading performance of the businesses. Adjusted figures exclude certain non-operational items
which management have defined as amortisation and impairment of acquisition-related intangible assets, acquisition-related costs and
contingent consideration fair value adjustments, acquisition-related fair value adjustments, profits or losses on termination or disposal of
businesses, unrealised changes in the fair value of financial instruments, gains or losses on retranslation of short-term inter-company loan
balances, unwinding of the discount factor on deferred and contingent consideration, related tax effects and other tax items which do not
form part of the underlying tax rate (see Note 8).
The adjusted performance measures are derived from the reported figures under adopted IFRS as follows:
Adjusted operating profit
Operating profit as reported under adopted IFRS
Net acquisition-related costs and fair value adjustments
Amortisation and impairment of acquisition-related intangible assets
Adjusted operating profit
Note
11
Adjusted operating profit by segment – 2015
Note
Operating profit as reported under adopted IFRS
Net acquisition-related costs and fair value
adjustments
Amortisation and impairment of acquisition-related
intangible assets
Adjusted operating profit
3
Adjusted operating profit by segment – 2014
Note
Operating profit as reported under adopted IFRS
Net acquisition-related costs and fair value
adjustments
Amortisation and impairment of acquisition-related
intangible assets
Adjusted operating profit
3
Materials
Analysis
£m
Test and
Measurement
£m
In-line
Instrumentation
£m
42.6
0.2
10.9
53.7
Materials
Analysis
£m
48.0
(2.3)
7.6
53.3
43.6
1.5
10.2
55.3
34.2
0.1
2.5
36.8
Test and
Measurement
£m
In-line
Instrumentation
£m
45.7
0.9
5.6
52.2
45.6
–
2.4
48.0
2015
£m
143.6
2.9
34.6
181.1
Industrial
Controls
£m
23.2
1.1
11.0
35.3
Industrial
Controls
£m
29.0
5.3
10.3
44.6
2014
£m
168.3
3.9
25.9
198.1
2015
Total
£m
143.6
2.9
34.6
181.1
2014
Total
£m
168.3
3.9
25.9
198.1
Net acquisition-related costs and fair value adjustments comprises acquisition costs of £3.0m (2014: £3.9m) that have been recognised in the
Consolidated Income Statement under IFRS 3 (Revised) ‘Business Combinations’, fair value adjustments to inventory of £0.7m (2014: £0.6m) and
other fair value adjustments resulting in a credit of £0.8m (2014: credit £0.6m). Net acquisition-related costs and fair value adjustments are
included within administrative expenses. Acquisition-related costs have been excluded from the adjusted operating profit and acquisition costs
paid of £3.9m (2014: £2.5m) have been excluded from adjusted operating cash flow.
114
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
2. Adjusted performance measures continued
Return on sales by segment – 2015
Materials
Analysis
%
Test and
Measurement
%
In-line
Instrumentation
%
Industrial
Controls
%
Using operating profit as reported under adopted IFRS
Using adjusted operating profit
11.7
14.7
12.4
15.8
13.4
14.4
10.6
16.1
Return on sales by segment – 2014
Using operating profit as reported under adopted IFRS
Using adjusted operating profit
Materials
Analysis
%
13.8
15.3
Test and
Measurement
%
In-line
Instrumentation
%
13.3
15.2
17.4
18.4
Industrial
Controls
%
13.1
20.2
Reconciliation to adjusted profit before tax and adjusted operating profit
Note
Profit before tax as reported under adopted IFRS
Add / (deduct):
Net acquisition-related costs and fair value adjustments
Amortisation and impairment of acquisition-related intangible assets
Profit on disposal of businesses
Net gain on retranslation of short-term inter-company loan balances
Unwinding of discount factor on deferred and contingent consideration
Adjusted profit before tax
Adjusted net finance costs (see below)
Adjusted operating profit
Adjusted net finance costs
Net interest (costs) / income as reported under adopted IFRS
Net gain on retranslation of short-term inter-company loan balances
Unwinding of discount factor on deferred and contingent consideration
Adjusted net finance costs
Adjusted operating cash flow
Net cash flows generated from operating activities under adopted IFRS
Acquisition-related costs paid
Net income taxes paid
Purchase of property, plant and equipment and software
Proceeds from sale of property, plant and equipment
Adjusted operating cash flow
11
7
7
Note
7
7
7
2015
£m
141.6
2.9
34.6
–
(3.0)
0.2
176.3
4.8
181.1
2015
£m
(2.0)
(3.0)
0.2
(4.8)
2015
£m
153.4
3.9
33.5
(26.0)
0.9
165.7
2015
Total
%
12.1
15.2
2014
Total
%
14.3
16.9
2014
£m
171.1
3.9
25.9
(2.4)
(6.0)
–
192.5
5.6
198.1
2014
£m
0.4
(6.0)
–
(5.6)
2014
£m
155.2
2.5
43.0
(27.4)
2.4
175.7
115
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
2. Adjusted performance measures continued
Adjusted earnings per share
Profit after tax as reported under adopted IFRS
Adjusted for:
Net acquisition-related costs and fair value adjustments
Amortisation and impairment of acquisition-related intangible assets
Profit on disposal of businesses
Net gain on retranslation of short-term inter-company loan balances
Unwinding of discount factor on deferred and contingent consideration
Tax effect of the above and other non-recurring items
Adjusted earnings
Weighted average number of shares outstanding (millions)
Adjusted earnings per share (pence)
Adjusted diluted earnings per share (pence)
Diluted weighted average number of shares outstanding (millions)
Adjusted diluted earnings per share (pence)
Note
11
7
7
8
10
Note
10
Basic and diluted earnings per share in accordance with IAS 33 ‘Earnings Per Share’ are disclosed in Note 10.
Analysis of net debt for management purposes
Bank overdrafts
Bank loans – unsecured
Total borrowings
Cash balances
Net debt
Note
16
16
15
2015
£m
113.8
2.9
34.6
–
(3.0)
0.2
(12.4)
136.1
119.0
114.3
2015
119.3
114.1
2015
£m
1.7
155.1
156.8
(58.2)
98.6
2014
£m
135.1
3.9
25.9
(2.4)
(6.0)
–
(8.7)
147.8
118.8
124.4
2014
119.1
124.1
2014
£m
2.5
157.9
160.4
(34.8)
125.6
3. Operating segments
The Group has four reportable segments, as described below, which are the Group’s strategic business units. These units offer different
applications, assist companies at various stages of the production cycle and are focussed towards specific industries. These segments reflect
the internal reporting provided to the Chief Operating Decision Maker (considered to be the Board) on a regular basis to assist in making
decisions on capital allocated to each segment and to assess performance. The segment results include an allocation of head office expenses.
The following summary describes the operations in each of the Group’s reportable segments:
_ Materials Analysis provides products and services that enable customers to determine structure, composition, quantity and quality of
particles and materials during their research and product development processes, when assessing materials before production, or during
the manufacturing process. The operating companies in this segment are Malvern Instruments, PANalytical and Particle Measuring Systems.
_ Test and Measurement supplies test, measurement and analysis equipment, software and services for product design optimisation,
manufacturing control, microseismic monitoring and environmental noise monitoring. The operating companies in this segment are
Brüel & Kjær Sound & Vibration, ESG Solutions and HBM.
_ In-line Instrumentation provides process analytical measurement, asset monitoring and on-line controls as well as associated consumables
and services for both primary processing and the converting industries. The operating companies in this segment are Brüel & Kjær Vibro, BTG,
NDC Technologies and Servomex.
_ Industrial Controls provides products and solutions that measure, monitor, control, inform, track and trace during the production process.
The operating companies in this segment are Microscan, Omega Engineering and Red Lion Controls.
Further details of the nature of these segments and the products and services they provide are contained in the Strategic Report on
pages 34 to 41.
116
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
3. Operating segments continued
Information about reportable segments
Segment revenues
Inter-segment revenue
External revenue
Reportable segment profit for continuing operations
Net acquisition-related costs and fair value adjustments
Amortisation and impairment of acquisition-related intangible assets
Operating profit
Financial income¹
Finance costs¹
Profit before tax
Tax¹
Profit after tax
Segment revenues
Inter-segment revenue
External revenue
Reportable segment profit for continuing operations
Net acquisition-related costs and fair value adjustments
Amortisation and impairment of acquisition-related intangible assets
Operating profit
Profit on disposal of businesses¹
Financial income¹
Finance costs¹
Profit before tax
Tax¹
Profit after tax
1 Not allocated to reportable segments.
Materials
Analysis
£m
Test and
Measurement
£m
In-line
Instrumentation
£m
Industrial
Controls
£m
363.7
0.7
364.4
53.7
(0.2)
(10.9)
42.6
351.5
(0.2)
351.3
55.3
(1.5)
(10.2)
43.6
255.0
–
255.0
36.8
(0.1)
(2.5)
34.2
Materials
Analysis
£m
348.7
0.1
348.8
53.3
2.3
(7.6)
48.0
Test and
Measurement
£m
In-line
Instrumentation
£m
343.1
(0.2)
342.9
52.2
(0.9)
(5.6)
45.7
261.7
(0.3)
261.4
48.0
–
(2.4)
45.6
219.6
(0.3)
219.3
35.3
(1.1)
(11.0)
23.2
Industrial
Controls
£m
220.8
(0.2)
220.6
44.6
(5.3)
(10.3)
29.0
2015
Total
£m
1,189.8
0.2
1,190.0
181.1
(2.9)
(34.6)
143.6
3.3
(5.3)
141.6
(27.8)
113.8
2014
Total
£m
1,174.3
(0.6)
1,173.7
198.1
(3.9)
(25.9)
168.3
2.4
6.3
(5.9)
171.1
(36.0)
135.1
Reportable segment profit is consistent with that presented to the Chief Operating Decision Maker. Inter-segment revenue reflects the
movements in internal cash flow hedges with inter-segment pricing on an arm’s length basis. Segments are presented on the basis of actual
inter-segment charges made.
117
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
3. Operating segments continued
Materials Analysis
Test and Measurement
In-line Instrumentation
Industrial Controls
Total segment assets and liabilities
Cash and borrowings
Derivative financial instruments
Retirement benefit assets / (liabilities)
Taxation
Consolidated total assets and liabilities
Carrying amount of segment assets
Carrying amount of segment liabilities
2015
£m
355.5
378.9
218.4
430.2
1,383.0
58.2
–
–
17.9
1,459.1
2014
£m
357.7
363.5
217.5
410.0
1,348.7
34.8
–
3.6
19.4
2015
£m
(93.6)
(85.8)
(41.5)
(24.5)
(245.4)
(156.8)
(0.4)
(22.1)
(68.4)
1,406.5
(493.1)
2014
£m
(90.9)
(84.9)
(40.8)
(23.7)
(240.3)
(160.4)
(0.3)
(17.6)
(71.9)
(490.5)
Segment assets comprise: goodwill, other intangible assets, property, plant and equipment, inventories, trade and other receivables. Segment
liabilities comprise: trade and other payables, provisions and other payables which can be reasonably attributed to the reportable operating
segments. Unallocated items represent current and deferred taxation balances, defined benefit scheme assets and liabilities, derivative financial
instruments and all components of net debt.
Materials Analysis
Test and Measurement
In-line Instrumentation
Industrial Controls
Additions to non-current assets
Depreciation, amortisation
and impairment
2015
£m
8.8
42.7
7.2
8.6
67.3
2014
£m
59.7
57.3
6.7
6.9
130.6
2015
£m
16.9
18.5
8.0
15.6
59.0
2014
£m
13.1
13.2
7.6
13.7
47.6
118
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
3. Operating segments continued
Geographical segments
The Group’s operating segments are each located in several geographical locations and sell to external customers in all parts of the world.
No individual country amounts to more than 3% of revenue by location of customer, other than those noted below.
The following is an analysis of revenue by geographical destination:
UK
Germany
France
Rest of Europe
USA
Rest of North America
Japan
China
South Korea
Rest of Asia
Rest of the World
UK
Germany
France
Rest of Europe
USA
Rest of North America
Japan
China
South Korea
Rest of Asia
Rest of the World
Materials
Analysis
£m
Test and
Measurement
£m
In-line
Instrumentation
£m
Industrial
Controls
£m
16.8
19.5
12.6
55.4
80.2
13.2
23.2
51.8
13.6
46.3
31.8
14.0
56.9
17.6
62.3
81.7
7.9
22.0
44.8
10.6
18.9
14.6
6.9
19.5
6.3
45.0
67.1
9.0
11.1
43.4
5.5
25.6
15.6
7.1
9.9
2.3
9.3
144.6
12.6
2.0
13.8
4.1
9.8
3.8
2015
Total
£m
44.8
105.8
38.8
172.0
373.6
42.7
58.3
153.8
33.8
100.6
65.8
364.4
351.3
255.0
219.3
1,190.0
Materials
Analysis
£m
Test and
Measurement
£m
In-line
Instrumentation
£m
Industrial
Controls
£m
14.9
22.1
11.9
55.3
67.7
10.7
23.7
53.1
11.9
41.5
36.0
14.0
60.2
19.0
61.9
65.4
4.6
22.8
42.7
11.9
21.0
19.4
8.1
24.4
7.0
44.7
64.2
7.6
11.3
45.1
6.3
25.4
17.3
7.4
10.0
2.0
9.6
146.9
14.6
1.6
12.8
3.5
8.7
3.5
2014
Total
£m
44.4
116.7
39.9
171.5
344.2
37.5
59.4
153.7
33.6
96.6
76.2
348.8
342.9
261.4
220.6
1,173.7
119
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
3. Operating segments continued
UK
Germany
France
Rest of Europe¹
USA
Rest of North America
Japan
China
South Korea
Rest of Asia
Rest of the World
Retirement benefit assets²
Deferred taxation²
Total non-current assets
1 Principally in Denmark and Switzerland.
2 Not allocated to reportable geographical area in reporting to the Chief Operating Decision Maker.
4. Revenue
An analysis of the Group’s revenue is as follows:
Sale of goods
Services rendered
Revenue
No individual customer accounted for more than 2% of external revenue in either 2015 or 2014.
5. Operating profit
Operating profit has been arrived at after charging / (crediting):
Net foreign exchange losses
Research and development expenditure
Amortisation of intangible assets
Impairment of intangible assets
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Loss / (profit) on sale of property, plant and equipment and software
120
Spectris plc Annual Report and Accounts 2015
Non-current assets
2014
£m
88.6
25.9
0.1
279.8
443.3
57.8
0.4
4.1
5.6
31.2
3.6
940.4
3.6
18.3
962.3
2015
£m
85.1
25.2
0.1
269.0
487.0
41.0
0.6
4.3
4.4
27.9
2.8
947.4
–
17.2
964.6
2015
£m
1,029.0
161.0
1,190.0
2014
£m
1,019.7
154.0
1,173.7
2015
£m
1.1
88.8
37.8
1.6
19.6
–
0.2
2014
£m
0.3
86.5
29.4
–
18.2
1.3
(0.3)
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
5. Operating profit continued
Auditor’s remuneration
Fees payable to the Company’s auditor for audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for other services:
– the audit of the Company’s subsidiaries, pursuant to legislation
– audit-related assurance services¹
– tax advisory services
– other services
1 Review of the half-year Financial Statements.
6. Employee costs and other information
Employee costs, including Directors’ remuneration, comprise:
Wages and salaries
Social security costs
Defined benefit pension plans:
– current service cost
– past service credit
Defined contribution pension plans
Equity-settled share-based payment expense
Cash-settled share-based payment expense
Directors’ remuneration
Short-term benefits
Equity-settled share-based payment expense
Further details of Directors’ remuneration and share options are given in the Directors’ Remuneration Report on pages 77 to 93.
