Spectris Annual Report 2016

FY2016 Annual Report · Spectris

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Delivering innovative
solutions for our
customers

Spectris plc
Annual Report and Accounts 2016

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.

How we do it
Alongside our products, our people are key to our success
and play an essential role in delivering our strategy, particularly
in the development of new products, software and services and
building relationships with customers. We encourage a culture
of entrepreneurial initiative, underpinned by our values and
Code of Business Ethics. We look for similar characteristics in
the companies we acquire or partner with. Read more about
our people and culture on pages 45 to 47.

Our strategy
Our strategic objective is to deliver sustainable profitable growth
for our shareholders by enhancing the productivity of our
customers. This is focused not just on the supply of equipment
but, increasingly, on the provision of innovative customer
solutions, involving services, software and related activities.

Contents

Strategic Report
1
2
4
6
8
10
12
14
16
26
30
32
40
41
50

2016 Highlights
Chairman’s Statement
Chief Executive’s Review
Strategy
Strategy in Focus
Business Model
Key Performance Indicators
Market Overview
Operating Review
Financial Review
Risk Management
Principal Risks and Uncertainties
Viability Statement
Sustainability Report
Ethics Report

Governance
53

Chairman’s Introduction
to Corporate Governance
Board of Directors
Executive Committee Members
Leadership
Effectiveness
Nomination Committee Report
Accountability
Audit and Risk Committee Report
Relations with Shareholders
Directors’ Remuneration Report
Other Statutory Information

Financial Statements
95
99
100

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

54
56
57
60
61
64
64
72
73
92

101

102

103
104
155
156
157
170

Business at a glance

Spectris comprises four business segments, which reflect the
applications and end-user industries we serve. Our businesses
are united by the same purpose, values and corporate strategy.
They all work according to a strong common framework of
controls, management key performance indicators, financial
discipline and rigorous operating principles, but each business
is focused 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 areas such as M&A, legal, tax and corporate
development. We manage a central procurement function
and other supply chain initiatives which benefit our operating
companies and facilitate the sharing of best practice.

We believe that the combination of this organisational
structure and our business model (see page 10) is the most
effective way for us to deliver our strategy (see page 6).

Sales by segment
(%)

Sales by destination
(%)

1 Materials Analysis

1 North America

2 Test and Measurement

3 In-line Instrumentation

4 Industrial Controls

2 Europe

3 Asia

4 Rest of the world

Read more on pages 24 and 25.

Adjusted operating profit

Employees

Particle Measuring Systems

Reported sales

£418.9m

Aftersales

32%

£76.2m

2,375

Reported operating profit

£66.2m

Reported sales

£404.5m

Aftersales

23%

Adjusted operating profit

Employees

£61.8m

3,460

Reported operating profit

£26.7m

Operating companies
Malvern Instruments*

Industries
Metals, minerals & mining

PANalytical*

Pharmaceuticals & fine
chemicals

Academic research

Semiconductors

*Merged from 1 January 2017

Operating companies
Brüel & Kjær Sound & Vibration

Industries
Automotive

ESG Solutions (’ESG’)

HBM

Millbrook

Aerospace

Electronics

Energy

Academic research

Reported sales

£275.6m

Aftersales

44%

Operating companies
Brüel & Kjær Vibro

Industries
Process industries

BTG

Pulp, paper & tissue

Adjusted operating profit

Employees

NDC Technologies

Energy & utilities

£41.2m

1,465

Reported operating profit

£37.6m

Servomex

Web & converting

Industrial Controls provides products and solutions that

measure, monitor, control, inform, track and trace during

the production process.

Reported sales

£246.8m

Aftersales

Operating companies
Microscan

Industries
Manufacturing

Omega Engineering (‘Omega’)

Process industries

Adjusted operating profit

Employees

Red Lion Controls

£21.6m

1,400

Reported operating profit

£(92.2)m

Energy

Electronics

Healthcare

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial Statements

Sensitivity, productivity, ease-of-use: all increased
Providing our customers with solutions
combining hardware, software and service
is increasingly more important in our strategy.
In 2016, we worked closely with Syngenta,
a leading agricultural company, in the move
to a new Malvern Instruments system.

Syngenta manufactures a wide range
of agrochemicals including pesticides,
fungicides and herbicides.

parameters and is a powerful tool for
controlling the performance, quality
and value of the ingredients.

Consistency of the ingredients is
essential for overall product quality
control and Syngenta needed a system
to confirm that all the ingredients in
a formulation were in suspension and
in the correct concentrations.

Syngenta decided to purchase an
OMNISEC system, consisting of systems,
detectors and software, for this particular
application. It measures absolute molecular
weight, molecular size, and other

One of the key benefits was the ease
of changeover in a lab that handles
many different samples.

The new software was also a key selling
point as it made it easy to gather more
sensitive data and produce closely
customised reports, thus enhancing
both efficiency and ability to support
decisions around different suppliers and
troubleshooting. Improving productivity
also freed up time for higher value work.

“ Since we purchased OMNISEC, we’re able to deliver more
sensitive data, so our ability to support decisions has been
directly enhanced. In an analytical lab like ours that
operates so many techniques with relatively few people,
improving productivity is a major gain.“

Dr Kirt Durand, Senior Analytical Chemist at Syngenta

Geographical breakdown
(%)

1 North America

2 Europe

3 Asia

4 Rest of the world

Industry breakdown
(%)

1 Pharmaceuticals & ﬁne chemicals 32

2 Metals, minerals & mining

3 Academic research

4 Semicon, telecoms & electronics 12

5 Other

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Strategic Report
Operating Review
Materials Analysis

Segment performance
Reported sales increased 15%, reflecting a 2% increase in
LFL sales, a 1pp contribution from acquisitions and a 12pp
positive impact from foreign exchange currency movements.
Sales growth was driven primarily by Asia, particularly in
China and Japan, while North America and Europe were
down slightly. On a LFL basis, adjusted operating profit
increased 27% and adjusted operating margins increased
by 3.7pp, primarily reflecting positive mix effects and the
benefits of restructuring actions.

We announced our decision to merge two of this segment’s
operating companies, Malvern Instruments (‘Malvern’) and
PANalytical, effective from January 2017. Both companies are
leading suppliers of analytical instrumentation in their respective
markets and the combined entity will be a larger and stronger
player in the materials characterisation market, leveraging the
strengths of the individual companies in their end markets, and
working collaboratively to deliver a more complete range of
products, solutions and services to a broader set of markets and
customers. For example, in November, PANalytical launched
Aeris, an easy-to-operate and user-friendly benchtop x-ray
powder diffractometer. The target markets for Aeris have
now been extended beyond the cement, minerals, metals
and research markets, traditional strongholds of PANalytical,
to include the pharmaceuticals and fine chemicals markets
where Malvern holds a leading position.

Sales to the pharmaceuticals and fine chemicals industries rose
on a LFL basis during the year, a positive sign given the strong
year-on-year comparator, as 2015 benefited from a positive
impact on demand from regulatory compliance requirements in
the Indian pharmaceutical industry. Asia saw particularly strong
growth, notably in China, India and Japan. In Europe and North
America, LFL sales were up modestly.

In February, Spectris acquired CAS Clean Air Service AG (‘CAS’)
a leading cleanroom-services company, providing measurement
services, process qualification, calibration services and product
sales, primarily to the pharmaceutical manufacturing market. Its
monitoring and advisory service generated strong growth within
this market as well as in medical technology, plastics technology,
and optics markets. CAS has been fully integrated into Particle
Measuring Systems, although the CAS name has remained a
distinct product brand. This has enabled us to offer its Good
Manufacturing Practice service knowledge and expertise more
extensively across their existing sales network.

The metals, minerals and mining sector reversed its better 2015
performance and we saw a LFL sales decline in 2016. All regions
experienced a fall in LFL sales, although Germany, the UK and
Japan bucked this trend. Large systems orders continue to be
deferred or cancelled, and the growth within the cement and
building materials markets in North America and Europe of
recent years has slowed, although one area of investment is
the increasing focus from mining companies on safety and
productivity. Aftermarket sales were solid in this sector, as
customers’ production volumes continue at good levels.

Although we saw reasonable sales growth (LFL) to academic
research institutes in North America and in Asia, underlying
demand was subdued, especially in Europe, with significant
weakness in the UK.

Reported
sales

Adjusted
operating profit

Reported
operating profit

£418.9m

£76.2m

£66.2m

2015: £364.4m

2015: £53.7m

2015: £42.6m

Sales (LFL) to the semiconductor, electronics and telecoms
industry grew strongly, particularly in Asia (outside of China and
India). Sales in North America were notably weaker year-on-year
on a LFL basis. Sales of our new ultra-high sensitivity particle
counter products, UDI20 and Chem20, which were launched
in 2015, have been performing well.

Segment outlook
In 2017, the merger of Malvern and PANalytical is expected
to begin to generate revenue synergies as we benefit from a
more comprehensive offering to our customers. However, the
underlying trading conditions in our end markets will be the
key driver of near-term performance.

Within pharmaceuticals, we expect regulatory scrutiny of
manufacturing processes to continue to increase, particularly
in relation to the launch of new products, and this will drive
demand for our material characterisation and cleanroom
products and services.

We expect that these factors will more than offset what is likely
to remain an unpredictable academic research market given
public sector budget constraints in certain regions.

We are seeing a cautiously improving investment climate in
the mining sector but do not expect to see a major pick-up
in demand as yet, with growth primarily expected to be from
aftermarket sales.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsOperating Review
Test and Measurement

Segment performance
Reported sales increased 15%, including a 6pp contribution
from acquisitions, predominantly related to Millbrook, and
a 13pp positive impact from foreign currency exchange
movements. LFL sales fell by 4%. By region, only Asia reported
LFL sales growth, in particular in China. LFL sales were notably
lower in North America and down modestly in Europe. Adjusted
operating profit declined 12% on a LFL basis and LFL operating
margins declined by 1.3pp, with positive pricing and mix effects
being offset by the impact of negative operating leverage.

Within the automotive sector, the acquisition of Millbrook in
2016 brings a high quality test service platform to the Group.
Automotive customers are increasingly demanding the provision
of an integrated solution, combining hardware, software and
services, and in recent years we have been investing organically
and via acquisitions to meet this growing demand. Millbrook
provides the opportunity to combine their service excellence
with the equipment and software from other Spectris operating
companies to provide a joint offering to customers. Initial
performance of Millbrook in the Group has been very good
and it is our intention to invest in further organic and inorganic
growth opportunities to expand the business globally.
In addition to Millbrook, we also acquired DISCOM and
SVT during the year and in combination with the acquisition
of Sound Answers in 2015, these acquisitions provide the
opportunity to grow our offering of software and engineering
services to automotive customers. Following the acquisition of
ReliaSoft in 2015, we have now united it with our other
engineering software business, nCode, under a single brand,
Prenscia, which allows engineers to access all our engineering
simulation software solutions via one licensing system.

Underlying demand from the automotive sector remains healthy,
particularly in R&D, with one of the key drivers of demand being
the electrification of automotive power-trains for deployment
in electric and hybrid vehicles. This creates opportunities for
our eDrive testing solution which enables the electric motor,
inverter and battery data to be directly and quickly evaluated.
Electrification of drive trains also creates opportunities for our
NVH service offering; as engine noise is reduced or eliminated
from motor vehicles, noise evaluation and control shifts focus
from the engine to sources elsewhere in the car, for example
the electric motor, tyres, etc.

In machine manufacturing, a significant portion of which
represents sales into the automotive supply chain, there was LFL
sales growth. Sales into the two key regions, Europe and Asia,
grew strongly on a LFL basis, but declined in North America.

Sales (LFL) to the aerospace sector decreased in 2016 and were
lower in each of the regions, except North America, due to the
completion of several major R&D programmes. A good example
of how we continue to develop differentiated customer-driven
offerings beyond just hardware was the work undertaken
with Marenco Swisshelicopter to accelerate their design of
an innovative new helicopter. We custom-developed sensing
solutions for Marenco and deployed these in combination
with our data acquisition systems and software in order to
provide them with high-tech solutions at critical points in the
development process.

Reported
sales

Adjusted
operating profit

Reported
operating profit

£404.5m

£61.8m

£26.7m

2015: £351.3m

2015: £55.3m

2015: £43.6m

Sales (LFL) of our environmental noise monitoring services
declined. However, it was a difficult year-on-year comparator
given a one-off major contract in 2015. The UK and Japan
were the only major markets to deliver growth during the year.
We secured a key contract to provide Heathrow airport with
50 noise monitoring terminals and launched Airport Noise
Monitoring on Demand, a service that enables airports to
temporarily and cost-effectively increase noise monitoring
when needs arise, such as before and after operational changes.
We established a dedicated urban sales force to widen our
market reach for noise monitoring equipment and services
and secured several orders in this regard during the year.

Reflecting some pressure on public finances, LFL sales to
academic research institutes declined with weakness in demand
in all regions. Only Asia recorded growth, driven by China.

Sales (LFL) to our consumer electronics customers declined
in 2016, although sales patterns are lumpy, reflecting the
scheduling of projects by customers.

The weakness in the unconventional oil and gas markets
continued in 2016 and we saw a further sizeable decline in
LFL sales of our microseismic monitoring solutions, particularly
in North America. As a result, we have looked to develop
opportunities in other markets and are making progress in this
regard in Latin America and the Middle East. Our performance
was better in the mining sector where LFL sales were flat, with
demand for microseismic monitoring growing. For example, we
have been working more closely with Grasberg, the world’s
largest copper-gold mine, supplying microseismic monitoring
equipment and analytics for different phases of development,
as well as improving safety and efficiency.

Segment outlook
We expect the automotive and aerospace sectors to benefit
from further growth in demand for engineering software
applications, particularly in NVH simulation in automotive.
Additionally, the continued robust investments we see globally
in the development of electric and hybrid vehicles will support
demand for our market-leading torque and eDrive solutions.

The underlying business trends in the consumer electronics
market remain healthy in our view, given consumer electronic
demand and good opportunities for sound quality testing
applications and calibration services in this sector.

Market conditions in the oil and gas industry are expected to
remain subdued and will be oil-price dependent. However, there
may be more opportunities for deployment of our microseismic
solutions in the mining space as customers seek to make
better use of data analytics to improve safety, productivity
and profitability.

Strategic ReportAdding value for automotive customers
Automotive customers are increasingly
demanding the provision of an integrated
solution, combining hardware, software and
services. Ford Motor Company have been
working with Brüel & Kjær Sound & Vibration‘s
NVH simulator products for a number of years.

Ford utilise Desktop Simulators (DTS)
to help refine their NVH targets and
troubleshoot sound quality issues. The
DTS allows Ford to evaluate standard NVH
test or computer-aided engineering data
in a true driving environment, converting
the data in real-time into an accurate
representation of the sound in response
to the driver‘s inputs to the controls.

The limitation of the DTS is that it only
handles the sound of the vehicle, not
the vibration. There are many NVH
phenomena where the total perception
of the issue is a combination of the sound

and vibration experienced by the driver
or passenger, for example vibrations felt
through the steering column and seat.

Ford evaluated a prototype of a
Full-Vehicle Simulator (FVS) at Brüel &
Kjær Sound & Vibration‘s Engineering
Services facility at Millbrook and realised
this was the next step in producing a
more immersive experience for NVH
evaluation. Ford took delivery of their FVS
in December and have begun exploring
the capabilities of the new system with
the goal of integrating it into their
product development processes.

“ We realised that the FVS added the missing dimension
of vibration and took us to the next level in improving
NVH assessment and better decision-making. It requires
a significant investment in resources but the benefits
to our NVH development make it worthwhile.“

Mark Stickler, Ford‘s Manager for Powertrain NVH

Geographical breakdown
(%)

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1 North America

2 Europe

3 Asia

4 Rest of the world

Industry breakdown
(%)

1 Automotive & aerospace

2 Machine building

3 Environmental noise monitoring 8

4 Academic research

5 Semicon, telecoms & electronics 7
6
6 Energy & utilities

7 Other

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Award-winning technology
Operational excellence and innovative customer
solutions are two elements of our strategy. This
was recognised externally when Servomex‘s
Hummingbird Sensing Technology received the
2016 Queen’s Award for Enterprise (Innovation)
for its paramagnetic oxygen sensors.

Renowned as the standard for
paramagnetic oxygen sensing globally,
these sensors are used in a number
of industrial analysis processes, such
as measurements for gas purity and
oxygen detection. It is also now the
‘go to’ technology for medical equipment
manufacturers in life support devices that
require precise oxygen regulation,
monitoring and delivery, such as critical
care ventilators, neonatal incubators,
anaesthesia machines and patient
monitoring. Critically, the non-depleting
nature of these sensors, combined
with their accuracy and responsiveness,
significantly increases the available uptime

of an intensive care unit facility, and the
end user can have confidence in the
monitoring they receive. A further
development was the launch of the
Paracube Modus, the world’s first
highly shock and vibration-resistant
paramagnetic oxygen sensor, designed
specifically for the medical market
where vibration resistance is important,
e.g. oxygen monitoring and control on
the ward, on hospital trolleys and in
ambulances etc. This is the first time
this technology has been developed for
inter and intra-hospital applications that
require precise oxygen-controlled delivery.

“ The engineering of the Engström Carestation required
GE to select components only of a high quality to fulfil
the design vision for this world-leading product. The
flexibility and forward-looking design ethos of the
Hummingbird Paracube Micro was therefore the perfect
partner to help us deliver exceptional ventilation control.“

Paul Hunsicker, Global Product Manager, Respiratory Care and Sleep
Healthcare Systems, GE Healthcare

Geographical breakdown
(%)

1 North America

2 Europe

3 Asia

4 Rest of the world

Industry breakdown
(%)

1 Pulp, paper & tissue

2 Energy & utilities

3 Converting, extrusion & packaging 15

4 Other

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Strategic Report

Operating Review
In-line Instrumentation

Segment performance
Reported sales increased 8%, reflecting a LFL sales decline of
4%, which was more than offset by an 11pp positive impact
from foreign currency exchange movements and a 2pp
contribution from acquisitions.

On a regional basis, LFL sales were up slightly in North America
and down in Europe and in Asia. The decline in LFL sales
primarily reflected ongoing weakness in capital expenditure
across many heavy process industries globally, though certain
markets remained robust, such as tissue and wind energy.
LFL adjusted operating profit fell 4% and LFL adjusted operating
margins were flat year-on-year. As a result, there has been a
focus on improving operating efficiency.

In the pulp and paper market, LFL sales were down slightly
compared with 2015. We continued to see diversification
away from graphic paper towards the tissue and pulp markets,
translating into growth for our tissue business which is partly
offsetting the decline in traditional coating blade sales. In June,
we acquired Capstone Technology Corporation (‘Capstone’),
a leading provider of software solutions for process control
optimisation and decision support. The acquisition enables us
to combine Capstone’s software tools with BTG’s instruments
to provide solutions for process control and optimisation in
the pulp, tissue and packaging markets and we have now
built an extensive pipeline of joint opportunities. For example,
a major North American producer of pulp and paper recently
implemented a process control solution consisting of
BTG’s single-point sensors in combination with Capstone’s
multi-predictive process control software which will reduce
chemical cost and improve quality for the mill.

In the energy and utilities market, LFL sales were down notably
in 2016 as the weak global oil and gas markets continued to
have an adverse impact on the demand for some of our
products. The effect on the downstream market has lagged that
of the upstream, and therefore a lack of new larger projects in
the hydro-carbon processing sector. However, other areas such
as industrial gases, emissions monitoring, and our Hummingbird
OEM sensor business continue to perform well. Against the
weaker backdrop and fewer new order leads, we have continued
to strengthen our sales and marketing organisation and focused
on deepening our customer relationships through increased
levels of service and support, and this has resulted in a number
of orders for upgrades, retrofits and expansions. Our focus on
innovative customer solutions also continues and in November,
we launched our first moisture detector which allows the fast
and accurate measurement of moisture in process applications.
It is designed to integrate with MonoExact, our next-generation
digital oxygen analyser, to measure both moisture and oxygen
which is a common requirement in many applications.

We are continuing to see modest growth in the wind energy
sector and have focused on wind farm owners and operators,
in addition to the traditional turbine OEM segment, in order to
offer them a post-warranty solution for their turbine fleet that
is OEM-independent. This effort is aiming at ensuring that end
users can also benefit from our condition monitoring system
and remote diagnostic services, and this initiative has identified
significant opportunities. We have also expanded our offering
to non-wind power applications in other industrial markets,

Reported
sales

Adjusted
operating profit

Reported
operating profit

£275.6m

£41.2m

£37.6m

2015: £255.0m

2015: £36.8m

2015: £34.2m

for example, our Brüel & Kjær Vibro business secured a
condition monitoring contract with a biomass power plant in
the UK and a contract to supply a turnkey condition monitoring
and machine protection solution for remote monitoring at a
polyethylene plant in Northern Asia. The latter comprises our
machine protection system, software, portable instruments and
sensors along with a complete package of services.

Sales (LFL) to the web and converting industries increased
notably during 2016, with a particularly strong performance
in the fourth quarter. This was an improving environment after
2015 when customers were delaying projects. We have seen
a number of opportunities emerge in the medical market and
in food, particularly in relation to snack products. For example,
a medical tube manufacturer uses NDC Technologies’
measurement and control system to tightly control the critical
dimensions and quality of its high-value extruded products
and, in India, a snack manufacturer has improved quality and
production efficiency with on-line moisture and oil measurement
for crisps and snacks lines.

Segment outlook
The changing mix in our pulp and paper business is expected to
continue during 2017 as our new instruments and solutions and
the more robust tissue and pulp markets offset the ongoing
structural challenges in the graphic paper and coated paperboard
markets. We also expect to continue to benefit from the
combination of Capstone’s software tools with BTG’s instruments
to capture new opportunities.

We expect growth from the energy and utilities sector to be
modest in 2017. The renewable energy sector remains healthy
and the expansion of our offering to differing customer
types and new areas of the market offer potential new sales
opportunities. However, in the oil and gas sector, demand
remains fragile, despite an improving oil price, with the
downstream market continuing to experience the lagged
impact of the 2014/15 decline in prices.

We will also continue to increase the focus on operational
excellence initiatives across the segment in order to improve
future profitability.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsOperating Review
Industrial Controls

Segment performance
Reported sales increased 12%, reflecting a LFL sales decline
of 2%, a 2pp contribution from acquisitions and a favourable
impact of 12pp from foreign currency exchange movements.
Adjusted operating (LFL) profit declined by 50% and operating
margins were down to 8.7%. This was driven by negative
operating leverage from the sharp sales decline in North
America, compounded by Omega’s performance. The reported
loss of £92.2 million was principally caused by the impairment
charges booked by Omega (£94.4 million); further details are
provided in the Financial Review.

Omega derives the majority of sales from the USA and the weak
US industrial environment impacted demand for its products. In
addition, the implementation of a new ERP system at Omega
highlighted the need for certain processes to be improved,
with temporary additional resources required during the
consolidation of two distribution centres on the US east coast.
This resulted in significant inventory adjustments and higher
labour costs. A new organisational structure and management
team has been put in place and the focus is on remedial action
to re-design the operational processes and improve customer
service by improving product availability, shortening lead times
and increasing on-time delivery. Our aim is for Omega to exit
2017 with gross margins running at historic levels.

For the segment as a whole, the LFL sales decline primarily
reflected continuing broad-based weakness in US industrial
production; all three operating companies in this segment have
a high exposure to North America, although the impact was
greatest in our industrial networking business.

In Asia, there was strong LFL sales growth, in particular driven
by continued good progress in the expansion of our process
measurement and control business, Omega, outside of the USA.
The internationalisation of Omega continues to deliver promising
results, with good LFL sales growth in all major markets outside
of the USA. In Europe, overall segment sales were broadly flat
on a LFL basis, with a challenging year for our industrial
networking business being partially offset by LFL sales growth
in process measurement and control products.

This segment made good progress in a number of
strategic areas.

The increasing trend towards the Industrial Internet of Things
(‘IIoT’), driven by the need for smarter, more interconnected
operations, is benefiting our industrial automation and
networking business as organisations seek easy-to-use solutions
to connect and expand the capabilities of legacy equipment
within existing facilities. Red Lion Controls (‘Red Lion‘) provides
IIoT-ready solutions that use protocol conversion, visual
management, remote monitoring and industrial Ethernet
technologies to help customers achieve this. Our IIoT product
development was focused on simplifying the integration of
customer-generated data and IIoT cloud platforms. Currently
supporting nine industrial IIoT platforms, with world-wide
coverage, Red Lion‘s industrial gateways provide a key solution
for customers looking to connect and analyse their processes in
the cloud.

Reported
sales

Adjusted
operating profit

Reported
operating profit

£246.8m

£21.6m

£(92.2)m

2015: £219.3m

2015: £35.3m

2015: £23.2m

During the year, we launched the latest version of our popular
Crimson software, the common programming platform for a
variety of Red Lion products, adding control capability to our
products. This provides a key solution for customers as it
removes the need to purchase stand-alone control components.
We had further success with our networking products in the
automotive industry, securing a contract for a major car maker’s
new plant in Latin America. We were also delighted to win the
2016 Control Design Readers‘ Choice Awards for panel meters
for the 16th consecutive year.

The acquisition of Label Vision Systems (‘LVS‘) in 2015 has
delivered very positive results during 2016 with strong sales
growth of its products as the market expands due to regulatory
trends (e.g. legislation in the USA on product identification
marking) and quality requirements. It has been fully integrated
into Microscan and this has enabled the expansion of LVS
products and solutions into key international markets, and to
leverage the synergies between LVS‘s and Microscan‘s sales,
technology, and operations. Following the launch in 2015 of the
MicroHAWK, a modular and scalable industrial barcode imager
and smart camera platform, further developments were made
this year with autofocus and smart camera versions.

Segment outlook
Given the significant exposure to the USA, performance for this
segment in 2017 will be largely driven by the performance in
US industrial markets. Some leading indicators such as the PMI
manufacturing index have turned more positive; however, it is
still too early to assess the extent of any positive industrial
market momentum.

At Omega, we expect the organisational changes and
restructuring measures we have taken, as well as the continued
focus on lean initiatives and improving the customer experience,
to deliver an improvement in performance and to exit the year
with margins at historic levels.

In the medium term, we see additional opportunities for
companies to adopt the capability to connect, monitor and
control their manufacturing facilities and for further industrial
networking in order to drive productivity and operational
efficiencies. Spectris is positioning itself to take full advantage
of these opportunities as the IIoT market evolves.

Strategic ReportWireless monitoring increases product safety
Customising solutions for our customers is
increasingly more common. A leading
multinational consumer packaged goods
manufacturer knew that the temperature
of the liquid to clean their pipes in a particular
production line process had to be maintained
within a very specific range to meet required
standards and ensure purity of ingredients.

The accuracy required was +/- 1°C in an
environment where temperature could
range from 20°C to 85°C. Omega worked
closely with the customer and provided
them with a package of equipment
and software to remotely measure and
monitor cleaning liquid temperature.
They installed a wireless temperature
monitoring system which included more
than 70 temperature sensor probes
with transmitters along the length of the
pipes; a receiver to capture the data; and
software to monitor and log the data
on a real-time basis.

Omega customised the monitoring
software to achieve the requisite data
precision. Technicians can preset a
desired temperature range, be alerted
immediately if the temperature fluctuates
beyond the acceptable range and easily
install the system to other pipes as
necessary. The customer now has the
confidence that quality control and
product safety are being maintained on
a real-time basis.

“ One of our customers approached us with a challenge to
help improve quality in their product. After close collaboration
with the customer, and leveraging the latest in wireless sensor
technology, the Omega team helped ensure that the
products consumers take home are safer than ever.“

Joe Vorih, President, Omega Engineering

Geographical breakdown
(%)

1 North America

2 Europe

3 Asia

4 Rest of the world

Industry breakdown
(%)

1 Distribution

2 Semicon, telecoms & electronics 22

2 Pharmaceuticals & ﬁne chemicals 6

4 Other

I
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d
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s
t
r
i
a
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C
o
n
t
r
o
l
s

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Financial Review

“ Despite the LFL sales decline,
we kept good control of our
overhead costs. Cash conversion
was strong and we maintain
a robust balance sheet.”

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

Operating performance

Adjusted

Sales (£m)

Operating profit (£m)

Operating margin (%)

Reported

Sales (£m)

Operating profit (£m)

Operating margin (%)

1 At constant exchange rates and excluding acquisitions.

Reported sales increased by 13.1% to £1,345.8 million
(2015: £1,190.0 million). The year-on-year contribution to sales
from acquisitions was £36.7 million (+3.1%), and favourable
foreign exchange movements were £141.1 million (+11.9%)
arising from the weakness of Sterling against all major
currencies, with the result that, on a constant currency
like-for-like (‘LFL’) basis, sales decreased by £22.0 million
(-1.9%) compared with 2015, as shown in the chart below.

Reported sales bridge
(£m)

1,400

1,300

1,200

1,190.0

36.7

141.1

(22.0)

1,345.8

1,100

2015

Acquisitions

Foreign
exchange

LFL

2016

Clive Watson
Group Finance Director

trading performance of the businesses. Adjusted figures exclude
certain non-operational items which management has defined
in Note 2 to the Financial Statements.

Like-for-like
change1

-1.9%

-6.2%

-0.7pp

2016

2015

Change

1,345.8

1,190.0

200.8

14.9

181.1

15.2

1,345.8

1,190.0

38.3

2.8

143.6

12.1

+13.1%

+10.9%

-0.3pp

+13.1%

-73.3%

-9.3pp

Reported gross margins of 56.5% of sales were 0.9 percentage
points (‘pp’) lower than the prior year (57.4%). Excluding the
dilutive effect of foreign exchange movements (+0.3pp) and the
accretive effect of acquisitions (-0.3pp), LFL gross margins also
decreased by 0.9pp. LFL gross margins improved in the Materials
Analysis and Test and Measurement segments, and were flat
year-on-year in the In-line Instrumentation segment. In Industrial
Controls, there was a significant weakening of the gross margin
in the Omega Engineering (‘Omega’) business, which accounted
for approximately 0.7pp of the decline in the Group’s LFL gross
margin. Trading performance for Omega in 2016 was impacted
by weak demand and negative operating leverage from the
LFL sales decline in its primary North American market (72%
of sales), that was partly due to continuing weakness in US
industrial production, but also internal factors. These factors
stem from the ERP implementation, due to the lack of adequate
processes, compounded by the closure of the Connecticut
warehousing operation, resulting in inventory adjustments and
higher labour costs, all impacting gross margin and profitability.
A new management team was appointed in 2016 tasked with
remedying the operational issues and improving profitability
which will require additional investment.

Strategic ReportTo mitigate the effects of the low growth environment and
challenging trading conditions seen, particularly in North America,
initiatives were put in place at the start of the year to better align
LFL cost growth with LFL sales growth, with a focus on
operational excellence and cost control. It is worth highlighting
that even though there was no sales growth, LFL net overhead
costs fell by 2.4% compared to the LFL sales decline of 1.9%
and LFL total costs including the Omega one-offs fell by 1.1%.

We have continued to invest in our R&D programmes, with
an R&D expense for 2016 of £98.6 million or 7.3% of sales
(2015: £88.8m, 7.5%), which is flat LFL year-on-year.

During 2016, operating profit was impacted by a number of
one-off items totalling a net £7 million expense. This primarily
related to £9 million of inventory adjustments within Omega,
Project Uplift costs of £3 million, offset by a profit of £2 million
arising from the sale of a property in the UK within the Industrial
Controls segment and the release of specific legal risk provisions.

The net benefit arising in 2016 from the targeted restructuring
programmes undertaken in 2015 amounted to £11.7 million
(2015: net cost £3.0 million), partially offset by further
restructuring activity undertaken by three operating companies
in 2016 at a net cost of £1.1 million, resulting in a net
year-on-year positive impact of £13.6 million. The annualised
benefit in 2017 arising from the 2016 restructuring programme
is anticipated to be approximately £3 million.

As shown in the chart below, adjusted operating profit
increased by 10.9% from £181.1 million to £200.8 million in
2016. Acquisitions contributed £8.3 million (+4.6%) to operating
profit and foreign currency exchange movements contributed
£22.6 million (+12.5%), with the result that LFL adjusted
operating profit declined by £11.2 million (-6.2%) for the year.
The reported operating margin decreased by 0.3pp to 14.9% in
2016, and by 0.7pp on a LFL basis.

Adjusted operating profit bridge
(£m)

22.6

(23.3)

12.1

200.8

220

210

200

190

180

170

8.3

181.1

2015

Acquisitions

Foreign
exchange

Gross
margin

Overheads

2016

Included within statutory operating profit is an impairment
charge of £115.3 million (2015: £1.6 million) relating to goodwill
and other acquisition-related intangible assets, of which
£94.4 million relates to Omega and £20.9 million to ESG Solutions
(‘ESG’). The impairment charge for Omega is a consequence
of the 2016 performance and lower projected cash flows. This

has resulted in a reassessment of Omega’s expected future
business performance in light of the trading environment and
the actions and time required to improve profitability and
operational efficiency. For ESG, the impairment charge is due
to the continuing difficult external market conditions caused
by low global oil and gas prices, which has adversely impacted
demand from ESG’s customers for its products and services.

Adjusted net finance costs for the year increased by £0.2 million
to £5.0 million (2015: £4.8 million) as a result of higher net debt
levels, primarily due to the £166.3 million spent on acquisitions
during the year. Operating cash generation during the year
continued to be strong with an adjusted operating cash flow
conversion rate of 113% compared with 91% in 2015, primarily
due to lower LFL inventory levels.

Adjusted profit before tax increased by 11.1% from
£176.3 million to £195.8 million.

Reported operating profit, after including impairment of
goodwill and other acquisition-related intangibles of
£115.3 million (2015: £1.6 million), acquisition-related intangible
asset amortisation of £36.9 million (2015: £33.0 million),
net acquisition-related costs and fair value adjustments of
£10.1 million (2015: £2.9 million) and depreciation of
acquisition-related fair value adjustments to tangible assets
of £0.2 million (2015: £nil) decreased by 73.3% from
£143.6 million to £38.3 million. Reported profit before
tax decreased by 77.5% from £141.6 million in 2015 to
£31.9 million in 2016.

Acquisitions
The Group completed six acquisitions during the year.
The total cost of acquisitions in the year was £174.2 million
(2015: £45.0 million), including £6.9 million (2015: £2.7 million)
for cash acquired. Included in the total cost of acquisitions is an
amount of £7.6 million (2015: £2.7 million) attributable to the
fair value of net deferred and contingent consideration which
is expected to be paid in future years. A net £1.2 million
(2015: £0.5 million) was paid in respect of prior year acquisitions,
making the net cash outflow in the year £160.9 million
(2015: £40.1 million). Furthermore, an amount of £5.4 million
(2015: £3.9 million) was spent on acquisition-related legal and
professional fees, which makes the total acquisition-related
cash outflow for the year £166.3 million (2015: £44.0 million).
Acquisitions contributed £36.7 million (2015: £36.1 million) of
incremental sales and £8.3 million (2015: £5.2 million) of
incremental operating profit during the year.

Taxation
The effective tax rate on adjusted profit before tax was 22.4%
(2015: 22.8%), a decrease of 0.4pp primarily due to a reduction
in the weighted average statutory tax rate arising from a change
in the geographic mix of pre-tax profits. On a statutory basis,
the effective tax rate of 67.7% (2015: 19.6%) was above the
weighted average statutory tax rate of -13.8% (2015: 25.4%),
primarily as a result of the non-deductibility of the impairment
of goodwill and other acquisition-related intangibles.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial Statements
Financial Review continued

The reconciliation of reported and adjusted measures is shown
in the table below.