Average number of employees
Production and engineering
Sales, marketing and service
Administrative
2015
Number
3,676
3,601
776
8,053
2015
£m
0.5
1.2
0.1
0.1
–
1.9
2015
£m
355.4
63.8
1.5
(0.3)
12.1
0.7
0.8
2014
£m
0.5
1.1
0.1
0.1
0.1
1.9
2014
£m
337.5
61.1
1.2
–
11.5
2.2
0.1
434.0
413.6
Note
19
19
19
2015
£m
1.8
0.3
2.1
2014
£m
2.0
0.5
2.5
2014
Number
3,588
3,322
766
7,676
121
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
7. Financial income and finance costs
Financial income
Interest receivable
Net gains on retranslation of short-term inter-company loan balances
Finance costs
Interest payable on loans and overdrafts
Unwinding of discount factor on deferred and contingent consideration
Net interest cost on pension scheme liabilities
Other finance costs
2015
£m
0.3
3.0
3.3
2015
£m
4.9
0.2
0.1
0.1
5.3
Net interest costs of £4.6m (2014: £5.4m) for the purposes of the calculation of interest cover comprise bank interest receivable of £0.3m
(2014: £0.3m) and interest payable on loans and overdrafts of £4.9m (2014: £5.7m).
8. Taxation
Current tax charge
Adjustments in respect of current tax
of prior years
Deferred tax – origination and reversal
of temporary differences
UK
£m
2.7
(1.0)
(0.4)
1.3
Overseas
£m
32.8
(1.5)
(4.8)
26.5
2015
Total
£m
35.5
(2.5)
(5.2)
27.8
UK
£m
5.3
(1.8)
(1.5)
2.0
Overseas
£m
37.9
(1.5)
(2.4)
34.0
2014
£m
0.3
6.0
6.3
2014
£m
5.7
–
0.1
0.1
5.9
2014
Total
£m
43.2
(3.3)
(3.9)
36.0
The standard rate of corporation tax for the year, based on the weighted average of tax rates applied to the Group’s profits, is 25.4% (2014:
28.1%). The tax charge for the year is lower than the standard rate of corporation tax for the reasons set out in the following reconciliation:
2015
£m
141.6
36.0
(3.6)
1.3
0.5
(5.0)
–
(1.4)
27.8
2014
£m
171.1
48.1
(6.0)
0.3
0.1
(4.4)
0.1
(2.2)
36.0
Profit before taxation
Corporation tax at standard rate of 25.4% (2014: 28.1%)
Non-taxable income and gains
Non-deductible expenditure
Movements on unrecognised deferred tax assets
Research and development tax incentives
Change in tax rates
Adjustments to prior year current and deferred tax charges
Total taxation
122
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
8. Taxation continued
Factors that may affect the future tax charge
The Group’s tax charge in future years is likely to be affected by the proportion of profits arising, and the effective tax rates, in the various
territories in which the Group operates.
Tax on items recognised directly in the Consolidated Statement of Comprehensive Income
Tax on net loss on effective portion of changes in fair value of forward exchange contracts
Tax on re-measurement of net defined benefit liability, net of foreign exchange
Aggregate current and deferred tax credit relating to items recognised directly in the
Consolidated Statement of Comprehensive Income
Tax on items recognised directly in the Consolidated Statement of Changes in Equity
Tax (credit) / charge in relation to share-based payments
Aggregate current and deferred tax (credit) / charge on items recognised directly in the
Consolidated Statement of Changes in Equity
2015
£m
–
(1.7)
(1.7)
2015
£m
(0.1)
(0.1)
2014
£m
(0.5)
(1.5)
(2.0)
2014
£m
1.0
1.0
The following tax (credits) / charges relate to items of income and expense that are excluded from the Group’s adjusted performance measures.
Tax on items of income and expense that are excluded from the Group’s
adjusted profit before tax
Tax credit on amortisation and impairment of acquisition-related intangible assets
Tax credit on net acquisition-related costs and fair value adjustments
Tax credit on retranslation of short-term inter-company loan balances
Tax credit on unwinding of discount factor on deferred and contingent consideration
Tax charge on profit on disposal of businesses
Total tax credit
The effective adjusted tax rate for the year was 22.8% (2014: 23.2%) as set out in the reconciliation below.
Reconciliation of total tax charge on adopted IFRS basis to adjusted tax charge
Total tax charge on adopted IFRS basis
Tax credit on items of income and expense that are excluded from the Group’s adjusted profit before tax
Adjusted tax charge
2015
£m
(11.2)
(0.6)
(0.5)
(0.1)
–
(12.4)
2015
£m
27.8
12.4
40.2
2014
£m
(8.4)
(0.9)
(0.2)
–
0.8
(8.7)
2014
£m
36.0
8.7
44.7
123
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NOTES TO THE ACCOUNTS CONTINUED
9. Dividends
Amounts recognised and paid as distributions to owners of the Parent Company in the year
Final dividend for the year ended 31 December 2014 of 30.5p (2013: 28.0p) per share
Interim dividend for the year ended 31 December 2015 of 17.3p (2014: 16.0p) per share
Amounts arising in respect of the year
Interim dividend for the year ended 31 December 2015 of 17.3p (2014: 16.0p) per share
Proposed final dividend for the year ended 31 December 2015 of 32.2p (2014: 30.5p) per share
2015
£m
36.3
20.6
56.9
2015
£m
20.6
38.4
59.0
2014
£m
33.3
19.0
52.3
2014
£m
19.0
36.3
55.3
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 20 May 2016 and has not been included
as a liability in these Financial Statements.
10. Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year (excluding treasury shares).
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year but adjusted for the effects of dilutive options. The key features of the Company’s share
option schemes are described in Note 23.
Basic earnings per share
Profit after tax (£m)
Weighted average number of shares outstanding (millions)
Basic earnings per share (pence)
Diluted earnings per share
Profit after tax (£m)
Basic weighted average number of shares outstanding (millions)
Weighted average number of dilutive 5p ordinary shares under option (millions)
Weighted average number of 5p ordinary shares that would have been issued at average market value
from proceeds of dilutive share options (millions)
Diluted weighted average number of shares outstanding (millions)
Diluted earnings per share (pence)
2015
113.8
119.0
95.6
2015
113.8
119.0
0.6
(0.3)
119.3
95.4
2014
135.1
118.8
113.7
2014
135.1
118.8
0.7
(0.4)
119.1
113.4
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NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
11. Goodwill and other intangible assets
Note
Goodwill
£m
557.2
–
48.5
–
(2.9)
Patents,
contractual
rights and
technology
£m
Customer-
related and
trade names
£m
135.0
141.6
–
22.9
–
5.0
–
24.6
–
5.8
602.8
162.9
172.0
–
24.0
(7.1)
–
–
(3.6)
616.1
36.2
–
–
(2.8)
33.4
–
–
–
(2.2)
31.2
–
15.0
–
–
–
–
8.0
–
–
–
2.5
180.4
3.7
183.7
60.3
14.7
–
1.6
76.6
18.4
1.6
–
1.4
98.0
50.2
11.2
–
2.0
63.4
14.6
–
–
1.9
79.9
Software
£m
41.0
5.7
–
(0.6)
(0.8)
45.3
5.0
–
–
1.7
(4.1)
(0.2)
Total
£m
874.8
5.7
96.0
(0.6)
7.1
983.0
5.0
47.0
(7.1)
1.7
(4.1)
2.4
47.7
1,027.9
29.6
3.5
(0.6)
(0.8)
31.7
4.8
–
(3.8)
(0.5)
176.3
29.4
(0.6)
–
205.1
37.8
1.6
(3.8)
0.6
32.2
241.3
Cost
At 1 January 2014
Additions
Recognised on acquisitions
Disposals
Foreign exchange difference
At 31 December 2014
Additions
Recognised on acquisitions
Adjustments to provisional fair values
Transfers from property, plant and equipment
24
24
12
Disposals
Foreign exchange difference
At 31 December 2015
Accumulated amortisation and impairment
At 1 January 2014
Charge for the year
Disposals
Foreign exchange difference
At 31 December 2014
Charge for the year
Impairment
Disposals
Foreign exchange difference
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
584.9
569.4
82.4
86.3
103.8
108.6
15.5
13.6
786.6
777.9
125
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NOTES TO THE ACCOUNTS CONTINUED
11. Goodwill and other intangible assets continued
Goodwill
Goodwill is allocated to the cash-generating units that are anticipated to benefit from the acquisition.
The Group’s identified cash-generating units are smaller than the four reportable segments, being the 13 operating companies.
Bolt-on acquisitions are quickly integrated into existing Group companies and are therefore not considered separately.
The most significant amounts of goodwill are as follows:
Omega Engineering
PANalytical
Brüel & Kjær Sound & Vibration
HBM
BTG
2015
Pre-tax
discount rate
%
13.4
12.0
11.9
12.4
11.8
Goodwill
£m
178.9
87.7
63.4
81.4
49.3
2014
Pre-tax
discount rate
%
13.4
12.0
11.9
12.4
11.8
Goodwill
£m
170.1
92.7
65.0
64.9
50.6
The remaining balance of goodwill is allocated between the other eight cash-generating units, none of which is individually significant.
As part of the annual impairment review, the carrying amount of goodwill has been assessed with reference to value in use to perpetuity,
reflecting the projected cash flows of each cash-generating unit based on actual operating results, the most recent budget for the next financial
year as approved by the Board, and strategic review projections for 2017 and 2018.
The key assumptions on which the value in use calculations are based relate to business performance over the next three years, projected long-
term growth rates beyond 2018 and the discount rates applied. The forecast cash flows include management’s latest estimates on sales volumes
and pricing, production and other costs. There are no individually significant business level cash flow assumptions in respect of any business that
materially impact the impairment testing. The key judgements are the level of revenue and operating margins anticipated and the proportion of
operating profit converted to cash in each year. Growth rates for the years beyond 2018 are assumed to be 2.5% (2014: 4.0%) based on the
Group’s like-for-like sales growth performance since 2012, current forecast global industrial production growth rates, and long-term GDP growth
rates for the Group’s primary markets. The cash flow projections have been discounted using cash-generating unit specific pre-tax discount rates
between 11% and 18% (2014: 11% and 18%). These rates have been determined by taking the size of business and specific geographical and
industry risk factors into account. Following the annual impairment review, no impairment charge was recognised in either 2015 or 2014.
The results of the Group’s impairment tests are dependent upon estimates and judgements, particularly in relation to the key assumptions
described above. Sensitivity analysis to potential changes in the key assumptions has therefore been reviewed, based on the following
sensitivities in isolation:
_ a two percentage point (‘pp’) increase in the pre-tax discount rate applied to each cash-generating unit;
_ if the long-term growth rate assumption was reduced by 1.5 pp to 1%; and
_ if the cash flow projections of all cash-generating units were reduced by 25% for the next two years.
For each cash-generating unit, with the exception of Omega Engineering, the Directors do not consider that there are any reasonably possible
sensitivities for these businesses that could arise in the next 12 months that could result in an impairment charge being recognised. For Omega
Engineering, reasonable possible changes in the key assumptions could cause the estimated recoverable amount to fall below the carrying value,
such as a reduction in the assumed long-term growth rate by 0.6 pp to 1.9%, or an increase in the assumed discount rate of 0.8 pp to 14.2%.
During the year ended 31 December 2014, there were no reasonably possible sensitivities for any cash-generating unit that could have arisen
which would have resulted in an impairment charge being recognised in the following 12 months.
Other intangible assets
Of the total amortisation charge of £37.8m (2014: £29.4m), the amount attributable to the amortisation of acquisition-related intangible
assets was £33.0m (2014: £25.9m). The amount attributable to impairment of acquisition-related intangible assets was £1.6m (2014: £nil).
The Group has no internally-generated intangible assets from development expenditure as the criteria for the recognition as an asset under
IAS 38 ‘Intangible Assets’ have not been met (2014: £nil).
126
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NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
11. Goodwill and other intangible assets continued
The trade names and technology assets recognised on the acquisition of Omega Engineering in 2011, and included within the Industrial Controls
reportable segment, are considered significant by the Directors as they represent 49.4% (2014: 48.0%) of total customer-related and trade
names, and 23.6% (2014: 25.0%) of total patents, contractual rights and technology, respectively. The carrying amount of the trade name
intangible at 31 December 2015 is £51.3m (2014: £52.2m) and is being amortised over 20 years with the remaining amortisation period being
15.8 years. The carrying amount of the technology intangible at 31 December 2015 is £17.4m (2014: £19.4m) and is being amortised over ten
years with the remaining amortisation period being 5.8 years.
12. Property, plant and equipment
Cost
At 1 January 2014
Additions
Recognised on acquisitions
Disposals
Foreign exchange difference
At 31 December 2014
Additions
Recognised on acquisitions
Transfers to other intangible assets
Disposals
Foreign exchange difference
At 31 December 2015
Accumulated depreciation and impairment
At 1 January 2014
Charge for the year
Impairment
Disposals
Foreign exchange difference
At 31 December 2014
Charge for the year
Disposals
Foreign exchange difference
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
Note
24
24
11
Freehold
property
£m
138.7
3.5
2.3
(2.1)
(4.9)
137.5
3.5
0.3
–
(0.4)
(2.5)
138.4
37.4
3.8
1.3
(0.4)
(2.1)
40.0
3.8
(0.1)
(1.2)
42.5
95.9
97.5
Leasehold
property
£m
Plant and
equipment
£m
Total
£m
307.4
21.7
7.2
(10.0)
(8.9)
317.4
21.0
1.4
(1.7)
(11.7)
(4.5)
321.9
148.4
18.2
1.3
(7.9)
(5.1)
154.9
19.6
(10.9)
(2.5)
161.1
157.9
17.3
4.3
(7.4)
(4.1)
168.0
15.5
1.1
(1.7)
(11.0)
(2.1)
169.8
103.7
13.5
–
(7.0)
(3.2)
107.0
14.6
(10.5)
(1.4)
109.7
60.1
61.0
160.8
162.5
10.8
0.9
0.6
(0.5)
0.1
11.9
2.0
–
–
(0.3)
0.1
13.7
7.3
0.9
–
(0.5)
0.2
7.9
1.2
(0.3)
0.1
8.9
4.8
4.0
The amount recognised in the carrying amount of items of plant and equipment in the course of its construction was £1.4m (2014: £3.7m).
No borrowing costs met the required criteria for capitalisation during the year (2014: £nil).
127
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NOTES TO THE ACCOUNTS CONTINUED
13. Inventories
Raw materials
Work in progress
Finished goods
2015
£m
69.1
36.2
77.2
2014
£m
65.4
27.1
83.2
182.5
175.7
In the ordinary course of business, the Group makes provision for slow-moving, excess and obsolete inventory to write it down to its net
realisable value based on an assessment of technological and market developments specific to the relevant business, and an analysis of
historical and projected usage on an individual item or product line basis.
Inventory is stated after charging £18.3m (2014: £14.3m) in respect of inventory provisions and crediting £8.0m (2014: £6.0m) relating to the
reversal of previously recognised provisions.
Inventory carried at fair value less cost to sell is £nil (2014: £1.6m) for the acquisitions described in Note 24.
Raw materials and changes in finished goods and work in progress recognised within cost of sales amounted to £314.0m (2014: £312.1m).
14. Trade and other receivables
Trade receivables
Prepayments and accrued income
Other receivables
2015
£m
213.0
17.8
22.3
253.1
2014
£m
198.5
13.8
20.3
232.6
Included within prepayments and accrued income and other receivables are amounts receivable in more than one year of £4.7m (2014: £5.0m).
Trade receivables are non-interest bearing. Standard credit terms provided to customers differ according to business and country, and are
typically between 30 and 60 days. Trade receivables and other receivables are stated after the recognition of impairment losses of £5.8m
(2014: £5.5m) and the reversal of previously recognised provisions for impairment of £5.4m (2014: £5.0m).
The maximum exposure to credit risk for trade receivables at 31 December by geographical region was:
UK
Germany
France
Rest of Europe
USA
Rest of North America
Japan
China
South Korea
Rest of Asia
Rest of the World
128
Spectris plc Annual Report and Accounts 2015
2015
£m
10.0
15.7
9.7
39.7
58.7
11.8
15.3
18.8
3.5
18.4
11.4
2014
£m
9.7
18.9
10.0
39.2
52.0
8.7
12.7
15.3
5.8
16.7
9.5
213.0
198.5
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
14. Trade and other receivables continued
Impairment losses
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect amounts
due from customers according to the original terms of the sale.
The ageing of trade receivables and related provisions for impairment at 31 December was:
Not past due
One month past due
Two months past due
Three months past due
Over three months past due
2015
Gross
£m
Impairment
£m
158.8
32.1
12.2
6.1
12.4
221.6
0.2
0.1
0.2
0.1
8.0
8.6
The movement in the provision for impairment in respect of trade receivables during the year was as follows:
Balance at 1 January
Impairment loss recognised
Impairment loss utilised
Impairment loss released
Foreign exchange difference
Balance at 31 December
Gross
£m
145.5
32.5
11.7
7.8
10.5
208.0
2015
£m
9.5
5.8
(1.2)
(5.4)
(0.1)
8.6
2014
Impairment
£m
0.5
–
0.1
0.1
8.8
9.5
2014
£m
9.7
5.5
(0.6)
(5.0)
(0.1)
9.5
An impairment provision has been recorded against the trade receivables that the Group believes may not be recoverable. All trade receivables
past due for more than 120 days have been fully provided for in line with the Group’s credit risk policy.
The fair value of trade and other receivables approximates to its carrying amount due to the short-term maturities associated with these items.
There is no impairment risk identified with regard to prepayments and accrued income or other receivables where no amounts are past due.
15. Cash and cash equivalents
Cash balances
Bank overdrafts
Cash and cash equivalents in the Consolidated Statement of Cash Flows
Note
16
2015
£m
58.2
(1.7)
56.5
2014
£m
34.8
(2.5)
32.3
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in Note 26.
129
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NOTES TO THE ACCOUNTS CONTINUED
16. Borrowings
Current
Bank overdrafts
Effective interest rate
Earlier of repricing date or maturity date
on demand
Bank loans unsecured – US$75.6m
3.12%
10 September 2015
Non-current
Bank loans – unsecured
Bank loans unsecured – €94.8m
Bank loans unsecured – €116.2m
Total unsecured borrowings
Effective interest rate
Earlier of repricing date or maturity date
0.86%
2.56%
1.15%
30 October 2019
14 October 2020
9 September 2022
2015
£m
1.7
–
1.7
2015
£m
–
69.7
85.4
2014
£m
2.5
48.4
50.9
2014
£m
35.9
73.6
–
155.1
109.5
At 31 December 2015, the Group had available £371.1m (2014: £316.8m) of undrawn committed borrowing facilities in respect of which all
conditions precedent had been met.
Analysis of net debt
Bank overdrafts
Bank loans – unsecured
Total borrowings
Cash balances
Net debt
17. Trade and other payables
Current
Trade payables
Accruals
Deferred income
Other non-trade payables
Non-current
Other non-trade payables
Note
15
2015
£m
1.7
155.1
156.8
(58.2)
98.6
2015
£m
73.5
74.1
31.8
27.2
2014
£m
2.5
157.9
160.4
(34.8)
125.6
2014
£m
78.0
70.2
27.2
25.6
206.6
201.0
2015
£m
16.6
2014
£m
21.6
The fair value of trade and other payables approximates to their carrying amount due to the short-term maturities associated with these items.
130
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
18. Provisions
At 1 January 2015
Additional provision in the year
Acquired on acquisition
Utilised during the year
Released during the year
Foreign exchange difference
At 31 December 2015
Reorganisation
£m
Product
warranty
£m
Legal,
contractual
and other
£m
0.7
2.6
–
(0.3)
–
–
3.0
10.4
6.1
0.3
(5.3)
(1.3)
(0.2)
10.0
6.6
5.3
–
(0.4)
(2.2)
(0.1)
9.2
Total
£m
17.7
14.0
0.3
(6.0)
(3.5)
(0.3)
22.2
Provisions are all presented as current liabilities.
Reorganisation
Reorganisation provisions relate to committed restructuring plans in place within the business. Costs are expected to be incurred within one year
and there is little judgement in determining the amount.
Product warranty
Product warranty provisions reflect commitments made to customers on the sale of goods in the ordinary course of business and included within
the Group’s standard terms and conditions. Warranty commitments typically apply for a 12-month period, but can extend to 36 months.
These extended warranties are not significant.
Legal, contractual and other
Legal, contractual and other provisions mainly comprise amounts provided against open legal and contractual disputes arising in the normal
course of business. The Company has on occasion been required to take legal or other actions to protect its intellectual property rights, to
enforce commercial contracts or otherwise and similarly to defend itself against proceedings brought by other parties. Provisions are made for the
expected costs associated with such matters, based on past experience of similar items and other known factors, taking into account professional
advice received, and represent management’s best estimate of the most likely outcome. The timing of utilisation of these provisions is frequently
uncertain, reflecting the complexity of issues and the outcome of various court proceedings and negotiations. Contractual and other provisions
represent the Directors’ best estimate of the cost of settling current obligations although there is a higher degree of judgement involved. The
increase in the provision during the year is due to a higher legal risk profile in the Group arising from specific matters. Unless specific evidence
exists to the contrary, these provisions are shown as current.
No provision is made for proceedings which have been or might be brought by other parties against Group companies unless management,
taking into account professional advice received, assesses that it is more likely than not that such proceedings may be successful. Contingent
liabilities associated with such proceedings have been identified, but the Directors are of the opinion that any associated claims that might be
brought can be resisted successfully and, therefore, the possibility of any material outflow in settlement is assessed as remote.
19. Retirement benefit schemes
Spectris plc operates funded defined benefit and defined contribution pension plans for the Group’s qualifying employees in the UK. In addition,
12 overseas subsidiaries (2014: 12) in three overseas countries provide defined benefit plans. Other overseas subsidiaries have their own defined
contribution plans invested in independent funds.
Defined benefit schemes
The UK, German, Dutch and Swiss plans provide pensions in retirement, death in service benefits and in some cases disability benefits to
members. The pension benefit is linked to members’ final salary at retirement and their service life. Since 31 December 2009, the UK plan
has been closed to all service accrual. The German and Dutch plans are closed to new members.
The UK plan is administered by a pension fund, but the Swiss and Dutch plans are held by insurance companies that are legally separate from
the Group. The UK plan is managed by a Board of Trustees, that represents both employees and employer, which is required to act in the best
interest of the plan’s participants and is responsible for setting certain policies (e.g. investment, contribution and indexation policies) of the
various funds.
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NOTES TO THE ACCOUNTS CONTINUED
19. Retirement benefit schemes continued
The plans expose the Group to actuarial risks, such as longevity risk, currency risk, interest rate risk and market (investment) risk. Inflation and
interest rate hedges are taken out to mitigate against risks arising on the UK plan and some reinsurance exists in respect of the overseas plans.
The overseas plans are funded by the Group’s overseas subsidiaries, and the UK plan has been funded in the past by both the Group’s UK
subsidiaries and the Company. The assets of the UK plan are invested in accordance with Section 40 of the Pensions Act 1995. Although the
Act permits 5% of the plan’s assets to be invested in ‘employer-related investments’, the Trustees have elected that none of the plan assets
are to be invested directly in Spectris plc shares.
The funding requirements are based on the individual funds’ actuarial measurement framework set out in the funding policies of the
various plans. The German plan is unfunded.
The Group has determined that, in accordance with the terms and conditions of the defined benefit plans, and in accordance with statutory
requirements (including minimum funding requirements) of the plans of the respective jurisdictions, the present value of the refunds or reductions
in future contributions is not lower than the balance of the total fair value of the plan assets less the total present value of obligations. This
determination has been made on a plan-by-plan basis. As such, no decrease in the defined benefit asset was necessary at 31 December 2014.
The last full actuarial valuation for the UK, German and Swiss plans was 31 December 2014 and for the Dutch plan was 31 December 2013.
Where applicable, the valuations were updated to 31 December 2015 for IAS 19 (Revised) ‘Employee Benefits’ purposes by qualified
independent actuaries.
The Group’s contributions to defined benefit plans during the year ended 31 December 2015 was £1.4m (2014: £1.5m). Contributions for
2016 are expected to be £0.5m for the German plan and £1.0m for the Swiss plan.
The above contribution rates are subject to review at future valuations and periodic certifications of the schedule of contributions.
Contributions to the Spectris Pension Plan (UK) ceased from 1 July 2012.
The assumptions used by the actuary to value the liabilities of the defined benefit plans were:
Discount rate
Salary increases
Pension increases in payment
Pension increases in deferment
Inflation assumption
Interest credit rate
2015
UK plan
% p.a.
Overseas plans
% p.a.
3.7
4.7
2.1 – 3.7
2.3 – 3.2
2.3 – 3.2
0.8 – 1.9
1.0 – 3.0
0.0 – 2.0
1.0 – 2.0
0.0 – 1.0
UK plan
% p.a.
3.7
4.7
2.2 – 3.6
2.3 – 3.2
2.3 – 3.2
2014
Overseas plans
% p.a.
1.4 – 3.5
1.0 – 3.0
0.0 – 2.0
1.0 – 2.0
0.0 – 1.4
The weighted average duration of the defined benefit obligation at 31 December 2015 was 15.3 years (2014: 15.3 years).
132
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
19. Retirement benefit schemes continued
Pensioner life expectancy assumed in the 31 December 2015 valuation is based on the following tables:
UK plan
German plans
Dutch plans
Swiss plan
Samples of the ages which pensioners are assumed to live to are as follows:
Pensioners aged 65 in 2015
Pensioners aged 65 in 2025
Amounts recognised in the Consolidated Income Statement
Current service cost
Net interest (income) / cost
Administrative cost
Past service credit
92% S1PMA / 96% S1PFA centred in 2006, future improvements
in line with CMI_2014 with a long-term rate of improvement
of 1.25% per annum
Dr K Heubeck pension tables 2005 G
A.G. Prognosetafel 2014 tables
BVG 2010 generational
Male
84.0 – 87.2
85.4 – 88.9
Female
87.9 – 89.7
88.6 – 91.6
UK plans
Overseas plans
2014
£m
–
(0.3)
0.2
–
(0.1)
2015
£m
1.5
0.2
0.1
(0.3)
1.5
2014
£m
1.2
0.4
0.1
–
1.7
2015
£m
1.5
0.1
0.3
(0.3)
1.6
2015
£m
–
(0.1)
0.2
–
0.1
Total
2014
£m
1.2
0.1
0.3
–
1.6
The current service cost and past service credit are recognised in administrative expenses in the Consolidated Income Statement. The net interest
cost on the net defined benefit obligation is recognised in finance costs in the Consolidated Income Statement. Actuarial losses or gains are
recognised in the Consolidated Statement of Comprehensive Income.
During the year, insurance premiums for death-in-service benefits amounting to £0.4m (2014: £0.4m) were paid.
The total return on scheme assets in the year was £0.3m (2014: £8.1m).
Amounts recognised in the Consolidated Statement
of Comprehensive Income
Actuarial losses recognised in the current year
Foreign exchange gains in the current year
Total losses recognised in the current year
Cumulative actuarial losses since 1 January 2004
Amounts recognised in the Consolidated Statement
of Financial Position
Present value of defined benefit obligations
Fair value of scheme assets
Net (deficit) / surplus in schemes
UK plans
Overseas plans
2015
£m
(5.5)
–
(5.5)
(36.0)
2015
£m
(116.0)
114.0
(2.0)
2014
£m
(3.7)
–
(3.7)
(30.5)
UK plans
2014
£m
(118.7)
122.3
3.6
2015
£m
(2.4)
–
(2.4)
(12.6)
2014
£m
(2.8)
0.9
(1.9)
(10.2)
2015
£m
(7.9)
–
(7.9)
(48.6)
Overseas plans
2015
£m
(44.4)
24.3
(20.1)
2014
£m
(38.4)
20.8
(17.6)
2015
£m
(160.4)
138.3
(22.1)
Total
2014
£m
(6.5)
0.9
(5.6)
(40.7)
Total
2014
£m
(157.1)
143.1
(14.0)
133
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
19. Retirement benefit schemes continued
Reconciliation of movement in net deficit
At 1 January
Current service cost
Net interest income / (cost)
Scheme administrative cost
Liabilities acquired in business combinations
Past service credit
Contributions from sponsoring company
Actuarial losses
Foreign exchange difference
At 31 December
Analysis of movement in the present value
of the defined benefit obligation
At 1 January
Current service cost
Interest cost
Liabilities acquired in business combinations
Past service credit
Contributions from scheme members
Actuarial (gains) / losses – financial
Actuarial losses / (gains) – demographic
Actuarial (gains) / losses – experience
Benefits paid
Foreign exchange difference
At 31 December
Analysed as:
UK plans
Overseas plans
2015
£m
3.6
–
0.1
(0.2)
–
–
–
(5.5)
–
(2.0)
2014
£m
7.2
–
0.3
(0.2)
–
–
–
(3.7)
–
3.6
UK plans
2014
£m
2015
£m
118.7
112.2
–
4.3
–
–
–
(0.2)
0.2
(0.9)
(6.1)
–
–
4.7
–
–
–
6.7
–
–
(4.9)
–
116.0
118.7
2015
£m
(17.6)
(1.5)
(0.2)
(0.1)
–
0.3
1.4
(2.4)
–
2014
£m
(15.4)
(1.2)
(0.4)
(0.1)
(0.1)
–
1.5
(2.8)
0.9
2015
£m
(14.0)
(1.5)
(0.1)
(0.3)
–
0.3
1.4
(7.9)
–
Total
2014
£m
(8.2)
(1.2)
(0.1)
(0.3)
(0.1)
–
1.5
(6.5)
0.9
(20.1)
(17.6)
(22.1)
(14.0)
Overseas plans
2015
£m
Total
2014
£m
157.1
148.4
1.5
4.8
–
(0.3)
0.8
2.5
0.2
0.7
(7.6)
0.7
1.2
5.5
0.1
–
0.9
10.8
(0.4)
(1.1)
(6.2)
(2.1)
2014
£m
36.2
1.2
0.8
0.1
–
0.9
4.1
(0.4)
(1.1)
(1.3)
(2.1)
38.4
160.4
157.1
2015
£m
38.4
1.5
0.5
–
(0.3)
0.8
2.7
–
1.6
(1.5)
0.7
44.4
Present value of unfunded defined benefit obligation
Present value of funded defined benefit obligation
–
–
116.0
118.7
6.7
37.7
6.9
31.5
6.7
153.7
6.9
150.2
134
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
19. Retirement benefit schemes continued
Reconciliation of movement in fair value of plan assets
At 1 January
Return on plan assets
Scheme administration cost
Contributions from sponsoring company
Contributions from scheme members
Actuarial (losses) / gains
Benefits paid
Foreign exchange difference
At 31 December
Fair value of assets
Equity instruments
Corporate bonds
Government bonds
Cash and financial derivatives (net)
Insurance policies
UK plans
Overseas plans
2015
£m
2014
£m
122.3
119.4
4.4
(0.2)
–
–
(6.4)
(6.1)
–
5.0
(0.2)
–
–
3.0
(4.9)
–
114.0
122.3
2015
£m
20.8
0.3
(0.1)
0.9
0.8
1.9
(1.0)
0.7
24.3
2015
£m
Total
2014
£m
143.1
140.2
4.7
(0.3)
0.9
0.8
(4.5)
(7.1)
0.7
5.4
(0.3)
1.0
0.9
2.8
(5.7)
(1.2)
2014
£m
20.8
0.4
(0.1)
1.0
0.9
(0.2)
(0.8)
(1.2)
20.8
138.3
143.1
UK plans
Overseas plans
2015
£m
6.7
2014
£m
10.5
107.2
109.1
5.2
(5.1)
–
5.5
(2.8)
–
114.0
122.3
2015
£m
2014
£m
–
–
–
–
–
–
–
–
24.3
24.3
20.8
20.8
2015
£m
6.7
Total
2014
£m
10.5
107.2
109.1
5.2
(5.1)
24.3
138.3
5.5
(2.8)
20.8
143.1
Sensitivity analysis
The table below shows the sensitivity of the Consolidated Statement of Financial Position to changes in the significant pension assumptions.