Sales
Gross margin
Operating profit before
acquisition-related items
Impairment of goodwill and other
acquisition-related intangible assets
Amortisation and impairment of
acquisition-related intangibles
Net acquisition-related costs and fair
value adjustments
Depreciation of acquisition-related fair
value adjustments to tangible assets
Operating profit
Net (loss)/gain 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 cost
Other finance costs
Profit before tax

IFRS
(Reported)

£m

1,345.8
760.5

200.8

Adjustments
£m

–
–

–

(115.3)

115.3

(36.9)

(10.1)

(0.2)
38.3

(0.8)
(4.6)

(0.6)
(0.3)
(0.1)
31.9

36.9

10.1

0.2
162.5

0.8
–

0.6
–
–
163.9

2016
Spectris
adjusted
£m

1,345.8
760.5

IFRS
(Reported)

£m

1,190.0
683.1

200.8

181.1

–

–
200.8

–
(4.6)

–
(0.3)
(0.1)
195.8

(1.6)

(33.0)

(2.9)

–
143.6

3.0
(4.6)

(0.2)
(0.1)
(0.1)
141.6

Adjustments
£m

–
–

–

1.6

33.0

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)
176.3

Earnings per share
Adjusted earnings per share increased by 11.5% from 114.3p
to 127.5p, reflecting the net impact of the 11.1% increase in
adjusted profit before tax, the reduction in the effective tax rate
and the increase in the weighted average number of shares from
119.0 million in 2015 to 119.1 million in 2016.

Reported basic earnings per share decreased by 91.0% from
95.6p to 8.6p, with the difference between the two measures
shown in the table below. Excluding the £115.3 million
impairment charge, reported basic earnings per share would
have increased by 10.3% to 105.4p in 2016.

Reported basic earnings per share

Impairment of goodwill and other acquisition-related intangible assets

Amortisation and impairment of acquisition-related intangible assets

Net acquisition-related costs and fair value adjustments

Depreciation of acquisition-related fair value adjustments to tangible assets

Net loss/(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

Adjusted operating profit

Adjusted depreciation and software amortisation

Working capital and other movements

Capital expenditure

Adjusted operating cash flow

Adjusted operating cash flow conversion

2016
Pence

8.6

96.8

31.0

8.5

0.2

0.7

0.5
(18.8)
127.5

2016
£m

200.8

28.3

27.4

(28.7)

227.8

113%

2015
Pence

95.6

1.3

27.8

2.4

–

(2.5)

0.2
(10.5)
114.3

2015
£m

181.1

24.4

(13.8)

(26.0)

165.7

91%

Strategic ReportNon-operating cash flow

Tax paid

Net interest paid

Dividends paid

Acquisition of businesses, net of cash

Acquisition-related costs paid

Foreign exchange

Exercise of share options

Total non-operating cash flow

Adjusted operating cash flow

(Increase)/decrease in net debt

The year-end trade working capital to sales ratio decreased
from 16.6% in 2015 to 15.9% in 2016, a 0.7pp decrease.
Average trade working capital, expressed as a percentage of
sales, decreased to 14.2% (2015: 15.4%), a 1.2pp decrease.
Excluding acquisitions and foreign exchange, the LFL reduction
in average trade working capital was 0.9pp, with the
improvement primarily arising within the Materials Analysis
segment due to reduced trade receivables from strong cash
collections and improved inventory management.

Capital expenditure during the year equated to 2.1% of sales
(2015: 2.2%) and, at £28.7 million (2015: £26.0 million), was
101% of depreciation and software amortisation (2015: 107%),
primarily due to ongoing investments in property and
infrastructure in Europe and North America, and automotive
testing cells within the recently-acquired Millbrook business.

Overall, net debt increased by £52.3 million (2015: decrease of
£27.0 million) from £98.6 million to £150.9 million. Adjusted
interest costs, excluding the financing charge arising from
IAS 19 (Revised) and other finance costs, were covered by
adjusted operating profit 43.7 times (2015: 39.4 times).

Dividends
The Board is proposing to pay a final dividend of 34.0 pence
per share which, combined with the interim dividend of
18.0 pence per share, gives a total dividend of 52.0 pence per
share for the year, an increase of 5%. The dividend is covered
2.5 times by adjusted earnings and is consistent with our policy
of making progressive dividend payments, based upon
affordability and sustainability. In determining the level of
dividend in any year, the Board considers a number of factors
that influence the proposed dividend, including the level of
distributable reserves in the Parent Company, future cash
commitments and investment needs to sustain the long-term
growth prospects of the Group and the level of dividend cover.

Financing and treasury
The Group finances its operations from both retained earnings
and third-party borrowings, with the majority of the year-end
gross debt balance being at fixed rates of interest.

As at 31 December 2016, the Group had £628.1 million
of committed facilities denominated in different currencies,
consisting of a five-year $550 million (£447.0 million) revolving
credit facility maturing in October 2019, a seven-year
€94.8 million (£81.4 million) term loan maturing in October
2020, and a seven-year €116.2 million (£99.7 million) term loan

USD

EUR

JPY

CHF

2016
£m

(29.8)

(4.1)

(59.8)

(160.9)

(5.4)

(20.3)

0.2

(280.1)

227.8

(52.3)

2015
£m

(33.5)

(4.5)

(56.9)

(40.1)

(3.9)

(0.1)

0.3

(138.7)

165.7

27.0

maturing in September 2022. £406.0 million of the revolving
credit facility was undrawn at the year end. In addition,
the Group had a year-end cash balance of £83.5 million,
bank overdrafts of £12.3 million and various uncommitted
facilities available.

At the year end, the Group’s borrowings amounted to
£234.4 million, 77% of which was at fixed interest rates
(2015: 99%). The ageing profile at the year end showed that
5% (2015: 1%) of year-end borrowings is due to mature within
one year, 52% between two and five years (2015: 44%) and
43% in more than five years (2015: 55%).

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 receivables, trade
payables 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 of the remaining forecast net transaction
flows where there is reasonable certainty of an exposure.
At 31 December 2016, approximately 73% of the estimated net
Euro, US Dollar and Japanese Yen exposures for 2017 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 2016 and
2015. During the year, the translational foreign exchange gain
on operating profit of £22.6 million, arising from the weakness
of Sterling, was offset by a transactional foreign exchange loss
of £7.8 million (2015: £0.3 million loss).

2016
(average)

2015
(average)

1.35

1.22

147

1.33

1.53

1.38

185

1.47

Change

-11%

-20%

-9%

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsRisk Management

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.

Committed to managing risk effectively
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 page 70.

During the year, we have made further enhancements to this
process, including establishing a risk appetite evaluation for
each of the Group’s principal 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 pages 6 and 7.

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
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 ensures that
risk management is embedded in day-to-day management
processes and decision-making as well as in the annual strategic
planning cycle.

Directors
In addition, the Executive Committee 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 and
mitigating these. These key Group risks are analysed against a
‘lines of defence’ framework which involves mapping the
principal Group risks to:

• 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 identifying sources of assurance over

the effectiveness of risk management activity.

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.

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 2015, we provide
an update on how these risks, and our ability to respond to
and manage them, have changed during the year. During the
year, a formal evaluation of the Group’s risk appetite has been
completed in respect of each of the Group’s principal risks and
the results are also included in the descriptions that follow.

In focus
Intellectual property (competitor
monitoring and freedom to
operate processes)

Malvern uses its intellectual property (‘IP‘) risk management
process to acquire market intelligence and identify valuable
technology development trends. This is vital in a crowded
sector with a rapidly-evolving patent landscape. Malvern’s
patent monitoring enables it to challenge and contain
competitor rights to safeguard its own market space. The
monitoring also provides insights into competitor R&D
strategy. Malvern has embedded focused searches for
relevant third-party intellectual property rights within its
new product development process. This allows it to adapt
designs early in their development to avoid infringement
and minimise cost impact for products such as the
Mastersizer 3000, shown here.

Strategic ReportHOW THE GROUP MANAGES RISK

Business units

First line

Key Group functions/programmes

Executive

Second line

Independent assurance

Third line

Audit and Risk Committee

Board

First line of defence

Second line of defence

Third line of defence

Overall responsibility

• Business units

• Key Group functions/

• Independent assurance

programmes

• Executive Directors

• Audit and Risk Committee
• Board

• Day-to-day ownership
of risk management.

• Shaping policy and control

• Assurance over the

• Determining the Group’s

framework.

• Monitoring and oversight
of risk management by
business units.

• Evaluation of risks impacting

the Group as a whole.

effectiveness of the internal
control and risk management
framework.

risk appetite.

• Oversight of the Group’s
internal control and risk
management framework.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsPrincipal Risks and Uncertainties

Risk description

New product development

Potential impact and mitigation

priority

appetite

Assessment 2016 update

Link to

strategic

Risk

Change

in risk

level

Moderate

• Strategy reviews are conducted at least annually with each

• These reviews often result in targeted investment in new product

platforms, upgrades to existing products and services and bolt-on

operating business.

acquisitions.

• In 2016, several important new products were launched and new

technologies and products acquired across all four segments, along

with many more acquisition ideas.

Very low

• During the year, we continued a programme of intellectual

property audits and took steps to further streamline management

of registered intellectual property through engaging a centralised

trademark renewals service to provide greater transparency of

IP management and value.

The development of new technologies and products necessarily
involves risk, including:

• the product being more expensive or taking longer to develop

than originally planned;

Impact:
• Reduced profitability and cash flow.
• Loss of market share.
• Failure to recoup investment in innovation.

• the product failing to reach the commercialisation phase; and
• the market for the product being smaller than originally

Mitigation:
• Regular strategic evaluations of product portfolios and the

envisaged.

Intellectual property

Our business is focused 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.

markets in which we compete, ensuring that our
investment in new products is targeted 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.

Impact:
• Reduced profitability and cash flow.
• Loss of market share.
• Failure to recoup investment in innovation.

Mitigation:
• Policies and procedures in place requiring 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.

Key to risk appetite

Very low
Preference for ultra-safe strategic options that have a
minimal degree of net risk but with limited potential
for reward.

Low
Prepared to consider a range of options known to
result in a low level of net risk.

Moderate
Open to all potential options whilst inclined to choose
the one most likely to result in successful delivery and
an acceptable level of reward/value for money.

High
Eager to be innovative and choose options offering
potentially higher business rewards but presenting
greater net risk.

Very high
Actively seeks new and innovative opportunities in
pursuit of a high risk/return potential, even where
no track record is obvious.

Strategic Report

Risk description

New product development

involves risk, including:

The development of new technologies and products necessarily

Impact:

• the product being more expensive or taking longer to develop

than originally planned;

• the product failing to reach the commercialisation phase; and

Mitigation:

Potential impact and mitigation

• Reduced profitability and cash flow.

• Loss of market share.

• Failure to recoup investment in innovation.

• the market for the product being smaller than originally

• Regular strategic evaluations of product portfolios and the

envisaged.

Intellectual property

Our business is focused on the design and manufacture

Impact:

of technologically-advanced products and applications.

• Reduced profitability and cash flow.

As a consequence, we own and protect patents, trademarks,

• Loss of market share.

trade secrets, confidential information and copyright as well

• Failure to recoup investment in innovation.

as exploiting intellectual property through licensing.

Mitigation:

The risk therefore exists that our intellectual property may be

• Policies and procedures in place requiring all of our

infringed by third parties or that we may inadvertently infringe

businesses to:

third-party rights.

markets in which we compete, ensuring that our

investment in new products is targeted 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.

– 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.

Link to
strategic
priority

Risk
appetite

Assessment 2016 update

Change
in risk
level

Moderate

• Strategy reviews are conducted at least annually with each

operating business.

• These reviews often result in targeted investment in new product
platforms, upgrades to existing products and services and bolt-on
acquisitions.

• In 2016, several important new products were launched and new

technologies and products acquired across all four segments, along
with many more acquisition ideas.

Very low

• During the year, we continued a programme of intellectual

property audits and took steps to further streamline management
of registered intellectual property through engaging a centralised
trademark renewals service to provide greater transparency of
IP management and value.

Key to strategic priorities

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

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Principal Risks and Uncertainties continued

Risk description

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.

Political and economic risks

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.

Potential impact and mitigation

priority

appetite

Assessment 2016 update

Link to

strategic

Risk

Change

in risk

level

Impact:
• Reduced sales, profitability and cash flow.
• Reputational damage.
• Diversion of management resources to address any

resulting investigation.

• Inability to attract and retain talent.

Mitigation:
• Strong culture, internal control framework and policies.
• Ethics training provided to all employees.
• Formal export controls compliance procedures in place,
including strict product classification and transaction
screening protocols.

Impact:
• Reduced profitability and cash flow.

Mitigation:
• 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.

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.

Impact:
• Failure to achieve the benefits outlined in the business case.
• Reduced profitability and cash flow.
• Unforeseen liabilities.

Mitigation:
• 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.
• Regular review of the acquired businesses against the

business case.

• Post-acquisition control reviews.

Low

• The Group continued to take a number of actions aimed at further

mitigating this risk. These included anti-bribery and corruption

compliance audits across 13 of our 14 operating companies, ongoing

third-party due diligence reviews including training webinars for

relationship owners and reviewers, roll-out of a Code of Business

Ethics e-learning module to all employees, and ethics and

compliance integration at Millbrook.

• 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 50 to 52.

Moderate

• The Group’s balanced geographical mix, with similar exposure to North

America, Europe and Asia/Rest of the world, enabled it to partly mitigate

the effects of a weak North American manufacturing economy via robust

growth in Asia; 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.

• The Group continues to monitor and control its exposure to those

countries where continuing economic uncertainties exist and, in

particular, we are evaluating carefully the implications for the Group

arising from the result of the last year’s UK referendum in which the

public voted to leave the European Union (‘Brexit’).

• As far as potential trading exposures are concerned, exports from the UK

into the European Union represent less than 3% of Group sales, whilst

imports into the UK from the European Union represent less than 1%

of Group sales. Our cost base in the UK is largely Sterling denominated.

• As a consequence, we believe that Brexit presents only limited short-term

direct impact for the Group. The main near-term risk for the Group

arising from Brexit stems from broader uncertainty which could inhibit

investment and increase market volatility, ultimately hindering growth in

the UK and beyond. A Brexit Risk Committee has been established and

the Group will continue to monitor carefully any additional exposure

arising as the full implications of Brexit become clearer.

Low

• There continued to be a healthy level of acquisition activity in our

marketplace. We participated in this activity, making one platform

and five further 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.

Strategic Report

Potential impact and mitigation

Link to
strategic
priority

Risk
appetite

Assessment 2016 update

Change
in risk
level

We operate in a large number of jurisdictions and, consequently,

Impact:

are subject to numerous domestic and international regulations

• Reduced sales, profitability and cash flow.

Low

• The Group continued to take a number of actions aimed at further
mitigating this risk. These included anti-bribery and corruption
compliance audits across 13 of our 14 operating companies, ongoing
third-party due diligence reviews including training webinars for
relationship owners and reviewers, roll-out of a Code of Business
Ethics e-learning module to all employees, and ethics and
compliance integration at Millbrook.

• 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 50 to 52.

Risk description

Laws and 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

• Reputational damage.

• Diversion of management resources to address any

resulting investigation.

• Inability to attract and retain talent.

disqualification of the Group from participation in government-

Mitigation:

related contracts for a period of time. In the event of a failure to

• Strong culture, internal control framework and policies.

comply with export control regulations, the Group could also be

• Ethics training provided to all employees.

exposed to restrictions being placed upon its ability to trade.

• Formal export controls compliance procedures in place,

including strict product classification and transaction

screening protocols.

Political and economic risks

We operate in a range of end-user markets around the world

Impact:

and may be affected by political, economic or regulatory

• Reduced profitability and cash flow.

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.

Mitigation:

• 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.

Moderate

• The Group’s balanced geographical mix, with similar exposure to North

Acquisitions

Integration of the operations and personnel of acquired

Impact:

businesses can be a complex process. Potential risks therefore

• Failure to achieve the benefits outlined in the business case.

exist that the planned benefits from the acquisition may not be

• Reduced profitability and cash flow.

achieved as a result of problems encountered during integration

• Unforeseen liabilities.

Low

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.

Mitigation:

• 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.

business case.

• Post-acquisition control reviews.

• Regular review of the acquired businesses against the

America, Europe and Asia/Rest of the world, enabled it to partly mitigate
the effects of a weak North American manufacturing economy via robust
growth in Asia; 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.
• The Group continues to monitor and control its exposure to those
countries where continuing economic uncertainties exist and, in
particular, we are evaluating carefully the implications for the Group
arising from the result of the last year’s UK referendum in which the
public voted to leave the European Union (‘Brexit’).

• As far as potential trading exposures are concerned, exports from the UK
into the European Union represent less than 3% of Group sales, whilst
imports into the UK from the European Union represent less than 1%
of Group sales. Our cost base in the UK is largely Sterling denominated.
• As a consequence, we believe that Brexit presents only limited short-term

direct impact for the Group. The main near-term risk for the Group
arising from Brexit stems from broader uncertainty which could inhibit
investment and increase market volatility, ultimately hindering growth in
the UK and beyond. A Brexit Risk Committee has been established and
the Group will continue to monitor carefully any additional exposure
arising as the full implications of Brexit become clearer.

• There continued to be a healthy level of acquisition activity in our
marketplace. We participated in this activity, making one platform
and five further 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.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Principal Risks and Uncertainties continued

Risk description

Competitive activity

Potential impact and mitigation

priority

appetite

Assessment 2016 update

Link to

strategic

Risk

Change

in risk

level

The nature of the markets in which we operate means that all
of our businesses are exposed to risk from competitor activity.

Impact:
• Loss of market share.
• Reduced profitability and cash flow.

Mitigation:
• 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.

Impact:
• Unexpected variations in the Company’s results.
• Reduced profitability and cash flow.

Mitigation:
• 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.

Impact:
• Inability to fulfil customer orders, resulting in lost sales and

reputational damage.

• Increased costs reduce profitability.
• Loss of market share.

Mitigation:
• 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.

Fluctuations in exchange rates

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.

Supply chain dependencies and disruption

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.

Very low

• We maintained high levels of investment in R&D, investing 7.3% 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.

Moderate

• The significant weakening of Sterling relative to most other

currencies, largely as a result of the UK’s referendum decision

to exit the EU, had a positive impact on our reported results

from a translational perspective. This contrasts with the negative

translational impact in 2015.

• Our hedging policy continued to provide certainty and reduce

volatility to the Group‘s cash flows.

Low

• 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.

• Intellectual property audits initiated at key suppliers.

• Focus on critical suppliers based on specialist independent

spend analysis.

• Ongoing supply chain risk management software evaluation.

• Underpinning of indirect spend afforded via Project Uplift.

Strategic Report

Risk description

Competitive activity

Potential impact and mitigation

The nature of the markets in which we operate means that all

Impact:

of our businesses are exposed to risk from competitor activity.

• Loss of market share.

Fluctuations in exchange rates

We have operations which sell and purchase goods in foreign

Impact:

currencies and whose results we record in a variety of different

• Unexpected variations in the Company’s results.

currencies. We are therefore exposed to any significant changes

• Reduced profitability and cash flow.

in exchange rates between a variety of currencies.

• Reduced profitability and cash flow.

Mitigation:

• 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.

Mitigation:

• 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.

Supply chain dependencies and disruption

We are exposed to the risk that some of the components we

Impact:

source, particularly for custom-built items or ageing products,

• Inability to fulfil customer orders, resulting in lost sales and

are provided by a single supplier and are therefore vulnerable

reputational damage.

to interruption of supply.

• Increased costs reduce profitability.

• Loss of market share.

Our businesses also manufacture components using proprietary

technologies at a number of locations.

Mitigation:

Our ability to supply products to customers could be adversely

impacted by a disaster or other disruptive event at any of

these sites.

• 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.

Link to
strategic
priority

Risk
appetite

Assessment 2016 update

Change
in risk
level

Very low

• We maintained high levels of investment in R&D, investing 7.3% 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.

Moderate

• The significant weakening of Sterling relative to most other

currencies, largely as a result of the UK’s referendum decision
to exit the EU, had a positive impact on our reported results
from a translational perspective. This contrasts with the negative
translational impact in 2015.

• Our hedging policy continued to provide certainty and reduce

volatility to the Group‘s cash flows.

Low

• 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.

• Intellectual property audits initiated at key suppliers.
• Focus on critical suppliers based on specialist independent

spend analysis.

• Ongoing supply chain risk management software evaluation.
• Underpinning of indirect spend afforded via Project Uplift.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Principal Risks and Uncertainties continued

Potential impact and mitigation

priority

appetite

Assessment 2016 update

Link to

strategic

Risk

Change

in risk

level

Impact:
• Loss of sensitive 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.

Mitigation:
• Our businesses employ a number of 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 focusing 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.

Impact:
• Failure to realise the Group’s plans for enhanced efficiency

and profitability.

• Failure to realise the Group’s growth plans.
• Reduced profitability and cash flow.

Mitigation:
• Programme management disciplines, including a dedicated

programme management office.

• Independent assurance.
• Talent management programme.
• Dashboard reporting against key growth initiatives.
• A measured approach over time is being targeted,

rather than a radical change.

• Enhanced risk management and reporting.

Low

• Further progress was made with our information security

programme.

• An all-employee information security knowledge repository web

portal was launched during the year which identifies and highlights

the key risks and controls to guard against the ‘insider threat’ and to

increase overall employee awareness of information security.

• A global data privacy review ahead of the forthcoming EU General

Data Protection Regulation was undertaken during the year using

external advisers with new policy/governance integrating information

security and data protection being rolled out.

• A supply chain information security audit of one of the Group’s

largest contract manufacturers was undertaken using an external

adviser accompanied by internal audit, with the resultant

recommendations being addressed.

Low

During 2016, we continued to make good strategic progress,

transitioning our customer offering towards the provision of solutions

encompassing hardware, software and services. Six acquisitions were

completed, adding further software, service and testing capability.

The acquisition of Millbrook is an important addition to our portfolio

of a high-quality automotive test service platform.

Similarly, good progress has been made in respect of Project Uplift

where a dedicated programme management office has been

established, a detailed diagnostic and planning phase completed

and a series of actionable plans created, with implementation of

these beginning in 2017.

Risk description

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.

Strategy execution

The Group’s strategic priorities are set out on page 6.

The Group considers that, as with any undertaking of this kind,
there is necessarily inherent risk associated with the successful
execution and delivery of the Group’s strategic priorities.

The risks associated with some of the Group’s strategic priorities
are addressed in their own right – for example, how we develop
new products and how we acquire other businesses.

Other relevant components of the Group’s strategy concern:

• 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; and
• during the year, the Group launched a comprehensive Group-

wide productivity improvement programme, Project Uplift. Over
the medium term, this programme will deliver improvements in
productivity, both within and across our operating companies,
reducing complexity where appropriate whilst preserving the
entrepreneurial culture of our businesses. We will also evaluate
potential structural improvements that can leverage Spectris’
scale and optimise both efficiency and effectiveness.

Strategic Report

Risk description

Information security

Potential impact and mitigation

As with most organisations of a similar size and complexity,

Impact:

our businesses face both internal and external information

• Loss of sensitive information/data which could put the

security risks, the nature and complexity of which are

businesses at a serious competitive disadvantage relative

constantly changing.

to their competitors.

• Being subject to a malicious attack causing system failure,

data corruption or loss, or theft of commercial or sensitive

information/data.

Mitigation:

• Our businesses employ a number of 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 focusing 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.

Strategy execution

The Group’s strategic priorities are set out on page 6.

Impact:

The Group considers that, as with any undertaking of this kind,

there is necessarily inherent risk associated with the successful

execution and delivery of the Group’s strategic priorities.

• Failure to realise the Group’s plans for enhanced efficiency

and profitability.

• Failure to realise the Group’s growth plans.

• Reduced profitability and cash flow.

The risks associated with some of the Group’s strategic priorities

are addressed in their own right – for example, how we develop

Mitigation:

new products and how we acquire other businesses.

• Programme management disciplines, including a dedicated

programme management office.

Other relevant components of the Group’s strategy concern:

• Independent assurance.

• Talent management programme.

• Dashboard reporting against key growth initiatives.

• A measured approach over time is being targeted,

rather than a radical change.

• Enhanced risk management and reporting.

• 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; and

• during the year, the Group launched a comprehensive Group-

wide productivity improvement programme, Project Uplift. Over

the medium term, this programme will deliver improvements in

productivity, both within and across our operating companies,

reducing complexity where appropriate whilst preserving the

entrepreneurial culture of our businesses. We will also evaluate

potential structural improvements that can leverage Spectris’

scale and optimise both efficiency and effectiveness.

Link to
strategic
priority

Risk
appetite

Assessment 2016 update

Change
in risk
level

Low

• Further progress was made with our information security

programme.

• An all-employee information security knowledge repository web

portal was launched during the year which identifies and highlights
the key risks and controls to guard against the ‘insider threat’ and to
increase overall employee awareness of information security.

• A global data privacy review ahead of the forthcoming EU General
Data Protection Regulation was undertaken during the year using
external advisers with new policy/governance integrating information
security and data protection being rolled out.

• A supply chain information security audit of one of the Group’s

largest contract manufacturers was undertaken using an external
adviser accompanied by internal audit, with the resultant
recommendations being addressed.

Low

During 2016, we continued to make good strategic progress,
transitioning our customer offering towards the provision of solutions
encompassing hardware, software and services. Six acquisitions were
completed, adding further software, service and testing capability.
The acquisition of Millbrook is an important addition to our portfolio
of a high-quality automotive test service platform.

Similarly, good progress has been made in respect of Project Uplift
where a dedicated programme management office has been
established, a detailed diagnostic and planning phase completed
and a series of actionable plans created, with implementation of
these beginning in 2017.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

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 32 to 39.

The Directors have determined that a three-year period to
31 December 2019 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. Each of
the Group’s businesses has established growth targets through
to 2020. A dashboard reporting process provides visibility of
progress against relevant strategic initiatives which underpin
the targeted 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 30 to 39.

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. 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 focused on for enhanced
analysis including stress testing: political and economic; 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 2019.

Strategic ReportSustainability Report

Sustainability lies at the heart
of our business decision-making.

2016 highlights

Increased number of operations achieve
certification to ISO 14001 and OHSAS 18001.

HBM acquires ISO 5001 energy
management certification.

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.

Acquisition of Millbrook adds new products
and services for vehicle emissions testing.

Environmental aims

Continued working with leading suppliers
in high risk areas, with particular emphasis
on anti-slavery and human trafficking.

Develop new products which can be manufactured and
operated in the most environmentally-efficient way possible.

Reduce energy usage and minimise waste.

Report externally on our environmental initiatives
and progress.

Group Human Resources Director appointed
with specific responsibility for diversity and
talent development.

Social aims

Ensure that our workplaces are safe.

Create a culture that attracts and retains talent
and values diversity.

Adopt values consistent with an ethical approach
to responsible business.

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.

Foundations for sustainable growth
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
and enables 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).

The Company Secretary has overall responsibility for
sustainability matters. The operating company Presidents are
responsible for taking actions within their operations in support
of the Company’s sustainability aims. Developments, including
risks and opportunities, are reviewed annually by the Board
within the context of the overall Group strategy.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial Statements

Sustainability Report continued

Opportunities and risks
We have identified the key opportunities and risks to our
sustainability aims and these are set out below.

Economic aims

Opportunities

Impact of climate change on the environment leads
customers to seek more efficient use of resources.

Increasing spend on energy 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.

Regulatory pressures such as carbon taxes, landfill taxes,
disposal of harmful substances and limits on vehicle/
industrial emissions mean customers need products and
systems to demonstrate compliance.

Risks

Extreme changes to weather patterns, for example water
shortages or flooding of premises, could interrupt production
processes for Spectris companies or their suppliers.

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 or safety risks if not
handled correctly.

The introduction of new or stricter carbon taxes in any
location may increase operating costs.

Loss of key employees or insufficient spend on new product
development projects may delay product launches.

Having operations in many developing areas of the world
presents ethical risks resulting from different perceptions
of the way business may be conducted.

These opportunities are described in more detail on the
following pages. Our process for managing potential risks and
uncertainties, together with mitigating actions, is outlined on
pages 30 to 39.

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.

Our economic success is underpinned by good corporate
governance, strong ethical behaviour and sound risk
management. You can read more about our approach to
governance on pages 53 to 94, our values on page 45
and our risk management process on pages 30 and 31.

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 and carbide-coated 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. The case study opposite
shows how we have designed a new instrument which uses a solar
panel for continuous operation when out in the field.

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. Around
the world, our carbon management service is helping airports to
accurately measure and understand the carbon emissions from their
operations. Our technology is also being used in the automotive
industry to design and test electric and hybrid vehicles and to
develop more fuel-efficient engines which will emit fewer
particulates, and we offer independent testing facilities for
measuring vehicle emissions and fuel consumption.

Strategic ReportIn focus
Remote noise monitoring

Environmental aims

As well as helping our customers to reduce their impact on the
environment, this 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. The following table summarises our performance.

Real-time noise monitoring is often required when planning
new developments or demonstrating compliance with noise
regulations in urban and industrial areas. These assessments
require sound levels to be measured continuously over long
periods of time in order to determine environmental
impact. In 2016, Brüel & Kjær Sound & Vibration launched
a new noise monitoring terminal, the Noise Logger, which
records continuous noise measurements. A solar panel,
battery and large memory card enable the equipment to
be operated remotely, thus reducing costly site visits to
change batteries.

Supporting renewables
We have world-leading expertise in providing solutions for customers
involved in renewable energy generation in the following areas:

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.

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.

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.

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.

Performance summary

Energy consumption
(absolute) (MWh)

Energy efficiency (MWh per
£m revenue)

2016

2015

Change

90,132

89,030

+1%

Water consumption (m3)

165,054

162,325

68.3

75.6

-10%

+2%

Greenhouse gas emissions
(tonnes CO2e)

Total carbon emissions per
£m revenue

75,144

73,324

+2%

56.97

62.25

-8%

Excluding acquisitions and disposals made in the year.

Although our use of water is not material, we are conscious
of growing concern about the availability of fresh water and
the increase in some areas of shortages and droughts due to
changing weather patterns and the impact this may have on
business. For this reason, we monitor water consumption carefully
throughout the Group and endeavour to reduce our usage
wherever possible. We are also helping our customers to improve
water purification systems to make fresh water available more
easily and cost-effectively. The case study on page 44 shows one
project we are involved in with a water treatment company.

Greenhouse gas emissions (tonnes CO2e)

Scope 1

Scope 2

Scope 3

Total gross emissions

Total carbon emissions per £m revenue

2016

10,714

35,291

29,139

75,144

56.97

2015

11,021

35,470

26,833

73,324

62.25

Notes
• 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.

• 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 2016
DEFRA/DECC Guidelines for Company Reporting and OECD/IEA Emissions
from Fuel Combustion.

• Our reporting processes, and the above data derived from them, are verified

by Lloyd’s Register Quality Assurance.

• Excluding acquisitions and disposals made in the year.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsSustainability Report continued

Overall CO2 emissions in absolute terms are slightly higher,
due to increased business activity during the year and the
impact from acquisitions made in 2015, but internal efficiencies
and higher sales have resulted in total carbon emissions per
£m revenue decreasing by 8%.

In January 2016, the GHG Protocol released the Scope 2
Guidance: an amendment to the Corporate Standard. Currently,
all Scope 2 emissions by Spectris Group are calculated using the
‘location-based’ method. The Guidance suggests that companies
may use source or supplier-specific emission factors, known as
the ‘market-based’ method. This method requires companies to
use specific emission factors or fuel mix information (i.e. the
sources used to generate the electricity) from their electricity
suppliers. Spectris has engaged with UK electricity suppliers to
begin gathering this data as part of our continuous improvement
to greenhouse gas reporting and we are looking at the feasibility
of obtaining this information for our worldwide operations.

In the meantime, we have calculated Spectris UK-based
companies’ emissions using both methods for 2016. Using
the market-based calculation, UK emissions from electricity
use would be 39% lower. These emissions savings have not
been included in the total figures disclosed and are based on
a developing calculation methodology.

During 2016, we conducted further audits in line with
Article 8 of the European Energy Efficiency Directive (‘EED’),
which is known as the Energy Savings Opportunity Scheme in
the UK, as the legislation was implemented in further European
countries. The audits have identified opportunities for energy
reduction and our operating companies are now progressing
these initiatives.

In focus
Improving water quality

Although we have not set specific Group-wide targets, our
objective 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. Our newly-acquired
business, Millbrook, has a contract with its energy provider
to source 45% of its electricity from renewables (compared
with the average for the UK of 19%).

We have been a constituent of the FTSE4Good Index Series,
which analyses the performance of companies for environmental,
social and governance practices, since it was founded in 2001. In
the December 2016 review, our FTSE Russell ESG rating absolute
score improved from 2.7 to 3.1 out of 5, and our supersector
relative percentile score increased to 73 out of 100 (2015: 53).

In 2016, we ceased to participate in the Carbon Disclosure
Project (‘CDP’) as we are confident that the systems that we
now have in place for measuring and monitoring energy usage
underline our commitment to environmental accountability and
enable us to provide independently-verified public disclosure of
our emissions on an annual basis. Our score of 98 out of 100 in
the 2015 CDP survey (for the 2014 financial year) placed us in
the top 15% of companies in our sector.

In May 2016, a large wildfire near Fort McMurray, a small
town in Canada, led to around 88,000 residents being
evacuated and left behind it soil thick with ash, which
polluted the water supply.

While firefighters worked tirelessly protecting the outside of
the local water treatment plant, employees worked around
the clock inside keeping it in service. One piece of equipment
that was crucial to the clean-up operation was Malvern
Instruments’ Zetasizer WT on-line zeta potential analyser.

This is a continuous and fully-automated clarification
monitoring system which reduces vulnerability to sharp
changes in incoming water quality from the fire ash. The
system was already in use at a treatment plant in Calgary,
where it had been installed following the floods of 2013.

The high fire ash content polluting the water surrounding
Fort McMurray had caused high alkalinity and unstable
chemical conditions which the Zetasizer WT monitored, with
the plant operator then taking the most appropriate action
to adjust the chemical dosage. As a result, water quality was
restored in a relatively short time, so that when residents
returned to their houses, clean drinking water was available.

Strategic Report 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 pages 50 to 52.

Our values
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.

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 8,900 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 strategy and our business model on pages 6 and 10.

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 on the following page demonstrates.

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. In January 2017,
we appointed our first ever Group Human Resources Director
with specific responsibility for talent management and diversity.
This is a key part of our Group talent development initiative to
identify and promote talent across the Group and is described
in more detail on pages 62 and 63.

In focus
Encouraging young engineers

In November, David Tipton, Managing Director of Omega‘s
UK office, was elected as a Vice President of the Institute of
Measurement and Control for a three-year term, effective
from 1 January 2017. The Institute promotes professional
excellence and the advancement of the science, technology
and practice of measurement and control technology and
its applications.

David says: “I am passionate about our profession and am
concerned that we are not attracting enough engineers at all
levels to become involved in our profession and our Institute.
Over the years, I have personally observed the benefits of
academia and industry working closely together and I will be
actively engaged in developing the Institute of Measurement
and Control as the institute of choice for engineering
professionals operating in our technology arena.”

One of the key challenges facing science and engineering
is to attract students into the profession, particularly
women, and to help them understand more about
the industry. David gives presentations to local schools as
well as organising ‘industry days’ with universities where
students visit Omega’s facility in Manchester to learn more
about the working environment.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsSustainability Report continued

In the UK, our two largest companies, Malvern and Millbrook,
are putting in place processes to collect and publish data under the
new Gender Pay Gap Reporting regulation, ahead of the deadline
to publish the data on their websites by April 2018. This legislation
applies to employers with 250 or more employees who ordinarily
work in Great Britain and whose contracts of employment are
governed by UK legislation, and details the difference in mean and
median pay between men and women at the company. As well as
meeting the new disclosure requirements, the information will help
us to focus on the underlying causes of any gender pay gap and
take action to ensure equality and fairness in the workplace.

Employees by gender and role
As at 31 December 2016

Directors

Senior management1

Other employees

Total

% of total

Male

149

5,946

6,101

Female

2,443

2,467

Total

172

8,390

8,569

100

Excludes contractors.
1 Presidents or Managing Directors and their immediate reports who are Directors

or Vice-Presidents.

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. The case study on page 45 describes some of the
initiatives we are involved in to promote engineering to students.

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. In 2016,
we appointed an HR Information Systems Manager who is
responsible for a new HR system which will provide our
Group-wide e-learning platform and support the annual
competency-based assessment process and associated
development plans and learning. Two of our UK businesses,
Malvern 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.

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 at www.spectris.com.
We comply with the UK Modern Slavery Act 2015 and
our anti-slavery training has been extended to all
employees worldwide.

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.

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

Europe

Americas

Asia

Total

2016

2015

2014

2013

2012

5.0

8.1

10.1

7.2

5.0

7.7

10.8

7.1

3.1

5.8

12.2

5.9

3.2

6.1

12.2

6.0

2.7

5.2

13.9

5.8

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. 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. Potential product-related health and safety issues are
considered as part of the product design process and continuous
improvement programmes focused on health and safety aim
to reduce accidents and injuries at our sites to as low a level
as reasonably practical.

Strategic ReportIn focus
Helping to fight the Zika virus

LoRes image

PANalytical’s mission is to create a better world by helping
people to analyse materials that matter to them and the
environment.

The company‘s LabSpec near-infrared analyser is being used
in the fight against Zika and Dengue, viral diseases that
infect well over 400 million people each year. Prenatal Zika
infection has been associated with microcephaly and other
serious brain anomalies. Numerous studies have shown that
infecting Zika and Dengue-carrying mosquitoes with a
targeted strain of the Wolbachia bacterium greatly reduces
the likelihood that the mosquitoes carry the Zika or Dengue
virus. The release of Wolbachia-infected mosquitoes has
been shown to rapidly spread and can infect over 80%
of the local mosquito population. In order to judge the
effectiveness of a release programme, wild mosquitoes
must be trapped and screened for the presence of the
Wolbachia bacterium. Using the portable LabSpec analyser,
researchers have been able to distinguish between infected
and uninfected mosquitoes with 85%-95% accuracy,
enabling them to develop models that can be used to
rapidly detect Zika and Dengue transmission hotspots in
Brazil. This information will enable quick identification of
high-risk areas and prioritise efforts and resources.

We carry out regular inspections at our supplier sites and use
the SA 8000 Social Accountability Standard to assess our key
suppliers against specific criteria – see box on page 48 for more
information. We have now completed the initial project with our
key Asia Pacific suppliers and plan to extend this to cover key
suppliers worldwide during 2017.

We measure the total number of work-related accidents or ill
health resulting in time lost in excess of three days. In 2016, this
was 4.5 incidents per 1,000 employees, the same rate as 2015.
A significant proportion of days lost are due to stress-related
conditions, with physical accidents having been successfully
reduced to as close to zero as reasonably achievable.

Accident incident rate
Reportable accidents1 per 1,000 employees

2016

2015

2014

2013

2012

4.5

4.2

4.4

4.7

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 at www.spectris.com. 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
OHSAS 18001 (see page 48 for details of this standard).

Human rights
Our human rights policy is consistent with the Core Conventions
of the International Labour 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 at www.spectris.com.

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 11 and 18 to 25.

Our suppliers
Our business is changing rapidly as we seek greater competitive
advantage through efficiency gains and innovation, both in our
products and how we work, whilst addressing new regulatory
requirements and expectations from commercial and social
stakeholders and shareholders. Focusing on supply chain
management is an important tool in achieving this. You
can read more about our suppliers on page 11. Our Supply
Chain Management Policy can be found on our website at
www.spectris.com.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsSustainability Report continued

Spectris is committed to meeting the objectives of both the
UK Modern Slavery Act 2015 and the California Transparency
in Supply Chains Act of 2010, to prevent slavery and human
trafficking in our corporate activities and ensure that our
supply chain is also free from these practices. 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 that both they and
their supply chains conform to the standards enshrined in the
Acts. One of the biggest challenges we face is identifying
evidence of slavery in our supply chains and training has been
given to all Spectris supply chain management staff to help
them in this. 95% of Group worldwide purchasing spend with
suppliers in the top 20 ‘at risk’ countries is now subject to audit.

We are also committed to working with our supply chain
partners to increase transparency regarding the origin and
traceability of minerals contained in products, and we support
the OECD Due Diligence Guidance for responsible supply chains
of minerals from conflict-affected and high-risk areas. Under our
Conflict Minerals policy, we do not add conflict minerals to our
products during the manufacturing process and do not directly
purchase conflict minerals from any source. If we discover the
use of these minerals produced in facilities that are considered
to be ‘non-conflict free‘, in any parts or components we
procure, we will take appropriate actions to transition the
product to be ‘conflict free‘.

Spectris will also be affected to a small extent by REACH,
a European Union regulation concerning the Registration,
Evaluation, Authorisation and restriction of Chemicals, adopted
to improve the protection of human health and the environment
from the risks that can be posed by chemicals. This directive will
have a minor impact on our Servomex business in the UK, which
will be required to produce an inventory of every chemical that
comes into, is part of, or goes out of the business.

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. We encourage our businesses to gain certification to
international standards and these are explained opposite.
Certification involves independent processes to verify the data
to demonstrate conformance and that the company is fulfilling
policy commitments and making continual improvement.

Lloyd’s Register Quality Assurance (‘LRQA’) has independently
verified the data associated with energy consumption, water
usage, greenhouse gas (‘GHG’) emissions, company vehicle
and air miles, voluntary labour turnover and accident incident
rate. The LRQA Assurance Statement confirming terms of
engagement, approach, opinion and observations is available
on our website.

Our strategic sourcing team members work alongside local
managers to carry out regular inspections at our suppliers’ sites.
To date we have audited suppliers representing approximately
70% of our total purchasing spend in Asia in 2016. Any current
suppliers who decline to undergo an audit against the standard
are removed from the approved list and alternative suppliers are
selected. No new suppliers are added to the approved list if they
decline to undergo an audit.

Certification standards
ISO 14001
This international standard (‘ISO‘) sets out the criteria for
the formulation and maintenance of an environmental
management system. Certification to ISO 14001 requires
an organisation to effectively manage its environmental
impacts through commitments to pollution prevention,
legal compliance and continual improvement.
Approximately 60% of Spectris’ manufacturing operations
by turnover are certified to ISO 14001, as is our head office.

OHSAS 18001
This standard is intended to help an organisation to
control occupational health and safety risks. It is currently
UK-specific but will shortly become an ISO. Five Spectris
offices, including the head office, have obtained
certification to OHSAS 18001.

SA 8000
Social Accountability International‘s SA 8000 is the most
widely-recognised global standard for managing human
rights in the workplace. It encourages an organisation to
achieve best practice in ethical employment, trading and
operations and includes much of the anti-slavery legislation
recently introduced. At Spectris, we use this standard to
assess leading suppliers in high-risk areas against criteria
such as workers’ rights, workplace conditions (including
child labour, forced labour, working hours, freedom of
association, compensation and discrimination) and health,
safety and the environment.

Strategic ReportOur supply chain will remain a key area of focus for 2017,
with further work planned to audit our key suppliers against
our environmental and social standards. We are putting in
place training on recognition of modern slavery and human
trafficking in the supply chain for all supply chain management
staff, in order to extend verification to all countries outside the
top 20 ‘at risk’ countries. 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.
In addition, we are working with our product development and
materials procurement teams worldwide on the issue of the
‘EU Critical 20 List‘, a list of raw materials where long-term
availability is threatened, to assess the impact of any of these
which are used in Spectris’ products.

Further initiatives to improve the diversity of the workforce will
help us to identify and encourage high-potential employees and
our Group-wide learning system will be made accessible to all
employees worldwide.

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.

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. We will continue
to explore opportunities for energy savings identified by the
Energy Efficiency Directive site audits, and our own Project Uplift
initiative may also result in internal improvements which will
benefit areas of our sustainability programme.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsEthics Report

Running our business in an ethical
way makes business sense.

2016 highlights

Absolute Integrity Award launched.

Anti-bribery and compliance audits.

Re-emphasis of culture and ethics
in acquisition strategy.

Culture, ethics and leadership
At Spectris, we believe that maintaining a strong and consistent
corporate culture supports long-term performance and is
particularly important in the context of the Group’s operating
model and entrepreneurial nature. The Board acknowledges its
role in shaping, monitoring and overseeing culture, as well as
ensuring alignment between our values, strategy and business
model. Culture and ethics are a regular discussion focus for the
Board, its Committees and the Executive team throughout the
year. During 2016, discussions focused on a range of topics
including our go-to-market model and managing compliance
risk in China, the evolution of the ethics programme and its
future strategy, aligning values with incentives and the output
of anti-bribery and corruption audits.

Culture and ethics on our agenda

Board

Audit and Risk Committee

Executive Committee

Presidents’ Meeting

Finance Council

1
1
1
1

Number of meetings in 2016

Culture and ethics on the agenda

Awareness of the importance of culture and ethics does not
stop at the Board or Group-level management; it is present
throughout the organisation and our senior and middle
management play a fundamental role in setting the appropriate
tone at an operational level. Managers are expected to
demonstrate ethical leadership and this is reinforced in a number
of ways, including our recruitment and on-boarding processes.
As part of their induction, new leaders to the Group participate
in an ethical leadership engagement session. The session
provides a forum to connect the Group’s purpose and strategy
to culture, discuss the business case for ethics and factors
affecting decision-making, and to develop skills to cascade the
message across their teams. In February 2016, 23 senior leaders
participated in a leadership engagement session, including a
new operating company President and Finance Director, and
a number of key Sales and General Managers. In December,
a similar engagement session was held for 36 members of
the Millbrook team following that acquisition. Each session
is sponsored and attended by an Executive team member.

First Impressions from Andy Cowan, Vice
President of Finance, Particle Measuring Systems
“I have always been a part of global companies which put
ethics at the forefront of their values; however, at Spectris
and Particle Measuring Systems I was impressed by the high
focus it receives not only on a day-to-day basis but even as
part of the recruitment process. It certainly was a strong
factor for me in choosing to join the Spectris Group that
the senior managers who interviewed me not only shared
the Code of Business Ethics but also took an opportunity to
ask questions to ensure that I would embody those values
if offered employment. Identifying and reinforcing the
importance of ethics even before you hire an employee is
an extremely important part of building and maintaining
a strong ethical culture.”

As our programme has matured, we have been pleased to see
an increasing willingness for in-country management and staff
to escalate concerns regarding suspected violations of our Code
of Business Ethics to senior management; further details are
contained on the opposite page under ‘A culture of openness
and support‘.

As part of their leadership commitment, senior managers are
required to certify annually that they have fostered an open
ethical culture, including having either dealt with or reported
any suspected violations of the Code of Business Ethics.
For certification purposes, senior management includes the
Executive team, operating company Presidents, the Finance
and Administrative Head in Russia, Vice Presidents, Country
Managers, Senior Sales Managers and Ethics Officers. All senior
managers had confirmed compliance for the period ended
31 December 2016 as at the date of this report.

In order to retain leadership focus on embedding an ethical
culture across the Group, during 2017 we will be re-designing
our incentive schemes to encourage ethical behaviour in
addition to producing the desired business results.

Absolute Integrity Award
One way in which we emphasise the importance of culture
is through the Spectris Absolute Integrity Award, which was
launched during the year. This is a Group-wide initiative
whereby employees are nominated for demonstrating true
commitment to our absolute integrity value. The award is
designed to emphasise the importance of absolute integrity in
our business practice, communicate success stories and provide
an opportunity to recognise and celebrate the positive ethical
behaviour displayed across the Group. Our first award
newsletter publishing the initial nominations was launched in
November 2016. Each nominee received a letter from the
Chief Executive congratulating them individually on their
nomination and thanking them for exemplifying our values.
The winner, Salma Cassam Chenaï Thiry, was announced in
early February 2017 and will be presented with her award
at the annual Presidents’ Meeting later this year.

Strategic ReportSalma Cassam Chenaï Thiry, Legal Counsel,
winner of the 2016 Spectris Absolute
Integrity Award
“I feel very honoured to have been selected as the winner
of this first Spectris Absolute Integrity Award. When I
joined BTG in 2013, I was impressed by the high level
of commitment to and genuine leadership engagement
on ethics and compliance. The more I got involved in
day-to-day matters and related challenges, the more evident
it became to me that BTG, and more broadly Spectris, were
living up to their core values. Having created such a unique
environment where colleagues can have open, candid
discussions on the ethical dimension of complex business
issues, leading to collegial and sound decisions, is in my
view a fantastic achievement. In addition, receiving the
full support of top management when assessing ethical
dilemmas is the clearest evidence that Spectris has been
very successful in embedding a strong ethical culture
throughout the organisation. I am proud to be part of it!”

Culture and acquisitions
Culture and ethics also comprise a key element of our
acquisition strategy. Our values and emphasis on ethics create
a positive point of difference during our acquisition cycle,
whether through target identification, deal execution or
integration processes.

In looking at acquisition targets, we evaluate the alignment of
cultural fit and values through our management discussions and
due diligence processes. By adopting this approach, we seek to
ensure that a new business is prepared to do business ethically
and that we acquire businesses that are aligned with our values.
This both makes business sense for Spectris but also makes
Spectris a more desirable parent for acquisition targets. This
alignment of culture and values is an important factor in
maintaining the high level of management and employee
retention that we achieve post acquisition.

When new businesses join the Group, we work in conjunction
with the management team to introduce and embed our values
and ensure that the ethics programme is rolled out as a priority.

First impressions from Jonathan Eaton,
Chief Commercial Officer, Millbrook Group
“Due to a strong focus on integrity and business ethics
already within the culture of Millbrook, the integration
into Spectris, including the formal ethics programme and
ongoing training, is proving a natural progression for
our business. We recognise that this is important to our
customers and the continued attention to ethical conduct
has been well received.”

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. The importance of creating an open and
transparent culture is reiterated in our periodic ethics refresher
training. Our independent hotline (www.spectrishotline.com)
gives our people, business partners and other third parties
the ability to report concerns anonymously if they wish.

Through the deployment of our bespoke Code of Business
Ethics course, we have made available our Decisions Guide
mobile app to employees. The app provides a simple set of
questions to help employees address an issue in the right way
and reach the right decision. It also provides contact details
for all our Ethics Officers whom employees can raise concerns
with or seek guidance from.

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 Spectris Group.

During 2016, 39 reports were received via a number of sources
and the charts below show the number of reports received from
each region and the methods used to report the allegations.
Each allegation was investigated and resolved and additional
guidance, training and monitoring made available or disciplinary
action taken, in some circumstances including employment
termination, as appropriate.

Reporting by region

1 Asia
2 North America
3 Europe
4 Latin America

Reporting methods

1 Formal complaint
2 Management
3 Internal audit
4 Anonymous

28
7
4
0

13
7
3
16

Addressing ongoing challenges
As we reported last year, the ethical environment in certain
Asian countries continues to be challenging. We have taken
a number of actions to strengthen our control framework.
A dedicated China Compliance Officer was recruited in 2016
to provide independent scrutiny and oversight of operations
in China and subject matter expertise and advisory support
to the operating companies in relation to bribery, fraud and
anti-trust risks, as well as strengthen our second line of defence.

Annual Report and Accounts 2016Spectris plc Strategic ReportGovernanceFinancial StatementsEthics Report continued

In addition, later this year we will conduct a series of workshops
in China on conflicts of interests and launch a voluntary
disclosure programme to encourage employees who have
not, in line with our policies, previously disclosed a potential or
actual conflict to come forward and report. Employees will not
be punished for previous non-disclosure but legal and regulatory
breaches revealed will be dealt with in accordance with
applicable laws and regulations. The workshops and disclosure
programme will be extended to Taiwan and South Korea during
the course of 2017.

Anti-bribery and corruption
The scope of our Internal Audit function review includes
ethics programme implementation. During the year, discrete
anti-bribery and compliance audits were conducted at 13
of our 14 operating companies to assess the robustness of
implementation at an operational level, as well as support the

Trend

Solution

operating companies’ efforts to implement the anti-corruption
standards fully and consistently by identifying gaps in
implementation or business/site-specific needs and propose
remedial actions. Our recent acquisition, Millbrook, will be
reviewed 12 months post acquisition.

The audits involved testing implementation across a range
of key indicators, including tone from the top, resourcing,
conflicts of interest, gifts, hospitality and entertainment,
government interaction, training and communications,
third parties, charitable and political activities, raising concerns
and ethics in human resources. Following the audits, detailed
remedial actions were provided to each operating company
management team for completion by March 2017. In addition,
a number of Group-wide trends and actions were identified,
shown in the table below.

Improve quality of third-party due diligence reviews

Third-party due diligence webinars for reviewers and
relationship owners

October 2016

Improve awareness of risks associated with
government customer interaction

Group-wide guidance and training issued for
deployment

Anti-bribery and corruption compliance processes
integrated into business operations work-flows

Integrate gifts and entertainment processes into
Group travel and expenses technology platform

Q1 2017

2017

Increase consistency in anti-bribery and corruption
standards

Best practice sharing, additional Group-level resource
and increased use of technology solutions

2017/2018

New employees, including those who join the Group
following an acquisition, receive training on the Code of
Business Ethics and other relevant topics within six months
of joining.

A bespoke Code of Business Ethics e-learning training
course was rolled out to all operating companies to provide
supplementary interactive training for all employees
throughout the Group.

In December 2016, managers were provided with manager-led
training toolkits to facilitate recurring discussions around
managing anti-bribery and corruption risks.

Our ethics training and engagement strategy comprises:

• values and risk-based training;
• interactive and engaging;
• delivery by senior and line managers;
• face-to-face wherever feasible; and
• online modules to reinforce awareness.

Training, engagement and support

The value
The value
of integrity
of integrity

Code of Business Ethics
Code of Business Ethics

Our engagement strategy continues to focus 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.
Employee engagement is structured with the driving principles
of being values and risk-based.

The Strategic Report was approved by the Board of Directors on
14 February 2017.

By order of the Board.

Roger Stephens
Company Secretary

Strategic Report
Chairman’s Introduction to Corporate Governance

“ Looking forward to 2017, our

priorities will be the development of
our talent management, succession
and diversity programme, and further
enhancement of the Group’s ethics
and compliance processes.“

Dr John Hughes CBE
Chairman

I am pleased to present the Corporate Governance Report
which describes how the Board functions and how it sets the
culture, values and operating framework across 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.

In 2016, we initiated an external evaluation of the workings of
the Board and its Committees, conducted by Dr Tracy Long CBE
of Boardroom Review Limited. It was pleasing to receive
confirmation that the Board is “well-functioning and effective“,
but the process has highlighted the impact that our strategic
ambitions will have upon the work of the Board and this will be
a particular focus for 2017 and beyond. Further details can be
found on page 60.

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 pages 50 to 52.

In 2015, the Board agreed a strategy of renewed emphasis on
growth, including a shift from the supply of products towards
the provision of complete customer solutions. Consequently,
during 2016, there has been a focus by the Board on
transformational initiatives, including positioning the Group
optimally to support customer needs as the Industrial Internet
of Things develops, and adding test services, software analytics
and simulation capabilities to existing product technologies.
This requires the Group to ensure that it has the talent,
resources and capability to deliver on these initiatives.
The talent management programme, launched in 2015,
has been progressed in 2016 to underpin this strategy.

An organisational capability review was undertaken earlier in
the year. As a result, we have recruited Andrew Harvey to the
newly-created role of Group Human Resources Director with
a position on our Executive Committee. Andrew’s key focus
will be to identify and implement a talent development and
diversity programme to ensure that we have strong teams
across our businesses and to develop effective management
succession planning.

Finally, in 2016, we established a formal Disclosure Committee
with the brief to monitor the Company’s obligations under the
Market Abuse Regulation in relation to the identification and
release of inside information and restrictions on share dealing.

Yours faithfully

Dr John Hughes CBE
Chairman
14 February 2017

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 can be found at www.frc.org.uk.
The Board considers that throughout the financial year ended
31 December 2016, 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 2016.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Board of Directors

Dr John Hughes CBE Chairman
Appointed June 2007. Appointed Chairman in May 2008
Committees

John O’Higgins Chief Executive
Appointed January 2006
Committees

N E D F

Bill Seeger Non-executive Director
Appointed January 2015
Committees

Clive Watson Group Finance Director
Appointed October 2006
Committees

E D F

Russell King Senior Independent Director
Appointed October 2010
Committees

Ulf Quellmann Non-executive Director
Appointed January 2015
Committees

N R

A R

Martha Wyrsch Non-executive Director
Appointed June 2012
Committees

Kjersti Wiklund Non-executive Director
Appointed January 2017
Committees

A N

N R

Key

A
N
R

Audit and Risk

Nomination

Remuneration

D
E
F

Disclosure

Executive

Finance

Roger Stephens Head of Commercial and Company Secretary
Appointed January 1997
Committees

E D F

GovernanceJohn O’Higgins Chief Executive
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, and has been a
non-executive director of Exide.
Other current appointments None.

Clive Watson Group Finance Director
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.

Ulf Quellmann Non-executive Director
Skills and experience Ulf Quellmann has broad general management
experience and considerable knowledge of the metals, minerals and
mining industry, having worked in the sector for over 12 years. He is
currently chief financial officer, Copper and Diamonds, at Rio Tinto plc.
Previously, he was group treasurer of Rio Tinto plc and 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.

Kjersti Wiklund Non-executive Director
Skills and experience Kjersti Wiklund brings significant knowledge
of the international telecommunications sector. Kjersti has held a series
of senior global roles including director, group technology operations,
at Vodafone; chief operating officer of VimpelCom Russia; deputy
chief executive officer and chief technology officer of Kyivstar in
Ukraine; executive vice president and chief technology officer of
Digi Telecommunications in Malaysia; and executive vice president
and chief information officer at Telenor in Norway. Kjersti was
previously a non-executive director of both Cxense ASA and Fast
Search & Transfer ASA in Norway and Telescience Inc. in the USA.
Other current appointments Non-executive director of Laird PLC.

Past Directors
Lisa Davis
Retired as a Non-executive Director on 20 May 2016.
Peter Chambré
Retired as a Non-executive Director on 2 December 2016.

Dr John Hughes CBE 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 then non-executive chairman of Intec Telecom Systems plc
and Sepura plc, and a non-executive director of Chloride Group plc
and Vitec Group 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.

Bill Seeger Non-executive Director
Skills and experience Bill Seeger has 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.

Russell King Senior Independent Director
Skills and experience Russell King has 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. He was then a non-executive
director and chairman of Sepura plc.
Other current appointments Chairman of Hummingbird Resources
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.

Martha Wyrsch Non-executive Director
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. She was
previously 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 US subsidiary of Sempra Energy with
publicly-traded shares).

Roger Stephens Head of Commercial and Company Secretary
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.
Other current appointments None.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Executive Committee Members

Eoghan O’Lionaird Business Group Director for the Materials Analysis
and Test and Measurement segments
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.

Jo Hallas Business Group Director for the In-line Instrumentation and
Industrial Controls segments
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.

Ken Smith President, Asia Pacific
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.

Robin Stopford Group Head of Corporate Development
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.

Andrew Harvey Group Human Resources Director
Skills and experience Andrew Harvey has considerable human
resources experience gained in areas including change management,
talent and development, employee engagement, acquisitions and
disposals. Prior to joining Spectris in January 2017, Andrew was senior
vice president human resources, GKN Automotive, and previously held
the same position at GKN Aerospace. He holds an MBA from the
University of Aberdeen.
Other current appointments None.

Eoghan O’Lionaird Business Group Director
Appointed February 2014

Jo Hallas Business Group Director
Appointed May 2014

Ken Smith President, Asia Pacific
Appointed July 2012

Robin Stopford Group Head of Corporate Development
Appointed November 2013

Andrew Harvey Group Human Resources Director
Appointed January 2017

Governance

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 below:

The Board

Board Committees:

Audit and Risk

Nomination

Remuneration

Executive
Responsible for the day-to-day
management of the Group’s operations

Management Committees:

Disclosure
Responsible for the identification and
disclosure of inside information and for
ensuring that announcements comply with
applicable regulatory requirements

Finance
Responsible for banking
and treasury matters

Priority areas in 2016
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

Viability statement

Remuneration Policy
review

In September 2016, the Company completed the platform acquisition of Millbrook
Group Limited, and a further five acquisitions were also completed during the year.
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 the expected
cash flow returns on investment would be delivered.

During the year, the Board reviewed progress against the Group’s strategy and
considered opportunities within our key markets. 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.

The programme of lean initiatives, a key element of the Group’s strategy, has been
progressed. Project Uplift, initiated during the year, seeks to improve productivity,
reduce complexity and eliminate unnecessary cost, and provide consolidation and
procurement savings.

Talent management and succession planning for senior roles across the Group is an area
of key priority to ensure that the Group has the management capabilities to deliver its
strategic objectives. Group-wide competencies have been adopted to create a common
understanding and language of what constitutes good leadership at Spectris. A Group
Human Resources Director has been recruited to drive the development of a more
rigorous approach to identifying, assessing, developing and attracting diverse
management talent.

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.

The Remuneration Committee considered the existing remuneration framework
and proposed changes to the Board. A new Remuneration Policy will be presented
to shareholders for approval at the 2017 AGM.

See page

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Leadership continued

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,
(www.spectris.com). In addition, the Directors have
responsibilities and duties under legislation, in particular
the Companies Act 2006 (the ‘Act’).

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 more immediate decision.
Comprehensive papers are presented to the Board which
facilitate meaningful debate on the performance and future
direction of the Company.

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 and

operating framework;
• annual financial planning;
• the acquisition and disposal of businesses;
• major capital expenditure;
• the appointment and removal of Directors; and
• Board and senior management succession.

Directors are expected to attend all Board and relevant
Committee meetings. Details of attendance by Directors at
Board and Committee meetings during 2016 are set out in
the table below. 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. In
addition, members of the Executive Committee, other Group
senior managers 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.

Board and Committee meeting attendance during the year

Total meetings during year

Dr John Hughes CBE

John O’Higgins

Peter Chambré1

Lisa Davis2

Russell King

Ulf Quellmann

Bill Seeger

Martha Wyrsch

Clive Watson

Audit and Risk
Committee

Nomination
Committee

Remuneration
Committee

Board

n/a

1 Peter Chambré retired from the Board with effect from 2 December 2016. He attended all meetings he was eligible to attend.
2 Lisa Davis retired from the Board with effect from 20 May 2016. She attended two of the seven Board, one of the two Remuneration Committee and one of the two

Nomination Committee meetings she was eligible to attend.

1 Acquisitions

2 Operations and risk

3 Strategy

4 Finance

5 Governance

Committees
The Board delegates specific responsibilities to its Committees,
notably the Audit and Risk, Nomination and Remuneration
Committees. A chart setting out the Committee structure is
set out on page 57. 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 2016 are set out
in the Committee reports. To ensure that 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.

Board allocation of time
(%)

GovernanceUnder 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 2016 and
remain in force. The Company also maintains directors’
and officers’ liability insurance.

Composition and appointments
The Board comprises a mix of Executive Directors and
independent Non-executive Directors who consider and
debate the important issues facing Spectris and the Group’s
performance. At the date of this report, there are a total of
eight Directors, of whom two are Executive and five are
Non-executive, in addition to the Chairman.

Kjersti Wiklund was appointed to the Board as a Non-executive
Director with effect from 19 January 2017. A formal, rigorous
and transparent process is followed during the selection and
subsequent appointment of new Directors to the Board.
Details regarding the appointment process and the induction
process can be found on page 62.

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 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.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc 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 55. 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 and that 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.

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.

The Board has agreed that each Director shall stand for
re-appointment at the AGM.

Details of the Directors of the Company are set out with
their biographies on pages 54 and 55. Details of Directors’
service contracts, or letters of appointment in the case of
Non-executive Directors, their emoluments and share interests,
are set out in the Remuneration Report on pages 73 to 91.
Copies of Directors’ service contracts or letters of appointment
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 performance and effectiveness of the Board and
its Committees are evaluated in accordance with the guidance
provided under the UK Corporate Governance Code.

With an internal evaluation having been carried out in each of
the last two years, an external evaluation was conducted this
year. This was facilitated by Dr Tracy Long CBE of Boardroom
Review Limited, a specialist consultancy which undertakes no
other business for the Company.

The Chairman and the Company Secretary provided a
comprehensive initial briefing to Dr Long. The process then
included detailed interviews with the Board and the Company
Secretary, observation of Board and Committee meetings and
access to supporting materials to enhance understanding of
how the Board and its Committees operate.

A final report and recommendations were presented to
the Board at its meeting in February 2017. Dr Long's
overall conclusion was that the Board and its Committees
are “well-functioning and effective“, with particular strengths
in its positive and supportive culture, governance environment,
oversight of risks and controls and approach to remuneration.
The Board accepted Dr Long's observation that (i) the Group‘s
strategic ambitions, and the associated transformation and
restructuring, bring a focus for the Board to oversee the detailed
execution plans and ensure associated risks are reduced to the
minimum; and (ii) the development of succession and leadership
development plans for senior management will need to be a
continued priority in order to support the strategic changes
envisaged. These aspects will be further discussed and
addressed by the Board over the course of 2017 and beyond.

Induction
All new Directors appointed to the Board receive an induction
programme tailored to meet their individual needs. For example,
Kjersti Wiklund (appointed to the Board on 19 January 2017)
discussed with the Chairman what briefings and meetings
would be most beneficial to her to ensure an effective
induction following her appointment. As a result, tailored
induction programmes are designed, which include briefings
from members of the Executive team and other senior managers
from both head office and the operating companies.

Training
The Chairman reviews each Director’s training and development
needs annually. To enhance the Directors’ understanding of our
business, the April Board meeting was held at HBM’s Darmstadt
site. This gave the Board the opportunity to meet senior staff at
the operating company and receive presentations from the HBM
management team. Similarly, the October Board meeting was
held at the recently-acquired Millbrook Proving Ground.

The Directors also receive regular updates and presentations.
These include changes and developments to the business and to
the legislative and regulatory environments in which the Group
operates. Presentations from business unit Presidents are also
received, in addition to the location visits described above. In
2016, presentations were received from the newly-appointed
Presidents of Brüel & Kjær Sound & Vibration and
Omega Engineering.

GovernanceNomination Committee Report

Letter from the Chairman of the Nomination Committee

“ A key focus of the Committee
this year has been the continued
oversight of talent management
across the Group.“

On behalf of the Nomination
Committee, I am pleased to
present our report to you
summarising our work during
the year, and setting out our
membership and responsibilities.

Dr John Hughes CBE
Chairman of the Nomination Committee

A key focus for the Committee during the year has been the
continued oversight of talent management across the Group.
In support of this, I am pleased to announce the recruitment
of Mr Andrew Harvey as Group Human Resources Director.
Andrew has been tasked with developing an effective talent
development, diversity and succession planning strategy.
Further details are provided on page 53.

A further focus for the Committee has been the ongoing
refreshing of the Board. During the year, Mrs Lisa Davis and Mr
Peter Chambré stepped down from the Board as Non-executive
Directors and the Board delegated authority to the Committee
to identify their replacements. The Committee worked closely
with Egon Zehnder to compile a shortlist of candidates against
measured criteria to ensure the Company’s continued ability
to compete effectively in the marketplace. I am pleased to
welcome Kjersti Wiklund to the Board as a new Non-executive
Director. The appointment of a second Non-executive Director is
expected to be made in due course. In addition, after nine years
as your Chairman, and in the interests of good governance,
I have decided to step down from the Board once a successor
has been appointed. A recruitment process for my replacement
has been initiated and is being led by the Senior Independent
Director, Mr Russell King.

At our meeting in December 2016, we considered the
effectiveness and contribution of the individual Non-executive
Directors during the past year and recommended to the Board
that each be put forward for re-election at the 2017 AGM. The
Committee also considered and re-confirmed the independence
of each of the Board’s Non-executive Directors.

Yours faithfully

Dr John Hughes CBE
Chairman of the Nomination Committee
14 February 2017

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Nomination Committee Report continued

Role of the Committee
The role of the Nomination Committee is to evaluate the size,
structure and composition of the Board, including the balance
of skills, knowledge, experience and independence of Board
members and recommend new appointments to the Board.
The Committee similarly reviews the membership of the
Executive Committee and leaders of our operating businesses,
and seeks to ensure that strong talent development, diversity
and succession planning processes are embedded across
the Group.

Committee composition and meetings
The members of the Nomination Committee are appointed
by the Board and include the Chairman, the Chief Executive,
the Senior Independent Director and at least two further
independent Non-executive Directors. For discussions relating
to the Chairman’s succession, the Senior Independent Director
takes the chair.

The Committee meets as required to carry out its duties. At
the Committee’s discretion, other individuals, including external
advisers, may be invited to attend for all or part of any meeting
to assist the Committee in fulfilling its role.

The table on page 58 sets out the Directors who served on
the Committee during the year and their attendance.

Nomination Committee allocation of time
(%)

1 Board composition,
succession planning
and recruitment
2 Organisational capability
review and talent
management programme
3 Independence and
nomination/re-election
of directors

Activities in 2016
In accordance with its terms of reference, the key issues
considered by the Committee during the year included:

• reviewing the structure, size and composition of the

Board and making recommendations to the Board based
on findings;

• reviewing succession plans with a view to ensuring the

continued ability of the organisation to compete effectively
in the marketplace;

• engaging Egon Zehnder to assist in the recruitment of

new Non-executive Directors and initiating the search for
a new Chairman;

• oversight of a Group-wide organisational capability review;
• oversight of the talent management programme and the

recruitment of a new Group Human Resources Director to
drive this forward; and

• reviewing the skills of each of the Directors and the

independence of each of the Non-executive Directors and
recommending that each of them be subject to re-election
by shareholders at the 2017 AGM.

Non-executive Director tenure
The chart below indicates the length of tenure for each
Non-executive Director as at 31 December 2016. Any extension
of the appointment beyond nine years’ service is closely
reviewed by the Committee to ensure the individual’s
continued independence, effectiveness and contribution
to the Board’s deliberations.

2.00

U Quellmann

W C Seeger

M B Wyrsch

R J King

4.58

6.22

Board changes
During the year, two valued colleagues stepped down from
the Board. Lisa Davis departed the Board in May, following
the conclusion of the 2016 AGM, and Peter Chambré, having
completed nine years’ service, stepped down from the Board
in December.

It was agreed that Egon Zehnder, which adheres to the
Voluntary Code of Conduct for Executive Search Firms and
does not provide any other services to the Company, would
be engaged to assist in the search for two new Non-executive
Directors. In considering the criteria for the new appointees,
the Committee reviewed the skills and experience that the
Board would benefit from in overseeing the implementation of
the Company's long-term strategy. In particular, it was agreed
that candidates with recent experience in the electronics/
telecommunications and life sciences/pharmaceuticals sectors
should be sought. The importance of continuing the Company‘s
commitment to diversity, including gender diversity, was also
recognised and Egon Zehnder was instructed to compile
gender-balanced candidate lists for both roles.

In January 2017, Kjersti Wiklund was appointed to the Board.
Following a rigorous selection process, the Committee
concluded that Kjersti's wealth of business experience and
knowledge of the international telecommunications sector
would enhance the capabilities and effectiveness of the Board.

The recruitment process for a second Non-executive Director,
with life sciences sector experience, is at an advanced stage.

In addition, having served nine years as Chairman and ten years
as a Director of the Company, Dr John Hughes has decided to
stand down from the Board once a successor has been
appointed. The Committee has initiated a process to find his
successor which is being led by the Senior Independent Director
and supported by Egon Zehnder.

Succession planning and talent management
Succession planning throughout the business remains 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. During
the year, a top-down organisational capability review was
carried out which included an assessment against the Group’s
selected set of leadership competencies to identify the high-
potential and high-performing individuals. The results of this
review will assist us to build on existing programmes to further

Governanceenhance individual development, introduce new initiatives and
refresh retention plans to broaden and develop the talent which
exists across the Group.

In recognition of the importance of these initiatives to the
achievement of the Group's strategy, the Committee oversaw
the recruitment of a new Group Human Resources Director.
As part of the selection process, a specialist Human Resources
recruitment consultant was engaged and a number of high-
calibre candidates were assessed. Following a series of
interviews with the Group‘s Executives, Mr Andrew Harvey
was appointed to the role.

Diversity
The balance of experience, skills, gender and diversity of
thinking styles of the Board is reviewed regularly to ensure
that the level and composition of diversity are appropriate.
Whilst noting the recommendations of the report ‘Women
on Boards’ (Davies Review) published in October 2015, the
Board does not establish targets on gender balance and believes
all appointments to the Board and senior management team
should be based on individual merit in terms of skills and
relevant experience as required in order to maintain and
enhance effectiveness. Nevertheless, the Board has discussed
and is supportive of the refocusing of the review upon the
Executive Committee and its reports, and has responded
to the request for voluntary disclosure of data in this respect.

Spectris supports the benefits of greater diversity to attract and
retain talented individuals at every recruitment level throughout
the Group and promotes diversity across a range of criteria
including skills, knowledge, experience, gender, age and
ethnicity. The Board is conscious of the need to give weight
to these factors in future appointments. Further information
regarding Group diversity can be found on page 45.