Discount rate
Rate of price inflation (RPI)
Assumed life expectancy at age 65
Impact on scheme liabilities as at 31 December 2015
Change in assumption
Increase by 1%
Increase by 1%
Increase by 1 year
UK plans
Decrease by £15.9m
Increase by £11.0m
Increase by £3.4m
Overseas plans
Decrease by £7.0m
Increase by £1.6m
Increase by £1.5m
Defined contribution plans
The total cost of the defined contribution plans for the year ended 31 December 2015 was £12.1m (2014: £11.5m). There were no outstanding
or prepaid contributions to these plans as at 31 December 2015 or 31 December 2014.
135
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
20. Deferred tax
The movement in the deferred tax account is shown below.
At 1 January
Foreign exchange difference
Acquisition of subsidiary undertakings
Deferred tax on changes in fair value of forward exchange contracts recognised
in the Consolidated Statement of Comprehensive Income
Deferred tax on re-measurement of net defined benefit liability recognised
in the Consolidated Statement of Comprehensive Income
Deferred tax on share-based payments recognised in equity
Credited to the Consolidated Income Statement
At 31 December
Comprising:
Deferred tax liabilities
Deferred tax assets
Note
24
8
2015
£m
24.8
0.8
4.8
–
(1.7)
0.2
(5.2)
23.7
40.9
(17.2)
23.7
2014
£m
22.0
1.6
5.3
(0.2)
(1.5)
1.5
(3.9)
24.8
43.1
(18.3)
24.8
136
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
20. Deferred tax continued
The movements in deferred tax assets and liabilities during the year are shown below. Deferred tax assets and liabilities are only offset where
there is a legally enforceable right of offset and they relate to income taxes levied by the same taxation authority.
Unrealised
profit on
inter-
company
transactions
£m
Goodwill
and other
intangible
assets
£m
Pension
schemes
£m
(5.3)
(3.8)
46.7
–
–
0.8
7.3
Other
£m
(2.7)
–
–
2015
Total
£m
24.8
0.8
4.8
Net deferred tax (assets) / liabilities
At 1 January 2015
Foreign exchange difference
Acquisition of subsidiary undertakings
Deferred tax on re-measurement of net
defined benefit liability recognised in
the Consolidated Statement of
Comprehensive Income
Deferred tax on share-based payments
recognised in equity
Charged / (credited) to the Consolidated
Income Statement
At 31 December 2015
Net deferred tax (assets) / liabilities
At 1 January 2014
Foreign exchange difference
Acquisition of subsidiary undertakings
Deferred tax on changes in fair value of
forward exchange contracts recognised
in the Consolidated Statement of
Comprehensive Income
Deferred tax on re-measurement of net
defined benefit liability recognised in
the Consolidated Statement of
Comprehensive Income
Deferred tax on share-based payments
recognised in equity
Charged / (credited) to the Consolidated
Income Statement
At 31 December 2014
Accelerated
tax
depreciation
£m
Accruals
and
provisions
£m
4.0
(13.7)
–
–
–
–
–
–
–
–
Tax losses
£m
(0.4)
–
(2.5)
–
–
0.6
4.6
(0.6)
(14.3)
(0.1)
(3.0)
0.2
(5.1)
Unrealised
profit on
inter-
company
transactions
£m
Pension
schemes
£m
(5.1)
(2.2)
Accelerated
tax
depreciation
£m
Accruals
and
provisions
£m
4.3
(14.6)
–
–
–
–
–
–
–
–
–
–
Tax losses
£m
(1.0)
–
(0.2)
–
–
–
(0.3)
4.0
0.9
(13.7)
0.8
(0.4)
(0.2)
(5.3)
–
–
–
–
–
–
–
–
–
(1.7)
–
(0.1)
(5.6)
–
–
–
(1.7)
0.2
0.2
(5.7)
49.1
0.5
(2.0)
(5.2)
23.7
–
–
–
(1.5)
–
(0.1)
(3.8)
Goodwill
and other
intangible
assets
£m
43.1
1.6
5.5
Other
£m
(2.5)
–
–
2014
Total
£m
22.0
1.6
5.3
–
–
–
(0.2)
(0.2)
–
(1.5)
1.5
1.5
(3.5)
46.7
(1.5)
(2.7)
(3.9)
24.8
137
www.spectris.com
Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
20. Deferred tax continued
Unrecognised temporary differences
Deferred tax assets have not been recognised on the following temporary differences due to the degree of uncertainty over both the amount and
utilisation of the underlying tax losses and deductions in certain jurisdictions. £6.0m of the losses will expire by 31 December 2016; £20.0m will
expire between 31 December 2017 and 31 December 2020. There is no expiry date associated with the remaining tax losses of £9.4m.
Tax losses
Other temporary differences
2015
£m
35.4
1.3
36.7
2014
£m
6.6
2.8
9.4
The UK corporation tax rate was reduced to 20% from 21% with effect from 1 April 2015. Further phased reductions in the UK corporation tax
rate to 19% effective from 1 April 2017 and 18% from 1 April 2020 were substantively enacted in the UK Finance (No.2) Act 2015.
It is likely that the unremitted earnings of overseas subsidiaries would qualify for the UK dividend exemption such that no UK tax would be due
upon remitting these earnings to the UK. However, £47.9m (2014: £42.4m) of those earnings may still result in a tax liability, principally as a
result of the dividend withholding taxes levied by the overseas tax jurisdictions in which those subsidiaries operate. These tax liabilities are not
expected to exceed £2.3m (2014: £2.3m), of which only £1.0m (2014: £0.4m) has been provided for as the Group is able to control the timing of
the dividends. It is not expected that further amounts will crystallise in the foreseeable future.
21. Share capital and reserves
Share capital
Issued and fully paid (ordinary shares of 5p each):
At 1 January
At 31 December
Number of
shares
Millions
125.0
125.0
2015
£m
6.2
6.2
Number of
shares
Millions
125.0
125.0
2014
£m
6.2
6.2
Other reserves
Movements in reserves are set out in the Consolidated Statement of Changes in Equity. The retained earnings reserve also includes own shares
purchased by the Company and treated as treasury shares (see Note 22). The nature and purpose of other reserves forming part of equity are
as follows:
Translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the Financial Statements of foreign
subsidiaries, including gains or losses arising on net investment hedges.
Hedging reserve
This reserve records the cumulative net change in the fair value of forward exchange contracts where they are designated as effective cash flow
hedge relationships.
Merger reserve
This reserve arose on the acquisition of Servomex Limited in 1999, a purchase satisfied substantially by the issue of share capital and therefore
eligible for merger relief under the provisions of Section 612 of the Companies Act 2006.
Capital redemption reserve
This reserve records the historical repurchase of the Company’s own shares.
22. Treasury shares
At 31 December 2015, the Group held 5,898,908 treasury shares (2014: 6,054,835). During the year 155,927 of these shares were issued to
satisfy options exercised by employees which were granted under the Group’s share schemes (2014: 289,419). No shares were repurchased by
the Group during the year (2014: nil) and no shares were cancelled during the year (2014: nil).
138
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
23. Share-based payments
The Spectris Savings Related Share Option Scheme (‘SAYE’) provides UK employees with options to purchase ordinary shares in the Company
following a three-year vesting period. Options may be exercised during a six-month period following the vesting date. The exercise price is
determined according to the mid-market closing share price prevailing on the day before the date of grant. There are no performance criteria
associated with options granted under SAYE.
Under the Performance Share Plan (unapproved share options as defined by HMRC), the exercise price is the nominal cost of the Company’s
shares. From 2014, awards to Spectris plc executives are subject to performance criteria: 33.33% of the award being based on fulfilment of
an adjusted earnings per share growth target (‘EPS’), 33.33% of the award subject to a total shareholder return target (‘TSR’) and 33.33%
of the award being based on fulfilment of an economic profit target. Awards to Spectris plc executives in the years up to 2013 are subject to
performance criteria; 50% of the award being based on fulfilment of EPS and 50% of the award subject to TSR. Awards to Spectris plc senior
managers are still subject to these performance criteria. Awards made to executives and senior managers of the Group’s operating companies
in 2008 and 2009 have performance criteria subject to EPS in respect of 50% of the award and operating company profit targets in respect of
50% of the award. For awards made subsequent to 2009, the performance criteria are EPS in respect of 33.33% of the award and operating
company profit targets in respect of 66.67% of the award. Operating company manager awards up to 2013 were entirely subject to operating
company profit targets. All Performance Share Plan awards vest after a period of three years and must be exercised during the seven-year period
following vesting.
Since 2011, Performance Share Plan options have also been granted to UK employees that are approved share options as defined by HMRC.
The performance criteria and vesting conditions are consistent with the unapproved options granted described above.
The approved share options are linked to the unapproved share options in order to benefit from the tax-exempt status of approved share option
grants to a value not exceeding £30,000. Should there be a gain on exercise under the approved options, such gain will cause a proportionate
reduction in the number and value of the linked unapproved options. Should there be no gain on exercise under the approved options, these
options are then forfeited and the linked unapproved options may be exercised in full, to the extent their performance criteria are met.
From 2014, awards were made under the Restricted Shares Plan to selected employees. Awards vest three years from grant and are cash-settled
on vesting. The Restricted Shares Plan is subject to the same rules as the Performance Share Plan but gives flexibility as to whether or not awards
are subject to performance criteria. Awards under the Restricted Shares Plan may be granted to an employee of the Group, but may not be
granted to an Executive Director of Spectris plc.
Share options outstanding at the end of the year
SAYE – Year of grant
2011
2012
2013
2014
2015
Exercise price
£
Contractual life
of options
2015
Number
Thousands
2014
Number
Thousands
13.81
16.95
22.45
20.15
17.37
nil
1 year
2 years
3 years
4 years
–
23
16
30
64
133
8
32
20
51
–
111
139
www.spectris.com
Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
23. Share-based payments continued
Performance Share Plan (unapproved) – Year of grant
2007
2008
2009
2010
2011
2012
2013
2014
2015
Performance Share Plan (approved) – Year of grant
2011
2012
2013
2014
2015
Restricted Shares Plan – Year of grant
2014
2015
Movements in the year
SAYE
At 1 January
Granted
Exercised
Forfeited
At 31 December
Exercisable at 31 December
140
Spectris plc Annual Report and Accounts 2015
Exercise price
£
Contractual life
of options
2015
Number
Thousands
2014
Number
Thousands
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years
1
7
29
52
90
4
386
457
536
1
8
33
77
178
511
413
489
–
1,562
1,710
Exercise price
£
Contractual life
of options
2015
Number
Thousands
2014
Number
Thousands
11.30
17.31
23.78
23.03
21.79
6 years
7 years
8 years
9 years
10 years
Exercise price
£
Contractual life
of options
0.05
0.05
2 years
3 years
2
3
21
18
47
91
3
68
24
18
–
113
2015
Number
Thousands
2014
Number
Thousands
70
84
154
Weighted
average
exercise price
£
Number
Thousands
111
65
(14)
(29)
133
23
19.16
17.37
15.24
19.93
18.55
16.95
2015
Value of
shares
£m
2.12
1.13
(0.22)
(0.57)
2.46
0.38
Weighted
average
exercise price
£
Number
Thousands
89
51
(22)
(7)
111
8
17.23
20.15
13.63
19.08
19.16
13.81
77
–
77
2014
Value of
shares
£m
1.53
1.03
(0.30)
(0.14)
2.12
0.12
NOTES TO THE ACCOUNTS CONTINUED
Weighted
average
exercise price
£
0.05
0.05
0.05
0.05
0.05
0.05
0.05
Weighted
average
exercise price
£
19.37
21.79
14.90
17.56
22.08
–
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
23. Share-based payments continued
23. Share-based payments continued
Performance Share Plan (unapproved) – Year of grant
2007
Performance Share Plan (unapproved)
2008
At 1 January
2009
Number
Thousands
1,710
2010
Shares granted
2011
Addition of re-invested dividends
2012
Exercised
2013
Forfeited
2014
At 31 December
2015
Exercisable at 31 December
557
7
(139)
(573)
1,562
728
Number
Thousands
Performance Share Plan (approved) – Year of grant
Performance Share Plan (approved)
2011
At 1 January
2012
Shares granted
2013
Exercised
2014
Forfeited
2015
At 31 December
113
47
(3)
(66)
91
–
Exercisable at 31 December
Restricted Shares Plan – Year of grant
2014
Restricted Shares Plan
2015
At 1 January
Shares granted
Forfeited
Movements in the year
At 31 December
Exercisable at 31 December
SAYE
At 1 January
Granted
Exercised
Forfeited
At 31 December
Exercisable at 31 December
Weighted
average
exercise price
£
Number
Thousands
77
88
(11)
154
–
Number
Thousands
111
65
(14)
(29)
133
23
0.05
0.05
0.05
0.05
–
Weighted
average
exercise price
£
19.16
17.37
15.24
19.93
18.55
16.95
Contractual life
of options
2 years
Number
Thousands
3 years
1,726
4 years
5 years
507
6 years
32
7 years
(283)
8 years
(272)
9 years
1,710
10 years
120
2015
Exercise price
£
Value of
0.05
shares
£m
0.05
0.09
0.05
0.05
0.03
0.05
0.00
0.05
(0.01)
0.05
(0.03)
0.05
0.08
0.05
0.04
2015
Exercise price
Value of
£
shares
£m
11.30
2.20
17.31
1.02
23.78
(0.05)
23.03
(1.17)
21.79
2.00
Contractual life
of options
Number
Thousands
6 years
105
7 years
19
8 years
–
9 years
(11)
10 years
113
–
–
2015
Exercise price
£
Value of
0.05
shares
£m
0.05
–
Contractual life
of options
2 years
Number
Thousands
3 years
–
–
–
–
2015
–
Value of
shares
£m
2.12
1.13
(0.22)
(0.57)
2.46
0.38
81
(4)
77
–
Number
Thousands
89
51
(22)
(7)
111
8
2015
Number
Weighted
Thousands
average
1
exercise price
£
7
0.05
29
52
0.05
90
0.05
4
0.05
386
0.05
457
0.05
536
0.05
1,562
2015
Weighted
Number
average
Thousands
exercise price
£
2
18.47
3
23.03
21
–
18
17.10
47
19.37
91
–
2015
Number
Weighted
Thousands
average
70
exercise price
£
84
–
154
0.05
0.05
0.05
–
Weighted
average
exercise price
£
17.23
20.15
13.63
19.08
19.16
13.81
2014
2014
Number
Thousands
Value of
1
shares
£m
8
0.09
33
77
0.03
178
0.01
511
(0.02)
413
(0.02)
489
0.09
–
0.01
1,710
2014
2014
Number
Value of
Thousands
shares
£m
3
1.94
68
0.44
24
–
18
(0.18)
–
2.20
113
–
2014
2014
Number
Thousands
Value of
77
shares
£m
–
–
77
–
–
–
2014
–
Value of
shares
£m
1.53
1.03
(0.30)
(0.14)
2.12
0.12
141
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
23. Share-based payments continued
Share-based payment expense
Share options are valued using the stochastic option pricing model (also known as the Monte Carlo model), with support from an independent
remuneration consultant. The TSR performance condition was included in the calculation of fair value under the Performance Share Plan.