Re-election
All Directors will present themselves for election or re-election
at the forthcoming AGM. Each of the Directors is unanimously
recommended by the other members of the Board due to their
experience, knowledge and wider management and industry
experience, continued effectiveness and commitment to
their role.

Gender diversity of the Board
(%)

1 Female Directors
2 Male Directors

2
6

Nationality of the Board
(%)

1 British
2 Irish
3 American
4 German
5 Norwegian

3
1
2
1
1

Skills, knowledge and expertise of the Board

Board members

B2B

Commercial and marketing

Financial qualifications

Internet economy

International

Legal, governance and risk control

Listed company

M&A

Manufacturing

Services

Experience of end-user markets

Board members

Academic research

Aerospace

Automotive

Energy and utilities

Manufacturing and machine building

Metals, minerals and mining

Pulp, paper and tissue

Semicon, telecoms and electronics

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Accountability
Audit and Risk Committee Report

Letter from the Chairman of the Audit and Risk Committee

“ An important role of the Committee
is the oversight of the Group’s risk
management process.“

During the year, the Committee’s
work continued to focus on
the robustness of the financial
reporting, the rigour of the external
and internal audit processes, and
the Group’s control environment.

A key task undertaken by the Committee during the year was
the external audit tender which resulted in the selection of
Deloitte LLP to become auditor for 2017 and beyond, subject
to shareholder approval at the forthcoming AGM. I would
like to thank KPMG LLP (‘KPMG‘) for its audit service to the
Company. Details of the tender and selection process are
set out within this report.

An important role of the Committee is the oversight of the
Group’s risk management process. During 2016, the Group
has continued to build on enhancements introduced to
the Group’s risk reporting process at the end of 2015, which
included more detailed calibration when evaluating risk as
well as analysing the Group’s principal risks through the
‘lines of defence‘ framework. In addition, a structure has
been established for formalising and communicating the
Group’s risk appetite against each of the principal risks.
Linked to this, an effectiveness review of the Internal Audit
function was undertaken, comprising an analysis of its
independence, proficiency, resourcing, audit strategy,
planning and methodology.

Bill Seeger
Chairman of the Audit and Risk Committee

The results of this evaluation were in the main very positive but a
number of areas were identified where the effectiveness of the
function could be further enhanced, for example in developing
its capabilities in relation to IT and Enterprise Resource Planning
(‘ERP‘) implementation risks.

The Group’s treasury strategy was reviewed and updated
to ensure that it remains aligned with the Group’s strategic
objectives. In addition, the Group’s tax strategy was reviewed
during 2016 in order to ensure that it remains appropriate and
is compliant with the new UK requirements regarding content
and publication which came into effect from January 2017.

A particular focus for the Committee in reviewing the 2016
accounts was the assessment of goodwill and carrying values in
respect of Omega Engineering and ESG Solutions in the context
of their 2016 performance and longer-term growth prospects,
which has led the Committee to support management’s
judgement that a goodwill impairment of £94.4 million
and £19.9 million, respectively, should be made.

As part of our internal governance processes, every Committee
meeting is scheduled prior to the Board meeting to enable key
matters discussed to be reported to the Board, and considered
fully as appropriate. We believe that this process has worked
well during the year and will continue into the future.

Yours faithfully

Bill Seeger
Chairman of the Audit and Risk Committee
14 February 2017

GovernanceRole of the Committee
The principal purpose of the Committee is to assist the Board
in discharging its responsibilities to present a fair, balanced
and understandable assessment of the Company’s position and
prospects. The Committee acts independently of management
to ensure that the interests of shareholders are properly
protected in relation to financial reporting and the effectiveness
of the Group’s internal controls and risk management systems.

The Committee operates under terms of reference which
include all matters encompassed by Rule 7 of the Disclosure
Guidance and Transparency Rules and the Financial Reporting
Council‘s Corporate Governance Code. They were updated
in December 2015 to take into account the additional
responsibilities relating to the Viability Statement, and were
again refreshed in December 2016, with further emphasis being
placed on the Committee’s changing work scope in accordance
with the revised Code, Risk Management and Internal Control
Guidance, and other EU guidance relating to auditor tender and
tenure. A copy of the terms of reference can be found on the
Company’s website (www.spectris.com).

Composition of the Committee
The Audit and Risk Committee is appointed by the Board,
and consists of independent Non-executive Directors.
Its members are:

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.

The Board is satisfied that the Chairman of the Committee,
Bill Seeger, having held several senior finance positions,
continues to meet the specific requirement of the Code for
recent and relevant financial experience, and that Committee
members have the broad range of financial and commercial
expertise necessary to carry out their duties. Further information
on each of the Directors’ skills and experience can be found in
their biographies on page 55.

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. Meetings are
scheduled to coincide with key dates in the Group’s financial
reporting calendar. Committee attendance is disclosed on
page 58. The Committee revised its schedule of agenda items
to incorporate recent changes in regulation and ensure that
accounting, risk and governance requirements and practices
remain current. The Head of Business Ethics and Governance
and the Group Finance Director worked with the Chairman
to set each meeting’s agenda.

• Bill Seeger (Chairman)
• Ulf Quellmann
• Martha Wyrsch

Committee meeting participation

Chief Executive

Group Finance Director

Business Group Directors

Company Secretary

Head of Business Ethics and Governance

Head of Internal Audit

Group Financial Controller

External auditor

Risk
management
and assurance
including ethics

Internal audit

Financial
reporting

External
auditor
independence

Accounting,
technical and
corporate
governance
updates

Presented reports

Participated in debate/answered Committee questions

The external auditor met with the members of the Committee following the February 2016 and February 2017 meetings in a private session without management present.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Accountability continued
Audit and Risk Committee Report continued

Activities in 2016
Key issues considered by the Committee during the year included:

• a review of the 2015 and 2016 Financial Statements, including

year-end key estimates and judgements and the external
auditor’s report on the Annual Report and Accounts audit;

• the fair, balanced and understandable assessment;
• the Company’s ongoing viability;
• a review of the 2015 internal audit activity and the 2016

internal audit plan;

• a review of the ethics and compliance programme, and

whistleblowing reports;

• updates regarding the information security programme;
• the output of the internal auditor effectiveness review;
• the external auditor tender process;
• external auditor non-audit services policy; and
• the Committee’s terms of reference.

Audit and Risk Committee allocation of time
(%)

1 Financial statements
and reporting
2 External audit including
tender process
3 Culture, risk management
and controls, including
information security

20
14
6

4 Internal audit
5 Committee governance

Significant issues and key financial reporting matters
During the year, the Committee received reports and
recommendations from management and the external auditor
to consider the significant accounting issues and judgements
applicable to the Group’s Financial Statements and disclosures.
The key risks of misstatement in the Group’s 2016 Financial
Statements were:

• valuation of goodwill and intangible assets for impairment;
• accounting for acquisitions;
• valuation of inventory;
• provisions for uncertain exposures and tax positions; and
• misstatements.

Valuations of goodwill, inventory valuation and tax provisions
are recurring in nature from year to year whilst accounting for
acquisitions 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 Financial Statements in July 2016,
and also at the conclusion of the 2016 audit of the full-year
Financial Statements.

Key financial reporting matters in 2016

How the issue was addressed by the Committee

Valuation of goodwill
and intangible assets
for impairment

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 assessment, an
impairment charge of £94.4 million was made for Omega Engineering, and £20.9 million for
ESG Solutions, totalling £115.3 million. Of this, £114.3 million relates to goodwill impairment
and £1.0 million to other intangible assets. 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 reduced nominal post-tax WACC rate for the Group of 7.5% (2015: 7.9%) with long-term
growth rates of 2.0% (2015: 2.5%). The Committee reviewed the assessment overall and was
satisfied that the assumptions were appropriate.

The external auditor explained the results of its audit work 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, the impairment recognised and disclosure provided in the Financial
Statements were considered appropriate.

Following discussion, the Committee was satisfied that the approach taken by management
was appropriate and that the impairment charge recognised and accompanying the
Financial Statements disclosure was appropriate.

Governance
Key financial reporting matters in 2016

How the issue was addressed by the Committee

Accounting for acquisitions

Provision for uncertain tax
exposures

Valuation of inventory

During 2016, the Group acquired six businesses. Judgement is required to determine the fair
value of assets and liabilities acquired in business combinations, particularly in respect of
intangible and tangible assets which can be industry-specific. Contingent consideration
payable on the achievement of future performance 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 for the acquisitions made
during the year, and the work undertaken by the external auditor, and concluded that the
judgements that had been made were fair and appropriate.

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 2016
represent 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,
including how its audit procedures were focused 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.

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.

Management confirmed to the Committee that, with the exception of Omega, there have
been no significant changes to the approach used to estimate inventory 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 inventory provisions were appropriately
stated at the year end.

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Audit and Risk Committee Report continued

Key financial reporting matters in 2016

How the issue was addressed by the Committee

Misstatements

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 of 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.

External audit
The Committee is responsible for managing the relationship
with the Group’s external auditor on behalf of the Board.
At the July 2016 meeting, KPMG, led by the Audit Partner,
Mr Richard Broadbelt, presented its strategy and scope for
the audit for the financial year, and highlighted areas requiring
special consideration. KPMG then reported against this audit
scope at subsequent Committee meetings.

Private meetings are held between the Committee and
representatives of the external auditor, without management
being present, which facilitates open and transparent feedback
by both parties. The Committee was satisfied that the overall
external audit process and services provided by KPMG
throughout 2016 were effective.

Non-audit fees
A cumulative annual cap is imposed for non-audit services
provided by our external auditor (save for acquisition due
diligence and limited 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 £0.1 million (7% of the audit fee). Further
details are included in Note 5 to the Financial Statements.
The Committee‘s non-audit services policy is available on
the Company‘s website (www.spectris.com).

GovernanceEffectiveness and independence
The effectiveness of the external audit process is dependent
on appropriate risk identification at the start of the audit cycle.
For the current period, the significant risks identified by the
external auditor and discussed in detail with the Committee
were valuation of goodwill and intangible assets for impairment,
accounting for acquisitions, provisions for uncertain tax
exposures, valuation of inventory and misstatements. Further
information on these risks can be found on pages 32 to 39.
The Committee’s assessment of the effectiveness and quality
of the audit process in addressing these matters was formed
by, amongst other things, consideration of the external auditor’s
findings, and discussing these with management, with KPMG
and then considering actions to be taken in response.

Overall, the Committee was satisfied that there had been
appropriate focus and challenge on the key areas of audit
risk, and that KPMG had provided an effective Group audit.

KPMG’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.

In accordance with the Committee’s policy on non-audit
services, the external auditor will not provide services that
have the potential to impair, or appear to impair, the external
auditor’s independence or objectivity, and approval from the
Committee is required before the external auditor is appointed
to carry out non-audit work. In reaching its decision, the
Committee will consider whether it is in the best interests of
the Company for the services to be provided by the external
auditor. Approval will be granted where it can be demonstrated
by the external auditor that it has the necessary expertise and
capability to undertake the work cost effectively.

Appointment of external auditor
The Committee is responsible for overseeing the selection
process relating to the appointment of the external auditor
and approving the external auditor’s remuneration, its terms
of engagement and scope of work.

During 2016, a tender process for the external auditor was
of particular focus for the Committee. KPMG has been the
Company’s external auditor since 1998 and, in light of its
length of tenure, it was agreed that a competitive tender
process would be appropriate and that KPMG should not
be invited to participate.

At the Board’s request, the Committee oversaw a rigorous
audit tender process which was led by the Committee Chairman.
The Committee delegated authority to the Committee Chairman,
the Group Finance Director and the Group Financial Controller
(the 'Selection Panel') to compile the candidate shortlist for the
Committee to recommend to the Board. The tender participants
were provided with information on the Group and invited to
attend a number of meetings with senior management to gain
insight into the Group’s operations, risks and requirements. In
order to ensure that the independence of the external audit
was preserved, each firm was required to disclose all existing
relationships with the Group and explain, where necessary, its
proposals for ensuring that a conflict of interest would not arise
should this firm be appointed as external auditor.

The participant firms then presented their audit proposals to
the Selection Panel which, after careful consideration of each of
the proposals against Spectris’ performance criteria, shortlisted
two possible candidates to be recommended to the Board for
the external auditor position. The criteria included, but were
not limited to, the lead partner and audit firm’s industrial listed
company experience, the use of technology and data analytics
throughout the audit, the approach for identifying and
addressing emerging market fraud risks, the value add from
the audit process, and its proposed outline and transition
approach towards the audit. The Selection Panel shortlisted
Deloitte and PwC as the preferred candidates and its
suggestions, and the rationale for the choices, were put
to the Committee for review.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Accountability continued
Audit and Risk Committee Report continued

Deloitte was invited to attend the Committee’s July 2016
meeting, and presented a summary of its proposition, key
differentiators covering its distinctive audit approach and the
team strengths. At the conclusion of the presentation, the
Committee agreed to recommend to the Board that Deloitte be
appointed external auditor to the Group at the conclusion of the
2016 audit. The proposal will be put to shareholders at the 2017
AGM, and the Committee would like to thank KPMG for their
past contribution to Spectris plc, and PwC and the other firms
involved in the audit tender. The Deloitte Audit Partner will be
Mr Mark Mullins.

Internal control and risk management systems
The Board is responsible for determining the nature and extent
of the significant risks it is willing to take in achieving its
particular objectives and is ultimately responsible for the
effectiveness of the internal control systems that safeguard
shareholders’ investments and the Company’s assets. To ensure
the effectiveness of these systems, at the Board’s request,
a robust assessment of the principal risks facing the Group
is undertaken by the Committee.

Before reporting its findings and recommendations to the Board,
the Committee:

Statutory Audit Services compliance
The Company confirms its compliance with the requirements
of the Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014 for the year
ended 31 December 2016.

Internal audit
The Committee has oversight responsibilities for the Internal
Audit function which is led by the Head of Internal Audit.
The purpose of the Internal Audit function is to provide
independent, objective assurance to add value and improve
the Group’s operations. Its responsibilities include assessing
the key risks of the organisation and examining, evaluating
and reporting on the adequacy and effectiveness of the
systems of internal control and risk management in place, and
the governance processes in operation throughout the Group.

During the year, the Committee considered the internal audit
programme for the forthcoming year and reviewed the proposed
audit approach, coverage and allocation of resources.

The Committee also reviewed the progress updates against
the 2016 activity of Internal Audit, received reports on issues
of significance to the Group and reported to the Board on its
evaluation of these findings.

In the latter half of the year, an effectiveness review of the
Internal Audit function was undertaken, taking into account the
views of Directors and senior management across the Group on
matters such as independence, proficiency, resourcing, and audit
strategy, planning and methodology.

The review confirmed that the Internal Audit function was
independent and objective, and remained an effective element
of the Group’s corporate governance framework.

• evaluates the results and recommendations of audits

undertaken by the internal audit team and the
external auditor;

• reviews reports received on significant control issues to the

Group and considers and challenges as necessary the
adequacy of management’s response to any matters raised;
• appraises the Group’s response to information security and

data protection risks;

• considers common control themes identified throughout
the business, and where themes were identified, ensures
that subsequent action has been taken to minimise the risk;

• assesses the Group’s responsibilities relating to regulated

exposures of the Group;

• reviews the annual Audit and Risk Committee agenda; and
• has oversight of the new governance and risk management
framework, including a definition of risk appetite by risk
category and principal risk, put in place throughout the Group.

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.

Business model
A description of the Group’s business model can be found in
the Strategic Report on pages 10 and 11.

GovernanceFollowing review and comment by both the Committee and the
Board, the Annual Report and Accounts was subject to final
approval by the Board.

The Committee was satisfied with the process undertaken
in preparing the Annual Report and Accounts. Following
discussions at our February 2017 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
In accordance with the requirements of the UK Corporate
Governance Code 2014, the Committee monitored the longer-
term prospects of the Group throughout the year. In assessing
the viability of the Company, the Committee took into
consideration the current position and prospects of the Group,
risk appetite, and the range of internal and external factors,
including the significant risks as described on pages 32 to 39
of the Strategic Report.

The Committee also sought management input into its
assessment of the viability of the Company and the Group and,
after due consideration of the results of its overall assessment,
the Committee recommended the Viability Statement for
approval by the Board.

The Viability Statement can be found on page 40 of the
Strategic Report, and includes details of the processes,
assumptions and testing which underpin it.

Going concern
The going concern statement can be found on page 94.

Whistleblowing policy and process
Details of the Group’s whistleblowing policy are provided
within the Ethics Report on page 51.

Fair, balanced and understandable
The Code requires the Board to confirm that it considers
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
Annual Report involved the following:

• Specific ownership and responsibility for the individual sections
was allocated and documented, and 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 review 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 2016 meeting, the Committee reviewed the
initial draft of the Annual Report and Accounts, during which
it probed and tested disclosures.

• At our February 2017 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.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Relations with Shareholders

Spectris has a comprehensive investor relations programme
designed to assist existing and potential investors in understanding
the Group. The Board believes that meaningful engagement with
its institutional shareholders is integral to the continued success of
the Company. In addition to the investor presentations held for the
half-year and full-year results, Spectris conducts regular dialogue
with institutional shareholders and discloses such information as
is permitted by the Listing Rules. Investor meetings are attended
by the Chief Executive, the Group Finance Director or the Head
of Corporate Affairs or a combination thereof. 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 management. The Board is kept informed of the views, needs
and expectations of shareholders through presentations and
periodic reports including, but not limited to, investor feedback,
shareholding analysis and consensus estimates. Russell King, the
Senior Independent Director, is available to shareholders if they
have concerns that contact through the normal channels has
failed to resolve.

During the year, the Company engaged and consulted
with shareholders in relation to the proposed changes
to the Executive Directors’ Remuneration Policy.

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 2016
During the year, we held face-to-face meetings and telephone
conference calls with both our existing institutional investors
and with potential investors.

We have a geographically-diverse shareholder base and the
table below illustrates the location of the Company‘s existing
shareholders between the UK, North America, Europe and Asia:

Geographical investor analysis

Annual General Meeting
The Company’s AGM takes place in May, and shareholder
attendance is encouraged as it provides our shareholders with
the opportunity to meet the Board, discuss the Company’s
strategy, and raise any questions they have. The Notice of AGM,
and any related papers, is sent to shareholders ahead of the
meeting. All Directors attend the AGM, unless unforeseen
circumstances arise, and 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 2016 AGM

Resolution

Receive Annual Report
and Accounts

Directors’ Remuneration
Report

Declare a final dividend

For

Against

Percentage

of votes cast

Percentage
of votes cast

99.93

99.71

100.00

0.07

0.29

0.00

4–11 Appointment of Directors

94.45–99.92

5.55–0.08

Appoint KPMG as auditor

Auditor’s remuneration

Authority to allot shares

Authority to allot equity
security

Purchase own shares

Allow general meetings
on 14 days’ notice

98.56

99.24

93.47

98.59

99.29

91.30

1.44

0.76

6.53

1.41

0.71

8.70

No significant votes were cast against any of the resolutions put
to the 2016 AGM.

North America

Europe (excluding UK)

Rest of the world

Other

Total

Shareholders
%

100

Governance
Directors’ Remuneration Report

Letter from the Chairman of the Remuneration Committee

Executive Directors’ base salary
and total package continue to be
set modestly, below the median
of UK quoted companies of
comparable size.

“ With only modest changes,

our current Remuneration Policy
effectively supports the Group’s
strategic goals and I commend
it to shareholders.“

Russell King
Chairman of the Remuneration Committee

I am pleased to present the 2016 Directors’ Remuneration Report.

Remuneration Policy
Our Remuneration Policy falls for approval at the 2017 AGM
and, in this context, the Committee has considered whether
the current remuneration framework effectively supports
the delivery of the Group’s strategic goals and creation
of shareholder value. We considered a range of potential
approaches, but as the current Policy works well are only
proposing very modest changes. In summary:

• Performance Share Plan (‘PSP’) awards to Executive Directors
will now be subject to an additional two-year holding period
following the three-year vesting point, during which awards
will not be exercisable and will remain available for malus/
clawback. Dividend entitlements for vested awards will
continue to accrue during the holding period. A separate
resolution will be put to the 2017 AGM to extend the life
of the PSP for a further ten years and to incorporate these
holding period changes.

• No changes are presently proposed to the current PSP

performance measures (one-third each on Earnings Per Share
(‘EPS’), Economic Profit (‘EP’) and relative Total Shareholder
Return (‘TSR’)). However, the various performance scales are
more demanding than the market norms and the size of grant
is set modestly, below median. Therefore, we are proposing
that the EPS growth range for new awards be reduced from
CPI + 5-13% p.a. to CPI + 5-11% p.a.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Directors’ Remuneration Report continued
Remuneration Committee Report continued

• The Chief Executive’s bonus opportunity has fallen below
the appropriate market median level and will be increased
from 125% to 150% of salary. We are aware of the
inflationary impact of any increase and, at Spectris, we have
never chased the market. We are, however, conscious that
significant increases were necessary in 2014 to address a
market misalignment and are keen that this should not occur
again. John O’Higgins has been our Chief Executive since
January 2006 and is one of the most experienced senior
executives in the industry, so we consider it important to
ensure that the bonus opportunity is set appropriately. The
on-target bonus level will remain unchanged at 60% of salary
and so the additional bonus potential would only be achieved
for significant outperformance.

• A separate resolution will be put to the 2017 AGM, renewing

the Savings Related Share Option Scheme, in which the
Executive Directors may participate.

The key elements of the Executive Directors’ remuneration
arrangements, if the new Policy is approved, will thus be:

• base salary and total package continue to be 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;
• on-target and maximum annual bonus of, respectively,
60% and 150% of base salary for the Chief Executive
(60% and 125% of base salary for the Group Finance
Director), only payable on achievement of stretching
profit and individual objectives;

• annual awards under the Company’s PSP continuing to be set
at up to 200% of base salary, with vesting after three years
based one-third upon TSR relative to the FTSE 250 excluding
investment trusts, one-third upon adjusted EPS growth, and
one-third on EP delivery;

• benefits provided on a market-competitive basis; and
• any bonus payment in excess of 60% of salary 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.

2016 remuneration
2016 presented difficult trading conditions but nevertheless the
Group achieved an 11% increase in adjusted profit before tax
and a 12% increase in adjusted earnings per share. The target
range for profit before tax for the purposes of the Executive
Directors‘ annual bonus was established by your Committee at
the outset of the year as follows:

£165.4m

50%

£181.4m

100%

£200m

Accordingly, an outcome of 88.44% was achieved.

Strong progress was achieved against the personal objectives
set in respect of 2016. Your Committee assessed outcomes
of 23.5% for the Chief Executive and 25% for the Group
Finance Director.

However, longer-term three-year PSP awards maturing in
March 2017 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 2016, the PSP
grants maturing in March 2018 are also unlikely to vest on the
EPS, TSR or EP measures. The grants made in March 2016 are
too early in their three-year performance period for the
Committee to make reliable predictions as to their outcome.

The above demonstrates the robust approach the Committee
adopts in setting targets. We believe this should give our
shareholders confidence that our variable pay arrangements
will continue to be operated appropriately going forward.

2017 reviews
The Committee’s remuneration advisers, FIT Remuneration
Consultants LLP (‘FIT’), completed the biennial benchmarking
review of the Chairman’s fee during 2016. Based on the results
of that review, the Committee determined that a 4.8% increase
to £220,000 p.a., aligning the Chairman’s fee to market levels,
should be implemented with effect from 1 January 2017.

Additionally, FIT completed the biennial benchmarking review of
Non-executive Directors‘ fees. Based on the results of that review,
the Board has agreed that the Non-executive Director‘s base
fee be increased to £55,000 p.a. and the Senior Independent
Director’s fee be increased to £10,000 p.a. The Chairman’s fee
for both the Audit and Risk Committee and the Remuneration
Committee remains unchanged at £10,000 p.a. The travel
supplement paid to W C Seeger and M B Wyrsch was increased
to £15,000 p.a. These increases reflect fees paid at comparator
group companies and, in respect of the travel supplement paid
to US Non-executive Directors, the need to remain competitive
against global benchmarks.

The Executive Directors’ salaries were increased at a level
consistent with average UK wage inflation as below:

J E O’Higgins

C G Watson

2017 salary

£597,000

£378,500

Percentage
increase

3.3%

3.0%

I trust you will agree that your Committee has taken the
required steps on your behalf to set and implement an
appropriate remuneration strategy for the Company, and
that you will support the remuneration-related resolutions
being put to you at the AGM.

Yours faithfully

Russell King
Chairman of the Remuneration Committee
14 February 2017

Governance
The Directors present their Remuneration Report for the year
ended 31 December 2016.

Composition of the Committee
The Remuneration Committee comprises:

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 (www.spectris.com) and
are available on request.

The Remuneration Committee regularly reviews the balance
between fixed and variable pay and the performance
conditions that attach to both short-term 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. Other than providing Non-executive Director
fee benchmark information against the same comparators as
used elsewhere, FIT does not provide any other services to
the Company.

Aon Hewitt (‘Aon’) separately provides 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. Aon does not provide any other
services to the Company. FIT was paid £47,469 in respect of
services undertaken in 2016 (2015: £4,528). Aon was paid
£46,450 in respect of services undertaken in 2016 (2015:
£38,950). These fees were charged on the basis of each firm’s
standard terms of business. Both FIT and Aon 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.

• Russell King (Chairman)
• Ulf Quellmann
• Kjersti Wiklund

All members of the Committee are independent Non-executive
Directors.

Committee meetings
The Committee met five times during the year. Committee
attendance is disclosed on page 58. 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.

Remuneration Committee allocation of time
(%)

1 Remuneration Policy and
related investor engagement
2 Annual bonus
3 Governance including Directors’
Remuneration Report
4 Performance Share Plan
5 Salary reviews
6 Operating company

incentive plans

Activities in 2016
Key issues considered by the Committee during the
year included:

• review of the Remuneration Policy in advance of the

required 2017 AGM approval;

• 2017 salary reviews for Executive Directors, Executive

Committee members and Presidents;

• Operating company management incentives;
• the 2015 Directors’ Remuneration Report;
• 2013 PSP grant vesting;
• the 2016-2018 EP range;
• Executive, head office and operating company 2016

PSP grants;

• the Executive Directors‘ 2015 bonus out-turn; and
• 2016 Executive and operating company management

bonus plans.

40
15

15
15
10

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc
Directors’ Remuneration Report continued

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, and thereby
promotes the long-term success of the Company.

Element of remuneration
package

Base salary

Relevance to the Company’s
short-term and long-term strategic
objectives

Competitive fixed remuneration
that enables Spectris to attract
and retain key executives.

Operation

Reviewed annually.

Benchmarked triennially against relevant comparators.

Annual bonus5

Drives short-term profit
performance.

Incentivises executives to achieve
specific pre-determined stretching
objectives relevant to Spectris
and the individual’s personal
responsibilities.

Bonus potential is set at a market-competitive level.

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.

Maximum bonus increased to 150% of salary from

The performance measures to be applied will be assessed

Increase in

2017 for the Chief Executive (previously 125%).

annually and may be financial or non-financial and corporate,

maximum annual

Maximum bonus for the Group Finance Director

divisional or individual and in such proportions as the

bonus potential for

(or any other Executive Director) remains at 125%

Committee considers appropriate. However, the weighting

the Chief Executive

Payable in cash.

of salary.

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.

The Spectris Performance
Share Plan (‘PSP’)5

Drives the delivery of sustained
compound annual growth in EPS,
relative out-performance in TSR
and increased economic profit.

Awards are made annually, with a three-year vesting duration. The
Committee may modify the terms for future awards provided they are
not, in the view of the Committee, overall, more favourable to participants.

Subject to similar clawback provisions as described above for annual bonus.

200% of salary. Notional re-investment of dividends

The Committee may set such performance conditions on

Introduction

will apply from date of grant to the date when the

PSP awards as it considers appropriate (whether financial or

of two-year

shares are first capable of release, including for any

non-financial and whether corporate, divisional or individual).

post-vesting

vested shares subject to a holding period.

From 2017, subject to a two-year holding period following the initial
three-year vesting period where awards are not exercisable and will be
available for malus/clawback.

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
tax-advantaged 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.

Maximum potential

value1

Performance metrics2

Changes from

previous policy3

The current intent is to limit any increases for

Reflects both the role and the Director’s skills, performance

No material

Executive Directors to the average increase for

and experience, referenced to a level at or modestly below

changes.

general UK wage inflation although the Committee

the comparator group’s median.

reserves the right to award increases in excess of this

should it consider that to be appropriate.

However, to ensure an appropriate cap applies for

the duration of this Directors’ Remuneration Policy:

(i) 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, and (ii) no Executive Director‘s salary will

exceed £750,000.

of financial measures will not be reduced below 75% of total

to 150% of salary

annual bonus potential for the duration of this policy.

from 2017.

Once set, performance measures will generally remain

Otherwise, no

unchanged for the year, except to reflect events such as

material changes.

corporate acquisitions or other major transactions.

A minimum (threshold) level of performance will result

in a bonus of 1% of salary. At target, the bonus level is

60% of salary for the Chief Executive and for the Group

Finance Director.

holding period.

Otherwise, no

material changes.

A minimum (threshold) level of performance will result in

vesting of 20% of a PSP award.

The Committee would consult with major shareholders

if it proposed changing materially the current performance

measures applied for PSP awards made to Executive Directors

or the weightings between these measures.

As is normal, the Committee will have the power to vary

the terms of performance conditions after awards have been

made to take account of technical changes, for example

changes in accounting standards or the takeover of a

company in a TSR comparator group, or if an event occurs

that causes the Committee to consider that the performance

condition can no longer achieve its original purpose.

However, the amended performance condition will have

to be, in the Committee’s view, no less challenging in the

circumstances as a result of the change.

GovernanceThe Directors’ Remuneration Policy
The Company intends that, subject to shareholder approval,
the following Directors’ Remuneration Policy will take effect
from 26 May 2017, being the date of the 2017 AGM.

The table below describes each component of the remuneration
package applicable to the Executive Directors:

Relevance to the Company’s

Element of remuneration

short-term and long-term strategic

package

Base salary

objectives

Operation

Competitive fixed remuneration

Reviewed annually.

that enables Spectris to attract

and retain key executives.

Benchmarked triennially against relevant comparators.

Annual bonus5

Drives short-term profit

Bonus potential is set at a market-competitive level.

performance.

Incentivises executives to achieve

in Spectris until the minimum holding of three times base salary is achieved.

Bonus payments in excess of 60% of salary must be used to acquire shares

specific pre-determined stretching

objectives relevant to Spectris

and the individual’s personal

responsibilities.

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.

Maximum potential
value1

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.

However, to ensure an appropriate cap applies for
the duration of this Directors’ Remuneration Policy:
(i) 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, and (ii) no Executive Director‘s salary will
exceed £750,000.

Maximum bonus increased to 150% of salary from
2017 for the Chief Executive (previously 125%).
Maximum bonus for the Group Finance Director
(or any other Executive Director) remains at 125%
of salary.

The Spectris Performance

Drives the delivery of sustained

Awards are made annually, with a three-year vesting duration. The

Share Plan (‘PSP’)5

compound annual growth in EPS,

Committee may modify the terms for future awards provided they are

relative out-performance in TSR

not, in the view of the Committee, overall, more favourable to participants.

and increased economic profit.

200% of salary. Notional re-investment of dividends
will apply from date of grant to the date when the
shares are first capable of release, including for any
vested shares subject to a holding period.

Subject to similar clawback provisions as described above for annual bonus.

From 2017, subject to a two-year holding period following the initial

three-year vesting period where awards are not exercisable and will be

available for malus/clawback.

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

tax-advantaged 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.

Performance metrics2

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.

Changes from
previous policy3

No material
changes.

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. However, the weighting
of financial measures will not be reduced below 75% of total
annual bonus potential for the duration of this policy.

Increase in
maximum annual
bonus potential for
the Chief Executive
to 150% of salary
from 2017.

Once set, performance measures will generally remain
unchanged for the year, except to reflect events such as
corporate acquisitions or other major transactions.

Otherwise, no
material changes.

Introduction
of two-year
post-vesting
holding period.

Otherwise, no
material changes.

A minimum (threshold) level of performance will result
in a bonus of 1% of salary. At target, the bonus level is
60% of salary for the Chief Executive and for the Group
Finance Director.

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).

A minimum (threshold) level of performance will result in
vesting of 20% of a PSP award.

The Committee would consult with major shareholders
if it proposed changing materially the current performance
measures applied for PSP awards made to Executive Directors
or the weightings between these measures.

As is normal, the Committee will have the power to vary
the terms of performance conditions after awards have been
made to take account of technical changes, for example
changes in accounting standards or the takeover of a
company in a TSR comparator group, or if an event occurs
that causes the Committee to consider that the performance
condition can no longer achieve its original purpose.
However, the amended performance condition will have
to be, in the Committee’s view, no less challenging in the
circumstances as a result of the change.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Directors’ Remuneration Report continued

Element of remuneration
package

Pension and benefits
in kind4

Relevance to the Company’s
short-term and long-term strategic
objectives

Market-competitive defined
contribution pension and benefits
in kind, enabling Spectris to attract
and retain key executives.

Operation

Benefits in kind include company cars or allowances, private fuel,
medical insurance and life and disability insurance.

Pension and benefits in kind are benchmarked periodically.

25% of salary company pension contribution and/or

Not applicable to this element.

Performance metrics2

Maximum potential

value1

taxable allowance in lieu.

Changes from

previous policy3

No material

changes.

All-employee share
plans

Share ownership
guidelines

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.

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 the level allowed by HMRC
(currently £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.

Notes
1 Stating maximum amounts for the Directors’ Remuneration Policy.

The regulations governing directors’ remuneration reports and related investor guidance encourage companies to disclose a cap within which each element of
remuneration policy will operate. Where maximum amounts for elements of remuneration have been set within the Directors’ Remuneration Policy, these will operate
simply as caps and are not indicative of any aspiration.

2 Rationale for performance measures chosen:

• Annual bonus – the performance conditions used to determine bonus achievement are selected by the Committee with the emphasis on driving growth in annual
adjusted profit before tax and aspiring to meet or exceed stretching targets, to the benefit of shareholders. The remaining bonus component aims to reward the
achievement of significant and demanding personal performance objectives.

• PSP – the rationale for the EPS, TSR and EP performance measures that will apply to PSP awards to be made in 2017 is that these performance measures promote

an appropriate balance between absolute financial performance, strong relative performance and the efficient application of capital resources in generating profits.

3 Differences between the policy on remuneration for Directors from the policy on remuneration for other employees.
Where the Company’s pay policy for the Executive Directors differs from its pay policies for groups of employees, this reflects the appropriate market rate position for

the relevant roles.

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 as it

considers appropriate.

A departing gift may be provided up to a value

of £2,500 per Director.

Executive Directors are able to participate in

Consistent with normal practice, such awards are

all-employee share plans on the same terms

not subject to performance conditions.

No material

changes.

as other Group employees.

Each Executive Director is, subject to personal

Not applicable to this element.

No material

changes.

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.

Governance
Element of remuneration

short-term and long-term strategic

Relevance to the Company’s

objectives

Operation

package

in kind4

Pension and benefits

Market-competitive defined

Benefits in kind include company cars or allowances, private fuel,

contribution pension and benefits

medical insurance and life and disability insurance.

in kind, enabling Spectris to attract

and retain key executives.

Pension and benefits in kind are benchmarked periodically.

All-employee share

The Spectris Savings Related Share

Individuals may save up to a maximum of the level allowed by HMRC

plans

Option Scheme is operated to

(currently £500 per month) for a fixed period of three years. At the end of

encourage share ownership by

the savings period, individuals may use their savings to buy ordinary shares

employees, thereby allowing them

in the Company. There is flexibility to set an exercise price at a discount

to share in the long-term success

(currently capped at 20%) to the market price set at the launch of each

of the Group and align their

scheme although Spectris does not currently offer such a discount.

Share ownership

To encourage share ownership by

Executive Directors are required to apply the post-tax benefit of any vested

guidelines

the Executive Directors and ensure

PSP awards or any bonus payments exceeding 60% of base salary to the

that their interests are aligned with

acquisition of shares until the required level of shareholding is achieved.

interests with those of

shareholders.

Maximum potential
value1

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 as it
considers appropriate.

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 terms
as other Group employees.

Performance metrics2

Not applicable to this element.

Changes from
previous policy3

No material
changes.

Consistent with normal practice, such awards are
not subject to performance conditions.

No material
changes.

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.

No material
changes.

4 While the Committee does not consider it to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality (whether paid for

by Spectris or another) and business travel (including any related tax liabilities settled by the Company) for the Directors (and exceptionally their family members) may
technically come within the applicable rules and so the Committee expressly reserves the right for the Committee to authorise such activities within its agreed policies.

5 Discretions reserved in operating incentive plans.

The Committee will operate the annual bonus plan and PSP according to their respective rules and the above Directors’ Remuneration Policy table.
The Committee reserves certain discretions, consistent with market practice, in relation to the operation and administration of these plans including:
• (as described in the above table) the determination of performance measures and targets and resultant vesting and pay-out levels;
• (as described in the above table) the ability to adjust performance measures and targets to reflect events and/or to ensure that the performance measures

and targets operate as originally intended;

• (as described in the Termination arrangements section on page 81) determination of the treatment of individuals who leave employment, based on the rules

of the incentive plans, and the application of the incentive plans under exceptional events, such as a change of control of the Company; and

• the ability to make adjustments to existing awards made under the incentive plans in certain circumstances (e.g. rights issues, corporate restructurings

or special dividends).

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc
Directors’ Remuneration Report continued

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

Fees

Relevance to the Company’s
short and long-term strategic
objectives

Competitive fees that enable
Spectris to attract able and
experienced Directors.

Operation

Normally reviewed biennially and determined by reference to
market practice (although the Board may review at other times).

Base fee is supplemented by fees for chairmanship of the Audit
and Risk and Remuneration Committees and for the Senior
Independent Director. Travel allowances are paid, where applicable.
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.1

Note
1 It is not the policy of the Company to provide benefits to the Chairman or the Non-executive Directors. However, while the Committee does not consider

it to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality (whether paid for by Spectris or another)
and business travel (including any related tax liabilities settled by the Company) for the Directors (and, exceptionally, their family members) may technically
come within the applicable rules and so the Committee expressly reserves the right for the Committee to authorise such activities within its agreed policies.

Maximum potential

value

Performance metrics

Changes from

previous policy

The aggregate fees of the Chairman and Non-executive

Not applicable to this element.

No material changes.

Directors will not exceed the limit from time to time

prescribed within the Company’s Articles of Association

(currently £650,000 p.a.).

A departing gift may be provided up to a value of £2,500

per Director.

40
26
24
10

Recruitment remuneration
The Company’s recruitment remuneration policy aims to give
the Committee sufficient flexibility to secure the appointment
and promotion of high-calibre executives to strengthen the
management team and secure the skill sets to deliver the
Company’s strategic aims.

• In terms of the principles for setting a package for a new

Executive Director, the starting point for the Committee will
be to look to the general policy for Executive Directors as set
out above and structure a package in accordance with that
policy. Consistent with the regulations, the caps contained
within the general policy for fixed pay technically do not apply
to a recruit, although the Committee would not envisage
exceeding such caps in practice.

• Ignoring any one-off buy-out arrangements which may prove
to be necessary, the annual bonus and long-term incentive
arrangements will operate (including the maximum award
levels) as detailed in the general policy in relation to any
newly-appointed Executive Director.

• For an internal appointment, any variable pay element

awarded in respect of the prior role may either continue on its
original terms or be adjusted to reflect the new appointment
as appropriate.

• For external and internal appointments, the Committee may

agree that the Company will meet certain relocation expenses
as it considers appropriate.

The graph below details the Executive Directors’ anticipated
reward mix should the Directors’ Remuneration Policy be
approved at the AGM:

Executive Directors’ anticipated reward mix
(%)

1 Base pay
2 Performance Share Plan
3 Annual bonus
4 Pension

GovernanceThe table below describes the remuneration package applicable to the Chairman and the Non-executive Directors under

the Directors’ Remuneration Policy:

Element of remuneration

short and long-term strategic

Relevance to the Company’s

objectives

Operation

package

Fees

Competitive fees that enable

Normally reviewed biennially and determined by reference to

Spectris to attract able and

market practice (although the Board may review at other times).

experienced Directors.

Base fee is supplemented by fees for chairmanship of the Audit

and Risk and Remuneration Committees and for the Senior

Independent Director. Travel allowances are paid, where applicable.

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.1

Note

1 It is not the policy of the Company to provide benefits to the Chairman or the Non-executive Directors. However, while the Committee does not consider

it to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality (whether paid for by Spectris or another)

and business travel (including any related tax liabilities settled by the Company) for the Directors (and, exceptionally, their family members) may technically

come within the applicable rules and so the Committee expressly reserves the right for the Committee to authorise such activities within its agreed policies.

Maximum potential
value

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
(currently £650,000 p.a.).

A departing gift may be provided up to a value of £2,500
per Director.

Performance metrics

Changes from
previous policy

Not applicable to this element.

No material changes.

• All awards for external appointments and which are buy-out
awards made to compensate for awards forfeited on leaving
the previous employer will be capped at the commercial value
of the amount forfeited and will take account of the nature,
time horizons and performance requirements of those
awards. In particular, the Committee’s starting point will be to
ensure that any awards being forfeited which remain subject
to outstanding performance requirements (other than where
substantially complete) are bought out with Spectris awards
subject to replacement requirements and any awards with
continuing service requirements are bought out with
similar terms. However, exceptionally, the Committee may
relax these obligations where it considers it to be in the
interests of shareholders and those factors are, in the view
of the Committee, equally reflected in some other way, for
example through a significant discount to the face value
of the awards forfeited.

• Buy-outs may be made under the annual bonus, PSP or made
on varied terms (in reliance on Listing Rule 9.4.2). Buy-outs
will only include guaranteed amounts under the annual bonus
where the Committee considers that it is necessary to secure
the recruitment. For the avoidance of doubt, buy-out awards
to compensate for awards forfeited are not subject to a
formal cap.

A new Chairman or Non-executive Director would be recruited
on terms consistent with the main policy for such Directors.

Termination arrangements
It is the practice of the Committee to consider the treatment
on termination having regard to the relevant facts and
circumstances. The contracts permit the Committee to
make payment on a monthly basis with payments reducing
or ceasing if the individual finds another position during the
notice period, and termination arrangements will normally
follow this approach. However, the Committee reserves the
power to negotiate a single lump-sum payment on termination
if it considers that to be in the interests of the Company and
will have full regard to the duty to mitigate if it does so.

Ordinarily, no bonus payments would be made and all share
awards would lapse following termination. Under certain
circumstances, however, for example good leaver, provisions
covering retirement and ill health, bonus entitlements may be
payable, calculated to the date of termination only. Additionally,
awards made under the PSP will remain exercisable subject to
time pro-rating and the application of the performance
conditions at the measurement date. The Committee also retains
a standard ability to vary or disapply time pro-rating for PSP
awards for good leavers where it considers it fair and reasonable
to do so or to allow good leavers’ PSP awards to vest at the date
of termination (subject to time pro-rating and the application
of performance conditions) in exceptional cases. Likewise, on a
change of control, PSP awards may vest in accordance with the
rules of the plan (performance conditions and time pro-rating

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Directors’ Remuneration Report continued

apply, subject to a standard ability for the Committee to
vary or disapply time pro-rating). Vested PSP awards which
are subject to a holding period will not normally be forfeited on
a termination and the holding period will continue to apply to
such awards (although the Committee may release awards early
from the holding period in appropriate cases). If the reason for
termination is misconduct, vested PSP awards which are subject
to a holding period will be forfeited.

In addition, and consistent with market practice, in the event
of termination of an Executive Director, the Company may pay
a contribution towards the individual’s legal fees and fees for
outplacement services as part of a negotiated settlement.
Any such fees would be disclosed as part of the detail of the
termination arrangements. Should it become necessary to make
additional payments in respect of such professional fees that
were not ascertained at the time of reporting, the Company
may do so up to a level of a further £10,000. For the avoidance
of doubt, the policy does not include an explicit cap on the cost
of termination payments.

The Committee may also, after taking appropriate legal advice,
sanction the payment of additional sums in settlement of
potential legal claims.

Service contracts
The Executive Directors have rolling contracts subject to
12 months’ notice of termination by either party, or to summary
notice in the event by the Director of a serious breach of
obligations, dishonesty, serious misconduct or other conduct
bringing the Company into disrepute.

Mr O’Higgins’ and Mr Watson’s contracts of employment
contain an option, at the sole discretion of the Board, for the
contract to be terminated by way of payments in lieu of notice
equivalent to 1.4 times monthly base salary for the outstanding

months of the notice period. This was reduced, in 2011, from
the previous level of 1.65 times to exclude any element of
compensation for loss of bonus and is in full and final settlement
of all employment-related claims. In such circumstances, the
Director also becomes subject to a contractual best endeavours
obligation to seek alternative employment and in this event full
mitigation applies reflective of any earnings from a new position
(reducing the payments otherwise due from the Company
during the notice period). This phased payment provision,
subject to reduction as explained above, applies in lieu of all
remuneration and benefits otherwise payable during the notice
period. The 0.4 times uplift on monthly salary accounts for the
25% employer pension contribution; company car, insurance
and fuel benefits; mobile telephone provision; life, disability
and medical expenses insurances; and settlement of any
statutory employment claims that may arise from termination.
Whether the Board elects to apply this payment in lieu option
will depend on the circumstances underlying termination and
its assessment of the best interests of shareholders at the time.
Any bonus payment to a good leaver will be calculated to the
date of termination only.

The Committee is aware of the best practice expectations set
out in the 2008 ABI/Pensions and Lifetime Savings Association
(formerly NAPF) joint statement on executive contracts and
severance and has noted the subsequent updates to the
Pensions and Lifetime Savings Association policy. This guidance,
and any future revisions, will be taken into account before
agreeing any future service contracts. The Committee is
committed to continuous review of its policies in the best
interests of shareholders.

The following table sets out a summary of the Directors’ service
contracts or terms of appointment:

Executive Directors

J E O’Higgins

C G Watson

Non-executive Directors

Date of contract

Expiry date

Notice period

Length of service at
14 February 2017

1 Jan 2006

1 Oct 2006

3 Feb 2029

4 Feb 2023

12 months

11 years 1 month

10 years 4 months

Dr J L M Hughes CBE

1 Jun 2007

renewable at each AGM

R J King

U Quellmann

W C Seeger

M B Wyrsch

K Wiklund

12 Oct 2010

renewable at each AGM

1 Jan 2015

renewable at each AGM

1 Jun 2012

renewable at each AGM

19 Jan 2017

renewable at each AGM

6 months

9 years 8 months

6 years 4 months

2 years 1 month

4 years 8 months

1 month

Governance
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.

Range of remuneration expectations
The following graphs show the remuneration each of the
Executive Directors is expected to receive if their performance
fails to meet threshold (basic), attains target or achieves
maximum under the proposals for variable remuneration
to be approved at the 2017 AGM:

Chief Executive’s remuneration
(£’000)

Basic

Target

Maximum

100% 0% 0%

46% 35% 19%

23%

33%

44%

Fixed pay

Annual bonus

PSP

Group Finance Director’s remuneration
(£’000)

Basic

Target

Maximum

100% 0% 0%

50%

30% 20%

24%

29%

47%

Fixed pay

Annual bonus

PSP

Notes
1 Fixed pay includes: base salary, pension, pension salary supplement,

all-employee share plan participation, benefits in kind and taxable expenses.

2 Annual bonus is based on a percentage of base salary: at target level this

is 60% of base salary; at maximum level this is 150% of base salary.

3 PSP is based on a percentage of base salary: at target level this is 40% of base
salary; at maximum level this is 200%. Each bar shows the percentage of the
total comprised by each of the parts.

Consideration of conditions elsewhere in the Group
The Committee is sensitive to the need to set Directors’
remuneration having regard to pay and employment conditions
in the Group as a whole and is satisfied that the approach taken
by the Company is fair and reasonable in light of current market
practice and the best interests of shareholders. The levels of
remuneration and annual increase awarded to the Presidents
of each of the Group’s operating businesses are taken into
consideration, notwithstanding that these reflect such
businesses’ particular trading position and the geographical
and technical employment markets in which they operate.

Remuneration for Presidents of the Group’s trading companies
is set at competitive levels to reflect the size, complexity and
geographic locations of these businesses. Base salaries fall
within a range between £132,908 and £279,364. Additionally,
the Group’s Presidents participate in share awards under the
PSP, albeit at lower levels than the Executive Directors, and in
profit-related bonus arrangements linked to base salary and
payable according to their business’s achievement of annual
operating profit plus or minus a financing charge/credit arising
from changes in working capital over the year. On-target plan
performance delivers c. 50% bonus, with the upper limit of the
profit range delivering 100% of base salary.

Below this level, a range of different incentive arrangements
apply as appropriate to the business, geography and level.

The Company did not consult with employees in drawing up this
report and no remuneration comparison measures were used.

Consideration of shareholders’ views
The proposals for the new Directors’ Remuneration Policy
were the subject of consultation with the Company’s significant
shareholders and with ISS, the Investment Association, Glass Lewis
and the Pensions and Lifetime Savings Association. The feedback
received from this process was considered and incorporated in the
proposals for the Directors’ Remuneration Policy.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Directors’ Remuneration Report continued

Implementation report
Implementation of the Remuneration Policy for 2017

Element of Remuneration Policy

Implementation detail

Base salary

Annual bonus

Performance Share Plan

Increase in the Chief Executive’s salary to £597,000 and the Group Finance Director’s
salary to £378,500 with effect from 1 January 2017. In line with the Directors’
Remuneration Policy, these increases are at a level consistent with the average increase
in general UK wage inflation.

Bonus maximum for the Chief Executive has been increased to 150% of base salary
(formerly 125% of base salary). Bonus maximum for the Group Finance Director is
unchanged at 125% of base salary. Performance measures for the annual bonus in 2017
are weighted as follows:

• Chief Executive: 125% adjusted profit before tax, 25% personal objectives.
• Group Finance Director: 100% adjusted profit before tax, 25% personal objectives.

The performance targets for the adjusted profit before tax measure and details of the
personal objectives will be disclosed within the 2017 Directors’ Remuneration Report.

Award levels for the Executive Directors for 2017 are unchanged at 200% of base salary.
A two-year holding period will be added for new awards from 2017 onwards.

The performance measures for 2017 awards remain unchanged, with one-third
weightings to each of growth in EPS, relative TSR and EP.

For 2017 awards, the EPS growth range will be reduced from CPI + 5-13% p.a. to
CPI + 5-11% p.a, which remains more demanding than the norm across FTSE 250
companies generally. The TSR condition will remain subject to measurement against
the constituents of the FTSE 250 (excluding investment trusts) with a median to upper
quintile vesting range. The aggregate EP over the performance period for the 2017
award will result in the following levels of vesting:

• Less than £150 million – Nil
• £150 million – 20%
• Between £150 million and £280 million – between 20% and 100%
• £280 million or more – 100%

Additional details:

• The aggregate EP range is determined by the Committee for each new three-year

performance period.

• The performance periods for the EPS and EP measures for the 2017 award will be the

three financial years 2017, 2018 and 2019.

• 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.

• For EP, the weighted average cost of capital was set at 11% for the 2017 awards.
• 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.

Pension and benefits in kind

No changes to these elements from 2016:

• 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 tax-advantaged Savings Related Share
Option Scheme on the same basis as all other UK employees.

Share ownership guidelines

300% of base salary.

Chairman and Non-Executive
Director fees and travel allowance

Increase in the Chairman’s fee to £220,000 p.a., the Non-executive Directors’ fee to
£55,000 p.a. and the Senior Independent Director’s fee to £10,000 p.a. The Audit and Risk
and Remuneration Committee Chairmen‘s fees of £10,000 p.a. were not increased. The
travel supplement paid to W C Seeger and M B Wyrsch was increased to £15,000 p.a.

Governance
Voting outcomes from the 2016 AGM
The 2015 Directors’ Remuneration Report was supported by

99.6% of those registering votes by proxy in advance of the
2016 AGM, as can be seen from the table below:

To approve the Directors’ Remuneration Report
for the year ended 31 December 2015

98,824,502

99.6%

290,398

0.3%

3,992

0.1%

For

Against

Abstain

Number

Percentage

Number

Percentage

Number

Percentage

A vote to approve the current Directors’ Remuneration Policy
was passed at the 2014 AGM. Details of the votes cast in
relation to this resolution were disclosed in the Company’s
Directors’ Remuneration Report for 2014 which is available as
part of the Spectris plc Annual Report and Accounts for 2014.

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

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

578

570

647

–

145

142

1,388

729

367

362

416

–

890

467

Dr J L M
Hughes
CBE

210

200

P A
Chambré

L A
Davis

–

210

200

–

R J
King

U
Quellmann

W C
Seeger

M B
Wyrsch

–

The total aggregate base salaries, fees, benefits, cash bonuses
and cash in lieu of pension for all Directors in 2016 was
£2,815,000 (2015: £1,790,000).

Bonus entitlement achieved in respect of 2016 performance,
based on the targets set at the start of the financial year, was
as follows (as a percentage of salary at 31 December 2016):

Taxable benefits are company cars, private fuel, allowances paid
in lieu of company cars and private fuel, medical expenses
insurance and travel allowance.

2016 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.

J E O’Higgins
C G Watson

111.94%
113.44%

Within the above entitlement for Mr J E O’Higgins and
Mr C G Watson, 88.44% related to the profit before tax
target and the balance to achievement of personal objectives.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc
Directors’ Remuneration Report continued

The profit before tax bonus range established by the Committee
for 2016 was as follows:

Bonus level (as percentage of maximum for this element)

50%

100%

Adjusted profit before tax

£165.4 million

£181.4 million

£200 million

The 2016 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

Objectives

Strategy: Continued execution of the agreed strategy. Progress development of a solutions
platform comprising product and service offerings with complementary software strategies.
Define a growth map for an Industrial Internet of Things driven strategy. Continue sector-
specific strategies focusing on life sciences, energy and industrial services. Maintain focus on
larger transformational platform acquisition ideas which utilise the Group’s current strong
balance sheet. Develop alternative scenarios towards achieving these strategic goals. Consider
shareholder value creation strategies where a large acquisition is not possible in 2016.

Organisation values and operational excellence: Improve the Group’s customer focus
through implementing common customer satisfaction metrics. Embed and implement the
common talent management programme across the Group. Deepen the reach of Lean Six
Sigma principles across the Group as a consistent basis for improving operational excellence
beyond manufacturing activities. Maintain leadership focus on Spectris’ Code of Business
Ethics and improve diversity.

Group Finance Director

Objectives

Cost control: Align cost growth with sales growth. Build cost control mechanisms.
Ramp up process excellence projects across all Head Office finance functions.

Tax and treasury: Improve monthly average working capital to sales percentage ratio.

Internal audit: Process improvements – implement audit findings tracking database.

Weighting

15%

10%

Weighting

25% for all objectives

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.

Similar financial and personal targets have been set for 2017 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).

Share plans
PSP values for 2016 are shown as nil since there was nil vesting
of those shares subject to a TSR performance condition within
the 2013 PSP grant (which vested on 27 February 2016) and the
number of shares vesting during 2017 in respect of the portion
of the 2014 PSP award subject to an EPS growth condition was
also zero.

Governance

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
EP 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 for the 2015 and
2016 awards:

Company EPS performance (2015 and 2016 awards)

Percentage of award that vests (expressed as a percentage of one-third
of the total number of shares subject to an award)

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%

Company TSR performance relative to the FTSE 250
(excluding investment trusts) (2015 and 2016 awards)

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%

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 £250 million

Less than £145 million

£250 million

£145 million

Nil

20%

Between £250 million and
£370 million

Between £145 million and
£275 million

Between 20% and 100% on a
straight-line basis

£370 million or more

£275 million or more

100%

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 million 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 during the year, nor currently participates
in a defined benefit plan.

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 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 EP 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.

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.

For all performance measures, pro-rata straight-line vesting
will apply for achievement of performance between the
thresholds shown.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Directors’ Remuneration Report continued

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.

Directors’ retained shareholdings
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

R J King

W C Seeger

U Quellmann

C G Watson

M B Wyrsch

Executive Directors’ retained shareholdings

y
r
a
a
s

e
s
a
b

f
o

e
p
i
t
l
u
M

12
11
10
9
8
7
6
5
4
3
2
1
0

6,640

3,030

e
n

i
l

e
d
u
g
p
h
s
r
e
n
w
o

e
r
a
h
S

J E O’Higgins

C G Watson

Value of total current interest in shares
as at 31 December 2016 (£’000)

2016
31 December

10,000

287,104

3,000

1,500

131,000

3,000

Shareholdings

2016
1 January

10,000

286,574

3,000

1,000

131,000

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 (normally) limited to one per Director at any time and are
subject to the approval of the Board. Mr Watson is a non-
executive director of Spirax-Sarco Engineering plc and was paid
a fee of £57,000 during 2016. No other external directorships
are held by the Executive Directors.

Governance

Performance graph and table
The table below shows the total remuneration of the Chief Executive over an eight-year period, as well as the bonus award and PSP
vesting rates against maximum opportunity for that period:

J E O’Higgins

2016

2015

2014

2013

2012

2011

2010

2009

Single figure of total
remuneration
(£’000)

Bonus award rates against
maximum opportunity
(%)

PSP vesting rates
against maximum
opportunity
(%)

1,388

729

1,122

2,172

2,995

1,481

1,104

849

100

The graph below shows TSR on a holding of shares with £100 value over the previous eight 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
Source: Datastream (Thomson Reuters)

)
d
e
s
a
b
e
r
(

)
£
(

e
u
a
V

600

500

400

300

200

100

31 Dec 2008

31 Dec 2009

31 Dec 2010

31 Dec 2011

31 Dec 2012

31 Dec 2013

31 Dec 2014

31 Dec 2015

31 Dec 2016

Spectris

FTSE 250 (excluding investment trusts)

This graph shows the value, by 31 December 2016, of £100 invested in Spectris on 31 December 2008, compared with the value
of £100 invested in the FTSE 250 Index (excluding investment trusts) on the same date.

The other points plotted are the values at intervening financial year ends.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Directors’ Remuneration Report continued

Percentage change in the remuneration of the Chief Executive
The base salary and taxable benefits of the Chief Executive increased by 3.3% and 4.4%, respectively, in 2016. The 2016 bonus
of the Chief Executive (paid in February 2017) rose from 0% in 2015 to 111.94% in 2016. This compares to a 3% base salary
increase awarded on average to the Company’s UK employees, a decrease in their taxable benefits of 27.1% and an increase in
their bonuses of 9.2% in 2016. The Committee considers the Company’s UK employees to be the most appropriate comparator
group to the Chief Executive.

Relative importance of spend on pay

140

120

100

t
a
d
a
p
t
i
n
u
0
0
1
a

f
o
e
u
a
V

6
1
0
2
r
e
b
m
e
c
e
D
1
3

2015

Profit before tax

Dividends

Staff costs

2016

The above 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.

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 16

Granted
during
the year

Exercise
price
(p)

Exercised
during
the year

Face value
of options
at date
of grant
(£)

J E O’Higgins

SAYE

C G Watson

SAYE

Total

Sep 2012

Sep 2014

Sep 2015

530

446

1,036

2,012

–

1,695

2,015

530

–

8,984

8,987

1,737

–

17,995

530

35,966

Share
price at
date of
exercise
(p)

1,675

–

Lapsed
during the
year

Options
held
31 Dec 16

Date
exercisable

Expiry
date

–

– Dec 2015 Jun 2016

446 Dec 2017 Jun 2018

1,036 Dec 2018 Jun 2019

1,482

Governance

Directors’ share awards under the Spectris PSP (subject to audit)

Number
of shares
subject to
award at
1 Jan 16

Exercise
price
(p)

Granted
during
the year

Date
granted

Addition
of
reinvested
dividends1

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 16

Market
value of
each share
at date of
award (p)

Performance
period end
date/date

exercisable Expiry date

J E
O’Higgins

27,370

Feb 2013

50,460 May 2014

51,830 Mar 2015

Feb 2016

Total

129,660

C G
Watson

17,390

Feb 2013

32,050 May 2014

32,930 Mar 2015

Feb 2016

Total

82,370

212,030

67,460

42,860

110,320

659,617

1,118,900

1,138,809

1,155,995

4,073,321

419,099

710,677

723,538

734,449

2,587,763

6,661,084

(27,370)

–

2,410.0

Feb 2016

Feb 2023

50,460

51,830

67,460

2,217.4 May 2017 May 2024

2,197.2 Mar 2018 Mar 2025

1,713.6

Feb 2019

Feb 2026

(27,370)

169,750

(17,390)

–

2,410.0

Feb 2016

Feb 2023

32,050

32,930

42,860

2,217.4 May 2017 May 2024

2,197.2 Mar 2018 Mar 2025

1,713.6

Feb 2019

Feb 2026

(17,390)

107,840

(44,760)

277,590

Note
1 Under the terms of the PSP, notional dividends of the Company are applied over award shares during the period until vesting (and from 2017, for any applicable

holding period until exercise), thereby increasing the number of award shares granted. These additional award shares are subject to application of the performance
criteria attaching to the award.

20% of award shares are receivable on achievement of
minimum performance and 100% for maximum.

The aggregate gains on exercise for all Directors under the
Company’s share plans were therefore £nil (2015: £nil).

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 1,713.6 pence for the 2016
awards. For each of Mr O’Higgins and Mr Watson, the value
of the 2016 PSP award was equivalent to 200% of their base
salaries. Details of the performance measures applicable to 2016
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. 4.1% of the 5% limit
has been utilised.

Loss of office payments and payments
to former Directors
No compensation payments on termination of employment
were made to Directors during the year and no such payments
were made to former Directors.

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 2016, the mid-market closing share price
on the London Stock Exchange was 2,313 pence. The highest
mid-market closing share price in the year was 2,313 pence
and the lowest was 1,442 pence.

The awards granted to Mr O’Higgins and Mr Watson in 2013
of 27,370 and 17,390 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 TSR performance condition
is measured independently by Aon. 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.

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
14 February 2017

Company Registration No. 2025003

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Other Statutory Information

The Directors’ Report on pages 53 to 94 is formed of the
Corporate Governance Report, the Directors’ Remuneration
Report and Other Statutory Information. 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 Guidance and
Transparency Rules and the Listing Rules.

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 10 and 11;
• likely future developments of the business on page 7;
• the Group’s principal risks and risk management policies

on pages 30 to 39;

• the Directors’ viability statement on page 40;
• greenhouse gas emissions, methodologies used for
reporting and intensity ratios on pages 43 and 44;

• the Group’s employment policies, including approach to

diversity, the employment of disabled people and employee
involvement on pages 45 to 47; and

• the Group’s R&D activities on pages 6 and 7.

Results and dividends
The results for the year are set out on pages 99 to 169.
Adjusted operating profit for the year amounts to
£200.8 million (2015: £181.1 million).

Dividends paid and proposed are as follows:

Dividends

Interim (paid)

Final (proposed)

Total dividend

2016
Pence per share

2015
Pence per share

18.0

34.0

52.0

17.3

32.2

49.5

The final dividend will be paid on 30 June 2017 to shareholders
on the register on 26 May 2017.

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, 26 May 2017 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 2016 AGM can be found on page 72.
There was no significant vote against any of the resolutions.
The results of the 2017 AGM will be published on the
Company’s website (www.spectris.com) shortly after
the meeting.

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 73 to 91.

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 21 to the Financial Statements on page 139. The Articles,
available on the Company’s website, contain provisions
governing the ownership and transfer of shares.

Authority to purchase own shares
At the 2016 AGM, shareholders authorised the Directors to
make market purchases of the Company’s ordinary shares up
to a maximum number of 11,910,000 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 13 February 2017, the Company had 125,005,123
ordinary shares in issue, of which 5,839,577 were held in treasury.
During the year, 58,395 shares were transferred out of treasury to
meet the Company’s obligations under its share plans, with no
shares being cancelled out of treasury.

Authority to make further market purchases of the Company’s
ordinary shares, if believed appropriate, will be sought at the
forthcoming AGM. The Board currently has no intention of
using this authority.

Authority to allot shares
Included in the special business of the 2017 AGM are
proposals to renew the Directors’ authority to allot shares
up to prescribed limits.

GovernanceMajor shareholders
The Company has been notified, in accordance with Chapter 5
of the Disclosure Guidance and Transparency Rules, of the
following shareholdings. All significant holdings are held by
institutional investors:

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 150 to 153.

Percentage
of issued
share capital
as at
31 December
2016

Percentage
of issued
share capital
as at the
date of this
report

Shareholding
in Spectris
shares

MFS Investment
Management

Fidelity Management &
Research Company

Wellington Management
Company

Marathon Asset
Management LLP

MassMutual Life
Insurance Company

Sprucegrove Investment
Management

BlackRock Inc

14,720,317

13.16

12.36

8,141,073

6,488,075

5,616,834

5,430,114

4,351,150

4,021,546

6.74

5.01

4.79

4.55

3.74

3.21

6.83

5.44

4.71

4.56

3.65

3.37

No changes have been disclosed in accordance with these rules
in the period 31 December 2016 to the date of this report.

Disclosures required under UK Listing Rule 9.8.4R
For the purposes of Listing Rule 9.8.4R, the information
required to be disclosed can be found in the following locations:

Auditor
As described in the Audit and Risk Committee Report, the Audit
Committee led a competitive tender process in which KPMG
was not invited to take part. The Audit and Risk Committee
recommended to the Board that Deloitte be appointed as
external auditor for the 2017 financial year. Resolutions to
approve the appointment of Deloitte as the Company’s auditor
and authorising the Audit and Risk Committee to determine
their remuneration will be proposed at the forthcoming AGM.

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
that would provide for enhanced compensation for loss of office
or employment following a takeover bid.

Section

Required information

Location in Annual Report

(1)

(2)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

Interest capitalised

Publication of unaudited financial information

Not applicable

Details of long-term incentive schemes

Directors’ Remuneration Report

Waiver of emoluments by a Director

Waiver of future emoluments by a Director

Non pre-emptive issues of equity for cash

Not applicable

Item 7, in relation to major subsidiary undertakings

Not applicable

Parent participation in a placing by a listed subsidiary

Not applicable

Contracts of significance

Not applicable

Provision of services by a controlling shareholder

Not applicable

Shareholder waiver of dividends

Shareholder waiver of future dividends

Agreements with controlling shareholders

Not applicable

Page

–

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc Other Statutory Information continued

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.

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.

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 of the development

and performance of the business and the position of the
issues 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, performance, business model and strategy.

By order of the Board.

Roger Stephens
Secretary
14 February 2017

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 (2015: nil).

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.

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.

Company law requires the Directors to prepare Group and Parent
Company Financial Statements for each financial year. Under that
law, the Directors are required to prepare the Group Financial
Statements in accordance with International Financial Reporting
Standards (‘IFRS’) as adopted by the EU and Article 4 of the IAS
Regulation and have also 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 accounting 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.

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the 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.

GovernanceIndependent Auditor’s Report to the Members
Independent Auditor’s Report to the Members
of Spectris plc only
of Spectris plc only

Opinions and conclusions arising from our audit
1. Our opinion on the Financial Statements
is unmodified
We have audited the Financial Statements of Spectris plc
for the year ended 31 December 2016 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
on pages 99 to 170. 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 2016 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.

and fair value less costs to dispose. Recoverable amounts
are calculated based on management’s view of the future
business prospects, forecast trading performance and the
appropriate discount rates to be applied.

 The key sources of estimation uncertainty in determining
the recoverable amount of the Omega Engineering and
ESG Solutions CGUs are in respect of the forecast cash
flows, the long-term growth rates applied and use of
appropriate discount rates.

 Difficult trading conditions in North America, the primary
market for Omega Engineering coupled with operational
challenges; and a prolonged period of low oil and gas
prices, a key driver of the performance of ESG Solutions;
have had an adverse effect on these two CGU’s
performance. This, together with the inherent uncertainties
associated with forecasting and discounting future cash
flows means that the valuation of goodwill and intangible
assets is a key area of judgement that our audit
concentrated on.

 In addition, the Omega Engineering goodwill as at

31 December 2016 has been determined by management
to be sensitive to reasonable possible changes in the
assumptions used, which could result in the calculated
recoverable amount being lower than the carrying value
of the CGU. Additional sensitivity disclosures have been
included in the Group Financial Statements in respect
of Omega Engineering.

Our response:

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, in decreasing order of audit
significance, were as follows:

 We evaluated the process management undertook to

prepare the cash flow forecasts in its impairment model
and compared them against the latest Board approved
plans and management approved forecasts.

 We evaluated the historical accuracy of the above plans

Valuation of goodwill and intangible assets, in particular the
balances relating to Omega Engineering and ESG Solutions
£899.5 million (2015: £786.6 million) Risk vs 2015: ▲
Refer to page 64 (Audit and Risk Committee Report),
pages 105-106 (accounting policy), page 105 (critical
accounting judgements and sources of estimation
uncertainty) and pages 125-128 (financial disclosures).

The risk:

 The Group has goodwill of £654.3 million and intangible

assets of £245.2 million as at 31 December 2016.
Management has allocated the above assets to 14
individual cash-generating units (‘CGUs’) which operate
across a broad range of markets and geographies. Goodwill
must be tested for impairment on at least an annual basis.

 Pre-tax impairment charges of £94.4 million and

£18.9 million were recorded during the year against
the carrying amount of goodwill in relation to Omega
Engineering and ESG Solutions respectively. Additionally,
a pre-tax impairment charge of £1.0 million was recorded
during the year against the carrying amount of other
intangible assets in relation to ESG Solutions.

 The assessment of the recoverability of goodwill and

intangible assets is determined based on the recoverable
amount of the CGU, being the higher of its value-in-use

and forecasts, by comparing the forecasts used in the prior
year model to the actual performance of the business in
the current year.

 We critically assessed the appropriateness of management’s

key assumptions (being forecast cash flows, long-term
growth rates and discount rates), specifically focusing on
Omega Engineering and ESG Solutions CGUs, based upon
our own assessments and a benchmarking against industry
and economic forecasts and peer group comparators.
For ESG Solutions, we also considered metrics such as
future market oil prices.

 We challenged management on the appropriateness of

its sensitivity calculations by applying our own sensitivity
analysis to the key assumptions to evaluate the extent to
which reasonably possible adverse changes would, either
individually or in aggregate, require an impairment of
either the goodwill or intangible assets.

 We identified that the goodwill acquired with Omega
Engineering was most sensitive to changes in key
assumptions. Management has described the impairment
charges recorded and these sensitivities in the ‘Goodwill
and other intangible assets’ Note 11 to the Group Financial
Statements. We considered the adequacy of the Group’s
disclosures in this regard.

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc
Independent Auditor’s Report to the Members
of Spectris plc only continued

Accounting for acquisitions, in particular Millbrook Group
£174.2 million (2015: £44.8 million) Risk vs 2015: ▲
Refer to pages 64 (Audit and Risk Committee Report),
page 105 (accounting policy), page 105 (critical accounting
judgements and sources of estimation uncertainty) and
pages 144-147 (financial disclosures).

The risk:

 During the year, the Group acquired six businesses

including Millbrook Group for a total consideration of
£174.2 million. These acquisitions gave rise to goodwill
and intangible assets of £81.5 million and £45.1 million
respectively.

 There is significant judgement and estimation 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 intangible assets.

 The acquisition of Millbrook Group in the year for cash
consideration of £125.7 million involved the acquisition
of a number of tangible assets including a purpose-built
test facility for cars and heavy duty vehicles and other
specialised test and validation equipment; the valuation
and useful economic life of these specific assets (in total
£54.3 million) required significant judgement as there are
no readily available market values for these assets.
 The liability for contingent consideration arrangements
in respect to past acquisitions was £16.2 million at
31 December 2016. Payments to be made under these
arrangements are contingent on the achievement
of future sales targets and the outcome of key non-
financial metrics. Given the inherent uncertainty regarding
achievement of these targets, significant judgement is
required in measuring the fair value of the contingent
consideration obligation at the acquisition date and in
re-measuring to its fair value at each reporting date.

 Our substantive work over contingent consideration

focused on critically challenging the forecast outcome
of key non-financial metrics and the performance of the
acquired business which is the basis for the estimate of
the contingent consideration liability. The key assumptions
underlying the sales forecasts were compared with
management’s planned development of the businesses
and also the historical trading performance of the acquired
businesses and results since the acquisition date.
 We also considered the adequacy of the Group’s

disclosures (see Notes 24 and 26) with respect to the
acquisitions and contingent consideration.