For options granted in 2014 and 2015, the fair value of options granted and the assumptions used in the calculation are as follows:
Performance Share Plan
(unapproved)
Performance Share Plan
(approved)
Restricted Shares Plan
2015
16.78
17.37
SAYE
2014
19.92
20.15
27.2%
31.8%
3.44 yrs
3.45 yrs
2015
22.08
0.05
n/a
3 yrs
2014
23.16
0.05
2015
21.99
21.79
2014
22.70
23.03
n/a
27.72%
32.7%
3 yrs
Weighted average share price at date of grant (£)
Weighted average exercise price (£)
Expected volatility
Expected life
Risk-free rate
Expected dividends (expressed as a yield)
Fair value per option (£)
Weighted average fair values at date
of grant (£):
Equity-settled (TSR condition)
Equity-settled (Profit condition)
Equity-settled (EPS condition)
Equity-settled (Economic profit condition)
Cash-settled (TSR condition)
Cash-settled (Profit condition)
Cash-settled (EPS condition)
Weighted average fair values at
31 December (£):
Cash-settled (TSR condition)
Cash-settled (Profit condition)
Cash-settled (EPS condition)
0.88%
2.85%
2.19
1.40%
0.84%
1.08%
2.2%
3.61
0%
0%
12.11
21.78
21.69
22.17
13.19
22.17
22.02
4.90
16.96
16.96
12.25
23.55
22.97
22.26
13.93
23.64
23.64
8.08
20.03
20.03
3 yrs
0.84%
2.12%
3 yrs
1.07%
1.9%
3.59
3.68
3.69
3.76
4.44
4.37
4.47
4.61
2015
22.00
0.05
n/a
3 yrs
n/a
0%
2014
23.68
0.05
n/a
3yrs
n/a
0%
n/a
22.17
22.02
n/a
17.37
17.32
n/a
23.64
23.64
n/a
20.41
20.35
The expected volatility is based on historical volatility over the expected term. The expected life is the average expected period to exercise.
The risk-free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life.
The weighted average share price at the date of exercise for unapproved share options exercised under the Performance Share Plan in 2015 was
£19.67 (2014: £22.18). The weighted average fair value of cash-settled options outstanding at 31 December 2015 is £17.32 (2014: £20.35) for
the EPS condition.
The Group recognised a total share-based payment charge of £1.5m (2014: £2.3m) in the Consolidated Income Statement, of which £0.7m
(2014: £2.2m) related to equity-settled share-based payment transactions.
142
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NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
24. Acquisitions
On 22 January 2015 the Group acquired 100% of the share capital of ReliaSoft Corporation, a company based in the USA, for a total
consideration of £30.4m (£28.3m net of cash acquired). The excess of the fair value of the consideration paid over the fair value of net tangible
assets acquired is represented by the following intangible assets: contractual rights, customer related (customer relations), trade names,
technology and goodwill of £0.4m, £2.8m, £1.0m, £11.0m and £17.0m respectively. The company is a leading provider of reliability engineering
software, education, consulting and related services to product manufacturers and maintenance organisations around the world. The goodwill
arising is considered to represent the value of the acquired workforce, extension of the Group’s product offering leveraging its stronger position
in the reliability and durability markets, and sharing capabilities and technologies in value-added software solutions. Goodwill includes an
amount of £4.0m representing the requirement to recognise a deferred tax liability on the fair value adjustments. The business is being integrated
into the Test and Measurement segment.
On 2 March 2015 the Group acquired the trade and certain assets of Sunway Scientific Corporation, a Taiwanese distributor, for a total
consideration of £2.2m including £0.4m of contingent consideration, which is based on 10% of annual sales over a threshold over the following
three years, subject to a total cap of £1.9m on the total deferred consideration payable. The excess of the fair value of the consideration paid
over the fair value of net tangible assets acquired is represented by the following intangible assets: customer related, contractual rights and
goodwill of £1.3m, £0.3m and £0.9m respectively. The goodwill arising is attributable to opportunities expected from direct access to the
Taiwanese market and benefits arising from improving the productivity of the combined sales and support channels. Goodwill includes an
amount of £0.5m representing the requirement to recognise a deferred tax liability related to the fair value of the customer-related and
order book-related intangible assets. The business is being integrated into the Materials Analysis segment.
On 24 August 2015 the Group acquired the trade and certain assets of Label Vision Systems, a US business, for a total consideration of £4.5m
including £1.6m of contingent consideration which is based on 50% of annual sales over a threshold over the following three years. The excess
of the fair value of the consideration paid over the fair value of net tangible assets acquired is represented by the following intangible assets:
customer related, technology related and goodwill of £1.0m, £0.7m and £2.6m respectively. The goodwill arising is attributable to opportunities
expected from deepening the Group’s product offering within the track, trace and control business and benefits arising from improving the
productivity of the combined sales and support channels. The business is being integrated into the Industrial Controls segment.
On 13 October 2015 the Group acquired 96% of the share capital of Spectraseis AG, a company based in Switzerland with operations in the
USA and Canada, for a total consideration of £5.2m (£5.0m net of cash acquired), including £0.1m of contingent consideration which is based
on 10% of sales over a threshold over the following two years and a £0.3m working capital receivable. This extends the Group’s capabilities
in surface-based microseismic sensing equipment for hydraulic fracturing monitoring and induced seismicity monitoring. The excess of the fair
value of the consideration paid over the fair value of net tangible assets acquired is represented by the following intangible assets: customer
related (customer relations), technology and goodwill of £1.2m, £2.6m and £2.1m respectively. The goodwill arising is attributable to the
acquired workforce, opportunities expected from the extension of the Group’s microseismic product offering and the leverage of the customer
base to optimise the sales potential of Spectraseis and Engineering Seismology Group’s products. Goodwill includes an amount of £0.4m
representing the requirement to recognise a deferred tax liability on the fair value adjustments. The business is being integrated into the Test
and Measurement segment. The remaining 4% of share capital is currently in the process of being purchased. The non-controlling interest has
not been disclosed as it is not significant.
On 18 November 2015 the Group acquired 100% of the share capital of Sound Answers Inc., a company based in the USA, for a total
consideration of £2.7m (£2.3m net of cash acquired) including £0.9m of contingent consideration which is based upon incremental future
revenues. Total contingent consideration is capped at £1.0m in aggregate. The excess of the fair value of the consideration paid over the fair
value of net tangible assets acquired is represented by the following intangible assets: customer related (customer relations), and goodwill of
£0.7m and £1.4m respectively. The company is a provider of engineering services that specialises in noise, vibration and harshness design and
simulation, primarily for the automotive market. The goodwill arising is considered to represent the value of the acquired workforce, broadening
of the Group’s product offering to the automotive market and the expansion of the Group’s consulting and design services. The business is being
integrated into the Test and Measurement segment.
The assets and liabilities acquired from the above acquisitions, together with the aggregate purchase consideration, are summarised in the table
below. The revenue and operating profit contribution from the acquisitions in the year to the Group’s results for the year were £12.0m and
£2.5m respectively. Group revenue and operating profit would have been £1,197.7m and £143.2m (adjusted operating profit: £181.6m)
respectively, had each of these acquisitions taken place on the first day of the financial year.
143
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NOTES TO THE ACCOUNTS CONTINUED
24. Acquisitions continued
The following fair value table is provisional, reflecting the timing of the acquisitions, and is expected to be finalised within 12 months of the
acquisition date:
Net assets acquired under 2015 acquisitions
Book value
£m
Adjustments
£m
2015
Fair value
£m
Intangible fixed assets
Tangible fixed assets
Deferred tax assets
Inventories
Trade and other receivables
Trade and other payables
Provisions
Deferred tax liabilities
Cash
Net assets acquired
Goodwill
Total consideration in respect of 2015 acquisitions
Total consideration
Adjustment for cash acquired
Net consideration in respect of 2015 acquisitions
Analysis of cash outflow in the Consolidated Statement of Cash Flows
Total consideration in respect of 2015 acquisitions
Adjustment for net cash acquired on 2015 acquisitions
Deferred and contingent consideration on 2015 acquisitions to be paid in future years
Working capital adjustment receivable in future years
Cash paid in 2015 in respect of 2015 acquisitions
Acquisitions prior to 2015
Deferred and contingent consideration in relation to prior years’ acquisitions:
– accrued at 31 December 2014
Cash paid in 2015 in respect of prior years’ acquisitions
Net cash outflow relating to acquisitions
0.8
1.3
1.6
0.4
3.7
(5.2)
(0.1)
–
2.7
5.2
22.2
0.1
(1.6)
(0.1)
(0.3)
0.5
(0.2)
(4.8)
–
15.8
23.0
1.4
–
0.3
3.4
(4.7)
(0.3)
(4.8)
2.7
21.0
24.0
45.0
45.0
(2.7)
42.3
45.0
(2.7)
(3.0)
0.3
39.6
0.5
0.5
40.1
Due to their contractual due dates, the fair value of receivables acquired approximates to the gross contractual amounts receivable. The amount
of gross contractual receivables not expected to be recovered is immaterial.
£4.0m (2014: £22.0m) of the goodwill arising on acquisitions in the year is expected to be amortised and deductible for tax purposes.
There are no material contingent liabilities recognised in accordance with IFRS 3 (Revised).
144
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NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
24. Acquisitions continued
The following presents the information related to 2014 acquisitions including the effect of the finalisation of acquisition fair values during 2015:
Net assets acquired under 2014 acquisitions
Amounts previously recognised
at 31 December 2014
Book value
£m
Adjustments
£m
2014
Final fair value
£m
Intangible fixed assets
Tangible fixed assets
Deferred tax asset
Inventories
Trade and other receivables
Trade and other payables
Provisions
Retirement benefit obligation
Current tax
Deferred tax liabilities
Cash
Net assets acquired
Goodwill
Total consideration in respect of 2014 acquisitions
Total consideration
Adjustment for cash acquired
Net consideration in respect of 2014 acquisitions
Analysis of cash outflow in the Consolidated Statement of Cash Flows
Total consideration in respect of 2014 acquisitions
Adjustment for net cash acquired on 2014 acquisitions
Deferred and contingent consideration on 2014 acquisitions to be paid in future years
Cash paid in 2014 in respect of 2014 acquisitions
Acquisitions prior to 2014
Deferred and contingent consideration in relation to prior years’ acquisitions:
– accrued at 31 December 2013
Cash paid in 2014 in respect of prior years’ acquisitions
2014 net cash outflow relating to acquisitions
1.2
7.1
–
7.3
4.9
(6.2)
–
(0.1)
(0.2)
–
0.9
14.9
46.3
47.5
0.1
–
(0.2)
(0.1)
0.2
(0.6)
–
–
(5.3)
–
40.4
7.2
–
7.1
4.8
(6.0)
(0.6)
(0.1)
(0.2)
(5.3)
0.9
55.3
41.4
96.7
96.7
(0.9)
95.8
96.7
(0.9)
(4.5)
91.3
0.3
0.3
91.6
In accordance with IFRS 3 (Revised), the figures above have been amended from those published in the 2014 Annual Report to reflect the
reduction in the deferred and contingent consideration, and goodwill, of £7.1m relating to the 2014 acquisitions of Affinity Biosensors LLC
(£0.5m) and Engineering Seismology Group (£6.6m).
145
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NOTES TO THE ACCOUNTS CONTINUED
25. Financial risk management
The Group’s multinational operations and debt financing expose it to a variety of financial risks. In the course of its business, the Group is
exposed to foreign currency risk, interest rate risk, liquidity risk and credit risk. Financial risk management is an integral part of the way the
Group is managed. Financial risk management policies are set by the Board of Directors. These policies are implemented by a central treasury
department that has formal procedures to manage foreign exchange risk, interest rate risk and liquidity risk including, where appropriate, the
use of derivative financial instruments. The Group has clearly defined authority and approval limits. The central treasury department operates
as a service centre to the Group and not as a profit centre.
In accordance with its treasury policy, the Group does not hold or use derivative financial instruments for trading or speculative purposes.
Such instruments are only used to manage the risks arising from operating or financial assets or liabilities or highly probable future transactions.
The quantitative analysis of financial risk is included in Note 26.
Foreign currency risk
Foreign currency risk arises both where sale or purchase transactions are undertaken in currencies other than the respective functional currencies
of Group companies (transactional exposures) and where the results of overseas companies are consolidated into the Group’s reporting currency
of Sterling (translational exposures). The Group has operations around the world which record their results in a variety of different local
functional currencies. In countries where the Group does not have operations, it invariably has some customers or suppliers that transact in a
foreign currency. The Group is therefore exposed to the changes in foreign currency exchange rates between a number of different currencies
but the Group’s primary exposures relate to the US Dollar, Euro, Danish Krone, Japanese Yen and Swiss Franc. Where appropriate, the Group
manages its foreign currency exposures using derivative financial instruments.
The Group manages its transactional exposures to foreign currency risks through the use of forward exchange contracts. Forward exchange
contracts are used to hedge highly probable transactions which can be forecast to occur typically up to 18 months into the future.
The Group’s translational exposures to foreign currency risks can relate both to the Consolidated Income Statement and net assets of overseas
subsidiaries. The Group’s policy is not to hedge the translational exposure that arises on consolidation of the Consolidated Income Statement
of overseas subsidiaries. The Group finances overseas company investments partly through the use of foreign currency borrowings in order to
provide a natural hedge of foreign currency risk arising on translation of the Group’s foreign currency subsidiaries. The quantitative analysis
of foreign currency risk is included in Note 26.
Interest rate risk
Interest rate risk comprises both the interest rate price risk that results from borrowing at fixed rates of interest and also the interest cash flow
risk that results from borrowing at variable rates. Where appropriate, interest rate swaps are used to manage the Group’s interest rate profile.
As at 31 December 2015, all of the Group’s committed borrowings are at fixed rates of interest and therefore the Group’s principal interest rate
risk is a fair value risk. The quantitative analysis of interest rate risk is included in Note 26.
Liquidity risk
Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal
and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages this risk through
the use of regularly updated cash flow and covenant compliance forecasts and a liquidity headroom analysis which is used to determine funding
requirements. Adequate committed lines of funding are maintained from high-quality investment grade lenders. The facilities committed to the
Group as at 31 December 2015 are set out in Note 16.
Credit risk
Credit risk arises because a counterparty may fail to perform its obligations. The Group is exposed to credit risk on financial assets such as cash
balances, derivative financial instruments, trade and other receivables.
The Group’s credit risk is primarily attributable to its trade receivables. The amounts recognised in the Consolidated Statement of Financial
Position are net of appropriate allowances for doubtful receivables, estimated by the Group’s management based on whether receivables are
past due based on contractual terms, payment history and other available evidence of collectability. Trade receivables are subject to credit limits
and control and approval procedures in the operating companies. Due to its large geographical base and number of customers, the Group is not
exposed to material concentrations of credit risk on its trade receivables. The quantitative analysis of credit risk relating to receivables is included
in Note 14.
146
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
25. Financial risk management continued
Credit risk associated with cash balances and derivative financial instruments is managed centrally by transacting with existing relationship banks
with strong investment grade ratings. Accordingly, the Group’s associated credit risk is limited. The Group has no significant concentration of
credit risk.
The Group’s maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial
instruments, as shown in Note 26.
Capital management
The Board considers equity shareholders’ funds, together with committed debt facilities, as capital for the purposes of funding the Group’s
operations. Total managed capital at 31 December is:
Equity shareholders’ funds (page 105)
Committed debt facilities
2015
£m
966.0
526.2
2014
£m
916.0
474.7
1,492.2
1,390.7
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised
as a deduction from equity, net of any tax effects.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future
development of the business. The Board of Directors monitors both the demographic spread of shareholders and the level of dividends to
ordinary shareholders.
The Board encourages employees to hold shares in the Company. This is carried out through a SAYE option scheme in the UK, as well
as performance and restricted share plans. Full details of these schemes are given in Note 23.
The main financial covenants in the Company’s debt facilities are the ratio of net debt to adjusted earnings before interest, tax, depreciation
and amortisation and the ratio of finance charges to adjusted earnings before interest, tax, amortisation and impairment. Covenant testing is
completed twice a year based on the half-year and year-end Financial Statements. At 31 December 2015, the Company had, and is expected
to continue to have, significant headroom under these financial covenant ratios.
From time to time the Group purchases its own shares in the market; the timing of these purchases depends on market prices. Buy and sell
decisions are made on a specific transaction basis by the Board.
There were no changes to the Group’s approach to capital management during the year.
Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements.
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NOTES TO THE ACCOUNTS CONTINUED
26. Financial instruments
Fair value and carrying amount of financial instruments
Trade and other receivables excluding prepayments and accrued income
Trade and other payables excluding deferred income
Cash and cash equivalents
Floating rate borrowings
Fixed rate borrowings
Forward exchange contracts
Fair value and carrying amount of financial instruments
Trade and other receivables excluding prepayments and accrued income
Trade and other payables excluding deferred income
Cash and cash equivalents
Floating rate borrowings
Fixed rate borrowings
Forward exchange contracts
Reconciliation of level 3 fair values
At 1 January 2015
Deferred and contingent consideration arising from acquisitions
Unwinding of discount factor on deferred and contingent consideration (unrealised)
Deferred and contingent consideration paid
Adjustment to provisional values in the measurement period
Adjustments outside of the measurement period
Level 2
fair value
£m
–
–
–
–
(162.6)
(0.4)
Level 2
fair value
£m
–
–
–
–
(130.0)
(0.3)
Level 3
fair value
£m
–
(7.0)
–
–
–
–
Level 3
fair value
£m
–
(12.2)
–
–
–
–
Deferred and
contingent
consideration
£m
(12.2)
(3.0)
(0.2)
0.5
7.1
0.8
(7.0)
2015
Carrying
amount
£m
235.3
(191.4)
58.2
(1.7)
(155.1)
(0.4)
(55.1)
2014
Carrying
amount
£m
218.8
(195.4)
34.8
(38.4)
(122.0)
(0.3)
(102.5)
2015
Level 3
fair value
£m
(12.2)
(3.0)
(0.2)
0.5
7.1
0.8
(7.0)
The above tables show the fair value measurement of financial instruments by level following the fair value hierarchy:
_ Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities;
_ Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
_ Level 3 – inputs for the assets and liabilities derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data.
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NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
26. Financial instruments continued
There were no movements between different levels of the fair value hierarchy in the year.
The fair value of cash and cash equivalents, receivables and payables approximates to the carrying amount because of the short maturity
of these instruments.
The fair value of floating rate borrowings approximates to the carrying amount because interest rates are at floating rates where payments
are reset to market rates at intervals of less than one year.
The fair value of fixed rate borrowings is estimated by discounting the future contracted cash flow, using appropriate yield curves, to the net
present value.
The fair value of forward exchange contracts is determined using discounted cash flow techniques based on readily available market data.
The fair value of forward exchange contracts outstanding as at 31 December 2015 is a net liability of £0.4m (2014: £0.3m), of which £0.2m
has been debited to the hedging reserve (2014: £0.3m) and £0.2m debited to the Consolidated Income Statement (2014: £nil). These contracts
mature over periods typically not exceeding 18 months. A summary of the movements in the hedging reserve during the year is presented below.
In accordance with IFRS, all of the cash flow hedges in 2015 and 2014 were deemed to be effective.
The fair value of deferred and contingent consideration is determined by considering the performance expectations of the acquired entity and
applying the entity specific discount rate. The unobservable inputs are the projected forecast measures that are assessed on an annual basis.
Changes in the fair value of deferred and contingent consideration relating to updated projected forecast performance measures are recognised
in the Consolidated Income Statement in the period that the change occurs.
Analysis of movements in hedging reserve net of tax
At 1 January
Amounts removed from the Consolidated Statement of Changes in Equity and included
in the Consolidated Income Statement during the year
Amounts recognised in the Consolidated Statement of Changes in Equity during the year
At 31 December
2015
£m
(3.0)
0.3
(0.2)
(2.9)
The amount included in the Consolidated Income Statement is split between revenue and administrative expenses depending on the nature
of the hedged item.
The following table shows the total outstanding contractual forward exchange contracts hedging designated transactional exposures split
by currencies which have been sold back into the functional currency of the underlying business. These contracts typically mature in the
next 18 months and, therefore, the cash flows and resulting effect on the Consolidated Income Statement are expected to occur within
this time period.
Forward exchange contracts at 31 December
Foreign currency sale amount (£m)
Percentage of total:
US Dollar
Euro
Japanese Yen
Other
2015
110.8
42%
35%
16%
7%
2014
£m
(0.2)
(2.0)
(0.8)
(3.0)
2014
91.7
42%
39%
15%
4%
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NOTES TO THE ACCOUNTS CONTINUED
26. Financial instruments continued
A maturity profile of the gross cash flows related to financial liabilities is as follows:
Maturity of financial liabilities
Due within one year
Due between one and two years
Due between two and five years
Due in more than five years
Bank loans and
overdrafts
£m
Unsecured
loans
£m
1.7
–
–
–
2.8
2.8
78.0
87.3
2015
Total
£m
4.5
2.8
78.0
87.3
1.7
170.9
172.6
Bank loans and
overdrafts
£m
Unsecured
loans
£m
2.5
–
–
–
2.5
52.2
2.6
44.7
75.5
175.0
177.5
2014
Total
£m
54.7
2.6
44.7
75.5
Trade and other payables (Note 17) are substantially due within one year.
It is not expected that the cash flows described above could occur significantly earlier or at substantially different amounts.
Financial assets
Financial liabilities
Interest rate exposure of financial
assets and liabilities by currency
Fixed
rate
£m
Floating
rate
£m
Non-
interest
bearing
£m
5.7
7.0
9.5
12.3
34.5
Total
£m
6.6
15.6
18.5
17.5
58.2
Fixed
rate
£m
–
(155.1)
–
–
(155.1)
Floating
rate
£m
–
–
–
(1.7)
(1.7)
Financial assets
Financial liabilities
Total
£m
2.7
11.3
8.4
12.4
34.8
Fixed
rate
£m
–
(73.6)
(48.4)
–
(122.0)
Floating
rate
£m
–
–
(36.6)
(1.8)
(38.4)
0.9
8.6
9.0
5.1
23.6
Floating
rate
£m
0.3
7.3
4.2
4.5
Non-
interest
bearing
£m
2.4
4.0
4.2
7.8
16.3
18.4
2015
Net
financial
assets /
(liabilities)
£m
6.6
Total
£m
–
(155.1)
(139.5)
–
(1.7)
18.5
15.8
(156.8)
(98.6)
2014
Net financial
assets /
(liabilities)
£m
2.7
(62.3)
(76.6)
10.6
Total
£m
–
(73.6)
(85.0)
(1.8)
(160.4)
(125.6)
Sterling
Euro
US Dollar
Other
Interest rate exposure of financial assets
and liabilities by currency
Sterling
Euro
US Dollar
Other
–
–
–
0.1
0.1
Fixed
rate
£m
–
–
–
0.1
0.1
150
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
NOTES TO THE ACCOUNTS CONTINUED
26. Financial instruments continued
Sensitivity analysis
The tables below show the Group’s sensitivity to foreign exchange rates and interest rates. The US Dollar, Euro / Danish Krone and Swiss Franc
represent the main foreign exchange translational exposures for the Group. The Group’s borrowings are primarily in US Dollars and Euros.
Impact on foreign exchange translational exposures against Sterling
10% weakening in the US Dollar
10% weakening in the Euro / Danish Krone
10% weakening in the Swiss Franc
Impact of interest rate movements
1% (100 basis points) increase in interest rates
2015
Decrease /
(increase)
in profit
before tax
£m
5.3
5.4
1.4
Decrease /
(increase)
in equity
£m
84.4
40.5
2.6
2014
Decrease
in profit
before tax
£m
5.8
5.4
1.7
Decrease
in equity
£m
73.6
50.7
2.6
(0.2)
(0.2)
0.2
0.2
27. Contingent liabilities
Royal Bank of Scotland
Spectris plc and its UK subsidiaries are party to a cross-guarantee arrangement to support trade finance facilities provided by the bank. They
are also party to a cross-guarantee arrangement that allows individual subsidiaries to borrow from the bank on overdraft within the overall
borrowing limit agreed with the bank. Spectris plc has provided a Parent Company guarantee to support trade finance facilities provided by
the bank to its subsidiaries in various countries outside the UK and USA. Spectris plc has also provided a Parent Company guarantee to
support overdraft and intra-day facilities provided by the bank to its subsidiaries who participate in the cross-border Euro zero balance
pooling arrangement. An amount of £8.5m (2014: £11.3m) was outstanding at 31 December 2015.
Other banks
In the normal course of business, Group companies have provided bonds and guarantees through local banking arrangements amounting
to £6.6m (2014: £5.5m).
28. Operating lease arrangements
Total commitments under non-cancellable operating leases expiring:
Within one year
More than one year but less than five years
Greater than five years
Property
£m
11.7
16.8
4.0
32.5
2015
Other
£m
4.1
4.7
–
8.8
Property
£m
11.0
15.8
4.5
31.3
2014
Other
£m
4.5
4.7
–
9.2
Group companies are party to a number of operating leases for plant and machinery, motor vehicles and property rentals. The arrangements
do not impose any significant restrictions on the Group.
During the year £18.6m (2014: £15.3m) was recognised in the Consolidated Income Statement in respect of operating lease rental payments.
29. Capital commitments
At 31 December 2015, the Group had entered into contractual commitments for the acquisition of property, plant and equipment and software
amounting to £1.5m (2014: £1.5m) which have not been accrued.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE ACCOUNTS CONTINUED
30. Related party transactions
The remuneration of key management personnel during the year was as follows:
Short-term benefits
Post-employment benefits
Share-based payments
2015
£m
2.4
0.5
0.6
3.5
2014
£m
2.6
0.5
0.9
4.0
Key management personnel comprise the Executive Directors and members of the Executive Management Team.
Further details of the Executive Directors’ remuneration are included in the Directors’ Remuneration Report on pages 77 to 93.
There are no other related party transactions.
31. Subsidiary undertakings
The table below lists the Group’s principal subsidiary undertakings. They operate mainly in the countries of incorporation. All of the subsidiaries
are involved in the manufacture and sale of highly specialised measuring instruments and controls.
Spectris plc holds 100% of the ordinary share capital of all the subsidiaries either directly or indirectly through intermediate holding companies.
Country of incorporation
Denmark
Denmark
Germany
Switzerland
The Netherlands
UK
UK
USA
USA
USA
USA
USA
Canada
Brüel & Kjær Sound & Vibration Measurement A/S
Brüel & Kjær Vibro A/S
Hottinger Baldwin Messtechnik GmbH
BTG Eclépens S.A.
PANalytical B.V.
Malvern Instruments Limited
Servomex Group Limited
Microscan Systems Inc.
NDC Technologies Inc.
Particle Measuring Systems Inc.
Red Lion Controls Inc.
Omega Engineering Inc.
Engineering Seismology Group Canada Inc.
A full list of subsidiaries is given in Note 49.
32. Post balance sheet events
There were no post balance sheet events.
152
Spectris plc Annual Report and Accounts 2015
NOTES TO THE ACCOUNTS CONTINUED
COMPANY BALANCE SHEET
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2015
AS AT 31 DECEMBER 2015
Fixed assets
Intangible assets
Tangible assets
Investments
Retirement benefit assets
Current assets
Note
36
37
38
44
2015
£m
2014 Restated
£m
0.4
2.8
494.9
–
498.1
0.6
2.9
512.5
3.6
519.6
Debtors (due after more than one year: £638.1m (2014: £633.1m))
39
918.5
944.2
Derivative financial instruments
Cash at bank and in hand and short-term deposits
Creditors: amounts falling due within one year
Bank loans and overdrafts
Creditors
Derivative financial instruments
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Bank loans and overdrafts
Creditors
Retirement benefit obligations
Net assets
Capital and reserves
Share capital
Share premium
Merger reserve
Capital redemption reserve
Special reserve
Profit and loss account
Shareholders’ funds
40
41
40
41
44
42
–
9.2
0.3
1.3
927.7
945.8
–
(231.2)
(0.2)
(231.4)
696.3
(48.4)
(233.6)
–
(282.0)
663.8
1,194.4
1,183.4
(155.1)
(126.8)
(281.9)
(2.0)
910.5
6.2
231.4
3.1
0.3
34.1
635.4
910.5
(109.5)
(119.5)
(229.0)
–
954.4
6.2
231.4
3.1
0.3
34.1
679.3
954.4
The Notes on pages 155 to 167 form part of these Financial Statements.
The Financial Statements were approved by the Board of Directors on 16 February 2016 and were signed on its behalf by:
Clive Watson
Group Finance Director
Company Registration No. 2025003
153
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 COMPANY STATEMENT OF CHANGES IN EQUITY
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
FOR THE YEAR ENDED 31 DECEMBER 2015
Balance at 1 January 2015
Profit for the year
Other comprehensive income:
Re-measurement of defined benefit liability, net of tax
Total comprehensive income for the year
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company
46
Share based payments, net of tax
Share options exercised from own shares (treasury)
purchased
Share
capital
£m
Share
premium
£m
Note
Merger
reserve
£m
Capital
redemption
reserve
£m
Special
reserve
£m
Profit and
loss
account
£m
6.2
231.4
3.1
0.3
34.1
679.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16.9
(5.1)
11.8
(56.9)
0.9
0.3
Total
equity
£m
954.4
16.9
(5.1)
11.8
(56.9)
0.9
0.3
Balance at 31 December 2015
6.2
231.4
3.1
0.3
34.1
635.4
910.5
For the year ended 31 December 2014
Balance at 1 January 2014 (restated)
Note
48
Profit for the year (restated)
Other comprehensive income:
Re-measurement of defined benefit asset, net of tax
Total comprehensive income for the year (restated)
Transactions with owners recorded directly in equity:
Equity dividends paid by the Company
46
Share-based payments, net of tax (restated)
Share options exercised from own shares (treasury)
purchased
Balance at 31 December 2014 (restated)
Share
capital
£m
6.2
–
Share
premium
£m
231.4
–
Merger
reserve
£m
3.1
–
–
–
–
–
–
–
–
–
–
6.2
–
231.4
–
–
–
–
–
3.1
Capital
redemption
reserve
£m
0.3
–
–
–
–
–
–
0.3
Profit and
loss
account
£m
286.2
446.5
(3.0)
443.5
(52.3)
1.6
0.3
Special
reserve
£m
34.1
–
–
–
–
–
–
34.1
679.3
Total
equity
£m
561.3
446.5
(3.0)
443.5
(52.3)
1.6
0.3
954.4
154
Spectris plc Annual Report and Accounts 2015
NOTES TO THE COMPANY ACCOUNTS
NOTES TO THE COMPANY ACCOUNTS
33. Basis of preparation and summary of significant accounting policies
The separate Financial Statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate
Financial Statements have been prepared in accordance with applicable accounting standards in the United Kingdom. In accordance with the
exemption provided by Section 408 of the Companies Act 2006, the Company has not presented its own Profit and Loss Account.
a) Basis of preparation
These Financial Statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS 101’).
The Company’s shareholders were notified of, and did not object to, the use of the EU-adopted IFRS disclosure exemptions.
In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements of International
Financial Reporting Standards as adopted by the EU (‘adopted IFRS’), but makes amendments where necessary in order to comply with the
Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
In the transition to FRS 101, the Company has applied IFRS 1 whilst ensuring that its assets and liabilities are measured in compliance with
FRS 101. An explanation of how the transition to FRS 101 has affected the reported financial position and financial performance of the Company
is provided in Note 48.
IFRS 1 grants certain exemptions from the full requirements of adopted IFRS in the transition period. The following exemptions have been
taken in these Financial Statements:
_ Employee benefits – all cumulative actuarial gains and losses on defined benefit plans have been recognised in equity at 1 January 2014.
_ Share-based payments – IFRS 2 is being applied to equity instruments that were granted after 7 November 2002 and that had not vested
by 1 January 2014.
The Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
_ A Cash Flow Statement and related notes.
_ Comparative period reconciliations for share capital, tangible fixed assets and intangible assets.
_ Disclosures in respect of transactions with wholly-owned subsidiaries.
_ Disclosures in respect of capital management.
_ The effects of new but not yet effective IFRS.
_ An additional Balance Sheet for the beginning of the earliest comparative period, following the reclassification of items in the Financial
Statements (see Note 48).
_ Disclosures in respect of the compensation of key management personnel.
As the Consolidated Financial Statements of Spectris plc (pages 102 to 152) include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:
_ IFRS 2 ‘Share-based Payments’ in respect of Group-settled share-based payments.