Valuation of inventory £187.8 million (2015: £182.5 million)
Risk vs 2015: ◄►
Refer to page 64 (Audit and Risk Committee Report),
page 106 (accounting policy), page 105 (critical accounting
judgements and sources of estimation uncertainty) and
page 130 (financial disclosures).

The risk:

 The Group has a provision against gross inventory of

£65.9 million as at 31 December 2016. Management has
applied judgement to assess the level of provisions required
to write down obsolete, excess and slow-moving inventory
items to their net realisable value.

 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.

 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 inventory provisions being
one of the key judgemental areas that our audit
concentrated on.

Our response:

 Our audit procedures included testing the accuracy
of the input data used in the valuation models and
critically challenging the key valuation assumptions and
methodologies used by management as the basis to
identify the assets and liabilities acquired and determine
their fair value. 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. Additionally, we
considered the appropriateness of the useful economic
lives together with considering what is represented by
residual goodwill.

 In respect of the tangible fixed assets acquired as part

of Millbrook Group we used our own valuation specialists
to assess the work performed and critically challenge the
valuations and useful economic life prepared by third party
valuation experts engaged by management.

 In respect of contingent consideration we inspected
the terms of the acquisition contracts to determine
whether the accounting treatment of performance-
related consideration arrangements is appropriate based
on the criteria of the relevant accounting standards.

 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. 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.

We continue to perform procedures over all working capital
provisions, including provisions for doubtful trade receivable
balances. However, we have not assessed this as one of the
risks that had the greatest effect on our audit and, therefore,
it is not separately identified in our report this year. This is
due to the collections experience and degree of judgement
involved, as management consistently applied its credit risk

96
96

Financial Statements
management policy, which requires all balances overdue
for above 120 days to be provided for in full.

Provision for uncertain tax exposures £10.9 million
(2015: £9.9 million) Risk vs 2015: ◄►
Refer to page 64 (Audit and Risk Committee Report),
page 107 (accounting policy), page 105 (critical accounting
judgements and sources of estimation uncertainty) and
pages 121-123 (financial disclosures).

The risk:

 Periodic challenge of transfer pricing and financing

arrangements, in particular, by local tax authorities in
the normal course of business may result in tax exposures
and potential interest and penalties.

 Management apply judgement to the recognition and

measurement of provisions for tax exposures relating to
open tax years. The group operates in multiple jurisdictions.
Given the complexities of cross-border transactions
including transfer pricing arrangements and other national
tax laws and regulations and the time taken for tax matters
to be agreed with tax authorities, this is one of our areas of
focus. Movements in tax provisions also impact earnings.

 Where the amount of tax is uncertain, the Group

establishes provisions based on management’s judgement
and estimate of the probable amount of the liability.
 As at 31 December 2016 the group had current taxes

payable of £36.8 million.

Our response:

 Our principal audit procedures included the use of our
own international and local tax specialists to assess the
Group’s tax positions and its latest correspondence with
the relevant tax authorities. We analysed and challenged
the assumptions used by management 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 also considered the adequacy of the Group’s

disclosures in respect of tax and uncertain tax exposures.

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 £7.4 million (2015: £7.0 million), determined with
reference to a benchmark of Group profit before tax, before
the impairment charge relating to Omega Engineering and
ESG, of which it represents 5% (2015: 5%).

We report to the Audit and Risk Committee any corrected or
uncorrected identified misstatements exceeding £0.4 million
(2015: £0.4 million), in addition to other identified misstatements
that warranted reporting on qualitative grounds.

Audits for Group reporting purposes were performed
at key reporting components in the following countries:
Australia, China, Denmark, France, Germany, Korea,
Sweden, Switzerland, the Netherlands and the United
Kingdom. Specific risk-focused audit procedures were
performed at reporting components in Singapore, the
United Kingdom 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-focused 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 75% (2015: 68%)
of total Group revenue; 87% (2015: 82%) of Group profit
before tax; and 74% (2015: 69%) of total Group assets.

The remaining 25% (2015: 32%) of total Group revenue,
13% (2015: 18%) of Group profit before tax and 26%
(2015: 31%) of total Group assets is represented by reporting
components none of which individually represent more than
3% (2015: 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
£2.3 million (2015: £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 valuation of
goodwill and intangible assets, accounting for acquisitions
and provision for uncertain tax exposures. The Group audit
team performed the audit work and were physically present
at two out of five reporting components in scope in the USA,
the Group’s single largest geographical market. The Group
audit team also physically visited key reporting components in
the United Kingdom and the USA. This included a member of
the Group team performing an extended visit to the Omega
Engineering component team in the USA, reviewing the audit
procedures and documentation.

In addition to these visits, telephone and/or online meetings
were held with component auditors. The findings reported
to the Group audit team were discussed in more detail with
component auditors as necessary, and any further work
required by the Group audit team was performed by the
component auditor.

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 the

Directors’ Report for the financial year is consistent with
the Financial Statements.

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc
Independent Auditor’s Report to the Members
of Spectris plc only continued

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 93 and page 40
respectively; and

 the part of the Corporate Governance Report on pages
53-94 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.

Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement
set out on page 94, 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
14 February 2017

Based solely on the work required to be undertaken in the
course of the audit of the Financial Statements and from
reading the Strategic report and the Directors’ report:

 we have not identified material misstatements in those

reports; and

 in our opinion, those reports have been prepared in

accordance with the Companies Act 2006.

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 40, 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 2019; 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.

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.

98
98

Financial Statements

Consolidated Income Statement
Consolidated Income Statement
For the year ended 31 December 2016
For the year ended 31 December 2016

Continuing operations

Revenue
Cost of sales

Gross profit

Indirect production and engineering expenses
Sales and marketing expenses
Administrative expenses
Impairment of goodwill and other acquisition-related intangible assets

Operating profit before acquisition-related items and impairment

Net acquisition-related costs and fair value adjustments
Depreciation of acquisition-related fair value adjustments to tangible assets
Amortisation of acquisition-related intangible assets
Impairment of goodwill and other acquisition-related intangible assets

Operating profit

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
Diluted earnings per share

Interim dividends paid and final dividends proposed for the period (per share)
Dividends paid during the period (per share)

Note

2,3,4

2
2,12
2,11
2,11

2,3,5

7
7

8
8

10
10

9
9

2016
£m

2015
£m

1,345.8
(585.3)

760.5

1,190.0
(506.9)

683.1

(108.9)
(320.1)
(177.9)
(115.3)

200.8

(10.1)
(0.2)
(36.9)
(115.3)

38.3

0.5
(6.9)

31.9

(4.4)
(17.2)

(98.6)
(274.4)
(164.9)
(1.6)

181.1

(2.9)
–
(33.0)
(1.6)

143.6

3.3
(5.3)

141.6

(1.3)
(26.5)

10.3

113.8

8.6p
8.6p

52.0p
50.2p

95.6p
95.4p

49.5p
47.8p

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.

99
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Consolidated Statement of Comprehensive Income
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
For the year ended 31 December 2016

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 obligations, net of foreign exchange
Tax on items above

Note

19
8

Items that are or may be reclassified subsequently to the Consolidated Income Statement:
Net (loss)/gain on effective portion of changes in fair value of forward exchange
contracts on cash flow hedges
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

2016
£m

10.3

(12.6)
3.0

(9.6)

(3.1)
160.4
0.7

158.0

158.7

2015
£m

113.8

(7.9)
1.7

(6.2)

0.1
(1.9)
–

(1.8)

105.8

100
100

Financial Statements

Consolidated Statement of Changes in Equity
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
For the year ended 31 December 2016

Balance at 1 January 2016

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 obligations, 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

Share
premium
£m

Retained
earnings
£m

Translation
reserve
£m

Hedging
reserve
£m

Merger
reserve
£m

Capital
redemption
reserve
£m

6.2

–

231.4

694.9

–

10.3

33.0

–

(2.9)

–

3.1

–

0.3

–

–
–

–

–
–

–

(9.6)

0.7

(59.8)
2.3

0.2

–

(2.4)

160.4

–

160.4

(2.4)

–
–

–

–
–

–

–
–

–

–
–

–

Total
equity
£m

966.0

10.3

(2.4)

160.4

(9.6)

158.7

(59.8)
2.3

0.2

Balance at 31 December 2016

6.2

231.4

638.3

193.4

(5.3)

3.1

0.3

1,067.4

For the year ended 31 December 2015

Share
capital
£m

Share
premium
£m

Retained
earnings
£m

Translation
reserve
£m

Hedging
reserve
£m

Balance at 1 January 2015

6.2

231.4

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 obligations, 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

Balance at 31 December 2015

–

–
–

–

–
–

643.1

113.8

34.9

–

(3.0)

–

0.1

(1.9)

–

(6.2)

107.6

–
(1.9)

–
0.1

(56.9)
0.8

–
–

–
6.2

–
231.4

0.3

694.9

–
33.0

–
–

–
(2.9)

Merger
reserve
£m

3.1

–

Capital
redemption
reserve
£m

0.3

–

–
–

–

–
–

Total
equity
£m

916.0

113.8

0.1

(1.9)

(6.2)

105.8

(56.9)
0.8

–
3.1

–
0.3

0.3

966.0

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Consolidated Statement of Financial Position
Consolidated Statement of Financial Position
As at 31 December 2016
As at 31 December 2016

ASSETS
Non-current assets
Intangible assets:

Goodwill
Other intangible assets

Property, plant and equipment
Deferred tax assets

Current assets
Inventories
Income 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
Income taxation payable
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 liabilities and equity

Note

2016
£m

2015
£m

11
11

12
20

14
15

16
26
17

16
17
19
20

654.3
245.2

899.5
238.8
13.4

1,151.7

187.8
2.4
306.6
83.5

580.3

584.9
201.7

786.6
160.8
17.2

964.6

182.5
0.7
253.1
58.2

494.5

1,732.0

1,459.1

(12.3)
(4.2)
(259.2)
(36.8)
(19.5)

(332.0)

248.3

(222.1)
(29.0)
(40.3)
(41.2)

(332.6)

(664.6)

1,067.4

6.2
231.4
638.3
193.4
(5.3)
3.1
0.3

1,067.4

1,732.0

(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

The Financial Statements on pages 99 to 154 were approved by the Board of Directors on 14 February 2017 and were signed
on its behalf by:

Clive Watson
Group Finance Director

102
102

Company Registration No. 2025003

Financial Statements

Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
For the year ended 31 December 2016

Cash flows from operating activities
Profit after tax
Adjustments for:
Taxation
Finance costs
Financial income
Depreciation
Amortisation of intangible assets
Impairment of goodwill and other acquisition-related intangible assets
Acquisition-related fair value adjustments
(Profit)/loss 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
Decrease/(increase) in inventories
Increase in trade and other payables
(Decrease)/increase 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 disposal 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 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

Note

Net increase 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

Note

2016
£m

2015
£m

10.3

113.8

8
7
7
12
11
11

5
6

21.6
6.9
(0.5)
23.0
42.4
115.3
5.6
(1.2)
2.1

225.5
(7.1)
25.4
8.2
(6.3)
(29.8)

215.9

(28.7)
5.4
(160.9)
0.5

(183.7)

(4.6)
(59.8)
0.2
41.0
–

(23.2)

9.0
56.5
5.7

71.2

2016
£m

9.0
(41.0)
–
(20.3)

(52.3)
(98.6)

(150.9)

27.8
5.3
(3.3)
19.6
37.8
1.6
(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)

103
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

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 99 to 154 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 2016 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 2016 and the Group’s
financial performance for the year ended 31 December 2016, which incorporate the financial statements of Spectris plc
and its subsidiaries.

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 52. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial Review on pages 26 to 29. 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 2016 was £150.9m (2015: £98.6m), with available undrawn committed
borrowing facilities of £406.0m (2015: £371.1m).

The Board has reviewed sensitivity analysis on the Group’s forecasts to 30 June 2018, 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 40 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 2016 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 and provides a single,
principles-based, five-step model to be applied to all sales contracts, based on the transfer of control of goods and services
to customers. It replaces the separate model for goods and services of IAS 18 ‘Revenue’. The Directors do not consider the
impact of IFRS 15 to be significant on the sale of goods where revenue is currently recognised on delivery, or on contracts
that involve a significant element of installation or testing of equipment. The supply of goods, ongoing support, servicing and
maintenance under these contracts that cover judgement will be applied when recognising revenue, although the year-on-
year impact on profit is not considered to be significant. 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.

104
104

Financial Statements

1. Basis of preparation and summary of significant accounting policies continued

 IFRS 16 ‘Leases’ was revised on 13 January 2016 and is effective for the 31 December 2019 year end and will require all
leases to be recognised on the statement of financial position. Currently, IAS 17 ‘Leases’ only requires those categorised
as finance leases to be recognised on the statement of financial position, with leases categorised as operating leases not
recognised and expensed through the income statement. The impact of IFRS 16 will be to recognise a lease liability and a
corresponding asset in the statement of financial position for leases currently classified as operating leases. The Directors
are continuing to evaluate the full impact of the adoption of this standard.

Significant accounting judgements and estimates
In preparing the Consolidated Financial Statements, management have 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:

 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 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.

 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.

 Notes 8 and 20 – Taxation and deferred tax. The assessment and recognition of tax provisions requires judgement. Note 8

summarises the basis for that judgement being exercised in respect of tax matters.

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 and additionally when there is an indication that a cash-generating unit may be impaired.
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 in the Consolidated Income Statement. 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.

105
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

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. Tangible
assets arising from a business combination are recognised initially at fair value at the date of acquisition.

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 available 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 and automotive testing tracks – 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 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.

106
106

Financial Statements

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 comprise 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.

107
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

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 gain and loss previously deferred in equity is transferred from equity and included in the initial
measurement of the cost of the asset or liability.

108
108

Financial Statements

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 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.

109
109

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

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.

110
110

Financial Statements

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 as
they exclude foreign exchange movements and the impact of acquisitions. Adjusted figures exclude certain non-operational
items that are predominantly acquisition- or disposal-related items which management have defined as:

 amortisation and impairment of acquisition-related goodwill and other intangible assets;
 depreciation of acquisition-related fair value adjustments to tangible assets;
 acquisition-related costs and contingent consideration fair value adjustments;
 profits or losses on termination or disposal of businesses;
 unwinding of the discount factor on deferred and contingent consideration;
 unrealised changes in the fair value of financial instruments;
 gains or losses on retranslation of short-term inter-company loan balances; and
 related tax effects on the above and other tax items which do not form part of the underlying tax rate (see Note 8).

During the year, the Group acquired Millbrook Group Limited, an engineering services business that owns a significant
amount of tangible assets. On acquisition, IFRS 3 (Revised) ‘Business Combinations’ requires tangible assets to be accounted
for at fair value and as the book value of these tangible assets was lower than the fair value this has resulted in a significant
fair value adjustment to increase the carrying value of the tangible assets (Note 24).

In order for management to assess the underlying trading performance of the business, the additional depreciation charge
due to the fair value adjustment on these assets above book value has been excluded from the adjusted figures.

The Board reviews and compares current and prior year segmental sales and adjusted profit at constant exchange rates. The
constant exchange rate comparison uses the current year reported segmental information, stated in each entity’s functional
currency, and translates the results into its presentation currency using prior years’ monthly exchange rates, irrespective of
the underlying transactional currency.

Within the In-line Instrumentation segment, the BTG business has large functional currency mismatches against its underlying
transaction currencies which distort like-for-like (‘LFL’) comparison at times of significant currency movements. Accordingly,
BTG’s LFL results are translated into Sterling by using the actual underlying transaction currency mix for determining
transactional gains/losses to provide more accurate and reliable information on BTG’s underlying performance. This 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.

The Board reviews current and prior year segmental sales and adjusted profit at constant exchange rates excluding the
incremental impact of acquisitions for the first 12 months of ownership from the month of purchase. By removing the
acquisition-related sales and operating profit, this allows the Board to assess the underlying trading performance of the
businesses on a LFL basis.

The adjusted performance measures are derived from the reported figures under adopted IFRS as follows:

Sales

Sales as reported under adopted IFRS
Constant exchange rate adjustment

Sales at constant exchange rates
Acquisitions

LFL sales

2016
£m

1,345.8
(141.1)

1,204.7
(36.7)

1,168.0

2015
£m

1,190.0
16.7

1,206.7
(36.1)

1,170.6

111
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued
Notes to the Accounts continued

2. Adjusted performance measures continued

Sales by segment – 2016

Sales as reported under adopted IFRS
Constant exchange rate adjustment

Sales at constant exchange rates
Acquisitions

LFL sales

Sales by segment – 2015

Sales as reported under adopted IFRS
Constant exchange rate adjustment

Sales at constant exchange rates
Acquisitions

LFL sales

Sales growth – 2016

Sales as reported under adopted IFRS

Sales at constant exchange rates

LFL sales

Sales growth – 2015

Sales as reported under adopted IFRS

Sales at constant exchange rates

LFL sales

Adjusted operating profit

Operating profit as reported under adopted IFRS

Net acquisition-related costs and fair value adjustments

Depreciation of acquisition-related fair value adjustments to tangible assets

Amortisation of acquisition-related intangible assets
Impairment of goodwill and other acquisition-related intangible assets

Adjusted operating profit

Constant exchange rate adjustment

Operating profit at constant exchange rates

Acquisitions

LFL operating profit

112
112

Materials
Analysis
£m

Test and
Measurement
£m

In-line
Instrumentation
£m

Industrial
Controls
£m

418.9
(41.9)

377.0
(5.4)

371.6

404.5
(44.9)

359.6
(21.8)

337.8

275.6
(27.4)

248.2
(4.1)

244.1

246.8
(26.9)

219.9
(5.4)

214.5

Materials
Analysis
£m

Test and
Measurement
£m

In-line
Instrumentation
£m

Industrial
Controls
£m

364.4
9.0

373.4
(13.0)

360.4

351.3
15.9

367.2
(21.4)

345.8

255.0
3.8

258.8
–

258.8

219.3
(12.0)

207.3
(1.7)

205.6

Materials
Analysis
%

Test and
Measurement
%

In-line
Instrumentation
%

Industrial
Controls
%

15.0

3.5

2.0

15.1

2.4

(3.8)

8.1

(2.6)

(4.2)

12.4

0.2

(2.3)

Materials
Analysis
%

Test and
Measurement
%

In-line
Instrumentation
%

Industrial
Controls
%

4.5

7.0

3.3

2.4

7.1

0.9

(2.4)

(1.0)

Note

11
11

(0.6)

(6.0)

(6.8)

2016
£m

38.3

10.1

0.2

36.9
115.3

200.8

(22.6)

178.2

(8.3)

169.9

2016
Total
£m

1,345.8
(141.1)

1,204.7
(36.7)

1,168.0

2015
Total
£m

1,190.0
16.7

1,206.7
(36.1)

1,170.6

2016
Total
%

13.1

1.2

(1.9)

2015
Total
%

1.4

2.8
(0.3)

2015
£m

143.6

2.9

–

33.0
1.6

181.1

4.8

185.9

(5.2)

180.7

Financial Statements

2. Adjusted performance measures continued

Adjusted operating profit by segment – 2016

Note

Operating profit/(loss) as reported under
adopted IFRS

Net acquisition-related costs and fair value
adjustments
Depreciation of acquisition-related fair value
adjustments to tangible assets

Amortisation of acquisition-related
intangible assets
Impairment of goodwill and other acquisition-
related intangible assets

Adjusted operating profit
Constant exchange rate adjustment

Operating profit at constant exchange rates

Acquisitions

LFL operating profit

Adjusted operating profit by segment – 2015 Note
Operating profit as reported under
adopted IFRS

Net acquisition-related costs and fair value
adjustments

Depreciation of acquisition-related fair value
adjustments to tangible assets

Amortisation of acquisition-related
intangible assets
Impairment of goodwill and other acquisition-
related intangible assets

Adjusted operating profit
Constant exchange rate adjustment

Operating profit at constant exchange rates
Acquisitions

LFL operating profit

Materials
Analysis
£m

Test and
Measurement
£m

In-line
Instrumentation
£m

Industrial
Controls
£m

2016
Total
£m

66.2

26.7

37.6

(92.2)

38.3

0.2

–

9.8

–

76.2
(7.7)

68.5

(0.3)

68.2

2.1

0.2

11.9

20.9

61.8
(7.8)

54.0

(5.1)

48.9

0.3

–

3.3

–

41.2
(5.4)

35.8

(0.6)

35.2

7.5

–

10.1

0.2

11.9

36.9

94.4

21.6
(1.7)

19.9

(2.3)

17.6

115.3

200.8
(22.6)

178.2

(8.3)

169.9

2015
Total
£m

Materials
Analysis
£m

Test and
Measurement
£m

In-line
Instrumentation
£m

Industrial
Controls
£m

42.6

43.6

34.2

23.2

143.6

0.2

–

9.3

1.6

53.7
1.5

55.2
(2.8)

52.4

1.5

–

10.2

–

55.3
3.6

58.9
(2.2)

56.7

0.1

1.1

2.9

–

2.5

11.0

33.0

–

36.8
2.2

39.0
–

39.0

–

35.3
(2.5)

32.8
(0.2)

32.6

1.6

181.1
4.8

185.9
(5.2)

180.7

113
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued

2. Adjusted performance measures continued

Operating profit growth – 2016

Operating profit as reported under adopted IFRS

Adjusted operating profit

Operating profit at constant exchange rates

LFL operating profit

Operating profit growth – 2015

Operating profit as reported under adopted IFRS

Adjusted operating profit

Operating profit at constant exchange rates

LFL operating profit

Materials
Analysis
%

Test and
Measurement
%

In-line
Instrumentation
%

Industrial
Controls
%

55.4

41.8

27.6

27.0

(38.8)

11.7

(2.4)

(11.6)

9.9

11.9

(2.9)

(4.4)

(497.4)

(38.7)

(43.5)

(50.2)

Materials
Analysis
%

Test and
Measurement
%

In-line
Instrumentation
%

Industrial
Controls
%

(11.3)

0.8

3.6

(1.7)

(4.5)

6.0

12.8

8.6

(25.0)

(23.3)

(18.7)

(20.0)

(21.1)

(26.4)

(26.7)

2016
Total
%

(73.3)

10.9

(1.6)

(6.2)

2015
Total
%

(14.7)

(8.6)

(6.1)

(8.8)

Net acquisition-related costs and fair value adjustments comprises acquisition costs of £4.5m (2015: £3.0m) that have been
recognised in the Consolidated Income Statement under IFRS 3 (Revised) ‘Business Combinations’, fair value adjustments to
inventory of £nil (2015: £0.7m) and other fair value adjustments resulting in a debit of £5.6m (2015: credit of £0.8m). 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 £5.4m (2015: £3.9m) have been
excluded from adjusted operating cash flow.

Return on sales by segment – 2016

Materials
Analysis
%

Test and
Measurement
%

In-line
Instrumentation
%

Using operating profit as reported under adopted IFRS

Using adjusted operating profit
Using adjusted operating profit at constant exchange rates
Using adjusted LFL operating profit

15.8

18.2
18.2
18.4

6.6

15.3
15.0
14.5

13.6

15.0
14.4
14.4

Industrial
Controls
%

(37.4)

8.7
9.0
8.2

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
Using adjusted operating profit at constant exchange rates
Using adjusted LFL operating profit

11.7
14.7
14.8
14.5

12.4
15.8
16.1
16.4

13.4
14.4
15.1
15.1

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

Depreciation of acquisition-related fair value adjustments to tangible assets
Amortisation of acquisition-related intangible assets

Impairment of goodwill and other acquisition-related intangible assets
Net loss/(gain) on retranslation of short-term inter-company loan balances

Unwinding of discount factor on deferred and contingent consideration

12
11

11
7

Adjusted profit before tax

Adjusted net finance costs (see opposite)

Adjusted operating profit

114
114

10.6
16.1
15.8
15.9

2016
£m

31.9

10.1

0.2
36.9

115.3
0.8

0.6

195.8

5.0

200.8

2016
Total
%

2.8

14.9
14.8
14.5

2015
Total
%

12.1
15.2
15.4
15.4

2015
£m

141.6

2.9

–
33.0

1.6
(3.0)

0.2

176.3

4.8

181.1

Financial Statements

2. Adjusted performance measures continued

Adjusted net finance costs

Net interest costs as reported under adopted IFRS
Net loss/(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

Adjusted operating cash flow conversion

Adjusted earnings per share

Profit after tax as reported under adopted IFRS

Adjusted for:
Net acquisition-related costs and fair value adjustments

Depreciation of acquisition-related fair value adjustments to tangible assets
Amortisation of acquisition-related intangible assets

Impairment of goodwill and other acquisition-related intangible assets
Net loss/(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

7
7

Note

12
11

11
7

7
8

Note

2016
£m

(6.4)
0.8

0.6

(5.0)

2016
£m

215.9
5.4

29.8
(28.7)

5.4

227.8

113%

2016
£m

10.3

10.1

0.2
36.9

115.3
0.8

0.6
(22.3)

151.9

119.1

127.5

2016
£m

119.6

127.0

Basic and diluted earnings per share in accordance with IAS 33 ‘Earnings per Share’ are disclosed in Note 10.

Analysis of net debt

Bank overdrafts
Bank loans – unsecured

Total borrowings
Cash balances

Net debt

Note

16
16

2016
£m

12.3
222.1

234.4
(83.5)

150.9

2015
£m

(2.0)
(3.0)

0.2

(4.8)

2015
£m

153.4
3.9

33.5
(26.0)

0.9

165.7

91%

2015
£m

113.8

2.9

–
33.0

1.6
(3.0)

0.2
(12.4)

136.1

119.0

114.3

2015
£m

119.3

114.1

2015
£m

1.7
155.1

156.8
(58.2)

98.6

115
115

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

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 focused 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. Malvern Instruments and PANalytical merged
as from 1 January 2017.

 Test and Measurement supplies test, measurement and analysis equipment, software and services for product design
optimisation and validation, manufacturing control, microseismic monitoring and environmental noise monitoring.
The operating companies in this segment are Brüel & Kjær Sound & Vibration, ESG Solutions, HBM and Millbrook.

 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 16 to 25.

Information about reportable segments

Segment revenues
Inter-segment revenue

External revenue

Reportable segment adjusted operating profit for
continuing operations
Net acquisition-related costs and
fair value adjustments
Depreciation of acquisition-related fair value
adjustments to tangible assets
Amortisation of acquisition-related intangible assets
Impairment of goodwill and other acquisition-
related intangible assets

Operating profit/(loss)
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

419.0
(0.1)

418.9

404.7
(0.2)

404.5

275.6
–

275.6

247.5
(0.7)

246.8

2016
Total
£m

1,346.8
(1.0)

1,345.8

76.2

61.8

41.2

21.6

200.8

(0.2)

–
(9.8)

–

66.2

(2.1)

(0.3)

(7.5)

(10.1)

(0.2)
(11.9)

(20.9)

26.7

–
(3.3)

–

37.6

–
(11.9)

(94.4)

(92.2)

(0.2)
(36.9)

(115.3)

38.3
0.5
(6.9)

31.9
(21.6)

10.3

116
116

Financial Statements

3. Operating segments continued

Segment revenues
Inter-segment revenue

External revenue

Reportable segment adjusted operating profit for
continuing operations
Net acquisition-related costs and
fair value adjustments
Depreciation of acquisition-related fair value
adjustments to tangible assets
Amortisation of acquisition-related
intangible assets
Impairment of goodwill and other acquisition-
related intangible assets

Operating profit
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

363.7
0.7

364.4

351.5
(0.2)

351.3

255.0
–

255.0

Industrial
Controls
£m

219.6
(0.3)

219.3

2015
Total
£m

1,189.8
0.2

1,190.0

53.7

55.3

36.8

35.3

181.1

(0.2)

(1.5)

(0.1)

(1.1)

(2.9)

–

(9.3)

(10.2)

(2.5)

(11.0)

(33.0)

(1.6)

42.6

–

43.6

–

34.2

–

23.2

(1.6)

143.6
3.3

(5.3)

141.6
(27.8)

113.8

Reportable segment adjusted operating 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 ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
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 obligations
Taxation

Consolidated total assets and liabilities

Carrying amount of segment assets Carrying amount of segment liabilities

2016
£m

400.6
581.7
271.5
378.9

1,632.7
83.5
–
–
15.8

1,732.0

2015
£m

355.5
378.9
218.4
430.2

1,383.0
58.2
–
–
17.9

1,459.1

2016
£m

(118.2)
(104.5)
(53.4)
(31.6)

(307.7)
(234.4)
(4.2)
(40.3)
(78.0)

(664.6)

2015
£m

(93.6)
(85.8)
(41.5)
(24.5)

(245.4)
(156.8)
(0.4)
(22.1)
(68.4)

(493.1)

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

2016
£m

17.3
170.3
23.4
2.9

213.9

2015
£m

8.8
42.7
7.2
8.6

67.3

2016
£m

16.4
43.6
9.5
111.2

180.7

2015
£m

16.9
18.5
8.0
15.6

59.0

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:

Materials
Analysis
£m

Test and
Measurement
£m

In–line
Instrumentation
£m

Industrial
Controls
£m

15.1
26.6
13.4
63.6
88.5
13.9
30.8
62.4
16.4
54.9
33.3

26.4
67.3
20.1
66.9
80.7
9.5
26.2
55.0
14.6
21.4
16.4

6.7
20.8
7.3
44.8
80.7
10.7
13.5
40.6
6.9
25.6
18.0

418.9

404.5

275.6

7.2
11.1
2.6
11.6
159.9
11.9
3.1
18.3
5.5
11.8
3.8

246.8

2016
Total
£m

55.4
125.8
43.4
186.9
409.8
46.0
73.6
176.3
43.4
113.7
71.5

1,345.8

UK
Germany
France
Rest of Europe
USA
Rest of North America
Japan
China
South Korea
Rest of Asia
Rest of the world

118
118

Financial Statements

3. Operating segments continued

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 Europe1
USA
Rest of North America
Japan
China
South Korea
Rest of Asia
Rest of the world

Deferred taxation2

Total non-current assets

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

364.4

351.3

255.0

7.1
9.9
2.3
9.3
144.6
12.6
2.0
13.8
4.1
9.8
3.8

219.3

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

1,190.0

Non-current assets

2016
£m

183.9
63.8
0.2
340.3
477.6
27.7
0.6
4.9
4.2
31.4
3.7

1,138.3
13.4

1,151.7

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

2016
£m

1,137.7

208.1

1,345.8

2015
£m

1,029.0

161.0

1,190.0

119
119

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 2016 or 2015.

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

5. Operating profit
Operating profit has been arrived at after charging/(crediting):

Net foreign exchange (gains)/losses
Research and development expenditure
Amortisation of intangible assets

Impairment of goodwill and other acquisition-related intangible assets
Depreciation of property, plant and equipment

(Profit)/loss on sale of property, plant and equipment and software

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 compliance services

– tax advisory 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
– settlement and 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

2016
£m

(2.7)
98.6
42.4

115.3
23.0

(1.2)

2016
£m

0.6

1.2
0.1
0.1

–

2.0

2016
£m

420.8

72.8

2.1
(1.4)

13.7
2.1
1.2

2015
£m

1.1
88.8
37.8

1.6
19.6

0.2

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

511.3

434.0

2016
£m

2.8

0.4

3.2

2015
£m

1.8

0.3

2.1

Note

19
19

Further details of Directors’ remuneration and share options are given in the Directors’ Remuneration Report on pages
73 to 91.

120
120

Financial Statements

6. Employee costs and other information continued

Average number of employees

Production and engineering
Sales, marketing and service
Administrative

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 losses on retranslation of short-term inter-company loan balances
Net interest cost on pension scheme obligations

Other finance costs

8. Taxation

Current tax charge
Adjustments in respect of current tax
of prior years
Deferred tax – origination and
reversal of temporary differences
(Note 20)

UK
£m

5.9

0.7

2016
Number

3,718
3,724
796

8,238

2015
Number

3,676
3,601
776

8,053

2016
£m

0.5
–

0.5

2016
£m

5.1
0.6

0.8
0.3

0.1

6.9

2015
£m

0.3
3.0

3.3

2015
£m

4.9
0.2

–
0.1

0.1

5.3

2015

Total
£m

35.5

Net interest costs of £4.6m (2015: £4.6m) for the purposes of the calculation of interest cover comprise bank interest
receivable of £0.5m (2015: £0.3m) and interest payable on loans and overdrafts of £5.1m (2015: £4.9m).

Overseas
£m

32.0

2016

Total
£m

37.9

UK
£m

2.7

Overseas
£m

32.8

(3.6)

(2.9)

(1.0)

(1.5)

(2.5)

(2.2)

4.4

(11.2)

17.2

(13.4)

21.6

(0.4)

1.3

(4.8)

26.5

(5.2)

27.8

121
121

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

8. Taxation continued

The standard rate of corporation tax for the year, based on the weighted average of tax rates applied to the Group’s profits,
is -13.8% (2015: 25.4%). The standard rate of corporation tax for the year is a credit due to the statutory tax rates applying
to the impairment of goodwill and other acquisition-related intangible assets. In the absence of any impairment losses, the
standard rate of corporation tax for the year, based on the weighted average of tax rates applied to the Group’s profits,
would have been a charge of 23.4% (2015: 25.4%). The tax charge for the year is higher (2015: lower) than the standard
rate of corporation tax for the reasons set out in the following reconciliation:

Profit before taxation

Corporation tax (credit)/charge at standard rate of -13.8% (2015: 25.4%)
Non-deductible goodwill impairment losses

Non-taxable income and gains
Other non-deductible expenditure

Movements on unrecognised deferred tax assets
Tax credits and incentives

Change in tax rates
Adjustments relating to prior year acquisitions

Adjustments to prior year current and deferred tax charges

Total taxation

2016
£m

31.9

(4.4)
33.8

(4.1)
3.6

0.7
(4.4)

(0.4)
(3.1)

(0.1)

21.6

2015
£m

141.6

36.0
–

(3.6)
1.3

0.5
(5.0)

–
–

(1.4)

27.8

‘Tax credits and incentives’ above refers principally to research and development tax credits and other reliefs for innovation
such as the UK Patent Box regime and Dutch innovation box regime, as well as tax reliefs available for manufacturing
activities located in the USA.

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 credit on net loss on effective portion of changes in fair value of forward exchange contracts
Tax credit on re-measurement of net defined benefit obligations, 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 in relation to share-based payments

Aggregate current and deferred tax credit on items recognised directly in the
Consolidated Statement of Changes in Equity

2016
£m

(0.7)
(3.0)

2015
£m

–
(1.7)

(3.7)

(1.7)

2016
£m

(0.3)

2015
£m

(0.1)

(0.3)

(0.1)

122
122

Financial Statements

8. Taxation continued

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 of acquisition-related intangible assets
Tax credit on impairment of goodwill and other acquisition-related intangible assets

Tax credit on net acquisition-related costs and fair value adjustments
Tax charge on retranslation of short-term inter-company loan balances

Tax credit on unwinding of discount factor on deferred and contingent consideration
Tax credit relating to prior year acquisitions

2016
£m

(12.3)
(5.1)

(1.7)
0.2

(0.3)
(3.1)

2015
£m

(11.2)
–

(0.6)
(0.5)

(0.1)
–

Total tax credit

(22.3)

(12.4)

The effective adjusted tax rate for the year was 22.4% (2015: 22.8%) 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

2016
£m

21.6

22.3

43.9

2015
£m

27.8

12.4

40.2

Management judgement is applied to determine the level of provisions required in respect of both direct and indirect taxes.
The Group is potentially subject to tax audits 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. Spectris estimates and accrues taxes that will ultimately be
payable when reviews or audits by tax authorities of tax returns are completed. These estimates include judgements about the
position expected to be taken by each tax authority.

The Group applies judgement in respect of possible tax audit adjustments primarily in respect of transfer pricing as well as
in respect of financing arrangements and tax credits and incentives. In respect of transfer pricing, the level of provision is
determined by reference to management judgements of the adjustments that would arise in the event that certain intra-
group transactions are successfully challenged as not being at arm’s length.