_ Certain disclosures required by IFRS 13 ‘Fair Value Measurement’ and the disclosures required by IFRS 7 ‘Financial Instrument Disclosures’.
The Financial Statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. Historical cost is
generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies are set out below.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168 NOTES TO THE COMPANY ACCOUNTS CONTINUED
33. Basis of preparation and summary of significant accounting policies continued
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Financial Statements.
Significant accounting judgements and estimates
In preparing the Financial Statements, management has made judgements, estimates and assumptions that affect the application of the
Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and assumptions are reviewed on an ongoing basis and are based on historical experience and various other factors that are believed
to be reasonable under the circumstances.
Information about significant areas of judgements, estimates and assumptions are as follows:
Impairment of investments in subsidiaries
Note 38 – Determining whether the Company’s investments in subsidiaries have been impaired requires estimations of the investments’ values
in use. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the investments and suitable
discount rates in order to calculate present values. The carrying amount of investments in subsidiaries was £494.9m with an impairment loss
recognised of £16.4m in 2015 (2014: £nil).
Deferred tax
Note 39 – The recognition of deferred tax assets is dependent on assessments of future taxable income.
b) Summary of significant accounting policies
Intangible assets
Intangible assets purchased by the Company are capitalised at their cost.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The estimated useful economic lives are as follows:
_ Software – 3 to 5 years.
Tangible assets
Tangible assets are stated at cost less accumulated depreciation and impairment losses. The cost comprises the purchase price paid and any
costs directly attributable to bringing it into working condition for its intended use.
Depreciation is recognised in the Profit and Loss Account on a straight-line basis to write off the cost, less the estimated residual value (which is
reviewed annually), of tangible assets over their estimated useful economic life. Depreciation commences on the date the assets are ready for use
within the business and the asset carrying values are reviewed for impairment when there is an indication that they may be impaired. Land is not
depreciated. Estimated useful lives are as follows:
_ Freehold property – 20 to 40 years.
_ Office equipment – 3 to 5 years.
Investments
Investments in subsidiaries and other investments are stated at historical cost, less provision for any impairment in value.
Trade and other debtors
Trade and other debtors are initially recognised at fair value and subsequently measured at their amortised cost, reduced by appropriate
allowances for estimated irrecoverable amounts.
Cash at bank and in hand and short-term deposits
This comprises cash at bank and in hand and short-term deposits held on call or with maturities of less than three months at inception.
156
Spectris plc Annual Report and Accounts 2015
NOTES TO THE COMPANY ACCOUNTS CONTINUED
NOTES TO THE COMPANY ACCOUNTS CONTINUED
33. Basis of preparation and summary of significant accounting policies continued
Trade and other creditors
Trade and other creditors are carried at the amounts expected to be paid to counterparties.
Taxation
Tax on the profit or loss for the year comprises both current and deferred tax. Tax is recognised in the Profit and Loss Account except to the
extent that it relates to items recognised either in other comprehensive income or directly in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet
date, and any adjustments to tax payable in respect of prior years.
Deferred taxation is provided on taxable temporary differences between the carrying amounts of assets and liabilities in the Financial Statements
and their corresponding tax bases. Deferred tax is measured using the tax rates expected to apply when the asset is realised or the liability
settled based on tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can
be utilised or that they will reverse. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will
be realised.
Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the
deferred taxes relate to the same taxable entity and the same taxation authority.
Foreign currency translation
The functional currency of the Company is determined with reference to the currency of the primary economic environment in which it operates.
Transactions in currencies other than the functional currency are initially recorded at the functional currency rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance
sheet date. Exchange gains and losses on settlement of foreign currency transactions are translated at the rate prevailing at the date of the
transactions, or the translation of monetary assets and liabilities at period end exchange rates, and are charged / credited to the Profit and Loss
Account. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional
currency at the foreign exchange rate ruling at the date of the transaction.
Financial instruments
Recognition
The Company recognises financial assets and liabilities on its Balance Sheet when it becomes a party to the contractual provisions of
the instrument.
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet when there is a legally enforceable right to set
off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Measurement
When financial assets and liabilities are initially recognised, they are measured at fair value, being the consideration given or received plus
directly attributable transaction costs.
In determining estimated fair value, investments are valued at quoted bid prices on the trade date. When quoted prices on an active market are
not available, fair value is determined by reference to price quotations for similar instruments traded.
Originated loans and debtors are initially recognised in accordance with the policy stated above and subsequently re-measured at amortised cost
using the effective interest method. Allowance for impairment is estimated on a case-by-case basis.
The Company uses derivative financial instruments such as forward foreign exchange contracts to hedge risks associated with foreign exchange
fluctuations. These are designated as cash flow hedges. At the inception of the hedge relationship, the Company documents the relationship
between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument that
is used in a hedging relationship is highly effective in offsetting changes in cash flows of the hedged item.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE COMPANY ACCOUNTS CONTINUED
33. Basis of preparation and summary of significant accounting policies continued
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity.
The gain or loss relating to the ineffective portion is recognised immediately in the Profit and Loss Account.
Amounts deferred in equity are reclassified to the Profit and Loss Account in the periods when the hedged item is recognised in the Profit and
Loss Account, in the same line of the Profit and Loss Account as the recognised hedged item. However, when the forecast transaction that is
hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in equity are
transferred from equity and included in the initial measurement of the cost of the asset or liability.
Hedge accounting is discontinued when the Company revokes the hedging relationship, the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised in the Profit and Loss Account. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in the Profit and Loss Account.
Derecognition
A financial asset is derecognised when the Company loses control over the contractual rights to the cash flows from the asset. This occurs when
the rights are realised, expire or are surrendered. A financial liability is derecognised when the obligation specified in the contract is discharged,
cancelled or expires. Originated loans and debtors are derecognised on the date they are transferred by the Company.
Impairment of financial assets
The Company assesses at each balance sheet reporting date whether there is any objective evidence that a financial asset, or group of financial
assets, is impaired. A financial asset, or group of financial assets, is deemed to be impaired if, and only if, there is objective evidence of
impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss
event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Employee benefits
The Company operates a defined benefit post-retirement benefit scheme and a defined contribution pension scheme.
Defined benefit scheme
The Company’s net obligation recognised in the Balance Sheet in respect of its defined benefit scheme is calculated as the present value of
the scheme’s liabilities less the fair value of the scheme’s assets. The operating and financing costs of a defined benefit scheme are recognised
separately in the Profit and Loss Account. Operating costs comprise the current service cost, scheme administrative expense, any gains or losses
on settlement or curtailments, and past service costs where benefits have vested. Finance items comprise the unwinding of the discount on the
net asset / deficit. Actuarial gains or losses comprising changes in scheme liabilities due to experience and changes in actuarial assumptions are
recognised in other comprehensive income.
The amount of any pension fund asset recognised in the Balance Sheet is limited to any future refunds from the plan or the present value of
reductions in future contributions to the plan.
Defined contribution scheme
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have
no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised in
the Profit and Loss Account in the periods during which services are rendered by employees.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability
is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or
constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
Share-based payments
Certain employees of the Company receive part of their remuneration in the form of share-based payment transactions, whereby employees
render services in exchange for shares or rights over shares (‘equity-settled transactions’). The cost of equity-settled transactions with employees
is measured at fair value at the date at which they are granted. The fair value of share awards with market-related vesting conditions is
determined by an external consultant and the fair value at the grant date is expensed on a straight-line basis over the vesting period based
on the Company’s estimate of shares that will eventually vest. The estimate of the number of awards likely to vest is reviewed at each balance
sheet reporting date up to the vesting date, at which point the estimate is adjusted to reflect the actual outcome of awards which have vested.
No adjustment is made to the fair value after the vesting date even if the awards are forfeited or not exercised.
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Spectris plc Annual Report and Accounts 2015
NOTES TO THE COMPANY ACCOUNTS CONTINUED
NOTES TO THE COMPANY ACCOUNTS CONTINUED
33. Basis of preparation and summary of significant accounting policies continued
Where it is not possible to incentivise managers of the Company with equity-settled options, they are issued with cash-settled options.
The charge for these awards is adjusted to reflect the expected and actual levels of options that vest and the fair value is based on either
the share price at date of exercise or the share price at the balance sheet date if sooner.
Where the Company grants options over its own shares to the employees of its subsidiaries, it recognises an increase in the cost of investment
in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in the subsidiary’s Financial Statements with the
corresponding credit being recognised directly in equity. In cases where a subsidiary is recharged for the share-based payment expense,
no such increase in investment is recognised.
Dividends
Dividends are recognised as a liability in the period in which they are approved by shareholders.
34. Auditor’s remuneration
The details regarding the remuneration of the Company’s auditor are included in Note 5 to the Group Consolidated Financial Statements under
‘Fees payable to the Company’s auditor for audit of the Company’s annual accounts’.
35. Employee numbers and costs
The average number of persons employed by the Company (including Directors) during the year, analysed by category, was as follows:
Administrative
The aggregate payroll costs of these persons, including Directors’ remuneration, were as follows:
Wages and salaries
Social security costs
Contributions to defined contribution plans
Equity-settled share-based payment expense
2015
Number
48
2014
Number
41
2015
£m
6.0
1.2
0.3
0.9
8.4
2014
£m
5.6
1.3
0.2
1.2
8.3
Directors’ remuneration
Further details of Directors’ remuneration and share options are given in Note 6 to the Group Consolidated Financial Statements and in the
Directors’ Remuneration Report on pages 77 to 93.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
Software
£m
3.6
0.1
(0.2)
3.5
3.0
0.3
(0.2)
3.1
0.4
0.6
Total
£m
3.8
0.2
4.0
0.9
0.3
1.2
2.8
2.9
Freehold
property
£m
Office
equipment
£m
3.3
0.1
3.4
0.5
0.2
0.7
2.7
2.8
0.5
0.1
0.6
0.4
0.1
0.5
0.1
0.1
NOTES TO THE COMPANY ACCOUNTS CONTINUED
36. Intangible assets
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Accumulated amortisation and impairment
At 1 January 2015
Charge for the year
Disposals
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
37. Tangible assets
Cost
At 1 January 2015
Additions
At 31 December 2015
Accumulated depreciation and impairment
At 1 January 2015
Charge for the year
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
160
Spectris plc Annual Report and Accounts 2015
NOTES TO THE COMPANY ACCOUNTS CONTINUED
NOTES TO THE COMPANY ACCOUNTS CONTINUED
38. Investments
Cost
At 1 January 2015
Movements relating to share options granted to subsidiary employees
At 31 December 2015
Provision for impairment
At 1 January 2015
Charge for the year
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
Details of the Company’s subsidiaries are given in Note 49.
During the year a provision was made against the carrying value of the investment in Servomex Limited due to a shortfall in its net assets
compared to the carrying value.
39. Debtors
Amounts falling due within one year
Amounts owed by Group undertakings
Prepayments and accrued income
Other debtors
Corporation tax recoverable
Deferred tax asset
Amounts falling due after more than one year
Amounts owed by Group undertakings
Prepayments and accrued income
Total debtors
Investment in
subsidiary
undertakings
£m
582.1
(1.2)
580.9
69.6
16.4
86.0
494.9
512.5
2014
£m
303.8
1.1
0.2
5.4
0.6
2015
£m
274.9
1.0
0.1
3.6
0.8
280.4
311.1
2015
£m
636.8
1.3
638.1
2014
£m
631.3
1.8
633.1
918.5
944.2
All amounts owed by Group undertakings are in relation to interest-bearing intra-group loans which are formalised arrangements on an
arm’s length basis.
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
2015
£m
–
2015
£m
–
69.7
85.4
2014
£m
48.4
2014
£m
35.9
73.6
–
155.1
109.5
2015
£m
225.4
5.8
231.2
2015
£m
126.8
–
126.8
2014
£m
229.7
3.9
233.6
2014
£m
118.8
0.7
119.5
2015
£m
6.2
NOTES TO THE COMPANY ACCOUNTS CONTINUED
40. Bank loans and overdrafts
Current
Effective interest rate
Earlier of repricing date or maturity date
Bank loans unsecured – US$75.6m
3.12%
10 September 2015
Effective interest rate
Earlier of repricing date or maturity date
0.86%
2.56%
1.15%
30 October 2019
14 October 2020
9 September 2022
Non-current
Bank loans unsecured
Bank loans unsecured – €94.8m
Bank loans unsecured – €116.2m
Total unsecured borrowings
41. Creditors
Amounts falling due within one year
Amounts owed to Group undertakings
Accruals and deferred income
Amounts falling due after more than one year
Amounts owed to Group undertakings
Deferred tax liability
All amounts owed to Group undertakings are in relation to interest-bearing intra-group loans which are formalised arrangements on an
arm’s length basis.
42. Share capital
Allotted, called-up and fully paid
At 1 January 2015 and 31 December 2015
2015
Number of
shares
Millions
125.0
No ordinary shares were issued upon exercise under share option schemes during the year (2014: nil).
Share options have been granted to subscribe for ordinary shares of Spectris plc. Full details of share options currently in issue, including those
issued during the year, together with information regarding the basis of calculation of the share-based payment expense, is contained in Note 23
to the Group Consolidated Financial Statements.
The Company recognised total expenses of £0.9m related to equity-settled share-based payment transactions in 2015 (2014: £1.2m). In addition,
the Company recognised a credit of £0.2m (2014: charge of £1.0m) related to equity-settled share-based transactions for certain employees of
other Group companies.
43. Reserves
Merger reserve
This reserve arose on the acquisition of Servomex Limited in 1999, a purchase satisfied substantially by the issue of share capital and therefore
eligible for merger relief under the provisions of Section 612 of the Companies Act 2006.
162
Spectris plc Annual Report and Accounts 2015
NOTES TO THE COMPANY ACCOUNTS CONTINUED
NOTES TO THE COMPANY ACCOUNTS CONTINUED
43. Reserves continued
Capital redemption reserve
This reserve records the historical repurchase of the Company’s own shares.
Special reserve
The special reserve was created historically following the cancellation of an amount of share premium for the purpose of writing off goodwill.
The special reserve is not distributable.
44. Retirement benefit scheme
The Company participates in, and is the sponsoring employer of, the UK Group defined benefit scheme. The plan provides pensions in retirement,
death-in-service benefits and in some cases disability benefits to members. The pension benefit is linked to members’ final salary at retirement
and their service life. Since 31 December 2009, the UK plan has been closed to new members.
There is no contractual agreement or stated policy for charging the net defined benefit cost within the Group. In accordance with IAS 19
(Revised 2011), the Company contribution made to the defined benefit plan during the year ended 31 December 2015 was £nil (2014: £nil).
Further details of the Spectris Pension Plan (UK) including all disclosures required under FRS 101 are contained in Note 19 to the Group
Consolidated Financial Statements.
45. Contingent liabilities
The cross-guarantee arrangements to support trade finance facilities are stated in Note 27 to the Group Consolidated Financial Statements.
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 in accordance with the requirements of IFRS 4 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.
Spectris plc and its UK subsidiaries are party to a cross-guarantee arrangement to support trade finance facilities entered into in the normal
course of business. They are also party to a cross-guarantee arrangement that allows individual subsidiaries to borrow from the bank on overdraft
within the overall borrowing limit of the Group. Spectris plc has also provided a Parent Company guarantee to support overdraft and intra-day
facilities provided by the bank to its subsidiaries who participate in the cross-border Euro zero balance pooling arrangement. An amount of
£8.5m (2014: £11.3m) was outstanding at 31 December 2015.
46. Dividends
Amounts recognised and paid as distributions
Final dividend for the year ended 31 December 2014 of 30.5p (2013: 28.0p) per share
Interim dividend for the year ended 31 December 2015 of 17.3p (2014: 16.0p) per share
Amounts arising in respect of the year
Interim dividend for the year ended 31 December 2015 of 17.3p (2014: 16.0p) per share
Proposed final dividend for the year ended 31 December 2015 of 32.2p (2014: 30.5p) per share
2015
£m
36.3
20.6
56.9
2015
£m
20.6
38.4
59.0
2014
£m
33.3
19.0
52.3
2014
£m
19.0
36.3
55.3
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 20 May 2016 and has not been included
as a liability in these Financial Statements.