Management estimates of the level of risk arising from tax audit may change in the next year as a result of changes in
legislation or tax authority practice or correspondence with tax authorities during a specific tax audit. It is not possible to
quantify the impact that such future developments may have on the Group’s tax positions. Actual outcomes and settlements
may differ significantly from the estimates recorded in these Consolidated Financial Statements.

Judgement is also applied relating to the recognition of deferred tax assets which are dependent on an assessment of the
generation of future taxable income in the countries concerned in which temporary differences become deductible or in
which tax losses can be utilised. These estimates may change in the next year if there are changes in the forecast profitability
of the relevant company.

The UK’s dividend taxation regime prior to July 2009 is the subject of long-running litigation between HMRC and other
taxpayers in relation to the tax charge on dividends received from EU-based companies. The outcome of this dispute is likely
to be relevant to the Group in respect of certain dividends received by UK Group companies before that date. Pending
resolution in the courts, a tax creditor of £12.6m (2015: £12.6m) continues to be held for the potential tax liabilities
arising if the final decision is made by the courts in HMRC’s favour.

Within the tax charge is a credit of £3.1m (2015: £nil) relating to recognition of the net benefit of unused tax losses arising
from the acquisition of Spectraseis AG in 2015. The ultimate utilisation of these losses is now considered probable as a result
of the post-acquisition restructuring of the business.

123
123

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
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 2015 of 32.2p (2014: 30.5p) per share
Interim dividend for the year ended 31 December 2016 of 18.0p (2015: 17.3p) per share

Amounts arising in respect of the year

Interim dividend for the year ended 31 December 2016 of 18.0p (2015: 17.3p) per share
Proposed final dividend for the year ended 31 December 2016 of 34.0p (2015: 32.2p) per share

2016
£m

38.4
21.4

59.8

2016
£m

21.4
40.5

61.9

2015
£m

36.3
20.6

56.9

2015
£m

20.6
38.4

59.0

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 26 May 2017 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)

2016

10.3
119.1

8.6

2016

10.3
119.1
0.8

(0.3)

119.6

8.6

2015

113.8
119.0

95.6

2015

113.8
119.0
0.6

(0.3)

119.3

95.4

124
124

Financial Statements

11. Goodwill and other intangible assets

Cost

At 1 January 2015
Additions
Recognised on acquisitions
Adjustments to provisional fair values
Transfers from property, plant
and equipment
Disposals
Foreign exchange difference

At 31 December 2015
Additions
Recognised on acquisitions
Adjustments to provisional fair values
Transfers from property, plant
and equipment
Other movements
Disposals
Foreign exchange difference

At 31 December 2016

Accumulated amortisation and impairment

At 1 January 2015
Charge for the year
Impairment
Disposals
Foreign exchange difference

At 31 December 2015
Charge for the year
Impairment
Disposals
Foreign exchange difference

At 31 December 2016

Carrying amount

At 31 December 2016

At 31 December 2015

Note

Goodwill
£m

Patents,
contractual
rights and
technology
£m

Customer-
related and
trade names
£m

Software
£m

24
24

602.8
–
24.0
(7.1)

–
–
(3.6)

616.1
–
81.5
(0.2)

–
–
–
108.5

805.9

33.4
–
–
–
(2.2)

31.2
–
114.3
–
6.1

151.6

162.9
–
15.0
–

–
–
2.5

180.4
–
14.3
–

–
–
–
26.7

172.0
–
8.0
–

–
–
3.7

183.7
–
30.7
–

–
–
–
36.9

221.4

251.3

76.6
18.4
1.6
–
1.4

98.0
19.2
–
–
14.6

63.4
14.6
–
–
1.9

79.9
17.7
1.0
–
15.7

131.8

114.3

45.3
5.0
–
–

1.7
(4.1)
(0.2)

47.7
5.8
0.1
–

0.3
–
(1.1)
6.9

59.7

31.7
4.8
–
(3.8)
(0.5)

32.2
5.5
–
(1.0)
4.4

41.1

Total
£m

983.0
5.0
47.0
(7.1)

1.7
(4.1)
2.4

1,027.9
5.8
126.6
(0.2)

0.3
–
(1.1)
179.0

1,338.3

205.1
37.8
1.6
(3.8)
0.6

241.3
42.4
115.3
(1.0)
40.8

438.8

654.3

584.9

89.6

82.4

137.0

103.8

18.6

15.5

899.5

786.6

125
125

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
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 14 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
HBM
Brüel & Kjær Sound & Vibration
BTG
Millbrook
Red Lion Controls
Malvern
Servomex
ESG Solutions
Other

2016

Pre-tax
discount rate
%

Goodwill
£m

119.9
101.6
93.5
87.7
68.5
54.1
43.3
36.1
26.0
–
23.6

654.3

12.8
11.4
11.8
11.2
11.1
12.1
13.8
10.8
12.3
17.8
13.1–13.8

2015

Pre-tax
discount rate
%

13.4
12.0
12.4
11.9
11.8
–
14.4
11.5
12.3
18.3
12.7–15.4

Goodwill
£m

178.9
87.7
81.4
63.4
49.3
–
35.9
32.2
24.4
16.2
15.5

584.9

Included within ‘Other’ are four (2015: four) cash-generating units, in which none of the goodwill balances are considered to
be individually significant.

Goodwill is not amortised but is tested for impairment annually or whenever there is an indication that the asset may be
impaired. As part of the annual impairment review, the carrying amount of goodwill has been assessed with reference to its
recoverable amount, determined based on value in use. In assessing value in use, the forecast projected cash flows of each
cash-generating unit, which are based on actual operating results, the most recent budget for the next financial year as
approved by the Board, detailed strategic review projections and an assumed long-term growth rate to perpetuity are
discounted to their present value using a pre-tax discount rate that reflects the time value of money and the risks specific
to the cash-generating unit.

The key assumptions on which the value in use calculations are based relate to future business performance over the
forecast period (generally three years, with the exception of Omega Engineering (‘Omega’) where in 2016 four years is
used), projected long-term growth rates and the discount rates applied. The forecast cash flows include management’s latest
estimates on sales volumes and pricing, production and other costs. The key judgements applied in the impairment review
are the forecast level of revenue, operating margins and the proportion of operating profit converted to cash in each year.
A long-term growth rate of 2.0% (2015: 2.5%) has been consistently applied in the impairment review for all cash-generating
units based on 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 of
between 10.8% and 17.8% (2015: 11.5% and 18.3%). These rates have been determined by taking into account the size of
business and specific geographical and industry risk factors. As a result of the impairment review, a total impairment charge
of £114.3m (2015: £nil) has been recognised within operating profit in the Consolidated Income Statement in respect of the
Omega and ESG Solutions (‘ESG’) businesses, as explained opposite.

126
126

Financial Statements

11. Goodwill and other intangible assets continued

Omega Engineering
An impairment charge of £94.4m (2015: £nil) has been recognised in respect of the Omega business, which forms part of
the Industrial Controls segment, using the value in use basis. The impairment charge is driven by the current year’s trading
performance, primarily in Omega’s largest market in North America, and lower projected cash flows within the budget and
strategic review period. This resulted in management reassessing the expected future business performance in light of the
trading environment and the actions, and time required, to improve operational efficiency and profitability. Accordingly, for
the purposes of the impairment test, a four-year forecast period for Omega has been used (2015: three years), with a lowered
long-term growth rate of 2.0% (2015: 2.5%), which is consistent with that used for all other cash-generating units.

The key assumptions used in the value in use calculations are:

 sales: projected sales are built up with reference to market, geography and product categories. They incorporate past

performance, historical growth rates and market segment projections;

 operating margins: projected operating margins reflect historical performance, the net benefit from initiatives required

to improve operational efficiency, and a continued focus on cost control;

 operating cash conversion: the proportion of operating profit converted to cash each year is based on historical

performance and projected benefits from working capital management initiatives; and

 discount rate: this is calculated based on the Group’s weighted average cost of capital and cash-generating unit specific

risks, including the size of business and specific geographical and industry risk factors. For the purposes of the impairment
test, a pre-tax discount rate of 12.8% (2015: 13.4%) has been used.

ESG Solutions
An impairment charge of £19.9m (2015: £nil) has been recognised in respect of the ESG business, which forms part of the
Test and Measurement segment, using the value in use basis. The carrying value of goodwill has been impaired in full, with
£1.0m of other intangible assets additionally impaired following the impairment review. The impairment charge is driven by
the continuing difficult external market conditions caused by low global oil and gas prices, which have adversely impacted
demand from ESG’s customers for its products and services. This has resulted in management reassessing the expected future
business performance based on external market data for the upstream oil and gas market of a recovery in the oil price in
2019. For the purposes of the impairment test, a three-year forecast period has been used (2015: three years) with a lowered
long-term growth rate of 2.0% (2015: 2.5%), which is consistent with that used for other cash-generating units.

The key assumptions used in the value in use calculations are:

 sales: projected sales are built up with reference to market, geography and product categories, with the key assumption

being a recovery in the oil price in 2019, which is in line with external market data;

 operating margins: projected operating margins reflect historical performance, the forecast improvement in line with higher
sales associated with a recovery in the oil price, and a continued focus on cost control. The projections do not include the
impact of future restructuring projects which are not yet committed;

 operating cash conversion: the proportion of operating profit converted to cash each year is based on historical

performance and projected benefits from working capital management initiatives; and

 discount rate: this is calculated based on the Group’s weighted average cost of capital and cash-generating unit specific

risks, including the size of business and specific geographical and industry risk factors. For the purposes of the impairment
test, a pre-tax discount rate of 17.8% (2015: 18.3%) has been used.

Sensitivity analysis
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 been undertaken 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 1.0pp to 1%; and
 if the cash flow projections for cash-generating units were reduced by 25% in each of the next two years.

127
127

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

11. Goodwill and other intangible assets continued

For each cash-generating unit, with the exception of Omega, the Directors do not consider that there are any reasonably
possible sensitivities for the business that could arise in the next 12 months that could result in an impairment charge being
recognised. For Omega, based on current projections, reasonable possible changes in the key assumptions could cause the
estimated recoverable amount to fall below the carrying value based on the sensitivity analysis performed, as shown below.
Since the carrying value of goodwill has been impaired in full for ESG, the business will no longer be subject to an annual
impairment review as required under IFRS. However, should future performance fall below current projections, the carrying
value of the remaining net assets of the ESG business will be reviewed.

Sensitivities – 2016

2pp increase in pre-tax discount to 14.8%
Reduction in long-term growth rate to 1%
Reduction in cash flow projections by 25% in each of the next two years

Increase in impairment charge
Omega
£m

46
31
10

Millbrook
Millbrook was acquired by the Group on 1 September 2016. Given the proximity to the year end, the carrying value of
goodwill has been assessed by reference to the value in use based on the acquisition business plan that assumed long-term
growth rates in line with that anticipated for the rest of the Group and certain post-acquisition synergies. These synergies
include the benefit from leveraging the Group’s wider customer base and sales and marketing channels and being part of
a wider Group with shared support functions. Given the assumptions built into the Millbrook acquisition business case, the
Directors do not consider that there is a significant risk of impairment of the Millbrook acquisition goodwill arising in the
next 12 months.

Other intangible assets
Of the total amortisation charge of £42.4m (2015: £37.8m), the amount attributable to the amortisation of acquisition-
related intangible assets was £36.9m (2015: £33.0m).

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 (2015: £nil).

The trade names and technology assets recognised on the acquisition of Omega in 2011, and included within the
Industrial Controls reportable segment, are considered significant by the Directors as they represent 43.9% (2015: 49.4%)
of total customer-related and trade names, and 20.0% (2015: 23.6%) of total patents, contractual rights and technology,
respectively. The carrying amount of the trade name intangible asset at 31 December 2016 is £59.3m (2015: £51.3m) and
is being amortised over 20 years with the remaining amortisation period being 14.8 years. The carrying amount of the
technology intangible asset at 31 December 2016 is £17.3m (2015: £17.4m) and is being amortised over ten years with
the remaining amortisation period being 4.8 years.

128
128

Financial Statements

Note

24
11

12. Property, plant and equipment

Cost

At 1 January 2015
Additions
Recognised on acquisitions
Transfers to other intangible assets
Disposals
Foreign exchange difference

At 31 December 2015
Additions
Recognised on acquisitions
Transfers to other intangible assets
Transfers to property
Disposals
Foreign exchange difference

At 31 December 2016

Accumulated depreciation and impairment

At 1 January 2015
Charge for the year
Disposals
Foreign exchange difference

At 31 December 2015
Charge for the year
Transfers to other intangible assets
Transfers to property
Disposals
Foreign exchange difference

At 31 December 2016

Carrying amount

At 31 December 2016

At 31 December 2015

Freehold
property
£m

Leasehold
property
£m

Plant and
equipment
£m

137.5
3.5
0.3
–
(0.4)
(2.5)

138.4
3.8
43.7
–
0.7
(4.5)
21.4

203.5

40.0
3.8
(0.1)
(1.2)

42.5
4.4
–
0.3
(1.7)
7.8

53.3

150.2

95.9

11.9
2.0
–
–
(0.3)
0.1

13.7
1.1
–
–
–
(0.4)
2.0

16.4

7.9
1.2
(0.3)
0.1

8.9
1.4
–
–
(0.4)
1.5

11.4

5.0

4.8

Total
£m

317.4
21.0
1.4
(1.7)
(11.7)
(4.5)

321.9
22.9
58.8
(0.3)
–
(13.1)
51.6

441.8

154.9
19.6
(10.9)
(2.5)

161.1
23.0
–
–
(9.0)
27.9

203.0

168.0
15.5
1.1
(1.7)
(11.0)
(2.1)

169.8
18.0
15.1
(0.3)
(0.7)
(8.2)
28.2

221.9

107.0
14.6
(10.5)
(1.4)

109.7
17.2
–
(0.3)
(6.9)
18.6

138.3

83.6

60.1

238.8

160.8

The amount recognised in the carrying amount of items of plant and equipment in the course of its construction was £11.9m
(2015: £1.4m).

No borrowing costs met the required criteria for capitalisation during the year (2015: £nil).

Of the total depreciation charge of £23.0m (2015: £19.6m), the amount attributable to the depreciation on fair value
adjustments of acquisition-related tangible assets was £0.2m (2015: £nil).

Included within Freehold property is an amount of £11.9m (2015: £nil) attributable to automotive testing tracks.

129
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

13. Inventories

Raw materials

Work in progress

Finished goods and goods held for resale

2016
£m

67.2

39.7

80.9

2015
£m

69.1

36.2

77.2

187.8

182.5

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 £28.1m (2015: £18.3m) in respect of inventory provisions and crediting £10.2m
(2015: £8.0m) relating to the reversal of previously recognised provisions.

Inventory carried at fair value less cost to sell is £nil (2015: £nil) 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 £364.9m
(2015: £314.0m).

A 10% increase in the proportion of raw materials provided for would increase the provision by £3.3m (2015: £2.0m) and
a 10% increase in the proportion of finished goods provided for would increase the provision by £2.0m (2015: £1.4m).

14. Trade and other receivables

Trade receivables

Prepayments and accrued income

Other receivables

2016
£m

258.4

26.4

21.8

306.6

2015
£m

213.0

17.8

22.3

253.1

Included within Prepayments and accrued income and Other receivables are amounts receivable in more than one year of
£4.9m (2015: £4.7m).

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 £7.5m (2015: £5.8m) and the reversal of previously recognised provisions for impairment of £3.7m
(2015: £5.4m).

The maximum exposure to credit risk for trade receivables at 31 December by geographical region was:

Germany

France

Rest of Europe

USA

Rest of North America

Japan

China

South Korea

Rest of Asia

Rest of the world

130
130

2016
£m

15.1

20.9

13.1

44.5

71.7

13.3

16.3

19.0

6.9

22.4

15.2

2015
£m

10.0

15.7

9.7

39.7

58.7

11.8

15.3

18.8

3.5

18.4

11.4

258.4

213.0

Financial Statements

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
Four months past due
Over four months past due

Gross
£m

188.9
44.8
14.7
6.1
4.2
12.9

271.6

2016

Impairment
£m

0.1
–
0.1
0.1
–
12.9

13.2

Gross
£m

158.8
32.1
12.2
6.1
4.7
7.7

221.6

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

2016
£m

8.6
7.5
(0.3)
(3.7)
1.1

13.2

2015

Impairment
£m

0.2
0.1
0.2
0.1
0.3
7.7

8.6

2015
£m

9.5
5.8
(1.2)
(5.4)
(0.1)

8.6

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 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

2016
£m

83.5
(12.3)

71.2

2015
£m

58.2
(1.7)

56.5

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in Note 26.

16. Borrowings

Current

Bank overdrafts

Repayable date

on demand

Non-current

Bank loans – unsecured
Bank loans unsecured – €94.8m
Bank loans unsecured – €116.2m

Total unsecured borrowings

Effective interest rate

Agreement maturity date

0.86%
2.56%
1.15%

30 October 2019
14 October 2020
9 September 2022

2016
£m

12.3

2016
£m

41.0
81.4
99.7

2015
£m

1.7

2015
£m

–
69.7
85.4

222.1

155.1

131
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

16. Borrowings continued

At 31 December 2016, the Group had available £406.0m (2015: £371.1m) of undrawn committed borrowing facilities in
respect of its US Dollar $550m revolving credit facility, 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

2016
£m

12.3
222.1

234.4
(83.5)

150.9

2016
£m

85.9
95.2
41.7
36.4

2015
£m

1.7
155.1

156.8
(58.2)

98.6

2015
£m

73.5
74.1
31.8
27.2

259.2

206.6

2016
£m

29.0

2015
£m

16.6

The fair value of trade and other payables approximates to their carrying amount due to the short-term maturities associated
with these items.

18. Provisions

At 1 January 2016
Additional provision in the year
Acquired on acquisition
Utilised during the year
Released during the year
Foreign exchange difference

At 31 December 2016

Reorganisation
£m

Note

Product
warranty
£m

Legal,
contractual
and other
£m

3.0
0.7
–
(2.7)
(0.3)
–

0.7

10.0
6.9
0.5
(5.7)
(1.4)
1.6

11.9

9.2
2.5
0.9
(1.4)
(5.1)
0.8

6.9

Total
£m

22.2
10.1
1.4
(9.8)
(6.8)
2.4

19.5

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.

132
132

Financial Statements

18. Provisions continued

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 decrease in the provision during the year is due to a lower 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, assess that it is probable 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 defeated 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, 14 overseas subsidiaries (2015: 12) in three overseas countries provide defined benefit plans. Other UK
and 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 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 accruals. 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.

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 trustee also holds
interest rate and inflation swaps to help protect against the impact of changes in prevailing interest rates and price inflation.
Trustee investment in derivatives is only made in so far as they contribute to the reduction of investment risks or facilitate
efficient portfolio management and are managed such as to avoid excessive risk exposure to a single counterparty or other
derivative operations.

The funding requirements are based on the individual funds’ actuarial measurement framework set out in the funding policies
of the various plans.

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 2016.

The last full actuarial valuation for the UK plan was 31 December 2014 and for the overseas plans was 31 December 2016.
Where applicable, the valuations were updated to 31 December 2016 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 2016 were £1.9m (2015: £1.4m).
Contributions for 2017 are expected to be £2.3m for the overseas plans.

Contributions to the Spectris Pension Plan (UK) ceased from 1 July 2012. The contribution rates are subject to review at future
valuations and periodic certifications of the schedule of contributions.

133
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

19. Retirement benefit schemes continued

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

UK plan
% p.a.

2.6
4.5
2.2–3.8
2.6–3.5
2.6–3.5

2016

Overseas
plans
% p.a.

0.55–2.0
1.0–3.0
0.0–2.0

1.0–2.0
0.0–1.0

UK plan
% p.a.

3.7
4.7
2.1–3.7
2.3–3.2
2.3–3.2

2015

Overseas
plans
% p.a.

0.8–1.9
1.0–3.0
0.0–2.0

1.0–2.0
0.0–1.0

The weighted average duration of the defined benefit obligation at 31 December 2016 was approximately 16 years
(2015: 16 years) for the UK plan and 14.7 years (2015: 13.7 years) for the overseas plans.

Pensioner life expectancy assumed in the 31 December 2016 valuation is based on the following tables:

UK plan

German plans
Dutch plans
Swiss plan

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 2016 tables
BVG 2015 generational

Samples of the ages which pensioners are assumed to live to are as follows:

Pensioners aged 65 in 2016
Pensioners aged 65 in 2026

Amounts recognised in the
Consolidated Income Statement

Current service cost
Net interest cost/(income)
Administrative cost
Settlement and past service credit

Male

Female

84.2–87.3
85.5–89.2

88.2–89.8
89.5–91.7

2016
£m

–
0.1
0.4
–

0.5

UK plans

Overseas plans

2015
£m

–
(0.1)
0.2
–
0.1

2016
£m

2.1
0.2
0.1
(1.4)

1.0

2015
£m

1.5
0.2
0.1
(0.3)

1.5

2016
£m

2.1
0.3
0.5
(1.4)

1.5

Total

2015
£m

1.5
0.1
0.3
(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 £0.3m (2015: £0.4m) were paid.

134
134

Financial Statements

19. Retirement benefit schemes continued

The total return on scheme assets in the year was £15.6m (2015: £0.3m).

UK plans

Overseas plans

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 in schemes

Note

Reconciliation of
movement in net deficit

At 1 January
Current service cost
Net interest (cost)/income
Scheme administrative cost
Liabilities acquired in
business combinations
Settlement
Past service credit
Contributions from
sponsoring company
Actuarial (losses)/gains
Foreign exchange
difference

At 31 December

2016
£m

2015
£m

(13.0)

(5.5)

–

(13.0)

(5.5)

2016
£m

0.4

(3.7)

(3.3)

Total

2015
£m

2016
£m

(2.4)

(12.6)

(7.9)

–

(3.7)

–

(2.4)

(16.3)

(7.9)

(49.0)

(36.0)

(15.9)

(12.6)

(64.9)

(48.6)

UK plans

Overseas plans

2015
£m

(116.0)
114.0

(2.0)

2016
£m

(59.2)
34.4

(24.8)

2015
£m

(44.4)
24.3

(20.1)

UK plans

Overseas plans

2015
£m

3.6
–
0.1
(0.2)

–
–
–

–
(5.5)

–

(2.0)

2016
£m

(20.1)
(2.1)
(0.2)
(0.1)

(2.3)
0.1
1.3

1.9
0.4

(3.7)

(24.8)

2015
£m

(17.6)
(1.5)
(0.2)
(0.1)

–
–
0.3

1.4
(2.4)

–

(20.1)

2016
£m

(138.4)
122.9

(15.5)

2016
£m

(2.0)
–
(0.1)
(0.4)

–
–
–

–
(13.0)

–

(15.5)

2016
£m

(197.6)
157.3

(40.3)

2016
£m

(22.1)
(2.1)
(0.3)
(0.5)

(2.3)
0.1
1.3

1.9
(12.6)

(3.7)

(40.3)

Total

2015
£m

(160.4)
138.3

(22.1)

Total

2015
£m

(14.0)
(1.5)
(0.1)
(0.3)

–
–
0.3

1.4
(7.9)

–

(22.1)

135
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

19. Retirement benefit schemes continued

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
Settlement
Past service credit
Contributions from scheme members
Actuarial losses/(gains) – financial
Actuarial losses/(gains) – demographic
Actuarial (gains)/losses – experience
Benefits paid
Foreign exchange difference

At 31 December

Analysed as:

UK plans

Overseas plans

2016
£m

116.0
–
4.2
–
–
–
–
25.6
–
(1.3)
(6.1)
–

138.4

2015
£m

118.7
–
4.3
–
–
–
–
(0.2)
0.2
(0.9)
(6.1)
–

116.0

2016
£m

44.4
2.1
0.5
8.3
(0.5)
(1.3)
0.9
0.9
(1.7)
0.3
(3.5)
8.8

59.2

2015
£m

38.4
1.5
0.5
–
–
(0.3)
0.8
2.7
–
1.6
(1.5)
0.7

44.4

2016
£m

160.4
2.1
4.7
8.3
(0.5)
(1.3)
0.9
26.5
(1.7)
(1.0)
(9.6)
8.8

197.6

Total

2015
£m

157.1
1.5
4.8
–
–
(0.3)
0.8
2.5
0.2
0.7
(7.6)
0.7

160.4

Present value of unfunded defined benefit obligation
Present value of funded defined benefit obligation

–
138.4

–
116.0

7.9
51.3

6.7
37.7

7.9
189.7

6.7
153.7

UK plans

Overseas plans

2015
£m

122.3
4.4
(0.2)
–
–
–
–
(6.4)
(6.1)
–

114.0

2016
£m

24.3
0.3
(0.1)
6.0
(0.4)
1.4
0.9
(0.1)
(3.0)
5.1

34.4

2015
£m

20.8
0.3
(0.1)
–
–
0.9
0.8
1.9
(1.0)
0.7

24.3

UK plans

Overseas plans

2015
£m

6.7
107.2
5.2
(5.1)
–

114.0

2016
£m

–
–
–
–
34.4

34.4

2015
£m

–
–
–
–
24.3

24.3

2016
£m

114.0
4.1
(0.4)
–
–
–
–
11.3
(6.1)
–

122.9

2016
£m

7.5
112.0
5.6
(2.2)
–

122.9

2016
£m

138.3
4.4
(0.5)
6.0
(0.4)
1.4
0.9
11.2
(9.1)
5.1

157.3

2016
£m

7.5
112.0
5.6
(2.2)
34.4

157.3

Total

2015
£m

143.1
4.7
(0.3)
–
–
0.9
0.8
(4.5)
(7.1)
0.7

138.3

Total

2015
£m

6.7
107.2
5.2
(5.1)
24.3

138.3

Reconciliation of movement in fair value of plan assets

At 1 January
Return on plan assets
Scheme administration cost
Assets acquired in business combinations
Settlement
Contributions from sponsoring company
Contributions from scheme members
Actuarial gains/(losses)
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

At 31 December

136
136

Financial Statements

19. Retirement benefit schemes continued

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 2016

Change in assumption

Increase by 1%
Increase by 1%
Increase by 1 year

UK plans

Decrease by £20.8m
Increase by £13.8m
Increase by £4.5m

Overseas plans
Decrease by £9.1m
Increase by £2.8m
Increase by £1.8m

Defined contribution plans
The total cost of the defined contribution plans for the year ended 31 December 2016 was £13.7m (2015: £12.1m).
There were no outstanding or prepaid contributions to these plans as at 31 December 2016 or 31 December 2015.

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

Note

At 31 December

Comprising:

Deferred tax liabilities
Deferred tax assets

2016
£m

23.7
6.0
15.5

(0.7)

(3.0)
(0.3)
(13.4)

27.8

41.2
(13.4)

27.8

2015
£m

24.8
0.8
4.8

–

(1.7)
0.2
(5.2)

23.7

40.9
(17.2)

23.7

137
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

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.

Accelerated
tax
depreciation
£m

Accruals and
provisions
£m

Tax losses
£m

Unrealised
profit on
inter-
company
transactions
£m

(14.3)
–

(3.0)
–

(5.1)
–

Goodwill
and other
intangible
assets
£m

49.1
6.0

Pension
schemes
£m

(5.6)
–

Other
£m

(2.0)
–

Total
£m

23.7
6.0

–

(0.4)

11.0

4.9

15.5

Net deferred tax
(assets)/liabilities

At 1 January 2016
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 obligations 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 2016

Net deferred tax
(assets)/liabilities

At 1 January 2015
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 obligations
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

138
138

4.6
–

–

(0.7)

(3.0)

–

(0.3)

(9.3)

–

(3.0)

(0.3)

(7.2)

58.9

(1.1)

(13.4)

0.8

27.8

0.5

5.1

(5.3)

(19.6)

0.6

(2.4)

(0.6)

(5.7)

Unrealised
profit on
inter-
company
transactions
£m

(5.3)
–

Tax losses
£m

(0.4)
–

Goodwill
and other
intangible
assets
£m

46.7
0.8

Pension
schemes
£m

(3.8)
–

Other
£m

(2.7)
–

Total
£m

24.8
0.8

Accelerated
tax
depreciation
£m

Accruals and
provisions
£m

(13.7)
–

4.0
–

–

(2.5)

–

0.6

4.6

(0.6)

(14.3)

(0.1)

(3.0)

0.2

(5.1)

–

7.3

–

4.8

–

(1.7)

–

(0.1)

(5.6)

–

(1.7)

0.2

(5.7)

49.1

0.5

(2.0)

(5.2)

23.7

–

Financial Statements

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. £2.5m will expire before
31 December 2023. There is no expiry date associated with the remaining tax losses of £17.1m.

Tax losses
Other temporary differences

2016
£m

19.6
1.5

21.1

2015
£m

35.4
1.3

36.7

Phased reductions in the UK corporation tax rate to 19% effective from 1 April 2017 and 17% from 1 April 2020 were
substantively enacted in the UK Finance (No.2) Act 2015 and UK Finance Act 2016, respectively.

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, £68.2m (2015: £47.9m) 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 £3.3m (2015: £2.3m), of which only
£1.3m (2015: £1.0m) 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

Issued and fully paid (ordinary shares of 5p each):
At 1 January and 31 December

Number of
shares
Millions

125.0

2016

£m

6.2

Number of
shares
Millions

125.0

2015

£m

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 into Sterling 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 2016, the Group held 5,840,513 treasury shares (2015: 5,898,908). During the year, 58,395 of these shares
were issued to satisfy options exercised by employees which were granted under the Group’s share schemes (2015: 155,927).
No shares were repurchased by the Group during the year (2015: nil) and no shares were cancelled during the year
(2015: nil).

139
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

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 (‘PSP’) (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 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 (‘EP’) 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 this
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 PSP awards vest after a period of three years and must be
exercised during the seven-year period following vesting.

Since 2011, PSP 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 an aggregate 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 PSP 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

2016

2015

SAYE – year of grant

2012
2013
2014
2015
2016

Exercise price
£

Expected life
of options

Number
Thousands

Number

Thousands

16.95
22.45
20.15
17.37
19.38

nil
1 year
2 years
3 years
4 years

–
12
26
57
31

23
16
30
64
–

126

133

The weighted average remaining contractual life of the SAYE options is 2.27 years (2015: 2.43 years).

140
140

Financial Statements

23. Share-based payments continued

Performance Share Plan (unapproved) – year of grant

2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

Exercise price
£

Contractual life
of options

Number
Thousands

2016

2015

0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.05

1 year
2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years

1
7
29
45
69
3
3
411
482
680

1
7
29
52
90
4
386
457
536
–

1,730

1,562

The weighted average remaining contractual life of the unapproved awards is 7.89 years (2015: 7.84 years).

Performance Share Plan (approved) – year of grant

2011
2012
2013
2014
2015
2016

Exercise price
£

Contractual life
of options

Number
Thousands

2016

2015

11.30
17.31
23.78
23.03
21.79
17.33

5 years
6 years
7 years
8 years
9 years
10 years

2
2
1
16
41
24

2
3
21
18
47
–

The weighted average remaining contractual life of the approved awards is 8.08 years (2015: 8.33 years).

Restricted Shares Plan – year of grant

2014
2015
2016

Exercise price
£

Contractual life
of options

Number
Thousands

2016

2015

0.05
0.05
0.05

1 year
2 years
3 years

64
76
129

269

The weighted average remaining contractual life of the restricted share plan awards is 1.41 years (2015: 1.72 years).

SAYE
At 1 January
Granted

Exercised
Forfeited

At 31 December

Exercisable at 31 December

Weighted
average
exercise price
£

Number
Thousands

133
31
(12)
(26)

126

18.55
19.38
17.04
18.31

18.93

22.45

2016

Value of
shares
£ m

2.46
0.60
(0.20)
(0.47)

2.39

0.2

Weighted
average
exercise price
£

Number
Thousands

111
65
(14)
(29)

133

19.16
17.37
15.24
19.93

18.55

16.95

70
84
–

154

2015

Value of
shares
£m

2.12
1.13
(0.22)
(0.57)

2.46

0.38

141
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

23. Share-based payments continued

Performance Share Plan
(unapproved)

At 1 January
Shares granted
Addition of reinvested dividends
Exercised
Forfeited

At 31 December

Exercisable at 31 December

Weighted
average
exercise price
£

Number
Thousands

1,562
734
5
(46)
(525)

1,730

150

0.05
0.05
0.05
0.05
0.05

0.05

2016

Value of
shares
£m

0.08
0.04
0.00
(0.00)
(0.03)

0.09

0.01

2016

Weighted
average
exercise price
£

Number
Thousands

1,710
557
7
(139)
(573)

1,562

728

0.05
0.05
0.05
0.05
0.05

0.05

Performance Share Plan
(approved)

At 1 January
Shares granted
Exercised
Forfeited

At 31 December

Exercisable at 31 December

Restricted Shares Plan

At 1 January
Shares granted
Forfeited

At 31 December

Exercisable at 31 December

Weighted
average
exercise price
£

Number
Thousands

Value of
shares
£m

Number
Thousands

Weighted
average
exercise price
£

91
25
(1)
(29)

–

22.08
21.67
11.30
20.64

22.58

–

2.00
0.55
(0.01)
(0.59)

1.95

–

2016

113
47
(3)
(66)

–

19.37
21.79
14.90
17.56

22.08

–

Weighted
average
exercise price
£

Number
Thousands

Value of
shares
£m

Number
Thousands

Weighted
average
exercise price
£

154
133
(18)

269

–

0.05
0.05
0.05

0.05

–

–
–
–

–

77
88
(11)

154

–

0.05
0.05
0.05

0.05

–

2015

Value of
shares
£m

0.09
0.03
0.00
(0.01)
(0.03)

0.08

0.04

2015

Value of
shares
£m

2.20
1.02
(0.05)
(1.17)

2.00

–

2015

Value of
shares
£m

–
–
–

–

142
142

Financial Statements

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 2015 and 2016, the fair value of options granted and the
assumptions used in the calculation are as follows:

2016

SAYE

2015

Performance Share Plan
(unapproved)

Performance Share Plan
(approved)

Restricted Shares Plan

2016

2015

2016

2015

2016

2015

Weighted average share price at date of
16.78
grant (£)
17.37
Weighted average exercise price (£)
25.99% 27.20%
Expected volatility
3.44 yrs
3.44 yrs
Expected life
0.88%
Risk-free rate
0.15%
2.85%
Expected dividends (expressed as a yield) 2.52%
2.19
3.06
Fair value per option (£)

19.86
19.38

17.17
0.05
n/a
3 yrs
0.46%
0%

22.08
0.05

17.34
17.33

21.99
21.79
n/a 26.76% 27.72%
3 yrs
3 yrs
0.84%
0.43%
2.12%
2.86%

3 yrs
0.84%
0%

Weighted average fair values at date
of grant (£):
Equity-settled (TSR condition)
Equity-settled (Profit condition)
Equity-settled (EPS condition)
Equity-settled (EP 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)

2.46
2.42
2.45
–

3.59
3.68
3.69
3.76

10.29
17.09
17.02
17.05
10.47
17.10
17.10

12.11
21.78
21.69
22.17
13.19
22.17
22.02

16.98
22.03
22.03

4.90
16.96
16.96

17.72
0.05
n/a
3 yrs
n/a
0%

22.00
0.05
n/a
3yrs
n/a
0%

n/a
17.10
17.10

n/a
22.17
22.02

n/a
22.42
22.42

n/a
17.37
17.32

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 2016 was £18.00 (2015: £19.67). The weighted average fair value of cash-settled options outstanding at
31 December 2016 is £22.53 (2015: £17.32) for the EPS condition.

The Group recognised a total share-based payment charge of £3.3m (2015: £1.5m) in the Consolidated Income Statement,
of which £2.1m (2015: £0.7m) related to equity-settled share-based payment transactions.

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

24. Acquisitions

On 23 February 2016, the Group acquired 100% of the share capital of CAS Clean Air Service AG (‘CAS’), a company based
in Switzerland, for a total consideration of £12.0m (£10.4m net of cash acquired). This extends the Group’s capabilities in
monitoring and calibration services within the life sciences market. 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), technology, trade name and goodwill of £0.6m, £2.4m, £0.1m, £0.3m and £5.0m, respectively.
The goodwill arising is attributable to the acquired workforce and synergies from leveraging the customer base to optimise
the sales potential of CAS and Spectris products. Goodwill includes an amount of £0.3m representing the requirement to
recognise a net deferred tax liability on the fair value adjustments. The business is being integrated into the Materials
Analysis segment.

On 7 June 2016, the Group acquired the trade and certain assets of Integrated Process Systems India, an Indian agent, for
a total consideration of £0.9m including £0.2m deferred consideration. 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 £0.5m and £0.5m, respectively. The goodwill arising is attributable to opportunities
that will be generated from direct access to the Indian market and benefits arising from improving the productivity of the
combined sales and support channels. The business is being integrated into the Test and Measurement segment.

On 17 June 2016, the Group acquired 100% of the share capital of Capstone Technology Corporation, a company based in
the USA, for a total consideration of £14.8m (£14.7m net of cash acquired). The company is a provider of software solutions
for process control optimisation and decision support, serving multiple industries such as pulp and paper, chemical, utilities,
oil and gas, and food and beverage. 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,
contractual rights and goodwill of £1.9m, £7.1m, £0.4m and £9.6m, respectively. The goodwill arising is considered to
represent the value of the acquired workforce, broadening of the Group’s solutions offering in the pulp and paper market
and leveraging of the existing Spectris customer base. Goodwill includes an amount of £3.6m representing the requirement
to recognise a net deferred tax liability on the fair value adjustments. The business is being integrated into the In-line
Instrumentation segment.

On 1 July 2016, the Group acquired the trade and certain assets of Sound and Vibration Technology Limited, a UK business,
for a total consideration of £0.4m including £0.1m deferred consideration. The company is a provider of sound and vibration
test-based solutions. 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 £0.1m and £0.1m,
respectively. The goodwill arising is attributable to the acquired workforce and opportunities expected from expanding the
Group’s software solutions offering to the automotive market. The business is being integrated into the Test and
Measurement segment.

On 26 July 2016, the Group acquired 100% of the share capital of DISCOM – Elektronische Systeme und Komponenten
GmbH, a company based in Germany, for a total consideration of £20.4m (£20.0m net of cash acquired) including £5.8m
contingent consideration which is based on the achievement of non-financial integration milestones and £1.5m contingent
consideration which is based on incremental future revenues over the next three years. The company provides integrated
solutions combining hardware and software to enhance production quality and identify potential problems in manufacturing
processes. 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, trade name and goodwill of
£5.0m, £3.9m, £0.7m and £12.2m, respectively. The goodwill arising is attributable to the acquired workforce and extension
to the Group’s product offering of innovative customer solutions using instrumentation, software and services. Goodwill
includes an amount of £3.0m representing the requirement to recognise a net deferred tax liability on the fair value
adjustments. The business is being integrated into the Test and Measurement segment.

On 1 September 2016, the Group acquired 100% of the share capital of Millbrook Group Limited (‘Millbrook’), a company
based in the UK with operations in Finland, for a total consideration of £125.7m (£120.9m net of cash acquired). This
extends the Group’s capabilities to provide test, validation and engineering services to the automotive, transport and tyre,
petrochemical, defence and securities industries, utilising its proving grounds in the UK and Finland. 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, trade name and goodwill of £8.9m, £2.2m, £10.9m and £54.1m,
respectively. The goodwill arising is attributable to the acquired workforce, and the opportunities expected as the business
is integrated into the Group where there will be benefit from leveraging the Group’s wider customer base and sales and
marketing channels, together with sharing capabilities, facilities and technology with other operating companies. Goodwill
includes an amount of £7.5m representing the requirement to recognise a net deferred tax liability on the fair value
adjustments. The business is being integrated into the Test and Measurement segment.

144
144

Financial Statements

24. Acquisitions continued

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 contributions from the acquisitions in the year to the
Group’s results for the year were £28.9m and £2.1m, respectively. Group revenue and operating profit would have been
£1,381.5m and £39.2m (adjusted operating profit: £204.9m), respectively, had each of these acquisitions taken place on
the first day of the financial year.

Acquisition costs incurred and paid during the year relating to the above acquisitions were £2.5m (2015: £1.3m).

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 2016 acquisitions

Book value
£m

Adjustments
£m

2016
Fair value
£m

Intangible fixed assets
Tangible fixed assets
Inventories
Trade and other receivables
Trade and other payables
Provisions
Retirement benefit obligations
Current tax
Deferred tax liabilities
Cash

Net assets acquired
Goodwill

Total consideration in respect of 2016 acquisitions

Total consideration
Adjustment for cash acquired

Net consideration in respect of 2016 acquisitions

Analysis of cash outflow in Consolidated Statement of Cash Flows

Total consideration in respect of 2016 acquisitions
Adjustment for net cash acquired on 2016 acquisitions
Deferred and contingent consideration on 2016 acquisitions to be paid
in future years

Cash paid in 2016 in respect of 2016 acquisitions

Acquisitions prior to 2016

Purchase price adjustments relating to prior years’ acquisitions
Deferred and contingent consideration in relation to prior years’ acquisitions:
– accrued at 31 December 2015

Cash paid in 2016 in respect of prior years’ acquisitions

Net cash outflow relating to acquisitions

1.5
29.1
1.3
17.0
(14.5)
(1.3)
–
(0.6)
(1.1)
6.9

38.3

43.6
29.7
(0.8)
(1.3)
–
(0.1)
(2.3)
–
(14.4)
–

54.4

45.1
58.8
0.5
15.7
(14.5)
(1.4)
(2.3)
(0.6)
(15.5)
6.9

92.7
81.5

174.2

174.2
(6.9)

167.3

174.2
(6.9)

(7.6)

159.7

(1.4)

2.6

1.2

160.9

Where appropriate, a detailed exercise has been undertaken to assess the fair value of assets acquired and liabilities assumed,
with the use of third-party experts. The valuation of the above intangible and tangible assets requires the use of assumptions
and estimates. Intangible asset assumptions consist of future growth rates, expected inflation and attrition rates, discount
rates used and useful economic lives. Tangible asset (including automotive testing tracks) assumptions include comparable
market values, replacement costs, expected rental yields and useful economic lives.

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

24. Acquisitions continued

The fair value of contingent consideration on the 2016 acquisitions amounts to £7.6m. The contingent consideration payable
on non-financial milestones could range from £nil to £6.4m depending on the achievement of certain business targets,
contingent consideration payable on financial milestones could range from £nil to £2.2m dependent on incremental future
revenues and the total contingent consideration is sensitive to risk adjusted discount rates.

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.

£0.5m (2015: £4.0m) 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).

Net assets acquired for significant 2016 acquisitions

Net assets acquired for Millbrook

Book value
£m

Adjustments
£m

Fair value
£m

Intangible fixed assets
Tangible fixed assets
Inventories
Trade and other receivables
Trade and other payables
Provisions
Deferred tax liabilities
Cash

Net assets acquired
Goodwill

Total consideration

Total consideration
Adjustment for cash acquired

Net consideration

0.1
26.4
0.1
12.3
(11.2)
(1.3)
(1.1)
4.8

30.1

21.9
27.9
–
(1.2)
0.4
–
(7.5)
–

41.5

22.0
54.3
0.1
11.1
(10.8)
(1.3)
(8.6)
4.8

71.6
54.1

125.7

125.7
(4.8)

120.9

The fair value adjustment in relation to tangible fixed assets reflects the increase in fair value of property, tracks and testing
equipment amounting to £27.9m. The additional depreciation charge due to the fair value adjustment on these assets above
book value depreciation on these assets is an adjusting item in arriving at adjusted operating profit, as stated in Note 2.

A detailed exercise has been undertaken to assess the fair value of the assets acquired and liabilities assumed for Millbrook.
The fair value of intangible assets and property, plant and equipment has been assessed by reference to work performed by
independent valuation specialists. The main judgements in the valuation of the intangible assets include the identification of
existing customer relationships, the importance of the Millbrook trade name and the value attributed to specific technology.
In valuing these intangibles, a combination of the following estimates have been used: future growth rates, expected inflation
rates, attrition rates, discount rates and contributory asset charges. The main judgements in the valuation of tangible assets
(including the automotive testing track) include comparable market values, depreciated replacement costs, expected rental
yields and useful economic lives.

146
146

Financial Statements

24. Acquisitions continued

The following presents the information related to 2015 acquisitions including the effect of the finalisation of acquisition fair
values during 2016:

Net assets acquired under 2015 acquisitions

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 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

Amounts previously recognised
at 31 December 2015

2015

Book value
£m

Adjustments
£m

Final fair value
£m

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
23.8

44.8

44.8
(2.7)

42.1

44.8
(2.7)

(3.0)
0.5

39.6

0.5

40.1

In accordance with IFRS 3 (Revised), the figures above have been amended from those published in the 2015 Annual Report
to reflect the working capital receivable of £0.2m relating to the 2015 acquisition of Label Vision Systems.

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
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, Swiss Franc and Japanese Yen. 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 2016, most 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 2016 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, and 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.

148
148

Financial Statements

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 102)
Committed debt facilities

2016
£m

1,067.4
628.1

1,695.5

2015
£m

966.0
526.2

1,492.2

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 2016, 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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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
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 2016
Deferred and contingent consideration arising from acquisitions
Deferred and contingent consideration paid
Costs charged to the Consolidated Income Statement:
Adjustments outside of the measurement period
Unwinding of discount factor on deferred and contingent consideration (unrealised)
Loss recognised in Other Comprehensive Income:
Foreign exchange difference

Balance at 31 December 2016

Level 2
fair value
£m

Level 3
fair value
£m

–
–
–
–
(189.9)
(4.2)

Level 2
fair value
£m

–

(162.6)

(0.4)

–
(16.2)
–
–
–
–

Level 3
fair value
£m

–

(7.0)

–

2016

Carrying
amount
£m

280.2
(246.5)
83.5
(53.3)
(181.1)
(4.2)

(121.4)

2015

Carrying
amount
£m

235.3

(191.4)

58.2

(1.7)

(155.1)

(0.4)

(55.1)

2016

Deferred and
contingent
consideration
£m

Level 3
fair value
£m

(7.0)
(7.6)
2.6

(2.1)
(0.6)

(7.0)
(7.6)
2.6

(2.1)
(0.6)

(1.5)

(16.2)

(1.5)

(16.2)

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.

Deferred and contingent consideration relates to financial (2016: £10.4m, 2015: £7.0m) and non-financial (2016: £5.8m,
2015: £nil) milestones on current and prior year acquisitions, as disclosed in Note 24. The financial milestones are mainly
sensitive to risk-adjusted discount rates and annual future revenue targets.

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.

150
150

Financial Statements

26. Financial instruments continued

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 2016 is a net liability of £4.2m (2015: £0.4m),
of which £3.4m has been debited to the hedging reserve (2015: £0.2m) and £0.8m debited to the Consolidated Income
Statement (2015: £0.2m). 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 2016 and 2015 were deemed to be effective.

The fair value of deferred and contingent consideration is determined by considering the performance expectations of the
acquired entity or the likelihood of non-financial integration milestones whilst applying the entity-specific discount rates.
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

2016
£m

(2.9)

7.8
(10.2)

(5.3)

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

2016

145.7

51%
23%
18%
8%

2015

110.8

42%
35%
16%
7%

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
Notes to the Accounts continued

26. Financial instruments continued

A maturity profile of the gross cash flows related to financial liabilities is:

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

12.3
–
–
–

12.3

3.7
3.8
130.6
100.9

239.0

2016

Total
£m

16.0
3.8
130.6
100.9

251.3

Bank loans
and
overdrafts
£m

1.7
–
–
–

1.7

Unsecured
loans
£m

2.8
2.8
78.0
87.3

2015

Total
£m

4.5
2.8
78.0
87.3

170.9

172.6

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

Non-
interest
bearing
£m

3.8
17.4
18.6
28.7

68.5

Total
£m

Fixed rate
£m

6.7
20.8
21.1
34.9

83.5

–
(181.1)
–
–

(181.1)

2016
Net
financial
assets/
(liabilities)
£m

(44.3)
(160.6)
20.4
33.6

Floating
rate
£m

(51.0)
(0.3)
(0.7)
(1.3)

Total
£m

(51.0)
(181.4)
(0.7)
(1.3)

(53.3)

(234.4)

(150.9)

Financial assets

Financial liabilities

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)

Total
£m

–
(155.1)
–
(1.7)

(156.8)

2015
Net
financial
assets/
(liabilities)
£m

6.6
(139.5)
18.5
15.8

(98.6)

Interest rate exposure of financial
assets and liabilities by currency

Fixed rate
£m

Sterling
Euro
US Dollar
Other

–
0.2
–
0.1

0.3

Interest rate exposure of financial
assets and liabilities by currency

Fixed rate
£m

Sterling
Euro
US Dollar
Other

–
–
–
0.1

0.1

Floating
rate
£m

2.9
3.2
2.5
6.1

14.7

Floating
rate
£m

0.9
8.6
9.0
5.1

23.6

152
152

Financial Statements

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

2016

Decrease
in profit
before tax
£m

5.2
5.6
1.6

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

Decrease
in equity
£m

93.5
53.0
4.4

1% (100 basis points) increase in interest rates

0.4

(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 which participate in the cross-border Euro zero-balance pooling arrangement. An amount of £2.8m
(2015: £8.5m) was outstanding at 31 December 2016.

Other banks
In the normal course of business, Group companies have provided bonds and guarantees through local banking arrangements
amounting to £13.7m (2015: £6.6m).

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

13.3

25.7
12.1

51.1

2016

Other
£m

5.0

5.8
–

10.8

Property
£m

11.7

16.8
4.0

32.5

2015

Other
£m

4.1

4.7
–

8.8

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, £19.9m (2015: £18.6m) was recognised in the Consolidated Income Statement in respect of operating lease
rental payments.

29. Capital commitments
At 31 December 2016, the Group had entered into contractual commitments for the acquisition of property, plant and
equipment and software amounting to £13.9m (2015: £1.5m) which have not been accrued.

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Accounts continued
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

2016
£m

4.9
0.5
0.9

6.3

2015
£m

2.4
0.5
0.6

3.5

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 73 to 91.

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

Canada
Denmark
Denmark
Germany
Switzerland
The Netherlands
UK
UK
UK
USA
USA
USA
USA
USA

Engineering Seismology Group Canada Inc.
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
Millbrook Group Limited
Servomex Group Limited
Microscan Systems, Inc.
NDC Technologies, Inc.
Omega Engineering, Inc.
Particle Measuring Systems, Inc.
Red Lion Controls, Inc.

A full list of subsidiaries is given in Note 48.

32. Post balance sheet events
There were no post balance sheet events.

154
154

Financial Statements

Company Balance Sheet
Company Balance Sheet
As at 31 December 2016
As at 31 December 2016

Fixed assets

Intangible assets
Tangible assets

Investments

Current assets

Debtors (due after more than one year: £244.5m (2015: £638.1m))
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

Note

36
37

40
41

2016
£m

0.9
2.7

1,149.0

1,152.6

554.6
21.0

575.6

(10.0)
(365.3)

(0.8)

(376.1)

199.5

2015
£m

0.4
2.8

494.9

498.1

918.5
9.2

927.7

–
(231.2)

(0.2)

(231.4)

696.3

1,352.1

1,194.4

(222.1)

(154.9)

(377.0)

(155.1)

(126.8)

(281.9)

Retirement benefit obligations

(15.5)

(2.0)

Net assets

Capital and reserves

Share capital
Share premium

Profit and loss account
Merger reserve

Capital redemption reserve
Special reserve

Shareholders’ funds

959.6

910.5

6.2
231.4

684.5
3.1

0.3
34.1

959.6

6.2
231.4

635.4
3.1

0.3
34.1

910.5

The Notes on pages 157 to 169 form part of these Financial Statements.

The Financial Statements were approved by the Board of Directors on 14 February 2017 and were signed on its behalf by:

Clive Watson
Group Finance Director

Company Registration No. 2025003

155
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Company Statement of Changes in Equity
Company Statement of Changes in Equity
For the year ended 31 December 2016
For the year ended 31 December 2016

Share
capital
£m

Share
premium
£m

Note

Balance at 1 January 2016

Profit for the year
Other comprehensive income:
Re-measurement of net defined benefit
obligations, net of tax

6.2

–

–
–

–

231.4

–

–
–

–

Merger
reserve
£m

3.1

–

Capital
redemption
reserve
£m

0.3

–

–
–

–

–
–

–

Special
reserve
£m

34.1

–

–
–

–

Profit and
loss
account
£m

635.4

118.3

Total
equity
£m

910.5

118.3

(11.0)

107.3

(11.0)

107.3

(59.8)
1.4

0.2

Balance at 31 December 2016

6.2

231.4

3.1

0.3

34.1

684.5

959.6

For the year ended 31 December 2015 Note

Balance at 1 January 2015

Profit for the year
Other comprehensive income:
Re-measurement of net defined benefit
obligations, net of tax

Share
capital
£m

6.2

–

–
–

–

Share
premium
£m

231.4

–

–
–

–

Merger
reserve
£m

3.1

–

Capital
redemption
reserve
£m

0.3

–

–
–

–

–
–

–

Special
reserve
£m

34.1

–

–
–

–

Profit and
loss
account
£m

679.3

16.9

Total
equity
£m

954.4

16.9

(5.1)

11.8

(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

156
156

Financial Statements

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 in 2015 of the use of the EU-adopted IFRS disclosure
exemptions and there were no objections to the adoption of FRS 101 in either 2015 or 2016.

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 IFRSs’), 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.

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 IFRSs.
 Disclosures in respect of the compensation of key management personnel.

As the Consolidated Financial Statements of Spectris plc (pages 99 to 154) 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

Instruments 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.

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 have 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 £1,149.0m with an impairment loss recognised of £5.7m in 2016 (2015: £16.4m).

Deferred tax
Note 39 – The recognition of deferred tax assets is dependent on assessments of future taxable income.

157
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc
Notes to the Company Accounts continued
Notes to the Company Accounts continued

33. Basis of preparation and summary of significant accounting policies continued

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 – 25 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.

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.

158
158

Financial Statements

33. Basis of preparation and summary of significant accounting policies continued

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.

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.

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.

159
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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Company Accounts continued
Notes to the Company Accounts continued

33. Basis of preparation and summary of significant accounting policies continued

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 the
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 scheme or
the present value of reductions in future contributions to the scheme.

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.

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 which may result in a credit
in a particular year.

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

160
160

2016
Number

2015
Number

Financial Statements

35. Employee numbers and costs continued

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
Cash-settled share-based payment expense

2016
£m

9.1
1.2
0.3
1.2
0.1

11.9

2015
£m

6.0
1.2
0.3
0.9
–

8.4

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 73 to 91.

36. Intangible assets

Cost

At 1 January 2016
Additions

At 31 December 2016

Accumulated amortisation and impairment

At 1 January 2016
Charge for the year

At 31 December 2016

Carrying amount

At 31 December 2016

At 31 December 2015

37. Tangible assets

Cost

At 1 January 2016
Additions

At 31 December 2016

Accumulated depreciation and impairment

At 1 January 2016
Charge for the year

At 31 December 2016

Carrying amount

At 31 December 2016

At 31 December 2015

Software
£m

3.5
0.7

4.2

3.1
0.2

3.3

0.9

0.4

Total
£m

4.0
0.1

4.1

1.2
0.2

1.4

2.7

2.8

161
161

Freehold
property
£m

Office
equipment
£m

3.4
–

3.4

0.7
0.1

0.8

2.6

2.7

0.6
0.1

0.7

0.5
0.1

0.6

0.1

Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Company Accounts continued
Notes to the Company Accounts continued

38. Investments

Cost

At 1 January 2016
Additions
Movements relating to share options granted to subsidiary employees

At 31 December 2016

Provision for impairment

At 1 January 2016
Charge for the year

At 31 December 2016

Carrying amount

At 31 December 2016

At 31 December 2015

Investment in subsidiary
undertakings
£m

580.9
659.0
0.8

1,240.7

86.0
5.7

91.7

1,149.0

494.9

Details of the Company’s subsidiaries are given in Note 48.

During the year the carrying value of the investment in Servomex Limited was written down to £nil due to the liquidation of
the company, resulting in an impairment of £5.7m.

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

2016
£m

300.1
1.5
0.9
4.0
3.6

310.1

2016
£m

243.6
0.9

244.5

2015
£m

274.9
1.0
0.1
3.6
0.8

280.4

2015
£m

636.8
1.3

638.1

Total debtors

554.6

918.5

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.

162
162

Financial Statements

Repayable date

on demand

Effective
interest rate

0.86%
2.56%
1.15%

Agreement maturity date

30 October 2019
14 October 2020
9 September 2022

2016
£m

10.0

2016
£m

41.0
81.4
99.7

2015
£m

–

2015
£m

–
69.7
85.4

222.1

155.1

40. Bank loans and overdrafts

Current

Bank overdrafts

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

2016
£m

359.3
6.0

365.3

2016
£m

154.9

2015
£m

225.4
5.8

231.2

2015
£m

126.8

2016

£m

6.2

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 2016 and 31 December 2016

Number of
shares
Millions

125.0

No ordinary shares were issued upon exercise under share option schemes during the year (2015: 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 £1.2m related to equity-settled share-based payment transactions in 2016
(2015: £0.9m). In addition, the Company recognised a credit of £0.1m (2015: credit of £0.2m) 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.

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.

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Strategic ReportGovernanceFinancial StatementsAnnual Report and Accounts 2016Spectris plc

Notes to the Company Accounts continued
Notes to the Company Accounts continued

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 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 contributions made to the defined benefit plan during the
year ended 31 December 2016 was £nil (2015: £nil).

Further details of the UK Spectris Pension Plan 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 of 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 £2.8m (2015: £8.5m) was outstanding at
31 December 2016.

46. Dividends

Amounts recognised and paid as distributions

Final dividend for the year ended 31 December 2015 of 32.2p (2014: 30.5p) per share
Interim dividend for the year ended 31 December 2016 of 18.0p (2015: 17.3p) per share

Amounts arising in respect of the year

Interim dividend for the year ended 31 December 2016 of 18.0p (2015: 17.3p) per share
Proposed final dividend for the year ended 31 December 2016 of 34.0p (2015: 32.2p) per share

2016
£m

38.4
21.4

59.8

2016
£m

21.4
40.5

61.9

2015
£m

36.3
20.6

56.9

2015
£m

20.6
38.4

59.0

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 26 May 2017 and has
not been included as a liability in these Financial Statements.

47. Treasury shares
At 31 December 2016, Spectris plc held 5,840,513 treasury shares (2015: 5,898,908). During the year, 58,395 of these shares
were issued to satisfy options exercised by employees of Spectris plc and its subsidiaries which were granted under share
schemes (2015: 155,927). No shares were repurchased by Spectris plc during the year (2015: nil) and no shares were
cancelled during the year (2015: nil).

164
164

Financial Statements

Notes to the Company Accounts continued

48. Group companies
The following is a full list of the subsidiaries and joint ventures, the registered office addresses and percentage of equity
owned directly or indirectly by Spectris plc, as at 31 December 2016. This information is provided in accordance with Section
409 of the Companies Act 2006.

Registered address

Total (%)

Brüel & Kjær Polska Sp z.o.o.
Brüel & Kjær Sound & Vibration Measurement A/S Skodsborgvej 307, DK-2850, Nærum, Denmark
Brüel & Kjær UK Limited
Brüel & Kjær Vibro A/S
Brüel & Kjær Vibro GmbH
Brüel & Kjær VTS Limited
BTG Americas Inc.

Company name

Agemont Limited

Analytical Spectral Devices Inc

Brüel & Kjær EMS (Australia) Pty Ltd
Brüel & Kjær EMS BV
Brüel & Kjær EMS Inc

Brüel & Kjær EMS Pty Ltd
Brüel & Kjær France SAS
Brüel & Kjær GmbH
Brüel & Kjær Iberica SA
Brüel & Kjær Italia SRL

Brüel & Kjær North America Inc.

BTG Éclépens S.A.
BTG Holding, Inc.

BTG Instruments AB
BTG Instruments GmbH
BTG IPI, LLC

BTG Southern Europe Sarl
Burnfield Limited
Capstone Technology Asia Pte Ltd
Capstone Technology Corporation

CAS Clean-Air-Service AG
Diamond Blade Oy
DISCOM Elektronische Systeme und
Komponenten GmbH
Engineering Seismology Group Canada Inc.
ESG (Beijing) Seismic Technology Co Ltd

ESG USA Inc.

HBM Danmark ApS

Fernwood House, Fernwood Road, Jesmond,
Newcastle-Upon-Tyne, NE2 1TJ, UK
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Level 14/409 St Kilda Road, Melbourne VIC 3004, Australia
Panoven 68, 3401 RB Ijsselstein, Netherlands
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Level 14/409 St Kilda Road, Melbourne VIC 3004, Australia
46 rue du Champoreux, F-91540 Mennecy, Cedex, France
Linzerstrasse 3, D-28359, Bremen, Germany
Teide 5, E-28700 San Sebastian de los Reyes, Spain
Viale Milanofiori, Strada 4, Palazzo Q5, I-20089 Rozzano,
Milano, Italy
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
ul. Goraszewska 12, PL-02-910 Warszawa, Poland

Jarman Way, Royston, Hertfordshire, SG8 5BQ, UK
Skodsborgvej 307B, 2850 , Nærum, Denmark
Leydheckerstrasse 10, D-64293, Darmstadt, Germany
Jarman Way, Royston, Hertfordshire, SG8 5BQ, UK
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
ZI Village, 1312 Eclépens, Switzerland
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Box 602, S-66129 Saffle, Sweden
Arzbergerstrasse 10, 82211, Herrsching, Germany
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
46 Rue de Champoreux, 91540, Mennecy, France
Heritage House, Church Road, Egham, Surrey, TW20 9QD, UK
51 Godhill Plaza, #15-06, Singapore, 308900, Singapore
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Reinluftweg 1, CH-9630, Zurich, Switzerland
Ollinmaentie 43, 86110 Parhalahti, Finland
Neustadt 10-12, 37073, Gottingen, Germany

20 Hyperion Court, Kingston ON K7K 7K2, Canada
Room 1226, Building No.1, Yinan, North Erlizhuang No.44,
Beijing, Dongcheng District
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Nydamsvej 19D, 8362 Horning, Skanderborg, Denmark

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Notes to the Company Accounts continued

48. Group companies continued

Company name

HBM FiberSensing SA
HBM France SAS
HBM Italia S.R.L.
HBM nCode Federal LLC

HBM Netherlands B.V.
HBM Norge AS
HBM United Kingdom Limited

Hottinger Baldwin (Suzhou) Electronic
Measurement Technology Ltd
Hottinger Baldwin Measurements, Inc.

Hottinger Baldwin Messtechnik AG
Hottinger Baldwin Messtechnik GmbH
Hottinger Baldwin Messtechnik GmbH
Hottinger Baldwin Messtechnik Iberica SL

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 AB
Malvern Instruments Nordic Oy

Malvern-Aimil Instruments Pvt Limited

Microscan Mfg., LLC

Microscan Systems BV
Microscan Systems, Inc.

Microscan Tooling, Inc.

Millbrook European Holdings Limited
Millbrook Group Limited
Millbrook Proving Ground Limited
Millbrook TDC Ltd
MPG Bidco Limited
MPG Finland Oy
MPG Midco Limited

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Registered address

Total (%)

Rua Vasconcelos Costa 277, Moreira, Maia, Portugal
46 Rue du Champoreux, 91540, Mennecy, France
Via Pordenone 8, 20132, Milan, Italy
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Schutweg 15a, 5145 NP Waalwijk, Netherlands
Rosenholmveien 25, 1414 Trollasen, 0217 Opgard, Norway
Technology Centre, Advanced Manufacturing Park, Brunel Way,
Catcliffe, Rotherham, South Yorkshire, S60 5WG, UK
106 Henshan Road, Suzhou New District, Suzhou, Jiangsu
Province, 215009, PRC
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Chriesbaumstrasse 6, 8604 Volketswil, Switzerland
Im Tiefen See 45, D-64293, Darmstadt, Germany
Lemboeckgasse 63/2, A-1230, Wien, Vienna, Austria
Plaza de la Encina 10-11, Nucleo 3, 1A, E-28760 Tres Cantos
(Madrid), Spain
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Building 1, Usacheva Street, Moscow 119048, Russian
Federation
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
30 Rue Jean Rostand, Parc Club de l’Universite, 91893, Orsay,
Cedex, France
Rigipsstrasse 19, 71083 Herrenberg, Germany
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Enigma Business Park, Grovewood Road, Malvern,
Worcestershire, WR14 1XZ, UK
Vallongatan 1, 752 28, Uppsala, Sweden
Keskuskatu 7, A-Roschier Holmberg, Asianajotoimisto OY,
Finland
Naimex House, A-8, Mohan Co-operative Industrial Estate,
Mathura Road, New Delhi – 110044, India
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Lemelerberg 17, 2402ZN, Alphen aan den Rijn, Netherlands
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Millbrook, Bedford, MK45 2JQ, UK
Millbrook, Bedford, MK45 2JQ, UK
Millbrook, Bedford, MK45 2JQ, UK
Millbrook, Bedford, MK45 2JQ, UK
Millbrook, Bedford, MK45 2JQ, UK
c/o Tilisakut Oy, Kauppakatu 12, Kuopio, 70100, Finland
Millbrook, Bedford, MK45 2JQ, UK

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Financial Statements

Notes to the Company Accounts continued

48. Group companies continued

Company name

Nanosight Limited

NDC Technologies GmbH
NDC Technologies Limited
NDC Technologies S.A.
NDC Technologies, Inc.

Newport Electronics Limited
Novisim Limited
Omega Engineering B.V.

Omega Engineering GmbH
Omega Engineering Limited
Omega Engineering SARL
Omega Engineering, Inc.

Omega Group, Inc.

Omega Technologies Limited

Omega Technologies, Inc.

Omega, Inc.

PANalytical (Proprietary) Limited
PANalytical B.V.
PANalytical GmbH
PANalytical Inc.

PANalytical Limited

PANalytical S.A.S.

PANalytical S.R.L.
Particle Measuring Systems Germany GmbH
Particle Measuring Systems Limited
Particle Measuring Systems S.R.L.
Particle Measuring Systems, Inc.

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

Servomex B.V.

Registered address

Total (%)

Enigma Business Park, Grovewood Road, Malvern,
Worcestershire, WR14 1XZ, UK
Im Tiefen See 45, D-64293, Darmstadt, Germany
Bates Road, Maldon, Essex, CM9 5FA, UK
Rue H Goossens 16 B-4431 Loncin, Belgium
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
One Omega Drive, Northbank, Irlam, Manchester, M44 5BD, UK
Jarman Way, Royston, Hertfordshire, SG8 5BQ, UK
C/O Intertrust, Prins Bernhardplein 200, 1097 JB Amsterdam,
Netherlands
Daimlerstrasse 26, 75392, Deckenpfronn, Germany
One Omega Drive, Northbank, Irlam, Manchester, M44 5BD, UK
c/o BDO, 7 Rue de Parc de Clagny, 78000, Versailles, France
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
One Omega Drive, Riverbend Technology Centre, Northbank
Irlam, Manchester, M44 5BD, UK
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Private Bag 4015, Ferndale, 2160, Rep of South Africa
Lelyweg 1, 7602EA, Almelo, Netherlands
Nuernbergerstr 113, D 34123 Kassel, Germany
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
7310 Cambridge Research Park, Waterbeach, Cambridge, CB25
9AY, UK
22 Avenue Descartes, BP-45, 94454, Limeil-Brevannes, Cedex,
France
Via Casati 23, Monza, Milan, Italy
Im Tiefen See 45, D-64293, Darmstadt, Germany
Heritage House, Church Road, Egham, Surrey, TW20 9QD, UK
Via Aurora n 27, 00013 Fonte Nuova, Italy
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Softwareweg 9, 3821 BN Amersfoort, Netherlands
CT Corporation System, Dauphin PA 17101, United States
2 Bukit Merah Central, #14-02, Spring Singapore, 159835,
Singapore
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Ul. Wronia 45 lok 200, 01-015 , Warsaw, Poland
New No.16, Old No.21, Cenotaph 1st Street, Alwarpet,
Chennai, 600 018, India
P O Box 406, 2700 AK, W Dreeslaan 436, 2729 NK Zoetermeer,
Netherlands

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Notes to the Company Accounts continued

48. Group companies continued

Company name

Servomex Company

Servomex GmbH
Servomex Group Limited
Servomex Limited

Servomex S.A.
Sound Answers, Inc.

Spectraseis Canada Inc.
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 Eletronicos Ltda.

Spectris Finance Ireland Designated Activity
Company
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 Cooperatief W.A.
Spectris Pension Trustees Limited
Spectris Praha Spol. s.r.o.
Spectris Pte Ltd

Spectris Taiwan Limited
Spectris Technologies Private Limited

Spectris UK Holdings Limited
Spectris US Holdings Limited

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Registered address

Total (%)

The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Munsterstrasse 5, 59065 Hamm, Germany
Jarvis Brook, Crowborough, East Sussex, TN6 3FB, UK
Fernwood House, Fernwood Road, Jesmond,
Newcastle-Upon-Tyne, NE2 1TJ, UK
23 Rue de Roule, 75001, Paris, France
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
1900, 520 – 3rd Avenue S.W., Calgary AB T2P 0R3, Canada
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Suite 2, 6-10 Talavera Road, PO Box 349, North Ryde,
New South Wales 2113, Australia
4995 Levy Street, Montreal QC H4R 2N9, Canada
Unit 706 7/F, Miramar Tower, 132 Nathan Road, Tsim Sha Tsui,
Kowloon, Hong Kong
Tsukasa-machi Bldg, 2-6 Kanda Tsukasa-machi, Chiyoda-ku,
Tokyo, 101-0048, Japan
Skodsborgvej 307, DK-2850, Nærum, Denmark
Rua Laguna 276, Santo Amaro, São Paulo SP,
CEP 04728-000, Brazil
12 Merrion Square, Dublin 2, Ireland

Lelyweg 1, 7602EA, Almelo, Netherlands
Im Tiefen See 45, D-64293, Darmstadt, Germany
Heritage House, Church Road, Egham, Surrey, TW20 9QD, UK
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, Delaware 19801, USA
The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, Delaware, DE 19801, USA
Building 9, No. 88 Lane 2888, HuaNing Road, MingHang
District, Shanghai 201108, China
7th & 8th Fl, SH Energy Building, 16-6 Sunae-Dong, Bundang-
Gu, Seongnam-City Kyeonggi-Do, Republic of Korea
Av. Pedro Ramirez Vazquez No. 200-13, Nivel 1, Col. Valle
Oriente, San Pedro Garza Garcia, C.P. 66269, Mexico
Lelyweg 1, 7602 EA Almelo, Netherlands
Lelyweg 1, 7602 EA Almelo, Netherlands
Heritage House, Church Road, Egham, Surrey, TW20 9QD, UK
Pocernicka 96, 10800 Praha 10, Czech Republic
31 Kaki Bukit Road 3, Techlink #04-05/07, Singapore 417818,
Singapore
13F-1, No. 128, Sec. 3, Min Sheng E. Road, Taipei, Taiwan
202 Anarkali Complex, Jhandelwalan Extension,
Opp Videcon Tower, New Delhi 110 055, India
Heritage House, Church Road, Egham, Surrey, TW20 9QD, UK
Heritage House, Church Road, Egham, Surrey, TW20 9QD, UK

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Financial Statements

48. Group companies continued

Company name

Registered address

Test World Holding Oy
Test World Oy
Viscotek Europe Limited
Zhuhai Omec Instruments Co., Ltd

Kauniaistentie 13 B 30, Kauniainen, 02700, Finland
PL 167, Nellimintie 569, Ivalo, 99801, Finland
Heritage House, Church Road, Egham, Surrey, TW20 9QD, UK
Floor 1-3, No 9 R&D Main Building, Keji No 1 Road, Scientific &
Technical Innovation Sea Shore, New High Tech Zone, Zuhai,
Guangdong Province, China

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26 May 2017

30 June 2017

25 July 2017

February 2018

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 mail alert service on the
Company’s website at www.spectris.com

Shareholder Information

Financial calendar

Annual General Meeting

Record date for 2016 final dividend

2016 final dividend payable

2017 half-year results

2017 full-year results

Company Secretary
Roger Stephens, FCIS

Head of Corporate Affairs
Siobhán Andrews
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

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Spectris plc

Annual Report and Accounts 2016

Strategic ReportGovernanceFinancial Statements‘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.

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.

Design, consultancy and production
by Luminous

Spectris plc
Heritage House
Church Road
Egham
Surrey
TW20 9QD
England