47. Treasury shares
At 31 December 2015, Spectris plc held 5,898,908 treasury shares (2014: 6,054,835). During the year 155,927 of these shares were issued to
satisfy options exercised by employees of Spectris plc and its subsidiaries which were granted under share schemes (2014: 289,419). No shares
were repurchased by Spectris plc during the year (2014: nil) and no shares were cancelled during the year (2014: nil).
163
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE COMPANY ACCOUNTS CONTINUED
48. Explanation of transition to FRS 101
As stated in Note 33, these are the Company’s first Financial Statements prepared in accordance with FRS 101.
The accounting policies set out in Note 33 have been applied in preparing the Financial Statements for the year ended 31 December 2015, the
comparative information presented in these Financial Statements for the year ended 31 December 2014 and in the preparation of an opening
FRS 101 Balance Sheet at 1 January 2014.
In preparing its FRS 101 Balance Sheet, the Company has adjusted amounts reported previously in Financial Statements prepared in accordance
with its previous basis of accounting (UK GAAP). An explanation of how the transition from UK GAAP to FRS 101 has affected the Company’s
financial position and financial performance is set out in the following tables and the accompanying notes:
Reconciliation of equity
Fixed assets
Intangible assets
Tangible assets
Investments
1 January 2014
31 December 2014
Note
UK GAAP
Effect of
transition to
FRS 101
FRS 101
UK GAAP
Effect of
transition to
FRS 101
0.7
3.1
431.6
–
435.4
–
–
–
7.2
7.2
0.7
3.1
431.6
7.2
442.6
0.6
2.9
512.5
–
516.0
–
–
–
3.6
3.6
FRS 101
0.6
2.9
512.5
3.6
519.6
Retirement benefit assets
i
Current assets
Debtors
Derivative financial instruments
Cash at bank and in hand and short-term deposits
Creditors: amounts falling due within one year
Bank loans and overdrafts
Creditors
Net current assets
ii
542.7
0.7
543.4
944.1
0.1
944.2
–
2.9
–
–
–
2.9
0.3
1.3
–
–
0.3
1.3
545.6
0.7
546.3
945.7
0.1
945.8
–
(210.1)
(210.1)
335.5
–
–
–
0.7
–
(210.1)
(210.1)
336.2
(48.4)
(233.6)
(282.0)
663.7
–
–
–
0.1
(48.4)
(233.6)
(282.0)
663.8
Total assets less current liabilities
770.9
7.9
778.8
1,179.7
3.7
1,183.4
Creditors: amounts falling due after more than one year
Bank loans and overdrafts
Creditors
Derivative financial instruments
Net assets
Capital and reserves
Share capital
Share premium
Merger reserve
Capital redemption reserve
Special reserve
Profit and loss account
Shareholders’ funds
164
Spectris plc Annual Report and Accounts 2015
iii
iv
(145.7)
(70.3)
(0.1)
(216.1)
–
(145.7)
(1.4)
–
(71.7)
(0.1)
(109.5)
(118.8)
–
–
(0.7)
–
(109.5)
(119.5)
–
(1.4)
(217.5)
(228.3)
(0.7)
(229.0)
554.8
6.5
561.3
951.4
3.0
954.4
6.2
231.4
3.1
0.3
34.1
279.7
554.8
–
–
–
–
–
6.5
6.5
6.2
231.4
3.1
0.3
34.1
286.2
561.3
6.2
231.4
3.1
0.3
34.1
676.3
951.4
–
–
–
–
–
3.0
3.0
6.2
231.4
3.1
0.3
34.1
679.3
954.4
NOTES TO THE COMPANY ACCOUNTS CONTINUED
NOTES TO THE COMPANY ACCOUNTS CONTINUED
48. Explanation of transition to FRS 101 continued
Notes to the reconciliation
i – Retirement benefit assets
Under UK GAAP (FRS 17), as the defined benefit scheme was a multi-employer scheme of which the Company was unable to identify its share
of the defined benefit contribution plan’s underlying assets and liabilities, this scheme was accounted for as a defined contribution scheme,
recognising only the contribution payable by the Company.
Under FRS 101 the multi-employer exemption is no longer available. There is no contractual agreement or stated policy for charging the net
defined benefit cost within the Group amongst the participating companies. Therefore under FRS 101 as the sponsoring employer the Company
has recognised the full defined benefit surplus on the Balance Sheet which was not previously recognised on the individual Balance Sheet of any
UK company within the Group.
The impact has been to increase fixed assets at 1 January 2014 by £7.2m and at 31 December 2014 by £3.6m.
As prescribed under FRS 101 any actuarial gains and losses are recognised through the Statement of Comprehensive Income. In 2014 the
defined benefit surplus decreased by £3.6m of which £3.7m related to actuarial losses, £0.3m net interest income and £0.2m scheme
administrative costs.
ii – Deferred tax assets
Under UK GAAP, a deferred tax asset is recognised in relation to share options outstanding at the balance sheet date, based on the lower of
the cumulative accounting charge and the total expected future tax deductions. Under FRS 101, a deferred tax asset is recognised on the total
expected future tax deductions. As a result the deferred tax asset and profit and loss account reserves have increased by £0.7m to recognise
the higher deferred tax asset on the Company Balance Sheet as at the transition date.
In addition, at 31 December 2014 as a result of the share option charges during 2014, an adjustment is required to reduce the deferred tax asset
from £1.1m to £0.5m, reducing profit and loss account reserves by £0.6m giving an overall transitional adjustment for 2014 of £0.1m.
iii – Deferred tax liability
A deferred tax liability of £1.4m has been recognised at the transition date on the retirement benefit scheme asset which has been brought onto
the Balance Sheet under FRS 101. This results in a reduction in the profit and loss account reserve by £1.4m.
The reduction in the pension scheme asset during 2014, as described above, has given rise to a reduction in the corresponding deferred tax
liability from £1.4m to £0.7m and has increased the profit and loss account reserve by £0.7m.
iv – Profit and loss account reserve
Under FRS 101 the Company is required to account for foreign exchange gains or losses on foreign currency loans used to hedge investments
through the Profit and Loss Account. Under UK GAAP, using ‘net investment hedging’ such gains and losses were recorded directly to reserves.
As a result the profit for 2014 has increased by £9.3m on transition to FRS 101 which represents the foreign exchange gains that were recorded
directly to reserves under UK GAAP. The profit and loss account reserve does not differ as the exchange gains were a line item in the profit and
loss account reserves reconciliation under UK GAAP.
As described above, under FRS 101 there are adjustments required to the profit and loss account reserve in relation to the recognition of the
retirement benefit assets, deferred tax assets and deferred tax liabilities.
Reconciliation of profit for 2014
In accordance with the exemption provided by Section 408 of the Companies Act 2006, the Company has not presented its own Profit and Loss
Account. As a result of the adjustments noted above, there has been no impact on the profit and loss account reserve; however, the transition to
FRS 101 has increased the profit after tax for 2014 by £9.4m. This relates to the reclassification of foreign exchange gains to the Profit and Loss
Account of £9.3m and £0.1m relating to the net pension interest income.
165
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
NOTES TO THE COMPANY ACCOUNTS CONTINUED
49. Group companies
The following is a full list of the subsidiaries and joint ventures, the country of registration and type of issued securities and percentage of equity
owned directly or indirectly by Spectris plc, as at 31 December 2015. This information is provided in accordance with Section 409 of the
Companies Act 2006.
Company name
Agemont Limited
Analytical Spectral Devices Inc.
Brüel & Kjær EMS (Australia) Pty Ltd
Brüel & Kjær EMS B.V.
Brüel & Kjær EMS Inc.
Brüel & Kjær EMS Pty Ltd.
Brüel & Kjær France S.A.S.
Brüel & Kjær GmbH
Brüel & Kjær Iberica S.A.
Brüel & Kjær Italia S.R.L.
Brüel & Kjær North America Inc.
Brüel & Kjær Polska Sp. z.o.o.
Brüel & Kjær Sound & Vibration Measurement A/S
Brüel & Kjær UK Limited
Brüel & Kjær Vibro A/S
Brüel & Kjær Vibro GmbH
Brüel & Kjær VTS Limited
BTG Americas Inc.
BTG Eclépens S.A.
BTG Holding, Inc.
BTG Instruments A.B.
BTG Instruments GmbH
BTG IPI, LLC
BTG Southern Europe Sarl
Burnfield Limited
Diamond Blade Oy
Engineering Seismology Group Canada Inc.
ESG (Beijing) Seismic Technology Co. Ltd.
ESG USA Inc.
HBM Danmark ApS
HBM FiberSensing S.A.
HBM France S.A.S.
HBM Italia S.R.L.
HBM nCode Federal LLC
HBM Netherlands B.V.
HBM Norge A.S.
HBM United Kingdom Limited
Hottinger Baldwin Measurements, Inc.
Hottinger Baldwin Messtechnik AG
Hottinger Baldwin Messtechnik GmbH
Hottinger Baldwin Messtechnik GmbH
Hottinger Baldwin Messtechnik Iberica S.L.
Hottinger Baldwin (Suzhou) Electronic Measurement Technology Ltd.
International Applied Reliability Symposium LLC
LLC Spectris CIS
Malvern Biosciences, Inc.
Malvern Instruments Eurl.
Malvern Instruments GmbH
Malvern Instruments Incorporated
Malvern Instruments Limited
Malvern Instruments Nordic A.B.
Malvern Instruments Nordic Oy
Malvern-Aimil Instruments Pvt. Limited
Microscan Mfg., LLC
Microscan Systems B.V.
Microscan Systems, Inc.
Microscan Tooling, Inc.
Nanosight Limited
NDC Technologies, Inc.
NDC Technologies Limited
NDC Technologies S.A.
Newport Electronics Limited
Novisim Limited
N-Tron Corporation
166
Spectris plc Annual Report and Accounts 2015
Registered country
United Kingdom
United States
Australia
Netherlands
United States
Australia
France
Germany
Spain
Italy
United States
Poland
Denmark
United Kingdom
Denmark
Germany
United Kingdom
United States
Switzerland
United States
Sweden
Germany
United States
France
United Kingdom
Finland
Canada
China
United States
Denmark
Portugal
France
Italy
United States
Netherlands
Norway
United Kingdom
United States
Switzerland
Austria
Germany
Spain
China
United States
Russian Federation
United States
France
Germany
United States
United Kingdom
Sweden
Finland
India
United States
Netherlands
United States
United States
United Kingdom
United States
United Kingdom
Belgium
United Kingdom
United Kingdom
United States
Total (%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
NOTES TO THE COMPANY ACCOUNTS CONTINUED
NOTES TO THE COMPANY ACCOUNTS CONTINUED
49. Group companies continued
Company name
Omega Engineering B.V.
Omega Engineering GmbH
Omega Engineering, Inc.
Omega Engineering Limited
Omega Engineering Sarl
Omega Group, Inc.
Omega, Inc.
Omega Technologies, Inc.
Omega Technologies Limited
PANalytical B.V.
PANalytical GmbH
PANalytical Inc.
PANalytical Limited
PANalytical (Proprietary) Limited
PANalytical S.A.S.
PANalytical S.R.L.
Particle Measuring Systems Germany GmbH
Particle Measuring Systems, Inc.
Particle Measuring Systems Limited
Particle Measuring Systems S.R.L.
Red Lion Controls B.V.
Red Lion Controls, Inc.
ReliaSoft Asia Pte. Ltd.
ReliaSoft Corporation
ReliaSoft Corporation Poland Sp. z.o.o.
ReliaSoft India Private Limited
RLC Holding Company
Servomex B.V.
Servomex Company
Servomex GmbH
Servomex Group Limited
Servomex Limited
Servomex S.A.
Silver One GmbH
Sixnet, Inc.
Sound Answers, Inc.
Spectraseis A.G.
Spectraseis Canada Inc.
Spectraseis do Brasil Geofisica Ltda.
Spectraseis Inc.
Spectraseis ISM LLC
Spectris Australia Pty Ltd.
Spectris Canada Inc.
Spectris China Limited
Spectris Co., Ltd.
Spectris Denmark ApS
Spectris Do Brasil Instrumentos Eletrônicos Ltda.
Spectris Finance Limited
Spectris Funding B.V.
Spectris Germany GmbH
Spectris Group Holdings Limited
Spectris Holdings Inc.
Spectris Inc.
Spectris Instrumentation and Systems Shanghai Ltd.
Spectris Korea Ltd.
Spectris Mexico, S. de R.L. de C.V.
Spectris Netherlands B.V.
Spectris Netherlands Coöperatief W.A.
Spectris Pension Trustees Limited
Spectris Praha Spol. s.r.o.
Spectris Pte. Ltd.
Spectris Taiwan Limited
Spectris Technologies Private Limited
Spectris UK
Spectris UK Holdings Limited
Spectris US Holdings Limited
Viscotek Europe Limited
Zhuhai Omec Instruments Co., Ltd.
Registered country
Netherlands
Germany
United States
United Kingdom
France
United States
United States
United States
United Kingdom
Netherlands
Germany
United States
United Kingdom
South Africa
France
Italy
Germany
United States
United Kingdom
Italy
Netherlands
United States
Singapore
United States
Poland
India
United States
Netherlands
United States
Germany
United Kingdom
United Kingdom
France
Germany
United States
United States
Switzerland
Canada
Brazil
United States
United States
Australia
Canada
Hong Kong
Japan
Denmark
Brazil
United Kingdom
Netherlands
Germany
United Kingdom
United States
United States
China
Korea, Republic of
Mexico
Netherlands
Netherlands
United Kingdom
Czech Republic
Singapore
Taiwan
India
United Kingdom
United Kingdom
United Kingdom
United Kingdom
China
Total (%)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
95.75
100
84.8
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
167
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Strategic Report 01-55Governance 56-97Financial Statements 98-168
SHAREHOLDER INFORMATION
20 May 2016
27 May 2016
24 June 2016
28 July 2016
February 2017
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
The registrars provide a range of shareholder
services online at www.shareview.co.uk
Share price information
The Company’s ordinary shares are listed on
the London Stock Exchange. The latest share
price is available via the Company’s website at
www.spectris.com
Email news service
To receive details of press releases and other
announcements as they are issued, register with
the email alert service on the Company’s website
at www.spectris.com
Financial calendar
Annual General Meeting
Record date for 2015 final dividend
2015 final dividend payable
2016 half-year results
2016 year-end results
Company Secretary
R J Stephens, FCIS
Head of Corporate Affairs
Matt Jones
Email: investor.relations@spectris.com
Registered office
Spectris plc
Heritage House
Church Road
Egham
Surrey
TW20 9QD
England
Tel: +44 (0)1784 470470
Email: info@spectris.com
Company registered in England, No. 2025003
Auditors
KPMG LLP
Bankers
Royal Bank of Scotland Plc
Solicitors
Macfarlanes LLP
Brokers
Jefferies Hoare Govett
J P Morgan Cazenove
Financial PR advisers
FTI Consulting
168
Spectris plc Annual Report and Accounts 2015
‘Spectris’ is a trademark of Spectris plc and is
protected by registration in the United Kingdom
and other jurisdictions. Other product names
referred to in this Annual Report are registered
or unregistered trademarks or registered names
of Spectris plc or its subsidiary companies and
are similarly protected.
Photograph on pages 12 and 13 courtesy
of Snecma.
This report has been printed on paper which
supports the FSC (Forest Stewardship Council)
chain of custody environmental sustainment
programme. The material used throughout the
report is biodegradable, fully recyclable and
elemental chlorine free. Both the paper mill
and printer involved in the production support
the growth of responsible forest management
and are both accredited to ISO 14001 which
specifies a process for continuous environmental
improvement. Vegetable-based inks were
used throughout the production process.
© Spectris plc March 2016
Designed and produced by Luminous
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Spectris plc
Heritage House
Church Road
Egham
Surrey
TW20 9QD
England
www.spectris.com